All home loans come with benefits and disadvantages. Therefore, before taking out any loan it is advisable that you compare what each type of loan has to offer, and just what its drawbacks are, so that you can make an informed decision as to which loan is right for you. The most common loans you will encounter have been compared below.


Most common loans compared

Fixed and Introductory Loan

  • Budget and plan ahead with confidence over the life of your fixed loan period.
  • Repayments don’t change during the fixed rate term.
  • Affordable when rates rise.
  • Loan exit fees can be high if you exit the loan before the end of its term.
  • Some fixed loans don’t allow you to make extra repayments without incurring a fee.
  • Most fixed loans don’t have redraw available.
  • If the fixed period expires when interest rates are high, repayments may be harder to meet.

Variable Loans

  • Rarely have exit fees.
  • You can make additional repayments.
  • You may have redraw options.
  • Rates can fall and you can save money.
  • You can make weekly, fortnightly or monthly repayments.
  • Rates can rise and you’ll pay more.
  • Can have less features than other loans.
  • It can be difficult to budget as your repayment amounts can rise and fall, depending on the Reserve Bank cash rate and/or the lender passing on the rate movement.

Interest Only Loans

  • You have more money available and can save or have cash on hand for emergencies.
  • You can make extra repayments, which then comes off the principal of the loan and reduces your interest payments.
  • Terms are typically up to 5 years.
  • At the end of the term, the loan reverts to a principal and interest loan and your repayments will increase. This can make it harder to make repayments.
  • If you do not make extra repayments then you are not paying anything off the principal of the loan. Therefore, interest remains high and is not reduced over the loan term.

Principal and Interest Loans

  • You pay off the principal and interest of the loan.
  • You can pay more off the loan without incurring any additional fees.
  • You reduce the amount of interest you pay by reducing the principal of the loan.
  • You are obligated to pay more per month than on an interest only loan.
  • Your cash flow is less, due to having to pay more per month. This, in turn, may make it difficult for you to find capital in emergency situations.

Contact us at Dominion Finance for more information.

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