When you heard the word mortgage, most people’s minds jump to the same conclusion. The conventional mortgage is undertaken with a financial institution, where you take out a loan to buy a property, which you then repay with interest over the years. Sounds simple enough? Yet if you have gone down the path of buying your first (or multiple) home(s), you may have discovered there are actually many different types of mortgages out there for you to choose from. The one that is right for your needs will generally depend on your circumstances.
Types Of Mortgages
Wondering what different types of mortgages creditors have on offer? It’s important to do your homework before it comes time to actually take out a mortgage. The various types of home loans on offer, all come with different features that will appeal to different borrowers depending on their circumstances. What’s right for you, isn’t necessarily what is right for another potential homeowner.
There are so many different types of mortgages on the market, we will take you through some of the more well-known ones.
What Are The Different Types Of Mortgages?
Here are some of the main types of mortgages on offer in Australia:
Owner-occupier mortgages
These are for borrowers who intend to live in the home they are paying off the mortgage on. These are the most common types of mortgages on the market. They can all vary in how they are paid off. Principal and interest loans are where you make regular repayments on the amount borrowed, which is the principal and pay the interest on that amount. This allows you to pay off the loan in its entirety across a number of years.
Interest-only mortgages
This is like the one above, except you are simply pay off the interest and none of the principal. This means that you aren’t actually paying off the house in the process. These loans are usually only available for an initial period after borrowing the money, to ensure you start paying off the debt in time. Of course, this is a cheaper option and the repayments are lower.
Refinance home loans
You may already be familiar with the idea of refinancing your home. Many people choose to refinance and then use the equity in their home as a deposit for a new home loan. You can do it with the lender you are already with, or you can refinance your home to a new lender.
Investment home loans
As the name suggests, these types of loans are for people who are hoping to purchase an investment property, which they generally intend to rent out and profit from. These loans generally have a higher interest rate and stricter criteria than the owner-occupier loans, as investors are considered riskier borrowers when it comes to paying back the money.
Low doc home loan:
If you happen to be self-employed, a contractor, or freelancing, you are unlikely to have access to the proof of income that is needed to take out a home loan. This is where a low doc home loan comes in. Contrary to popular belief, it doesn’t actually entail fewer documents, just different types. Instead of bank statements, lenders will look at your financial situation, including business tax returns and more. Not as many lenders offer this choice, so you need to do your research.
Construction loans
Are you are planning on rebuilding your home or undertaking a major renovation? If yes, then this is the loan for you. This type of mortgage covers an expense that might occur during the process, referred to as progressive draw-down. These payments usually occur in stages along the way. It means you are only paying interest on each step along the way when it comes to the loan, instead of paying the full amount upfront. It can come with higher interest rates for this reason.
Bridging loan
Bridging loans were designed to help you out if you are in the stages between selling your old home and buying a new one. You are technically taking out a whole new mortgage on top of your old one, so you are paying off two loans during this period. When you sell your old home, the bridging component is added into your new home loan. These loans are usually maximum 12 months long and tend to come with a higher interest rate.
There are so many more different types of mortgages out there, it is worth doing your research before deciding which one will work best for your circumstances.
Finding The Right Mortgage For You
Looking for some help when it comes to navigating all the different types of mortgages on the market? NSW Mortgage Corp can talk you through all your options and help find the best mortgage type to suit your circumstances. It pays to speak to the experts, who have years of experience to guide the way.
