WEALTH HUB JOURNAL

How To Choose The Best Home Loan For You Post-Pandemic

When you apply for a home loan, there are some important decisions you need to make. You need to choose between a fixed or variable income rate, and you need to decide whether to pay principal and interest, or interest alone.

There is no one-size-fits-all when it comes to structuring your home loan, and the right interest rate for you might depend on a variety of factors. With interest rates at an all-time low across Australia, you may be among the numerous property investors looking to buy new property or restructure or refinance loans they’re already paying down.

Unfortunately, it’s easy to miss out on the best interest rates, and it can be difficult to know what’s best for your current situation as you build a strong property investment portfolio.

Let’s look at how you can make the most of your investment rate, and what you should consider when it’s time to make important choices.

What’s the best investment rate for you?

Choosing the right investment rate can make the difference between paying off your loan fast and dragging out your repayments much longer than necessary—with costly and time-consuming consequences.

When it comes to investment rates, you want to make the best choice based on your current financial situation.

Let’s look at the fixed-rate option first. The upside is predictable payments on a regular schedule, making it easy to forecast expenses well into the future. However, the security of fixed-rate interest can cause you to miss out on savings if the interest rate drops.

If your financial situation allows you the freedom to potentially pay a higher rate, a variable rate can be a more cost-effective choice in the long run. It will also give you leeway to pay off your mortgage ahead of schedule.

You can get the best of both worlds with a split-rate loan, which allows you to divide your loan into portions between which you pay both fixed and variable rates. This gives you the option to pay off part of your loan faster—at the cost of a higher interest rate—and pay fixed, lower-interest payments for the other portion.

Our network of certified professionals at Wealth Hub Australia can help you decide which strategy is right for you.

Is it best to pay interest only, or interest and principal?

The decision between paying principal and interest (P&I) repayments or interest-only repayments for your owner-occupier loan comes down to your current situation and your long-term financial objectives.

While P&I loans might be the most common in Australia, an interest-only loan can mean lower repayments, at least temporarily. Of course, you will eventually have to pay off the principal and the interest, but for a period of time, you can leverage lower repayments as an opportunity to save money or focus on paying off other debts first.

Remember that larger repayments will be waiting for you when your interest-only period ends, as you’ll need to make up for those lower payments. But if your finances allow for bigger repayments when it’s time to start paying down your principal, temporarily making repayments based on your interest rate can be an effective strategy for managing your property investment portfolio.

Freeing up cash for a certain period while you make your repayments opens upa world of options, and you can roll those monthly savings into more property investments.

How can you make the most of your property investments?

The right loan structure for you depends on your current financial situation and your investment goals.

If you’re starting your investment journey, one or more of these loan structures are likely a fit for you. However, self-employed loans and low documentation loans are among a variety of alternative structures you may consider, if you meet the criteria.

At Wealth Hub Australia, we are committed to helping you choose the best way to structure your loan repayments and maximise your return on your investment. We help everyday Australians become property millionaires, and our network of trusted referral partners will work for youto build wealth, achieve financial independence, and establish a legacy.

Start a conversation with us today by calling 1300 202 318.

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