Getting a home loan can be a tricky business - there are so many choices out there, and it's not always easy to know which one is right for you. Once you cut through all the bells and whistles, though, there are really only 3 main types of home loan to choose from. Of the three, the most common type of home loan is the fixed mortgage loan.
This mortgage has a fixed time period, say 30 years, for you to repay the loan. The good thing about this is that over time your loan will decrease, but every time you get a pay rise or some extra bonus money, you can pay a little extra off and often pay out the loan a lot quicker.
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You can also choose the time period you want the loan for. If you're a little strapped for cash and want to get the lowest monthly repayments you can, then look at a 30 year loan. This is an extremely common time period, and will probably give you the most options to choose from out in the market place. The good thing is that with lower repayments, you have more money in your pocket each month to spend on other things like food and bills. Unfortunately, though, the length of the loan means that you pay a very large amount of interest to the financier. Still, it's a good way to get started cheaply.
If you have a bit more money to spend, it's worth looking at a loan with a shorter term, say 15 years. This way you can pay your home of much quicker, and have more funds available when the time comes to start looking at retiring. You also pay a lot less interest over the term of the home loan. Some people avoid these loans because they're worried that if they lose their job, they'll have trouble making the payments. The good thing, though, is that in situations of extreme hardship, you may well be able to extend the term of the home loan, and drop your payments substantially.
A fixed mortgage loan generally also allows some repayment flexibility. So this means that instead of paying monthly, you can pay fortnightly. This can be a huge benefit, because if you pay fortnightly, over the course of a year you actually make the equivalent of 13 monthly payments. This helps to drop your home loan balance more quickly, and often means you'll pay the loan off in 23-25 years. Definitely worth doing if you can!
You also need to make a decision about whether you want an adjustable (variable) interest rate, or a fixed rate. This is always a tough choice to make when setting up a home loan - after all, the top economists often struggle to predict what the economy and interest rates are likely to do over the medium term, so you can hardly be expected to work it out! However it's usually cheaper to go with adjustable rates, so if you have a little bit of room in your home loan budget in case rates rise, that's probably your best choice.
Fixed interest rates work best for people who need certainty about their home loan repayment. It usually means you end up paying more to begin with, but at least if interest rates rise you won't be caught short.
Remember, too, that many home loans allow you to change your options as you go along. So if rates start rising to the point where you're getting worried about making the repayments if they rise again, you can most likely change to a fixed rate home loan. Some loans even let you have part of the loan as a fixed rate, and part as adjustable, to give you the best of both worlds.
In the end, every person applying for a home loan has a different set of circumstances, and it's vital to understand what these are, and find the home loan best suited to them. It can take a bit of research, but by knowing exactly what type of home loan features you're looking for, you will be able to find it much more easily.
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