Tailor Your Home Loan
The way you structure your home loan can help you pay less interest and could take some years off your home loan.
Different loan types provide varying levels of flexibility for making extra repayments.
You don’t have to choose one type of loan. You can combine the different loan types to suit your needs.
It’s important to tailor your home loan to your specific circumstances, as one size doesn’t fit all. And you should review the structure regularly as your circumstances change.
Home Loan types
With a fixed rate home loan, the interest rate is locked for a fixed period. During that period your repayment amount stays the same, which is helpful for budgeting. You always know how much you will be paying.
Having a mix of fixed rate home loans (for example some of the loan on a one year fixed term and some on a three year fixed term) could be a good way to manage the risk of interest rate changes over time.
A floating home loan, offers more flexibility. It allows you to make extra repayments whenever you like without incurring a fee. You can switch to a fixed rate without paying fees. The interest rate can move up or down in line with market changes which means repayment amounts can change.
A flexible home loan is a revolving credit facility on an everyday transactional account. If you’re good at managing your money, this option could help minimise interest charges or repay your home loan sooner, while giving you access to credit when you need it. It often has the highest interest rate and a monthly fee.
Increasing your repayments when you can
Increasing your repayments could save thousands of dollars and may reduce the life of your home loan by a number of years.
To illustrate, let’s say for example, you have a home loan of $400,000 at an interest rate of 4.00% per annum that remains the same for thirty years, and your weekly repayments are set at $440. If you increased your repayments by $30 a week from the beginning of the loan you would reduce your interest costs by around $37,727 over the life of the loan, and pay the loan off 3 years and 5 months earlier. .
It’s important to remember that if you increase your repayments during a fixed rate period, your bank may charge an early repayment fee. So you should find out how much that might be and work out whether it still makes sense.
 The example above provides an estimate/illustration only. It is a guide on how a $400,000 home loan originally structured on a 30-year term could be paid off faster and is based on the assumption that the 4.00% p.a. interest rate remains the same for the duration of the loan.