Finding the best home loan for you Repayment structures • Table loan – Otherwise known as a Principal and Interest (P&I) loan. The most common type of loan, usually set for a period of 25-30 years. Interest repayments are high and principal repayments are low at the outset of the loan, but this is reversed as you near the completion of the loan period. • Revolving credit loan – A loan account that is similar to an overdraft, as all your income and expenses come out of the one account and you can redraw up to the limit at any time. • Reducing loan – Also called straight line mortgages. You pay the same amount of principal with each repayment, but a reducing amount of interest each time. • Interest only loan – When you only pay interest, and no principal. These loans are often used for property investment. Case study Dave and Sue put in an offer of $455,000 on their dream home. However, the vendor wouldn’t drop any lower than $475,000. Dave and Sue couldn’t afford a mortgage greater than what they were already paying, which was $250,000 P&I at 7.10% p.a for 30 years, equating to $1,680 per month. If they increased their offer, they would be carrying a $270,000 P&I loan, which they would need to repay at $1,814 per month. Just before they walked away, they consulted a Mortgage Express adviser. After evaluating their position, the adviser recommended a split loan into an interest only portion of $220,000 and a P&I portion of $50,000. This meant their mortgage repayments would actually decrease to $1,653 per month; they could secure their home and still live within their means.
Home Buyers Finance Guide V2
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