Home Loan Structure
Create a home loan structure that works for you and saves you money over the life of your mortgage.
How you structure your home loan can make a significant difference to how much interest you pay and how quickly you pay off your mortgage. Working with a mortgage adviser can help you optimise your loan structure for your situation.
Key Points About Loan Structure
- Fixed rates offer certainty but less flexibility; floating rates offer flexibility but more risk
- Splitting your loan between fixed and floating can give you the best of both
- Principal and interest repayments build equity from day one (recommended)
- A 30-year term with extra payments gives you flexibility to pay off faster
- Offset accounts can save you thousands in interest without locking up your savings
- Joint tenancy is simplest for couples; trusts offer more asset protection
Fixed vs Floating Rates
One of the biggest decisions you'll make is whether to fix your interest rate or keep it floating (variable):
Fixed Rate
How It Works:
Interest rate locked in for set period (6 months to 5 years). Repayments stay the same regardless of market changes.
Advantages:
- • Certainty and budgeting ease
- • Protected if rates rise
- • Know exactly what you'll pay
Disadvantages:
- • Miss out if rates fall
- • Break fees if you repay early
- • Less flexibility
Floating Rate
How It Works:
Interest rate changes with market rates. Can go up or down at any time. Usually higher than fixed rates.
Advantages:
- • Benefit if rates fall
- • No break fees
- • Make extra repayments anytime
Disadvantages:
- • Exposed if rates rise
- • Harder to budget
- • Usually higher rate
Smart Strategy:
Many people split their loan - part fixed for certainty, part floating for flexibility. This is called "hedging your bets."
Example: 70% fixed for 1-2 years, 30% floating for extra repayments.
Ownership Structure
How you own your property affects tax, asset protection, and estate planning:
Joint Tenancy
Most Common for Couples
Advantages:
- • Simple and straightforward
- • Automatic ownership transfer on death
- • Equal ownership for both partners
- • No need for will provisions
Disadvantages:
- • Can't leave share to someone else
- • Asset exposed to partner's liabilities
- • Limited asset protection
Trust
Asset Protection
Advantages:
- • Asset protection from creditors
- • Estate planning flexibility
- • Tax planning opportunities
- • Succession planning
Disadvantages:
- • Setup and maintenance costs
- • More complex administration
- • Annual compliance requirements
- • Legal and accounting fees
Company
Less Common for First Homes
Generally not recommended for first home buyers due to complexity and costs. More suitable for investment properties and business purposes.
Connect with our legal partner providers for professional advice
Repayment Options
Principal & Interest
Recommended for first home buyers. Each payment covers both the interest charged and reduces the principal (amount owed).
Benefits:
- • Build equity from day one
- • Pay less interest over time
- • Mortgage paid off by end of term
Interest Only
Only pay the interest charged. The principal stays the same. Lower repayments but doesn't reduce what you owe.
Caution: Not usually recommended for first home buyers. Better suited for investment properties or short-term situations.
Making Extra Payments
Even small extra payments can save you thousands in interest and years off your mortgage:
Example Impact:
$500k loan over 30 years at 6%: An extra $100/week saves you:
- • $192,000 in interest
- • 8.5 years off your mortgage
Offset Accounts
Link your savings account to your mortgage. Your savings balance offsets the mortgage balance for interest calculations.
How It Works:
If you have a $400k mortgage and $20k in your offset account, you only pay interest on $380k. Your savings still earn "interest" by reducing your mortgage interest.
Revolving Credit
A flexible mortgage facility that works like an overdraft, allowing you to deposit and withdraw funds as needed while only paying interest on the balance owing.
How It Works:
- •Your income goes directly into the revolving credit facility
- •Reduces the balance you pay interest on each day
- •Withdraw funds when needed (up to your limit)
- •Great for disciplined borrowers who want flexibility
Note: Revolving credit requires discipline. Without a repayment plan, it's easy to never pay down the principal. Best combined with a fixed portion for certainty.
Understanding Loan Terms
15 Years
Higher repayments, less total interest
Good if you can afford higher payments
30 Years
Lower repayments, more total interest
Most common for first home buyers
25 Years
Middle ground option
Balance between repayments and interest
Pro Tip: Take a 30-year term for lower minimum repayments, but make voluntary extra payments as if it's a 25 or 20-year loan. This gives you flexibility in tough months while still paying off faster.
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Frequently Asked Questions About Home Loan Structure
Frequently Asked Questions
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