Home Loan Structure Options: The Pros and Cons

Understanding Your Home Loan Structure Options

As a paediatric nurse, your dedicated career in caring for children is both rewarding and demanding. When it comes to achieving home ownership and building your secure future, understanding the various home loan structure options available can help you make informed decisions that align with your professional and personal circumstances.

The structure you choose for your home loan can significantly impact your repayments, your ability to build equity, and your overall financial position. With access to home loan options from banks and lenders across Australia, it's important to understand what each structure offers.

Principal and Interest vs Interest Only

When you apply for a home loan, one of the first decisions you'll face is choosing between principal and interest or interest only repayments.

Principal and Interest Loans

With principal and interest repayments, each payment you make includes both the loan amount and the interest charged. This structure offers several advantages:

• You build equity in your property from the beginning
• Your loan balance reduces with each payment
• You improve borrowing capacity over time
• Generally, you'll access lower interest rate options
• You achieve home ownership sooner

This structure suits paediatric nurses who want to own their home outright and progressively reduce their debt. For an owner occupied home loan, this is typically the most common approach.

Interest Only Loans

With interest only repayments, you pay only the interest charged on your loan amount for a set period, usually between one to five years. After this period, the loan converts to principal and interest repayments.

Advantages include:

• Lower repayments during the interest only period
• Potential tax benefits for investment properties
• Improved cash flow in the short term

Considerations:

• You don't build equity during the interest only period
• Higher repayments once the loan converts to principal and interest
• Generally higher interest rates than principal and interest loans

This structure may suit paediatric nurses who invest in property or need lower repayments temporarily.

Variable Rate, Fixed Rate, and Split Rate Options

The interest rate structure you choose affects your home loan repayments and provides different levels of certainty.

Variable Rate Home Loans

A variable interest rate fluctuates based on market conditions and lender decisions. When comparing variable home loan rates, consider:

• Potential interest rate discounts and rate discount opportunities
• Access to features like an offset account or linked offset facility
• Flexibility to make extra repayments without penalties
• The ability to use a portable loan if you move properties
• Repayments that change when rates move

Variable rate home loans typically offer more home loan features and flexibility, which appeals to many paediatric nurses who value having options to manage their mortgage.

Fixed Interest Rate Home Loans

With a fixed interest rate home loan, your rate remains unchanged for a set period, typically one to five years.

Benefits include:

• Certainty in calculating home loan repayments
• Protection from interest rate increases
• Assistance with budgeting and financial planning

Limitations:

• You won't benefit if rates decrease
• Limited extra repayment options
• Fewer home loan features available
• Potential exit fees if you refinance during the fixed period

Many paediatric nurses appreciate the predictability that fixed rates provide, particularly when managing shift work and variable income patterns.

Split Loan Structure

A split loan divides your loan amount between fixed and variable portions. This structure provides:

• A balance between certainty and flexibility
• Some protection from rate increases on the fixed portion
• Access to variable rate features on the unfixed portion
• The ability to make extra repayments on the variable portion

Understanding Offset Accounts and Linked Offset Features

An offset account is a transaction account linked to your home loan. The balance in your offset account reduces the loan amount on which interest is calculated.

Advantages of a mortgage offset account:

• Reduces the interest you pay on your home loan
• Your savings work harder for you
• Maintains access to your funds
• Can reduce your loan term significantly
• No restrictions on deposits or withdrawals

A linked offset facility operates similarly but may offer partial offset rather than 100% offset. When you compare rates and home loan packages, check whether offset features are included and any associated fees.

Considerations for Your Loan to Value Ratio (LVR)

Your loan to value ratio (LVR) represents the loan amount as a percentage of the property value. This affects:

• Your access to certain home loan products
• The interest rate you'll pay
• Whether you'll pay Lenders Mortgage Insurance (LMI)
• Your available home loan options

Paramedic nurses may have access to special LMI waivers that reduce costs when borrowing above 80% LVR, making it worthwhile to explore profession-specific home loan benefits.

Comparing Current Home Loan Rates and Products

When conducting a home loan rates comparison, consider more than just the interest rate. Review:

1. Annual fees and ongoing charges
2. Available home loan features
3. Flexibility for extra repayments
4. Offset account options
5. Redraw facilities
6. Loan portability
7. Application and settlement fees

Obtaining home loan pre-approval before property shopping helps you understand your borrowing capacity and shows sellers you're a serious buyer.

Making Your Decision

Selecting the right loan structure depends on your individual circumstances:

• Your income stability and career stage
• Whether you're purchasing your first home loan or expanding your property portfolio
• Your risk tolerance
• Your financial goals
• Your ability to manage repayment fluctuations

As a paediatric nurse, you have access to various home loan benefits through profession-specific home loan packages. Taking time to understand your options and how different structures align with your goals will help you make an informed choice.

Working with specialists who understand the nursing profession means you can access tailored advice about current home loan rates, home loan application processes, and which structure might suit your circumstances.

Call one of our team or book an appointment at a time that works for you to discuss which home loan structure options align with your goals as a paediatric nurse working towards financial stability and home ownership.