Brooke Reynolds of Rapson Loans and Finance explains how structuring your home loan to suit your lifestyle could save you thousands in interest and shave years off your mortgage.

PHOTO Jahl Marshall 

Securing the right home-loan structure for your lifestyle is important for achieving your financial goals. This decision requires a thoughtful conversation with your financial adviser, taking into account various factors such as your current and future affordability, interest-rate trends, long-term objectives, potential changes in your financial situation, and your spending habits. 

The home-loan market offers a wide range of products designed to accommodate different financial circumstances. Among the most popular options are fixed-rate loans, which provide stability and predictability. These loans lock in an interest rate for a period ranging from six months to five years, allowing you to plan your repayments without worrying about fluctuations. With a fixed-rate loan, you can also make additional payments to build equity more quickly, and some lenders allow lump sum contributions of up to five percent of the loan balance.

Variable loans are excellent to work alongside a fixed loan or on their own to offer you flexibility, rapid repayment and reduction of interest paid. There are three types of variable loans, each offering unique advantages:

Revolving Credit: This is where you have part of your home loan on the floating rate. It acts as a transactional account with a credit limit, where interest is calculated only on the outstanding balance. It’s ideal for those who like easy access to funds and flexible repayments. 

Floating-rate loans: These are independent loans that allow you to make lump-sum payments in addition to the minimum required payment at any time. This flexibility helps reduce your interest costs. Some floating-rate loans also offer the option to redraw funds, providing you with even more financial flexibility.

Offset loans: These clever structures link to your transaction and savings accounts, reducing interest by offsetting your loan balance against your account balances. This means that when your account balance matches your loan amount, your repayments contribute directly to the principal.

Your natural financial behaviours should guide your loan-structure choice. If you tend to spend leftover money, a fixed-rate loan with increased payments might help you manage interest more effectively. Savers who dislike frequent account transfers might prefer an offset loan. For those who enjoy actively managing their finances, revolving credit or floating rate options could be ideal. However, be aware that not all floating loans allow withdrawals, so it’s crucial to consult your financial adviser for specific details and recommendations tailored to your situation.

Your financial situation evolves, and so should your loan structure. Regular reviews with your adviser ensure your lending continues to meet your changing needs and goals. Remember, the ideal loan structure adapts to your lifestyle, not the other way around. By understanding your options and working closely with a financial expert, you can create a home-loan strategy that supports your goals and secures your financial future. 

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