So, you’ve decided to buy a property. How exciting! Understanding the world of home loans may be confusing like what the difference is between a fixed and variable interest rate home loan.
Both home loans setups offer unique advantages and what is better will depend on your situation + objectives.
Here are some of the key factors to consider when working out which type of home loan is right for you.
What is a fixed rate home loan?
A fixed rate home loan is where the interest rate is locked in or ‘set’ for a period of time, otherwise known as the fixed term of the loan. This means that the interest rate you pay will remain the same over that course of time.
Pros of a fixed rate home loan:
A major benefit of a fixed rate home loan is certainty. You’ll know exactly what your repayments to expect and at what level of interest for a certain period. Typically, this is between 1 and 5 years.
Key points:
Protect yourself against interest rate rises
Lock in your interest rate so you know what your repayments will be
Plan and set financial goals with ease
Cons of a fixed rate home loan:
A fixed rate home loan is not as flexible as a home loan with a variable rate. This may be worth considering if you expect your financial situation could potentially change in the future.
Key points:
Rate cuts won’t benefit you
Limits a borrower’s ability to pay off their loan faster by restricting extra repayments or capping them at a certain amount per year
Break costs may be charged if you repay your loan early or refinance during a fixed rate period
Redrawing funds is not available on a fixed rate home loan
What is a variable rate home loan?
A variable rate home loan is a loan with an interest rate that may change over time. If you choose this type, you may be able to take advantage of any interest rate decreases over your loan’s term.
Pros of a variable rate home loan:
Variable rate home loans tend to offer more flexibility and include more features.
Key points:
If rates fall and you’re on a variable rate, this means you’ll reap the benefits of lower interest and repayments
Allows for a wider range of repayment options, including the ability to pay off your loan faster without incurring interest rate break costs
If you wish to refinance, it’s easier to switch to a different lender or home loan product if you’re on a variable rate, without attracting break costs
Cons of a variable rate home loan:
If interest rates go up, your repayments could increase.
Key points:
Lenders can change a variable interest rate at any time generally according to the market. For borrowers, this means their rate is likely to fluctuate over the life of their loan. If your bank raises rates, your repayments will rise.
It can be harder to budget for the future as you can’t be sure how interest rates might move.
Split Rate Home Loans
Can’t decide? A good option can be to split the loan. If you’re indecisive on whether to go with a fixed or variable home loan, there is an option to split your loan between the two. If you split your home loan, it means that you can designate a certain portion to a variable home loan, and the rest to a fixed home loan. This means you have the certainty of a fixed rate on part of your loan as well as the flexibility to make extra repayments on the variable rate part of your loan.
Want to find out more about your home loan options?
We are Australia’s only mortgage broking service that specialises in lending to barristers.
Using expert knowledge and access to over thirty lenders, we leverage your profession to unlock exclusive benefits and exemptions when applying for finance. You may be eligible to receive favourable terms and specific benefits when obtaining a loan. Our brokers are experts in identifying and accessing these benefits for you.
Get in touch with our lending experts at Legal Home Loans today.
As a barrister, your financing requirements are unique, and you may encounter some challenges when it comes to borrowing money.
For self-employed practitioners, income often varies and can be irregular month to month. This complexity can pose challenges when borrowing money as lenders typically favour predictable and steady income streams when assessing applications, regardless of your tax bracket. Securing a loan can be challenging due to the stricter criteria imposed on such self-employed applicants from lenders.
The following is a summary of key information and tips for barristers to keep in mind when seeking finance.
Key factors to consider
Servicing policy: As a self-employed professional, most lenders will require two years of tax returns when assessing you for a loan. However, some lenders are more flexible, accepting just 12 months of financials, including drafts from the most recent financial year.
Increase in income: If your income has increased in the current financial year, many lenders may still base your borrowing capacity on previous years’ tax returns. However, there are lenders who are willing to consider the increased income in the current financial year on an exception basis.
Tax debts: Major and second-tier lenders typically do not accept applications with outstanding tax debt or may impose harsh repayments against the tax debt in their calculations, which can significantly impact your borrowing power.
Barrister specific policies: Consider choosing a lender with a credit policy specifically tailored for barristers. Policies vary from lender to lender, so it’s important to work with one that understands the unique aspects of your profession and income.
Types of lending facilities and what they mean for you as a barrister
Home loans: A home loan is a loan secured by a mortgage over property for owner-occupied purposes. Home loans typically involve principal & interest repayments.
Whilst banks typically require a 20% deposit for borrowers to avoid Lender’s Mortgage Insurance (LMI), barristers can access lower deposit options with some lenders without paying this fee.
Barristers in most cases require a deposit of only 10% of property value and are not required to pay LMI. This is because barristers are essential to society and therefore typically have a high level of job security. As a result, lenders are more willing to offer certain home loan benefits.
For example, buying a median-priced home in Brisbane for $925,000 with a 10% deposit would typically incur an LMI fee of over $20,000. Purchasing without this limitation is a significant benefit, and applies to both owner-occupied and investment properties.
Investment Loans: An investment loan is a loan secured by a mortgage over property for investment purposes. Investment loans are typically eligible for interest only repayments for tax purposes. As with home loans, barristers are required a deposit of at least 10% of property value with waived LMI. It may also be possible to use equity in existing properties to borrow 100% of property value.
Overdraft: An overdraft refers to a credit facility linked to a business transaction account, allowing you to draw your account into arrears to a set limit. Overdrafts are useful for covering short-term cash flow requirements. Repayments usually include principal & interest and can be structured to time periods suited for you.
Chambers Loans: Chambers finance is a loan secured by a General Security Agreement (GSA) over shares in chambers. Some banks will lend up to a 100% of the chambers’ value. This is a total unsecured facility, not tied to any assets. Chambers loans can also be secured against residential property if available, which can result in lower repayments and interest rates, greater borrowing capacity and longer loan terms. Repayments may be structured as interest only or principal & interest.
How do I get started?
As a barrister, your financing needs are bespoke, complex in nature and differ to that of the average borrower. Whether it is to coordinate residential or investment home loans, restructure debts or organise loans for chambers, it’s important to have the right experts by your side.
As Australia’s only mortgage broking service exclusively for lawyers and barristers, Legal Home Loans understand your profession and know how to leverage your elite standing with lenders like no other. With access to over thirty lenders, we can help you find a solution that best suits your unique situation. We’ll coordinate your application from start to finish with a dedicated specialist with you every step of the way.
Plus, as a member of the Bar Association of Queensland, you’ll receive a $500 cashback at loan settlement, thanks to the Partner Benefits program.*
Get in touch with our industry experts today for more information.
*Disclaimer: Rebate applies to the member’s first loan settled with Legal Home Loans. Legal Home Loans will honour the highest valued rebate applicable to the client. Limit of one rebate per loan in the case of multiple qualifying applicants. Loan value must exceed $250,000 to be eligible. Eligibility will depend on your unique situation. To find out what is possible for your needs, please contact us and speak to our specialists for a tailored solution. This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
As a barrister, your financing requirements are unique, and you may encounter some challenges when it comes to borrowing money.
For self-employed practitioners, income often varies and can be irregular month to month. This complexity can pose challenges when borrowing money as lenders typically favour predictable and steady income streams when assessing applications, regardless of your tax bracket. Securing a loan can be challenging due to the stricter criteria imposed on such self-employed applicants from lenders.
The following is a summary of key information and tips for barristers to keep in mind when seeking finance.
Key factors to consider
Servicing policy: As a self-employed professional, most lenders will require two years of tax returns when assessing you for a loan. However, some lenders are more flexible, accepting just 12 months of financials, including drafts from the most recent financial year.
Increase in income: If your income has increased in the current financial year, many lenders may still base your borrowing capacity on previous years’ tax returns. However, there are lenders who are willing to consider the increased income in the current financial year on an exception basis.
Tax debts: Major and second-tier lenders typically do not accept applications with outstanding tax debt or may impose harsh repayments against the tax debt in their calculations, which can significantly impact your borrowing power.
Barrister specific policies: Consider choosing a lender with a credit policy specifically tailored for barristers. Policies vary from lender to lender, so it’s important to work with one that understands the unique aspects of your profession and income.
Types of lending facilities and what they mean for you as a barrister
Home loans: A home loan is a loan secured by a mortgage over property for owner-occupied purposes. Home loans typically involve principal & interest repayments.
Whilst banks typically require a 20% deposit for borrowers to avoid Lender’s Mortgage Insurance (LMI), barristers can access lower deposit options with some lenders without paying this fee.
Barristers in most cases require a deposit of only 10% of property value and are not required to pay LMI. This is because barristers are essential to society and therefore typically have a high level of job security. As a result, lenders are more willing to offer certain home loan benefits.
For example, buying a median-priced home in Brisbane for $925,000 with a 10% deposit would typically incur an LMI fee of over $20,000. Purchasing without this limitation is a significant benefit, and applies to both owner-occupied and investment properties.
Investment Loans: An investment loan is a loan secured by a mortgage over property for investment purposes. Investment loans are typically eligible for interest only repayments for tax purposes. As with home loans, barristers are required a deposit of at least 10% of property value with waived LMI. It may also be possible to use equity in existing properties to borrow 100% of property value.
Overdraft: An overdraft refers to a credit facility linked to a business transaction account, allowing you to draw your account into arrears to a set limit. Overdrafts are useful for covering short-term cash flow requirements. Repayments usually include principal & interest and can be structured to time periods suited for you.
Chambers Loans: Chambers finance is a loan secured by a General Security Agreement (GSA) over shares in chambers. Some banks will lend up to a 100% of the chambers’ value. This is a total unsecured facility, not tied to any assets. Chambers loans can also be secured against residential property if available, which can result in lower repayments and interest rates, greater borrowing capacity and longer loan terms. Repayments may be structured as interest only or principal & interest.
How do I get started?
As a barrister, your financing needs are bespoke, complex in nature and differ to that of the average borrower. Whether it is to coordinate residential or investment home loans, restructure debts or organise loans for chambers, it’s important to have the right experts by your side.
As Australia’s only mortgage broking service exclusively for lawyers and barristers, Legal Home Loans understand your profession and know how to leverage your elite standing with lenders like no other. With access to over thirty lenders, we can help you find a solution that best suits your unique situation. We’ll coordinate your application from start to finish with a dedicated specialist with you every step of the way.
Plus, as a member of the Bar Association of Queensland, you’ll receive a $500 cashback at loan settlement, thanks to the Partner Benefits program.*
*Disclaimer: Rebate applies to the member’s first loan settled with Legal Home Loans. Legal Home Loans will honour the highest valued rebate applicable to the client. Limit of one rebate per loan in the case of multiple qualifying applicants. Loan value must exceed $250,000 to be eligible. Eligibility will depend on your unique situation. To find out what is possible for your needs, please contact us and speak to our specialists for a tailored solution. This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.
