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Repayment Home Loans

Historically the most traditional of home loan mortgages, a straight repayment home loan is basically a loan against which you, as the lender, provide your home as security to the lender. Under the terms of the loan you agree to make minimum monthly repayment which, upon maturity, will repay your home loan over the term of the loan. Typically the term of the home loan is 20 to 25 years.

However, two factors have occurred which have made repayment home loan less popular in recent years. On the one hand, spiraling house prices in the last decade have meant that the traditional calculation method used in order to approve a repayment mortgage, which was 2.5 times a single income earners income or 3 times a joint income earning salary, no longer provides new home buyers the opportunity to purchase a new home. On the other hand, variable indexed interest rates, which are typically indexed to the central bank's base lending rate, have resulted in borrowers being uncertain of how much they will be required to repay in the near to long-term future.


The insecurity of not knowing exactly how much borrowers are required to repay added to the fact that many borrowers simply cannot borrow enough using repayment mortgages has spurned the growth of alternative types of home loans in the last decade. Among the more popular of these is what is sometimes known as the fixed-floating rate repayment home loan mortgage. Under this scheme the borrower and lender agree that the interest rate will be fixed for a limited introduction period, say 3 to 5 years, and thereafter the interest rate on the loan will be allowed to float. This type of scheme is popular as it allows the borrower to know exactly how much they have to repay each month during the difficult time of setting up the home, but also allows the bank to apply a free-float interest later in the life of the home loan, by which time hopefully the borrower is earning more money and will be able to afford any increase in the interest rate, if any.


Although many may suggest that the traditional repayment home loan mortgage is slowly becoming a thing of the past, if you are fortunate enough to have a substantial deposit to put down on your new home purchase then it is likely that your lender will suggest that you take out a straight repayment home loan as, baring any disaster, you should be able to track your repayments and know how much you have to repay during the life of the home loan. This way you can periodically make adjustments to your home loan repayment schedule to ensure that on the day the last payment is due you are not left holding a whopping great big repayment you need to make in order to repay the home loan on time. It also affords you the chance to make payments higher than your required monthly contributions, thereby enabling you the chance to repay your home loan early, which some of the more recent additions to the home loan market do not allow you to do.

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