Why Should You Consider Different Loan Structure Options?

Understanding Your Home Loan Structure Options

When you're ready to apply for a home loan, one of the most important decisions you'll make isn't just about the loan amount or interest rate - it's about choosing the right loan structure that fits your situation as a tradie. The structure of your home loan can significantly impact your repayments, how quickly you build equity, and your overall financial stability.

At Tradie Home Loans, we know that tradies often have unique income patterns and financial goals. Whether you're looking at your first home loan, planning to expand your property portfolio, or considering an investment property, understanding your options is crucial.

Variable Rate vs Fixed Rate: Which Works for You?

One of the first decisions you'll face is choosing between a variable rate and fixed rate home loan - or combining both.

Variable Rate Home Loans

A variable interest rate fluctuates based on market conditions and lender decisions. Variable home loan rates offer several advantages:

• Your repayments decrease when interest rates drop
• More flexibility to make extra repayments without penalties
• Access to home loan features like offset accounts and redraw facilities
• Ability to switch to another home loan product more readily

The downside? When rates rise, so do your repayments. This uncertainty can make budgeting trickier, especially when you need lower repayments during quieter work periods.

Fixed Interest Rate Home Loans

With a fixed interest rate home loan, your rate stays locked for a set period (typically 1-5 years). This structure provides:

• Predictable repayments regardless of market changes
• Protection against rising interest rates
• Certainty for budgeting and planning

However, you won't benefit if variable rates drop, and fixed rate loans often have restrictions on extra repayments. There may also be break costs if you need to exit the loan early or when your fixed rate expires.

Split Rate Loans

Can't decide? A split loan lets you divide your loan amount between fixed and variable portions. This gives you the security of fixed repayments on part of your loan while maintaining flexibility on the rest. Many tradies find this balanced approach works well with their income patterns.

Principal and Interest vs Interest Only

Another critical decision involves how you'll repay your loan.

Principal and Interest Repayments

With principal and interest repayments, you're paying off both the loan amount and the interest charges. This is the standard approach for an owner occupied home loan and offers several home loan benefits:

• You build equity in your property from day one
• You'll pay less interest over the life of the loan
• You'll own your home outright once the loan term ends
• Lenders typically offer lower interest rates for this structure

This structure helps you improve borrowing capacity for future loans as you demonstrate consistent repayment behaviour and increase your equity position.

Interest Only Loans

With interest only loans, you're only paying the interest charges for a set period (usually 1-5 years). The principal remains unchanged, which means:

• Lower monthly repayments during the interest only period
• More cash flow for other investments or business expenses
• Potential tax benefits if it's an investment property

However, you're not reducing your loan amount during this time, and repayments will increase significantly when the interest only period ends. This structure works well for property investors but requires careful planning.

Powerful Features to Consider

Offset Accounts

A mortgage offset or linked offset account is a transaction account linked to your home loan. The balance in your offset account reduces the amount you're charged interest on. For example, if you have a $400,000 loan and $50,000 in your offset account, you only pay interest on $350,000.

This home loan feature is particularly valuable for tradies who experience seasonal income variations or save for tax obligations.

Portable Loans

A portable loan allows you to transfer your existing home loan to a new property without breaking the loan. This can save you thousands in exit fees and application costs, making it particularly useful if you're buying your next home or renovating your house.

Understanding Loan to Value Ratio (LVR)

Your loan to value ratio affects which home loan packages and home loan products you can access. The LVR is the loan amount expressed as a percentage of the property value.

For example, if you're borrowing $400,000 for a $500,000 property, your LVR is 80%. Generally:

• LVR below 80%: You typically avoid Lenders Mortgage Insurance (LMI)
• LVR between 80-95%: LMI applies, increasing your costs
• LVR above 95%: Limited options, though tradies might access special programs

Tradie Home Loans can help you access Home Loan options from banks and lenders across Australia, including those offering LMI waivers for tradies and low deposit loans.

Comparing Home Loan Rates and Features

When you compare rates and home loan products, don't focus solely on the advertised interest rate. Consider:

1. Interest rate discounts - Many lenders offer rate discounts for professionals, including tradies
2. Home loan features - Offset accounts, redraw facilities, and extra repayment options
3. Fees - Annual fees, application fees, and discharge fees
4. Flexibility - Can you make extra repayments? Switch between owner occupied and investment?
5. Repayment options - Weekly, fortnightly, or monthly

Calculating home loan repayments across different structures helps you understand the true cost. Current home loan rates vary significantly between lenders, and having access to multiple lenders means you're more likely to secure rates that work for your situation.

Getting Started with Home Loan Pre-Approval

Before you start seriously looking at properties, consider getting loan pre-approval. Home loan pre-approval tells you:

• How much you can borrow based on your borrowing capacity
• Which loan structures suit your situation
• What interest rates you qualify for
• Areas where you might need to improve before making a formal home loan application

For self-employed tradies, pre-approval is particularly valuable as it clarifies documentation requirements and sets realistic expectations.

Making Your Decision

Choosing the right loan structure involves balancing your current circumstances with your long-term goals. Consider:

• Your income stability and patterns
• How long you plan to stay in the property
• Whether you'll need access to equity for future projects
• Your tolerance for interest rate changes
• Whether you want to invest in property or just achieve home ownership

The right structure helps you secure your future while managing repayments comfortably. There's no one-size-fits-all solution - what works for a chippy might not suit a sparkie, and what's right for your first home might not work for an investment property.

At Tradie Home Loans, we specialise in helping tradies across Australia understand their options and find home loan packages that match their needs. We work with multiple lenders to compare home loan products and find solutions that offer the home loan benefits you're looking for.

Call one of our team or book an appointment at a time that works for you. We'll help you understand your options, compare current home loan rates, and structure a loan that supports your journey to home ownership and financial stability.