What to consider when structuring your mortgage

Your mortgage structure determines how you repay your home loan, impacting the overall cost and your financial flexibility.

Choosing a structure that works for you could help you better manage your finances, save on interest, and even pay off your loan faster.

Here’s a quick guide to common mortgage structures.

Table loan

Table loans involve regular, fixed repayments over a long term. While most of the repayment goes toward interest initially, over time, more goes toward the principal.

While the predictability of a table loan makes budgeting easier, it offers less flexibility compared to other mortgage structures.

Offset loan

An offset loan links to your nominated everyday savings or transaction accounts. Their balance helps to reduce the amount you owe on your mortgage before interest, and you can still access your funds if needed.

While an offset loan could save you interest, maintaining a healthy savings balance requires discipline. And with a floating rate, your repayments could increase at any time.

Revolving credit loan

A revolving credit loan is like a large overdraft, which sees all your income and savings combined into one account. Similar to an offset loan, the more funds in the account, the less interest you pay.

You can also redraw credit multiple times from a revolving credit loan. While this offers greater flexibility, strict financial discipline is required to avoid overspending and paying additional interest.

Interest only

With an interest-only mortgage, you pay only the interest for a set period, then start paying both the interest and principal. This structure offers lower initial payments, freeing up cash for other expenses.

As you won’t be reducing the principal amount during the interest-only period, you’ll face higher repayments once the period ends, unless the loan term is extended.

Choosing a mortgage structure

By understanding your mortgage options and aligning them with your financial goals, you can make informed decisions about structure that benefit you in the long run.

Consulting a mortgage adviser can help you understand the pros and cons of each structure and recommend an option to fit you.

Reach out to your local Mike Pero Mortgage Adviser today to get started.