Types of home loans

There are three main home loan types - a table loan, revolving credit loan and interest-only loan.

1. Table loan

A table loan gives you certainty and makes budgeting easier, as your repayments stay the same (subject to interest rate changes) and are spread evenly over the term of your loan. The amount of principal you pay gradually increases over time.

2. Revolving credit loan

Revolving credit loans are similar to an overdraft. You can arrange for your salary to go straight into the account and bills can be paid out of the account when they're due. As interest is calculated daily, by keeping as much money in the account as you can at any time, you can reduce your interest costs.
You can make lump sum repayments and re-draw money up to your limit. Some revolving credit mortgages provide a reducing credit limit to ensure the home loan is paid off over a set time.

3. Interest-only loan

With an interest-only loan, all you pay is the interest. Interest is payable at the end of the month or fortnight, but you don't pay any principal until the end of the term. This type of loan can be suitable if you're expecting large funds to help you repay the principal later, or if you're a property investor and want to minimise your outgoings, to free up cash flow for other investments.

You may also consider an interest-only loan for a set period of time if you're starting out, expanding your family or you're on a limited income. However, remember that by paying interest-only, you have less time to pay off your loan in the future, so your repayments will be higher when you start paying back your principal.

Typically, the maximum term of an interest only loan is five years.

For more information on home loans, including how much you can borrow, or to order a copy of the AMP Home Buyer's Guide, contact us to talk to an AMP approved lending Adviser.