In general terms, a loan period is the length of time in which your client will be making loan repayments. The most common home loan periods in Australia are 20 years and 30 years. However, some lenders may offer 40-year loan periods.
Is the Loan Period Important?
The loan period is critical and should be considered by your client. While 30-years are attractive because of lower monthly repayments, they will accrue more interest over time, which results in your client repaying more money overall. Therefore, if they want to save money, your client should consider applying for a home loan with a shorter term.
What Else Do My Clients Need to Know?
- Your client’s loan period can also be further broken down into loan terms based on interest rates. Fixed interest rate terms are set at a maximum of ten years for 20-year and 30-year loan periods. Most fixed rates are set at five-year terms.
- In addition, whichever loan term your client chooses, they should try to choose variable rate loans. Variable-rate loans often allow extra repayments, making it easier for your client to pay off their loan before the end of their loan period, saving them even more money in interest.
- Most comparison tools use 20 or 25-year loan terms as the standard of comparison. For a complete picture, your client can ask lenders to recalculate their information based on a 30-year loan term if your client needs lower monthly repayments.
- Before your client figures out how long their loan period should be, they need to calculate how much they can afford to borrow and how much money they can repay every month.