And so the options continue. Here, we look at some brief and simple descriptions of the different types of loans you can consider for the building of your new home.

There’s always more than one way to skin the cat, and build the new home. What’s certain, is that this will involve the borrowing of money. Loans, there’s a range of options and different structures, for different people, in different situations.

One golden rule with loans is that the more money you can save, the less your loan will cost you. There is always a direct trade off between the size of your deposit and the interest rates you’ll be paying with the repayments. So always save as much as you possibly can.

- newhomesguide.com.au

Guarantor Home Loans

This is where a family member guarantees your loan using the equity in their own home as security. So, it’s a big favour and involves risks for the guarantor. This is most often used by first home buyers who have a minimum deposit and do not want to pay Lender Mortgage Insurance. It is only when the required equity has been built up in the new home that the guarantor can be released.

Fixed Rate Home Loan

As the name suggests, you pay fixed interest for an agreed period of time. This gives certainty and allows you to budget exactly because you know exactly how much you have to pay. The disadvantage is that if interest rates drop, your rate stays the same and you could end up paying more than required.

Variable Rate Home Loans

Here, your interest rates rise and fall with the Reserve Bank’s interest rates. These are often the most popular because they give repayment flexibility.

Construction Home Loan

This is a variable rate loan for building a new home or renovating an existing home. The builder shows a progress payment to the bank at each stage of construction. Payments are most often interest only at this stage, then the amount increases throughout the build.

Line of Credit

Another variable rate loan where you access the equity in your home for large purchases such as a car, appliances or an investment. It’s a bit like a big credit card with your home as security. That sounds great, but you have to be disciplined with the repayments and be careful not to overspend and therefore over-borrow.

Low Doc Home Loans

These loans offer reduced requirements for income verification, usually to help people get started but  they involve more risk for the bank and therefore the interest rates will be higher.

Home to Home Loans

For people who already have a home, they want to build a new home and retain the existing one. This loan gives the ability to avoid making full repayments on both mortgages by combining the debt. They are also known as ‘Bridging Loans’. The bank assesses the equity on the existing home to calculate the amount they will loan for the new home.