The range of loan products in the marketplace just seems to get bigger every day. It can be incredibly confusing! One of the big advantages of this, though, is that in order to get a competitive edge, more and more lenders are offering flexibility in their loans. That's where convertible loans come into the picture. They're a group of loans where you have the flexibility to convert from one type of loan to another when you choose to.

One of the most common types of convertible loans is an adjustable (variable) rate mortgage that can be converted to a fixed rate loan. This can be very handy if you go through a period of your life when certainty about your loan repayments becomes important. For example, if the woman in a couple stops work to have a baby. Although fixed rate repayments are generally a little higher, the certainty of knowing what the payments will be until she returns to work can give you great peace of mind. This is particularly the case in an economy where rates are generally rising.

You can also convert the other way - from fixed rate to adjustable. This usually means your repayments are lower initially, so it can give you a bit of breathing space or more money in your pocket. Even better, if you can continue the higher repayments you're already used to, you will actually be paying more of your loan, which is a big bonus.

Another type of loan becoming more popular, particularly for investors, is the interest only loan. This has the advantage that your repayments are much lower, but the obvious disadvantage is that you're not paying off the loan at all. Mostly these types of loans are only for a fixed period, so at some point down the track you will need to start paying off the loan, not just the interest. However this type of loan can work really for a homeowner who gets a lot of their income in "lumps", for example commissions or bonuses. In that case they can make minimum interest repayments most of the time, then occasionally pay a lump off the loan when a bump in their income occurs.

If you're not planning to be in your house long term, then a balloon loan may suit you. With a balloon loan, you usually have a fixed rate and a fixed period (often 7 years) and the monthly repayments are quite low. At the end of the 7 years you either have to pay the balance of the loan off in full, or you usually have the option to refinance the loan either with the same lender or elsewhere.

A balloon loan is great for someone who knows they will probably move regularly because of their work, or perhaps in a situation where a spouse is going to home with children for a number of years, but after that will return to work and improve the family's ability to repay a normal loan. You need to be careful, though, to choose a balloon loan where your options at the end of the term are fairly open - you don't want to be in a situation where you're forced to roll over into another loan with higher interest rates or charges.

Finally, for people who are asset rich and cash poor - most commonly retirees - there is a reverse mortgage loan. This takes advantage of the fact that many people live in homes that are worth a lot, but have very little money day to day for living expenses. The bank allows you to borrow a certain percentage of what the house is worth, and the interest accumulates on the loan. You don't need to make any repayments. This is great for giving you some extra cash in your hand day to day - particularly if you're sensible with the loan funds and invest them somewhere for an ongoing income - don't blow the lot in one go! However it does mean that somewhere down the track, when the house is sold, there will be a lot less equity left either for you, if you need funds to buy into a retirement village, or for your heirs.

Every person applying for a home loan has a different set of circumstances, and it's vital to understand what these are, and find the home loan best suited to them. It can take a bit of research, but by knowing exactly what type of home loan you're looking for, you will increase your chance of success.