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Finding the Right Loan

Basic Variable Rate Home Loan

A Basic Variable Rate loan is usually a ‘no frills’ Loan, good for the budget conscious borrower. It generally offers a lower interest rate but with less flexibility and fewer features than other loans. In some cases there are also more restrictions on this type of loan and extra fees for extra flexibility. The Basic Variable Rate is subject to decisions made by the Reserve Bank to cut or increase their official rate.

If rates go up so do the amount of your regular loan repayments. If on the other hand the Reserve Bank drops their official interest rate, then your repayments will be accordingly reduced.

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Standard Variable Rate Home Loan

The Standard Variable Rate loan is the most common type of loan in Australia. As with the Basic Variable Rate loan it is based on the official Reserve Bank rate and varies with time depending on the market.

This has more features like ability to make extra payment, to split the loan or redraw facility than a Basic Variable Rate home loan hence the interest rate is higher. It is often possible to incorporate an introductory discounted rate with a standard variable loan for the first 12 month period of the loan, at which time it then reverts to the standard variable rate for a prescribed period.

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Fixed Rate Home Loan

Fixed Rate loans are based on a set interest rate for a pre-determined period of time that might run from 6 months to 10 years. If the Reserve Bank changes its interest rate it has no impact on your regular repayment under this type of loan. At the end of the term you can lock in another fixed rate, switch to variable or go for a split loan.

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This type of loan some level of security for borrowers since you can budget accordingly but a Fixed Rate Loan is the most inflexible of loan types. For example there might be exit fees associated with the loan.

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Introductory or Honeymoon Rate Home Loan

Introductory loans offer an interest rate lower than the standard variable rate for an initial period of time, usually the 1st year of the loan. The discount, of up to 1% per annum reverts back to the lender’s standard variable rate after the set period of time.

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Professional packages

Professional packages are offered to low risk borrowers when they borrow large amounts, they are offered various interest rate discounts in exchange for an annual fee. Generally speaking larger the loan amount, bigger the discount.

Different lenders offer different features and rates, generally according to the amount borrowed and the loan structure. Some lenders require the borrower to take out a credit card and a transaction account and waive the account fees for the same.

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Split Loan

The split loan offers a ‘best of both worlds’ scenario between the Variable and Fixed rate loans described above. If you are concerned about rising interest rates, but want to maintain the flexibility of making additional loan repayments without being charged extra fees, the split loan might be for you.

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All In One Home Loan

If you are looking to decrease your interest charges by combining all your banking transactions with your home loan, then you should consider an All-In-One home loan. The All-In-One Loan essentially combines your home loan account with your day-to-day transaction account. This allows you to directly credit your salary into the account and then withdraw funds as you need them via ATM, EFTPOS or credit card.

The interest rate on All-In-One Loans may be slightly higher however and you may also be charged a higher monthly fee. Also you must pay attention to not withdraw more funds than the amount you deposited in the first place. This type of loan suits only fairly disciplined first time borrowers, or experienced investors.

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Line of Credit Home Loan/ Home Equity Loan

Line of Credit loans (LOC), also known as Home Equity Loan or Revolving Credit offers high levels of flexibility. It works like a credit card in that the lender assigns you a credit limit secured against your property. As you pay back the loan the money becomes available to you again.

One of the biggest advantages this loan is that you always have ready access to money, making it highly attractive to investors. Line of Credit usually will attract a higher rate of interest than a standard loan where the balance is continuously reducing.

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Low Doc Home Loan

Low-Documentation (Low-doc) Loans require very little documentation to get approval. This type of loan is useful for borrowers who are self employed or are investors. Tax returns and financial reports are not required to secure the loan. Generally speaking, the less the documentation required the higher the initial deposit money or a significantly higher interest rate.

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No Doc Home Loans

No-Documentation (No-doc) Home Loans require no documentation to get approval. This type of loan is useful for borrowers who are self employed and Pay- As- You-Go (PAYG) applicants who are unable to provide the conventional documentation required to prove their income level. A higher the initial deposit money or a significantly higher interest rate is applicable.

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Non-conforming Home Loan

Non-conforming loans are designed for borrowers that don’t meet ‘standard’ bank criteria. These people may include seasonal or contract workers, close to retirement, non-residents, small or no-deposit holders or have a bad credit history. This type of loan will attract a higher rate of interest and you still need to prove that you can make the repayments.

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Bridging Home Loan

This is a temporary loan which allows a buyer to complete the purchase or building of a new property before selling their existing property. The amount you will be able to borrow and the interest rate will depend on the risk involved for the lender.

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Construction Loan

Construction Loans also known as building loans are taken to effect extensive renovations or to build property with the minimum amount of repayments during the construction phase.

The loan is drawn down in installments to pay the builder, and during construction the repayments are interest only, payable on the amount of loan that has been drawn down. Once the construction phase is over or the loan is fully drawn down it reverts to a standard loan or as agreed with the lender.

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Interest Only loans

An interest-only loan is a loan in which, for a set term, the borrower pays only the interest on the principal balance, with the principal balance unchanged. At the end of the interest-only term the loan reverts to a standard loan or as agreed with the lender. Interest-only loans represent a somewhat higher risk for lenders, and therefore are subject to a slightly higher interest rate.

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Reverse Mortgage Loans

Reverse mortgage loans allows for borrowing of cash against the value of the home. It is available to residential property owners who are retired and meet the age criteria of the lender.

No repayments are required during the term of the loan, instead the interest and other charges are added to the loan balance, which becomes payable either by the estate of a deceased borrower, or when the borrower sells the property and moves into care.

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