Home Loan Types
With all the different home loan types available, it’s no wonder that choosing the right loan can be a difficult and confusing process. To make it easier for you, we’ve compiled a list of the different loan types, along with a simple explanation of each loan.
A Basic Variable Loan is best suited to a budget conscious borrower looking for a ‘no frills’ loan. Basic Variable Loans generally offer a lower interest rate than the Standard Variable loan but also include fewer features and less flexibility.
Standard variable loans are the most popular loan product. They offer flexibility and desirable features such as the ability to split the loan, make extra repayments, take out loan re-draws. Depending on the financial institution chosen, you can get discounts off the standard rate - commonly known as a professional package.
Fixed rate loans allow the customer to fix the loan rate for a predetermined period of time, usually one to five years. At the end of that time, the loan reverts to a variable rate, or you can renegotiate a further fixed term. By locking in the interest rate, you are protected against rising interest rates and your monthly repayments remain the same throughout the fixed period.
A Combination Loan, also known as a ‘Split Rate Loan’, combines the flexibility of a variable rate on a portion of the loan with the benefit of a fixed rate on the balance. This type of loan protects you when the rates increase and benefits you when they drop.
Honeymoon loans, also known as ‘Discounted Introductory Loans’, offer lower rates for six to twelve months or longer. After this period, the loan reverts to a standard variable rate and the repayments increase.
Low Doc Loans are specifically designed for applicants who are self employed, PAYG, seasonal workers and small business owners who have income and assets but may not have the traditional forms of income evidence such as financial statements or tax returns at the time of the application. This type of loan is generally flexible and includes a variety of features.
Line of credit loans are a tax efficient money management tool, which enable you to take advantage of investment opportunities as they arise. This is a flexible loan product secured by an existing property that enables you to draw down funds as you need them.
A line of credit also is used as a home loan whereby you can have your entire wage paid into the account, maximizing the loan so that over the course of the loan you pay less interest. You use the account to have all income deposited and the more income received or deposited, the less interest charged. It is suggested you also use an interest free credit card for all of your purchases and paid monthly from the line of credit. With this product you will need to be very disciplined and budget conscious.
Offset Loans link up an everyday transaction account to your mortgage. The funds in your offset account are completely offset against the balance of the loan. The more funds you have in your offset account, the less interest you pay on your home loan. The account operates much like an every-day savings account. It usually offers ATM access and a cheque book. Whilst most lenders offer mortgage offset account facilities the amount and percentage of offset can vary between lenders. Not all lenders offer 100% offset loans/accounts and therefore it is important you speak to your mortgage broker about the loan options which are suitable for your needs.
There are many different reasons for why a person does not meet the typical lending criteria for taking out a loan. Non Conforming Loans are designed especially for such circumstances.
Some of the most common reasons include:
• Newly employed
• Working part-time, casually or as a contractor
• Insufficient records of past savings
• Inadequate deposit amount
• Non-existent credit record
• A change in life events such as recently divorced or temporarily unemployed
• Non traditional security
Credit Impaired Loans are designed for customers who have had loan arrears, unpaid or paid defaults and judgments, or even a bankruptcy history. If you believe that you may have a credit history concern, it is best to verify early that all the information in your credit report is correct. To obtain your own credit history report, click here www.mycreditfile.com.au
Developed to meet the needs of borrowers who purchase a new property prior to selling their existing one, a Bridging Loan is a short-term housing loan where interest only payments are either paid by borrowers or capitalised into the loan. The principal is due for repayment at the end of the loan term.
Construction loans are often referred to also as bridging loans. This type of loan is designed for those looking to construct or renovate property and is normally set for a predetermined time frame, depending on the purpose of the loan. Previously, most lenders only offered basic variable rates for these loans, however, certain lenders now offer their full suite of loan rates.