Mortgage Finance - Which Home Loan Is right
What type of loan will suit you depends on your own personal circumstances and lifestyle.
There are 6 basic loan types which vary in features, benefits and fees from lender to lender.
Standard Variable Rate
Basic Variable Rate
Line of Credit
Fixed Rate
Introductory Loan
Construction Loan
Having access to over 30 lenders will ensure we can find the right loan with the right features that suits your individual needs.
The following 2 loan types are a variation of the 6 selections above with innovative advantages being:
Low Doc Loan – limited proof of income for self employed !
Professional Package Loan – interest rate discounts based on profession or loans over $150,000
Here is an explanation of the main features available on home loans:
Variable Home Loan Interest Rates
Interest rates on these loans vary with the economic climate of the time.
The variance is generally a reflection of the official Reserve Bank rates.
As one of the most flexible loan types, it can apply to a wide spectrum of
loan situations. In most cases, Variable loans will enable you to offset your
loan, make additional repayments and redraw, which may help you to finalise your
loan earlier and on most occasions is less likely to incur penalties.
Basic Variable Finance Interest Rates
A very popular loan, similar to a Standard Variable but generally
offered without the extras that come with a standard variable loan,
such as credit card sweep, 100% offset accounts etc; Interest rates
are normally lower and are favoured by borrowers who are confident that
they don’t require the additional features. However if the lender allows
direct salary crediting with a low cost for redraw , the loan facility can
operate very similar to a line of credit.
Line of Credit
For borrowers with a high surplus
budget position for rapid debt reduction,
it is essentially an overdraft where monies paid
against the loan can be withdrawn up to the original
limit. Technically an Interest only loan, however most
people make higher repayments enabling them to finalise the
loan quickly and redraw for investment purposes up to the original
loan limit. Again interest rates will normally be higher for this style of loan.
Fixed Rate Home Loans
Locks in an interest rate for a defined
period of time. When you choose a fixed rate
home loan you have the comfort of knowing if rates
rise, your rate will remain the stable. However,
if interest rates drop you will remain at the higher rate.
If you require the reassurance of a fixed rate but would like to
take advantage of the fall in rates you can get a split home loan into
two separate loans, Part Fixed – Part Variable (see Split Loans). Most
fixed loans do not allow you to make additional repayments or refinance during
the fixed period unless penalties apply.
Introductory Home Loans
Introductory home loans (sometime known as Honeymoon loans) generally
enable you to commence with a lower rate for a fixed period “normally
6-12 months” and then revert to a higher rate (usually a standard variable
loan ) for the remaining loan period. These loans can be either fixed or variable
rate and on most occasions have higher up front and ongoing fees.
Low Doc Loans
Generally geared to self employed persons where limited proof of income is required, the lender
accepts self or accountants certification of income, however, some lenders will consider P.A.Y.G.
applications in special circumstances. Interest rates are competitive with standard variable rate home loans.
Construction Loan
If you decide to build your own home (using a Licensed Builder),
construction home loans are the way to go. With a standard home loan the money
is generally received in one lump sum amount. With a Construction loan the
money is drawn down as your home gets built with a series of progress payments
to the builder on a needs basis and closely follows a progress schedule requiring
regular inspections by the lender. Usually repayments are on an interest only basis
during the course of construction, whilst after construction variable rates and principal
and interest repayments generally apply.
Professional Package Loan
Professional package home loans provide discounts on interest
rate, monthly fees and associated offset savings account fees.
Generally to qualify for this type of loan, your loan must meet
a minimum size, a particular credit card must be provided and an account
with that bank must be opened. There is generally an annual fee associated
with the facility.
LOAN FEATURES
Redraw
A redraw facility on a loan allows you to access
any additional home loan repayments that you have made into your loan account.
This facility can save you interest charges while allowing you easy access
to any extra repayment monies that you have paid. Some lenders place conditions on
the minimum amount that can be redrawn at any one time. Generally, redraws will attract a fee.
Mortgage Finance Offset
Is another way to reduce your home mortgage by
attaching another account (normally, a daily transaction account)
to the loan and using the daily balance in that account to reduce the interest
payable on your mortgage. Have your earnings paid straight into the Offset account,
which is linked to your loan account and usually with a credit card sweep.
Interest Only Home Loans
Requires no principle repayments only interest payments. You cannot have a balance outstanding
higher than the original loan, so repayments have to keep the balance lower
or equal to the original loan amount. It is commonly used for investment loans
where interest can be included as a tax deduction.
Split Home Loans
Allows you to portion your home loan to a fixed and variable amount. The variable home loan lets you make
additional financed repayments while the fixed amount provides protection
against rate rises for your nominated fixed term.
Mortgage Broker
Have one of our mortgage brokers do all the work for you and ask for a home loans comparison from all the banks. Save time and money with no extra cost with Home Loan Calculators.
