Loan Information
Although there are hundreds of products; they generally all fall into one of the loan types we have described below.
Loan Types
Standard Variable Rate Home Loans
The Standard Variable Rate Home Loan is the normal or 'standard' home loan for most people. Interest rates are variable and although ultimately determined by the lender, move up and down in line with official interest rate fluctuations.
Although different lenders offer different features and rates on their products, generally Standard Variable Rate Home Loans offer a good combination of interest rates, fees, features and flexibility.
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Basic Home Loans
Offered at a discount to the Standard Variable Rate, Basic Home Loans offer a low rate with low ongoing fees. They are a simple, low feature, discount product.
Often marketed at First Home Buyers, a Basic Home Loan is a straight forward, easy to understand loan. The focus is on providing monthly repayment figure that is as low as possible, but without the features or the flexibility of other loan products.
Although they come with a lower interest rate, Basic Home Loans are generally not the best option for people looking to repay their loan as fast as possible.
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Fixed Rate Home Loans
A Fixed Rate Home Loan removes the uncertainty of changing interest rates and allow borrowers to fix their monthly repayments. Fixed Rate Home Loans are offered by most lenders for between 1 and 5 years, although longer terms are available. Interest rates offered are typically higher than the Standard Variable Rate and will vary according to the number of years being sought. Fixed Rate Home Loans can be interest only or principal and interest for both investors and owner occupiers.
Whilst a fixed rate of interest and a fixed repayment amount for a fixed period of time provides a borrower with certainty, it offers very little flexibility should circumstances change. Usually the ability to make additional repayments is restricted and lenders charge high fees to make changes to the structure of the loan.
At the end of the fixed period, borrowers can switch to a variable rate loan or enter into a new fixed rate agreement.
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Introductory Rate Home Loans
Introductory or Honeymoon rates are usually offered with a low home loan interest rate that may be well below the Standard Variable Rate. The rate is usually fixed for the first 6 to 24 months of the loan. At the end of the Introductory period the rate increases. There may be some differences in the fee structure for loans of this type that make them more expensive to exit or to change than other loans. These loans are usually only offered to borrowers who are new customers to the lender.
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Split Rate Home Loans
A Split Rate Home Loan is simply a combination of a variable rate and a fixed rate home loan. The amount of the loan that is variable and the amount that is fixed are determined by the borrower. A Split Rate Home Loan allows borrowers to customise their loan with the flexibility and features they want, and still access a fixed rate to give them some certainty about their future repayments.
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Home Loan Packages
Home Loan Packages offer the ability to consolidate all of a borrowers banking activity. In exchange for a set annual or monthly fee, a typical package will offer a discounted interest rate, a 'fee free' transaction account and credit card, as well as discounts on some service fees and insurance. Home Loan Packages are attractive to many borrowers as they can reduce the overall costs of their banking and provide access to a range of features and discounts that help them to repay their loans faster.
The eligibility for Home Loan Packages varies between lenders and usually relates to the amount being borrowed.
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Interest Only Home Loans
An Interest Only Home Loan has repayments which cover only the interest. The principal is repaid in full at the end the loan. As the repayments are lower and with many of the features of available with other loans, Interest Only Home Loans are suitable for investors focusing on capital gains. Interest Only Home Loans are also suitable for general home buyers, especially when refinancing an existing loan, as bridging finance or to pay for home renovations. The term of these loans is usually up to five years. Interest rates may be fixed or variable and are usually offered at the same rate as most other loans.
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Line of Credit Home Loans
A Line of Credit Home Loan is a highly flexible product, allowing borrowers to withdraw funds for any purpose, up to a set limit at any time. Repayments can be made at any time and of any amount ... as long as the balance remains below the set limit. This type of loan can be used to purchase most types of property and is common for investors looking to expand their investment portfolios.
Most Line of Credit facilities offer access via cheque books, ATM, EFTPOS as well as Internet and Phone Banking. The interest rates are usually higher than other loan types.
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Low Doc Home Loans
Low Doc Home Loans are usually for self-employed borrowers who are often unable to provide full financial statements and other evidence of their income. Typically lenders will require more security, a lower Loan to Value Ratio (LVR) than for a standard loan. Additionally lenders will require Low Doc borrowers to take out lenders' mortgage insurance when borrowing up to 80 per cent of the property value. Some lenders also charge a higher interest rate or limit their product range for Low Doc borrowers.
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Loan Features
Redraw Facility
A Redraw Facility allows borrowers to access or 'redraw' earlier additional repayments. Some loans will have a minimum redraw amounts or fees which will impact on exactly how the Redraw Facility is used.
A Redraw Facility can act like a 'savings account' for borrowers, with extra funds being available as required and reducing their home loan interest at the same time. Some lenders even allow for direct salary crediting to the loan account.
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Offset Facility
An Offset Facility is a separate account that is linked to the loan account. In most cases an Offset Account operates like a normal transaction account with access possible via cheque book, ATM or EFTPOS. For the purposes of calculating interest, the balance in the account is deducted from the Home Loan balance. So less interest is charged to the home loan account.
An Offset Account helps to make every dollar work to repay the loan as soon as possible. Any funds in the offset account are readily available and serve to reduce the amount of interest paid, providing a flexible and convenient way to repay a loan faster. Different lenders offer different offset accounts. Not all are fully transactional accounts and some apply a minimum balance before an offset becomes effective. Offset accounts cannot be used with Fixed Rate Home Loan Accounts.
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All-in-one Feature
An All-in-one account loan is similar to an offset account but the loan account is used for everyday banking purposes. Rather than attaching a transaction account to the loan, the loan becomes a transaction account with access via cheque book, ATM or EFTPOS. Effectively these loans are lines of credit with a credit limit that reduces each month or fortnight in line with the loan repayments.
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If you have any questions, or would like us to help you arrange a new loan or to refinance your existing loan, then please click here to arrange an Appointment.
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