Standard Variable Loan
Basic Variable Loan
Intro Rate ‘Honeymoon’ Loan
Fixed Rate Loan
100% Offset Loan Account
Line of Credit Loan
Low-Doc & Credit Impaired Loans
Construction Loans
Standard variable loans are Australia’s most
popular type of home loan. The interest rate varies
throughout the loan term. These loans generally offer
excellent flexibility, low fees and often offer great
features such as an offset facility, redraw facility,
no limits on additional repayments and in most cases,
no early pay-out penalties.
Advantages:
- Flexibility
- Lump-sum payments can be made without incurring
a penalty.
- If interest rates fall, your repayments will fall.
- Often offer extra features.
Disadvantages:
Basic variable loans typically offer lower interest
rates and fewer features than the standard variable
loans. You often have the option to pay for any additional
feature required. Interest rates and repayments will
vary throughout the loan term.
Advantages:
- Relatively low interest rate.
- Lower repayments.
Disadvantages:
- Many of these loans do not have the same features
or flexibility as other variable loans.
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Intro Rate ‘Honeymoon’
Loan
An introductory rate loan generally offers a guaranteed
low rate for an initial period of time (usually 12 months)
after which most will revert to the standard variable
rate. The rate can be fixed or variable.
Advantages:
- Usually the lowest rates on the market.
- Some lenders provide offset accounts on these loans.
- Opportunity to reduce the principal quickly during
the ‘honeymoon’ period.
Disadvantages:
- Payments will increase after initial introductory/’honeymoon’
period
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Under a fixed rate loan, the interest rate is fixed
for a specified period, usually between one and five
years. This loan gives you the certainty of knowing
exactly what your monthly repayments will be and peace
of mind knowing the repayments won’t rise. However
you won’t benefit if rates go down during the
fixed term.
Advantages:
- Guaranteed rate, if interest rates rise your repayments
won’t.
Disadvantages:
- Reduced flexibility.
- Extra repayments may incur a fee or be limited.
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A 100% offset loan is very similar to an all-in-one
loan. Rather than putting all your salary and other
income into your loan, it goes into an offset account
that is directly linked to your home loan. Any balance
in the offset account is 100% ‘offset’ against
your home loan. This reduces the amount of interest
you have to repay, making your money work harder for
you.
Advantages:
- Can save you substantial amount of interest if
used correctly.
- Operates like a normal transaction account and has
a chequebook, ATM card, etc. attached.
Disadvantages:
- May have higher monthly fees attached to the account.
- May require a minimum balance in the account
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A line of credit loan provides you with access to the
equity in your home or investment properties up to a
pre-approved limit. You access the funds as you need
to. The interest rate on a line of credit loan is usually
a variable rate and repayments are interest only.
Advantages:
- You can use the money when you need it and pay it
back when you can.
- Rates are generally lower than a personal loan or
credit card.
Disadvantages:
- Unless care is shown it is possible to reduce the
equity you have built in your home.
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Low-Doc & Credit Impaired Loans
A low documentation (or no documentation) loan is suited
to investors or self-employed borrowers who do not meet
the ‘standard’ lending criteria. This may
include; those with an impaired credit history, those
who are unable to provide the required documentation
in support of their loan application, or those who wish
to borrow more than 100% of the property value.
Advantages:
- Simple income declaration form.
- No tax returns.
- No financial statements.
- Can have features such as redraw, line of credit,
variable or fixed rates, principal and interest or
interest only.
Disadvantages:
If you are building your own home or investment property,
a construction loan may be suitable for you. This loan
requires a fixed price building contract from a registered
builder. These loans are usually interest only for the
period of building and then become principal and interest
once building is completed. A construction loan allows
you to draw money as is required whilst building. Also,
with the usual necessary documents required when applying
for a loan, construction loans also require a ‘fixed
price building contract’ and ‘council approved
plans’.
Advantages:
- Competitive variable interest rates.
- Facility to draw money when necessary whilst building.
- Interest only payments during the building period.
- Additional payments can be made.
Disadvantages:
- Requires a fixed price building contract leaving
little room for change whilst building.
- Some lenders charge a fee for every time you draw
money whilst building.
- Given it is a variable loan; loan repayments will
increase if interest rates go up.
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