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Fixed Rate:

Fixed rate home loans offer a fixed interest rate for a set period of time. Subsequently it offers Stability as the fixed repayments allow you to plan your finances and stick to your budget, even during times of economic uncertainty. However, fixed loans generally have limited features and penalise early termination, with additional payments often limited.

Standard Variable Rate:

A standard variable rate loan is one where the interest charged moves according to changes in the RBA cash rate. It is one of the most popular kinds of loans as it offers a lot of features, flexibility, often lower interest rates and fees. This loan is particularly suitable if you want to make extra repayments without penalty, split your loan or access a line of credit. In return for these benefits, a standard variable rate mortgage will have a higher interest rate than a basic home loan with little or no features such as offset, credit card and fee free transactional account.

Variations:

Split/Combination Loans:

A split loan is essentially a hybrid between a fixed and variable loan, thus bringing together the benefits of variable and fixed interest rates into a single home loan. The loan can be split many ways: 60% variable, 40% fixed or 50/50 splits are most common but any ratio can be used.

Split loans are useful in times of economic uncertainty, particularly when interest rates are rising. By splitting a loan, borrowers can hedge against the risk of higher rates whilst still keeping part of their loan at the lower variable rate. It has the ability of a Standard Variable Rate to make additional repayments without penalty, offset their pay to reduce interest whilst having the comfort of a fixed (yearly) monthly repayment for a portion of the loan.

Low Start/ High Start Loans:

Low start loans allow for low initial repayments which increase over the loan’s term. High start loans start with a high repayment and decrease over the life of the loan. Both options are designed to give cash flexibility to suit the differing needs of clients.

Interest Only Loans:

An Interest Only Loan is a type of loan where only the interest component is paid off via repayments while the principal component is paid in full at the term’s end. Furthermore, because borrowers only repay the interest component, interest only loans have lower repayments than principal and interest loans. These loans are particularly suitable for investors, however they are also appropriate for general home buyers, refinancing an existing loan, as bridging finance or to pay for home renovations.

Line of Credit:

A line of credit home loan is a credit facility secured with a first mortgage on a residential property. Similar to a credit card, they allow fund withdrawal up to a set limit at any time. Repayments can be made in full or on a monthly basis. This type of loan can be used to purchase most types of property, from the family home to an investment property. As long as you make the minimum monthly repayments, it can be used to carry out renovations, invest in shares or pay the bills. Some LOCs do not require monthly repayments and they can be capitalised to the limit drawn.

Lo Doc:

A Low Doc loan refers to a loan which requires the borrower to show a very little amount of income details. This type of loan caters mainly for self-employed borrowers who are unable to provide full financial statements and other evidence of their income.

There are a growing range of lo-doc products offering standard and premium lo-doc loans with the choice of fixed or variable interest rates. Borrowers also get access to a range of new loan features and options. However, most lenders require lo-doc borrowers to take out lenders’ mortgage insurance when borrowing from 60% of the property value. Some lenders also charge a higher interest rate for these products. These rates may be reduced after a certain time period or when you provide tax returns.

Bridging Loan:

A Home to Home Loan is one where the lender funds the purchasing of a new home prior to selling the old one. This loan gives you a line of credit on your mortgage up to an approved amount. The amount which can be borrowed depends on existing borrowings, income and assets. And if the equity is for an investment property, the new and current property values will be assessed. However, it is important to remember that all debt needs to be carefully managed to maximise investment returns and minimise risks.

Family Pledge Loan:

The Family Pledge home loan allows one family member to pledge part of their home security for your plan. This pledge is used instead of the usual 20% deposit meaning that there is no need to save the deposit or pay the mortgage insurance.

As the loan balance reduces, or when the value of the new home increases, the guarantee is removed and the new loan can stand alone, with no re-financing costs.

Professional Packages:

A professional package is where the lender, in an effort to attract people on higher incomes or those regarded as low-risk borrowers, offer special loan deals known as professional packages. Professional packages generally offer discounts off lenders’ standard variable interest rate and off fixed interest rates. Depending on the size of the loan, bigger discounts apply.
Typically lenders require the borrower to bundle all their personal banking into the one package. Most charge an annual fee but offer a range of range of discounts on accounts such as credit cards, fee free accounts, transaction, margin loans and insurance.