Variable Rate Home Loans
A variable home loan interest rate moves up and down with market interest rates.
- Standard variable home loans suit most borrowers due to their flexibility.
- Changes can be made throughout the life of the home loan as either your personal finances or economic conditions vary.
- If you are an owner-occupied borrower, principal and interest repayments could suit you, as the balance is reduced from the very beginning.
- For investors, interest-only repayments might be ideal because they allow you to claim the maximum tax deductions on your property purchase.
- If interest rates fall, the size of your minimum repayments will too.
- Standard variable loans allow you to make extra repayments.
- If interest rates rise, the size of your repayments will too.
- You need to be careful with your redraw facility on a standard variable loan. If you access it too often, it will take much longer and cost more to pay off your loan.
Fixed Rate Home Loans
If you choose to fix your interest rate, it will not change during the fixed rate period and your repayments will remain the same.
- Fixed rate home and investment loans set the interest rate at one level for a nominated term – usually one to five years.
- You have the benefit of knowing exactly what payments are required of you during that period.
- You may end up paying either less or more than the standard variable rate, but the advantage is that you have locked in a rate that you’re comfortable with and the uncertainty of the situation is removed.
- Your regular repayments are won’t change with any increase in interest rates.
- You can manage your household budget better during the fixed period, knowing exactly how much you need to pay on your home loan every fortnight or month.
- If interest rates go down, you don’t get the cheaper rate. Your regular repayments stay the same.
- There is very limited opportunity for additional repayments during the fixed rate period.
- You may be penalised financially if you exit the loan before the end of the fixed rate period.
Low Doc Home Loans
- Low-doc loans require less paperwork to show savings history and capacity to repay the loan.
- As a low-doc borrower, most lenders want to see your BAS or, if you have them,
- These loans are extremely handy for self-employed and contract workers who’s tax returns and financials may not reflect their true income.
- It essentially caters to those not meeting standard lending criteria.
- Low-doc loans have allowed thousands of self-employed Australians who, for various reasons, have been rejected by mainstream credit providers, to access a mortgage.
- Simple income declaration form
- No tax return required
- Minimal financial records required
- Fully serviceable loan options, redraws, line of credit, variable or fixed rates, P&I or interest only loans
- Low-docs usually attract higher interest rates and establishment fees than conforming products.
- You may be required to pay Lenders Mortgage Insurance depending on your deposit.
You repay the interest only on the amount borrowed usually for the first one to five years of the loan.
- Because you’re not paying off any principal from the loan amount, your monthly repayments are lower.
- At the end of the interest-only period, you then start to pay off both Principal & Interest.
• Lower regular repayments during the interest only period.
• If it is not a fixed rate loan, you have the flexibility to pay off, and often redraw, the principal at your convenience.
- At the end of the interest only period you have the same level of debt as when you started.
- If you’re not able to extend your interest-only period, you could face the possibility of increased repayments.
- You could face a sudden increase in regular repayments at the end of the interest-only period.
Line Of Credit
- Lines of credit are similar to having a big credit card, but with interest accruing on the balance.
- A line of credit, or equity line as they’re sometimes called, is an approved limit of borrowings that you can use a piece-at-a-time or all at once.
- Some lines of credit will allow you to capitalise the interest until you either reach the limit of the line of credit, or a set percentage of the limit. This means that the repayments can be added to the amount already drawn down
- Greater flexibility in managing the size and the timing of your repayments
- Interest rates tend to be lower than credit cards or personal loans
- Possibly reduces equity in your residential property
- Usually rates are slightly higher than normal home loan rates
100% Offset Home Loans
- The interest rate is usually low to attract borrowers.
- Also known as a honeymoon loan, this rate generally lasts only for a few years before it rises.
- Rates can be fixed or capped. Most revert to the standard rates.
- Usually the lowest available rates
- When payments are made at the introductory rate, the principal can be reduced quickly
- Payments usually increase after the introductory period
- If you are considering building your new home on existing land or renovating or extending your current home, you’ll need construction finance.
- This can be either through a Registered Builder with a Fixed Price Building Contract which is the traditional way or you can Owner Build, however, Owner Builder construction loans are not popular with banks and are harder to obtain.
- Saves interest because interest is calculated on the outstanding balance, not the maximum loan amount which has been agreed to.
- You are paying less interest on the loan. For example, if the lender has agreed to lend you $200,000 but you have only drawn down $100,000 to pay for the land and $25,000 as an initial payment to the builder at this point, you are only charged interest on $125,000, not $200,000.
- During construction, loan repayments are interest-only, payable only on the amount of the loan that has been drawndown, which means lower repayments.
- You can’t move into your home right away
- There can be delays in building
- You may have to rent during this period which ads another cost
Basic Home Loan
- Lenders now offer basic variable loans with lower interest rates.
- They have fewer features than a standard variable loan.
- The interest rates and repayments vary over the term of the loan.
- Usually have a low interest rate
- Repayments are also lower
- May not offer the features or flexibility of other loans (not portable)