When you’re looking for a new home you probably have a good idea of what you’re looking for – what it looks like, what size it is, even where it’s located, maybe even right down to the street. But when it comes to a loan, where do you start? There are hundreds of loans from a huge choice of lenders. And there are new products coming into the market all the time.
As a broker, our job is to help you find one loan out of the hundreds available that suits your individual needs. What’s more, we’ll help manage the whole process for you. We’ll assist you with the paperwork, and manage the application process right through to approval.
Of course with all loan products there are pros and cons, so it’s a good idea to get familiar with the different loan types. Here’s a quick look at the main types of loans and some of their advantages and disadvantages.
Standard variable loans are the most popular home loan in Australia. Interest rates go up or down over the life of the loan depending on the official rate set by the Reserve Bank of Australia and funding costs and the individual decisions of each lender. Your regular repayments generally pay off both the interest and some of the principal.
You may also be able to choose a basic variable loan, which offers a discounted interest rate but has fewer loan features, such as a redraw facility and repayment flexibility.
The interest rate is fixed for a certain period, usually the first one to five years of the loan. This means your regular repayments stay the same regardless of changes in interest rates. At the end of the fixed period you can decide whether to fix the rate again, at whatever rate lenders are offering, or move to a variable loan.
Split rate loans
Your loan amount is split, so one part is variable, and the other is fixed. You decide on the proportion of variable and fixed. You enjoy some of the flexibility of a variable loan along with some of the certainty of a fixed rate loan.
You repay only the interest on the amount borrowed usually for the first one to five years of the loan, although some lenders offer longer terms. Because you’re not also paying off the principal, your monthly repayments are lower. At the end of the interest-only period, you begin to pay off both interest and principal. These loans are especially popular with investors who plan to pay off the principal when the property is sold. This strategy is usually reliant on the property having achieved capital growth before it is sold.
Line of Credit
You can pay into and withdraw from your home loan every month, so long as you keep up the regular required repayments. Many people choose to have their salary paid into their line of credit account. This type of loan is good for people who want maximum flexibility in their access to funds.
Originally designed for first-home buyers, but now available more widely, introductory loans offer a discounted interest rate for the first 12 months – 5 years, before the rate reverts to the usual variable interest rate.
Popular with self-employed people, these loans require less documentation or proof of income than most, but often carry higher interest rates or require a larger deposit because of the perceived higher lender risk. In most cases you will be financially better off getting together full documentation for another type of loan. But if this isn’t possible, a low doc loan may be your best opportunity to borrow money.