Home Loan Types
Most lenders offer a package which has a variety of names but can be commonly called a professional package. The professional package normally has an annual fee and includes a few of the lenders different products such as a bank account, credit card and discounts on insurances. Another common feature is a discount off the lenders standard variable rate offering. These packages although having an annual fee can be beneficial as you can have all your various bank fees and products under one umbrella.
A specialised type of borrowing arranged called Self Managed Superannuation Funding (SMSF) also referred to as Limited Recourse Borrowing Arrangement (LRBA). This set up is becoming more popular as it enables people to control their superannuation and purchase property via their super. The initial set up and management is more complex than a normal lending situation and the structure needs to be set up by a qualified financial planner or accountant.
- More control of your superannuation and provides the ability to select the property you want to purchase.
- Large tax advatages if the property is held until retirement
- Tax concession on superannuation contributions or rent received from the property
- Can only be used for Investment purposes You are unable to live in the property)
- Set up costs can be $10,000 or more
- You can't renovate a property purchased via SMSF
Standard Variable rate loan
A loan that provides customers the flexibility of making as many extra repayments as they like and is Australia’s most common type of loan. A loan that normally goes up and down with the Reserve Bank of Australia’s decision on the level of the cash rate but it does not always mean the bank will pass on the RBA’s entire cut. This is normally a product linked with a professional package and generally has features such as redraw, offset account and no penalties for making extra repayments
- If rates decrease normally so do yours meaning lower repayments
- Flexibility of repayments
- Ability to pay extra funds into the account without penalty
- If interest rates do go up so will your repayments
Basic Variable Loan
The name says it all. A loan that has limited features and normally has a low interest rate. This loan does not have the normal bells and whistles of the standard rate and that is reflected in the rate and the lack of annual fees.
- Generally a low interest rate and no annual fees
- These loans generally have fewer options than the standard variable rate loans
Introductory or Honeymoon rate loan
This loan normally has a decreased variable rate for the first 12 months and then switches to a higher variable rate. This loan needs to review for the entirety of the loan and not just the first 12 months.
- Normally one of the lowest rates on the market
- Provides the ability to try to make extra payments in the first 12 months to decrease the loan total
- Payments can increase to quite a high rate after the 12 months or a high switching fee may be charged
- Sometimes restricted to going onto a particular package after the 12 months has finished and could be on a high interest rate or have to pay a fee to enter into a package
Fixed rate loans
A loan that is fixed for a certain time frame in years that you select. Generally the maximum term is 10 years and the most common length chosen is 3 years. It provides you with certainty of repayments for that time period selected.
- If the interest rate rises your repayments will not
- Certainty of repayments
- If rates drop yours will not
- Most finance companies only permit a small amount in additional repayments
- If you sell your property and clear your loan before the fixed preiod finsih's you could be in for a high exit fee
Combination or split loans
Combination loans are normally two loans, one being a standard variable rate loan and the other being a fixed loan. This type of arrangement enables the consumer to make additional repayments in to the variable rate loan without incurring any fees. It also provides a certainty on the fixed portion. A common split is to have a 50/50 loan and have half fixed and half variable.
- If interests rate rise the fixed portion of your loankeeps the same repayments
- If interest rate drops your variable portion will benefit from lower repayments
- Additional payments and lump sum payments are allowed on the variable rate loan
- A portion of your loan will be locked in for a set time
- You will incur a penalty fee if you sell your homoe and clear the loan
Lo Doc Home Loans
A loan normally for self employed people that are unable to provide tax returns and means low documentation.
- No need to provide full tax returns
- It can be a higher interest rate or application fee