Mortgage/Home Loans

Home Loans:

Whether you are looking to buy or Refinance there are hundreds of different home loan products on the market. With some products you have the option of making Principal and Interest payments or Interest only payments. Investors are usually advised to make Interest only payments on their investment properties; the theory is that the interest is tax deductible. With this option the loan will remain at the original loan amount. If you wish to have the balance reduce then you would make Principal and Interest payments. We have provided a brief description and some pros and cons to help you understand a few of the loan types.

  • Standard variable loan

this is a standard loan that we have become accustomed to over the years; the interest rate varies throughout the term of the loan. With most standard variable loans you are able to switch to other products; most lenders will charge a fee for the switch.

Pros:

When interest rates fall, your repayments may be reduced
you can make additional payments without penalty
Often with more features
Flexible
some lenders offer an offset account

Cons:  
When interest rates rise, so do your repayments

  • Basic variable loan

Lenders now offer basic variable loans with lower interest rates, but with fewer features than a standard variable loan. The interest rates and repayments vary over the term of the loan.

Pros:   
Usually have a low interest rate

Cons:
May not offer the features or flexibility of other loans

  • Introductory loan

this product is known as the 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.

Pros:
They are usually the lowest rates available
Principal can be reduced quickly
some lenders offer an offset account

Cons:   
In most cases the payments increase after the introductory period

  • Fixed rate loan

this choice is whether you are comfortable with your loan repayments fluctuating with interest rate movements. These days fixed rate loans are not as restricted as they once were. Some lending institutions will allow extra repayments to be made without a penalty e.g. from $5,000 to $25,000 pa.

Pros:
When interest rates rise, your repayments won’t
some lenders offer an offset account

Cons:     
Reduced flexibility
Penalty may apply if extra payments are made

  • Line of credit

this type of loan revolves around credit secured against a residential property generally around 80% of the value of your property, allowing access to funds when needed provided you stay within your limit. It operates like an overdraft account.

Pros:   
Use money as you need it
only pay interest on the amount used
No term attached

Cons:   
Possibly reduces equity in your residential property
If you are undisciplined this loan can get out of control

  • Low-doc loans

A low-doc or no-doc mortgage is ideally suited for investors or self-employed borrowers looking to refinance – purchase or renovate. No tax returns or financial reports are required.

Pros:
Simple income declaration form
No tax return or financial records required
Fully serviceable loan options, redraws, line of credit, variable or fixed rates
Principal & Interest or Interest-only loans

Cons:
Generally a higher interest rate

  • Non-conforming loan

People with poor credit ratings often have trouble sourcing a home loan. Many lenders now offer what are known as ‘non-conforming loans’ for people in this type of situation. While lenders are willing to overlook prior credit problems, they will want to see some evidence of your ability to repay the loan. A larger deposit than is required for traditional loans will generally be required also.

Pros:
Overlooks poor credit rating

Cons:
Higher interest rate than traditional loans

  • Split rate (principal and interest) loans

A split rate loan is a loan that has one portion of the loan fixed and one portion variable. You can select how much to allocate to each.

Pros:
Provides some peace of mind for borrowers concerned about rate rises
Provides more certainty in budgeting than full variable loans
Can make additional payments on variable portion

Cons:
Allows limited additional payments only
Repayments will rise with rate rises

 

Please contact us on 1300 768 618 to see which loan option is best for you.