VARIABLE RATE LOAN
Most Lenders offer a variable rate loan. The interest rate on these loans does exactly what the name suggests, it can vary over time depending on the market. Variable loans include basic, standard, or revolving line of credit products and are traditionally the most flexible. Variable loans generally allow you to have offset accounts, make extra repayments and have loan redraw. It also allows you to pay your loan out early.
INTRODUCTORY OR HONEYMOON LOAN
Introductory or honeymoon rates give the customer a special reduced rate normally for the first 2 or 3 years of their loan. It is normally a variable loan that reverts to a higher rate when the honeymoon period ends. The benefit of the introductory rate is that repayments are lower during the honeymoon period. This can give first home buyers or renovators some breathing space.
BASIC OR “NO FRILLS” LOANS
Many lenders offer a basic home loan which has a lower variable interest rate than their standard variable rate loan. The trade off is that these discount loans generally have fewer features (eg. no offset accounts) and may have additional fees.
FIXED RATE LOANS
Fixed loans generally allow a borrower to lock in an interest rate for a particular period of time, normally 1-5 years. Customers who choose a fixed rate know that their repayments will not change for the fixed period and that if interest rates rise or fall, their rate will remain the same. Features such as loan redraw or mortgage offset accounts are usually not available during the fixed period. If you pay your loan out during the fixed rate period (ie. refinance or sell your home), you may incur additional break costs.
LINES OF CREDIT
A revolving line of credit is essentially an overdraft where you can at any time draw the loan balance up to the original amount borrowed. Usually minimum repayments on a Line of Credit facility are interest only. If used properly, the borrower may not have to take out new loans for future purposes thereby saving in loan setup cost and government charges. Lines of Credit often have higher interest rates than variable rate loans and can be a trap for those who aren’t good at budgeting. So if you want the flexibility but would prefer the safety of set monthly repayments, an offset facility may be a better option.
When initially introduced, these loans were for certain professional bodies who had agreements with Banks whereby their members would receive an interest rate discount. These days the Packaged Loans are available to everyone providing you borrow a minimum loan amount and/or meet minimum equity requirements. The loans are either variable or fixed rate loans offered at a discounted interest rate and often with nil application fees (an annual package fee will normally apply).
Bridging finance allows a borrower to purchase a new property while they wait for their current property to sell. This can be useful if the settlement date of the new property purchase takes place before the sale of the original property. If these two transactions are, say, several weeks apart, bridging finance can help fill that gap.
Splitting a loan is a great way to reduce the effects of interest rate movements while you retain the flexibility offered by a variable rate loan. Your variable portion accesses the features afforded by a variable rate loan and your fixed portion is protecting you against interest rate movements during the fixed rate period. Split loans are sometimes called “combination loans”.
LOW DOC LOANS
Low Documentation loans are designed for the self-employed or small company borrower whose financial statements may not be available for many different reasons i.e. the accountant has yet to complete their tax returns. The borrower must have a sizeable deposit or equity in existing real estate to qualify.