Home Loans Terms and Descriptions
Types of Loans
| Loan Type | Benefits | Disadvantages |
|---|---|---|
| Standard Variable Rate | Can pay weekly, fortnightly, monthly. Redraw possible. Extra repayments allowed. May have cheaper interest rate in the first year. | An early repayment fee may apply to loans paid out within a specific time when a “honeymoon” rate is taken. |
| Basic Variable Rate | Low interest rate. Extra repayments allowed. Possible redraw facility. | No off-set available. |
| Off-set | Ready access to savings account by ATM, EFTPOS, cheque. As savings off-set the loan amount a reduction in interest paid may be achieved. | Interest rate may be higher that the standard variable rate. The savings account represents another account to manage. Not all off-sets are 100% off-sets. |
| Line of Credit | Ready access by ATM, EFTPOS, cheque to your approval limit. Reduction in interest paid can occur as all income paid into the account. Extra payments at any time. | Interest rate may be higher than standard variable rate. Disciplined approach needed as ease of access may encourage spending. Interest only, so debt may not reduce if not managed properly. |
| Fixed Rate | Helps budgeting as your repayments are fixed for a period. Some lenders allow you to make extra payments without penalty. Principal and interest payments possible, so loan reduces over time. | Loan can cost more if interest rates decrease. Penalty applies if you break the contract before the end of the term. |
| Combination | Having part of the loan at variable and fixed rates can provide peace of mind. You can manage the variable portion as you would normally. | Professional advice required on how to structure the loan. Short term debt may now be taken over a longer period. |
| Bridging | Allows greater flexibility as you can move in or build your new home before you sell your current one. | You require a stronger financial position because of the greater interest commitment, particularly if you do not sell at the price you wanted or by the target date. |
| Lo Doc | No financials/proof of income required. | Normally 20% deposit /equity required. Interest rates can be higher. Product may have limited features. |
| No doc | No financials/proof of income required. No asset and liabilities declared. | Normally 35% deposit/equity required. Interest rates can be higher. Product may have limited features. |
| Reverse Mortgages | Allows you to borrow money against your property without having to make regular payments. | Interest rates can be between 1-2% higher than the standard variable rate. Product may have limited features. |
NB: These are very general comments. Please consult your Finance Manager for more details.