Types of Loans
Which home loan could suit you?
The home loan market doesn’t stand still. New products are launched almost every day. Your Mortgage Choice broker can compare and contrast over 300 different home loan products from the lenders on our panel to see which ones suit you and your goals.
You should also use our mortgage calculators as a guide to how much you can borrow and what your repayments will be.
When you’re ready to discuss your options in more detail it’s simple to make an appointment to speak to a Mortgage Choice broker.
What types of home loans are available?
Standard variable home loan (with 100% offset)
Australia’s most popular type of loan. The interest rate varies throughout the term of the loan. The term is generally up to 25-30 years.
Pros:
* When interest rates fall, repayments fall
* You can make additional payments without penalty
* Often has more features such as redraw facilities
Cons:
* When interest rates rise, so do your repayments
* The extra features may cost you more
Basic variable home 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
* Repayments are also lower
Cons:
* May not offer the features or flexibility of other loans (not portable)
Fixed rate home loan
Fixed rate loans protect you against interest rate changes for an agreed time, so you have peace of mind knowing your repayments won’t increase. However, you won’t benefit if rates go down during the fixed term.
Pros:
* When interest rates rise, your repayments won’t
Cons:
* Reduced flexibility
* Extra repayments can mean early repayment costs
Introductory home loan
The interest rate is usually low to attract borrowers. Also known as a honeymoon rate, this rate generally lasts only for around 12 months before it rises. Rates can be fixed or capped. Most revert to the standard rates at the end of the honeymoon period.
Pros:
* Usually the lowest available rates
* When payments are made at the introductory rate, the principal can be reduced quickly
* Some lenders provide an offset account against these loans
Cons:
* Payments usually increase after the introductory period
Low-doc home loan
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
* No financial records
* Fully serviceable loan options, redraws, line of credit, variable or fixed rates,
* Principal & Interest or interest only loans
Cons:
* Generally a higher interest rate
Line of credit mortgage
This type of home loan revolves around credit secured against a residential property, allowing access to funds when needed. These products are creative ways to raise funds for investment by providing cash up to a pre-arranged limit.
Pros:
* Use the money you need and pay it back when you can
* Interest rates tend to be lower than credit cards or personal loans
Cons:
* Possibly reduces equity in your residential property
Non - conforming home 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
No deposit home loan
Some lenders offer loans that do not require a deposit. However, you will need to be able to provide solid proof of your ability to make payments, which usually means that you will need to be in secure employment.
Pros:
* Allows buyers to get into the market sooner
Cons:
* Higher interest rate than traditional loans
This is only a quick overview of the different types of home loans available. Your specialist Mortgage Choice broker will review the available home loan products against your specific requirements to help you find the loan that suits you.
