Types of Loans

Fixed Rate Home Loan

 

A fixed rate loan has a fixed interest rate for a term of the loan. Fixed terms generally range from 12 months through to 10 years. Whilst the fixed rate home loan is more restrictive than a variable rate loan, it provides you with the comfort that your repayments will not change during the fixed rate term of the loan.

 

Advantages:

  • repayments do not increase if interest rates increase

  • allows you to budget repayments as they are fixed for the agreed fixed term

  • offers peace of mind that repayments remain the same for the agreed fixed term

 

Disadvantages:

  • additional repayments may be limited if not unavailable

  • fees may apply if loan is paid out during the fixed rate period

  • as interest rates decrease, the rate remains fixed and does not decrease

Variable Rate Home Loan

 

Generally the most flexible of all loan types, the Variable rate allows additional repayments, redraw and offset facilities. Variable rate products vary in flexibility with the Basic Variable rate home loan generally offering less flexibility than the Standard Variable Rate home loan. The rate is variable and traditionally moves in line with changes to interest rates as determined by the Reserve Bank.

 

Advantages:

  • as interest rates decrease, the interest component of your repayment amount may decrease 

  • flexibility to make additional loan repayments 

  • redraw facility on surplus funds from additional loan repayments

 

Disadvantages:

  • as interest rates increase, repayment amounts increase

Combination / Split Loan

 

A Combination or Split Home Loan enables you to take advantage of the best features of both a Variable Rate home loan and a Fixed Rate home loan by splitting your requirements.

 

Advantages:

  • certainty of repayments for a portion of the loan

  • flexibility to make additional repayments on the Variable Rate home loan portion

  • as interest rates decrease, the interest component of the Variable Rate home loan repayment amount may decrease

 

Disadvantages:

  • as interest rates increase, repayment amounts on the Variable Rate home loan portion increase

  • as interest rates decrease, the fixed rate component remains fixed and does not decrease

Line of Credit Home Loan

 

This type of loan is an interest only variable rate home loan based around the equity you have in your property. A limit is established based upon the value of your property and you are then able to use the Line of Credit facility (much as you would a Credit Card) up to the approved limit. 

 

Advantages:

  • ability to draw on funds up to the pre-determined credit limit

  • attractive option for investors to access money easily

  • flexibility to make additional repayments when you choose

 

Disadvantages: 

  • generally attracts a higher rate of interest than Standard Variable rate

  • as interest rates increase, interest payments are capitalised at the increased rate

Home to Home Loan (Bridging Loan)

 

If you own an existing property and are looking to purchase an established home or constructing a new home, the Home to Home loan is an option. These products are based on short term finance to provide the ability to purchase a new property prior to the sale of an existing one

 

Advantages:

  • allows you to remain in your existing property while your new home is built or your existing property is sold

  • dependant on the equity you have in your existing property, loan repayments may be capitalised during the period between the sale of your existing home and moving into your new home

 

Disadvantages: 

  • capitalised loan repayments reduces your equity

Low Doc Home Loan

 

These types of loans require less documentation than do standard home loan offerings. Lo-doc home loans are ideal for the self employed and those with more complex financial structures.

 

Advantages:

  • less documentation declaring proof of income is usually required for the self-employed

 

Disadvantages: 

  • generally attracts a higher rate of interest than a standard variable interest rate

  • traditionally a lesser amount of funds may be borrowed against the value of your property

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David Goode is a Credit Representative (Credit Representative Number 400233) of 

Buyers Choice Licencing Pty Ltd ACN 626 172 281 (Australian Credit Licence No.509484)

Compass Finance Brokers (ABN: 64 109 381 259) is a Credit Representative (Number 396986)
of Buyers Choice Licencing Pty Ltd ACN 626 172 281 (Australian Credit Licence No.509484)

David Goode contracts to Westate Finance, which is owned by Buyer’s Choice Home Loan Advisory Service Pty Ltd.

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