Range of Home Loans available to borrowers
There are are Range of Home Loans available to borrowers in Australia. It can be hard to understand their features and whether they are right for you. This guide explains all you need to know.
Variable loans are loans that are subject to interest rate fluctuations. Whenever your bank increases or decreases interest rates, you will end up paying more or less for your loan.
Generally an owner occupied mortgage is over 30 years. You can reduce the overall term by making higher repayments, weekly or fortnightly payments.
Fixed loans allow you to lock in a specific interest rate over a set period of time, generally between one and five years. This loan is popular among borrowers who want to ensure their repayments don’t rise.
The risk is if variable rates fall, you are locked in at the higher rate.
The cost of breaking a fixed rate loan contract can be substantial, and there can be financial penalties for making additional payments.
You can take out a mortgage with one portion of the loan variable, and the other fixed. In many ways, this offers the best of both worlds and you have the flexibility to repay more on the variable loan and reduce risk through the fixed loan.
Mortgage lenders require you to provide evidence of your ability to meet loan repayments. This can be a problem for non-salaried workers such as the self-employed.
Low-doc loans require less proof-of-income paperwork, but the interest rate levied is often higher than the standard variable rate.
Professional or packaged loans
Some lenders offer mortgages that provide ‘lifetime’ discounted interest rates, fee waivers and linked savings accounts and credit cards.
Non-genuine savings loans
Lenders prefer borrowers to show they have the ability to save funds over time to cover their repayments.
Non genuine savings can come from an inheritance, family or other sources, lenders may provide less funding and require lenders mortgage insurance.
Lenders mortgage insurance is a one-off insurance payment that covers the bank in case you can’t make your repayments. This for home loans with a loan-to-value ratio (LVR) over 80%.
Construction loans are to finance construction. The loan is drawn down progressively at various stages during construction.
Repayments of interest only are made on the balance that has been drawn down. When fully drawn principal and interest applies.
Uses the equity in your property as security. Fund are a set to a limit, funds can be used for any purpose..
Like a credit card, repayments are made on the account balance.
Line-of-credit loans are often interest only for a significant period, but can revert to principal and interest repayments down the track. Most lenders charge extra for line of credit accounts with fees and/or a higher interest rate.
Bridging loans is a short-term financing options for borrowers to fund a new residence before selling their existing home. The interest rates on these loans are higher than standard variable interest rate.
The rules around borrowing funds within a self-managed superannuation fund are complex.
Borrowing with a SMSF must be through a limited recourse borrowing arrangement.
This limits the recourse of the lender to a single asset.
With lenders offering many different products, getting professional advice is a must. A Fight Cancer Home Loan mortgage broker will support you with recommendations about what’s best for your personal circumstances.