loans
So you're looking for a loan of some description!
Although it's fine for us to say that we are accredited with over 40 different lenders with access to thousands of products, what if you don't even know what type of loan you would like?
Well to help you, please find following a list of the main type's loans that you can choose from.
Remember, you don't have to choose one type over another. We can arrange to split your loan into different parts you like.
If we have used some terms that you are not familiar with in the explanations just scroll down and you'll get to where the terms are explained.
If you're not one for reading, simply email us your question via the home page "Ask a question" box or even better, just give us a call on 0400737767.
Basic loans This is a loan product which comes with a cheaper rate to offset the lack of features normally found in a standard variable rate loan. They are an excellent option for those wanting a cheap rate with no requirement for all the bells & whistles.
Bridging loans A loan that is usually needed when you purchase again before selling an existing property.
Construction loan A loan that covers the construction period when building a property. The loan is usually drawn via progress payments which you and your builder agree to before commencing the construction. You only pay interest on the loan amount that is drawn at any stage.
Discount variable These styles of loans have an introductory or "honeymoon" rate for an initial period of the loan before reverting to the standard variable rate. This can free up a little spare cash in the first year of your new loan.
Interest Only Home Loan With an interest only home loan, repayments only cover the interest component. The principal is repaid in full at the end of the loan term (usually three to five years). Because borrowers only repay the interest component, interest only loans have lower repayments than principal and interest loans. These loans offer m any of the same features as traditional loans. Interest only loans are particularly suitable for investors. However interest only loans are also suitable for general home buyers, refinancing an existing loan, as bridging finance or to pay for home renovations .
Investment loans These loans are not a different loan as such. It is essentially a loan where the funds are used for investment or business related purposes. In "broker speak" they are referred to as UNREGULATED loans. They are simply a home loan to purchase an investment property. In the "old days" they came with a slightly higher interest rate than home loans, but as time has passed on there does not tend to be any difference in rates. Some lenders offer slightly different features to these compared to their home loan counterparts.
Line of credit loan - A convenient and versatile loan where the lender approves a preset limit for you to spend on anything worthwhile (conditions will apply) You can get access to the money via many methods including via ATM's, internet, a cheque book or even credit card. A line of credit loan works very well for the disciplined borrower, and for investors who need instant access to cash to take advantage of any bargains that they come across. If you have withdrawn less than the approved limit, then there are some products where you don't even have to make monthly repayments. The interest just capitalises (that is it gets added to the loan).
A word of warning in relation to Lines of Credit. Although giving the greatest flexibility, they are not the correct product for those who are not very disciplined with their finances.
However if you are careful with your money and want the flexibility a line of credit offers, this type of loan may suit you.
Fixed Rate Home Loans If you're worried about rising interest rates , then a fixed rate home loan may be the solution. As the name suggests the interest rate is FIXED. These loans give peace of mind by knowing exactly what your repayments will be for a set period. You can fix your loan for somewhere between 1 to 15 years. Historically although these loan types gave you certainty in relation to your monthly loan repayments they tended not to be very flexible. That meant that you couldn't pay extra off (without some kind of penalty).
Fixed rate loans available in the marketplace at the moment are becoming quite flexible. They allow the ability to pay up to $20,000 extra per year without penalty. There are even lenders that let you have a 100% offset facility with these loans. Note, however in all cases there could be a penalty if you paid the loan out in full before the end of the contracted term. This is especially the case if current interest rates are lower than the rate you have fixed.
At the end of the fixed period, you can switch to a variable rate loan or negotiate a new fixed rate or even opt for a split rate loan .
Time to fix- Knowing when to take a fixed rate is difficult. Even the best economists can't predict with absolute certainty when interest rates will rise or fall. For this reason, many borrowers opt to fix for periods of less than three years. That way if rates do fall, you are only paying a higher rate of interest for a relatively short period.
When considering a fixed rate home loan, spend some time researching recent rate movements, and brush up on your general economic news. As a rule of thumb, it is best to fix at the bottom, or near the bottom of an interest rate cycle before rates start rising again.
Low doc loans - These are a new and very handy style of loan. These loans are intended for self employed borrowers who, for whatever reason, are unable or do not wish to provide full financial statements to the lenders. These loans can be a great option for small business owners who may not have all their financials in order, or people who earn irregular income. The lender requires the borrower to sign a statement declaring their ability to meet the repayments without undue hardship. They need to self-certify their income or the lender may require the borrower's accountant to verify the declared income . Look at the Self employed / lo doc page for further information.
No deposit loans - UNFORTUNATELY, POST GFC, THESE LOAN TYPES ARE NOT AVAILABLE AT THE MOMENT. As the name implies no deposit is required. Most people are surprised to learn that they can borrow 100% of the purchase price (subject to valuation) of a residential property. The name can be a little misleading in a sense because you still need to have funds to cover all the purchase costs (including all the statutory fees)..
Non conforming loans These are loans provided by mainly non bank lenders to borrowers that do not meet the credit criteria set by the major banks e.g. people who have varying degrees of credit impairment can often obtain loans from non-conforming lenders. The interest rate increases with the degree of credit impairment to compensate the lender for the perceived risk. Many of these lenders are now allowing the loan to revert over time to the standard variable rate if the loan is conducted satisfactorily. For more information go to the credit impaired page.
P & I (principal and interest) loans Loans where the outstanding balance reduces as the loan is repaid. Repayments are higher than Interest Only Loans. In other words, the repayments include the interest due and a little bit of the principle(original amount borrowed)
Pro - Pack Loans - Many lenders offer "Professional Packs" which provide significant interest rate discounts and lower or no application fees. These discounts usually apply for loans over a minimum size. There are usually other great discounts and features "thrown in." Once again thanks to competition in the marketplace anyone can gain access to a discount if their loan size is over $250K. Not so much of a hurdle these days!
These products tend to price at the same level as Basic loan products but you get all the bells & whistles with the loan plus other discounts. There is usually an annual fee payable ( $300 - $400) but no upfront loan application fees or monthly maintenance fees.
Reverse mortgages - Fantastic idea for asset rich but cash poor seniors. It's a loan where the homeowner borrows against the equity in their home and the lender is repaid from the sale of the home when the borrower moves or dies. Interest repayments are not required. These products are only available for seniors (at least age 60). This is an extremely fast growing segment. We have considerable information available on these types of products. Have a look at our dedicated Reverse Mortgage page for as much information as could ask for including a calculator to see how they work.
Split Rate Home Loan - A split or combination loan which brings together the benefits of variable and fixed interest rates into a single home loan. What makes this type of loan attractive for first time and existing borrowers is the ability to customise the loan and add as many features as required. The loan can be split many ways: 60% variable, 40% fixed or 50/50 splits are most common.
Split loans are useful in times of economic uncertainty, particularly when interest rates are rising. By splitting a loan, borrowers can hedge against the risk of higher rates whilst still keeping part of their loan at the lower variable rate.
Standard Variable Rate Home Loan - A standard variable rate home loan is one of the most popular mortgages around. For many borrowers, a standard home loan offers the right mix of features, flexibility, interest rate and fees.
This type of loan is particularly suitable if you want to make extra repayments without penalty, split your loan or access a line of credit . In return for these benefits, a standard variable rate mortgage will have a higher interest rate than a basic home loan .
Variable rate loans - Loans where the interest rate can vary with time. When you hear on the news that the RBA changed rates today - It means that your Home/ Investment Loan Interest rate will most probably change by the same.
Home Loan Jargon
Conveyancing
The term used to describe the legal work conducted by a solicitor on your behalf when purchasing or selling a property.
Conditional approval
Loan has been assessed and is approved subject to certain conditions being satisfied.
Formal approval
Loan has been approved with no conditions
Genuine savings
Your deposit has been genuinely saved over a period of time. Lenders look for this as it signifies a saving ability, and thus implies an ability to meet the new monthly interest repayments. It differs from non-genuine savings such as money gifted to you, money you've gained by selling an asset (like a car) or money you obtain by borrowing from elsewhere.
Lenders Mortgage Insurance (LMI) - If you are buying a property and have less than a 20 per cent deposit, you may be required to pay Lender's Mortgage Insurance.
Lenders Mortgage Insurance insures your lender against non-payment or default on your residential property loan. While it protects the lender against loss if you stop making your mortgage payments they make the borrower pay the premium. That said Lender's Mortgage Insurance makes it possible for purchasers to buy a home with as little as a 5 per cent deposit.
When you take out a loan, you pay a once-off fee to the lender. Fees vary according to the amount borrowed and the size of your deposit. You can pay the fee up-front or add it to the total loan amount.
While Lender's Mortgage Insurance is not mandatory, most lenders require it if you are borrowing more than 80 per cent of the property's value. One way to avoid the insurance costs is to save more for your deposit. One of our aims is to come up with strategies for you to avoid paying this cost where possible.
Loan to Valuation Ratio (LVR) - This term is used a lot in home lending. It is simply the amount of your loan compared to the value of the property/s expressed as a percentage. e.g. Your loan is $150 000 and the property is valued at $300 000. The LVR is 50%
Mortgage - Just a name for an instrument showing a right. It's an IOU to the bank.
Offset Account - A mortgage offset account is simply a savings account linked to your loan account. An offset account works like a regular savings account. The big difference is that the balance in the savings account is offset against that owing on the mortgage. Any ˜notional' interest on savings is earned at the same rate as the linked loan.
Over time, savings in your offset account can help to reduce the loan principal, allowing you to pay off your loan sooner or build up equity.
There are two different types of offset accounts a "100 per cent offset and a partial offset account". As the benefits of offset accounts have become more widely understood, most lenders and borrowers opt for a 100 per cent offset facility.
Example: Bill and Sue have a $2500,000 mortgage and $25,000 in a linked 100 per cent offset account.
The principal on a $250,000 loan is reduced by the $25,000 offset account to $225,000.
As a result interest only accumulates on the $225,000 balance of the loan.
Repayments continue to be made on the entire $250,000
While savings in the offset account are actively working to reduce the loan, repayments are working more effectively to reduce both the principal and interest it attracts
Over a number of years, both the principal and interest on your loan are repaid faster.
Redraw Facility - Redraw allows you to make additional repayments into your loan account and then access these extra funds when necessary. A redraw facility has two key advantages; it encourages borrowers to make extra repayments, thereby saving on interest and it provides flexible access to funds when they are required.
Just about all mortgage products offer this facility including many of the Basic Home Loans. When considering a loan with a redraw facility, think about the following:
How many free redraws are offered per year? Once you reach your quota, some lenders charge a set fee for each redraw, typically $10 to $50. Some offer unlimited redraws.
Is there a minimum or maximum redraw amount?
Depending on the fees attached a redraw facility works best for borrowers who need to redraw against extra repayments infrequently. If you plan to use your home loan as your main transaction account, a redraw facility may not be the most appropriate product.
