Types of loans
Our role as your mortgage specialist is to provide you with a comparison of various loan options from a panel of lenders and assist you with choosing the right loan for your circumstances. Whether you’re buying your first home, upgrading, refinancing, investing in property or wanting to pay off your existing home loan sooner, there are many options available when choosing a home loan. Because your home loan will probably be your life’s biggest investment it is important that you obtain the best advice and make a decision based on the option that best suits your personal circumstances. Our role as your mortgage specialist is to guide you through the process to ensure that all your needs and options are considered.
These loans are the most common type available. The variable rate loan offers more features and flexibility than the basic or ‘no frills’ loan, so the rate is usually slightly higher. The extra options (for example a redraw facility, the option to split between fixed and variable, extra repayments and portability) should be taken into account when choosing your type of variable loan. Repayments will vary as interest rates fluctuate.
Fixed rate loans
These loans are set at a fixed interest rate for a specified period (usually one to five years). The advantage of allowing you to organise your finances and repayments without the risk of rising interest rates is offset by the disadvantage of not benefiting from a drop in rates. At the end of the term all fixed loans automatically revert to the applicable variable rate. At this stage you have the option to lock in another fixed rate for a new term, switch to variable or go for a loan where you split with a percentage fixed and the remainder variable. However these loans may have limited features and lack the flexibility of 100% variable loans. There may be early exit fees and limited ability to make extra payments.
100% offset accounts
An offset account is a savings account attached to your loan account. Money in this account is offset against the loan amount thereby reducing interest payable. Significant savings are made by reducing compound interest with the use of these accounts.
Other advantages of an offset account include being able to pay off your home loan faster than the repayment schedule demands and being able to redraw money if the need arises.
Equity lines of credit
These loans are a great way to access the equity in your home to use for things like home renovations, investments or other personal purchases. Repayments on a line of credit loan are determined by the interest rate applicable at that time. If you have sufficient equity in your home and your current loan structure doesn’t allow for withdrawing your equity, you will need to make a separate application for a line of credit loan. You have the added advantage of being able to make unlimited deposits/repayments as your repayments are not set. You must check the conditions of these loans as they are sometimes more expensive than standard products.
If you’re building a new home or planning major renovations to your existing home, a construction loan is generally the most appropriate funding option. The difference between a construction loan and other types of loans is that a construction loan is drawn down in stages and not paid as a lump sum. The draw downs enable the builder of a home to finance the various stages of the construction process from the acquisition of land to the various stages of building.
A bridging loan may be necessary to cover the financial gap when buying one property before the existing one is sold. This finance is generally secured against your property as you are utilising the equity in your existing property. Usually bridging loans are short term and more expensive than other types of loans.
A personal loan might be right for you if you want to fund the purchase of a car, boat, holiday or if you want to consolidate debt. Personal loans may come with lower interest rates than credit cards, so funding a big expense or project with a personal loan could save you thousands of dollars on interest payments.