Choosing the right home loan is never easy. Beyond the wide choice of banks, credit unions and other lenders, there's also a wide choice of loan products available. It's no wonder people can find it overwhelming.
Your Bernie Lewis mortgage adviser will take you through an advice journey that will consider your needs and goals to arrive at the most appropriate loan solution for you. To help you understand the various types of loans that are available an outline of each loan type is set out below
Variable interest rate loan
The standard variable rate loan comes with many options and the interest rate fluctuates depending on market conditions. You have flexibility of making additional repayments without penalty and the ability to redraw those additional repayments you have made at any time.
Many lenders also offer a basic variable rate loan with a lower rate than the standard variable rate loan. These loans generally have many of the same features as their standard variable rate cousins, but often aren‟t as flexible. For example, some of these loans may not allow the redraw of additional payments or may incur fees to do so.
You may consider a variable rate loan if:
- you want ultimate flexibility with your loan
- you want to be able to make large principal repayments on your loan
- you have the capacity to absorb increases in interest rates without undue hardship, and conversely, benefit from rate decreases
Fixed interest rate loan
A fixed interest rate loan allows you to fix the interest rate for a period of time, generally between one and five years. Some lenders have fixed terms of up to 15 years. After the fixed term the loan usually reverts to the standard variable rate on offer at that time or you may choose to refix the loan for another term.
You may consider a fixed rate loan if:
- you are on a tight budget and need certainty of the repayment amount each month
- you are an investor looking to achieve a fixed return on
- your investment you believe interest rates may rise significantly in the future and can‟t afford an increase to your repayments
If you decide to sell your home or refinance your loan whilst on a fixed rate term you will generally incur a penalty.
Line of credit
These loans provide the ultimate in flexibility. Your total income is deposited into the loan account thereby reducing the balance immediately. As interest is charged daily on the outstanding balance, while that money sits in the loan account the interest charged will be lower. The easiest way to understand how these accounts work is to look at them like a savings account in reverse. The balance is always negative and the closer to zero you get the better off you are.
You may consider a line of credit if:
- you want to pay as little interest as possible; and
- you can effectively manage your money and keep to a budget
Low doc loan
This type of loan is designed for those who are unable to produce standard financial records to verify their income. In most cases you will need to have been self-employed for 2 years. Generally, borrowings of up to 80% of the purchase price or valuation (whichever is the lesser) is allowed.
Professional package
A professional package can give you all the benefits of a standard variable rate loan with a discount on interest rate as well as other benefits, such as a credit card and a discount on the establishment fee. Eligibility is based on income or loan limit. Most lenders charge an annual or monthly fee for this privilege.
Family guarantee
This is a finance solution designed to help people enter the property market with little or no deposit. There are also other situations such as matrimonial splits where a family guarantee can allow a borrower to retain the family home.
Borrowers are able to purchase or refinance the property by relying on guarantors for security and/or servicing support. The guarantor should usually be a parent, parent in law or step parent; however lenders will look at each case individually.
Reverse mortgage
A reverse mortgage is a product for those over the age of 60. It allows you to release some of the equity you have tied up in your home or investment property. It can be accessed as either a lump sum, or as a series of regular payments.
The amount of equity you can access depends on your age and the value of your property. In general the older you are the more money you can borrow. You can use the funds for any purpose.
A reverse mortgage works in the opposite way to a standard home loan. It is a loan that does not need to be repaid whilst you live in the property. The loan amount plus accrued interest is repaid upon sale of the property.
