Home Loans
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The “No frills Home Loan”
A generally low rate variable rate loan with at the expense of minimal features and flexibility
Advantages
- When interest rates fall your minimum loan repayments also fall.
- Generally allows you to make additional repayments without penalty
- Generally a low rate with often reduced fees.
Disadvantages
- When interest rates rise your minimum repayments also rise.
- Repayments are not fixed bringing uncertainty to budgeting.
- Most basic loans don’t provide a redraw facility, offset account, ATM cards or cheque books.
A Basic Home Loan with additional features
The most common type of home loan in Australia. Generally requires principal and interest payments but can be structured as an interest only loans.
Advantages
- When interest rates fall your minimum loan repayments also fall.
- Often allows the splitting of your loan.
- Generally allows you to make additional repayments without penalty.
- Generally have a redraw facility enabling redraw funds you have already paid off your loan.
- Generally has features like offset accounts, ATM cards and cheque books
Disadvantages
- When interest rates rise, your minimum repayments also rise
- Repayments are not fixed bringing uncertainty to budgeting.
Peace of Mind
The interest rate and repayments are fixed for term of the loan (generally 1-5 years).
Fixed rate loans can provide peace of mind as it insulate the borrower from rising interest rates and repayments remain the same regardless of changes to underlying interest rates.
At the end of the fixed term the loan reverts to the standard variable rate or can be refixed.
Advantages
- Repayments won’t change during the fixed loan term.
- Repayments will not increase with increases in the variable interest rate.
- Fixed repayments allow greater certainty for budgeting.
Disadvantages
- Repayments won’t change during the fixed loan term.
- Repayments will not increase with increases in the variable interest rate.
- Fixed repayments allow greater certainty for budgeting.
Maximise your free cash
Interest only loans require only interest payments and no principal repayments for the loan term.
Usually up to 5 years although some lenders offer longer terms and can be extended on application.
Repayments on an interest only loan are lower than a principal and interest loan as the loan principal is not being repaid.
Advantages
- Cash flow is freed up as repayments are less than principal and interest repayments.
- Variable Interest Only loans often allow the flexibility to pay off and redraw the principal.
- Often preferred by a real estate investors and can allow investors to make real estate investments on a more modest budget.
Disadvantages
- Interest only loans don’t pay off the principal so the loan balance remains the same at the end of the interest only period.
- In the event you are unable to extend the interest only period at the end of the loan term then repayments will increase to include both principal and interest repayments.
Security and Flexibility
Split rate loans combine the best features of both variable and fixed loans by splitting the loan into variable and fixed portions.
You decide what portions are variable and fixed.
Split rate loans take advantage of the flexibility of a variable rate loan while also enjoying the certainty that a fixed rate loan provides.
Advantages
- Mortgage repayments are less volatile than a variable loan as the fixed rate component of your Split Loan does not change over the loan period.
- When interest rates fall, the repayments on the variable portion of your loan will fall too.
- The variable portion of your loan can usually be repaid ahead of schedule.
- You may be able to split the loan into more than 2 parts e.g. 50% variable, 25% 3 year fixed and 25% 5 year fixed.
Disadvantages
- When interest rates rise, the repayments on the variable portion of your loan will rise.
- The fixed rate portion of your loan will not benefit when variable rates fall.
- There may be penalties if you decide to restructure or exit the fixed portion of your loan early.
Very Flexible – like a credit card
A line of credit is usually secured against the equity in your home or investment property.
Like a credit card it can be drawn down at any time up to a predetermined limit and repaid as the borrower chooses.
A line of credit can be drawn down in multiple smaller amounts or as lump sum and may be used to carry out renovations, pay bills or invest in property or shares – that’s your choice
Advantages
- Maximum flexibility with the ability to draw down funds up to your credit limit without delay or need for the lenders’ approval.
- Funds can be repaid and redrawn multiple times without penalty.
- Interest expenses on a line of credit may be tax deductible if the funds are used to purchase shares or property for the purpose of earning an income like dividends and rent.
- Interest rates are generally much lower than on credit cards, car loans and unsecured loans.
- Allows consolidation of multiple loans into one line of credit.
- You only pay interest on the amount drawn down – not the available balance.
- Some lines of credit allow the borrower to capitalise the interest until you reach the loan limit.
Disadvantages
- The interest rate on a line of credit is usually higher than standard mortgage rates.
- A line of credit requires solid budgeting skills and discipline to ensure you stay within your financial limits.
- If a line of credit is secured against your home, your property is at risk in the event you fail to make the necessary repayments.
- Annual, half yearly or monthly fees are often charged.
Lower Documentation Requirements
Low Doc (low documentation home loans) are a flexible loan option for the self-employed and other borrowers who are unable to provide the traditional documentation of a full doc loan.
Lenders rely on the borrower to self-verify income without requesting all the evidence required in a full doc loan.
The lender may request that your accountant sign off on your declared income or require your Business Activity Statements (BAS) to reconcile a business turnover against declared income.
Normal credit assessment will be carried out to confirm you can afford to service the loan repayments going forward on the income you have declared. As a guide, lenders usually want to see the borrower has been self- employed for at least 12 months and have a GST registered ABN for 2 years.
Advantages
- Reduced requirements for proof of income
- Less paperwork
- A faster loan process than most loans
Disadvantages
- Higher interest rates than full doc loans
- Generally larger initial deposit requirements than full doc loans
- Lenders Mortgage Insurance will apply more often than with a full doc loan.
Call us for a conversation around the most suitable Home Loan for you
