Home Loan Types

Under a fixed-rate loan, the interest rate is fixed for a specified period, usually between one and five years. This loan gives you the certainty of knowing exactly what your monthly repayments will be and peace of mind knowing the repayments won’t rise. However, you won’t benefit if rates go down during the fixed term.

Advantages:

• Guaranteed rate, if interest rates rise, your repayments won’t
• Enables you to budget more effectively because you know exactly how much your monthly repayment is per month

Disadvantages:

• Reduced flexibility as you might be charged if you leave within the fixed-rate timeframe
• Extra repayments may incur a fee or be limited

Standard variable loans are Australia’s most popular types of home loan. The interest rate charged on a variable home loan moves up or down according to the reserve banks decisions; it is subject to change from time to time.

Advantages:

• Repayments decrease when the official interest rates a decreased
• Often standard variable loans offer you more flexibility and product features
• Allows the customer to move around to different lenders without a penalty for breaking a fixed contract

Disadvantages:

• Your repayments will increase when the official interest rates increase
• Usually, the standard variable product rates are slightly higher because you have access to more features

An Interest Only Home Loan means that you pay only the interest amount in her repayment cycle, and you are not paying your loan balance down. Lenders generally offer interest-only periods for 1 – 5 years, and after the period ends, your loan will automatically change to principal and interest.

Advantages:

• Allows you to pay the minimum amount, and you can make additional repayments at your leisure
• Reduces your repayment amount

Disadvantages:

• You are not decreasing your home loan balance for the interest-only period
• Increase in repayments at the end of the interest-only period

A Line of Credit Home Loan allows you to utilise your existing property’s equity and access your funds when needed without getting another loan approval. Property investors find these sorts of services useful as it allows for easy access to their funds up to a pre-arranged limit. This service allows the customer not to make regular repayments as the repayments can reduce the balance.

Self-employed customers also find these types of products useful, especially those with irregular income deposits.

Advantages:

• It offers you flexibility with your repayments
• Allows you to access funds quickly and without a second approval process

Disadvantages:

• If not managed correctly, the product can reduce, you’re the equity in your property
• In some cases, the interest rate can be higher to compensate for the flexibility

A Low-Doc Home Loan is usually catered towards investors or self-employed borrowers. In some cases, the income from the income derived from these types of employment can be difficult to evidence.

Advantages:

• Income evidence is minimal, and your full financials are not required for the approval
• Access to normal products and features

Disadvantages:

• In some cases, the interest rate can be higher than that of a full documentation loan

A Non-Conforming Loan is a loan that assists borrowers who have a poor credit rating to obtain a home loan approval. It allows a borrower to re-enter the market for whatever specific reason – in most cases, these types of loans can be refinanced into a normal conforming loan at a later date.

Advantages:

• Assists clients who would not normally be eligible for a home loan

Disadvantages:

• Higher interest rate compared to a conforming home loan

Why use family pledge?
Family pledge loans are available to purchasers who don’t have the necessary deposit to qualify for a home loan application. This product will allow you to borrow 100% of the property purchase price with the assistance of a close family member (guarantor) supporting your application.

• Your family member provides additional security to allow you to borrow more and has less of a deposit – a great option for children who have completed study and their income is expected to rise steadily
• Because you are using an additional security, the risk is slightly lower to the lender, and therefore, in most cases, the loan approval process is considerably easier
• You can avoid the mortgage insurance premium usually associated with loans over 80% LVR, saving you money

Features of a Family Pledge Loan
Generally, you will be eligible for the standard interest rates and product features. Our experienced finance brokers can explain the details and features of a family pledge loan in greater depth if you require their assistance, but first, consider this example.

Example of a Family Pledge Loan
John has been studying to be an accountant and has recently graduated from university. John’s income is low at present, but his family is confident that his income will continue to grow.

It has been difficult for John to save whilst he has been studying, and his parents have offered to assist him with his application by lending one of their homes for additional security on Johns new purchase loan. John can now borrow 20% plus costs, avoiding the needs for lenders mortgage insurance.

How do I release the additional security?
You will be able to release the family member’s security property once the balance is paid down or the value of your property increases in value – roughly 20% of the original purchase price