Loan Types

What type of home loan would suit me?

When selecting a home loan, it’s important to consider what your individual needs not just the interest rate. Fortunately you have a wide range of homes loans to choose from and all with different interest rates, product features and fee’s. It pays to shop around and find the right loan that suits your needs and circumstances.

The better the fit – the happier you will be and it could also result in more savings over the life of the loan.

Some features you should consider include:

  • Should I split my home loan – for example my home loan amount is $300,000 and I would like 1 portion of $150,000 fixed and another $150,000 portion variable
  • Ability to make additional repayments above my interest
  • An offset account or a redraw facility
  • Linked savings account or credit card facility

What type of home loans are available?

Fixed Rate Home Loan

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

Variable Home Loan

The 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

Interest Only Home Loans

Means that you pay only the interest amount 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 principle 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

Line of Credit Home Loan

Allows you to utilize the equity in your existing property and access your funds when needed without getting another loan approval. Property investors find these sorts of facilities useful as it allows for easy access to their funds up to a pre-arranged limit. This facility allows the customer to not make regular repayments as the balance can be reduced by the repayments.

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

Advantages:

  • 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

Low-Doc Home Loans

Are usually catered towards investors or self-employed borrowers as in some cases the income from the income derived from these types of employment can be difficult to evidence.

Advantages:

  • Income evidence in 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

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 have 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

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

Contact First Choice Mortgage Brokers on 1800 111 455 for more information on which loan suits you.

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