Loan Types
Introductory Home Loans
An introductory home loan provides borrowers with a low-interest rate at the start of the loan that will increase at the end of a set period. This can vary from one to two years depending on the lender. When the introductory loan period ends, the interest rate will revert to the standard going rate.
An introductory loan is specifically designed to help borrowers ease into mortgage payments. When the borrower begins making payments at the initial lower rate, the future periodic payments will be lower. This is especially useful for first-time home buyers.
In most cases, lenders offer introductory rates that give the borrower enough time to settle into the mortgage before having to pay more. This is especially useful for first-time home buyers.
Advantages of Introductory Home Loans
- During this time, the principal amount borrowed can quickly decrease.
- This loan usually has the lowest available interest rate.
Disadvantages of introductory home loans
- Lenders may restrict extra repayment during the introductory period.
- Some lenders may charge fees for this loan.
- Borrowers may struggle with the new repayment amount after the introductory period expires.
Standard variable interest rate (SVIR)
Standard variable interest rate (SVIR) loans are the go-to home loan choice in Australia, due to its many benefits – being flexible but easy for first time buyers to navigate. These loans feature low fees, making them an excellent option for people purchasing their first home. In addition, these flexible loans feature redraw and penalty-free lump sum payments with 100% offset capability.
Standard variable interest rate loans (SVIR) feature variable interest rates influenced by changes to Australia’s Reserve Bank cash rate, providing lower rates of interest with other features that make them popular home loan choice. It offers lower rates than fixed loans but provides many other features and can offer significant cost savings over their lifecycle.
Incorporating (SVIR) into home loans could significantly decrease monthly repayment costs as it fluctuates according to Bank cash rates – perfect for low loan interest payments with added features that improve lifestyle choices.
The basic variable interest rate loan (SVIR) without extras
A basic variable interest loan is one of the simplest loans. Sometimes known as a no-frills loan, its limited features and lower interest rates compensate for its lack of extra features. These loans typically do not have redraw facilities or any offset capacity.
Home loans with no frills are becoming increasingly popular among home buyers and those searching for an easy loan with lower payments. No frills loans also present an attractive solution for those on tight budgets with lower payments.
Fixed interest rate loans
Fixed-rate home loans feature a predetermined interest rate with terms typically lasting one to five years
Fixed-rate home loans are more popular among buyers seeking certainty and with limited budgets. First-time buyers and buyers with tight finances tend to favour fixed rate home loans over those that provide greater flexibility.
Having a fixed rate loan, offers the borrower certainty regarding monthly payments. Fixed rates of interest tend to be higher than variable rate loans, but you may still find offers competitive to those found with variable rate loans.
Naturally however the repayment won’t decrease during that time either if rates fall. Because a fixed-rate loan doesn’t provide as much flexibility or allow extra payments (often extra payments aren’t permitted under most agreements); be sure to read and understand any associated documentation; once your fixed-rate period ends you could switch loans and move onto something new!.
Fixed-rate loans provide several advantages.
- Recurring payments provide certainty, providing peace-of-mind. The interest rate will not increase each month so there will be no need to anticipate your repayment amount in advance.
- Knowing exactly how much will be due allows you to budget precisely over the course of the term. Variable rate mortgages may be attractive to some borrowers.
- However fixed rate loans have become increasingly competitive over time. Sometimes even, the interest rate on both types of loans may be identical!
Fixed-rate loans provide several advantages.
- Fixed rate loans lack features that you get with other loans. With this loan type, features such as a redraw facilities or 100% offset account may not be included.
- You could incur a break fee if you choose to break your loan early, so read the fine print carefully to avoid break fee expenses.
- Your remaining term and locked-in rate as well as secured funds will all be taken into consideration when making this determination.
Fixed interest rate loans
Fixed-rate home loans feature a predetermined interest rate with terms typically lasting one to five years
Fixed-rate home loans are more popular among buyers seeking certainty and with limited budgets. First-time buyers and buyers with tight finances tend to favour fixed rate home loans over those that provide greater flexibility.
Having a fixed rate loan, offers the borrower certainty regarding monthly payments. Fixed rates of interest tend to be higher than variable rate loans, but you may still find offers competitive to those found with variable rate loans.
Naturally however the repayment won’t decrease during that time either if rates fall. Because a fixed-rate loan doesn’t provide as much flexibility or allow extra payments (often extra payments aren’t permitted under most agreements); be sure to read and understand any associated documentation; once your fixed-rate period ends you could switch loans and move onto something new!.
Fixed-rate loans provide several advantages.
- Recurring payments provide certainty, providing peace-of-mind. The interest rate will not increase each month so there will be no need to anticipate your repayment amount in advance.
- Knowing exactly how much will be due allows you to budget precisely over the course of the term. Variable rate mortgages may be attractive to some borrowers.
- However fixed rate loans have become increasingly competitive over time. Sometimes even, the interest rate on both types of loans may be identical!
Fixed-rate loans provide several advantages.
- Fixed rate loans lack features that you get with other loans. With this loan type, features such as a redraw facilities or 100% offset account may not be included.
- You could incur a break fee if you choose to break your loan early, so read the fine print carefully to avoid break fee expenses.
- Your remaining term and locked-in rate as well as secured funds will all be taken into consideration when making this determination.
Refinancing loans
Reviewing your home loan every two or three years is a good habit to get into.
For many people, now is an excellent time to refinance. However, as with any loan, you must first research the product before applying for it. Compare it to other refinance home loans to see what other options you have. When compared to your first mortgage, refinancing is usually easier.
When done correctly, obtaining a mortgage refinance can be a wise way to manage your finances. When you could secure a better deal, refinancing your home loan may be a good option for you. It can also assist you in debt consolidation. You can also use the borrowed funds to increase the value of your current property.
When looking for a refinancing option, your goal should be to reduce or keep the loan at the same amount.
Split rate loans
Most first-time buyers know they can divide their mortgage loan into two parts, where variable and fixed interest rates apply respectively to specific sections. Borrowers are in complete control over this ratio between variable and fixed rates. Let’s say you have a loan of $700,000. After researching all available home loans on the market, you decide to split it 65:35 in two instalments; with two-part mortgages, however, your loan balance can be split in half; alternatively, you could opt for fixed rate interest on all ($455,000) of it at once.
Before considering whether to split your loan into multiple loans, do your research on both fixed rate and variable rate loans to understand their relative advantages and disadvantages – although one may seem more suitable than the other at first glance. Determining which loan type best meets your needs is essential. A split home loan combines many of the features and benefits from both types of home loans, so that you can take full advantage of those which matter most to you.
Advantages of selecting a split rate home loan.
- The fixed interest rate protects you in case rates rise
- Ability to better budget your monthly commitments.
- Ability to make additional payments on the variable portion of the loan.
- Change repayment frequency should you change jobs.
- Having the ability to access offset and redraw facilities.
Advantages of selecting a split rate home loan.
- Give two loans exist simultaneously, application fees could apply to both options, doubling your upfront costs.
- Rates may decrease over the loan period and losing your ability to take advantage of the decrease.
- Break fee’s can be costly before the end of the term.
- The wrong split ratio leaving you open to increasing costs.
- Less flexibility.
Lines of Credit Loans
Home equity lines of credit allow homeowners to borrow against their home equity as collateral in a similar fashion to credit-card borrowing, although your property will be at stake should you default.
Maybe you want to use equity from your home as a downpayment on an investment property. Borrowing for any reason is sometimes unavoidable, and considering a line of home credit loan may be worth your while if there’s sufficient equity in your current property.
A line of credit is an agreement you make with your bank that gives you access to credit at any time. Your home could act as collateral against any loans made.
An example: When borrowing $400,000 from a bank to purchase a home, a deposit may be necessary. Say your deposit was $60,000 – in ten years it has become your equity. At this point, your property value has increased to $650,000 and equity stands at $190,000 – meaning that you could potentially borrow up to this sum if it meets lender criteria.
Assuming your house can serve as collateral, using it will reduce the credit risk perceived by lenders and potentially result in lower interest rates than with other loan types.
At the core of lines of credit lies the danger that your equity could be at stake if unexpected circumstances make repaying difficult. It may also mean payments are missed. In extreme cases this could even mean losing your home!
Before taking out any loan, carefully assess your current situation. A home loan with line credit might seem straightforward but this depends on how much debt you already owe and other debt consolidation options such as credit lines that could consolidate other obligations such as credit cards and other loans. Line of credit can incur charges. That can make repayment a hardship.
DISCLAIMER
While we make every attempt to give you the best possible tools and information, Berra finance Pty Ltd, its agents, employees and accredited lenders will accept no responsibility for any loss that may arise.
The information is for general information purposes only and has been prepared without considering your objectives, financial situation or needs. You should, before acting on the information, consider its appropriateness to your circumstances. Applications are subject to the lenders normal credit approval and suitability of the asset. Fees, charges, and conditions apply. Taxation considerations are general and based on present taxation laws and may be subject to change. You should seek independent, professional tax advice before making any decision based on this information. All loans applications are subject to lenders approval.
