Loan Types

There are many different home loan types. We will find the type of home loan that best will suit you.

Standard Variable Loan

The interest rate varies throughout the term of the loan. The term is generally about 30 years. This is the most common type of loan. It is typified by the following:-

  • You can make additional payments without penalty
  • Often it has other features you can add on
  • It is flexible
  • The loan changes as interest rates change, meaning it can be difficult to budget for the future

Basic Variable Loan

Lenders now offer basic variable loans with lower interest rates, but with fewer features than a standard variable loan. The interest rates and repayments vary over the term of the loan. These are typified by:-

  • Usually have a low interest rate
  • Repayments are also lower
  • May not offer the features or flexibility of other loans (not portable)
  • Lower fees associated with this loan

Fixed Rate Loan

Fixed rate loans protect you against interest rate changes for an agreed time, so you have peace of mind knowing your repayments won’t increase. These are typified by:-

  • When interest rates rise, your repayments won’t
  • You won’t benefit if rates go down during the fixed term.
  • Reduced flexibility, ie if you pay it out later it could cost thousands
  • Extra repayments can mean early repayment costs
  • A rate lock fee can be charged to fix a rate to the rate of the day when you applied for the loan before the loan settles, this can be a flat fee or a percentage of the loan Lower fees associated with this loan

Introductory Loan

The interest rate is usually low to attract borrowers. Also known as a honeymoon loan, this rate generally lasts only for a few years before it rises. Rates can be fixed or capped. Most revert to the standard rates. These are typified by:

  • Usually the lowest available rates
  • When payments are made at the introductory rate, the principal can be reduced quickly
  • Some lenders provide an offset account against these loans
  • Payments usually increase after the introductory period as they revert to the much higher standard variable rate.

100% Offset Account

This is a separate savings account attached to your loan. The rate of interest in your savings account is the same as the loan. Any credits to your offset account are deducted from your loan balance before the interest is calculated. These are typified by:

  • It operates like normal transaction account and has a cheque book and card attached to it, some lenders have a separate account for daily transactions
  • Commonly for this a fully featured loan usually has higher interest rates
  • May have higher monthly fees attached to the account
  • May need a minimum balance in the account

This is not a mortgage product rather a savings product and hence you should speak to specific lenders regarding this product.

Low-doc Loan

A low-doc or no-doc loan is ideally suited for investors or self-employed borrowers looking to refinance, purchase or renovate. No tax returns or financial reports are required. These are typified by:

  • Simple income declaration form
  • No tax return
  • No financial records
  • Fully serviceable loan options, redraws, line of credit, variable or fixed rates, P&I or interest only loans
  • Generally a higher interest rate, but as this product has been adopted by the major banks the interest rates are usually the same, however you may be restricted to the amount you can loan.

Split-purpose loan

It allows you to pay off an investment and a home loan through a single account. Interest on the investment repayments are tax deductible, but the home loan interest is not. This basically means you can pay off your home loan quicker, allowing the interest to gather on the investment loan, and deduct it from your annual tax. These are typified by:

  • Possibly thousands of dollars in tax savings
  • Leverage for existing home loan equity into profitable investment
  • Suited to high-income earners

Note that this type of loan has been under scrutiny by the ATO and without sound financial advise it may not be appropriate for you