Standard Variable Loan
This is the most popular type of loan in Australia. The interest rate varies throughout the term of the loan which is generally the result of movements in the Reserve Bank of Australia’s official cash rate. These loans usually offer excellent flexibility, low fees and great features such as an offset facility, redraw facility, no limits on additional repayments and in most cases, no early pay-out penalties. The great thing about a variable loan is that if interest rates fall, your repayments will fall. However, if interest rates rise so will your repayments.
Basic Variable Loan
Basic variable loans typically offer lower interest rates than standard variable home loans. However, the tradeoff is that basic variable loans do not offer the same flexibility and features of standard variable loans. These loans are great if you are simply after the lowest interest rate. However they lack the features and flexibility of a standard variable loan such as an offset account.
Fixed Rate Loan
With a fixed rate loan, the interest rate is fixed for a specific period of time, generally between one and five years. A fixed rate loan is great if you require certainty of knowing what your monthly repayments will be. If interest rates rise, your interest rate will remain the same. The downside is that you won’t benefit from decreasing interest rates and a fixed rate loan generally lacks the flexibility and the features that come with a standard variable rate loan.
Line of Credit Loan
A line of credit loan provides you with access to the equity in your home or investment properties up to a pre-approved limit. Similar to a credit card, they allow you to withdraw funds up to a set limit at any time. The interest rate on a line of credit loan is usually a variable rate and repayments are usually interest only.
Intro ‘Honeymoon’ Rate Loan
An introductory rate loan generally offers a guaranteed low rate for an initial period of time (usually 12 months) after which most will revert to the standard variable rate. The rate can be fixed or variable. These loans typically offer the lowest interest rates on the market however the rates will increase after the initial ‘honeymoon’ period.
Low-Doc & Credit Impaired Loans
A low documentation (or no documentation) loan is suited to investors or self-employed borrowers who do not meet the ‘standard’ lending criteria. This may include; those with an impaired credit history or those who are unable to provide the required documentation in support of their loan application. The downside is that these loans generally a charge a higher interest rate.
If you are building your own home or investment property, a construction loan may be suitable for you. This loan requires a fixed price building contract from a registered builder. These loans are usually interest only for the period of building and then become principal and interest once building is completed. A construction loan allows you to draw money as is required whilst building.