Types of Loans
Standard Variable Loans
Standard variable loans are Australia’s most popular type of home loan. The interest rate varies throughout the standard variable loan term. These loans generally offer excellent flexibility, low fees, and often offer great features such as an offset facility, redraw facility, no limits on additional repayments and in most cases, no early pay-out penalties.
Advantages of a standard variable loan:
• Flexibility
• Lump-sum payments can be made without incurring a penalty.
• If interest rates fall, your repayments will fall.
• Often offer extra features.
Disadvantages of a standard variable loan:
• If interest rates rise your repayments will increase
Fixed Loans
Under a fixed rate loan, the interest rate is fixed for a specified period. Usually this time frame is between one and five years. A fixed rate 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 of a fixed rate loan:
• Guaranteed rate, if interest rates rise your repayments won’t.
Disadvantages of a fixed rate loan:
• Reduced flexibility.
• Extra repayments may incur a fee or be limited.
Low - Doc 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, those who are unable to provide the required documentation in support of their loan application, or those who wish to borrow more than 100% of the property value.
Advantages of a low-doc loan:
• Simple income declaration form.
• No tax returns.
• No financial statements.
• Can have features such as redraw, line of credit, variable or fixed rates, principal and interest or interest only.
Disadvantages of a low-doc loan:
• Generally a higher interest rate.
Construction Loans
If you are building your own home or investment property, a construction loan may be suitable for you. This kind of 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. Also, with the usual necessary documents required when applying for a loan, construction loans also require a fixed price building contract and council approved plans.
Advantages of a construction loan:
• Competitive variable interest rates.
• Facility to draw money when necessary, whilst building.
• Interest only payments during the building period.
• Additional payments can be made.
Disadvantages of a construction loan:
• Requires a fixed price building contract leaving little room for change whilst building.
• Some lenders charge a fee for every time you draw money whilst building.
• Given it is a variable loan, loan repayments will increase if interest rates go up.
