Australian Credit Licence No. 385935
Types of Home Loans explained

  • Standard Variable Home Loan Mortgage (Principal and Interest)
    The rate charged on a variable loan moves up or down in accordance with movements in
    interest rates, as set by the Reserve Bank.

    Advantages:
    • Repayments usually fall when official interest rates fall
    • Flexible repayment options including lump sum deposits, allowing careful borrowers to
    pay off their mortgage quicker without penalties
    • Redraw facility
    • Off-set account usually available
    • Allows careful borrowers to pay off the mortgage quickly by not having any penalty for
    advance payouts

    Disadvantages:
    • Interest rate is higher for standard variable loans than basic loans because they usually
    offer additional features
    • Repayments rise when official interest rates rise

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  • Introductory Home Loan Mortgage, also referred to as Honeymoon Loan
    The interest rate is lower for an initial period (honeymoon), usually 12 months, to attract borrowers. Most revert to the standard variable rate at the end of the honeymoon period.

    Advantages:
    • Lower introductory rate
    • When payments are made at the introductory rate, the principal can be reduced quickly

    Disadvantages:
    • Payments usually increase after the introductory period
    • May have more restrictions during the introductory rate

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  • Basic Variable Home Loan Mortgage (Principal and Interest)
    A basic variable home loan with a lower interest rate than the standard variable home loan with fewer features.

    Advantages:
    • Repayments usually fall when official interest rates fall
    • Flexible repayments
    • Redraw facility

    Disadvantages:
    • Fewer features than the standard variable home loan
    • Repayments rise when official interest rates rise
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  • Fixed Rate Home Loan Mortgage (Principal and Interest)
    A fixed rate loan is a loan that has a fixed interest rate for an initial period, usually 1 to 5 years. At the end of the fixed loan period you can decide whether to fix the loan again at the current market rates or convert the loan to a variable interest rate for the remaining term of the loan.

    Advantages:
    • Interest rate is fixed for an agreed period, isolating the loan from interest rate rises.
    • Can assist in budgeting.

    Disadvantages:
    • Repayments do not fall if rates fall
    • Interest rate is usually higher than the standard variable rate at the time of entering
    • Penalties can apply if the loan is paid out during the fixed rate period
    • if the interest rate drops during the fixed rate period
    • limits additional or lump sum repayments
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  • Interest Only Home Loan Mortgage
    Most home loans have an interest only repayment option, usually for a period up to 5 years. During this period the borrower only repays the interest component of the mortgage.

    Advantages :
    • Lower repayments initially giving improved cash flow.
    • Maybe beneficial for investment property purchases.

    Disadvantages:
    • The principal amount does not reduce during the interest only period reducing the equity build up in the property.
    • Loan repayments have a sharp increase when the loan converts to a principal and interest repayment.

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  • Line of Credit Home Loan Mortgage
    Borrowers can establish a line of credit against the equity built up in their property. A pre-defined loan limit is set, usually up to a maximum of 80% of the property value. Borrowers can use as much or as little of this amount as they choose providing that they make an interest only repayment each month.

    Advantages:
    • Very flexible with access of funds up to your approved limit
    • Unlimited repayments and redraws
    • Mortgage minimisation possible by depositing salary directly into loan account and using credit card for monthly expenses.

    Disadvantages :
    • Interest rates can be higher
    • Disciplined approach needed as ease of access may encourage spending
    • Interest only, so debt may not reduce if not managed carefully
    • Usually has annual fee
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  • Split Home Loan Mortgage (Part fixed and part variable interest rate)
    A split rate loan is a loan that has one portion of the loan fixed and one portion variable. You can select how much to allocate to each.

    Advantages:
    • Interest rate rises can have less impact as part of the loan is fixed
    • Can assist in budgeting more so than fully variable home loan
    • Flexibility of the variable rate portion allowing redraw and additional repayments

    Disadvantages:
    • As part of the loan is fixed penalties will apply for early repayment

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  • Equity Release Home Loan (also referred to as Reverse Mortgage)
    This type of loan is geared towards the retiree who has built up substantial equity in their home and wish to access funds without the need to sell the property

    Advantages:
    • Regular repayments are not compulsory
    • Unlocks the equity in your property for use in retirement
    • No income or financials required

    Disadvantages:
    • Interest rates will be higher than the standard variable
    • Loan has limited features
    • Loan will capitalize if no repayments are made reducing the equity in the property
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  • Non-conforming Home Loan Mortgage
    Some lenders offer what are known as ‘non-conforming loans’ to assist borrowers with a poor credit rating. Rates are higher so this type of loan is generally only used for a short period until the borrowers credit ratings improve.

    Advantages:
    • Overlooks poor credit rating
    • Can assist with cash flow when used as a debt consolidation loan
    • Helps borrowers when there is no other option available to them

    Disadvantages:
    • Higher interest rates and fees than traditional loans
    • Higher deposits or equity required
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