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A guide to home loans

Variable Home Loans are the most common because of their added flexibility. Interest rates fluctuate based on the local and global economy and the cost of money as set by the Reserve Bank.

Basic Variable

Basic variable rate Home loans usually do not have any features such as offset accounts and redraw facilities. This often results in a lower interest rate.

Standard Variable

Although the standard variable rate is usually slightly higher than the basic variable rate it has extra features such as an offset account, flexible repayment frequency, advance payment option and redraw facility.

Variable loans generally require closer monitoring as interest rates may rise. It is important to factor possible interest rate into your monthly budget so that you are able to meet the required repayments if your interest rate rises.

Fixed

All the features of the Standard variable loan are usually available in the fixed rate loans. The interest rate is fixed for periods of 1 to 5 years and will reflect the forecasted movement of interest rates for the respective fixed rate terms. Fixed rates allow you to budget with certainty for the fixed term period.

If interest rates fall your loan will end up costing you more and if interest rates increase your monthly repayment will not increase. It is usually expensive to exit a Fixed Rate loan as the Lender will want to recover any loss of income they may incur.

Introductory and Honeymoon

Introductory or Honeymoon loans are popular for first home buyers, but other borrowers also use these products. Honeymoon loans have a discounted interest rate for the first six to twelve months and the loan reverts to the lenders standard variable product at the end of the introductory term.

Although the reduced interest rate may be tempting, it is important to watch out for restrictions or exclusions on other aspects of the loan that may affect your flexibility initially and/or in the future.

Interest Only

Interest only loans are particularly popular for investors as their tax deductible expenses do not decrease as the outstanding loan amount does not decrease. The repayments of interest only loans will be lower than an ordinary loan because you only pay the interest charges each month.

Some interest only loans are available for owner occupier clients and Construction Loans usually have an interest only period during the construction period. these can be risky because your level of debt will not fall for during the interest free period and your loan amount could be greater than the property value if house prices fall.

Low Doc Loan

Low and No Doc loans are primarily used by self employed clients or contractors as the less documentation is required to apply for this type of loan.

Although it is generally easier to qualify for these loans, it is not always the best way to go. As a result of providing less documentation the Lender will usually charge a higher interest rate or additional fees as applicants are perceived to be a higher risk. If possible, in most cases you will be better off with a full doc loan (full documentation – providing the required proof of income etc) because interest rates are lower. Low Doc loans have lower Loan to Value ratios. (60-80%).

So how do I know which loan to choose?

 This decision needs to be carefully considered taking all your circumstances into consideration. Contact me to compare the most appropriate loans for your circumstances. If your preference is for a specific type of loan I will be compare a wide range of suitable loans.