Loan Types
The home loan market is continually evolving. At Concise Finance, we are able to compare and contrast many different home loan products from the lenders on our panel to see which one suits you and your goals.
You can also use our mortgage calculators as a guide to how much you can borrow and what your repayments will be. When you are ready to discuss your options in more detail, it’s simple to make an appointment to speak with one of our experienced Finance Managers.
Below are some of the loan types that are available:
Variable (Principal and Interest) home loans
The rate that is charged on a variable rate home loan will move up or down in accordance with interest rate fluctuations. Generally, basic variable loans have fewer loan features than standard variable loans. The basic variable loan is great if you are looking at paying off a consistent amount of your mortgage over the term of the loan, but is not suitable if you are looking to pay off your mortgage quickly.
Pros:
Repayments fall when interest rates fall
Flexibility and additional features with the ability to make additional payments redraw facilities (e.g., take out any extra money that you have put in), low introductory or honeymoon rates
Allows conscious borrowers to pay off the mortgage quickly by not having any penalties for advance or early payouts payouts
Fixed-Rate (Principal and Interest) home loans
A fixed-rate loan has a fixed interest rate and therefore the payments are fixed. Fixed-rate loans can generally be fixed somewhere between one to five years. Although the fixed-rate period may be three years, the total length of the loan itself may be 25 or 30 years. At the end of the fixed loan period, you can decide whether to fix the loan again for another period of time at the current market rates or convert the loan to a variable interest rate for the remaining time left of the loan.
Pros:
Repayments do not rise if the official interest rate rises
Provides peace of mind for borrowers concerned about rate rises
Allows more precise budgeting
Cons:
Repayments do not fall if rates fall
Allows only limited additional payments
Penalises early payout of the loan
Split Rate (Principal and Interest) home loans
A split rate loan gives you flexibility so that one portion of the loan can be fixed and the other portion can be variable.
Pros:
Peace of mind for borrowers concerned about rate rises as you have considered both sides of the equation, i.e., variable and fixed
Can make additional payments on the variable portion
Cons
Allows additional payments only on the variable portion
Repayments on the variable portion will rise with rate rises
Interest-Only home loans
Only the interest on the principal is paid during the term of the loan. This means repayments are lower than a principal and interest loan. At the end of the interest-only period (usually, one to five years) you have the option of making principal and interest repayments over the remaining term of the loan or you can approach the bank and reset the interest-only term for another period of time.
Pros:
Lower repayments can improve your cash flow if needed
Cuts the cost of buying a residential investment property thus allowing investors to grow a property portfolio
Cons:
The principal on the home loan is not paid
Line of Credit home loans
This type of loan uses the equity that you have built up in your property and allows you to access the money when you need it. Lines of Credit are a useful tool if you want to release funds so that you can look at purchasing investment by providing cash up to a pre-arranged limit. Each month the loan account balance is reduced by the amount of cash coming in and increased by the amount that is withdrawn from the Line of Credit. As long as you are careful with the amount that is used from the Line of Credit it can work well. However, it can be very costly if the balance of the Line of Credit is not regularly reduced and allowed to increase out of control. You only make repayments on the amount that has been used and do not make repayments on the unused balance.
Pros:
Use the money you need and pay it back when you can
Line of Credit rates tend to be lower than credit cards or personal loans
Offers flexibility
Cons:
Reduces equity in your residential property
Need to be disciplined to make principal payments regularly
Can be very expensive if not used carefully
Low-doc home loans
A low-doc loan is ideally suited for investors or self-employed borrowers looking to refinance, purchase or renovate. Income verification is less stringent than a normal full-doc loan. Generally, applicants are required to have an ABN which has been in operation and has been registered for a period of two years. Most banks today will ask for BAS trading statements, company operating account statements, or a letter from an accountant to verify the income that is being declared in the application.
Pros:
No tax return or financial records required
Fully serviceable loan options, redraws, line of credit, variable or fixed rates
Principal and Interest or Interest-only loans
Cons:
Generally a higher interest rate
Introductory Home Loan
As a sweetener, the interest rate is usually low to attract borrowers. Also known as a honeymoon rate, this rate generally lasts only for around 12 months before it rises. Rates can be fixed or capped. Most revert to the standard rates at the end of the honeymoon period.
Pros:
Usually the lowest available rates
When payments are made at the introductory rate, the principal can be reduced quickly
Cons:
Payments usually increase after the introductory period
Non-conforming home loan
People with poor credit ratings often have trouble sourcing a home loan. Many lenders now offer what are known as ‘non-conforming loans’ for people in this type of situation. While lenders are willing to overlook prior credit problems, they will want to see some evidence of your ability to repay the loan. A larger deposit than is required for traditional loans will generally be required also.
Pros:
Overlooks poor credit rating
Cons:
Higher interest rate than traditional loans
This is only a quick overview of the different types of home loans available. Your Concise Finance Manager will review the available home loan products against your specific requirements to help you find the loan that suits you.