ALL LOAN TYPES
Are you shopping for a home loan in Australia? With so many types of home loans available, it pays to have somebody to advise you of your options and walk you through the process. You can get personalised help from Find A Better Rate by calling 1300 992 260 or emailing [email protected]
To get you started first, here’s a comprehensive rundown on the different types of home loans available in Australia.
Variable Rate Loans
As the name implies, a variable rate home loan has an interest rate that fluctuates up or down depending on the movement of the market.
The Reserve Bank of Australia sets the rates that will influence the amount of interest payable on variable rate loans. The lender may also have some discretion to change interest rates depending on their own criteria.
If you are looking for flexibility and you are not afraid of fluctuating minimum payments, this loan could be right for you.
In a fixed rate housing loan, the amount of your repayments will stay the same throughout the duration of the term of the loan.
Most fixed rate loans range from one to five years but can have longer terms. After the fixed term period, the loan will revert to a variable rate, unless you opt to enter another fixed loan contract.
In Australia, people tended to favour variable loan rates, but as the official cash rate declined, there has been an increase in the number of people who see fixed loans as a better choice.
Most banks and lending firms offer fixed loan rates based on their forecasted movement of the cash rate.
If they believe that the rates will fall, fixed loans will have cheaper rates than variable loan rates. However, if they have reason to believe that cash rates will rise, they will offer higher rates for fixed loans.
Fixed loan rates can be cheaper than variable loan rates and allow lenders to offer security and certainty to lenders.
Interest rates can be unpredictable and choosing between a variable, and fixed loan can be confusing without the right advice. In some cases, your best bet could be a split mortgage.
In a split home loan, the mortgage will have both a fixed portion and a variable portion. With this type of loan, you are able to balance risks from the fluctuating interest rates with the certainty of having a fixed term element to the loan.
A mortgage adviser will be able to help you determine the best way to divide and allocate your funds.
The split mortgage option is best for people looking for both flexibility and security in their loan. With this type of loan, you can protect yourself from the uncertainty of rising and falling interest rates and minimize their impact on your monthly repayments.
Another advantage of this loan type is the fact that the borrower can make unlimited repayments on the loan’s variable portion.
Most loans require interest and principal repayments. One option for those looking to decrease the monthly repayments is to apply for an interest-only loan.
With this type of loan, for a fixed period, you only make payments towards the interest on the loan and do not need to make repayments on the principal amount. During this time, while you won’t be reducing the principal amount, you will have more spare cash. This type of loan might be a good option if you plan to carry out renovations or redecoration when you move into your property.
These loans often have a stricter approval process and require larger deposits than traditional loans.
Most investors prefer interest-only loans which enable borrowers to take advantage of tax deductions and can be used as part of an effective investment strategy.
For owner-occupiers, however, interest-only loans may not always be the best choice and it is important to ensure that you will be able to meet the higher monthly repayments after the interest-only period expires.
For more information on interest-only home loans, check out this article.
Property Investment Loans
If you plan to purchase an investment property, you may want to apply for an investment loan. This solution is perfect for those who want to rent out a property to generate a passive income but currently lack all of the funds needed to make the purchase.
Investment loans are likely to have stricter requirements when compared to a standard home loan. For one, the loan to value ratio generally needs to be higher. The deposit requirements tend to be greater too.
Compared to standard home loans, investment loans often charge higher interest rates.
Despite these stipulations, these loans have several benefits too. A major benefit is the fact that you can claim expenses for the investment property tax deductions, including:
- Maintenance costs
- Interest on investment loans
- Council rates
- Landlord insurance
- Home and contents insurance
- Real estate agent’s commission
- Construction costs
- Travel costs related to maintenance, repairs, and inspection of the property
Low Deposit Loans
The standard home loan requires a 20 percent deposit. However, for many borrowers, this can be a real stretch on their finances. If this is the case, a low deposit home loan is an option.
Some lenders will allow you to borrow up to 95 percent of the property value. In other words, it is possible to take out a home loan with a deposit as low as five percent of the property’s value, though strict lending criteria will apply in these cases.
The law also requires that the borrower take out a Lender’s Mortgage Insurance (LMI) when the loan is more than 80 percent of the property’s value. The added costs of this insurance could affect the total amount that you will be able to borrow.
Your assets, employment history, savings, credit history, and collected debts will all affect your loan application.
For more information on low deposit home loans, check out this article.
If the thought of paying for Lenders Mortgage Insurance doesn’t sit well with you or you are unable to save up enough for a sufficient deposit, a guarantor loan might be a good choice. By opting for this type of loan, you may be able to borrow as much as 100 percent of the property’s value.
A guarantor, who might be a parent or family member, can guarantee the whole loan or a portion of the loan. By having a guarantor, it can be possible to borrow as much as 110 percent of the property.
By having a guarantor, you can often find better loan rates. However, your guarantor needs to be aware of the consequences if you fail to repay the loan since they remain liable if you default on the loan.
For more information on guarantor home loans, check out this article.
Low Doc Home Loans
Are you self-employed and unable to submit some of the documentation that many lenders require? If you don’t have payslips or tax returns to submit, a low doc home loan might be the right choice for you.
With a low doc loan, having a Business Activity Statement will usually suffice. Some lenders will also request bank statements, letters and financial information from your accountant or other forms of declarations.
Low doc loans carry some additional risks for lenders. This means that the interest rates and required deposits tend to be higher than with regular loans.
Getting approved for a low doc home loan can be tricky too as the process is more complex. It is important to know which lenders offer this service and how they screen candidates.
For more information on low doc home loans, check out this article.
Line of Credit Loans
There are instances when you need cash quickly for a wide array of reasons. Home renovations and emergency expenses are some of the reasons why you may require more funds.
If you have enough equity in the property to use as deposit, you could consider a line of credit home loan. This loan works in a similar way to a credit card and uses a portion of your equity as collateral.
With a line of credit loan, you can borrow up to an approved credit limit set by your lender depending on your circumstances. Your lender will charge interest based on the outstanding balance of the loan.
When a loan doesn’t conform to the standards than most banks have, it is referred to as a non-conforming loan. This is the opposite of what is known as a prime home loan.
Non-conforming loans are not common but can be an option for loan applicants who have been turned down by regular lenders. These loans are also known as specialist loans.
People with special circumstances might consider a non-conforming loan. These loans might be suitable for a lender in the following circumstances:
- Recently employed with a short employment history
- A record of bankruptcy
- Poor credit history
- Insecure/ short-term contract employment
- Close to retirement age
- New resident in Australia
- Unable to raise a standard deposit
Taking out a loan may be harder if you meet any of the criteria above, but it is not impossible. If these circumstances apply to you, a good mortgage adviser can help you select the right loan provider.
Full Feature Home Loans
Home loans may be necessary whether you are an owner-occupier or an investor. People take out mortgages for a variety of reasons.
When looking for standard home loans, remember that banks are not the only options. You should also consider other lenders to fetch in order to find the very best rates on the market.
The Loan to Value Ratio (LVR) in a traditional loan is 80 percent. This means you need to have 20 percent of the property’s value to advance as a deposit.
Loan features for a home loan will vary from one lender to another. Some restrict additional repayments to a certain amount while others have options to make unlimited additional repayments. When shopping for a loan, always look for these features - especially if you plan to pay back the loan before the end of its full term.
NCCP Act Explained
The National Consumer Credit Protection Act 2009, referred to commonly as NCCP, is a law protecting consumers, designed to ensure that the finance industry adheres to professional ethical standards.
Most types of home loans available in Australia have to comply with this act. The law covers all loans under these conditions:
- There is a charge for providing the credit
- The borrowing party is a natural person as defined in law (i.e. not a company)
- Credit is provided in the usual course of business
- Credit has been provided wholly or predominantly for either of these purposes:
- Personal, household or domestic use
- Buy, improve, and renovate property for investment purposes
- To refinance credit wholly or to predominantly buy, renovate, or improve residential property as an investment
The NCCP Act does not cover loans lent out to companies or loans used for investment and commercial purposes.
Loans not covered by the NCCP are generally more flexible, and sometimes there is no need for income verification. Since the law covers most home loans, lenders are required to provide proof of the income source they will use to settle the loan.
Types Of Home Loans Most Affordable in Australia
There are different types of home loans available to consumers in Australia. Based on a quick survey of lenders in the country, here’s a brief selection of affordable loans:
- Loans.com.au - this firm’s Essentials Variable 80 product provides reasonable loan terms. There are no ongoing fees, and there is an option to make additional repayments. The variable rate is currently set at 3.64 percent while the comparison rate is 3.66 percent.
- State Custodians - the Low Rate Home Loan with Offset is the perfect choice for people wanting to break into the property market. The variable rate is 3.64 percent while the comparison rate is 3.67 percent.
- CUA - the Advanced Variable Rate Home loan allows borrowers to take out loans up to $5 million and up to 90 percent of the property’s value. The variable rate is set at 3.65 percent while the comparison rate is 3.66 percent.
- NAB - the loan from this lender is perfect for investors but it also provides an option for owner-occupiers since it has a redraw facility and the option to make additional repayments, Borrowers can also take out as much as 95 percent of the property’s value. The variable rate is 3.69 percent while the comparison rate is 3.73 percent.
- ME - Additional repayment options, full offset account, split rate option, and a redraw facility are some of the benefits of taking out a loan from this institution. The Flexible Home Loan has no application fee, but there is an annual fee of $395. The variable rate is 3.69 percent while the comparison rate is 4.11 percent.
These are just some of the most affordable loans currently available in Australia. If you are interested in learning more about these products, you can visit the lenders’ individual websites for updated rates, terms, and pricing.
A Home Loan That Changes When Life Does
When taking out a loan, many borrowers make the mistake of only considering their present situation. However, things can and will change over time.
It’s useful to know your future options so that you can be prepared for any decrease or increase in your earnings. If your income decreases, you may need to extend your credit, or if your income increases you may wish to make additional loan payments to allow to discharge the loan early.
Here’s how we can help you:
Mortgage Broker Melbourne - Find a Better Rate will walk you through the features and options on all types of home loans. We will sit down with you to see which loans will work best for your present situation and help you plan for the future.
A. First Home Buying
Are you planning to buy your first home? A number of incentives are available to first home buyers. You may also qualify for other grants that can help you save money.
We can help you through the process, and help you mortgage the property with a lender who understands your situation.
The property market can be a lucrative investment. If you are looking to enter the game, you need funding. The easiest way to get the funds you need is through a bank, and we will help you find investor loans with features useful for the kind of venture you have in mind.
Have you looked at your home loan lately? If you are paying more than the present rates, you might be missing out.
We can help you assess all the costs associated with refinancing and help you see whether it would be better for you to stick with your lender or refinance your loan.
For more information on refinancing a home loan, check out this article.
D. Building and Renovating
Renovation projects cost money. What are your options when you are planning to construct a building or make changes to your property?
Allow us to walk you through the process and offer our professional advice on your situation.
Take out the Second-Guessing – Know Your Costs with Our Home Loan Calculators
Our mortgage specialists can also schedule a meeting with you and walk you through the entire process, covering each of the following steps.
1. Find the best type of home loan for you. Take the stress out of shopping for a suitable home loan by working with one of our mortgage specialists. We will filter our database of loan products and suggest the best type of home loan matching your needs.
2. Find a suitable lender based on your needs. Find a Better Rate has a network of more than 30 lenders offering different kinds of loan products. We will search our network for the best options for you.
3. Get the best interest rates. Interest rates will vary depending on the loan product you select. Our mortgage brokers will negotiate the best available rates for you, so you can be confident in getting the best deal.
The process of searching for the right home loan can seem daunting. Don’t let confusion or fear prevent you from finding the best interest rates right now. Get in touch with Find a Better Rate now. We are based in Melbourne, Australia.
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Disclaimer statement: This page provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed prior to acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice in relation to your individual circumstances.