Standard Variable Loans

The interest rate can vary throughout the term of the loan - both up and down. The term is usually 25 to 30 years. The advantages of this are that if interest rates fall, your repayments will also come down; you can usually make additional repayments without incurring a penalty allowing you to pay off your loan faster. Remember, if interest rates raise, your repayments rise as well.

 

Lenders generally offer lots of packages on the standard variable rates. The advantage of Standard variable rate loans is that they may include many features which if used correctly can help pay off your mortgage more quickly. These features include mortgage offset, redraw and revolving line of Credit. Some lenders will also offer discounts packaged with one year introductory rates.

 

Many lenders offer basic variable loans with lower interest rates than standard variable home loans however with generally with fewer features. Like all variable loans the interest rate and your repayments can vary over the term of the loan. The biggest advantage is price - basic variable loans have a lower interest rate so repayments are sometimes lower than standard variable loans.

 

Lenders normally do not offer the same range of features or flexibility e.g. many basic variable loans cannot be used in combination with other loans and are not portable. It is important that you look into each different lender as you need to work out the advantage or disadvantage of each loan in comparison to one another.

 

Fixed loans allow a borrower to lock in an interest rate for a particular period of time (normally 1-5 years). You then have the assurance of your repayments being fixed for that period no matter what interest rates do.

 

You could also split your loan between a fixed portion and a variable portion. Fixed has more restrictions usually e.g. most fixed rate loans limit or do not allow extra repayments or you cannot pay out the loan during the fixed period without incurring large penalties. Features such as redraw or mortgage offset are usually not allowed during the fixed period of a loan, however combining the loan allows you to take advantage of features available on variable rate loans.

 

Splitting your loan into two portions (fixed and variable) can be a good way to hedge your bets on interest rate movements. The fixed portion is safe if fixed at a low interest rate particularly if interest rates then increase. The variable portion moves with interest rates which is good if interest rates drop and you get the benefit of the change.

 

You can split into thirds, quarters or more - sometimes there is a minimum amount required per portion. You should also consider any fees incurred in splitting and if the loan is one which can be split or pick a package which is designed for such set ups.

 

An Offset Mortgage account becomes a personal transaction account. The balance in the account is used to reduce interest on your mortgage. You can deposit and withdraw on this account the same as other accounts so it could be set up as an account for depositing your salary for instance. Your offset account is linked to your mortgage thereby reducing the balance of your mortgage by the amount of money in your account, dollar for dollar; therefore allowing the balance to reduced the interest payable on your mortgage. Remember the daily limit of your account is offsetting your home loan when the lender calculates the interest.

 

It could be used as a Loan Reducer or Mortgage Reduction facility. Different lenders offer different types of Offset features, again you need to shop around to make sure the lenders facilities are in line with your own requirements. Be aware that Mortgage offset is not necessarily always offset 100%.

 

Although ATM, Eftpos, cheque and other access means are available, 100% offset loans encourage borrowers to use a credit card for all purchases and then settle the card in one transaction from the mortgage account per month. This allows the money to remain in the account to reduce the interest for the longest possible period of time.

Honeymoon loans offer customers a special reduced ("teaser") rate for an introductory period, often one year. The loan then reverts to a standard or special variable rate.

 

Whilst this might help initial cash flow, these loans can be on offer with different packages, so again you need to look at the overall package in relation to your specific requirements, working out the overall rate applicable to the loan over a period of years. Be sure to know what the AAPR is - the effective rate of the loan, as part of ascertaining whether to take a discounted rate or not.

 

A standard loan on offer from lenders requires that you pay a portion of principal and a portion of interest on every repayment every month ie. amortising loan. This will ensure that your home loan is repaid within the specified period or term. Paying extra repayment to your loan will also allow you to pay off the loan in a quicker period therefore reducing the interest calculated on your home loan, potentially saving you a lot of interest. Depending on the product that you use, you can split your loan according to the tax effectiveness of the funds that you have borrowed against it i.e if you have investment debt against your home for example, it is better to pay your home loan debt first then when this is paid off, then concentrate on your investment debt. This can also be tax effective for you.

 

No principle repayments are required - only the interest portion has to be paid on this loan. Theoretically, the loan need never be paid out as long as interest payments are being made.

 

Some loans can be split with an interest only portion to reduce repayments early on in the loan. Interest only works well with fixed rate loans where the ability to calculate future interest means interest can be paid in advance. This is sometimes a good option for investors.

 

The interest on a loan is the tax deductible portion of your loan if you are buying an investment and fixed portion sometimes is a good option if you are paying off more then one mortgage. It is recommended that you speak to an accountant regarding the best way to work the repayments tax effectively.

This is essentially a facility to allow access to the equity that has been built up in your home over a period of time. It can be looked at like a large overdraft where money paid in can be withdrawn again up to the original amount borrowed. It can function as several different loans (e.g. house, shares, and car) without the borrower having to take out new loans each time they have paid down a portion of the loan.

 

However most people treat their revolving line of credit loans as an amortizing product in that they make their normal repayments but the flexibility is there should you need to access a portion of your equity quickly. Revolving lines of credit often have higher interest rates than ordinary variable loans and can be a trap for those not good at budgeting. For more of a safety net, a standard variable loan with redraw or mortgage offset is often preferable; however you can split these loans to suit your requirements.

 

Refinancing means a borrower takes out a new loan to pay out an old loan. Refinancing can sometimes be advantageous with another financial institution taking advantage of different packages on offer. Many borrowers refinance their home to take advantage of tax effectiveness in relation to investing or accessing equity in their property etc. It is also a good way to take advantage of your home equity and to direct funds to investments.

 

May typically suit retires who wish to tap into the equity of their home to enable lifestyle choices - i.e. new car, holiday, home renovations or to enable greater cash flow via financial planning / pension plans.

 

To assist those people with bad credit history and who do not qualify for loans through the major banks.

 

These mortgage loans assist people who may have recently become self-employed or who wish to purchase their 1st home, but do not qualify under the major banks credit criteria.

 

Typically allows self-employed people who have not completed their recent tax returns to self-certify their income without the requirement of proof of income and enables these people to purchase or refinance properties.

 

These Loans are secured by a commercial property and they may be structured as Interest Only (up to 5 years) or Principal and Interest for up to 20 years.

 

These Loans may be secured by either Residential or Commercial Property, providing the funds are used for Business purposes.