TYPES OF HOME LOANS
Whether you’re a first home buyer or a seasoned investor adding to their portfolio, finding the right property, negotiating a fair deal and securing the sale is always an exciting time! However, finding the property and signing a contract is only the first of many steps in the buying process. Where the transaction involves a home loan (and mortgage) there are a few more steps to complete.
The home lending market today is an extremely crowded space with a sea of lenders offering different rates, products and often very diverse features. It can be a confusing process, so you’ll need to think carefully to ensure the home loan product chosen is affordable and will meet your needs now and into the foreseeable future.
Whilst there are different loan products available to consumers they generally fall into the categories of Introductory Loans, Line of Credit Loans, Split Loans, Variable Loans and Fixed Rate Loans. (List is not exhaustive.)
Introductory Loans
Historically a popular product that usually offers a lower interest rate for an introductory period, say, 6 or 12 months before reverting to a standard rate. It’s important to check out the ongoing rate as the products often revert to a higher interest rate than a standard basic loan. Tip: Consider overall cost.
Line of Credit Loans (LOC)
A product providing access to credit using the available equity in a home. LOC loans are similar to a credit card arrangement. The Line of Credit has an available credit limit and users can access the funds as needed increasing the amount owed up to the maximum limit. Any deposits made into the loan reduce the balance and free up available credit. (Interest is added back) LOC products require discipline to ensure the loan reduces over time.
Split Loans
Designed for people wanting the security of a fixed rate loan and the flexibility of a variable product. The borrower may fix a set portion of the loan and leave the remainder as a variable loan.
Variable Rate Loans
The interest rate charged on a variable loan generally moves up and down according to movements in the Reserve Bank of Australia cash rate. Variable Loans usually allow unlimited extra payments (without penalty) and the ability to redraw any additional funds when required (usually a small fee applies). Basic Variable products generally have a lower interest rate to the Standard Variable products but that is offset by fewer features.
Fixed Rate Loans
The interest rate on a fixed rate loan is usually fixed on the day of settlement (with some exceptions) and remains in place until the expiration of the fixed period. Most loans are fixed for periods from 1 to 5 years although a small number of lenders have longer fixed periods.
There are many benefits and considerations (e.g. taxation, expected period of ownership etc) to reflect on before committing to particular loan products, so it’s important to seek appropriate advice from your accountant and/or financial advisor depending.
If you’d like more information on this topic the Mortgage and Finance Association of Australia (MFAA) who represent finance brokers has a good article at https://www.mortgageandfinancehelp.com.au/first-home-buyer-news/how-do-i-decide-between-fixed-or-variable-interest-loan/
This blog is intended to give you a broad idea of the different home loans types available in the Australian market. Explore all options with your broker, bank or financier and get good advice from an accountant and financial advisor.
Our sales team led by Lachlan Evans are focused on tailoring real estate solutions to meet your needs and keep the experience as stress free as possible.
McAdam & Turnbull Realty are your local real estate professionals and property management specialists in Toowoomba and nearby surrounds. You can follow our Principal and agent Lachlan Evans at www.linkedin.com/in/lachlan-evans-621bb583 or view our current rental and sale listings at http://www.mcadamturnbull.com.au and LIKE us on Facebook @
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This publication covers real estate, property market, finance and legal related issues in a general way. It is intended for general information purposes only and should not be regarded as professional finance or legal advice. McAdam & Turnbull Realty recommends that professional legal and/or finance advice should be obtained before taking any action on the basis of the general information presented in this publication.
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