The home loan market is ever-changing. When you’re looking at purchasing a property all the different loan types can seem intimidating, but when you understand the lingo you will feel more confident in your decisions.
It’s important to understand which type of home loan best suits your needs and financial objectives. Once you’ve outlined your financial goals, you can begin to explore loan options that will help you reach them. Here is a quick overview of the most common home loans that are available on the market.
Variable Home Loans (Principal and Interest)
The rate charged on a variable loan moves up or down in accordance with movements in interest rates, as set by the Reserve Bank of Australia (RBA). Basic variable loans generally have fewer loan features than a standard variable loan.
Fixed-Rate Home Loans (Principal and Interest)
A fixed-rate loan is a loan that has a fixed interest rate and therefore has fixed loan repayments. The time period of these loans can vary, but you can usually “lock-in” your repayments for between 1-7 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.
Split Rate Home Loans (Principal and Interest)
A split rate loan has one portion of the loan fixed and one portion variable. You can select how much to allocate to each portion.
Introductory Home Loan
On these loans, the interest rate is usually low to attract borrowers. The rates can be either fixed or capped. Introductory home loans are also known as a honeymoon rate, as the initial rate generally lasts for only about 12 months before it rises. Most revert to the standard rates at the end of the honeymoon period.
Interest-Only Home Loans
You repay only the interest on the principal amount during the term of the loan; therefore, repayments are lower than with a standard principal and interest loan.
Non-Conforming Home Loan
People in arrears and with poor credit ratings often have trouble sourcing a home loan. Some lenders nowadays offer what are known as ‘non-conforming loans’ for people who find themselves in this situation. While lenders are willing to overlook prior credit problems, they will still require you to show evidence of your ability to repay the loan.
Low Doc Home Loans
A low-doc mortgage is ideally suited for investors or self-employed borrowers looking to refinance, purchase or renovate. Only minimal financial records are required.
Line of Credit Home Loans
This type of property loan revolves around equity built up in your property and allows access to funds when needed. These products offer creative ways to raise funds for investment by providing cash 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 paid on the credit card or withdrawn in cash. As long as there is consistently more cash coming in than going out these accounts can work well.
If you need more clarification or would to talk in detail about any of these loan option NSW Mortgage Corp is available to assist you with a no-obligation loan consultation.
