There’s a huge choice of home loans available, and Top Finance Specialists will help you find the best one to suit your needs and budgets, however Making yourself familiar with a few of the popular products available will give you a strong head start when discussing your loan options with your broker. Here are just a few of the product types you’re sure to come across.
BASIC - HOME LOANS
Basic home loans – or ‘no frills’ loans – offer borrowers a loan with a low interest rate. A popular choice among first home buyers, a basic home loan’s interest rate is often half to one per cent below the standard variable rate, which is sometimes combined with minimal ongoing fees. Drawbacks include limited features, less flexibility, and additional charges if you decide to switch loans or pay the loan off sooner.
FIXED RATE - HOME LOANS
Worried about rising interest rates? A fixed rate home loan will allow you to fix your interest rate for a specific period, usually from one to five years. It’s a sound option when interest rates are on the rise or in times of economic uncertainty. Should interest rates plummet, however, you’ll still have to pay off your mortgage at the fixed rate until the end of the agreed period.
STANDARD VARIABLE RATE - HOME LOANS
Considered a popular mainstream choice, standard variable-rate home loans allow you to borrow money for a set period of time, during which you make regular repayments based on the current interest rate. The interest rate can vary depending on fluctuations in the official cash rate.
LOW DOC - HOME LOANS
If you’re a self-employed, contract or seasonal worker and do not have a regular income a low doc loan may be a solution. While making home ownership a possibility for a cross section of Australians workers which previously found it difficult to secure a mainstream bank loan, most low doc home loans typically have higher interest rate. Your lender may also require you to take out lenders’ mortgage insurance in order to secure a loan.
SPLIT RATE - HOME LOANS
Want the best of both worlds? A split-rate home loan offers both flexibility and security. A good product for both first time and existing borrowers, split loans allow you to customise your loan’s interest rate as you see fit: fixing a portion of your interest rate to give certainty to your monthly repayments should rates increase, but also flexibility through taking out a variable-rate portion.
INTEREST ONLY - HOME LOANS
Interest-only loans offer borrowers lower repayment options, while maintaining many of a traditional loan’s features. This type of loan allows you to pay only the interest component on a mortgage; it does not reduce the principle component. They are a popular choice for investors looking for good capital appreciation on their investments.
A type of mortgage in which a homeowner can borrow money against the value their home. No repayment of the mortgage (principal or interest) is required until the borrower dies or the home is sold. After accounting for the initial mortgage amount, the rate at which interest accrues, the length of the loan and rate of home price appreciation, the transaction is structured so that the loan amount will not exceed the value of the home over the life of the loan.
Many lenders offer reduced interest rates for a limited time at the beginning of your loan. Also, known as a ‘honeymoon rate’, the low interest rate generally applies to the first 6 to 12 months of the loan. The interest rates can be fixed or capped. The advantage is the rates can be lower than the standard variable rate, however, you should be aware that there is generally a catch with introductory rates. Usually after the end of the introductory period, when the rate returns to a variable rate, that rate can be higher than the normal variable rate.