Home Loan Information

A brief overview of the different types of home loan and mortgage products that are commonly available today within Australia

• Standard Variable Rate Home Loan

• Basic Variable Rate Home Loan

• Fixed Rate Home Loan

• Line of Credit

• Low Document Loans

• No Deposit Loans

• Non Conforming Loans

• Reverse Mortgage

Standard Variable Rate Home Loan

The standard variable rate home loan is one of the most common facilities offered by almost all banks and lending institutions. The interest rate on this type of loan moves with market fluctuations, the rate can either increase or decrease over the term of the loan depending on the economic environment at that time. These loans are generally of terms up to 25 years with some institutions offering terms of up to 30 or even 40 years. Dependant on loan size most standard variable rate home loans are eligible for professional pack or pro pack benefits such as discounts off the standard variable interest rate. This interest rate discount is commonly 0.07% off the standard variable interest rate.

Basic Variable Rate Home Loan

The basic variable rate loan is very similar to the standard variable rate loan without some of the features that the standard variable rate loan offers. This reduces the cost of the basic variable rate loan. This product may be suitable for borrowers who want a flexible product at a reduced rate compared to that of the standard variable rate loan products. Basic variable rate loans are also worth consideration for home loan sizes that may not qualify for a professional pack interest rate discount.

Fixed Interest Rate Home Loan

A Fixed Rate Home Loan is a loan where the interest rate is fixed and does not fluctuate during the fixed interest rate period. The interest rate is contracted not to change during the fixed interest rate term regardless of what happens in the economic environment. Traditionally the fixed interest rate term is from 1 to 5 years however there are home loan and investment property loan products offered that can be fixed for up to 15 years. Generally the loan will be renegotiated at the end of the fixed interest rate term or will automatically revert to the standard variable loan product. Changes to fixed interest rate home loan products such as extra payments or early payouts during the fixed interest rate term are generally restricted and costly. Fixed interest rate home loan products may be suitable for a property investor who wants the security of fixed investment loan repayments for a set period.

Line of Credit Home Loan

Line of Credit or home equity loans are very similar to a bank overdraft account. Existing equity in a property can be accessed up to the revolving lie of credit limit which is predetermined by equity in the property and the borrower’s ability to repay the home loan. Borrowers have the flexibility to alter their monthly repayments, however the minimum monthly repayment is generally the interest charged to the account each month. Many lenders offer the ability for the borrower to operate this facility as an all in one home loan account that includes transactional accounts and other banking services.

Low Document Home Loan

Low document loans are popular home loan products among self employed business people. Low document home loans may be suitable for self employed borrowers who do not always have all the necessary documentation at the time they require home loan or property finance. A self employed borrower must still be able to clearly demonstrate that they have the capacity to repay the loan through various declarations and other documentation. There may be restrictions on the types of low documentation home loan products offered by banks and other lending institutions, and a premium may be charged on fees and interest rate and the overall maximum home loan amount available to a low documentation home loan borrower against the property security may be reduced.

No Document Home Loan

No document property and home loans are in essence similar to low documentation property and home loans where the required documentation may be reduced further to that required for a low documentation home loan and the restrictions on no documentation home loan products offered by banks and other lending institutions are usually greater and premiums charged on fees and interest rate and is greater. Additionally the overall maximum home loan amount available to a no documentation home loan borrower against the property security may be reduced further again from that available with a low documentation home loan.

Non Conforming Home Loan

Non Conforming loans and credit impaired loans are designed for those borrowers that may have difficulty in obtaining credit due to past credit problems, due to peculiarities with the property to be financed and used as security for the home loan or have little to no savings to put towards a deposit for the property purchase. Generally a risk assessment scale is used by the lending institutions that offer non conforming home loan products to determine the amount of interest that will be charged on the home loan.

Reverse Mortgage Home Loan

Reverse mortgages otherwise known as equity release finance are designed to meet the needs of asset rich but cash poor elderly borrowers that have little or no income and adequate equity locked up in their property. These reverse mortgage products allow the borrower to borrow funds for any purpose against the equity tied up in their property and generally no repayments are required throughout the life of the loan. Generally up to 20% of the value of the property may be borrowed and the loan is usually repaid after the borrower has passed away and the repayment is made from the sale of the residential property asset by the estate.

 

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