FINANCE SERVICES
Loan Types
There are hundred’s of different loan products throughout our panel of Lenders. Although all loan products have slightly varying characteristics they all fall under the same 7 major Loan Type Groups. To help you make the right choice that satisfies your needs we have given a brief background on each Product Type and their advantages and disadvantages.
Standard Variable
The Standard Variable Home Loan is a “no frills” home loan. As a rule of thumb the Standard Variable is set a margin above the Cash Rate issued by the Reserve Bank of Australia. As such when interest rates rise, so do your repayments. Rates fall, so do your repayments
Advantages:
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When Interest Rates fall, so do your repayments
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You are not limited to a fixed repayment.
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No Frills loan with additional extra features
Disadvantages:
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When Interest Rates rise, so do your repayments
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Higher interest rates than other products
Basic Variable
The Basic Variable Home Loan is the loan which Traditional Banks tend not to offer unless they are trying to compete for business. These types of loans are very competitive since the recent rise in Interest Rates. They offer far discounted Variable Rates to reduce your repayments.
Advantages:
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Lower Interest rate than the Standard Variable
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Offers certain benefits for higher loan amounts
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Lower Repayments
Disadvantages :
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Can have some extra fees attached
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Not as flexible as the Standard Variable
Line of Credit
Can be best explained as a large credit card in which you are charged Interest on the balance of your Line of Credit only. You are given a limit in which you can not exceed. Many Banks had used this product as a marketing tool, however, this was stopped due to false advertising. It can be a great tool if used correctly, such as purchasing Investments.
Advantages:
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Pay interest only on the amount owed
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Ease of use
Disadvantages :
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You can fall into the trap of taking all funds out to the limit
Low Doc/No Doc Loan
Known as a Low Documentation or No Documentation, these 2 loans are great for those clients who have not as yet received their last years financials or for any other reason can not produce their financials.
Advantages:
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Enable clients who can not produce income details to borrow
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Easy and quick income declaration form
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No income or asset information needed for No Doc loans
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Flexibility in repayment types
Disadvantages :
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Traditionally higher interest rates
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Limited flexibility in product selection
Offset Loan
The Offset Loan is rapidly becoming popular amongst Lending Institutions. It works by having a large amount of money in a savings account offsetting against your home loan. This will then mean you are only paying interest on the Mortgage amount less the offsetting savings amount.
Advantages:
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This is a good way of saving on your interest for you Home Loan. Although savings interest is taxable, as this amount is simply reducing your loan interest, NO tax is payable.
Disadvantages :
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Often has higher fees attached
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You will often need a permanent large saving balance to offset higher fees and interest rate.
Introductory Loan
Also known as a Honeymoon or “Suck In” Loan. These loans generally run over 6-12 months and offer a discounted rate over this period. Rates can be either Fixed or Variable and often revert to the Standard Variable post Introductory Period.
Advantages:
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Very low rates for the Introductory Period
Disadvantages:
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Loan usually reverts to the larger Standard Variable
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Fees can be higher than other loan types
Fixed Rate Loan
Fixed Rate loans are a locked in Rate home loan whereby the interest rate does not change for a given period of time
Advantages:
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The interest rate will not go up in times of increasing interest rates
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Peace of mind knowing you loan is stable
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Great for Investments of a fixed term
Disadvantages :
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If interest rate decrease you are stuck at a higher interest rate
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Limited in your extra repayments
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Does not have the flexibility of a Standard Variable Loan