Loan types
Listed below are some of the different types of loans available, their benefits and disadvantages. For more details about how a broker can get you the finance or mortgage you need, please don’t hesitate to get in touch.
Standard Variable Rate Loan
- Benefits
- You can pay interest weekly, fortnightly or monthly. Redraw is possible.
- Extra repayments are allowed.
- Some offer a cheaper interest rate in the first year.
- Disadvantages
- An early repayment fee may apply to loans paid out within a specific time when a “honeymoon” rate is taken.
Basic Variable Rate Loan
- Benefits
- Low interest rate.
- Extra repayments allowed.
- Possible redraw facility.
- Disadvantages
- None.
Line of Credit
- Benefits
- Ready access by ATM, EFTPOS or cheque to your approval limit.
- Reduction in interest paid can occur as all income paid into the account.
- Extra payments can be made at any time.
- Disadvantages
- Interest rate may be higher than standard variable rate.
- Disciplined approach needed as ease of access may encourage spending.
- Interest payments only, so debt may not reduce if not managed properly.
Fixed Rate Loan
- Benefits
- Helps budgeting as your repayments are fixed for a period.
- Some lenders allow you to make extra payments without penalty (5-10Kpa).
- Principal and interest payments possible, so loan reduces over time.
- Disadvantages
- Loan can cost more if interest rates decrease.
- Penalty applies if you break the contract before the end of the term.
- Usually no redraw or offset facility is available.
Combination (Fixed and Variable Rate)
- Benefits
- Having part of the loan at variable and part as a fixed rate can provide peace of mind.
- You can manage the variable portion as you would normally.
- Disadvantages
- Professional advice required on how to structure the loan.
- Short term debt may now be taken over a longer period.
Bridging Loan
- Benefits
- Allows greater flexibility as you can move in or build your new home before you sell your current one.
- Disadvantages
- You require a stronger financial position because of the greater interest commitment, particularly if you do not sell at the price you wanted or by the target date.
Low Doc Loan
- Benefits
- Less financials/ proof of income required.
- Disadvantages
- Normally 20% deposit /equity required. Interest rates can be higher.
Reverse Mortgage
- Benefits
- Allows you to borrow money against your property without having to make regular payments.
- Disadvantages
- Interest rates can be between 1-2% higher than the standard variable rate.
- Product may have limited features.