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.

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