Types Of Loans
Standard variable loans are among the most popular home loans in Australia. The interest rate in standard variable loans varies through the term of the loan. These loans come with excellent flexibility and a low fee. Moreover, standard variable loans come with various other features. These features offered by standard variable loans include but are not limited to an offset facility, no limits on additional repayments, redraw facility, no early pay-out penalties, and many more.
Advantages:
- This type of loan comes with excellent flexibility
- You can make lump-sum payments without penalty
- It comes with several extra features
- Repayments will decrease if interest rates fall
Disadvantages:
- Repayments will increase if interest rates rise
Basic Variable Loan
Basic varial loan is similar to the standard variable loan with lower interest rates and fewer features. If you need any additional features, you have to pay for them. The interest rate and repayments in basic variable loans vary through the term of the loan.
Advantages:
- Lower interest rate as compared to the standard variable loan
- Fewer repayments compare to the standard variable loan
Disadvantages:
- Fewer features and less flexibility compared to the standard variable loan
Intro Rate ‘Honeymoon’ Loan
The intro rate honeymoon loan comes with a lower rate for an initial period, which is usually 12 months. After the initial period (12 months in most cases), the rate reverts to the standard variable rate. You have the option to choose a fixed or variable rate.
Advantages:
- It comes at the lowest rate in the market
- Some financial institutions offer offset accounts as well on intro rate loans
- During the honeymoon period, you can reduce the principal quickly
Disadvantages:
- After the initial period, which is often 12 months, payments will increase
Fixed Rate Loan
Fixed-rate loan comes with a fixed interest rate for a particular period. The fixed-rate period is usually between one to five years. The fixed-rate loan provides you with the certainty of knowing the exact amount to be paid and the number of monthly payments to be made. It gives you peace of mind that the payments or the amount won’t rise.
Advantages:
- The payments won’t increase if the interest rates rise
Disadvantages:
- The flexibility is reduced
- Extra repayments can result in an additional fee
- Extra repayments can be limited
- The payments won’t decrease if the interest rates fall
100% Offset Loan Account
The 100% offset loan is another popular loan option available for you. It is similar to the all-in-one loan. It comes with an offset account linked to your loan. Instead of putting all your income in setting off your loan, you can put your money into this account. The balance in this account is offset against your loan.
Advantages:
- If used correctly, the offset account can save you a substantial amount of interest
- The account comes with a chequebook, ATM card, etc. and operates like a normal transaction account
Disadvantages:
- The monthly fee can be higher for this account
- It might require you to keep a minimum balance in the account
Line of Credit Loan
This loan allows you to use the money when you need and pay it back when you can. It provides you with access to the equity in your property up to a limit. It comes with a variable interest rate, and the monthly repayments are interest-only, which you are required to pay until the principal amount is settled.
Advantages:
- It allows you to use the money when you require and pay it back when you easily can
- Interest rates are lower as compared to a credit card or a personal loan
Disadvantages:
- The equity in your home can reduce in case of carelessness
Low-Doc & Credit Impaired Loans
If you do not meet the criteria of borrowing money, a low documentation loan is a perfect option for you. This type of loan is perfect for investors or self-employed borrowers with an impaired credit history or who cannot provide the required documentation for their loan. Moreover, this loan can also help you get a loan more than your property value.
Advantages:
- No tax returns are required
- No financial statements are required
- All you need is an income declaration form
- It comes with various features, including the line of credit, redraw, principal and interest or interest-only, variable or fixed rates, etc.
Disadvantages:
- Interest rates are generally higher than other loan options
Construction Loans
If you are looking for a loan to finance your property construction, a construction loan is suitable. All you need is a building contract from a registered builder and council approved plans, and you are good to get a loan. The repayments will be interest-only for the construction period. After the construction, it will become principal and interest. You can draw the money per your requirements whilst construction.
Advantages:
- Interest rates are variable and competitive
- You can draw the money per your needs whilst construction
- The repayments are interest-only for the construction period
- You can also make additional payments
Disadvantages:
- You are required to provide a fixed price building contract, and room for changes is little
- The financial institution might ask you to pay a fee every time you draw money
- In the case of a variable loan, if interest rates rise, loan repayments will increase
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