The Australian market has changed a lot in the last twenty years. Deregulation and the growth of competition have meant many different lenders are now available to modern consumers in addition to the traditional banks and building societies. Each of these has a range of loans so there are literally thousands of products on the market today.
These options will fall into basic categories and these can be split or combined in different ways to suit the individual borrower’s needs. Loans also have optional features that can be utilised. Features like ‘Interest Only’ payments, Re-draw options, and linked credit card or cheque book facilities. We can define the ‘basic’ loan options for most borrowers in this way.
OUR HOME LOAN PRODUCTS
- Standard Variable Loan
- Fixed Rate Loan
- Lines of Credit
- Offset Loans
- Lo Doc or No Doc Loans
- Construction Loans
Standard Variable Loan
This is the most common type of home loan. It will normally be set up over a twenty five or thirty year period requiring a monthly payment that will payout (amortise) the loan over the time frame specified. The monthly payment is set to allow for the payment of the monthly interest cost plus a small amount of the principal debt. The interest rate for this loan is ‘variable’ meaning in changes in response to shifts in the official cash rate set by the reserve Bank of Australia or changes in the cost of raising money that the lender or bank is currently facing. This allows for the loan re-payment to go up or down but still amortise the loan over the standard time.
Fixed Rate Loan
The fixed rate loan allows a client to agree with the lender to fix the interest rate that applies to their loan for a limited time (usually 1, 3 or 5 years). This means the monthly payment will be constant despite any rate changes for other borrowers. This loan style is useful for people on a tight income who cannot deal with payment variations. It is also a good option in a rising interest rate environment to be able to fix some or part of a loan and avoid paying higher interest costs. In a falling rate environment, this type of loan can leave a client paying more than the average market price for loan; so it should be used carefully and with a view to the broader market movements.
Lines of Credit
A Line of Credit loan is a fully flexible loan that normally allows clients to make maximum payments onto a loan and make easy flexible withdrawals from the same loan. It is an ideal structure for rapid mortgage reduction. This loan gives a client a general limit to their loan and allows them to deposit or withdraw funds as they choose as long as they operate below their limit. It allows much greater flexibility for the borrower but needs to be structured carefully to ensure clients get the maximum benefit from this type of loan.
An “Offset” loan establishes a link between a client’s savings or transaction account and their mortgage and allows the interest charges in the mortgage account to be ‘offset’ by the interest earned in the savings account. This type of loan allows some value to the borrower from their saved funds. The earnings from the offset account reduce the cost and term of their mortgage. These loans vary according to how much interest can be offset and how the offset is calculated. So the value of this loan can vary according to the income and savings position of the borrower.
Lo Doc or No Doc loans
Some borrowers cannot fully demonstrate all of the income they have available for servicing purposes. This is normally due to delays in completing tax returns for small business operators or because some elements of their income are not ‘allowable’ for credit assessment purposes. So Lo Doc and No Doc loans can be approved based solely on the client making a declaration about their own ability to service the loan. These loans will typically have a slightly higher interest rate and also a lower level of loan as a percentage of the home or security value (LVR). The credit standard on this type of loan is very high. Borrowers need to have clear credit history without defaults and also be able to show proper conduct of loans, without missed or late payments.
Borrowers who are building a home normally use a construction loan. This loan allows progress payments to be made to the builder during the construction so the loan increases up to the full limit by the time the building is complete. It means clients are only charged interest on the amount of the loan that has been used rather than paying a full interest charge on money that has not been used for payments to a builder. At the completion of construction, this loan will revert to some other loan type for the duration of its term.
We have access to over 700 loan products from Basic Home Loans to Professional Packages.
Once you have chosen which loan to go with, your assigned and dedicated mortgage broker will then assist you through the whole loan application to loan approval and settlement process, plus, your broker will continue to be there for you in the future when you need further finance, property and loan related advice or assistance.