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Explaining
the Home Loan
Phenomena.
Always wondered
what the benefits
and cautions you
should consider when
choosing a home
loan? Choose a loan
for a brief and
simple explanation.
Standard
Variable Loans
Basic
Variable Loans
Introductory
Loans
Fixed
Loans
100%
Offset and
All-in-one Loans
Line
of Credit
Home
Equity Loans
Australia's
most popular
type of home
loan. The
interest
rate can
vary
throughout
the term of
the loan (up
or down),
with the
term usually
20 to 25
years.
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Benefits
If interest
rates fall,
your
repayments
will come
down.
You have the
option to
fix or split
your loan;
can make
additional
repayments
without
incurring a
penalty and
have the
option to
redraw the
additional
funds.
Is more
flexible
that other
loan types
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Cautions
If interest
rates rise
you will
have to make
higher
repayments.
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Many
lenders now
offer basic
variable
loans with
lower
interest
rates than
standard
variable
loans but
with fewer
features.
Like all
variable
loans, the
interest
rate and
your
repayments
can vary
over the
term of the
loan.
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Benefits
The biggest
advantage is
price. Basic
variable
loans have a
relatively
low interest
rate.
Repayments
usually
lower than
standard
variable
loans
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Cautions
Most of
these loans
do not offer
the same
range of
features or
flexibility
as other
variable
interest
rate loans.
For example,
many basic
variable
loans cannot
be used in
combination
with other
loans and
are not
portable.
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The
interest
rate is
usually low
to attract
new
borrowers
and normally
lasts for a
period of
two years or
less. Rates
can be
fixed,
variable or
capped.
After the
introductory
period, most
introductory
loans revert
to the
standard
variable
rate, also
called a
discounted
or honeymoon
rate.
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Benefits
Usually the
lowest
interest
rates
available on
the market.
Some banks
provide an
offset
account on
these loans.
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Cautions
Payments may
increase
when the
initial
period ends.
If the
introductory
rate is
fixed and
interest
rates fall
you could be
locked into
higher
rates.
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The
interest
rate is
fixed for
the term of
the loan -
usually
between 1-10
years.
This means
that the
monthly
repayments
will remain
the same for
the duration
of the fixed
period.
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Benefits
The security
of knowing
that your
repayments
will not
increase for
the fixed
period.
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Cautions
If interest
rates fall
during the
fixed period
you will be
paying a
higher rate
by
comparison
Fixed loans
often lack
the
flexibility
to make
extra
repayments
and thus
limit the
borrower's
ability to
shorten the
duration of
the loan.
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100
per cent
offset
accounts are
a separate
savings
account
attached to
your home
loan. The
interest
rate on the
offset
account is
the same as
on the loan,
with any
money you
put in the
offset
account
being
deducted
from your
loan balance
before
interest is
calculated.
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Benefits
It operates
like a
transaction
account and
typically
has a cheque
facility and
a cash card.
The interest
savings on
100 % offset
accounts or
all-in-one
loans are
higher than
you would
get on other
savings and
transaction
accounts
Any extra
money in
your
transaction
account
saves you
interest on
your loan,
thus
shortening
the term of
your loan.
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Cautions
You may have
to pay a
slightly
higher
interest
rate or
monthly fee
to have a
100 percent
offset
account.
You may have
to have a
minimum
balance in
the offset
account for
the offset
effect to be
calculated.
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A
line of
credit is an
interest
only
variable
rate loan
secured
against a
residential
property
allowing
access to
funds
whenever you
need them.
They have
the added
flexibility
of a
transaction
account
built into
the home
loan. Line
of credit
products are
flexible
ways to
raise funds
for
investment
purposes by
providing
cash at call
up to the
prearranged
credit
limit.
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Benefits
You can use
the money as
you need it
and pay it
back when
you can.
Interest
rates tend
to be lower
than for
credit cards
or personal
loans.
Credit
limits are
usually
higher than
for credit
cards or
personal
loans.
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Cautions
Unless you
are careful,
it's
possible to
reduce the
equity you
have built
up in your
home.
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Allow
borrowers to
use the
equity in
their
existing
property for
other
purposes
such as
renovations,
investing in
shares or
managed
funds, or
financing an
investment
property.
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Benefits
Interest on
home equity
loans are
tax
deductible.
Usually at a
lower
interest
rate than
other loans.
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Cautions
As with a
line of
credit, it
is possible
to reduce
the equity
built up in
your home.
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Coming Soon
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