Home Loans

Fixed or Variable
The basic interest rate on a home loan is known as the standard variable rate. The rate is calculated using the interest rate set by the Reserve Bank of Australia, which changes according to economic criteria set by the Bank. As the name suggests a variable rate loan may go up or down during the term of the loan.

Many lenders also offer loans at a fixed interest rate. This means that your interest rate does not change for a given period of time – usually from one to five years.
The certainty of a fixed rate can help with budgeting in the early years of a home loan – it’s good protection against the unexpected.

As a rule of thumb, if a rise in interest rates of more than 2% would mean that you couldn’t cope, then it might be a good idea to fix at least a portion of your loan.

Usually you cannot make extra repayments or vary repayments with a fixed rate loan. These loans also carry penalties if you cancel the loan.

Split Loans
If you are attracted by the certainty of a fixed rate, but would enjoy the flexibility, then you might consider a split loan.
You are able to choose which proportion of your loan you would like at a fixed rate and which you would like at a variable rate.
You benefit from the lower rates and flexibility of a variable loan, but provide yourself against potential rate increases.

Line Of Credit
A line of credit facility – you pay all your income into your loan account reducing or paying off your loan. You have the ability to use your account as your cheque, credit and savings accounts combined – almost like a simple redraw facility. Keeping money in the account can reduce your loan amount and your interest payments.

Basic Home Loans
The main features of this type of loan are a very low variable interest rate with little or no regular fees.

These loans offer few extra features. For example, if you want the flexibility of a redraw, you generally pay extra.

Honeymoon loans
A discounted introductory rate for the first few months or years is a popular feature on home loans. For example, your introductory rate might be two percent below the standard variable rate. Your rate will change if interest rates change, but it will remain cheaper than the standard variable rate.

During the introductory period take advantage of the lower interest rate and pay off your loan as quickly as you can. When the introductory period ends, your mortgage will revert to the standard variable or fixed rate. These loans may have high fees if you wish to cancel the loan during or immediately after the initial period.
 
Bridging Loans
A bridging loan (or relocation loan) is a short-term loan that covers the gap period between purchasing your new property and selling your old one.

These loans are offered at the standard variable rate and usually have a term of six months if you are selling your property.

Each lender assesses bridging loans differently, so it pays to have an expert on your side. All lenders will require you to have significant equity in your property for a bridging loan.

Deposit Bonds
A deposit bond (or deposit guarantee) is a simple and cost-effective alternative to a cash deposit when purchasing property.

This is particularly useful if you are buying at auction, as it means that you don’t have to keep a significant sum of cash on hand for what could be a prolonged period of time – and it enables you to move quickly when you have to.

A deposit bond is also an excellent solution for investors who don’t have cash at their disposal and don’t want to cash in investments such as shares.