There are literally thousands of different loans on offer in today’s mortgage market, but how do you know which type of home loan is the right choice for you? The following list provides some detail of the most commonly used loan products.
Basic home loan
These are your standard ‘no frills’ mortgages. They generally offer low interest rates and low ongoing fees – perfect for the first time buyer. If you are looking for a loan that boasts a range of extras, this is not the one for you. A basic home loan package offers less flexibility, few features and can restrict the borrower from making additional repayments.
Standard variable rate
These loans offer something for nearly everyone. While they will have a higher interest rate than a basic home loan package, standard variable rate mortgages offer greater flexibility, plus a raft of optional extras, including split loan features and redraw facilities. But remember, rates go up as well as down. Your repayments may change with any interest rate adjustments, like last week’s rate cut.
If you’re looking for certainty in your mortgage repayments, then a fixed rate home loan is probably right for you. The main goal is to lock in the cheapest rate possible, so timing is everything. Be sure to shop around and keep a keen eye on interest rate movements. This type of loan offers very few features and little flexibility. In fact, borrowers can expect hefty fines for breaking the loan term.
Low repayments make this loan a favourite with investors. As the name suggests, interest-only loans focus solely on the interest component of the loan, keeping repayments low during its life. These loans tend to have a shorter term – of two to five years – with the principal paid in full at the end of this period.
Line of credit
If you’re looking for a loan that gives you considerable flexibility with your repayments and the ability to draw down additional funds, you might want to consider a line of credit. Each month, borrowers can pay as little or as much as they want towards the principal – as long as they meet their interest repayments. As a line of credit borrower, your loan is usually linked with a credit card with an interest-free period. This allows borrowers to access funds if and when they need. However, you need to be disciplined with your finances or you may end up adding years to your loan.
Perfect for self-employed professionals, lo-doc loans provide finance for borrowers unable to provide the documentation usually needed. Most lenders require lo-doc borrowers to take out lender’s mortgage insurance for loans of up to 80 per cent of the property’s value. These loans may well also carry a higher interest rate than that of the basic loan.
As you can see, choosing the right mortgage can be a challenge – but that’s where your mortgage broker has the edge, they have access to thousands of home loan products and can tailor a loan to your own personal goals and objectives, helping you achieve your property dreams earlier.