Types of Australian Home Loans

October 2, 2016 - Posted in First Home Buyers, Home Loans

There are many different mortgage options available in Australia. While this is a good thing, deciding between them can be time-consuming and confusing. Luckily, that’s where we come in.

This article will help you to sort out your loan options and by the end of it, you will be able to tell the difference between each loan.

There are many different loans available, but they’re all factored on two costs:

  1. Principal – the amount borrowed
  2. Interest –the amount you have to pay in order to borrow that money, calculated as a percentage of the principal

The Different Loan Types and Their Features

Fixed Rate

A fixed rate loan has a specified interest rate, which results in loan repayments that are predictable. The time frame for these loans can change but they are usually taken out for between one and five years. Towards the end of the loan period, you may have the option to renew the same loan or alter the loan type,

Variable

The rate charged on this kind of loan goes up or down according to the official interest rates, which are released by the Reserve Bank. A basic variable loan usually has few features compared to a standard variable loan. A basic loan will be the ideal option if you are looking to repay a fixed amount over a full term but not if you want to repay your home loans quickly.

Split Rate

This loan is both variable and fixed at the same time. You can decide how much to assign to each portion, giving you greater flexibility over how the loan is paid.

Interest-Only Home Loan

With an interest-only loan, repayments are made on the interest only for the duration of the loan. This means the repayments are much lower compared to those of a standard principal and interest loan. This is a temporary solution to repaying a loan. At the end of the interest-only period, the borrower may choose to sell the asset or start repaying the principal and interest repayments for the duration of the loan.

Introductory Loan

Introductory or honeymoon loans as they suggest offer a low-interest rate for an initial period of time, usually 12 months, to attract borrowers. Rates can be either capped or fixed. Most clients revert to the standard interest rate once the period is up. This is a good option for first home buyers. Don’t forget to talk with your mortgage broker again after the honeymoon period finishes as there may be a better loan for you.

Low-Doc loans

Low-doc loans are also called no-doc mortgages. They’re ideal for the self-employed or investors who are looking to refinance, renovate or purchase. No financial reports or tax returns are required for the loan’s approval.

Non-Conforming Loan

A non-conforming loan is generally sought by purchasers with a poor credit rating who need home loans. Lenders may overlook past credit history but will demand evidence that repayments can be made within the allocated timeframe. Lenders will also require a deposit greater than the standard 20%.

Choosing the Right Loan

Even with all the information, it can be hard to know which loan is right for you. To find the perfect loan for your needs, contact Queensland’s Multi Choice Home Loans. Working alongside the country’s largest broker network, our team have the experience and the resources to help you.

Contact Multi Choice Home Loans to learn more. Call us on 1300 36 36 99 visit us online today.