When the time comes to decide on which home loan to choose, you may be faced with more options than you thought.
From variable to a line of credit, even split rate loans, there are many options available to you.
While a great mortgage broker can help you navigate the options to suit your specific circumstances, it can be helpful to gain an understanding of the options yourself as well.
Here is a breakdown of the different types of home loans available to get your research started.
Variable Rate Loans
This could be one of the most common loans for homeowners. A variable rate loan relies on the cash rate set by the Reserve Bank of Australia. This basically means that if the cash rate varies, so will the repayments of your home loan as your loan’s interest rate will either increase or decrease depending on the change. While this may not suit everyone, this type of loan often allows you to make extra repayments or add an offset account.
This type of loan allows you to lock in a set interest rate for a certain period of time. This allows you to plan and know exactly how much your repayments will be and that it won’t change if the Reserve Bank of Australia’s cash rate changes. Many lenders will only allow you to fix for periods of up to five years, after that it will automatically revert to the variable interest rate.
Slit Rate Loans
This type of loan allows you to have both variable and fixed-rate loans, by splitting your loan into essentially two separate loans. You are able to fix one portion of the loan whilst setting the remaining amount as a variable. You can even choose how much you would like to allocate to both.
A Guarantor loan allows you to ask your parents or other family members to be your guarantor and use a portion of their own home as a security measure for your mortgage. This type of loan is often used if you’re looking to borrow more than 80 percent of the purchase price, but want to avoid lenders mortgage insurance. It could also be helpful if you’re a first home buyer as it may give lenders more confidence in approving your loan.
Low Doc Loans
Also known as ‘low documentation loans’, this is a perfect fit for freelancers, business owners, or self-employed people who don’t have some of the standard papers such a payslip usually used to apply for home loans. Instead, an income declaration and other financial statements, such as bank statements and business activity statements (BAS), can be used to assess the credibility of the borrower. However, these types of loans can sometimes carry higher interest rates and fees.
Line of Credit Loans
If you’re looking to make renovations to your house, you could get a line of credit loan on top of your current mortgage. This enables you to take advantage of your mortgage to pay for other things. But the amount depends on the equity you have on your property.
This type of loan is often used by people with a poor credit history, or have been unemployed for some time. It allows these people to use other evidence, similar to a line of credit loan. However larger deposits are often needed and higher interest rates may be offered to mitigate the risk to the lender.
Bridging loans can help “bridge” a period of time when you’re between two mortgages. For example, you are still selling your current home, when you purchase a new home. Technically you would have two mortgages, so you can apply for a bridging loan in the meantime. The minimum repayments on a bridging loan will generally be calculated on an interest-only basis, and in many cases, this interest may be capitalised until the existing home is sold.