Loan Types and Features

Variable rates

Interest rates go up or down over the life of the loan depending on the market rates and the individual decisions of each lender.

 

Fixed rates

The interest rate is fixed for a certain period, usually the first one to five years of the loan. This means your regular repayments stay the same regardless of changes in interest rates. 

 

Split rate loans

Your loan is divided into multiple portions with different features. This is typically one portion variable, and one portion fixed, so you can enjoy some of the flexibility of a variable loan along with some of the certainty of a fixed rate loan. 

 

Professional package

For an annual fee, the professional package offers home loans at a discounted interest rate, combined with discounted fees on other banking services such as credit cards.  These can be attractively priced, but if you don’t use the additional banking services you may be better off with a basic home loan.

 

Basic home loan

A no-frills home loans that offers a competitive interest rate with minimal ongoing fees. They are generally a simple product with no added benefits or features.

 

Introductory/Honeymoon

Originally designed for first-home buyers, but now available more widely, introductory loans offer a discounted interest rate for the first 1 to 2 years, before the rate reverts to a higher variable interest rate. 

 

Low Doc

Popular with self-employed people, these loans require less documentation or proof of income than most, but often carry higher interest rates or require a larger deposit because of the perceived higher lender risk. In most cases you will be financially better off getting together full documentation for another type of loan. But if this isn’t possible, a low doc loan may be your best opportunity to borrow money.

 

Princpial and Interest Repayments

A loan whereby the regular repayments include both a principal amount (reducing your loan balance) and an interest amount. 

 

Interest Only Repayments

For a specified period, usually the first 1 to 5 years, you only pay the interest on the loan, not the principal. At the end of the interest only period, the loan will revert back to principal and interest repayments. These loans are especially popular with investors.

 

Extra Repayments

If you pay more than the required regular repayment, the extra amount may be deducted from the principal.  This not only reduces the amount you owe but lowers the amount of interest you repay.  Making extra repayments regularly, even small ones, is the best way to pay off your home loan quicker and save on interest charges.

 

Repayments - Weekly, Fornightly or Monthly

Loans are typically set up with monthly repayments. Many lenders offer customers the option to pay off your home loan weekly or fortnightly.  This can suit people who are paid on a weekly or fortnightly basis, and will save you money because you end up making more payments in a year, reducing the life of the loan.

 

Redraw facility

This typically allows you to access any extra repayments you have made.  Knowing you have access to funds can provide peace of mind.  Be aware lenders may charge a redraw fee and have a minimum redraw amount. There might also be other restrictions on when funds can be redrawn.

 

Offset account

This is a savings account linked to your home loan. Money paid into the savings account is deducted from the balance of your home loan before interest is calculated.  The more money you save, the lower your interest cost.