Types of finance

Basic or 'no frills' loans

Basic or ‘no frills’ loans are a variable rate loan with a relatively low interest rate. The low rates for these loans could mean that you can repay the loan faster but not have the benefit of other loan features. Repayments will rise and fall with interest fluctuations. Remember to check that the loan conditions will suit your circumstances.

Standard variable rate loans

These loans are the most common type available. The variable rate loan offers more features and flexibility than the basic or “no frills” loan, so the rate is usually slightly higher. The extra options (for example a redraw facility, the option to split between fixed and variable, extra repayments and portability) should be taken into account when choosing your type of variable loan. Repayments will vary as interest rates fluctuate.

Fixed rate loans

These loans are set at a fixed interest rate for a specified period (usually one to five years). The advantage of allowing you to organise your finances and repayments without the risk of rising interest rates is offset by the disadvantage of not benefiting from a drop in rates. At the end of the term all fixed loans automatically revert to the applicable variable rate. At this stage you have the option to lock in another fixed rate for a new term, switch to variable or go for a loan where you split with a percentage fixed and the remainder variable. However these loans may have limited features and lack the flexibility of 100% variable loans. There may be early exit fees and limited ability to make extra payments.

Equity line of credit loans

These loans are a great way to access the equity in your home to use for things like home renovations, investments or other personal purchases. Repayments on a line of credit loan are determined by the interest rate applicable at that time. If you have sufficient equity in your home and your current loan structure doesn’t allow for withdrawing your equity, you will need to make a separate application for a line of credit loan. You have the added advantage of being able to make unlimited deposits/repayments as your repayments are not set. You must check the conditions of these loans as they are sometimes more expensive than standard products.

Professional home loan packages

These loans are offered to provide an all-in-one home loan package. They offer interest rate and fee savings on your home loan, credit card and transaction accounts. Some lenders also waive the annual fees for your credit cards. An annual fee ranging from $120 to $395 is usually applicable on these loans. Professional packages can also offer amazing flexibility, with some lending institutions willing to waive product switching fees when changing from a variable to a fixed rate or converting a principal and interest type loan to an interest only loan.

Construction loans

If you’re building a new home or planning major renovations to your existing home, a construction loan is generally the most appropriate funding option. The difference between a construction loan and other types of loans is that a construction loan is drawn down in stages and not paid as a lump sum. The draw downs enable the builder of a home to finance the various stages of the construction process from the acquisition of land to the various stages of building.

Loan consolidation and refinancing

Loan consolidation is where you are able to combine multiple debts (like credit card and personal loans) into a single loan with one repayment. The lower overall interest rate provides the advantage of using your home loan to consolidate debts.

Offset accounts

An offset account is a savings account attached to your loan account. Money in this account is offset against the loan amount thereby reducing interest payable. Significant savings are made by reducing compound interest with the use of these accounts.

Other advantages of an offset account include being able to pay off your home loan faster than the repayment schedule demands and being able to redraw money if the need arises.

Whether you're buying your first home, upgrading, refinancing, investing in property or wanting to pay off your existing loan sooner, there are many options available.



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