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Is my current loan the best for me?

Loan typesLoan types

There are hundreds of different home loan products on the market that fit into each of the types of loans explained below. We have provided some pro's and con's to help you understand each loan type.

You should also use our calculators to find out how much you can borrow and what your repayments will be.

We can help you choose the home loan product that suits you best. If you're ready to discuss your options in more detail then please don’t hesitate to contact one of our lending specialists.

 

Standard variable loan

Australia ’s most popular type of loan. The interest rate varies throughout the term of the loan. The term is generally about 30 years.

Benefits

  • ◊ When interest rates fall, repayments fall
  • ◊ You can make additional payments without penalty
  • ◊ Often with more features
  • ◊ Flexible
  • ◊ No Break cost to vary loan

Disadvantages

  • ◊ When interest rates rise, so do your repayments
 

Basic variable loan

Lenders now offer basic variable loans with lower interest rates, but with fewer features than a standard variable loan. The interest rates and repayments vary over the term of the loan.

Benefits

  • ◊ Usually have a low interest rate
  • ◊ Repayments are also lower
  • ◊ P&I for owner occupied loans

Disadvantages

  • ◊ May not offer the features or flexibility of other loans (not portable)
 

Fixed rate loan

Fixed rate loans protect you against interest rate changes for an agreed time, so you have peace of mind knowing your repayments won't increase. However, you won't benefit if rates go down during the fixed term.

Benefits

  • ◊ When interest rates rise, your repayments won’t

Disadvantages

  • ◊ Reduced flexibility
  • ◊ Extra repayments are limited
  • ◊ Significant break costs may apply
 

Introductory loan

The interest rate is usually low to attract borrowers. Also known as a honeymoon loan, this rate generally lasts only for a few years before it rises. Rates can be fixed or capped. Most revert to the standard rates.

Benefits

  • ◊ Usually the lowest available rates
  • ◊ When payments are made at the introductory rate, the principal can be reduced quickly
  • ◊ Some lenders provide an offset account against these loans

Disadvantages

  • ◊ Payments usually increase after the introductory period
  • ◊ May revert to standard variable rate with no discount
 

Low-doc loan

A low-doc or no-doc loan is ideally suited for investors or self-employed borrowers looking to refinance, purchase or renovate. No tax returns or financial reports are required.

Benefits

  • ◊ Simple income declaration form
  • ◊ No tax return
  • ◊ No financial records
  • ◊ Fully serviceable loan options, redraws, line of credit, variable or fixed rates,
  • ◊ P&I or interest only loans

Disadvantages

  • ◊ Generally a higher interest rate
  • ◊ Loan to value ratios generally capped at 80%
 

100 % offset account

A 100% offset account is a savings account linked to a loan account. No interest is paid to the offset account but instead the balance of your offset account is deducted from your loan account before the interest on your home loan is calculated. Therefore less interest is charged to your loan.

Benefits

  • ◊ Savings interest is taxable, but because your offset account balance is used instead to reduce your loan interest, no tax is payable, so you are effectively reducing your tax bill.
  • ◊ The interest rate on your offset account is the same as that applied to your loan account. This is a great rate and is much higher than you could earn on most savings accounts. The interest rate moves with your loan account rate ensuring you get maximum benefit from every dollar in your offset account.

Disadvantages

  • ◊ You may have higher monthly fees attached to the account.
  • ◊ You may need a minimum balance in the account.
 

Line of credit

This type of loan revolves around credit secured against a residential property, allowing access to funds when needed. These products are creative ways to raise funds for investment by providing cash up to a pre-arranged limit.

Benefits

  • ◊ Use the money you need and pay it back when you can
  • ◊ Interest rates tend to be lower than credit cards or personal loans

Disadvantages

  • ◊ Possibly reduces equity in your residential property
  • ◊ Effects your borrowing capacity even when the facility is not fully drawn down