Home Loan Types
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Standard variable interest rate loan
This is the usual loan offered by home loan lenders and the most popular type of home loan. The interest rate can go up or down throughout the term of the loan. Repayments, usually monthly, are the same throughout the term of the loan, changing only with the rise and fall of interest rates. Normally, in the early years of the loan, each repayment is mostly paying interest charges and less of the loan principal. In later years, the opposite occurs. Features, such as added flexibility in making repayments and a redraw facility, are often included in this type of loan.
Basic variable interest rate loan
This type of loan offers a lower interest rate and repayment than a standard variable interest rate loan but has fewer or none of the features of standard variable loans.
Fixed interest rate loan
This type of loan offers a fixed interest rate for a specific period (eg. six months to five years). At the end of the fixed rate period, the loan is renegotiated for a further fixed term or reverts to the variable interest rate current at that time. It may not be possible to pay extra amounts off the principal without paying a penalty. A penalty usually applies if the borrower wishes to refinance the loan during the fixed interest rate period.
Part variable/part fixed interest rate loan
Often referred to as split or combination loans, this loan allows the borrower to pay a fixed interest rate on a portion of the loan while paying interest on the remaining portion at the standard variable interest rate. This gives the borrower flexibility and interest rate certainty.
Capped or introductory interest rate loan
Under this type of loan, the interest rate is fixed for the capped period, which is usually six to 12 months. During this period, the interest rate cannot go higher but it may go lower if the lender's standard variable interest rate falls below the capped rate. These loans are commonly referred to as honeymoon rate loans. Often, these loans offer the lowest interest rates and this can assist a new borrower to adjust to mortgage repayments. However, the borrower also needs to be prepared for an increase in loan repayments once the capped period ends.
An all-in-one loan is usually a variable interest rate loan, which permits the borrower to place all their income into the one account, reducing the loan balance and the interest paid. The borrower can access the account to meet day-to-day expenses. Additional payments are permitted without attracting penalties. Due to its flexibility, there may be greater costs (eg. higher interest rate and/or higher monthly fees).
Home equity loan
A home equity loan allows a borrower to use the equity in the home (the portion of the property the borrower owns) to gain access to an immediate source of funds. There are two types of home equity loans. Under the first type of home equity loan a borrower may borrow an additional lump sum amount which acts like a second mortgage. The second type is an equity overdraft or line of credit. A line of credit is like an overdraft secured by the equity in the borrower's home. The interest rate on a line of credit is usually higher than for other home loans but less than the interest rate on a personal loan or credit card.
A consolidated loan permits the borrower to combine several loans, such as a home loan, credit card debt and personal loan into a single variable or fixed rate loan. This can result in a lower overall repayment and interest rate for the borrower.
Interest only loan
An interest only loan requires the interest to be paid during the loan term with the amount borrowed becoming due at the end of the loan. These loans are usually for one to five years and are often used by people buying investment properties.
A bridging loan is often used to buy a property while waiting for the sale of your existing property. A bridging loan is a short-term housing loan where repayments meet the interest only. The amount borrowed becomes due at the end of the loan term. As higher interest rates are usually charged for bridging loans, it is best to keep the term as short as possible.