Things you should know about your home loan options:
Variable Rate
- You may be exposed to increases in interest rates leading to increased repayments.
- You can make additional repayments including unlimited lump sums.
- Some lenders have early repayment fees if your loan is paid out within 5 years.
- Most loans allow you to redraw on any extra payments you have made.
- Some loans allow you to have an offset account that allows a savings balance to offset your loan account before charging interest.
Fixed Rate
- Provides certainty of loan repayments over a specified fixed term.
- Depending on the lender, additional repayments are generally capped between $5,000 and $20,000 per loan anniversary year.
- Early repayment costs are charged if you make extra repayments above the annual cap, repay your loan or want to change your loan within the fixed term period. These costs can be large.
- Most lenders do not allow you to redraw during the fixed term.
- Fixed rates are set at loan draw down. Most lenders, at a fee, offer a rate lock facility that allows you to lock in the current rate at the time of application. This fee is non-refundable.
- In most cases, offset accounts may not be available for fixed term loans.
Interest Only
- The minimum payment requirement is the interest only portion.
- In most cases, additional repayments can be made above the minimum interest only repayments.
- Allows you to make lower repayments compared to principal and interest loans.
- Will increase the scheduled repayments required to pay out your loan within the remaining term.
Line of Credit
- For some lenders, normally no formal repayment structure exists while the account balance is within the approved credit limit.
- As a general rule, the minimum repayment is the interest component on the outstanding balance of the loan.
- Financial discipline is required to reduce your debt.
- Most line of credits have a loan term between 2 and 25 years.
- You may be exposed to increases in interest rates leading to increased repayments.
Loan Terms
- The loan term should reflect the life of the asset.
- A shorter loan term will affect serviceability/affordability.
- A longer loan term will increase your interest cost.
Construction Loans
- In most cases are progressively drawn.
- Interest only repayments may be available until final drawdown.
- Generally, redraw is not available during the construction period.
- In most cases is generally based on hard cost.
- Are funded based on council approved documentation.
Low Doc Loans
- Most lenders allow you to borrow funds by providing limited evidence of income.
- For self employed borrowers with limited financial documentation.
- Some lenders charge a higher interest rate and fees for this type of loan.
- The Loan to Value Ratio (LVR) requirements are generally lower than a full documentation loan.
- Affordability still needs to be demonstrated by the client to the lender by providing either or all of the following:
– Low Doc Income Declaration,
– Registered ABN number,
– Business Activity Statements / GST Summaries,
– Accountant’s Certification Letter,
– Business Trading Statement, and
– Any other additional documentation requested by the lender.
Assessment
- Final approval of your loan is at the lender’s discretion.