Home Loans can be divided in several categories and this is often what makes it difficult and confusing when you have to make a decision. For most people, an attractive interest rate is one of the most important features whilst for others, flexibility or security may be more important. Whatever your requirements are, you can be assured that your Citiwide consultant will find the right solution for you.
- Standard Variable Rate Loan
- Basic Variable Rate Loan
- Introductory Rate Loan (Honeymoon)
- Fixed Rate Loan
- Split Loans
- Interest Only Loan
- Line of Credit
- Credit-impaired Loans or Non-conforming loans
The Standard Variable Rate Loan is probably the most common and popular home loan in Australia. As the name implies, the interest rate on these loans varies at anytime depending on economic conditions. These loans offer the most features and flexibility and the most common are:
A 100% interest offset facility, redraw facility, no limits on additional repayments and in most cases no early pay-out penalties. A standard variable loan can usually be combined with other types of loans and are ideal for borrowers wishing to pay their home off quicker.
Basic Variable Rate Loans are often referred to as the 'No Frills' alternative to the standard variable rate loans. The interest rate is lower than a standard variable loan, making them attractive to the budget conscious borrower who is looking for a lower variable rate but with fewer features.
Generally, the 100% Offset Facility feature is not available on Basic Variable Rate Loans and the Redraw facility attracts a fee.
An Introductory Variable or Fixed rate loan generally offers a low rate for an initial period of time (usually 12 months) after which most interest rates will revert to the Standard Variable Rate. An Introductory Rate Loan is attractive to the borrower wishing to take advantage of the lower initial repayments before taking up the features and advantages of a Standard Variable Rate Loan.
The disadvantage of Honeymoon Rate loans is that often the lender will ˜lock you in for a period of up to 4 years after the initial period, meaning that any switch to another product can come at a cost.
Fixed Rate Loans are loans where the interest rate is fixed, i.e. will not change for a set period of time. The most common fixed terms are from 1 to 5 years, however some lenders offer fixed terms of up to 15 years.
- Gives you the certainty of knowing exactly what your monthly repayments will be regardless of economic fluctuations. Ideal if you have to adhere to a strict budget &/or require peace of mind.
- Most lenders impose restrictions on the additional repayments you are allowed to make on a fixed rate loan. Furthermore, if you had to repay the loan in full prior to the expiry of the fixed term, you could be up for additional costs referred to as Economic Break Costs.
A Split Loan can be used to hedge your bets if you are uncertain as to whether interest rates are going up or down.
With this type of loan, you can decide how much of the loan you would like to fix and how much you would like to leave on a Variable Rate.
The Split Loan is a prudent way of borrowing for your home, if you want security but wish to maintain some flexibility.
- Having part of your loan at a Fixed Interest rate protects you against interest rate rises.
- Leaving part of your loan on variable interest rate allows you to take advantage of any future rate reduction.
- Additional / Flexible repayments are allowed on the variable portion of the loan.
- Limited benefits if interest rates go down.
- You may be charged set-up fees, account keeping fees and discharge fees on both the Fixed and Variable portions of the loan.
- You may be penalised for making higher repayments on the Fixed portion.
- You may be penalised if you pay off your loan before the expiry of the Fixed Rate term of the loan.
A Line of Credit provides you with access to the equity in your home or investment properties whenever you need it. It is similar to an overdraft facility in that funds can be withdrawn up to the original loan amount approved, at anytime. The interest rate on a Line of Credit facility is usually a variable rate that fluctuates with the market. You can generally access your Line of Credit via a Cheque Book, Credit Card, ATM, Phone and Internet Banking. A Line of Credit provides you with easy access to funds ensuring peace of mind in times of need.
A Line of Credit is not really suitable for a Home Loan unless you are very disciplined with money.
As the name implies, you are required to pay only the interest on this type of loan. The loan is generally structured with an initial term ranging from 1 to 5 years during which no Principal reduction is required on the loan. At the end of that initial period, the lender will generally rollover the loan into a Principal & Interest repayment (unless you request otherwise) for its remaining term which can be up to a total of 30 years.
This type of loan is more suited to the property investor as opposed to the Owner Occupier and the interest can be either fixed or variable.
These loans are suitable for borrowers who, at some stage, have had their credit history adversely affected by any of the following circumstances:
- One or more credit defaults listed against them by a lender or service provider.
- One or more judgements listed against them by a lender or service provider.
- A poor repayment history on a loan that may need refinancing.
Any of these circumstances may deny the borrower the chance of obtaining credit from the traditional lending channels, namely Banks, Building Societies, Credit unions etc. Fortunately, there are certain specialist lenders who are prepared to consider loans to these borrowers. Generally, the interest rate is based on the severity of the case and is higher than traditional loans.
For more information or any enquiries call us on 1300 732 630 or contact us using our online enquiry form