Preferred Business Partners

Helpful Links

No content available

Bookmark this page

Types of Home Loans

• Professional Packages
• Basic Home Loans
• Fixed Rate Home Loans
• Construction Loans
• Lines of Credit
• Bridging Loans
• Seniors Loans / Reverse Mortgages

 

Professional Packages

Professional packages, or banking packages, are commonly used for the flexibility and range of features they offer. Although the name suggests they are appropriate for professional people, it is really the amount borrowed that qualifies you for these packages.

Pros:

• A discount off the standard variable interest rate for the life of the loan, usually 0.5% to 0.7%, depending upon the loan amount;
• Includes a bank account, that may be an offset account;
• Often includes a credit card;
• Most professional packages will not charge an application or monthly fees on the loans accounts, bank accounts or credit card included in the package, just the annual package fee;
• Multiple loan accounts are also available to allow borrowings to be split between a combination of variable and fixed interest rates; and
• Multiple loan accounts also enable borrowings to be separated for different purposes, such as distinguishing between home and investment loan borrowings, which may be helpful for taxation purposes.

Cons:

• With most lenders total borrowings of at least $250,000 would be required to make these packages competitive;
• Ongoing package fees are in the range of $120 - $400 per annum; and
• High annual fees often make professional packages uncompetitive for smaller loan amounts.

Basic Home Loans

Typically no frills variable rate home loans.

Pros:

• Competitive interest rates;
• Low or no ongoing fees;
• Principal and interest repayments will be available for owner occupied loans; and
• Interest only repayments are usually available to property investors.

Cons:

• Will often have an application fee;
• May incur fees to redraw extra repayments; 
• Redraw may be limited to minimum amounts of $500 or even $2,000; and
• Normally do not have an offset account attached.
  

Fixed Rate Home Loans

Fixed rate loans allow you to lock in an interest rate for a set number of years.

Pros:

• Certainty of repayments for the fixed term;
• Most lenders will offer fixed rates over terms of 1 – 10 years and some will offer longer terms; and
• Some lenders will also provide a discount on fixed rates if taken within a professional package.

Cons:

• Most have limits on extra repayments and redraw;
• Most have an application fee, unless taken as part of a professional package;
• Most have ongoing monthly fee, unless taken as part of a professional package; and
• If taken with a professional package you will usually find that an offset account can’t be linked to a fixed rate loan.

Construction Loans

Construction loans are available to finance building a new home or renovating an existing home. Ideally the construction will be completed by a registered builder via a fixed building contract, but under certain circumstances owner builders can also obtain a construction loan.

Pros:

• Construction loans are considered for the amount required to cover the cost of building, based on the fixed building contract or owner builder estimates.

Cons:

• They are drawn progressively as specified milestones are achieved in the building process. These drawings are referred to as progress payments and there will usually be four or five throughout the building process;
• With a fixed building contract the progress payments will be made directly from the bank to the builder, essentially paying the builders invoice; and
• In the case of owner builders, payments are made to the owner builder to reimburse for expenses already incurred. This means that owner builders need to have some savings in place to fund the initial work before being reimbursed; this would usually be around 20% of the building costs.

Lines of Credit

A line of credit is a flexible lending facility secured to residential property.

Pros:

• Able to be drawn upon as required, up to the facilities limit;
• Interest is calculated daily based on the outstanding amount, if it is not being utilised no interest will be charged;
• Lines of credit operate much like a credit card, but at home loan interest rates; and
• Provide great flexibility when used for investment purposes.

Cons:

• A number of lenders apply a small premium to the applicable interest rate for the flexibility of a line of credit, usually 0.10% or 0.15% above the equivalent home loan variable interest rate.

Bridging Loans

Bridging loans provide short-term finance to fund the purchase of a residential property. They are used when another property is being sold and the proceeds of sale will not be available in time fund the property being purchased.

Pros:

• Provides the flexibility to acquire a new property before the current one is sold; and
• Interest may be capitalised so no repayments are required on the bridging loan through the bridging period.

Cons:

• Will usually have an application fee; and
• The interest rate is the full variable rate, not discounted.

Seniors Loans / Reverse Mortgages

• Seniors loans provide retirees with the flexibility to tap into the equity build up in their home, allowing them to use this asset to help fund retirement expenses.

Pros:

• No ongoing repayments are required;
• Interest is capitalised each month so the outstanding loan balance increases loan as each repayment is added;
• Provide the borrower with capacity to fund an ongoing retirement income stream, or one off expenses such as home improvements, motor vehicles or holidays.

Cons:

• The amount that ultimately needs to be repaid is likely to be substantially higher than the initial amount borrowed.

 

 

E-Mail this article to a friend