Loan Types
One of the hardest things to understand are the types of loans available in the home loan market. It seems almost every year the banks bring out a new product, however, we have kept it simple with the types of loans that suit 99% of borrowers.
There are generally no exit fees when leaving a variable rate home loan.
VARIABLE HOME LOAN
With a Variable rate home loan the interest rate can change at any given time, as the lender sees fit. While usually aligned with the Reserve Bank changes (First Tuesday of each month), this does not stop a lender from changing the rate at any given time.
You can generally make unlimited repayments on these as well as allowing you to pay off the loan faster than the standard term. And should you need some or all of the additional repayments back, a “redraw” facility allows you to do this.
There are generally no exit fees when leaving a variable rate home loan.
FIXED RATE HOME LOAN
With a fixed rate home loan, your interest rate is set for a specific period of time (1-10 years in general). This means you will have certainty around the amount you need to repay, the lender, and your repayments are also fixed for this period of time.
Generally, you may be able to make a small additional repayment to the loan if you have some spare cash, but in most circumstances you are unable to “redraw” this money.
There is generally a “break Fee” if you wish to exit the loan early. And we would highly advise against using a fixed rate to “beat the banks”, however if you need certainty around your repayments for a period of time this loan could be suitable.
OFFSET HOME LOAN
An offset account is simply a transaction account attached to your home loan. The balance of the transaction account is “offset” against your home loan meaning the interest charged on your home loan is calculated on the home loan balance minus the transaction account balance.
An example is as follows:
- Home loan balance $350,000.00
- Offset account balance $25,000.00
Interest charged on $325,000.00 (@ 3%pa is $812.50 per month)
Interest charged on $350,000.00 (@ 3%pa is $875.00 per month)
CONSTRUCTION LOANS
- Deposit
- Base
- Frame
- Lockup
- Fit out
- Completion
