Regardless of what stage of life you are in, buying property is an important financial decision. At St James, we make sure that you get the right information at the right time, so that you can make informed decisions.
As a mortgage broker and a lender, we can search for, and negotiate the right loan for you.
Here are some of the popular loan types in Australia for home buyers and investors.
Variable rate loans provide flexibility and are the most popular type of home loan in Australia. As the name suggests, the interest rate is variable, fluctuating with the Reserve Bank of Australia’s movement and the cost of the funding financial institution.
Variable rates are generally broken into two categories by financial institutions: basic and standard.
Basic variable rates only cover basic home loan features. On these loans you will not have access to features such as a redraw facility; however, this often means the interest rate is slightly lower than other loans.
Standard variable rates are traditionally slightly higher than basic variables. However, with higher rates there are often extra features such as: a redraw facility, repayment frequency flexibility, portability and the option to pay in advance.
Variable loans generally require close monitoring, especially if you overcapitalise and interest rates rise. It is important to make sure that you plan for an interest rate rise and ensure you can meet the required repayments if one should occur.
Fixed rate loans generally have all of the features of a standard variable product; however, the interest rate is fixed – generally from one to five years. Fixed rate products are useful in maintaining the household budget because the repayments will not change during the fixed period.
However, a fixed rate could mean you pay more if interest rates fall. It is possible to exit the loan agreement, although lenders will generally charge penalty fees to compensate for any loss in profits.
Introductory or honeymoon loans are popular for first home buyers, however, this doesn’t mean that these are the only people who can access these products. Honeymoon loans give individuals a discounted interest rate for the first six to twelve months depending on the product. After this period expires, the loan generally reverts to the lenders standard variable product.
Although it may be tempting to take out a honeymoon loan because of its reduced interest rate, it is important to watch out for restrictions or exclusions on other aspects of the loan. Many lenders will limit the availability of features (such as redraw facilities, and repayments) to offset the lower interest rate. In some cases this can mean less flexibility over the life of the loan.
Interest only loans are particularly popular for investors. The repayments of interest only loans will be lower than an ordinary loan because you only pay the interest charges each month – you are not required to pay off the principal.
Some interest only loans are available for owner-occupier clients; however, these can be risky because your level of debt will not fall for the life of the loan. Interest only loans should be a short-term option (about 5 years at the most). Also, in times when house prices may fall this may mean you have negative equity – you might have borrowed more than your house is worth.
Low and No Doc loans are increasingly popular in Australia, especially for contractors or those who are self-employed. As the name suggests, you require less documentation to take out the loan such as proof of income or other financial commitments.
Although it is generally much easier to be found eligible for these loans, it is not always the best way to go. As a result of providing less documentation, the bank will generally charge a higher interest rate or additional fees because there is a higher perceived risk with applicants.
In most cases it is more affordable to take out a full doc loan that provides the required proof of income and other documents