Types of Loans
There are many different types of home loans to choose from each with their own features, rates and benefits. We have outlined the various loan types to help you gain an understanding of how each loan matches up to your individual needs.
The types of home loans available generally fall under the following headings:
- Standard variable Loan
- Basic Variable Loan
- Fixed Rate Loan
- Combination or Split rate Loan
- Non-Conforming Loans
- Line of Credit Loans
Standard Variable Loan
This loan best serves customers who want flexibility. Whilst the interest rate varies throughout the life of the loan, the up side is:
- Standard variable Loan
- Basic Variable Loan
- Fixed Rate Loan
- Combination or Split rate Loan
- Non-Conforming Loans
- Line of Credit Loans
Basic Variable Loan
This type of loan generally offers a lower interest rate compared to a standard variable home loan which means that overall your repayments are lower. While this is a very attractive proposition, the down side is that this loan may not offer you some of the features or flexibility of other loans.
Fixed Rate Loan
Fixed rate loans guard against interest rate rises. Once you are locked in at a certain rate, your repayments stay the same for the agreed upon time. The disadvantages of a fixed rate loan are that if interest rates fall, your repayments don't go down. Also, there may be limits on the additional repayments you can make on the loan during the fixed term. The negatives may be tolerable for the peace of mind you gain knowing your repayments won't increase if interest rates do.
Combination or Split Loan Rate
This refers to a combination of loan types forming one loan such as a partial, fixed or variable interest rate loan. Generally, different types of interest are paid on different portions of the account. With this type of loan you gain some of the flexibility that a variable rate loan offers as well as the security of a fixed rate loan.
Non-Conforming Loans (including low-doc loans)
A non-conforming loan is usually suited to investors or self-employed borrowers who do not meet the necessary lending standards. This type of loan is granted to those who aren't able to provide their financial documentation to support their application or to individuals whose credit history is impaired.
With a non-conforming loan, no financial records are required, and the loan is fully serviceable in that you can redraw, use a line of credit or variable/fixed rates. Higher interest rates or fees sometimes apply with this kind of loan.
With a non-conforming loan, no financial records are required, and the loan is fully serviceable in that you can redraw, use a line of credit or variable/fixed rates. Higher interest rates or fees sometimes apply with this kind of loan.
Line of Credit Loans
A line of credit is a flexible loan set-up whereby individuals borrow against the equity in their home and are able to draw against these funds when needed. Borrowers then have the facility to pay these funds back when they are able to. The interest rates in this type of loan also tend to be lower than credit cards or personal loans.
