All Types Of Home Loans Explained
How Different Types Of Home Loans Work
With the many types of home loans in the market today taking the time to seek out an expert home loan broker who will show you how to get a home loan that is just right for you and will save a lot of time, legwork and money.
In the meantime, here is some information that will help quickly crystallize the more popular loan types and what they’re about.
Standard Variable Rate
Types Of Home Loans
- A variable interest rate will move up and down whenever the market interest rates change.
- No restrictions on how fast you can pay the loan off
- Can come in several forms such as basic variable, honeymoon and standard variable
Fixed Interest Rate Types Of Home Loans
- Fixed interest rate can provide certainty and security with budgeting.
- Fixed terms can range from 1-15 years dependent on the chosen lender.
- The most popular best fixed home loan rates packages with borrowers are 1,2 and 3 year terms.
- The fixed interest rate will not change during the fixed rate period and the repayments will remain the same.
- There are limitations with most fixed loans on how much extra you can pay each year
Split Home Loans, What’s The Benefit?
- Split home loans provide the flexibility of having a portion of the mortgage loan on fixed interest rates and the balance on a variable rate. While fixed interest rates are low getting a percentage of your loan onto a fixed rate can provide security.
- On the other hand having the remaining percentage of the loan on a variable rate offers benefits such as 100% offset account, redraw, extra repayments etc. Fixed interest rates assist with budgeting, because you will know for an extended period exactly what amount is to be paid.
- Whereas, the variable interest rate part of the loan allows you to pay extra over and above the minimum required as opposed to fixed rates, which can have limitations on how much extra you can pay off each year.
Home Loan Refinance
- The main reason for a home loan refinance is to take advantage of a lower interest rate to either reduce the monthly mortgage repayments or help the pay the homeloan off faster.
- Next on the list will be to lock in a rate while fixed interest rates are low, which will provide security and stability over an extended period.
- Another popular home loan refinance purpose is to get cash out to consolidate debts, home renovations or any other worthwhile purpose
First Home Loan Horrors
- If you’re buying your first home and going for your first home loan entering the mortgage market for the first time can can at times be overwhelming and confusing, because you are presented with a flurry of guidelines on what you can and cannot do.
- Depending on what state you are looking to purchase a home in there are differing incentives available depending on whether you’re looking to buy a new property or an established one.
- Then there are promotions for ‘Low Deposit’ and ‘No Deposit’ home loans. However, to add to the confusion, as soon as you start investigating these low and no deposit options you’re hit with terms such as LVR (loan to value ratio) and LMI (lenders mortgage insurance).
- The best mortgage advice for first home buyers wanting home loan help in quickly sorting out what’s their best plan forward is to be on the lookout for an experienced expert home loan broker.
Low Interest Rate Loans, Are They For Real?
- Generally low interest loans will be what they say they are a loan with an interest rate lower than the market average. However, there are some things to watch out for before putting your signature on the dotted line.
- A Number of these low interest home loans are referred to as ‘Honeymoon’ rate loans, meaning they only last for a short time. Once the honeymoon rate period ends the interest rate for that loan can increase substantially. At that point you may contractually be stuck there at the higher rate for a while.
- Also with some low interest rate loans there can be high entry or exit fees which will help offset the lenders cost of discounting the rate to you. Although they may offer to painlessly include any entry fees into the loan. Nevertheless, you will now be paying interest on fees that in no way are benefitting you.
Land Loans, How Much Will They Lend?
- Most lenders treat Land Loans the same as any other property loan and in most instances they will lend up to 95% of the value of the land.
- Nonetheless, it will pay to check any lenders terms and conditions that you may be contemplating using for a land loan. Because, most have restrictions on the size of the land, some on the time to build on the land, what the land is to be used for and some on what percentage of the land value they will lend.
The Ins And Outs Of A Home Loan Deposit
- When purchasing property the bank wants to see that you have some equity in the deal, this can be achieved by either using equity in an existing property as security or paying a cash deposit.
- Low deposit home loans are available for those that are using cash for a home loan deposit. For an owner occupied property the minimum required is 5% of the purchase price. For investment property purchases some lenders want to see a 10% deposit while others will still accept a 5% deposit.
- No deposit home loans have now disappeared because of credit tightening from the excesses of the Global Financial Crisis.
- Family guarantee loans are available and these involve the parents or an immediate relative using an existing property as security (conditions apply) to assist in purchasing the new property.
- First Home Loan Buyers with a small deposit will find it very helpful to seek out an experienced mortgage broker who can quickly identify for them what’s feasible in the way of a loan amount and which lender will give them the best deal
There is also additional help for first home buyers with a low deposit through a new Government initiative that is know as the First Home Loan Deposit Scheme (FHLDS). THis Government intiative is available to first home buyers who have a low deposit (5% minimum proven to be genuine savings).
After your 5% deposit the Government guarantees participating lenders the loan amount value between 80% and 95%. This allows the bank to waive their usual requirement for Lenders Mortgage Insurance that the borrower would normall pay. This in itself can provide the first home buyer with significant savings.
How Beneficial Is A Mortgage Offset Account?
- An offset account allows your everyday money work for you and decrease the amount of interest you pay each month.
- Offset Accounts have a transaction account attached to them and any money sitting in the transaction account offsets against the principal balance of the loan and saves interest on that same amount.
- The offset mortgage account in the main is attached to a variable interest rate loan and can be an effective method for saving interest
How Dangerous Is A Line Of Credit
- Ideal for those expecting to need funds for investing or renovating – draw down the money as you need it.
- However, don’t touch them if you have difficulty controlling your spending habits
A Home Loan Pre-Approval Puts You Ahead Of The Game
- Allows home buyers to pre-determine how much they can borrow
- Home Loan Pre Approval provides certainty and confidence when entering the property market
Traversing The Self Employed Home Loans Minefield
- Self employed home loans can require additional paperwork such as tax returns and financials for Pty Limited companies
- Low Doc loans can be convenient for those that don’t have tax returns up to date
How To Find User Friendly Bridging Finance
- A bridging loan helps those who want to buy a new house before selling their current house.
- All bridging loans are not the same
- Some lenders stifle borrowers by calculating their borrowing eligibility on the total debt (the combined existing debt plus the new debt), while other bridging finance lenders are more user friendly and calculate it on what’s called the end debt
How To Get The Best Business Loan Interest Rates
- When considering how to get a business loan most will apply through the commercial departments of lenders.
- However the best business loan rates can be obtained through the residential departments of some lenders if you have sufficient equity in residential property.
How Low Doc Loans Work
- Low doc loans are for self employed applicants who find that getting the tax returns and financial statements lenders require for self employed home loans can take time to prepare.
- Where the documented financial information the self employed borrower has to hand doesn’t necessarily fit the lenders requirements
- Low doc home loans cater for self employed borrowers who don’t fit the full doc mould.
- Minimal documents are required for low doc self employed home loans, mainly in the form of Business Activity Statements and in some instances an Accountants letter
- Less paperwork, less financials required, ideal for self-employed borrowers
How To Avoid Investment Property Loan Mistakes
- Investment property loan interest rates these days are almost equal to normal housing interest rates
- Most lenders will lend up to 90 – 95% of a property’s value
- It’s beneficial to seek out an experienced investment property loan broker to avoid the many mistakes a lot of property investors make.
How Construction Loans Work
- Purchasing a new home through the use of a construction loan can be cheaper than buying an already completed new home or what is known as a Spec home.
- Through a construction loan Purchase Stamp Duty is only paid on the cost of the land not the cost of the dwelling
- Also, you’re financing the construction of the dwelling not the builder who would charge you a loading on their carrying costs
- A construction home loan is structured to allow apportioned progress payments to be made at progressive stages of construction completion.
- Typically the first payment from a construction loan is for the land.
- Following that there will typically be 5-6 progress payments made at pre-designated stages of construction until the dwelling is completed.
- The purpose of the progressive payments is to ensure that each stage is completed to the purchasers and the lenders satisfaction
De-mystifying Self Managed Superannuation Fund Loans
- SMSF loans require specialist advice and borrowers are advised to seek specialist help in setting up these loans.
- There are a limited number of lenders who are willing to do SMSF loans
- Terms, conditions, fees and interest rates vary among the available lenders (it pays to shop around).
- Most available lenders will lend up to 72% of the value of a residential property and 65% for a commercial property