What types of loans are out there? Which loan is right for me?
Variable home loans are loans with an interest rate which is dependent on market interest rates. This means that the interest rate will vary, fluctuating as the market interest rate goes up and down.
Basic ‘no frills’ loans have a relatively low variable interest rate. These loans often attract first-time buyers due to their lower rates, and usually have less flexibility and features than standard variable loans.
Fixed rate loans provide security and regularity, making budgeting easier. During the fixed rate period (usually 1-5 years), the interest rate on your home loan will stay the same, allowing your repayments to remain the same. At the end of the term you have the option to lock your loan back into another fixed term or change to a variable or split loan.
Split loans give you the flexibility if you cannot decide between a fixed rate and variable loan. These loans allow you the best of both worlds – you can have the security of locking in a portion of your loan with a fixed rate, whilst having the flexibility to make unlimited additional repayments at a variable rate.
These loans can be especially appealing to first-time buyers due to the initial discounted interest rate. However it is important to be wary of these as the lower interest rate is usually only last for a limited time – usually 12 months, sometimes longer, sometimes shorter.
As the name suggests, a bridging or relocation loan helps to ‘bridge’ the gap between the selling of a current property and the buying of a new one. It can often be complicated when waiting for completion of the sale after the completion of a purchase for the new property. The lender will usually take security over both properties until the sale is complete, providing the ‘bridging amount’ to be is lower than 80% of both properties.
Think of these loans as using the equity of your home as a credit card to fund other things such as investment or renovation. These loans are usually only available if you have a larger deposit secured or good equity in your home and suit those who are looking to invest and have a disciplined approach to money.
If you are looking to build a property from scratch, a construction loan allows you to drawdown the loan amount as and when you need it. This means that you are not paying interest repayments on the entire amount from the beginning. Instead, you can drawdown loan amounts at parallel stages to the construction and therefore only paying interest on repayments on the portion you have used. Upon completion of the property construction, you have the option to choose which loan type you would like to convert to.
These loans are suited to borrowers who are having difficulty finding a home loan with bigger banks. There are many reasons why you may not meet all of the strict lending criteria they provide so these loans often suit individuals who are self-employed, new migrants or those who have a defaulted credit history.