Variable/Fixed Rate Home Loans in Australia |Home Loans Types

There are 2 basic types of home loans

Standard Variable Rate Home Loan

The variable rate of the home loan moves up and down with the interest rate set by the Reserve Bank of Australia which changes according to the bank’s economic criteria. The Variable rate will probably fluctuate during the period of the loan however the rate of interest is slightly lower than that of a Fixed Rate Home Loan. Basic variable loans have fewer features than standard variable loans and they allow you to pay a fixed sum every month over the full duration of the loan but may work against you if you are interested in paying off your mortgage as fast as possible.

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Standard Fixed Rate Home Loan

This loan comes with a fixed interest rate, it is locked in for a stipulated period of time very often from 1-5 years. If your loan is longer than 5 years you will need to fix the rate again according to the existing interest rate or go in for a variable rate. Fixed rates are higher than variable rates because they usually have a premium component included in order to keep the rate fixed and shelter you from increasing rates. Generally the amount of premium is proportionately higher with longer durations. Keep in mind that since the loan is secured, the lender holds the rights to take the possession of your motor vehicle, if you default on repayments.

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Split Rate Loans

A split rate loan allows you to keep one portion of the loan at a fixed rate and the remaining at variable rate. This affords some peace to borrowers worried about rising rates. You can take advantage of the lower rates of the variable loan but protect yourself at the same time from sudden rate increases with the fixed loan component.

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Introductory Loan

The beginning rate of interest is quite low which attracts borrowers. Also called a honeymoon rate the rate is usually in place only for a year before it increases. These rates can be fixed but most transform into standard rates when the honeymoon ends.

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Interest-Only Home Loans

With this loan you only need to make repayments of the interest accrued on the principal amount so repayments are quite a bit lower than that of standard loans. When the interest-only period ends you will need to make Principal and Interest repayments for the rest of the loan duration. This can be a financial shock since your loan repayment amount will be much higher in the latter stage of your loan period.

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Line of Credit Loans

This loan is like an ‘all in one’ account. You have a pre-approved loan amount that you can access however you wish – in one go or bit by bit. Your income also goes into this account and will be used to pay off your loan. However you will also be using this account as your savings, cheque and credit account combined. You must endeavour to keep as much money in this account to reduce loan amounts and interest payments. This loan attracts higher rates and there could be more fees involved. It is also difficult to keep track of as there are no set monthly repayments and if you do not control your credit, it can also prove very expensive.

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No Doc/Low Doc Loan

Loans of this type are intended for self-employed individuals with their own business. They are not required to submit tax returns or financial reports but are eligible for all standard home loans albeit at a higher rate. As business owner you may be required to show your ABN/ACN, Business Activity Statements (BAS) of last 12 months and account statements of existing loans.

No Doc/Low Doc Home Loan

Non-conforming loans or loans with bad credit

This loan is meant for you if you have a poor credit score and bad credit history for whatever reason. Illness, loss of a job, losses in business affect your ability to get a standard loan. There are select lenders who offer these non-conforming loans to borrowers with bad credit. However they do want to see some evidence that you can pay off the loan. Lenders will probably ask for a larger deposit to be made and the rate may be higher.

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