There are a range of home loans available in Australia, so how do you know which one is the right one for you?

Variable loans

Variable loans are loans that are subject to interest rate fluctuations. Whenever your bank increases or decreases interest rates, you will end up either paying more or less for your loan, depending on what the bank has decided to do.

A typical owner-occupied mortgage is taken out over 25 or 30 years, although you can reduce the overall term by making higher or more frequent payments. Mortgages are either based on principal (the amount you borrowed from the bank) and interest (the amount you pay back for having borrowed that money) loan repayments, or interest-only repayments (generally available for 1-5 years for owner occupied loans and 1-10 years for investment loans) where none of the principal component of the loan is paid down.

Fixed-rate loans
Fixed loans allow you to lock in a specific interest rate over a set period of time, generally between one and five years. This loan is popular among borrowers who want to ensure their repayments don’t rise. The main risk is that if variable rates fall, you are locked in at a higher rate. The cost of breaking a fixed rate loan contract can be substantial, and there can be financial penalties for making additional payments.
Split-rate loans
You can take out a mortgage with one portion of the loan variable, and the other fixed. In many ways, this offers the best of both worlds and you have the flexibility to repay more on the variable loan and reduce risk through the fixed loan.
Low-doc loans
Mortgage lenders require you to provide evidence of your ability to meet loan repayments, but this can be a problem for non-salaried workers such as the self-employed. Low-doc loans require less proof-of-income paperwork, but the interest rate levied is often higher than the standard variable rate.
Professional or packaged loans
Some lenders offer mortgages that provide ‘lifetime’ discounted interest rates, fee waivers and linked savings accounts and credit cards. These options are generally offered on high loan amounts.
Non-genuine savings loans
Lenders prefer borrowers to show they have the ability to save funds over time to cover their repayments. If a deposit is accrued quickly due to an inheritance or from other sources, lenders may provide less funding and require lenders mortgage insurance. Lenders mortgage insurance is a one-off insurance payment that covers the bank in case you can’t make your repayments. It is usually required for home loans with a loan-to-value ratio (LVR) over 80%.
Construction loans

These loans allow amounts of finance to be drawn down progressively to cover the various stages of a construction project. Repayments (generally only on interest for the first 12 months, then principal and interest thereafter) are only made on the amount of the loan facility that has been drawn down.

However, there are line fees on the undrawn amount, or in most cases on the total facility limit.

SMSF loans

The rules around borrowing funds within a self-managed superannuation fund are complex. Borrowings with a SMSF must be undertaken through a limited recourse borrowing arrangement, which limits the recourse of the lender to a single asset.

Line-of-credit facilities
This is a way of tapping into equity in an existing home and drawing down funds as required for different purposes, such as renovations. Similar to a credit card, repayments are only made on the amount drawn down. Line-of-credit loans are often interest-only for a significant period, but can revert to principal and interest repayments down the track. Most lenders charge extra for line of credit accounts, either through a facility fee, undrawn funds fees and/or a higher interest rate.
Bridging loans

Bridging loans are designed as short-term financing options for borrowers who need funding to buy a new residence before selling their existing home. The interest rates on these loans are higher than the standard variable interest rate.

 

 

With mortgage lenders offering so many different products, getting professional advice is a must. An Armada mortgage broker will support you with recommendations about what’s best for your personal circumstances.

For more information on home loans, talk to one of our team today.

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Osborne Park Office
18 Sangiorgio Court, Osborne Park WA 6017
Locked Bag 4, Osborne Park DC WA 6916
Mon - Fri: 8.00 am - 5.00 pm
Port Hedland Office
15 Edgar Street, Port Hedland WA 6721
PO Box 149, Port Hedland WA 6721
(08) 6165 4067
Mon - Fri: 8.30 am - 4.30 pm

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Armada Accountants & Advisors acknowledges and pays respect to the past, present and future Traditional Owners and Elders of this nation and the continuation of cultural and spiritual practices of Aboriginal and Torres Strait Islander peoples. Armada also acknowledges the Traditional Owners of the land where our Perth and Port Hedland offices are located, the Whadjuk Noongar People (Perth) and Kariyarra People (Port Hedland).

Armada Accountants Pty Ltd – ABN 79 009 298 542, Armada Financial Planning Pty Ltd – Corporate Authorised Representatives of Armada Wealth Management Pty Ltd AFSL 535978, Armada Lending Pty Ltd – ABN 20 603 067 983 – Authorised Corporate Credit Representative (470054) of BLSSA Pty Ltd (ACL 391237), Armada Audit Services Pty Ltd – ABN 39 151 015 002, Armada Business Services Pty Ltd ABN 29 008 762 481 are members of the Armada Group. Each member of the Armada Group is a separate legal entity in its own right and is not in partnership with any other members of the Armada Group. Liability limited by a scheme approved under Professional Standards Legislation.


Armada Accountants & Advisors acknowledges and pays respect to the past, present and future Traditional Owners and Elders of this nation and the continuation of cultural and spiritual practices of Aboriginal and Torres Strait Islander peoples. Armada also acknowledges the Traditional Owners of the land where our Perth and Port Hedland offices are located, the Whadjuk Noongar People (Perth) and Kariyarra People (Port Hedland).

Copyright © 2022 Armada Accountants & Advisors.
ALL RIGHTS RESERVED 

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