Finding the right loan has never been more important. Coming out of the Global financial crisis has meant that banks have tightened their belts and lending criteria. This highlights that consumers cannot afford to waste money on the wrong loan.
So how do you know which mortgage is best for you when there seems to be an endless supply of lenders and products?
To help you understand which option will suit your circumstances, discuss your options with a Mortgage Matters specialist. We will help you figure out which mortgage is suitable based on your situation.
Below is a guide to the common types of loan features and products that may apply:
Fixed Loans
Fixed Rate Loans allow you to have a set and agreed interest rate for a pre-determined period of time.
These loans let you know exactly how much your repayments will be every month and can also shield you from rising interest rates. On the flipside, you may be locked into a higher than market rate when interest rates are on the way down.
Standard Variable
Standard Variable loans offer flexibility but also fluctuate with RBA and lender rate movements. These loans generally come with a number of features which can vary depending on the lender. These loans are still the most popular in Australia, and this is partly due to their ease of use and flexibility.
Split Loan
A Split Loan split loan offers a variable rate loan and a fixed rate loan into a single mortgage.
Home Equity Loans (Lines of Credit)
As the value of your property increases over time, you build what is called Equity – which essentially is the difference between the value of your property and the amount that a lender has secured against it. A line of credit is the ability to borrow against that equity in your property.
Whilst Lines of Credit are not for everyone, they can be quite useful especially in the hands of the avid investor.
Interest Only (IO)
Having an Interest Only loan is quite simply that – you pay only the interest portion off on your mortgage repayments. This loan feature has been quite popular with investors, as there can be tax advantages associated. One obvious drawback though, is that IO loans never actually bring the balance of your loan down – so should only be used by those who fully understand the intent
No Deposit Home Loans
100% No Deposit Home Loans are now a thing of the past in the Australian market. This means lenders will no longer allow you to borrow against 100% of the value of the property you are purchasing. This although, does not mean you can not use equity, draw a line of credit or have a guarantor secure an asset against a required deposit.
Lenders Mortgage Insurance (LMI)
When you borrow above a certain percentage of the value of your home, LMI may be payable to the lender. Lenders essentially take out insurance on loans that they perceived as a higher risk lend (generally anything greater than 80% of the value). Whilst LMI will add to the startup costs of a loan, it can be the difference between you being able to afford that home today, or having to save for a much larger deposit
Bridging Loans
Bridging Loans can be a great solution to assist with the transition of buying a house and selling the one you are in. These loans allow buyers to find their new home and move in sooner whilst concurrently waiting for a sale on their previous house.
Packaged Loans
Many lenders offer loans which can be packaged. These loans come with a variety of features including discounted Standard Variable Rates, Offset Accounts, Low Monthly Fees, Redraws etc. These packages can also come with a yearly fee, which is outweighed by the benefits received from total discounts available.
Low Doc Loans
Low Doc loans provide borrowing opportunities for the self-employed – who will not always have the same income regularity as a PAYG earner. Due to the higher risk level perceived from the lenders, you may pay higher interest rates and fees for these loans.
Low Frills / Basic Loans
As the name implies Low Frills / Basic Loans are generally offered at a lower variable interest rate than a Standard Variable Rate Loan. However, whilst the interest rate is lower, they offer less flexibility and fewer features.
There can be advantages and disadvantages to all of these types of loans, so let a Mortgage Matters consultant guide you.
