The number of new loans permitted for owner-occupied homes changes the loan record for homes in Australia. It is an indicator of leading demand in the housing market. In the highly competitive Australian lending market, there are different types of home loans offered. It’s important to understand the features, terms, and conditions of the different finance options available before a borrower commits to a specific product. That understanding helps them to choose the appropriate option for their individual needs.
Even a slight confusion in the terms and conditions of a home loan makes a significant difference to the amount a borrower will repay. Different loan features provide a borrower with flexibility in repayment as their circumstances change over time. These additional features come at a cost usually. A borrower needs to be confident that the benefits of any loan features that they choose will outweigh their costs.
Comparing the true cost of home loans in Australia is done by analyzing the comparison between different interest rates. This includes the cost of any additional charges. In Australia, lenders are legally required to display the interest rate when advertising.
There are various loan types to choose from, such as fixed interest rate loan, variable interest rate loan, and line of credit, when considering a home loan. The subscription for each type of home loan is detailed below:
1. Bridging loan
If taking this loan, the lender usually takes over the mortgage on the existing property as well as financing the purchase of the new property. The amount borrowed is called the Perk Debt. The minimum repayments are calculated on an interest-only basis. This interest may be capitalized until the existing home is sold and added to the Peak Debt.
- Interest capitalization
- 100% loan on the new property
2. Fixed and variable rate loans
Variable-rate home loans are more flexible with more features (e.g. ability to make extra payments, redraw facility); fixed-rate home loans typically do not. Fixed-rate home loans have predictable repayment amounts over the fixed term, variable-rate home loans do not.
3. Interest-only loan
Most of the home loans are interest loans, which mean that the amount you have borrowed reduces if you make regular payments.
- Lower repayments initially, giving time to renovate the property.
- In a short time, cuts the cost of buying a residential investment property.
4. Line of credit loan
This loan revolves around equity built up in property and allows access to funds when needed. The loan account is reduced by the cash coming in every month and increased by the amount of cash paid on the credit card.
- Use the money you need and pay it back when possible
- Interest rate is lower than credit cards or personal loans
- Offers flexibility
- Helps fund things like renovations, investments, or even holidays
5. low doc loan
This loan ideally suits self-employed borrowers or investors looking to refinance, renovate, or purchase. It has a higher risk because the income of the borrower cannot be sustained by conventional means.
- Simple income declaration form
- Alternatives to tax returns as income evidence are available
- Fully serviceable loan options
6. Split rate loan
This loan lets you divide the home loan between fixed and variable rate components. The certainty of a fixed rate, flexibility, and features of a variable rate loan is available.
- Provides peace of mind for borrowers
- Certainty in budgeting
- Additional payments on the variable portion of the loan