Loan Types
Loan Product |
When best to use |
| Discount Variable / Honeymoon | |
| These products offer the borrower a discounted rate for the first 6 to 12 months of the loan. The interest rate then reverts to the standard variable rate after the introductory (honeymoon) period | These products are appropriate to use when the loan is only required for the short term. A lender may charge an early repayment fee so be careful as this will increase the overall cost of the loan. |
| Basic Variable | |
| A basic variable product is what’s called a 'no frills' loan. There are very few features. Most basic variable products on offer today include a redraw but at a cost. It is common for this type of product to have a break cost. | Mainly suited to investors. Best used as a 'set and forget' arrangement. Most investors set up an interest only loan and arrange for the interest only repayments to be debited automatically from their transaction account. The loan account is not designed to transact frequently within it. |
| Professional Packages | |
| Professional packages normally bundle a number of discounted products (for example a loan, a credit card and a transaction account – also known as an offset account). Professional packages provide interest rate discounts which remain for the life of the loan. | Professional packages normally suit people borrowing over $200,000 and/or borrowers with multiple loan accounts. Whilst an annual fee typically exists, the interest rate discounts are very appealing and normally more than offset the annual fee. |
| Line of Credit | |
| Line of Credit products are essentially a transaction account and a loan account rolled into one. They are the most flexible product on the market. They do not have a loan term and as such the minimum repayment to the lender is the interest only, charged to the Line of Credit product monthly | A Line of Credit is normally more expensive than a standard term loan. There are normally cheaper alternatives which provide similar flexibility (i.e. 15 year Interest Only term loans are available nowadays). We recommend the use of a Line of Credit when regular transactions are required (e.g. share trading). |
| Fixed Rate Mortgage | |
| The interest rate is fixed for a pre-determined period (usually between 1 to 7 years). Fixed rate loans are less flexible than variable loans as they limit the amount of extra repayments you can make and you generally cannot access your extra repayments until the fixed rate period expires. Penalties usually apply if you break the mortgage during the fixed period. | These products suit borrowers that are concerned about interest rate fluctuations. There are many advantages and disadvantages of fixing your loan. Nowadays you are able to split your loan into fixed and variable, and enjoy the best of both. |
| Offset accounts | |
| A 100% offset account is a savings account linked to a loan account. No interest is paid to the offset account but instead the balance of your offset account is deducted from your loan account before the interest on your loan is calculated. Therefore less interest is charged to your loan. | Offset accounts are useful for owner occupiers (home loans) because they allow the borrower to save on their overall cost. Offsets accounts are also a perfect strategy for investors as they can be useful to preserve tax balances. |
| Low-doc loans | |
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Low-doc loans provide flexible financing solutions for self employed people. Low-docs are designed for people who have income and assets, but are unable to provide the usual verification documentation such as financial statements and in some cases, tax returns. |
If a self employed person has a mountain of company or trust structures and finds it all too hard to explain the mapping of such structures and how the money filters through, then a simple BAS statement or verification from the Accountant will suffice. Or if a self employed person has not lodged a tax return for whatever reason, and the right opportunity has presented itself to purchase a property, then a low-doc loan may be the only answer. |