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Finance for the Australian dream

Ebtide Home Loan FinanceJust about everyone has an opinion; you’ll have heard “it’s a seller’s market right now” or “this is the ideal time to buy, not sell”.

At Australian Finance Solutions, we understand that the rise and fall of the housing market doesn’t necessarily fit with your plans for the future, that’s why we are dedicated to researching and staying ahead of the pack when it comes to home loan options that provide you with great results.

There are literally hundreds of home loan products in the Australian marketplace today. Let Australian Finance Solutions experienced team of finance brokers wade through the facts and figures and provide you with most suitable options.

 

Basic and Standard Variable Home Loans

Standard variable loans are the currently the most popular type of home loan in Australia. The interest rate of your loan will rise or fall over the period of the loan, essentially following the official rate set by the Reserve Bank of Australia and variations in funding costs. Your regular repayments pay off both the interest and some of the principal. You may also choose a basic variable loan option, which generally offers a discounted interest rate but has fewer loan features, such as a redraw facility and repayment flexibility.

Being able to make extra repayments, however small can cut the length and overall cost of your mortgage. At the same time, basic variable loans often don’t come with a redraw facility, which removes the temptation to spend money you’ve already paid off your loan!

It's important to remember though, that increased loan repayments due to rate rises could impact your household budget, so you need to take potential interest rate hikes into account when working out how much money to borrow. If you run a tight budget, this might not be the best option for you. You need to be disciplined around the redraw facility on a standard variable loan. If you dip into it too often, it will take much longer and cost more to pay off your loan. If you have a basic variable loan, you won’t be able to pay it off quicker or get access to money you have already repaid if you ever need it.

It's worth discussing any queries or concerns you have with your Australian Finance Solutions broker, we're always happy to help.

Fixed Rate Home Loans

With fixed rate home loans, the interest rate is fixed for a predetermined period of time, usually the first one to five years of the loan.  This basically means your regular repayments stay the same regardless of changes in official interest rates.  At the end of the fixed period you can decide whether to fix the rate again, at whatever rate lenders are offering, or switch to a variable loan option.

Ensuring your regular repayments are unaffected by increases in interest rates means you should be able to manage your household budget better during the fixed period, knowing exactly how much is needed to repay your home loan. Of course, if the interest rates go down, you won’t benefit from the decrease and it is possible that you may end up paying more than someone with a variable loan if rates remain higher under your agreed fixed rate for a prolonged period.

There is very limited opportunity for additional repayments during the fixed rate period and lenders sometimes choose to impose financial penalties if you exit the loan before the end of the fixed rate period.

Split Rate Loans

As the name suggests, your loan amount is split, so that one part is variable, and the other is fixed. The best part about split rate loans is that you decide on the proportion of variable and fixed. You will therefore enjoy some of the flexibility of a variable loan along with the security and certainty of a fixed rate loan. Less variance means when interest rates change, the adjustment to your household budget is not as much as it would be under a variable loan. If interest rates fall, your regular repayments on the variable portion will too and you have the additional benefit of repaying the variable part of the loan quicker if you wish.

Lenders sometimes choose to impose financial penalties if you exit the loan before the end of the fixed rate period.

 

Interest Only Loans

The benefit of Interest Only Loans is that you repay only the interest on the amount borrowed usually for the first 1 to 5 years of the loan, although some lenders offer longer terms.  Because you’re not also paying off the principal, your monthly repayments are lower.  At the end of the interest-only period, you begin to pay off both interest and principal.  These loans are especially popular with investors who plan to pay off the principal when the property is sold, having achieved capital growth. These loans can also suit homebuyers whose financial situation is guaranteed to improve within a certain period of time. If it is not a fixed rate loan, you have the flexibility to pay off, and often redraw, the principal at your convenience.

The obvious drawback is that at the end of the interest only period, you have the same amount of debt as when you started, and if you’re not able to extend your interest-only period, you could face the possibility of increased repayments.

Line of Credit

 

You can pay into and withdraw from your home loan every month, so long as you keep up the regular required repayments.  Many people choose to have their salary paid into their line of credit account.  This type of loan is good for people who want to maximise their income to pay off their mortgage quickly and/or who want maximum flexibility in their access to funds.

You can use your income to help reduce interest charges and pay off your mortgage quicker, which provides great flexibility for you to access available funds; one standout feature of this is that you can consolidate spending and debt management in a single account.

You'll want to be a wiz with the household budgets though, because without proper monitoring and discipline you won’t pay off the principal and will continue to carry or even increase your level of debt. It's also important to note that line of credit loans usually carry slightly higher interest rates.

Introductory/Honeymoon

Although they were originally designed for first-home buyers, they are now available more widely. Introductory or 'honeymoon' loans offer a discounted interest rate for the first 6 to 12 months, before the rate reverts to the usual variable interest rate. The benefit is quite clearly in the lower regular repayments for an initial ‘honeymoon’ period, but often that means these loans have restrictions, such as no redraw facilities, for the entire length of the loan. You should also check to see if you will be locked into a period of higher interest rates at the expiry of the honeymoon period

'Low Doc' Home Loans

Low Doc loans are popular with self-employed people, as these loans require less documentation or proof of income than most, but often carry higher interest rates or require a larger deposit because of the perceived higher lender risk.  In most cases you will be financially better off getting together full documentation for another type of loan. But if this isn’t possible, a low doc loan may be your best opportunity to borrow money. For some people though, the generally lower requirements for evidence of income and the fact that it may overlook a non-existent or poor credit rating, means that Low Doc loans might be the most suitable option.