Standard variable home loans

Standard variable rate home loans are the most popular home loan type in Australia. The interest rate on this loan moves up and down based on a number of factors including official interest rate fluctuations and the cost of funding. Different lenders offer different features and rates on these products, generally according to the amount you are borrowing.

 

Professional packages

Lenders’ professional packages generally offer a discount off the standard variable rate if you are borrowing over a certain amount, usually $150,000 or more. This discount can range anywhere from 0.5-0.7% per annum or even higher (usually for amounts greater than one million). People borrowing larger amounts of money, often on higher incomes, use these home loans because of the flexibility it gives them.

 

Basic variable home loans

Basic variable loans are loans with lower interest rates, but fewer features, than a standard variable loan. The interest rate can rise or fall over the term of the loan. These loans are typically “no frills” products although there are more features being added by some lenders as the market becomes more competitive. They are typically around 0.5% – 0.7% less than the standard variable rate and are often used by people who want a variable rate, but may not qualify or be interested in a professional package home loan.

 

Discount variable, honeymoon, introductory, home loans

These are variable rate loans with a discounted interest rate off the standard variable rate (commonly around 1%), lasting a certain period of time, usually one year. After this period, they normally revert back to standard variable rates. Sometimes, depending on the lender, interest rates can be fixed or capped during the initial/honeymoon period. These rates are among the lowest rates available and are often used by first home buyers or others who use the structure in line with the way they are investing.

 

Fixed rate home loans

Fixed rate home loans are where the borrower’s interest rate and repayments are fixed for a set period, usually from one to 10 years, and sometimes longer. These home loans commonly revert to the standard variable rate at the time the fixed-rate period has expired, unless “rolled over” for another fixed-rate term (at prevailing fixed rates). People whose income is not likely to vary much or who like predictable budgeting, find fixed rate home loans useful.

 

Combination/split home loans

Split loans allow borrowers to take part of their loan as a variable rate loan and the other part as a fixed-rate loan. While the overall loan amount is considered “a total”, each part is treated separately for loan contract purposes. These loans offer borrowers a chance to hedge their bets in times of rising interest rates and give a blend of repayment flexibility and interest rate security.

 

Line of credit/equity loans

Line of credit or equity loans allow borrowers to borrow up to a specified limit which is secured by a registered mortgage over a residential property. These loans provide access to funds, when required, up to the original limit set. Normally, the minimum repayment required is the monthly interest only. Some lenders require that principal reductions begin to be made after a certain period of time. These loans can be used for pretty much anything and are a creative way to generate funds for investment purposes, businesses, other properties, loans to children to help them buy property, etc.

 

No deposit or 100% home loans

Once very popular, the no deposit home loan has disappeared from the marketplace due to the introduction of stricter qualifying criteria following the Global Financial Crisis. For borrowers with no or low deposit, there are some new alternatives to purchasing property, including making use of equity in a family member’s property.

 

Low-documentation or no-documentation home loans

Low or no-documentation loans are exactly what they describe. These loans require very little or no income documentation to get approval. They are typically used by borrowers who are self-employed or do not have tax returns or financial reports.

 

Non-conforming home loans

Specialist lenders offer non-conforming loans to people who don’t meet the banks’ strict lending criteria, including older borrowers (over 55) for whom a 25-year loan may not be appropriate because they are close to retirement; people with a bad credit history, perhaps with a history of late repayments, loan default or possibly even formerly bankrupt; new migrants with no borrowing record; seasonal, casual or self-employed workers.