What Type of Loan Best Suits You?
This depends on the circumstances for your requirements.
Principle & Interest
If you are Refinancing your existing mortgage to obtain a lower interest rate and your intention is to fast track the repayment of your loan, a Principle and Interest (P&I loan) is usually the best option – providing it allows additional repayments, offers the lowest possible rate and has the necessary flexibility. The rate on most Principle and interest loans are variable (the rate fluctuates and varies over the term of the loan) There are many variations on a straight P&I loan that include additional benefits such as:
"offset accounts" linking your savings account to your loan – The balance in your savings account is deducted from your loan amount – reducing the interest payable on the loan amount
"Professional Package" available for loans over a certain value. The greater the loan amount, the greater the discount on the interest rate.
"All in one account's" often have a credit card linked to them which has benefits that makes use of the interest free period on your credit card each month.
There are many different variations to a straight "No Frills" loan and a Mortgage Centre Professional will advise whether these additional features have benefits that outweigh simpler loan products that offer a better rate of interest.
Interest only loan
Property investors will most likely opt for an interest only loan as there are tax incentives & negative gearing benefits that are applicable to only the interest component of the loan. Investors often choose not to pay off the principle as their aim is simply for the value of the property to increase over time with the original loan amount remaining the same but their equity or "ownership" of the property increasing steadily. The increasing value of property outstrips the holding cost of the asset – ie: The interest payable on the loan.
Line of Credit
Property owners from time to time need to obtain additional funds for various personal expenses and for investing. A loan that provides a Line of Credit is available to property owners that have built up some equity in their home and is a useful means of obtaining finance quickly as needed. The loan provides a pre arranged limit that requires minimum interest only repayments.
Equity Access Loan
This is another name for a line of credit (as above) basically giving the property owner access to the equity they have built up in their home to use at their discretion. It allows people to manage their cash flow, pay bills, renovate or even use the equity as a deposit to purchase additional investments.
Introductory home loans
First home buyers and those Refinancing may opt to take advantage of Introductory home loans . This type of loan is used by banks as an incentive to choose their product by offering a period (usually 12 months) at a reduced rate to the market rate and is often referred to as a Honey moon rate. This type of loan has significant benefits for the borrower because it allows the borrower to make headway in repaying additional principle in the first 12 months (and increase their equity) but the borrower needs to consider that the rate is relatively short term and be prepared to budget for a higher monthly loan repayment at the end of the term.
Low – Doc loans
Low doc loans are suitable for Self employed applicants and investors that are unable to provide tax returns and PAYG documentation such as pay slips. Self employed contractors and Business proprietors often have complex financial documentation as opposed to employees. They are available as both Principle & Interest and Interest only loans.
Fixed Interest loans
Suit applicants who feel comfortable locking in an interest rate for a period of time as it gives them peace of mind that they have budgeted for their loan repayment and will not need to worry about possible interest rate rises. This means they also forgo any interest rate cuts.
Is often chosen by applicants whereby a portion of the loan is fixed and a portion of their loan is variable, allowing combined benefits of both.
Non Conforming loans
Suit applicants with a poor credit rating that can now show the bank evidence they are able to repay the loan. Non conforming loans generally attract a higher interest rate and require a larger deposit.