Home Loan Types

How do you find  the right home loan?

There are hundreds of home loan interest rate options for first home loans, next home loans or refinancing. So how do you find one that fits your unique needs and goals? Save time, stress and confusion and have a Smartline mortgage broker to do all the work.

Below are the most popular types of home loan interest rates. A Smartline mortgage expert can explain how different loans may fit your needs and goals. They also handle the negotiations, legwork and paperwork all the way to settlement.

Variable loans

The basic interest rate on a home loan product is known as the standard variable rate. It can move up and down, based on many factors. There are often advantages to variable loans, like being able to:

  • make extra repayments and pay your loan off faster
  • access extra repayments if you need to.

While lenders use the Reserve Bank of Australia (RBA) monthly target ‘cash rate’ as a guide, they don’t always change their own rate to follow the RBA rate.

Depending on how much you borrow you can get a discount on the standard variable rate. Your Smartline mortgage broker can negotiate this with the lender.

Fixed loans

This means your interest rate is set for an agreed period of time – typically from one to five years.

Fixed rates protect you against interest rate rises during this time, so they help with budgeting in the first few years of your loan.

On the other hand, you usually can’t vary or make extra repayments on fixed loans. And there are costs if you cancel the loan before the fixed term is up.

Split loans

If the certainty of a fixed rate appeals to you, but you’d also like some flexibility, you might consider a split loan. This means you can fix part of the loan and maintain the rest at the variable rate.

Basic home loan

This is a ‘no frills’ product that offers a very low variable interest rate with little or no regular fees. However, if you want flexibility, such as a redraw facility, you may need to pay extra.

Professional packages

A way of packaging a loan with extra benefits such as interest rate discounts, lower fees and discounts on other bank products. The ‘package’ often provides much better value for money than traditional ‘no frills’ loans.

Generally, you’ll be eligible for professional package home loans if you’re borrowing more than $150,000 and earn more than $50,000 per annum.

Introductory rate loans

This is a discounted interest rate that:

  • is usually valid for the first 12 months of your loan
  • helps you pay off more of your loan faster
  • protects your against interest rate rises during that time
  • can have high fees if you cancel during or just after the initial period.

Some introductory rate loans revert to the standard variable rate after the introductory period, but some revert to a cheaper rate.

Redraw facility

If you’re in a position to pay a little bit extra into your mortgage, a redraw facility might work well for you. Loans with a redraw facility allow you to:

  • deposit extra money into your mortgage
  • put money in regularly or just now and again
  • withdraw that extra money out again whenever you need it.

Over time these extra deposits can greatly reduce your interest payments and the life of your loan.
Some lenders charge a fee to activate this feature and/or a fee each time you redraw, so you need to take these costs into consideration.

100% offset account

With an offset account, your income is paid into an account linked to your loan that you can use for all your:

  • cheque transactions
  • Internet banking
  • credit transactions.

The balance in the account is offset against your loan. So the more money you keep in the offset account, the more interest you save on the loan.

Line of credit

A line of credit is a pre-approved loan amount that you can access progressively, or all at once. It means you can:

  • borrow as all your income goes into your loan account
  • have a cheque, credit and savings account combined
  • reduce your loan and interest payments by having money in the account.

A line of credit is useful for a range of investment situations, but you need to be disciplined with you money management as:

  • interest rates tend to be higher than standard variable rates
  • there are usually fees
  • you have no set monthly repayments.

Low doc loans

Low doc home loans are designed for borrowers who don’t meet the usual income verification policies for a standard home loan product, such as people who:

  • earn irregular income e.g. self-employed
  • have difficulty separating personal and business cash flows
  • don’t yet have up-to-date financial statements.

In recent years it’s become more difficult to access low doc loans. Borrowers need to offer substantial equity in the property, have a clean credit history and more. Your Smartline Adviser can work through these with you.

Family guarantees

A family guarantee can help borrowers enter the property market for the first time, ‘trade up’ or buy an investment property.

A family member offers security (usually their home for the amount needed to borrow, it can mean:

  • no deposit is required
  • reducing or avoiding paying Lender’s Mortgage Insurance.