Getting a know how on a home loans
Types of Home Loans
TYPES OF HOME LOANS
Below is the list of home loans you can choose from
BASIC HOME LOAN
As the name implies it is a basic product offered by most financial institutions. These products are popular and have no extras. The loan is usually at a reduced interest rate with fewer features than a standard variable rate home loan.
FIXED AND INTRODUCTORY LOAN
The advantage of these loans are that the repayments stay the same for the fixed term rate. The fixed term can vary from 1 to 5 years and the loan rolls over to the standard variable rate at the end of the term. These are a good option if you are looking for certainty in relation to repayments.
COMBINATION OR SPLIT LOANS
This is usually a loan that is a combination of different types such as part fixed/part variable or part interest only/part principle and interest. This can be a good way to get the best of both worlds. You can have a large part of your loan on a fixed rate, such as a 3 year fix, which gives you certainty with your fortnightly or monthly repayments. You can then have a portion on a variable rate, which allows you the option of attaching an offset account, to help offset some of the interest expense
This is useful if you have to sell your own home to buy a new one. It is a loan that covers the period it takes to sell your house. It is usually at a slightly higher interest rate and it has to be paid back after the agreed time frame, usually within six to twelve months.
DEBT CONSOLIDATION LOAN
This is used to consolidate all your loans into one, especially if they have high interest rates such as credit cards. These loans are usually covered by your mortgage over a home.
CONSTRUCTION OR BUILDING LOANS
This loan is specifically for the purpose of building a new dwelling. They normally take the form of progress payments to the licensed builder at each phase of the build. They can only be for fixed price builder’s contracts. While the construction is under way the repayments are usually for the interest only.
LINE OF CREDIT LOANS
These are also commonly referred to as “Evergreen loans” as there is no time frame associated to the loan. This allows you access to the equity you have built up in your home, and gives you funds up to an approved limit at any time. You pay your salary straight into the loan account and access the balance at any time, using a cheque book or a card. It is important to enter into these loans knowing the risks. If you are not financially disciplined or if finances are tight these loans can be a bad idea as the loan balance will remain constant and you may end up just paying the interest for 30 years and not pay off the balance These loans are usually at a higher interest rate and are generally recommended for investors and investment properties.
PROFESSIONAL HOME LOAN PACKAGES
This is usually in the form of a professional package which offers a range of discounts depending on the loan size. The features include a discount off the standard variable rate, and the basic fixed rate, fee free transaction account, fee free offset account, a credit card with no annual fee (from the range offered with the package) and discounts on various insurance products. These packages usually have an annual fee. The main benefit to these packages is that you can have numerous loans with the discounts and only pay the one annual fee.
PRE-APPROVAL IN PRINCIPLE
This is asking for a loan before a property has been found and it is subject to normal lending requirements being met, these include credit checks, confirmation of employment and income, proof of savings/deposits, no outstanding large debts that inhibit the ability to pay back the loan etc. This enable the buyer to go out into the market with confidence of their lending ability and offers can be made at auctions once the approval has been given.
This is a loan to purchase an investment such as property or shares. These days investment loans generally attract a higher interest rate than owner occupied home and with many lenders they require the Loan amount, in comparison to the value of the property (the loan to value ratio) to be lower than those of an owner occupied home loan.