Which Home Loan?

 

Which home loan types would suit you?

With new products being introduced by Lenders every day, the Home Loan industry is a complicated and forever changing environment.

At Vanda Finance we can compare a number of different home loan products from the lenders on our panel and establish which ones best suit you and your needs.

One of our Finance Specialist would welcome the opportunity to assist you assess your options.

What types of home loans are available?

Basic variable home loan

Description: A Basic Variable Home Loan is a Variable Home Loan (typically moves with the RBA Cash Rate changes). This type of home loan does not normally offer the additional features that a standard variable home loan does which enables the lender to offer a slightly lower interest rate.

Pros:

  • Lower interest rate which may enable you to pay off the loan quicker.
  • Any decrease in the RBA Cash Rate, will typical result in lower minimum repayments.

Cons:

  • They usually don’t have the flexibility and features of other loans.
  • Any increase in the RBA Cash Rate, will usually increase the minimum repayments.

Who they suit: Basic Variable Home Loans can be ideal for first home buyers due to the lower interest rates. 

 

Standard Variable (Principal and Interest) home loans

Description: The Standard Variable Home Loan like the Basic Variable Home Loan however offers greater flexibility with additional features at a slightly higher interest rate. They are also the most popular Home Loan type in Australia.

Pros:

  • Any decrease in the RBA Cash Rate, will typical result in lower minimum repayments.
  • They have a lot more flexibility than Basic Variable Home Loans.
  • They offer additional features such as Redraw, Additional repayments.

Cons:

  • Any increase in the RBA Cash Rate, will usually increase the minimum repayments.
  • The interest rate is slightly higher than that offered for Basic Variable Home Loans.

Who they suit: The Standard Variable Home Loan is suitable for most people from home buyer/s to those refinancing and especially those seeking the additional flexibility offered. 

 

Fixed Rate (Principal and Interest) home loans

Description: A Fixed Rate home loan as the term suggests is a home loan whereby the interest rate has been locked in for a set period of time which is usually 1 to 5 years. At the end of the term you have the option of locking in the interest rate for another term or switching to a variable home loan.  Pros:

  • Increases in the RBA Cash Rate will not impact your minimum repayments.
  • You will have the peace of mind knowing exactly what your repayments will be every month and be able to budget accordingly.

Cons:

  • You will miss out on any reduction of minimum repayments as a result of a drop in the RBA Cash Rate.
  • Fixed Loans lack the flexibility of variable home loans.
  • Fixed Loans also have limited features.

Who they suit: Fixed Rate Home Loans are suitable for anyone who prefers to know exactly what their repayments will be or worry about rising interest rates.
 

 

Split Rate (Principal and Interest) home loans

Description: A Split Rate Home Loan is a loan that has the best of both worlds and has one portion of the loan fixed, while the other portion is variable. You have the ability to specify how much you allocate to each.

Pros:

  • You will minimise the impact of any increase in the RBA Cash Rate.
  • Budgeting for repayments is more manageable than full variable rate loans.
  • Additional repayments can be made on the variable portion.

Cons:

  • Loan Repayments will rise with the increase in RBA Cash Rate.
  • Allows for limited additional payments only.

Who they suit: Split Rate Home Loans are suitable for anyone that worries about rising interest rates and wishes to have the peace of mind of fixing a portion of their home loan, while taking advantage of the additional features of the variable component. 

 

  

Interest-Only Home Loans

Description: An Interest Only Home Loan is a loan whereby for a set period (usual 1 to 5 years) you are repaying the interest on the principle only and not making any repayments against principle which results in making lower loan repayments. At the end of the Interest Only period you must commence to make Principle and Interest Repayments.

Pros:

  • The initial lower loan repayments enable the money to be utilised for other means (i.e. property improvements).
  • Reduces the cost of buying a residential investment property in the short-term making it more achievable.

Cons:

  • There will be a sudden increase in loan repayments at the end of the Interest-Only period which can be a shock.
  • Lenders will still assess your ability to pay the loan as if you were making Principle and Interest Loan Repayments.

Who they suit: Interest-Only Home Loans are suitable for Property Renovators, Property Investors and Developers and anyone that is looking at property improvement profiting from adding value to a property within the time frame of the Interest-Only Period. 

  

Line of Credit home loans

Description: Line of Credit Home Loans enable you to use the equity in your home to finance other things such as renovations or purchase other assets like shares. You typically need a large deposit and a fair amount of equity in your property to be able to take advantage of it.

Pros:

  • Interest rate is normally lower than the interest rate available on credit cards or personal loans.
  • Provides the ability to use the money now and pay it back later.

Cons:

  • The interest rate is usually higher than other Home Loan rates.
  • It is possible to reduce the equity you have built in your property.
  • If not used carefully it can be very expensive.

Who they suit: Line’s of Credit are suitable for those thinking about renovating or investing and those that have strong budgeting skills. 

 

Low-doc Home Loans

Description: Low-doc Home Loan are loans that are specifically designed for those that are self-employed and are unable to disclose their income.

Instead of providing a tax return or financial statements, borrowers can sign a form stating their income.

Pros:

  • Less documentation. No tax return or finance statements; only a simple income declaration form.
  • Fully serviceable loan options including; line of credit, redraw, variable or fixed rates.
  • Ablity to choose Principle & Interest or Interest Only.

Cons:

  • Low-doc Home Loans attract a higher interest rate.
  • Cash-deposit required is normally around 20% as opposed to 10%

Who they suit: Low-doc Home Loans are suitable for those that are self-employed and unable to disclose their income.  

  

Introductory Home Loans

Description: Introductory Home Loans or Honeymoon rates as they are often called are loans whereby the lender is offering a lower initial interest rate (usually for 12 months) to attract borrowers, The loan then usually becomes a Standard Variable Home Loan at the conclusion of the introductory period.

Pros:

  • Introductory Home Loans usually offer the lowest interest rates available.
  • The lower initial interest rate provides the ability to reduce the principle quickly.
  • Often offset accounts are also available.

Cons:

  • Most Introductory Home Loans will become Standard Variable after the introductory period with a high interest rate and loan repayments.

Who they suit: First Home Buyers and potentially other home buyers that wish to benefit from a lower interest rate and the ability to reduce their principle quickly.

   

Non-conforming home loan

Description: Non-conforming Home Loans are loans that are offered by lenders who loan money to those that do not meet Banks strict lending criteria such as those with poor credit ratings, older borrowed, casual workers or self employed.

Pros:

  • Overlook poor credit ratings
  • Fully featured Home Loan

Cons:

  • High interest rates than other Home Loans
  • Typically higher deposit required.

Who they suit: Anyone that does not meet the Banks strict lending criteria. 

 We have provided a quick summary of the various types of home loans available on the market today. 

Please speak to one of our Finance Specialists who will review the available home loan products against your specific requirements to find the most suitable home loan for you.