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Types of Loans & Mortgages

Types of Residential and Commercial Mortgage Products

Variable Rate Loans

This is one of the most versatile loans. A Standard Variable Rate Home Loan is designed for people who need flexibility. These loans come with a number of features that can help accommodate changes in your circumstances, such as redraw, extra repayments without penalty, they provide you with the flexibility to make weekly, fortnightly or monthly repayments.

Depending on the lender/bank, they can be linked to 100% offset account which is even better than making extra repayments direct to your Home Loan. Instead of making extra repayments direct to your Home loan, consider making them to a linked offset account. These accounts provide 100% mortgage offset on your linked loan, but you can access your funds anytime.

A loan that allows the lender to make periodic adjustments in the interest rate, according to fluctuating market conditions.


Fixed Rate Loans

Fixed Rate Loan is loan in which the interest rate does not change during the entire term of the the selected fixed rate period, for example, 2,3 4,5 or 10 years.

If you're planning for the future, a Fixed Rate Home Loan is for you. As day to day life can be unpredictable, it's sometimes nice to know that the access to a stable interest rate exists. That means that whatever happens with interest rates, the interest rate, and therefore the repayments on your Fixed Rate Home Loan will remain the same. This helps make planning a little easier.

Extra repayments are allowed to a certain tolerance, different for each lender/bank and subject to their terms and conditions, without triggering an early repayment calculation.

Fixed rate loans are best suited to people with a strict cash-flow budget and work best when combined with a Standard Variable Rate loan.

With most lenders/banks, the interest rate that will apply is the rate for the term you select as at the day you settle your loan. However, if you would like to ‘lock in’ the interest rate current at the time you apply you can do this by applying for a Rate Lock. By paying a Lock Rate fee, the rate can be ‘locked in’ for up to sixty days (subject to lender/bank), protecting you from the potential risk of interest rates increasing before you drawdown your loan. Lock Rate gives the extra security of knowing exactly what your repayments will be for a set period.

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Combination Loans

With a combination loan, part of your mortgage is set at variable rate and the other part is fixed. It is generally up to the individual borrower to decide the proportion of fixed to variable. This type of loan gives you a foot in each camp with regard to interest rate movements. The main benefit is that additional repayments can be made on the variable portion while your exposure to interest rate hikes is reduced.


Interest-Only Loans

With an interest-only loan your repayments are typically limited to servicing the interest charges and none of the principal is paid off. However, most variable rates will allow some additional principal repayments which can be drawn down if needed. This loan is more suited to investors, as the interest becomes tax-deductable (negative gearing).


Introductory rate or 'honeymoon' loans

Introductory or 'honeymoon' loan usually offer discounted interest rates for the first year. After that the romance tends to fade, s the post honeymoon rates will be higher than those of a standard variable loan.

While the the lower initial rate can be tempting, weigh up the long-term costs spanning up to 25 years, against the short-term benefits.


Line of Credit/Equity loans or 'Portfolio loans'

A Line of Credit or Equity loan is a flexible credit limit (like an overdraft) secured against residential property. It enables you to put your equity to work by allowing convenient access to a range of loan and repayment options.

Equity is the difference between what your home is worth (its market value) and how much you owe on it (your current mortgage/s).For example, if your home is worth $800,000 and you owe $200,000, you have $600,000 in equity. Over time as you reduce the amount you owe on your home, or as the value of your home grows, your equity increases.

You can use the equity in your property to create or build your investments. For example, you could invest in property, shares or managed funds. And if you’re looking to renovate or consolidate personal debt, equity can be used for those purposes.

Funds can be accessed by via cheque, over the counter withdrawal, ATM/transaction card, EFTPOS and via internet banking.

Interest rate is generally variable but can be fixed. This type of product is generally for those who can budget their cash-flow.


Interest In Advance loans

Paying interest up front or in advance for a fixed term offers you a lower rate than a standard Fixed Rate loan. It also offers flexibility with regard to repayment frequency and fixed rate terms. Taxation benefits may also apply via negative gearing. We recommend you discuss this with your Accountant or Financial Advisor.

With some products you can even make additional repayments up to a set tolerance each year of the fixed rate period, without triggering an early repayment cost calculation. Principal repayments are deferred on this loan until the fixed rate period has ended.

Primarily used for purchase of residential investment property such as a house, holiday house, unit, apartment or town house to let.


Commercial Mortgages/Loans

A commercial loan is a loan secured (typically) by commercial property or a loan in which the borrower is a commercial entity. This area of lending is specialised and does not always allow for a one size fits all approach. A higher rate normally applies BUT depending on the lender a residential rate can be obtained, on a case by case basis.