Home Loan Types

Whether you are buying your first, second, third or tenth home there are a myriad of loan features and packages available to suit your needs. It helps to have a broker who can assess your situation and identify those which are suitable, or not.
See below a brief overview of the different loan types, but remember, our Money Heroes are happy to come to you and explain each one in detail for free!!

Standard Variable Home Loans

These loans generally include many features which, if used correctly, can help you pay off the loan much quicker. The interest rate varies throughout the term of the loan - up and down, with market variances, such as Reserve Bank or market movement including increased or decreased costs of funding. The term is usually 25 to 30 years. Normally you can make additional repayments without incurring a penalty allowing you to pay off your loan faster.
Some lenders will offer packages on the standard variable rates which may include decreased interest rates for larger lending amounts or reduced fees on additional product offerings and services. The usual features of Standard variable rate loans are mortgage offset accounts, redraw facilities and revolving line of credit.

Basic Variable Home Loans

Many lenders offer Basic Variable loans. These usually have lower interest rates than the Standard Variable home loans however this price reduction usually means fewer features, which could impact on your flexibility and ability to repay your home loan faster. The greatest advantage is the reduced interest component over the life of the loan. As with the Standard Variable, the Basic Variable loans will fluctuate in interest over the term of the loan depending on Reserve Bank and Market influences.

Fixed Rate Home Loans

With a Fixed Rate Loan you can be sure of how much your repayments and interest rate will be over a fixed period of time. Many lenders will offer fixed rate terms from as little as 1 year right up to 10 years. This may offer borrowers, who would rather have this certainty, peace of mind for a specific term of their loan.
Fixed loans usually have more restrictions on flexibility and features, for example they may not allow extra repayments, or perhaps paying out the loan during the fixed period would incur large penalties. Features such as redraw or mortgage offset are usually not allowed during the fixed period of a loan.
It may be possible, however, to split the loan between fixed and variable rates. This means that you could split two (or more) parts of the loan into fixed and variable. This can provide peace of mind for a large component of the loan, whilst still giving the borrower the flexibility under the variable component to take advantage of increased debt reduction and interest savings through additional repayments. It also means that if we were fortunate enough for rates to come down, you would still have the advantage of any decreased interest payments.

Mortgage Offset Home Loans

A mortgage offset account, when used in the correct manner, can demonstrate substantial interest savings over the life of the loan. The offset account is linked to your home loan mortgage account and does what its name suggests. It offsets the amount of interest charged on your loan account. Clients receive the largest benefit by directly crediting all monies to the offset account, effectively reducing the daily amount of interest charged to the loan account. You can deposit and withdraw on this account the same as a standard transactional account. The mortgage is reduced by the amount of money in your offset account, in some instances dollar for dollar. Caution must be exercised with these types of accounts as some lenders Mortgage offset is not necessarily always offsetting 100% of your loan. It certainly pays to shop around for this type of account.
In theory, 100% offset accounts are used most effectively when credit cards are used for all purchases and then the credit card is paid off completely on a monthly basis from the mortgage account. This allows the money to remain in the account, therefore offsetting the maximum amount of interest possible for the longest period of time. ATM, cheque and eftpos facilities are however generally widely available on these accounts, so it is possible to run it without a credit card.
There are companies who run mortgage offset /transactional account training programmes and facilities to help you further understand the full impact of offset savings. Beware those who try to charge a large fee for this service.
 

Introductory/Honeymoon Home Loans

Honeymoon loans offer customers a special reduced rate for an introductory period. The loan then reverts to a standard or special variable rate.
These loans can often be a lenders way of enticing the borrower or an advertising advantage which may or may not at the end of the term have been a cost effective strategy for the borrower. Whilst they may seem attractive at the outset, it is worth looking at the true cost of the loan over the term, or at the comparison rate which will outline a true comparative cost of the loan.

Revolving Line of Credit Home Loans

This type of facility allows you to access equity within your home, for a variety of different purposes, on demand. It normally has a specified limit, set according to your properties value, which you can take funds from when required and repay when you can. You can operate several different accounts under one roof, ie personal home, car, shares, my investment property deposit.

Your Money Hero can explain to you the difference between “good” debt and “bad” debt and how a line of credit can work for you in an effective manner to assist you, with your accountants or financial planners advice, in building wealth for the future.

Lines of credit can work well when all payments are directed into the loan, such as salary credits and rental income. For example, you might have a line of credit for an investment property that collects all the rent from that property. The interest is offset by these amounts until the interest repayment falls due and is collected or in some instances capitalized onto the amount outstanding.

Care must be taken with a revolving line of credit that you do not just live beyond your means and eat away at the valuable equity in your home.

No deposit / 100% Home Loan

There are still lenders who will offer 100% home loan facilities for owner occupiers and investors alike. In this instance, the borrower would have to demonstrate a good stable employment history to substantiate their income ability to service the loan. This type of loan allows buyers to enter the market sooner, perhaps saving substantially saving on time and money otherwise spent trying to achieve a minimum 5% deposit.

Some lenders will charge a higher interest rate, risk fee or lenders mortgage insurance for this type of loan.

Transactional Home Loan or All-in-one account

A transactional or all-in-one account is a fully featured loan which allows a borrower's salary to be paid directly into the loan. It has the effect of a 100% offset account where daily interest savings are made for every day the borrower leaves all or a portion of their salary within the account. ATM, Eftpos and cheque facilities are normally available, however in theory, transaction accounts are used most effectively when credit cards are used for all purchases and then the credit card is paid off completely on a monthly basis from the transactional account. This allows the money to remain in the account, therefore offsetting the maximum amount of interest possible for the longest period of time.

There are loans available at competitive rates in this type of structure without the normal expense of the line of credit account.

Construction Home Loans

Construction loans are designed to allow borrowers to “draw down” on the loan amount as they reach each completed (progress) stage of their construction or renovation. Repayments are normally interest only based on the amount outstanding on the loan, making it easier to control your cashflow during the construction period. The lender controls the draw downs ensuring that the builder has met each stage, usually by sending an assessor out for an inspection.
The repayments usually revert to principal and interest once the works are complete.


There are so many variations on these accounts available from our panel of lenders. It is wise to consult your local Money Hero for a true cost analysis on loan types using your own personal situation.

To contact your local Money Heroes call 1300 MY HERO (1300 694376) or click here