With the sheer number of loans available it is confusing as to which features are right for you. So, if you’re feeling a little bewildered, and possibly lost, then you’ve come to the right place. Why? Well, we’re about to look at home loan features in detail.
The Main Points We’ll Cover
+ Basic loan – trading flexibility for a low ongoing rate.
+ 100% offset – offsetting your income against your mortgage, so you save.
+ Fixed rate loan – fixing your interest rate for all or part of the loan.
+ Line of credit – turning your loan into a cheque account.
+ Equity loan – accessing home equity to invest or build.
+ Low doc loan – a flexible home loan for self-employed.
A basic home loan is simple. This type of loan has no features. But, in return, you get a low ongoing rate. Plus, in most cases, this loan also does not incur fees. However, the trade-off is there are no offset or redraw facilities hooked to this account. It’s a no-frills home loan.
Who suits a basic loan?
+ Borrowers under $250,000.
+ Those who crave simplicity.
+ People looking to reduce costs.
The 100% offset loan is a simple feature loan that allows you to pay off your home sooner. This loan works by linking to an account that you use every day. The amount held in this account then offsets against your home loan. For instance, let’s say you have $20,000 in your everyday offset account. This $20,000 then reduces your mortgage by this amount so that you pay less in interest.
How does this loan benefit me?
+ Reduces the amount of interest you pay on your home loan.
+ Helps you to pay your home off faster.
+ Encourages you to build up a nest egg.
Fixed Rate Loan
Fixed rate loans enable you to secure the interest rate on your loan for one to five years. This option gives you peace-of-mind and allows you to know what you’re paying each month. However, the trade-off is you lose loan flexibility.
How does a fixed rate loan differ to other loans?
+ A fixed loan doesn’t come with offset or redraw capabilities.
+ You cannot make extra repayments without incurring a penalty.
+ Rates may be higher than the market rate.
Line of Credit
The line of credit loan is similar to a cheque account. This type of loan enables you to draw down funds when and where you need them. Then you repay the part of the loan used monthly.
What are the terms of this loan?
+ Higher than basic and standard variable rate loans apply.
+ Interest is payable on the amount borrowed, not the full loan amount.
+ Payments are flexible so that you can pay more, without penalty.
An equity loan enables you to access the wealth that you’ve accumulated in a property. For instance, let’s say that you own a home valued at $1.2 million, and you owe $200,000 on the property. This scenario means you have $1 million in equity to buy an investment property, carry out home renovations or invest in shares.
Who suits this type of loan?
+ This loan is best suited to homeowners who own more than 20% of their home.
+ Those wishing to carry out renovations on a property.
+ Times when needing financial flexibility.
Low Doc Loan
The Low doc loan is perfect for self-employed people who don’t have the necessary documentation that employees do. This loan is ideal for those with a strong income and assets.
Low doc loans use a self-verification method to prove income. However, the lender usually carries out a credit assessment and check to make sure the loan is affordable. Plus, this type of loan incurs higher fees.
Who can apply for a Low Doc loan?
+ Self-employed contractors.
+ Business owners.
+ Commission-based workers.