Loan Types

Fixed-rate loan Advantages:

• Lock-in the interest rate at the time of Settlement.
• Your lender cannot make any interest rate changes to your loan – cannot increase or decrease the rate charged.
• Fix rate terms available from 1 to 5 years term.
• Stability and peace of mind, only pay exactly the same repayment amounts over the fixed term, no need to worry about interest rates going up and paying more.

Fixed Rate Loan Disadvantages:

• However, if you exit/break a Fixed rate loan term, you will usually be charged extra costs such as Break Fees that can be significant, depending on factors such as current interest rates differential and how much time is left in your term, which the lender need to calculate.
• You won’t benefit from falling interest rates during your fixed term.
• Generally, Fixed rate loans have no or limited redraw and extra repayments.

Also known as a honeymoon rate to attract borrowers, the lower introductory rate generally lasts only for around 12-24 months before it rises back to the standard rates

Diversify your risk:

• You can allocate Fixed rate for one portion of the loan and the rest at Variable rate.
• You can choose the amount allocated in each rate portion.
• If rates go up, the Fixed rate loan repayments will not rise, interest charged will remain the same, and loan repayments will remain the same.
• When rates fall you enjoy lower loan repayments in the Variable Part and pay less interest.

A construction loan is a loan for constructing/building, whereby the funds transferred will not be in 1 lump sum but transferred in multiple “Progress Payments”.

The loan is only drawn on each time you need to pay the Builder at each completed stage during typically the 6 key stages of construction:

• Deposit stage: generally invoiced once finance is approved and all building approvals have been attained by the Builder.
• Slab/Base stage: generally invoiced once the concrete slab is poured or base of build is completed.
• Frame: generally invoiced once the framework for the build is completed (such as wall frames, roof frames, all tie downs and bracing)
• Lock-Up/Enclosed: generally invoiced once the roof, any external wall cladding, flooring and external doors and windows have been installed.
• Fixing/Fit-offs: generally invoiced once all internal fit-offs are completed (such as all internal cladding, doors, tiling, sinks, baths, built in cabinetry, architraves, cornices, skirtings etc).
• Completion: generally invoiced once building has reached final stage and pre-handover process has been completed.

Lenders also often set a maximum time frame for the complete draw down of your loan.

This is specialised funding for property developers and builders for the construction of multiple Residential properties on 1 title, such as duplexes, townhouses (typically up to 4 units) in a small-scale Residential Property Project.

• Generally short term (till completion and sale), with up to 80% funding available.
• Lenders might request contingency funds (10 – 20% of loan amount), especially for Owner Builders.
• More complex application as lenders need to consider viability of the development, requiring a detailed Development Plan.
• Being Residential instead of Commercial, the interest rates and fees are lower than Commercial Projects.
• Funds for development are drawn progressively over time at the end of each key stage of construction.

Lenders generally require 20% deposit, otherwise you have to pay LMI (Lenders Mortgage Insurance) to protect them from you defaulting on your loan.

If you don’t have sufficient deposit, you can avoid paying LMI using Guarantor Loan:

• A guarantor uses a portion of their own home equity as security to guarantee your loan.
• Only that portion used as security will be at risk, should you have problems paying off your loan.
• A guarantor should generally be an immediate family member or close relative with good credit history and sufficient equity.

Home Equity is the difference in current market value of your property and the unpaid loan balance.

Home Equity Loan lets you borrow money using the Equity in your home as security/collateral, and can be for:

Top-Up Loan

Unlock more funds by borrowing more against the usable Equity you’ve built up.

• Increase your loan by getting you a new loan in addition to your existing loan.
• The new Top-Up loan can be combined into 1 account with your existing home loan.
• If you transfer the Top-Up amount to an Offset Account, you won’t be charged interest until you withdraw the amount from your Offset Account.
• The 20% rule regarding LMI applies to Top-Up Loan, so you should not borrow more than 80% to avoid paying LMI again.

Home Equity is the difference in current market value of your property and the unpaid loan balance.

Home Equity Loan lets you borrow money using the Equity in your home as security/collateral, and can be for

LOC (Line Of Credit) is basically an interest only loan without a set term for the loan principal to be repaid.

With LOC, you borrow money using the Equity from your existing Home Loan.

• Similar to a credit card (you get a pre-approved limit on a LOC loan).
• Interest is charged only on what you’ve used/withdrawn.
• Generally, you can make interest-only repayments or let the interest be capitalised/added into the loan until your approved limit is reached.

If you are buying a new property but have not sold your existing property, a Bridging Loan serves this purpose well to tide you over.

• When you take out a bridging loan, the lender finances both the mortgage on your existing property and the purchase of your new property.
• Generally, you have up to 12 months to sell the existing property.
• The interest due is often “capitalised” until the existing home is sold (meaning accumulating without needing payment until your home is sold, or the repayments are interest only).

A Low-doc or No-doc mortgage is a loan for borrowers who lack the paperwork needed for a traditional home loan.

• Suits investors and self-employed borrowers using other sources of documentation as income evidence.
• Simple income declaration form and alternative income evidence may be accepted.
• Have a higher interest rate in general.
• Lower maximum LVR (Loan to Valuation Ratio).
• Less choice of lenders offering Low doc loans.
• Less available loan features and discounts.

Fixed-rate loan Advantages:

• Lock-in the interest rate at the time of Settlement.
• Your lender cannot make any interest rate changes to your loan – cannot increase or decrease the rate charged.
• Fix rate terms available from 1 to 5 years term.
• Stability and peace of mind, only pay exactly the same repayment amounts over the fixed term, no need to worry about interest rates going up and paying more.

Fixed Rate Loan Disadvantages:

• However, if you exit/break a Fixed rate loan term, you will usually be charged extra costs such as Break Fees that can be significant, depending on factors such as current interest rates differential and how much time is left in your term, which the lender need to calculate.
• You won’t benefit from falling interest rates during your fixed term.
• Generally, Fixed rate loans have no or limited redraw and extra repayments.