Home Loan Types

Home Loan Types


There are a few different types of mortgages available on the market:

  • Standard variable
  • Fixed
  • Construction
  • Line of credit
  • Offset
  • Low-doc (low-documentation)

The right home loan option for you will depend on your current financial situation. LJ Hooker Home Loans can help you with your loan options.

  Loan Type

  

Loan Type Overview

 

  Standard variable

  • Will suit most borrowers as it provides more flexibility
  • If you are an owner occupied borrower, principle and interest repayments could suit you as you start reducing the balance at the start
  • If you are an investor interest only repayments could suit you, allowing you to claim the maximum tax deductions

 

  Fixed

  • Set interest rate for nominated term (usually 1-5 years)
  • You benefit by knowing exactly what your repayments will be for this set period - you may end up paying less or more than the standard variable

 

  Construction

  • For borrowers who are building a new home
  • Paid in stages (progress payments) to the builder
  • Some lenders require valuations at each stage
  • Once construction is complete, the loan reverts to the standard variable for the loan of your choice

 

  Line of credit

  • With this loan, you don't have to make repayments unless the line of credit is fully drawn
  • Interest is calculated on the daily loan balance
  • Provided the loan balance and the monthly interest do not exceed the line of credit, the interest can be added to the loan (capitalised)
  • Most line of credit accounts come with the additional convenience of access to the credit via debit card and cheque book

 

  Offset

  • An offset account is a feature of some mortgages. It is a savings account attached to the mortgage, with the balance used to offset the interest charged on your loan
  • Some lenders have a free redraw and additional repayment facility on their variable rate loans which have the same benefits as an offset account. Deposits can be banked into your loan account and the loan interest is calculated on the daily loan balance (after the deposit), but the extra funds are classed as available redraws

 

  Low-doc

  • A low-doc loan is specifically for self-employed people
  • Applicants have to sign a declaration and in most cases financials are required
  • Low-doc loans generally have a higher interest rate than full-doc loans
  • You may be able to switch to a full-doc loan at a later stage with proof of financials

 

Which is better — fixed or variable?

There is no right answer to this question - historically, a basic variable rate loan has been the best option but with the possibility of future rate rises, a mixture of fixed and variable may suit your needs.

What is a redraw?

Redraw allows you to make additional repayments into your loan account and then access these extra funds when required. A redraw facility has two key advantages; it allows you to make extra repayments, thereby saving on interest costs, and it provide flexible access to these funds when they are needed.

Why would I need a redraw facility?

Redraw allows you to make additional repayments into your loan account and then access these extra funds when required. A redraw facility has two key advantages

1.   It allows you to make extra repayments, thereby saving on interest costs; and

2.   It provide flexible access to these funds when you need them.

What is an offset account?

An offset account is a separate savings account where the balance is offset daily against the loan amount. For example, if you have $5000 in your offset account, 'notional' interest is earnt on these funds, at the same interest rate as your linked loan. This 'notional' interest is offset against the interest payable on the loan.

Why would I need an offset account?

Over time, savings in your offset account can help to reduce the loan principal, allowing you to pay off your loan sooner or build up equity