So you’ve decided you want to purchase a property in Brisbane and you know you’ll need to take out a home loan or mortgage to do this. In Australia, there are so many different types of home loans and mortgages so it can be a little confusing. Don’t worry, as mortgage brokers and experienced finance lenders at i Lend Finance Solutions, we are here to help. In this post, we share a few of these loans and share a bit of background on each of them to give you an idea before you start on anything.
The biggest differentiation between mortgage types would be fixed or variable rates.
Fixed rates are those that are fixed for a certain period, usually the first one to five years of the loan. This means your regular repayments remain the same and are unaffected by any increases in interest rates. At the end of the fixed period you can either decide to fix the rate again (at whatever rate that’s being offered) or move to a variable loan.
Variable rates are the most popular home loan in Australia. Interest rates go up or down the life off the loan depending on the official rate set by the RBA (Reserve Bank of Australia) and funding costs. Your regular repayments pay both the interest and some of the principal. You might also see the option for a basic variable loan these offer a discounted interest rate but have fewer loan features such as a lack of redraw facility and repayment flexibility.
Usually this loan is aimed at first homebuyers, this loan is also known as ‘honeymoon loans’ because of the ‘honeymoon’ period during which you can pay a discounted interest rate, these loans generally offer a very cheap rate for an initial period of time. However, this low rate only lasts for a limited period (usually 12 months). Honeymoon loans are generally only offered to new borrowers, meaning that someone who already has a loan with the lender is usually not eligible. A good strategy would be to look for a loan which lasts for the term you plan to borrow for. For example, if you plan to repay the loan over 25 years, look for a loan that lasts this long. After you have chosen one, see if an introductory offer is available. If there is, consider the honeymoon period a bonus.
You might be building your home, and thus this calls for a different kind of loan. When building a new home, you will not need the entire amount of the loan drawn down all at once. If you did this, you would be making interest repayments on the entire amount right from the start and not just on the amount needed at the time. With a construction loan, you can break up the drawdown of the loan amount into five progressive draws, which parallel the construction phases. As one phase of the construction is complete, you are able to draw down the next portion of the loan. Once construction is complete, the loan reverts to the standard variable for the type of loan you have chosen.
LOW DOC LOANS
The low document or ‘lowdoc’ loan is also known as a no-doc mortgage. Low-doc lenders do not require traditional proof of income such as company financials or tax returns. Instead, borrowers complete a declaration that confirms they can afford the loan. This is known as self-certification. These loans are particularly attractive to self-employed or full-time investors who may have difficulty showing a high level of income, as a result of either writing off a number of expenses, reinvesting profits into a business, or being slow with their tax returns. Note though, because of the lack of documentation, they are also known for their higher interest rates.
There are many different variations on these loans, but if you think you have idea of which one best suits your unique circumstances, or still wondering which best suits you, at i Lend Finance Solutions we can help you make the decision and also get the financial help for getting a home loan that best fits your lifestyle and needs.