Choosing The Right Loan

Interest only loans

With an interest only loan your repayments are set to cover the interest component of your loan only, which allows you to keep your repayments on your investment property to a minimum. Generally, interest only loans are for a maximum five year term (depending on your lender) reverting to a principal and interest loan at the end of the agreed interest only term. However a further interest only loan can be negotiated at this time. The interest on your investment loan is tax deductible, making these types of loans attractive to investors

Fixed rate loans

These loans are set at a fixed rate for a specified period - usually one to five years. Repayments do not rise or fall with interest fluctuation throughout the specified period. At the end of the term you can lock in another fixed rate, switch to variable or go for a split loan. These loans may have limited features and lack the flexibility of variable loans. There may be early exit fees and limited ability to make extra payments.

Basic or “no frills” loans

These are variable rate loans with a relatively low interest rate. Repayments will rise and fall with interest fluctuations. With these loans, remember to check that the loan conditions will suit your circumstances, particularly the ability to make additional repayments and pay out the term of the loan without a penalty.

Standard variable rate loans

The standard variable rate loan, like a basic or “no frills” loan, offers more flexibility than a fixed rate loan. A standard variable rate loan will often have more features than the ‘basic’ variable option so the rate may be slightly higher. The extra options (for example a redraw facility, the option to split between fixed and variable, extra repayments and portability) should be taken into account when choosing your type of variable loan. Repayments will vary as interest rates fluctuate.

Line of credit loans

Sometimes known as equity loans, these loans are a great way to access the equity in your home to use for property investment, home renovations or other personal purchases. Repayments on a line of credit loan are determined by the interest rate applicable at that time. If you have sufficient equity in your home, you will need to make a separate application for a line of credit loan if you don’t already have one in place. With this type of loan you have the added advantage of being able to make unlimited deposits as your repayments are not set. Always check the conditions of these loans as they are sometimes more expensive than standard products.

Professional Home Loan Packages

These loans are offered to provide an all-in-one home loan package. They offer interest rate and fee savings on your home loan, credit card and transaction accounts and some lenders also waive the annual fees for your credit cards. An annual fee of approximately $300 is usually applicable on these loans.

Professional packages can also offer amazing flexibility, with some banks willing to waive product switching fees when changing from a variable to a fixed rate or converting a principal and interest type loan to an interest only loan.

Construction Loans

If you’re building a new home or planning major renovations to your existing home, a construction loan is generally the most appropriate funding option. The difference between a construction loan and other types of loans is that a construction loan is drawn down in stages and not paid as a lump sum. The draw downs enable the builder of a home to finance the various stages of the construction process, from the acquisition of land to the various stages of building.

Development Loans

Subject to each lender's credit policies these loans can fund land purchase and settlement costs,pre construction costs, professional fees,construction costs,loan costs,interest,marketing costs,etc. Amount of the loan can be a % of the on completion value of the development. each loan is assessed on its merits and the lender takes into consideration a multitude of factors including but not limited to time, risks,product being developed, location, competition, supply and demand,developer's experience and track record, market conditions, selling strategy,number of pre-sales,reputation of the builder,etc. Interest rate charged by the lender can vary according to the above assessment. These types of loan are interest only. The loan is usually repaid from sales proceeds. The borrower will need to contribute equity towards the development.

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