Which mortgage type to choose?
The right home loan for you will depend on your situation and your future goals.
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Standard Variable:
Normal P&I owner-occupier home loan, ( the traditional home loan that pays your loan off “slowly” over a 30 year term. Normally the Bank wins by receiving a big interest margin.
“Honey moon” Standard Variable:
First 12 months offer a discount interest rate, (revert to Standard Variable rate from 13th month). The first year is a great discount, but the Bank reverts you back to the Standard Variable rate from year 2 to 30.
Discount Variable:
Similar to Standard Variable, however interest rate offers an ongoing discount. A sensible borrower option, as the interest rate is discounted for the term of the loan, just make sure the features suit your needs.
Line of Credit, (Equity Loan):
An interest only variable rate loan that operates as an “all in one” loan facility with salary paid into it and $$ access via debit card and cheque book. Popular for investment or debt reduction purposes, but a lot of borrowers find it’s like a giant credit card and your debt never seems to go away.
100% Offset Account loan.
A standard variable P&I home loan with a “linked” transaction account. Income and $$ can redraw from the transaction account. Both splits are assessed daily and interest is calculated on the “net” difference between both loan balances, and P&I interest is calculated on the difference, so you can save years off your loan term and save significant interest expense, if your income is in “surplus” against your expenses, in most instances. Popular with borrowers wishing to minimise their mortgage interest paid.
Lo Doc loan, (No financials).
Where a Lender does not require to sight full doc income proof, (such as payslips, financials & tax returns). Popular with recent self-employed borrowers, where 24 months tax returns or business financials are not yet in place.
No Doc loan.
Similar to Lo Doc loans, where assets & liabilities and income declarations are not required if the LVR is below 65%. More popular with borrowers as you don’t need to declare an income $ amount, and so potentially not run foul of a tax audit that could compare income declaration and actual tax return details.
Non Conforming loan.
Where a borrower cannot obtain a standard Lender type loan due to credit history, income type or other unusual circumstances. Often the rate and fees may reflect the higher risk to the Lender, for these types of loans. Often this loan is popular for a few years until a borrower can overcome their “event” situation and the later refinance to a prime loan when their circumstances return to a mainstream situation.
Bridging Loan.
Where your current Lender can offer you a temporary 2nd loan, to assist you when you have purchased a new home without having sold your existing home. For a short term, up to 6- 12 months, you have 2 mortgages, until you sell your existing home and revert to your new purchase “end loan”.
Reverse Mortgage.
A loan for retired borrowers over 60+ years, who obtain a mortgage secured by their home without the requirement to make any repayments during the life of the loan, (until they either sell the home or pass away). Funds are often used for lifestyle purposes; renovations, travel, new car, assist family or fund retirement lifestyle.
Home Loan Guide 