Types of Loans

Loan Type

Advantages

Disadvantages

Standard Variable Rate

• If interest rates go down, repayments may be reduced as well.
• Additional repayments are acceptable.
• In the first year, interest rate may be cheaper.
• Redraw options are possible.
• Payments can be made on a weekly, monthly or fortnightly basis.

• If interest rates go up, repayments may increase.
• You may need to pay a higher interest rate because of additional features.
• An early repayment fee may be added if a loan is paid out before its end of term.

Basic Variable Rate

• Lower interest rates than standard variable loans
• Repayments are lesser.
• Additional repayments are acceptable.
• Redraw options are possible.

• Not as flexible compared to standard variable rate.
• Provides less features.
• Off-sets are not available.

Off-set

• Easy access to savings account via EFTPOS, cheque and ATM.
• Payment terms are flexible.
• The amount of total interest payment may be lower than compensating for the full balance.

• Interest rates are not standardised and may be higher than standard variable rate.
• You need to have a savings account which is added responsibility for you.
• No guarantee of 100% off-sets.

Line of Credit

• Easy access to savings account via EFTPOS, cheque and ATM up to specified limit.
• Extra payments are permitted anytime.
• Interest rate may be reduced for income payments created into the account.

• Interest rates are variable which means that every month, your interest rate may increase.
• Interest rates do not guarantee that principal or main balance of the loan is paid.

Fixed Rate

• Easier to budget since you know how much you need to pay every month.
• If interest rates increase, your fixed rate mortgage will remain at lower rate.
• You can have more peace of mind and budget management.

• If interest rates drop, your fixed amount of payment may be higher than what others are paying for.
• Short-term debt can be regulated on a longer period.

Combination

• Manage debt easier.
• Lock in a fixed interest rate.
• Provides flexibility on how you manage your loan.

• You may need to seek out an expert to help you with loan structuring.
• Your monthly payment may be higher.
• Two monthly payments are required.

Bridging

• Provides flexible options.
• You can complete purchase of a new property before sale of your present property has finished.
• Can be processed quickly.

• You need to have satisfactory equity in your existing property to sustain purchase of new properties.
• Designed for short-term use.

Lo Doc

• Requires the least of documents – do not require income proof or financial history.
• Ideal for individuals who are starting a business or with low income.

• Higher interest rates.
• Offers limited options and features.
• Larger deposit, up to 20%.

No Doc

• Does not require proof of income and SALN; less paperwork.
• Ideal for individuals who are starting a business or with low income.

• Higher interest rates.
• Offers limited options and features.
• Larger deposit, up to 35%.
• Additional fees may be required.

Reverse Mortgages

• Flexible with very few restrictions.
• Allows you to retain ownership of your property without making regular payments.

• Has closing costs.
• Higher interest rates, from 1% to 2%.
• Provides limited options.