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.

This is just a guide.  Please consult your Finance Manager for more detailed information.