What’s the right home loan?

No doubt, you’ve probably started some research of you own and become overwhelmed by the myriad of options available to you when it comes to finding out what’s the right home loan.

Taking out a home loan is an exciting and significant commitment. It is important that you select the best structure for your current circumstances and understand the features, costs and risks associated with the credit contract.

Below is a condensed list of the general loan products that are on the market today for you to consider.

• A 100% Offset feature
• A fixed rate usually from 1 – 5 years. At the end of the fixed term you can lock in another similar fixed period or switch to a variable rate. Most lenders allow you to make an additional $5,000 – $10,000 extra repayments each year without extra penalty fees. You will not be able to offset interest on this type of loan with a savings offset account. In addition, usually you will not be able to redraw any of your extra repayments during the fixed rate period. If you break the contract and this results in a loss for the bank, an early repayment adjustment fee may apply. Depending on the term left on the contract, the amount of the loan and interest rates, this could cost you many thousands of dollars.
• A variable rate with redraw capabilities
• Ability to split the loan part fixed and part variable to hedge your risk against anticipated rising interest rates
• A revolving Line of Credit with immediate access to your equity up to the approved limit. Suitable for those renovating or investing. This type of loan does not have a set term nor fixed repayments, therefore relies heavily on you managing your own debt repayment. You must deposit more than you spend plus loan fees and debit interest in order to reduce your balance.
• A No Frills low variable rate product from day one. Great for those borrowing < $250,000
• A construction loan is usually on a variable rate and only when the property is completed can you request to go on a fixed interest rate. A signed contract with a licensed builder and council approved plans are mandatory before funding.
• A very low honeymoon interest rate product for up to three years. Usually you will not be able to offset interest on this type of loan with a savings offset account. Be wary that the revert rate after the honeymoon period may be the high standard variable rate causing your repayment amount to go up.
• A bridging loan is a conditional approval pending satisfactory valuations on both the property you own and the one you are purchasing. If you fail to sell your original property you may have difficulty in continuing to service the loan. If the property is not sold within 12 months, the loan is reviewed. The bank may exercise its right to sell your property under the terms of the mortgage if you fail to sell it on your own.
• A Professional Package with discounts on the variable rate home loan, credit card and savings accounts. Great for those borrowing > $250,000
• A property share loan is where each party is guarantor for the other party. Legal advice is mandatory before entering into the contract. If one party ceases repayments, the other party may be forced to sell the property.
• A ‘Low Documentation’ loan for the self employed. These loans require very little proof of income. You may have to pay a higher interest rate with this loan type. Lender’s mortgage insurance is applicable at a lower loan to value ratio than for standard home loans. This would be at an additional cost to you.
• An interest only loan is very popular with investors. This type of loan is where at the end of the interest only period, your new principle and interest repayments that include principle plus interest will be higher than before because usually you do not reduce your debt during the interest only period.
• A Non conforming loan provides finance for those who don’t meet the banks’ strict lending criteria. These clientele may include:
  • self employed people who have difficulty verifying their last two years of income
  • older borrowers
  • people with an impaired credit report
  • new migrants
  • Applicants just commenced a casual job