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Standard Variable Loan with 100% Offset Account
 

Standard variable loans are Australia’s most popular type of home loan. The interest rate varies throughout the loan term. These loans generally offer excellent flexibility, low fees and offer great features such as an offset facility, redraw facility, no limits on additional repayments and often discounts on other bank products such as insurance and fee-free credit cards. Offset accounts act like every day transactional accounts, with the balance in the offset account being 100% ‘offset’ against your home loan. This reduces the amount of interest you have to repay, making your money work harder for you.
 

Advantages:

  • Flexibility

  • Lump-sum payments can be made without incurring a penalty.

  • If interest rates fall, your repayments will fall.

  • Offer extra features such as offset account

  • Discounted rates
     

Disadvantages:

  • If interest rates rise your repayments will rise.

  • Expect to pay an annual “Package Fee” of between $200-$400

     

Basic Variable Loan
 

Basic variable loans typically offer lower interest rates and fewer features than the standard variable loans. You often have the option to pay for any additional feature required. Interest rates and repayments will vary throughout the loan term.
 

Advantages:

  • Relatively low interest rate.

  • Lower repayments.
     

Disadvantages:

  • Loans do not have the same features or flexibility as other variable loans.

     

Intro Rate ‘Honeymoon’ Loan
 

An introductory rate loan generally offers a guaranteed low rate for an initial period of time (usually 1-3 years) after which most will revert to a higher standard variable rate. The rate can be fixed or variable.
 

Advantages:

  • Usually the lowest rates on the market.

  • Opportunity to reduce the principal quickly during the ‘honeymoon’ period.
     

Disadvantages:

  • Payments will increase after initial introductory/’honeymoon’ period


 

Fixed Rate Loan
 

Under a fixed rate loan, the interest rate is fixed for a specified period, usually between one and five years. This loan gives you the certainty of knowing exactly what your monthly repayments will be and peace of mind knowing the repayments won’t rise. However, you won’t benefit if rates go down during the fixed term.
 

Advantages:

  • Guaranteed rate, if interest rates rise your repayments won’t.

  • Can split a portion of your loan as Fixed and Variable
     

Disadvantages:

  • Reduced flexibility.

  • Extra repayments may incur a fee or be limited.

  • Can’t be linked to Offset account savings

 

Construction Loans
 

If you are building your own home or investment property, a construction loan may be suitable for you. This loan requires a fixed price building contract from a registered builder. A construction loan allows you to draw money as is required whilst building. Also, with the usual necessary documents required when applying for a loan, construction loans also require a ‘fixed price building contract’ and ‘council approved plans’.
 

Advantages:

  • Competitive variable interest rates.

  • Facility to draw money when necessary whilst building.
     

Disadvantages:

  • Requires a fixed price building contract leaving little room for change whilst building.

  • Some lenders charge a fee for every time you draw money whilst building.

  • Given it is a variable loan; loan repayments will increase if interest rates go up.