Types Of Home Loans

Here are an overview of the different types of home loans available in the market today. You can go through and find out which ones is the right ones for you.

1. Introductory home loan

The interest rate is usually low to attract borrowers. Also known as a honeymoon rate, this rate generally lasts only for around 12 months before it rises. Rates can be fixed or capped. Most revert to the standard rates at the end of the honeymoon period.

2. Variable rate home loan

The rate charged on a variable loan moves up or down in accordance with movements in interest rates, as set by the Reserve Bank. Basic variable loans generally have fewer loan features than a standard variable loan. Basic variable loans are suitable if you are looking to pay off a consistent amount over the full term of the loan, but are not suitable if you are looking to pay off your mortgage quickly.

3. Fixed rate home loan

A fixed rate loan is a loan that has a fixed interest rate and therefore fixed loan repayments. The time period of these loans can vary, but you can usually “lock in” your repayments for between 1-5 years. At the end of the fixed loan period you can decide whether to fix the loan again for another period of time at the current market rates or convert the loan to a variable interest rate for the remaining time left of the loan.

4. Split rate home loan

A split rate loan is a loan that has one portion of the loan fixed and one portion variable. You can select how much to allocate to each.

5. Interest-only home loans

You repay only the interest on the principal during the term of the loan; therefore, repayments are lower than with a standard principal and interest loan. At the end of the interest only period - usually one to five years - you must start making Principal and Interest Repayments over the remaining term of the loan.

6. Line of credit home loan

This type of property loan revolves around equity built up in your property and allows access to funds when needed. Each month the loan account balance is reduced by the amount of cash coming in and increased by the amount paid on the credit card or withdrawn in cash. However, they can be very costly if the balance of the line of credit is not regularly reduced. It requires an interest-only payment as a minimum each month, which can add up to a lot of interest over the long term.

7. Low-doc home loan

A low-doc or no-doc mortgage is ideally suited for investors or self-employed borrowers looking to refinance, purchase or renovate. No tax returns or financial reports are required.

8. Non-conforming home loan

People with poor credit ratings often have trouble sourcing a home loan. Many lenders now offer what are known as ‘non-conforming loans’ for people in this type of situation. While lenders are willing to overlook prior credit problems, they will want to see some evidence of your ability to repay the loan. A larger deposit than is required for traditional loans will generally be required also.