Home Loans Tasmania

Which loan suits me?

Basic home loan
Fixed rate loan
Basic & standard variable home loan
Fully flexible home loan
Interest only loan
Line of credit
Introductory or “honeymoon” rate loan
All in one home loans
100% offset loan
Redraw home loan
Split loan
Low-doc loan

Before choosing a home loan it is important to think about and investigate fully, which type of loan is best suited to you and your circumstances. You need to think about your current and possible future employment and cash flow status as well as allowing for any unexpected expenses which may arise. Outlined below is a brief description of some of the major loan types. Different lenders have different conditions for their loan products, so for more detailed information about which loan is appropriate to you and your circumstances contact us to arrange an appointment.

Basic home loan
This type of loan account allows borrowers to have a low interest rate home loan with few or no fees. As the name suggests, generally this loan does not have any additional features, and it doesn’t usually have flexibility in varying loan repayments or paying extra off the loan when desired. This type of loan suits people who have stable personal circumstances and as such, do not need extra flexibility with their home loan, or those individuals who may not be able to repay any more than the minimum home loan repayment.

Fixed rate loan
A fixed rate home loan locks a fixed interest rate in for a certain period of time. (Usually between 2 and 5 years.) Once this designated time period has ended, there may be an offer of another fixed rate period, or the rate of the loan will transfer to a variable interest rate, which is not steady and may increase or decrease at any time.

Basic & standard variable home loans
Variable home loans have a variable interest rate, which means that throughout the term of the loan, the rate will change. Interest rates are raised or lowered by The Reserve Bank of Australia, consequently, the interest rates on basic and standard variable home loans change as well. Standard variable home loans usually offer more features than basic variable loans. Some such features may include being able to make extra payments or being able to redraw deposited money.

Fully flexible home loans
This loan is similar to a basic home loan, however, depending on the specific loan product, allows for more flexibility with repayments. It may allow the borrower to pay their salary directly into their loan account, to make additional repayments when desired, or to discharge the home loan at any time without incurring a penalty.

Interest only loan
An interest only loan allows the borrower to repay the interest only- no payment is put toward the principal of the loan. Most major lenders offer this type of loan, which is usually fixed for a period of one, three or five years. At the end of this term, the principal is either repaid, is refinanced for another fixed term, or is reverted to a combined principal and interest form. This loan is useful for people who wish to avoid stress on cash flow which may occur as a result of an interest rate rise. An interest only loan is also often used by property investors, because only the interest on a loan is tax-deductible, so if you have an interest only loan, 100% of each repayment is tax deductible.

Line of credit
This loan uses the equity in your home to borrow a pre-approved amount of money at an interest-only variable rate either as a whole, or in parts. This loan allows flexibility and has the ability to reduce mortgages quickly. The downside for the borrower however, is that as the money is borrowed against the equity in your home, the property is used as security for the loan. A line of credit can be set at a negotiated period, usually 1-5 years, or classed as revolving (longer terms.) This means that you only have to pay interest on the money used, or “drawn down”. Most line of credit loans have a fee attached to them, usually paid either monthly, half yearly or yearly. Rates of interest are variable, and because of the high flexibility of the loan, are often higher than the interest rate on a standard variable loan.

Introductory or “Honeymoon” rate loans
This type of loan offers borrowers an introductory or “honeymoon” interest rate. This rate is typically lower than the standard variable interest rate, and it runs for a specific length of time, usually 6-12 months. Once this introductory or “honeymoon” period is over, the interest rate on the loan will increase to either the standard variable home loan rate, or in some cases, an even higher rate. These loans are suitable for people who wish to reduce their initial repayments, or those who wish to pay off a large chunk of their loan through extra repayments in the introductory time, while taking advantage of the lower interest rate on the loan. Before choosing this loan, the borrower must be sure that they are able to afford the repayments after the “honeymoon” period has ended, at the higher rate of interest.

All in one home loans
All in one loans allow the borrower to combine their savings, cheque, and home loan accounts into one. Income is deposited directly into the loan account, and because interest is charged daily, but billed monthly, the amount on which interest is calculated is reduced. If the borrower needs to withdraw money, it is withdrawn from the home loan account, as you would with a normal savings account. The interest rate on these loans is usually at or slightly above the standard variable interest rate. This type of loan may also have associated fees not only on the loan, but on some transactions, depending on if and how the account is split into credit, cheque and ATM facilities. All in one home loans suit middle to high income earners.

100% offset loan
This loan works in a similar way to the all in one loan, as it allows the borrower to put all their earnings and savings into one account. In effect, this reduces the amount of interest payable on the loan, even though the Offset Account is a separate account linked to the home loan. Whatever is in the Offset Account comes directly off the loan, or offsets the loan amount for interest. This means that you do not earn interest on your savings, but you are still benefiting, because what would normally be interest on your savings is calculated as a reduction from your loan instead. The advantages on this loan are similar to the all in one home loan account, and like the all in one loan, the 100% offset loan usually has higher interest rates and fees because of its flexibility. Once again, this loan is suited to middle to high income earners, and to controlled spenders, as the more money that is kept in the offset account, the faster the loan is paid off.

Redraw home loan
Again, the redraw home loan is similar to the 100% offset and all in one loans. The redraw loan allows the borrower to inject additional funds such as salary or savings into the loan so as to decrease the principal amount, as well as reducing interest charges. The borrower is also able to redraw the extra money which has been deposited, at any time as required. Like the 100% offset loan, rather than earning taxable interest from your savings, the borrower saves money on interest charges by putting the money into the loan, as well as helping to pay the loan off faster while still saving for the future. The benefits to this loan usually include no regular fees, and the interest rate typically being less than the standard variable rate. There may however, be fees for activating the redraw facility and redrawing money. This type of loan is suited to low to middle income earners who feel they can afford to put away a bit extra each month.

Split loan
Split loans combine different loan types into one home loan. The amount borrowed is split into different parts, each one having a different loan type. (E.g. part fixed, part varied, part line of credit.) These loans minimise the risk taken by the borrower, and allow the borrower to “hedge their bets” against interest rate fluctuations.

Low-Doc loans
Low-doc or low documentation loans are useful for self-employed borrowers who have both income and assets and have been self-employed for two or more years. In many cases, self-employed borrowers have the required income but do not have the necessary documentation such as tax returns and financial records, needed to gain approval for a traditional home loan. The rate of interest on these loans tends to be higher than that of a standard variable loan, and this type of loan usually has a requirement for mortgage insurance which increases its cost.

To find out more about the most suitable loan for you, or to organise a loan or pre-approval, please contact us at Integrity-Innovative Loan Solutions.

Return to top of page