Four Main Types of Home Loan Products
What are Basic Loans?
Typically referred to as No-Fee, Discounted or Introductory Home Loans
A Basic Home Loan may have many names. These loans are usually light on features and therefore carry less fees and the interest rate is usually much cheaper than other loan products.
These types of loans generally suit first home buyers, or investors looking for a “no frills” home loan. Some of these products have a “Redraw Feature” that allow for advance payments to be made and funds withdrawn from the loan providing the home loan repayments are in front.
What are Packaged Loans?
Allow you to have a Standard Variable Home Loan, Line of Credit or Fixed Rate home loan or combination of each, packaged with other bank products like credit cards, personal loans, insurance and other products for one ongoing annual fee.
The lender usually throws in other incentives such as waiving other associated establishment fees, valuation fees, and discounts on their standard variable or fixed rate products. The lender also rewards you with a higher discount for these type of loans, depending on amount borrowed and/or loan to security value. Great for clients looking to keep more than one banking product with the lender.
Line of Credit
What is a Line of Credit?
A Line of Credit basically allows you to withdraw funds up to your approved limit, and only pay back interest on the money you use. This type of loan product gives you the flexibility to access the money to take advantage of a future investment, or home renovation. You may make payments on your line of credit at a time that suits you, or set regular repayments to reduce the outstanding debt. However, bear in mind the more money you take out, the more interest you’ll need to pay back to the lender.
What are Offset Accounts?
In essence, over time an offset account is a good idea for anyone typically with “lump sum” savings amounts or will have regular surplus funds available after their expenses. By continually adding to their offset account balance, over time, allows them to be charged less interest by the lender whilst still maintaining the same repayment amount, effectively being charged less interest due to the offset account balance offsetting the home loan balance, and essentially paying down the loan sooner.
This type of arrangement also gives the borrower access to the offset account balance at any time should they need it. Generally, Offset Accounts are linked to variable rate home loans, but in some cases lenders products allow for them to be also be added to a fixed rate loan as well.
Offset Home Loan Accounts Explained
Scenario: If the customer had a 100% offset account linked to the home loan for the entire loan term with a constant balance of $15,000 in it, linked to a $350,000 home loan over 30 years. You would save approximately $20,774 in interest and 1 year and 10 months off the home loan. The same customer with no offset linked to the home loan would have taken the full 30 years to pay off the loan.
Scenario: Home Loan (No genuine savings history)
Jake has been a Fly-in-fly-out trade assistant with a several mining companies for 3 years and now wants to settle down and buy a house. Jake is currently employed on a full time basis but has only just started his new job. Jake’s spending habits haven’t been the best either with a poor savings history, it would be seen as unfavourable with major lenders. However, he has managed to put together a deposit for his new home. Through nominal savings and his tax refund he has accumulated a 5% deposit to buy a house. Solution We were able to assist Jake with a non-genuine savings home loan product without having to go through approval through lenders mortgage insurance companies for LMI approval, generally in these circumstances they would of normally declined his loan. In some circumstances loans are approved but fall over at Lenders Mortgage approval stage this is because the loan still needs to be approved for mortgage insurance prior to the lender issues a formal approval to the applicant. Outcome We obtained a formal approval for a 95% home loan plus full lenders risk fee added to the loan. Jake was able to purchase the property at a competitive interest rate.
Let Us Help You Find the Type of Loan that Works For You