Guide to Types of Home Loans

The two types of home loans according to interest rate progression are the fixed home loan and the variable home loan. Judging by its name, the fixed home loan gives you a stable payment mode no matter what happens with the market interest rate. However, in the event that the market interest goes lower, your loan stays at a higher rate.

However, your loan stays at a higher rate if the market interest goes lower. Also, a fixed home loan is not open to flexible repayments. There are times that the borrower will be penalized if an advanced repayment is made.

On the other hand, the variable home loan allows a borrower to pay in varied amounts for the deal’s duration. More borrowers opt for this option since market conditions change from time to time. The variable home loan interest rate is heavily dependent on the market interest rate so repayments can either be high or low.
You can also have a loan with fixed and variable characteristics. For this, you sign up for a split home loan. With this deal, you can pay part of your loan via a fixed rate and another through variable conditions. This type of home loan makes repayment faster too. However, this type of loan is vulnerable to both disadvantages that a fixed and a flexible home loan might bring.

Meanwhile, honeymoon home loans are suitable for families or businesses that are starting up. This type of loan has a low starting interest rate for a year or two. After which, the rate reverts to standard interest rates. It is presumed that you have saved in the grace period which makes you able to pay the standard rate afterwards.

There is also a no deposit home loan which allows you to borrow the full amount of the house’s purchase price. Also, this option also makes you eligible for the $7,000 First Home Owners Grant. However, this deal entails additional stamp duty fees and conveyancing charges.

Self-employed borrowers or people with poor credit ratings can also avail of a non-conforming home loan. For this type of loan, a customer must only prove that he can satisfy the monthly repayment of the loan through a proof of income.

If you are in the process of selling your old property and buying a new one, you can apply for a bridging or relocation loan for a smooth transition of the home loans. This is offered for a maximum period of six months at a standard variable rate. Lenders would also require a significant equity value from the property for this loan to be approved.

There are also reverse mortgages for customers aged 60 and above. In this kind of set-up, applicants can borrow up to 45 per cent of the value of their home with funds advanced in one payment on settlement, or as needed and no repayments are needed over the life of the loan.

And finally, an equity home loan or Line of Credit home loan has a continuing pre-set limit that is fixed. Money generated from this loan can be used for shares and renovations of a personal or an investment property. However, its interest rate is higher as compared to the standard rate.

Speak with an eChoice home loan consultant today to learn more about the home loan options available to you – Click Here