Types of Loans

Loan Type Benefits Disadvantages       Standard Variable Rate Can pay weekly, fortnightly, monthly. Redraw possible. Extra repayments allowed. May have cheaper interest rate in the first year. An early repayment fee may apply to loans paid out within a specific time when a “honeymoon” rate is taken. Basic Variable Rate Low interest rate. Extra repayments allowed. Possible redraw facility. No off-set available. Off-set Ready access to savings account by ATM, EFTPOS, cheque. As savings off-set the loan amount a reduction in interest paid may be achieved. Interest rate may be higher that the standard variable rate. The savings account represents another account to manage. Not all off-sets are 100% off-sets. Line of Credit Ready access by ATM, EFTPOS, cheque to your approval limit. Reduction in interest paid can occur as all income paid into the account. Extra payments at any time. Interest rate may be higher than standard variable rate. Disciplined approach needed as ease of access may encourage spending. Interest only, so debt may not reduce if not managed properly. Fixed Rate Helps budgeting as your repayments are fixed for a period. Some lenders allow you to make extra payments without penalty. Principal and interest payments possible, so loan reduces over time. Loan can cost more if interest rates decrease. Penalty applies if you break the contract before the end of the term. Combination Having part of the loan at variable and fixed rates can provide peace of mind. You can manage the variable portion as you would normally. Professional advice required on how to structure the loan. Short term debt may now be taken over a longer period. Bridging Allows greater flexibility as you can move in or build your new home before you sell your current one. You require a stronger financial position because of the greater interest commitment, particularly if you do not sell at the price you wanted or by the target date. Lo Doc No financials/proof of income required. Normally 20% deposit /equity required. Interest rates can be higher. Product may have limited features. No doc No financials/proof of income required. No asset and liabilities declared. Normally 35% deposit/equity required. Interest rates can be higher. Product may have limited features. Reverse Mortgages Allows you to borrow money against your property without having to make regular payments. Interest rates can be between 1-2% higher than the standard variable rate. Product may have limited features. NB: These are very general comments. Please consult your Finance Manager for more details.