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Choosing a Home Loan

There’s a huge choice of home loans available, but to find your perfect match you’ll need to do a bit of homework.

Making yourself familiar with a few of the popular products available will give you a strong head start when discussing your loan options with a LadyBird Loan Consultant.

Here are just a few of the product types available:-

Basic Home Loans

Basic home loans – or ‘no frills’ loans – offer borrowers a loan with a low interest rate.

A popular choice among first home buyers, a basic home loan’s interest rate is often half to one per cent below the standard variable rate, which is sometimes combined with minimal ongoing fees. Drawbacks include limited features, less flexibility, and additional charges if you decide to switch loans or pay the loan off sooner.

Pro -	Interest rates are often half to one per cent below the standard variable rate
Con -	Limited features, less flexibility and possible penalty fees for early loan repayment

Standard Variable Rate Home Loans

Considered a popular mainstream choice, standard variable rate home loans allow you to borrow money for a set period of time, during which you make regular repayments based on the current interest rate. The interest rate can vary depending on fluctuations in the official cash rate.

Pro -	Variable rate loans generally have no restrictions or penalties for making additional repayments on your loan; therefore you may be able to pay off your loan sooner. Additionally variable rates will obviously advantage you if interest rates fall, as your monthly minimum repayment will fall
Con -	Should interest rates increase your regular mortgage repayments will rise.

Fixed Rate Home Loans

Worried about rising interest rates? A fixed rate home loan will allow you to fix your interest rate for a specific period, usually from one to five years. It’s a sound option when interest rates are on the rise or in times of economic uncertainty. Should interest rates plummet, however, you’ll still have to pay off your mortgage at the fixed rate until the end of the agreed period.

Pro -	Fix your interest rate for a specific period, giving certainty to regular repayment amounts.
Con -	Should interest rates fall you’ll still need to repay your mortgage at the agreed fixed rate. Furthermore, you generally cannot make additional repayments on the loan without incurring penalties.

Split Rate Home Loans

Want the best of both worlds? A split rate home loan offers a combination of flexibility and security.
A good product for both first time and existing borrowers, split loans allow you to customise your loan’s interest rate as you see fit. Fixing the rate on a portion of your loan to give some certainty to part of your monthly repayments but also flexibility for the balance of your loan that is on a variable rate.

Pro -	Fix a portion of your interest rate to give certainty to monthly repayments while also benefit from a variable rate portion should rates drop.
Con -	If interest rates do drop you’ll be left paying a higher rate for your fixed rate portion.

Interest Only Home Loans

Interest only loans offer borrowers lower repayment options, while maintaining many of a traditional loan’s features.

This type of loan allows you to pay only the interest component on a mortgage, it does not reduce the principal component.

They are a popular choice for investors looking for good capital appreciation on their investment.

Pro -	Pay only the interest component on your mortgage.
Con -	Repayments do not reduce the principal component of your mortgage.

Low Doc Home Loans

If you’re a self employed, contract or seasonal worker and do not have a regular income a low doc loan may be a solution.

While making home ownership a possibility for a cross section of Australian workers which previously found it difficult to secure a mainstream bank loan, most low doc home loans typically have higher interest rates. Your lender may also require you to take out Lenders Mortgage Insurance (LMI) in order to secure a loan.

Pro -	Can help you enter the property market if you’re a self employed, contract or seasonal worker without regular income or proof of income.
Con -	Typically have higher interest rates, you may also have to pay LMI.

Introductory Home Loans

The interest rate is usually low to attract borrowers. Also known as a honeymoon rate, this generally lasts only for around 6 to 24 months before it rises. Rates can be fixed or capped. Most revert to the standard rates at the end of the honeymoon period.

Pro -

Many lenders offer reduced interest rates for a limited time at the beginning of your loan, generally for periods between the first 6 to 24 months. This can provide a useful benefit for you, by freeing up some cash to help get your new home established.

Con -

However, you should be aware that there is generally a catch with introductory rates. Usually after the end of the introductory period, when the rate returns to a variable rate, that rate will be higher than the normal variable rate offered by the lender. Therefore, you need to weigh up the pros and cons, to work out whether the benefit of a reduced rate at the beginning, is worth the additional cost of a higher rate later.

Non-conforming Home Loans

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.

Pro -	Overlooks poor credit rating.
Con -	Higher interest rate than traditional loans.

Reverse Mortgages

These loans are most suitable for retirees who own their home, but are looking to release cash. Unlike a traditional mortgage, there are no periodic repayments required, but there are interest charges that are accumulated against the outstanding loan balance. The loan generally doesn't have to be repaid until the property is sold or the owner dies.

Pro -

No fixed repayment arrangement required. Lending criteria is easier to meet then a traditional home loan.

Con -

Interest rates are usually much higher then traditional home loan rates.