In recent years the Australian home loan market has changed dramatically.
There has been a huge increase in the number of lenders and products to choose from and this has created a very competitive marketplace.
Lenders no longer compete simply on interest rates alone but also on fees, charges and service, as well as the products and features of their loans. There has also been a significant change to the types of loans available, with Australians having access to a smorgasbord of some of the most flexible mortgages in the world.
Types of Loans:
No Deposit Home Loan:
Lenders will still lend 100% plus the purchase costs, including stamp duty.
Lenders require a qualified security guarantor offering a second security in addition to the security offered by the applicants.
The applicant still needs to qualify in their own right.
This means that most if not all of the costs (stamp duty and mortgage insurance) can be included in the loan with little or no extra funds being required from you.
A very under-rated loan recommended for borrowers who only want to pay their normal payment and require very little flexibility. As the name infers this is a 'no frills' loan with very few features or benefits. If a feature were available then you would usually be charged a significant fee to use it. Because of this the interest rate is generally lower than standard loans. Some borrowers do find the loan too restrictive.
This loan has the interest rate at a lower than standard rate usually for the first year.
After that time it reverts to a normal standard loan at standard loan rates or higher.
Beware costs incurred if you need to make changes during the honeymoon period.
The lender's most popular loan product because of their flexibility; has an interest rate higher than Basic and Honeymoon but with features and benefit options such as redraw, fixing or splitting, usually at no cost. Designed to be a 'loan for life' to cater for your changing circumstances.
Equity/ Line of Credit Loan:
Marketed as a way to unlock your equity. Think of your credit card but much, much bigger, and at a lower interest rate because you are offering residential property as security. This is an interest only facility. The benefit being that you can pay lump sums off at any time, which automatically drops your required monthly payment based on your lower balance. You may then borrow back to your limit again, usually at no cost. Borrowers who are not disciplined should be very wary and should consider a more structured loan.
Professional Package loan:
Originally designed by lenders to attract what was considered to be a better quality client and available only to doctors, lawyers and similar. Qualifications are now far more lenient and are often income based therefore available to far more borrowers.
The lender offers discounts to their normal products and pricing such as a guarantee to be half a percent below the standard rate for the life of the loan. Usually the lender charges an annual fee.
From what is known as a 'rate for risk' lender. These lenders have products for people who do not qualify with a 'normal' lender due to bad credit, unusual security etc.
Rates and fees are generally higher than standard and can have fees if the loan is finalised within the first few years. Once you have re-established a good repayment history with a non-conforming lender then prime lenders are more likely to accept your application in the future back at their normal rates.
Buy a block of land then build on it when you are ready. Make sure that the lender who does your land loan is also able to approve your construction loan.
The lender pays the builder in usually five instalments as he completes your house.
Your payments gradually increase until the property is completed, then with most lenders the loan automatically becomes a standard type.
As the name implies it is the opposite of a 'normal' loan. No payments are required to be made on the loan. Generally for retirees who want access to equity in their home without having to make repayments. Consider retirees who do not want to sell their home but need some cash flow to improve their quality of life. Also to help beneficiaries enter the housing market by paying them an early inheritance.
Asset lend/Private Loan.
These lenders are usually only considered as a last resort because they are at the highest rates of interest. The lender will advance you finance against your property with little or no questions asked, on the basis that if you do not make the repayments they will very quickly demand sale of the property, and the full repayment of their loan from the proceeds.