Loan Types
Find the Perfect Fit for Your Loan Requirements.
As your broker, our goal is to help you find the one loan among hundreds that best suits your individual needs. We’ll not only assist in selecting the right loan but also manage the entire process for you. From handling paperwork to navigating the application process through to approval, we’re here to make it seamless.
Every loan product has its pros and cons, so it’s important to understand the different types available. Here’s an overview of the main loan types along with their advantages and disadvantages.
Variable
Standard variable loans are the most popular home loans in Australia. Their interest rates fluctuate over the life of the loan, influenced by the official rate set by the Reserve Bank of Australia, funding costs, and individual lender decisions. Your regular repayments typically cover both the interest and a portion of the principal.
Advantages
- If interest rates decrease, your minimum repayment amounts will decrease as well.
- Standard variable loans usually allow for extra repayments. Even small additional payments can reduce the length and overall cost of your mortgage.
- Most lenders will allow you to redraw additional repayments at little to no cost.
- Some lenders will allow the addition of an offset facility to save interest.
Disadvantages
- If rates increase, so do repayments.
- If you choose to add an offset facility this may attract an ongoing fee with some lenders.
Fixed Interest
The interest rate is fixed for a specific period, typically the first one to five years of the loan. This means your regular repayments remain constant, regardless of changes in interest rates. At the end of the fixed period, you can choose to either fix the rate again at the current rates offered by lenders or switch to a variable loan.
Advantages
- Your regular repayments are unaffected by increases in interest rates.
- You may be able to manage your household budget better during the fixed period, knowing exactly how much is needed to repay your home loan.
Disadvantages
- Not all lenders will allow additional repayments during a fixed period, or you may be limited with how much extra you can pay.
- Depending on the lender and product you may not be able to redraw those additional repayments.
- Some lenders will require you to pay an ongoing fee to have a fixed product.
- Only a limited amount of lenders allow you to add an offset facility to a fixed product.
- Adding an offset facility (if available) may attract an ongoing fee with some lenders.
- There may be significant break costs if you exit the loan before the end of the fixed-rate period.
Split Rate
Your loan amount is divided into two parts: one with a variable rate and the other with a fixed rate. You determine the proportion of each. This setup provides some of the flexibility of a variable loan combined with the certainty of a fixed-rate loan.
Advantages
- Your regular repayments will be less affected by interest rate increases, making it easier to budget.
- If interest rates fall, your repayments on the variable portion will decrease.
- Generally, you’ll have the ability to make additional repayments and redraw on the variable portion.
- A somewhat balanced approach, receiving the benefits of both variable and fixed products. Portions of the lending maintain the flexibility of a variable product combined with the security of a fixed repayment.
Disadvantages
- If interest rates rise, your repayments on the variable portion will increase.
- Your ability to make additional repayments on the fixed-rate portion may be limited.
- There may be significant break costs if you exit the fixed portion of the loan early.
- Some lenders will require you to pay an ongoing fee to have a split home loan.
Interest Only
With an interest-only loan, you repay only the interest on the amount borrowed for a set period of time (usually 1-5 years). Because you’re not paying off the principal during this period, your monthly repayments are lower. After the interest-only period ends, you begin repaying both interest and principal.
Advantages
- Lower regular repayments during the interest-only period.
- If it’s not a fixed-rate loan, there may be flexibility to pay off, and possibly redraw, the principal at your convenience during the interest-only period.
Disadvantages
- Interest paid and costs over the life of the loan are likely to be higher, as you are not repaying the principal amount for the interest only period.
- At the end of the interest-only period, you will have the same level of debt as when you started.
- You could face a sudden increase in regular repayments at the end of the interest-only period.
