Home Loans
The Australian
market has changed a lot in the last twenty years. Deregulation
and the growth of competition have meant many different lenders
are now available to modern consumers in addition to the traditional
banks and building societies. Each of these has a range of
loans so there are literally thousands of products on the
market today.
These options will fall into basic categories and these can
be split or combined in different ways to suit the individual
borrower’s needs. Loans also have optional features that can
be utilised. Features like ‘Interest Only’ payments, re-draw
options, and linked credit card or cheque book facilities.
We can define the ‘basic’ loan options for most borrowers
in this way.
Home Loan Products
-> Standard
Variable Loan
-> Fixed
Rate Loan
-> Lines
of Credit
-> Offset
Loans
-> Lo
Doc or No Doc Loans
-> Construction
Loans
Standard Variable Loan
This is the most common type of home loan. It will normally
be set up over a twenty five or thirty year period requiring
a monthly payment that will payout (amortise) the loan over
the time frame specified. The monthly payment is set to allow
for the payment of the monthly interest cost plus a small
amount of the principal debt. The interest rate for this loan
is ‘variable’ meaning it changes in response to shifts in
the official cash rate set by the Reserve Bank of Australia
or changes in the cost of raising money that the lender or
bank is currently facing. This allows for the loan re-payment
to go up or down but still amortise the loan over the standard
time.
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Fixed Rate Loan
The fixed rate loan allows a client
to agree with the lender to fix the interest rate that applies
to their loan for a limited time (usually 1, 3 or 5 years).
This means the monthly payment will be constant despite any
rate changes for other borrowers. This loan style is useful
for people on a tight income who cannot deal with payment
variations. It is also a good option in a rising interest
rate environment to be able to fix some or part of a loan
and avoid paying higher interest costs. In a falling rate
environment, this type of loan can leave a client paying more
than the average market price for loan; so it should be used
carefully and with a view to the broader market movements.
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Lines of Credit
A Line of Credit loan is a fully flexible
loan that normally allows clients to make maximum payments
onto a loan and make easy flexible withdrawals from the same
loan. It is an ideal structure for rapid mortgage reduction.
This loan gives a client a general limit to their loan and
allows them to deposit or withdraw funds as they choose as
long as they operate below their limit. It allows much greater
flexibility for the borrower but needs to be structured carefully
to ensure clients get the maximum benefit from this type of
loan.
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Offset Loans
An “Offset” loan establishes a link
between a client’s savings or transaction account and their
mortgage and allows the interest charges in the mortgage account
to be ‘offset’ by the interest earned in the savings account.
This type of loan allows some value to the borrower from their
saved funds. The earnings from the offset account reduce the
cost and term of their mortgage. These loans vary according
to how much interest can be offset and how the offset is calculated.
So the value of this loan can vary according to the income
and savings position of the borrower.
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Lo Doc or No Doc Loans
Some borrowers cannot fully demonstrate all of the income
they have available for servicing purposes. This is normally
due to delays in completing tax returns for small business
operators or because some elements of their income are not
‘allowable’ for credit assessment purposes. So Lo Doc and
No Doc loans can be approved based solely on the client making
a declaration about their own ability to service the loan.
These loans will typically have a slightly higher interest
rate and also a lower level of loan as a percentage of the
home or security value (LVR). The credit standard on this
type of loan is very high. Borrowers need to have clear credit
history without defaults and also be able to show proper conduct
of loans, without missed or late payments.
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Construction Loans
Borrowers who are building a home normally
use a construction loan. This loan allows progress payments
to be made to the builder during the construction so the loan
increases up to the full limit by the time the building is
complete. It means clients are only charged interest on the
amount of the loan that has been used rather than paying a
full interest charge on money that has not been used for payments
to a builder. At the completion of construction, this loan
will revert to some other loan type for the duration of its
term.
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We have access to over 700
loan products from Basic Home Loans to Professional Packages.
Once you have chosen
which loan to go with, your assigned and dedicated mortgage
broker will then assist you through the whole loan application
to loan approval and settlement process, plus, your broker
will continue to be there for you in the future when you need
further finance, property and loan related advice or assistance.
Contact us
today for a free consultation.
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LOOKING FOR A BETTER
DEAL ?
Whether you are buying your first home or refinancing
Prosperity Mutual can help you save money on your home loan
and guide you from initial consultation stage all the way
through to settlement. Our company prides itself on providing
its customers with a personal service second to none. Services
operate in Sydney, Canberra and Melbourne.
CONTACT US TODAY ON 1300
854 667
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