The nitty gritty with regards to your loan all comes down to your circumstances and finding the right fit. 

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So many choices.  Where do you start?

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At the very beginning (it's a very good place to start, right?)  Let's start with the basics.  

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Basic variable loan

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You'd be amazed how many people come away from a bank with a fully featured loan with an annual fee, but what they really needed was a basic, no frills loan. 

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A basic variable loan is just that, a loan which generally has a low monthly fee (or none at all) and a base, discounted interest rate.  It doesn't have all the features of other loans but it provides a no-frills option if all you want to do is to make your repayments and depending on your loan, extra repayments.  Often it can include redraw free of charge or for a small fee  (if you are unsure about redraw, check my recent blog post). 

 

If you don't want to pay for features that you won't use, this could be what you are looking for.  If you are unsure, please ask.  

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Package loan

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Sometime's you want more.  It's not that you don't like a basic loan but you want a few more choices and

features to help you pay off your loan faster.

 

Banks give you the opportunity to go under their 'package loans'.  For an annual fee, they will often give you a discounted interest rate, an offset account and ability to split your loan, with a credit card thrown in. 

 

If you are likely to have surplus funds sitting in your bank account in any given month, an offset account

could be what you are after.  If this sounds like you, you might well be putting up your hand for a package loan.

 

Let's find out.  

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Equity loan or interest only loan (previously known as a Line of Credit)

When it comes to investing, often you need access to funds for a deposit. 

 

If you have equity in your house, you may be looking at ways to access this equity to  help you to make that purchase.  This is where having an interest only split on your home loan will assist. 

 

By accessing equity and having it set up as an interest only split on your loan, it gives you ready access to funds which could be used as a deposit on your first (or next) investment property.  Others, use their available equity for other investments such as shares. The key is that no repayments are required until you draw down any available funds.   

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Interest only loans can be for 1, 2, 3, 5 and 10 years, depending on the bank. Find out what amount of equity you can access without incurring mortgage insurance and work out what interest-only timeframe works for you.   

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Fixed Rate Loans

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It's the question that any mortgage holder ponders over; to fix or not to fix.  

 

While repayments on a variable rate loan will go up (and down) with any change in your interest rate, a fixed rate loan guarantees that for a period of time your repayments will remain unchanged, irrespective of what happens in the market.  

 

Some people like to hedge their bets and split their loan to be part fixed and part variable.  You can choose to fix for a specific period of time from between 1 to 5 years.  (There is a sweet spot for the best fixed rates in regards to years, just ask!)

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While the certainty of knowing that your repayments will not change is a clear choice for some, there are more restrictions on fixed loans which could impact upon your ability to make additional repayments, redraw funds or even penalties to pay of your loan in part or full.  

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It can be feel like attempting to make an educated guess, or even a punt.  It is true, no one can predict without hesitation a definitive answer on rate rises.  However by working out your sensitivity to rate rises, and really understanding what it means to be in a fixed loan, it can provide the answer as to whether you are best suited to this type of loan.  My role is to make sure you understand exactly what this means.  

 

 

Off the Plan

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How do you get a loan when a property is yet to be built?  This is what is called 'buying off the plan'.  It basically means that you are buying before foundations have even gone down, or at some stage in the construction process.  

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In most cases with an Off the Plan purchase, you are not required to have your finance in place until closer to final completion.  You do however need to put a deposit down and sign a contract. 

 

Before putting pen to paper and signing any contract, you want to have been assessed for a pre-approval to ensure that when the time comes to settle, you will be able to afford the loan.  Let's crunch some numbers and see how they come out.  

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The bottom line

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Not all loans are the same. To avoid making costly mistakes it is important that your needs are well understood, so you can be matched up to the correct loan.  There is no one size fits all. Let's establish what it is that you need.

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Points to note:

You should not act solely on the basis of material contained in this website.  Items hearin are general comments only and do not constitute or convey advice. We therefore recommend that our formal advice be sought before acting in any of these areas.

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