Australian Finance Centre - Home Loan and mortgage broker

Standard Variable Loans

Australia's most popular type of home loan. The interest rate can vary throughout the term of the loan - both up and down based upon economic factors. The term is usually 20 to 25 years.

Advantages:

• If interest rates fall, your repayments will come down.
• You have the option to fix or split your loan; can make additioal repayments without incurring a penalty and then have the option to redraw the additional funds.
• More flexibility than other types of loans.

Disadvantages:

• If interest rates rise you will have to make higher repayments

Basic Variable Loans

Many lenders now offer basic variable loans with lower interest rates than standard variable loans but with fewer features. Like all variable loans, the interest rate and your repayments can vary over the term of the loan.

Advantages:

• The biggest advantage is price. Basic variable loans have a relatively low interest rate.
• Repayments are usually lower than standard variable loans.

Disadvantages:

• Most of these loans do not offer the same range of features or flexibility as other variable interest rate loans. For example, many basic variable loans cannot be used in combination with other loans and are not protable.
• However borrowers can opt to pay for additional flexibilty and features.

Line of Credit

A line of credit is an interest only variable rate loan secured agains a residential property allowing access to funds whenever you need them. They have the added flexibility of a transaction account built into the home loan. Line of credit products provide flexible ways to raise funds for investment purposes by providing cash at call up to the prearranged credit limit.

Advantages:

• You  can use the money as you need it and pay it back when you can.
• Interest rates tend to be lower than for credit cards or personal loans.
• Credit limits are usually higher than for credit cards or personal loans.

Disadvantages:

• Unless you are careful, there is the potential you may inadvertetly reduce the equity you have built up in your home.
• Interest rates are generally higher than standard variable loans.

Home Equity Loans

Allow borrowers to use the equity in their existing property for other purposes such as renovations, investing in shares or managed funds, or financing an additional property.

Advantages:

• Interest on home equity loans are tax deductible provided the funds are utilised for investment purposes.
• Usually at a lower interest rate than other non home loan products.

Disadvantages:

• As with a line of credit, there is the potential to reduce the equity built up in you home.

For more information concerning Transactional Loans and AFC Guidelines, please click on the PDF file below

AFC Guideline Information 263.01 Kb