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TYPES OF LOANS

1. INTEREST ONLY LOANS

Here your repayment does not include any portion of the principal. In other words your repayment only covers the interest component of your loan only. This allows you to keep your repayments to a minimum. Normally interest only loans are granted for a period of 5 years maximum, and at the end of that period it reverts to a principal and interest loan. But if you need you can negotiate with the lender for a further interest only loan at this time. These types of loans are preferred by investors as the interest on the investment loan is tax deductible.

2. FIXED RATE LOANS

Here a fixed rate is set for a specific period of time(usually 5 years) when granting the loan. Repayment is not affected by the interest fluctuations during this period. At the end of this term you have the choice to lock in another fixed rate, switch to variable or go for a split loan. The disadvantages of this type of loan are lack of flexibility and limited features. There may be early exit fees and limited ability to make extra payments.

3. BASIC OR NO FRILLS LOANS

These variable rate loans have relatively low interest rates. Repayments are affected by interest fluctuations. You have to pay your careful attention to the loan conditions to see whether they suit your situation, especially your ability to make additional repayments and pay out the term of the loan without a penalty.

4. STANDARD VARIABLE RATE LOANS

Similar to basic or No Frills loans, these loans have more flexibility than a fixed rate loan. In addition this type of loan has more features than the basic variable option so the rate may be slightly higher. You must give consideration to these extra features or options such as Redraw facility, option to split between fixed and variable, extra repayments and portability etc., when selecting a variable loan. Also it should be noted that repayments will vary as interest rates fluctuate.

5. LINE OF CREDIT LOANS (EQUITY LOANS)

These loans enable you to access the equity in your home to use for investment in property, renovations to your home or any other personal purchases. Repayments are determined by the current interest rate at any given time. You can make a separate application for a line of credit loan if you do not already have one in place. Here you can make unlimited deposits as your repayments are not set. However you should always check the conditions of these loans as they can be more expensive than standard products.

6. PROFESSIONAL HOME LOAN PACKAGES

Loans that offer an all-in-one home loan package. An interest rate and fee saving are offered on your home loan, credit card and transaction accounts. Some lenders even waive the annual fees for your credit cards. Annual fee applicable on these loans is usually $300 approx. the advantage with professional package is it's very flexible and some banks are willing to waive product switching fees when changing from a variable to a fixed rate or converting a principal and interest type loan to an interest only loan.

7. BRIDGING LOAN

If you plan to sell an existing property while buying another property you should go for a bridging loan. It is often used to buy a property while waiting for the sale of your existing property. A bridging loan is a short-term housing loan where repayments meet the interest only. The amount borrowed becomes due at the end of the loan term. Here higher interest rates are charged, so you should keep the term as short as possible.

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