Those who intend to buy a home have several types of credit at their disposal. However, before choosing a type of home loan, it is important to define your needs and circumstances. It is common for most lenders to offer customers various types of home loans.
Different types of home loan
It is very important to know each of the housing loan types that exist, so that you can define what suits you best. As a result, rates are variable for each type of home loan. There are fixed rate and variable rate home loans.
Low doc loan
This type of loan may be suitable for borrowers who find it difficult to provide all of the paperwork that a traditional mortgage loan requires. Therefore, self-employed customers are the ones who most benefit from this credit. In this sense, it is possible to state that creditors use other sources of documentation to carry out an analysis and consider suitability for the loan granted.
Low doc loan interest rate
Customers who opt for this type of loan can expect an annual interest rate starting at 6.42% per annum. For this reason, consider doing research with several lenders and banks to find the most attractive rates.
Low doc loan pros
In this modality, the client uses a simple income tax return form. Therefore, tax returns serve as proof of income. Line of credit with fixed or variable rates. Loan of principal and interest or, if the customer prefers, only interest.
Low doc loan cons
Due to the ease of contracting and greater risks for creditors, this modality offers a higher interest rate. Thus, it is possible to say that not all creditors or banks offer this type of credit.
Variable loans (interest and principal)
In this mode, the customer can choose whether to pay interest and principal. However, you must be careful, as the home loan can be subject to sudden changes in interest rates. Therefore, when the Reserve Bank of Australia raises the rate, the creditor who released credit can follow the same trend.
Interest rate for variable rate loan
Average rates for a variable rate loan are currently between 5.64% pa and 6.24% pa So, as the name implies, it is a variable rate and can fluctuate according to market uncertainties. Therefore, it is not possible to make a precise prediction of how much this rate will be in the future.
Pros of variable rate loan
Loans with variable rates provide more flexibility. However, when the financial market interest rate decreases, the interest on this loan also decreases and the customer can save money. In this modality, the customer can make extra payments in addition to the scheduled installments and without fines. When this is done regularly, the duration of the mortgage can be drastically reduced. In addition, the total amount of interest you have to pay will also decrease.
Cons of variable rate loan
The disadvantage of this type of loan is that the interest rate can also rise. Therefore, financial uncertainty can make interest rates rise, and this will directly impact the customer’s debt. Thus, it is possible to say that rate fluctuation makes it difficult to define or maintain a budget precisely.
Fixed rate home loan
In a home loan with a fixed interest rate, the customer knows exactly how much he will pay by the end of the contract. Therefore, the creditor is unable to change the interest rate over that period. Therefore, the fixed rate represents a little more security for the customer, as he will know exactly how much he will be paying.
Annual interest rate on a fixed rate home loan
The 1-year fixed rate can be found starting at 5.46%. However, the 2-year fixed rate can be found from 5.82%. However, the 5-year fixed rate can be found starting at 6.45%. Therefore, the ideal is to do a market research to find the best opportunities with reduced rates.
Fixed rate home loan pros
The advantage of this type of loan is that the rate does not change. Therefore, the customer knows exactly how much he will pay during the entire contract. Therefore, it is possible to state that even after the RBA decides to increase interest rates, its contract remains unchanged.
Cons of a fixed rate home loan
In this type of loan, the customer does not benefit when the interest rate decreases. Therefore, if the interest rate drops below your fixed rate, your debt will remain the same.
Off-plan mortgage
In this modality, the client is buying a property that has not yet been built. Therefore, it is necessary to take some precautions. Who wants to enter into this type of contract, it is interesting to obtain legal advice before signing the contract or even before paying any amount.
It is necessary to pay attention to the clauses that allow the termination of the contract after the exchange. Check if there is any fine if the property is not delivered on the date established in the contract.
Off-plan mortgage interest rate
The interest rate on an off-plan mortgage can be found starting at 9% per annum. In this sense, it is advisable to do market research to find the best interest rates. Interest rates can vary from one bank to another.
Off-plan mortgage pros
In this modality, the customer can benefit from a discount on the purchase price of the property. You can count on capital growth with the appreciation of the property. Can benefit from stamp duty savings. If this is the first home the customer is buying, they may be eligible for the FIRst Home Owner Grant (FHOG).
Cons of an off-plan mortgage
The property is only evaluated after construction is completed. Therefore, the assessment may be lower than expected. The loan-to-value (LVR) rate may be affected. The builder can declare bankruptcy. For this reason, look for evidence of past projects that have been successful. Construction may be delayed by unexpected issues.
Guarantee loans
Those who want to buy a property, financing more than 80% of the total amount, but do not want to take out mortgage insurance from the lender, can appoint a guarantor. The guarantor can be a friend or relative.
A guarantor becomes directly involved in a transaction. For this reason, it is possible to state that if the customer does not pay for the loan, the banks will be able to go after the guarantor, so that he can settle this debt. Therefore, when you indicate a guarantor, and he signs all the bank documentation, he becomes directly responsible for your debt.
Interest rate on collateral loans
Many banks and lenders offer this type of loan. Therefore, it is ideal to do some research. Variable annual interest rates can be found starting at 4.59%. Therefore, researching the rates of different banks can save the customer money.
Pros of Collateral Loans
In this modality, interest rates may be lower. The amounts available for borrowing may be higher. Great potential to be good credit builders.
Cons of Collateral Loans
There is a high risk if payments are not made within the stipulated deadlines. However, applying for this modality can be a little complicated.
Now that you are aware of the main types of loan that exist in Australia, you can analyze and define which of these types best fit your profile.