WhistleOut Guides
Types of Home Loans
Published
on January 1, 2012
There are many types of home loans in Australia from a large range of lenders, including all the biggest banks in Australia. With time on this site, you can easily find the right loan for your needs by comparing loans before you apply. Many people might suggest that the absolute 'cheapest' loan might be best, however it is far more complicated than that and the cheapest products are the least flexible. Here's the key types of loans in the market and how they compare...
1) Variable Rate Home Loans
A Variable Rate home loan is a loan that references an interest rate from your lender which rises and falls with the movements of the official interest rate from the Reserve Bank of Australia (depending on how much of each rate rise and fall is passed on by your lender). The Standard Variable Rate home loan available from most lenders is called the 'fully featured' home loan as it offers the broadest and most flexible set of features for borrowers. There are three key types of Variable Rate home loans:
2) Fixed Rate Home Loans
Fixed Rate home loans are loans where you can select a fixed interest rate offered by your lender for a range of fixed periods where your interest rate and repayments will be fixed during that period. You can fix your interest rate with lenders for periods between 1 and 15 years. Fixed Rate home loans are as easy to set up as a Variable Rate home loans, but you won't know if you've got the best deal until the fixed rate has ended and you can see if you are ahead or behind your variable rate colleagues. No-one can guarantee the future and whether fixing your rate now for a future period is a good or bad idea (this is solely up to you as you have a 15 year range of rates to select from with some lenders).
3) Introductory Rate Home Loans
Introductory Rate Home Loans are loans where a special rate is offered to the borrower for the first year (usually up to a maximum of 3 years) of the loan term. An introductory rate is often referred to as a honeymoon rate as the repayments will be lower whilst the intro rate is in effect, giving the borrower a honeymoon from the full payments. The key feature of an Introductory Rate home loan is that the interest rate will revert to the standard rate on that loan for the rest of the loan. The head start that this type of loan gives in the short term does not necessarily mean that the introductory rate loan will be the cheaper over the entire loan term and you should compare these loans against regular loans over your outlook period.
4) Wealth / Advantage & Other Premium Packages
Many lenders now offer a home loan package which means that you can add your home loan to a bundle of other financial products from the lender for a single annual fee. This might mean that you have a credit card, transaction / savings account and home loan with the same lender linked to one account. There are two key benefits offered in these packages. The first is that the lender will give you a discounted rate on the home loan, often up to 0.7% for the life of the loan, making the packages very competitive. The second benefit is that you pay an annual fee for all the products in the package removing the individual fees from the loan / credit card / transaction accounts and this fee is designed to be cheaper than all the fees of the home loan, credit card and transaction account combined.