Choosing a loan can feel like a daunting task but we’re here to take the stress out of this experience and get you on your way to your new property adventure.
Here we break down the many types of loans that are available.
These loans are the most common type available. The variable rate loan offers more features and flexibility than the basic or “no frills” loan, so the rate is usually slightly higher.
The extra options (for example a redraw facility, the option to split between fixed and variable, extra repayments and portability) should be taken into account when choosing your type of variable loan.
Repayments will vary as interest rates fluctuate.
Fixed rate loans
These loans are set at a fixed interest rate for a specified period (usually one to five years). The advantage of allowing you to organise your finances and repayments without the risk of rising interest rates is offset by the disadvantage of not benefiting from a drop in rates.
At the end of the term all fixed loans automatically revert to the applicable variable rate. At this stage you have the option to lock in another fixed rate for a new term, switch to variable or go for a loan where you split with a percentage fixed and the remainder variable.
Fixed rate loans typically have limited features and lack the flexibility of 100% variable loans. There may be early exit fees and limited ability to make extra payments.
These loans combine the features of various products and can have the security of a fixed rate loan and the benefits of a variable loan.
They can also combine a standard term loan and a line of credit. For example part of the loan can be borrowed at a fixed interest rate with the remainder on a variable rate.
These loans can be split into as many products as you want to reflect your personal circumstances.
Interest only loans
Interest only loans involve you only paying the interest component on your loan for a specified period, and not the principal loan amount. Standard home loans typically include paying both the interest and a small amount of the principal loan in each repayment.
Interest only loans were originally intended for investors. Loan repayments are reduced with the rental income paying or coming closer to paying the mortgage. This gives greater control over cash flow and potentially frees up funds for other investments. However, they are now becoming more popular with owner occupiers who want or need to reduce their mortgage repayments for a period of time.
As the lending environment is always changing and legislation more rigorous, there have been changes across the Australian lending environment with the use of interest only loans. It is wise to chat with us before considering any type of interest only finance.
Offset vs redraw
People often ask us about the differences between offset and redraw. Both can help you pay off your loan faster so are regularly confused.
Essentially you use an offset account in the same way that you use an everyday transaction account. The only difference is that money in this account is offset against your loan amount, reducing the compound interest (the interest accumulated over time from the initial deposit) you need to pay.
So, the more money you have in your offset account, the less interest you pay. This saves you money and can help you pay off your loan sooner.
The money in your offset account can be withdrawn without any restrictions and a debit card is provided to easily access these funds.
Redraw allows you to make as many extra repayments to your loan as you like with no extra fees or penalties, potentially helping you shave years off your loan term.
This is not a separate account but a feature of your loan that allows you to pay more than your scheduled repayments and then access those extra funds later if you need to. However, there may be fees associated with accessing these funds or a minimum amount you can withdraw.
Both an offset account and a redraw facility can reduce the amount of interest paid on your loan and help you pay it off faster. Everyone is different, so we can help you decide which one is best for you.
Line of credit
These loans are a great way to access the equity in your home to use for things like home renovations, investments or other personal purchases.
Repayments on a line of credit loan are determined by the interest rate applicable at that time. If you have sufficient equity in your home and your current loan structure doesn’t allow for withdrawing your equity, you will need to make a separate application for a line of credit loan.
You have the added advantage of being able to make unlimited deposits/repayments as your repayments are not set. You must check the conditions of these loans as they are sometimes more expensive than standard products.
A bridging loan may be necessary to cover the financial gap when buying one property before the existing one is sold. This finance is generally secured against your property as you are utilising the equity in your existing property. Usually bridging loans are short term and more expensive than other types of loans.
Development, construction and renovation loans
Provincial Group can assist with structuring financing solutions for commercial and industrial development, residential property development and renovations.
We can organise construction and development finance to provide creative and strategic alternatives to traditional development finance to maximise the return on your investment.
If you’re building a new home or planning major renovations to your existing home, a construction loan is generally the most appropriate funding option.
The difference between a construction loan and other types of loans is that a construction loan is drawn down in stages and not paid as a lump sum.
The drawdowns enable the builder of a home to finance the various stages of the construction process from the acquisition of land to the various stages of building.
These loans help those clients who have had issues with finances, mainly due to unexpected changes in circumstances, eg temporary unemployment or short term inability to pay debts. Provincial Group can identify the lenders who can match your personal circumstances. The value of your property and your capacity to repay will determine a non-conforming loan, however these loans can attract a higher than normal interest rate.
Working for yourself instead of a company or business is not always easy. Self-employed people may have irregular incomes and find it difficult to make time to organise their paperwork.
The banks’ strict lending criteria make applying and securing a self-employed loan time consuming and overwhelming.
Provincial Group can help discuss your situation and offer you a range of borrowing options best suited to your needs.
A personal loan might be right for you if you want to fund the purchase of a car, boat, holiday or if you want to consolidate debt.
Personal loans may come with lower interest rates than credit cards, so funding a big expense or project with a personal loan could save you thousands of dollars on interest payments.
Debt consolidation is a process where all of your debts are rolled together into a single loan. Debt from personal loans and credit cards can be incorporated into your mortgage at a much better interest rate as home loans tend to have lower interest rates than other forms of credit. Consolidation will reduce your interest rate overall, and in this way save you money. Consolidation of your debt into your existing mortgage is most effective for larger amounts of money and should reduce the amount of your monthly payment. It also has the advantage of only having to make one payment per month.
A deposit bond is a guarantee to the vendor by an insurance company that they will receive their 10% deposit even if the purchaser defaults on the contract of sale. You, the purchaser, are able to prove this guarantee to the vendor by paying a small premium to the insurance company.
All purchase funds are paid at settlement. In the ordinary course of events, settlement takes place, the purchase price is paid in full and the deposit bond simply lapses.