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Basic Variable
· Low interest rate (lower than a
standard variable loan) no frills loan
· Rate is variable so it moves in line with Reserve Bank
changes
· Limited features (e.g. usually no access to
offset facilities & more expensive redraw if at
all)
· Most allow extra repayments
· Most have terms of 25 or 30 years
Standard Variable
· The most popular type of mortgage
· A higher interest rate than a basic variable home loan
· Interest rates can move up or down which will
cause your repayments to increase or decrease with the
move
· It is more flexible than a basic variable mortgage thus
allowing you to make extra repayments without penalty as well as
offering other features
· Most have terms of 25 or 30 years
Introductory or honeymoon rate
· Offers a low interest
rate usually for the 1st year of the loan. The rate
may be fixed, variable or capped
· Once the honeymoon period is finished the interest rate
usually reverts to the institutions standard variable rate
· The initial low rate offers a chance for you
to reduce the principal quickly by making extra repayments
· Can be a disadvantage if the honeymoon rate
is fixed and the standard variable rate decreases during
the period
· An offset facility can usually be used in conjunction
with this loan
· Most banks charge penalties if you discharge these types
of mortgages within 3 to 4 years
Fixed Rate
· Allows you to fix your
interest rate, and thus your repayments, for up to 10
years
· Once the fixed rate period is finished the
rate will usually revert to the institutions standard
variable rate unless you decide to rollover to another
fixed term
· This is a good loan to be in if rates are rising
but if rates are falling you could be out of pocket
by thousands of dollars
100% Offset Accounts
· This is a separate transaction account
which is attached to your mortgage
· The money in the offset account is deducted
from the loan balance before interest is calculated.
This effectively means that your savings are earning
interest at the same interest rate as the home loan.
· The offset account is much like a normal savings
account (i.e. usually offers ATM access and a cheque
book)
· Available on most banks standard variable and introductory
rate mortgages
All in One Loans
· This is effectively
a transaction account and home loan combined
· Allows you to directly credit your salary to
the account and withdraw your funds via ATM's, EFTPOS,
credit card or cheque book, as you need it.
· An All in One mortgage enables you to decrease your interest
expense by keeping your funds in the account for as long as possible
· The interest rate may be higher or you may
be charged a monthly access fee for the privilege
Line of Credit
· Similar to an All in
One loan except that you can draw down on the loan at
any time up to the prearranged credit limit
· This loan has no set term
· A higher interest rate is usually paid for
a line of credit
· Good for investment purposes
· A disadvantage is that it is possible for undisciplined
borrowers to reduce the equity they have built up in
their home
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