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Types of Loans

We can help you in locating right funding
Whether you are buying an owner occupied home or an investment property, these are the types of the loan you would want yourself to be aware of:
Variable Loans
In a variable loan product,  the interest rates change during the term of the home loan. Banks or lenders can change the interest rate i.e. increase or reduce the interest rate by giving a notice. This normally happens to either hold on to current customers in a period of aggressive competition between banks. Or the banks increase or reduce variable rates on the basis of change of interest rate by Reserve Bank of Australia (RBA). This results in increase and decrease in home loan repayments.
Fixed Rate Loans

In a fixed rate loan product, the banks and lenders fix the rate of interest for a period of 1 to 5 years for home loans.
During this period the repayments remain the same. Any change of interest rates by RBA or banks doesn’t change the interest rate for that loan and doesn’t affect repayments.
While fixed rate has an obvious advantage of safeguarding any future interest rate hikes. It has many disadvantages as well. Customers can’t make extra repayments to save interest and are not benefitted by any reduction of interest rates. Moreover, any changes during the fixed period also results in break costs.

Split Loans

As the name suggests, it is a combination of fixed and variable loan components for a home loan.
In the split loan arrangement, part of the home loan is on variable interest rate and the the other part on fixed interest rate for a specific period.

Example: John borrows $500000 to buy his first home. He selects a split loan product.

He selects variable interest rate for $250000 and selects fixed rate interest rate for rest $250000 for a period of 3 years.
While the repayments for variable part and change if the lender increases or reduces interest rates, the repayments for fixed part would remain same for 3 years.

Interest Only Loans

Interest only loans are mostly used by investors to give better cash flow which helps in funds being used for other projects. As the repayment is low, it allows the investor to cover these repayments from the rent.

For interest only loan products, the borrower only pays interest on the loan for a fixed period. It means that the loan amount remains same even after yearssince no principal has been repaid.

Banks and lenders are more strict while lending for interest only products due to the higher risk involved and strict legislation.

“As the lending environment is always changing and legislation becoming 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 Accounts

An offset account is a savings account which is attached to a home loan account. Any money deposited in this account reduces the amount of interest a borrower pays for that amount.

Although the repayment remains the same, the interest component in the future repayments reduces. This helps in earlier and quicker repayment of the loan.

Another major advantage of an offset account is that the borrower has a flexibility of withdrawal of funds if and when they need.

Line of Credit
Line of credit products are normally more expensive than a normal home loan products.
Line of credit can be used to access equity in the property to make investments, renovations etc.This can only be done if the equity is available in the home. If no equity is available, a seperate application for Line of credit has to be made.
There are no set repayments for line of credit and hence can be paid off at earliest to avoid interest. But the obvious disadvantage is the higher interest rate.
Bridging Loans
As the same suggests, these loans acts as a bridge while selling and purchasing a property. If the property being bought is settling before the one being sold, it helps secure finance for a short period until the property is sold. Bridging loans are normally quite expensive but are for a very short period.
Non Comforming Loans or Low doc Loans
Non Comforming or low doc loans are for borrowers with unusual circumstances.
Examples of unusual circumstances:
* A low credit score.
* Recent employment.
* Start of new business.
* Low deposit.
* Debt consolidation etc.
As the lender takes more risk, the interest rates are normally very high.
Deposit Bond
A deposit bond is also known as deposit guarantee.
The purchaser pays a premium for the deposit bond. In return insurance company provides a guarantee that if the purchaser defaults on the contract of sale, the insurance company will pay the vendor.
It is sometimes used in place of bridging finance. Deposit bond is sometimes used by the buyer when participating in multiple auctions. As the buyer has still not finalised the property, the vendor and property details are left blank.
It is also used by purchasers to buy off plan without blocking their funds.
For using a deposit bond  the vendor, real estate agent needs to agree prior to a purchaser using such bond.
Development Loans
Oracle Ezy Finance can arrange lending solutions for all commercial, industrial and residential development.
The interest rates for these products are normally higher.