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Home Loans in Australia

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mAus | 18 Mar 2015, 07:56 PM Agree 1
Mortgage Home Loan Types

Below is a summary of the types of Home Loans available in the market today:

Variable Rate Home Loan

A variable home loan interest rate is one that moves upwards or downwards in line with market interest rates.

Fixed Rate Home Loan

A fixed interest rate home loan is one that locks in an interest rate for a defined period of time. If you choose to fix your interest rate, it will not change during the fixed rate period and your repayments will remain the same.

Split or Combined Loan

If you are unsure whether or not to stay variable or to fix your loan, you can do both or if you’d like the flexibility of a line of credit and the low rate of a term loan you can with a split facility.

Line of Credit

A line of credit, is an approved limit of borrowings that you can use a piece-at-a-time, or all at once.

As an example, let’s say you have a line of credit of $150,000. This means that you can use up to a total of $150,000 all at once or perhaps invest $50,000 in the share market. If you did the latter, you would only pay interest on $50,000, as the remaining $100,000 would be untouched.

If you were to use a further $70,000 for house renovations, for example, then you would be paying interest calculated on $120,000 ($50,000 for shares + $70,000 for investment), leaving $30,000 to use at a later date if required.

A line of credit loan facility can be a great way to access the equity in your home and can be used for things like home renovations, investments or other personal purchases. It acts as a loan, but, unlike a loan, a line of credit doesn’t require you to pay interest on the credit you don’t use.

Bridging Loan

In many cases, vendors (sellers) putting their homes on the market will be selling with the intention to purchase another property, or buyers may be waiting for completion of the sale of an existing property prior to buying a new one.

If there is a mortgage on either of the existing properties, things can get a little tricky if the sale of the existing property will not take place until after settlement of the new one.

To ease the strain and allow completion of purchase for the new property, ‘bridging finance’ may be arranged.

Bridging finance allows you to obtain finance to ‘bridge’ the gap between having to pay for a new property and receiving the proceeds from the sale of your existing one.

What will normally happen is that a lender will take security over both properties until the sale of the existing one is complete. Usually the bridging amount or ‘peak debt’ will not be allowed to be above 80% of the value of both properties.

Some lenders will allow you to capitalise the interest payments (add them onto the loan) for a period of time or until the 80% limit is reached, to ease the financial burden on the borrowers.

The bridging loan is usually separate from the lender’s normal products, and may be slightly more expensive, however the borrowers nominate which product their loan defaults to after the bridging period is over.

When you sell your existing property you just pay the proceeds from the sale off the balance on the bridging loan, and revert to your nominated loan product.

100% Offset Loan

A 100% Offset Loan decreases the amount of interest you pay each month.
  • mAus | 18 Mar 2015, 07:58 PM Agree 0
    Mortgage Tips

    Everyone wants to find ways to reduce or pay off their mortgage as quickly as possible.

    Of course there are no 'quick fix' solutions but there are some practical measures that can be taken that will significantly reduce the cost and length of a mortgage over the course of your home loan.
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