The most common interest rate type in Australia is the variable rate. Under this form of interest rate, the initial and ongoing rate is set by the lender. The lender has the right to change the interest rate during the loan’s life.
The Reserve Bank of Australia (RBA) sets the official cash rate. The cash rate forms part of the cost (the rate) to the lender. However, because of intense competition between lenders in the variable rate market, most lenders will only change variable rates for existing loans when the RBA increases the cash rate. Variable rate loans generally have no restrictions or penalties for making additional repayments on your loan. Therefore you may be able to pay off your loan sooner. Additionally variable rates will obviously advantage you if interest rates fall, as your monthly minimum repayment will fall. However, if the interest rate increases, your repayments will also increase. This may be a disadvantage to you.
Generally, two types of variable rate home loans are available in Australia;
Basic Variable Rate Home Loan: We offer a Basic Variable rate home loan which is one of the lowest in Australia. If you require extra flexibility, this may not be the loan for you. The basic home loan is ideal for clients who wish to make only their minimum payments and are not concerned about the features of a standard variable home loan. It is also suitable for the budget conscious borrower who does not intend to make extra repayments or is working to a set budget. As with all variable rate loans, the interest rate may be increased or decreased according to the market.
Standard Variable Rate Home Loan: Our Standard Variable Rate Home Loans are traditionally the most popular type of loan and rates will vary depending on the market. If rates go up or down, so will your repayments. This type of loan is traditionally the most flexible and includes additional features such as an offset account and the ability to make extra repayments, to redraw funds or to split your loan.
Fixed Rate Home Loan
On a fixed rate loan, your interest rate remains the same during the entire fixed rate term, even if variable market rates change. The fixed rates offered by lenders can be either higher or lower than the variable rate at any given time therefore you need to make a comparison when considering this option. Most lenders offer fixed rate loans, generally for 1 to 5 year terms. At the end of the term, the interest rate usually revert to a variable rate unless you take up the option to rollover for another fixed term.
Fixed rate loans may appeal to borrowers who like to keep a set budget as you can be certain of your home loan repayments for the fixed period. With fixed rate loans you are not impacted if variable rates increase, because your fixed rate will not change. This means that fixed rate interest can work out cheaper compared to variable rate interest.
However, if variable rates decrease, you will not receive any benefit, as your fixed rate will remain the same. If market variable rates fall over time, it is possible that your fixed rate could be higher than the current variable rate, so a fixed rate loan could cost you more. Furthermore, you generally have limitations to make additional repayments. And if you want to pay out the loan during the fixed period you may be liable to pay substantial amount of break cost.
Most lenders will allow you to take out a split loan, which is a combination of having one portion of your loan on a variable rate and the other portion on a fixed rate. Usually people combine fixed rate home loan with variable rate products to gain the best of both worlds; a variable rate loan for flexibility and a fixed rate loan for security & peace of mind.
This can offer the advantage of having an “each way bet” if you’re not sure about which option is suitable. This option could give you some peace of mind if you’re concerned about rate rises affecting your entire loan amount. You can also make additional payments & enjoy the offset account feature on the variable portion of your loan.
Interest Only Home Loan
The most common loan type is principal and interest loan where your repayments are applied to pay interest and also to pay off the loan principal over the loan’s life. With an interest only loan your repayments only pay the interest, which have lower repayment requirements. Interest only home loans are mostly utilised by investors who are not concerned about paying their loan off quickly. When making interest only payments, the initial home loan balance stays the same as there is no reduction of the principal. The home loan reverts to principal and interest at the end of the fixed term.
Generally interest only loans are not suitable for owner occupier home buyers as making interest only payment does not assist in building equity in the home. However, owner occupiers may choose to utilise the interest only option in times when they may be experiencing financial difficulty, to help them get through a short term problem.
Advantage: You will have lower repayments because you only have to pay the interest. You could use more money to renovate, improve the property or use the extra cash for other personal finances.
Disadvantage: With an Interest Only loan, the loan balance does not get “paid off” so it may take you longer to repay the loan. Most lenders will apply special conditions to Interest Only loans, such as a restriction on the term of up to 5 years and restricting availability only to finance investment properties. Sage can source a wide range of competitive interest only home loan products up to 15 years interest only.
Introductory Rate Home Loan or Honeymoon Rate
Many lenders offer reduced interest rates for a limited time at the beginning of your loan. Also known as a ‘honeymoon rate’ or ‘introductory rate’, the low interest rate generally applies to the first 12 to 36 months of the loan. As the initial interest rate during the honeymoon period is normally lower than the standard variable rate, this can provide a useful benefit for you, by reducing the principal quickly by making extra repayments during the honeymoon period or by freeing up some cash to help get your new home established.
However, You should be aware that there is generally a catch with introductory rates. Usually after the end of the introductory period, when the rate returns to a variable rate, that rate can be higher than the normal variable rate offered by the lender. Therefore, you need to weigh up the pros and cons, to work out whether the benefit of a reduced rate at the beginning, is worth the additional cost of a higher rate later.
Line Of Credit Home Loan
Our Line of Credit, also known as an Equity Line or Revolving line of credit, allows you to only pay interest on the money you actually utilise.
These products allow you to utilise the equity in your property into a ready source of funds up to an agreed limit. You can use these funds for any personal purpose and like a credit card, any principal repaid is available to redraw. Access to funds is usually by writing a cheque or using a debit card. There are no set principal requirements so as long as you meet interest, fees and charges on a monthly basis, you can repay as much or as little as you like.
This type of home loan is especially attractive to investors who need ready access to funds. It is also advantageous to high income earners who wish to reduce the debt on their home at a much quicker rate. Line of Credit loans usually attract a slightly higher rate of interest than a traditional home loan.
At Sage we love to find debt consolidation solution for our clients, because whole idea of the debt consolidation is save on loan costs or and reduce total minimum financial commitments so they are comfortable at meeting their financial obligation while keeping their desired lifestyle. Consolidation loans allow you to roll all of your debts into one, leaving you with one convenient loan payment. If you are consolidating credit cards, personal loans or car loans, you will generally find that they have a higher interest rate than a traditional home loan and therefore by consolidating all your loans into one, you will be utilising a low home loan interest rate. This will then allow you to free up extra cash, pay your loan off sooner, or give you the option of reducing the term of your loan if you wish to keep making higher repayments. A debt consolidation loan can be variable, fixed or a line of credit.
We offer construction loans for first home buyers, current home owners and investors.
To commence with a construction loan you will need to provide a contract for the purchase of the vacant land, a fixed price contract for the construction and also council approved plans to determine the full cost to complete your home. The lender will then look to approve your home loan based on the ‘on completion’ value of your home.
During the time you are building, the lender will inspect the site prior to making payments to the builder on your behalf. You will only pay interest on the loan amount drawn upon and paid to the builder at each step of construction. On the completion of construction, you will then revert to your standard monthly payments.
Most of the lenders only offer variable rate on construction loan however, we can source fixed interest construction loan for you.
Sage can arrange a bridging home loan for borrowers who are looking to purchase a new property before selling their current home. A bridging loan is also useful for borrowers who want to finance the building of a new home while still living in the old one as an alternative to selling their existing property. This saves borrowers from having to live in a rental property until construction is completed.
Generally borrowers have up to 12 months to sell the existing property. The lender will take both properties as security and will usually offer a standard variable rate only with this type of loan.
Low-Doc Home Loan
Generally Low Doc home loans are available for those borrowers who are self-employed with a financial situation that makes it difficult to verify their income. If you run your own business, you may not have the proof of income documents such as financial statements and tax returns, usually required to apply for a home loan. However, you may be eligible for a low doc loan. With a low doc loan, you won’t need to supply as many documents to prove your income, assets and liabilities as you would with a full doc loan.
Our LoDoc Home Loan is ideal for those who are: 1. Self employed 2. Financials not yet done 3. Short term self employed
For these loans, you may need to provide the lender with a statement or other documents confirming your income, in addition to a statement that you are able to meet the proposed loan repayments. Compared to a traditional loan, these loans generally carry a higher interest rate and are available only at lower Loan Valuation Ratios (LVRs). However, we can source a low doc loan, as competitive as normal full doc loan.
Reverse Mortgages or Equity Unlock Home Loan
These specialised loans are most suitable for retirees who own their home, but are looking to release cash. A Reverse Mortgage lets you use the equity in your home to make retirement a little more comfortable without selling your home. In the past lenders offered a range of different interest rate options, including fixed, capped, and variable. However today there are only variable interest rates available for reverse mortgage loans.
Unlike a traditional loan, there are no periodic repayments required. As a borrower you can choose to get your money out in one lump sum, a regular income stream, as a line of credit or a combination of all. You can unlock equity without having to sell your home or assets. The loan generally doesn’t have to be repaid until the property is sold or the owner dies.
However, there are interest charges that are accumulated against the outstanding loan balance which could get expensive over time. In addition, there might be numerous fees and insurance costs associated with reverse mortgages which might be added towards the up-front fees
Non Conforming Loans
These are specialised loans for people who have some form of blemish in their credit history, such as a default, or to finance a property that has unusual characteristics. The interest rate on these loans is generally higher than traditional loans. We understand that a percentage of the population have had credit problems in the past or may be currently experiencing them. In most cases, traditional lenders will refuse any additional finance in this scenario.
In recent times, new players have entered the market called Non-conforming lenders. Non-conforming lenders will exceed boundaries which other lenders will not consider. We recognise that people can find themselves in situations where their credit history is effected due to:
1. Loss of employment 2. Marriage break-up 3. Injury preventing them from working 4. Over exposure to debt 5. Spiralling costs of living 6. Bad credit management 7. Bankruptcy
The advantage of a Non-conforming home loan is that clients can restart their financial lives again. You can still apply for a loan even if you have poor credit ratings. If this type of loan is managed well, borrowers may re-enter the traditional home loan market in the future. Disadvantages of these type of home loans is that the interest rate and fees will be higher than traditional loans. Our non-conforming lenders also cater for the following type of situations; Self-employed with no financials Asset Rich, Income Poor Short term employment or unusual income source Recently started a new business Pension support /centre link