Loan Types

With hundreds of different home loans in the market it is important you understand the difference between them to enable you to make an informed decision. Each loan has different fees, features and interest rates and you need to pick what's right for you.

Read below to get a better understanding

   Standard Variable

The standard variable loan is a flexible loan that is normally packed with features such as an offset account, redraw, and the ability to make additional repayments without penalty. The standard loan term is 30 years and the interest rate can vary throughout the term of the loan. This means as interest rates go up so do your repayments, however when interest rates go down your repayments are reduced as well. You are also normally given the opportunity to fix your loan at any time at the prevailing interest rate. The standard variable loan is Australia's most popular loan. Before being sold on the extra features, realise that they do come at a cost: the interest rate is normally close to 0.5% higher than the basic variable rate. This is an interest cost of $500 per year for every $100,000 borrowed. Make sure the additional features are worth the extra cost.

   Basic Variable

Basic Variable rate loans are Mango's most popular choice of loan. A Basic variable loan is stripped of many of the features that come with a standard variable loan; such as an offset accounts etc... However you generally still have the option to pay for them when you need them. The great thing about a basic variable loan is that the interest rate is generally half a percent lower than the Standard Variable rate. Over the life of your loan the lower interest rate may save you a good deal of money.

   Fixed Rate

Fixed rate loans protect you from increases in interest rates during the fixed rate period. This means that as interest rates go up your interest rate and repayments remain the same. But remember you also miss out on the savings if the rates go down. You are also limited to the amount of extra repayments you can make and if you want to pay extra payments to pay out your loan the break costs can be considerable. Fixed rate loans revert to the standard variable rate at the end of the fixed rate period. If you can’t afford an increase in interest rates than a fixed rate loan might be for you.

   No Deposit

Dream of owning your own home but can't save the deposit required? With property prices rising faster than incomes and housing affordability at it’s lowest in years you are not alone. A number of lenders now offer loans up to 100% of purchase price. Some even provide loans up to 105% and 107% of purchase price to help you pay the other cost such as stamp duty to get you in your home sooner. You need to know that with the added risk the lender takes they do charge a higher interest rate than standard loans. Make sure you can afford the repayments and don't forget that if you can save a deposit you will get a better deal.

   Equity/Line of Credit

Line of Credit or Equity Loans provide a revolving credit facility using the equity you have in your home as security. The line of credit allows access to funds when needed up to a pre-arranged limit. The loan is a variable rate loan and the only repayment required is the interest. Some loans do not even require payments until they reach the loan limit. Similar to credit card you can withdraw funds up to a set limit at any time. They are generally used for investment purposes, such as investing in shares or managed funds. Beware of using these types of loans for personal use such as holidays etc as the equity in your home can quickly be reduced. This loan is good for people who can budget well.

   Lo Doc

Low-doc and no-doc loans are for self-employed borrowers who for some reason cannot provide financial reports, or tax returns, or experience uneven cash flows. An application requires no tax returns or financials, just a simple income declaration form is usually sufficient. Most low-doc loans have a higher interest rate than the standard loan.

   Non-conforming

Non Conforming Loans are designed for borrowers who for one reason or another do not meet the traditional lending criteria of most banks and other lenders. Whether you have an impaired credit history or you wish to borrow to repay a tax debt, non conforming lenders listen to your individual circumstances and assess the loan on its merits. However interest rates are generally higher for non-conforming loans compared to standard loans.

   Reverse Mortgage

Reverse mortgage or a Seniors loan is an innovative new product designed especially for seniors who are asset-rich but cash-poor. It lets you convert some of the equity that is tied up in your home into cash, which you can use for whatever you like. No repayments are required until you no longer use your home as your principal residence. The amount that you can borrow is based on your age and the value of your home, not your income or ability to make repayments. Best of all, you can continue to enjoy the comforts of your own home without having to sell it or move. Reverse mortgages come in either fixed or variable rates. You choose.