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Home Loan Types
Every Lender has their own product range and while it seems confusing, most loans are variations on a theme. Most loans can fit into one of the following categories:
Variable Rate Home Loan
Most Lenders offer a variable rate loan. The interest rate on these loans does exactly what the name suggests. It can vary with time depending on the market. Variable rates are based on official Reserve Bank rate and generally won't change unless there is an official change. Variable loans include basic, standard, or revolving line of credit products and are traditionally the most flexible. Variable loans generally allow you to offset your mortgage, make extra repayments and have access to redraw. It also allows you to pay your loan out early.
Introductory or Honeymoon Rate
Introductory or honeymoon rates give the customer a special reduced rate for the first part of their loan contract. It can be either fixed or variable. It will generally revert to a standard variable rate at the end of its term.
Professional Packages
These days the name - "Professional Package" is a bit of a misnomer. They originate from the days when certain professional bodies had agreements with Banks whereby their members would receive an interest rate discount from a particular Bank. These days the Professional Packages are available to almost anyone depending on whether you qualify. Some Lenders require you borrow a minimum amount and others have certain income requirements. Essentially the loans are a variable rate loan but offered at a discounted interest rate and often with reduced application fees.
Basic Variable Home Loan
This is similar to a standard variable rate, but without additional features such as offset and portability, etc. The interest rate is typically lower then a standard variable loan, making them attractive to people who are sure they won't require the additional features. The major difference is that most organisations charge a fee to access redraw.
Bridging Finance
Bridging finance allows borrower to "bridge" the gap between the sale of one property and the purchase of another. This can be useful if the settlement date of the new property purchase takes place before the sale of the original property. If these two transactions are, say, 30 days apart, bridging finance can help fill that one-month gap.
Fixed Rates
Fixed loans generally allow a borrower to lock in an interest rate for a particular period of time, normally 1-5 years. Customers who choose a fixed rate get the comfort of their repayments not changing during the fixed term. Fixing an interest rate does however mean a trade off in respect of the flexibility of a loan. A fixed rate loan generally has more restrictions then a standard variable. Many fixed rate loans do not let you make extra repayments or restrict the additional repayments during the fixed period. Features such as re-draw or mortgage offset are usually not allowed during the fixed period.
Lines of Credit
A revolving line of credit is essentially an overdraft where you can at any time draw the loan balance up to the original amount borrowed. Usually minimum repayments on a Line of Credit facility are interest only. Lines of Credit often have higher interest rates than variable rate loans and can be a trap for those who aren't good at budgeting. So if you want the flexibility but would prefer the safety of set monthly repayments, an offset facility is probably a better option.