Variable Interest Rate Loan – Basic & Standard

The variable interest rate loan comes with many options and the interest rate fluctuates depending on market conditions. You have the flexibility of making additional repayments without penalty, and the ability to redraw those additional repayments you have made at any time.
Many lenders now offer a ‘basic’ variable loan with lower rates than standard variable rate loans. These loans generally have many of the same features as their standard variable rate cousins, however, there are some things to watch out for. For example, some of these loans do not allow you to fix the interest rate without incurring a switching fee. So, if interest rates rise and you wish to fix, any savings from being on the lower rate may be lost in the switching fee. If you repay or discharge the loan early, there may be penalties.

Fixed Interest Rate Loan

A fixed ineterst rate loan allows you to fix the interest rate for a period of time, generally between one and five years. Some lenders today have fixed terms of seven, ten and even fifteen years. After the fixed term the loan usually reverts to the standard variable rate on offer at that time or you may choose to refix the loan for another term.
One advantage of these types of loans is the certainty of your monthly repayments during your fixed period as the interest rate will not change. However, a major disadvantage is that many lenders will not allow you to make extra repayments without incurring a penalty fee, or if they do allow extra payments, there is a specified limit. Also if you decide to sell your home whilst on a fixed interest rate a penalty will generally apply.

Line of Credit Loan

These loans provide the ultimate in flexibility, and are popular amongst more savvy borrowers. Your total income is deposited into the loan account thereby reducing the balance immediately. As interest is charged daily on the outstanding balance, while the money sits in the loan account the interest charged will be lower. The easiest way to understand how these accounts work is to look at them like a savings account in reverse. The balance is always negative and the closer to zero you get the better off you are.
One major aspect that you need to consider is that if you cannot budget and effectively manage your finances, you could find yourself owing the same amount of money in 20 years time. Therefore it is important to ensure you plan a realistic budget and stick to it.

Low documentation loan (also knows as a ‘LoDoc’ loan)

This type of loan is designed for those who are unable to produce financial records to verify their income. In most cases you will need to have been self-employed for 2 years however, these loans are also available for applicants who earn a salary. Proof of income is not sought, however an ABN number is usually required for self employed applicants. Generally, borrowings of up to 80% of the purchase price or valuation (whichever is lesser) is allowed. There is also a LoDoc loan available up to 95% of the purchase price or valuation (whichever is lesser)




No Document Loan (also known as a ‘NoDoc’ loan)

This loan is similar to a LoDoc loan, however, employment terms are less restrictive i.e in some cases the lender will only require a minimum of 1 day self employed. The maximum amount of borrowings is generally up to 70% of the purchase price or valuation (whichever is lesser)

Reverse Mortgage

This type of loan is available for those over the age of 60 who own their own home. It allows the borrower to unlock the equity in their home for any purpose.

Professional Packages

Professional Packages are offered by most lenders. Professional packages provide discounts to standard rates. Eligibility is based on income or loan limit. The package can also include approved credit card limits and discounts on establishment fees.
Note most lenders charge annually or monthly for the privilege. A professional package can give you all the benefits of a standard variable rate loan with a discount on interest rate as well as other benefits.