Ability Finance Broker

Mortgages

A brief overview of the different types of mortgage products and home loans that are available today within Australia

• Standard Variable Rate Home Loan
• Basic Variable Rate Home Loan
• Fixed Rate Home Loan
• Line of Credit
• Low Document Loans
• No Deposit Loans
• Non Conforming Loans
• Reverse Mortgage

Standard Variable Rate Home Loan

The standard variable rate loan is one of the most common facilities offered by most lending institutions. The interest rate on this type of loan moves with market fluctuations, the rate can either increase or decrease over the term of the loan depending on the economic environment at that time. These loans are generally of terms up to 25 years with some institutions offering terms of up to 30 or even 40 years.

Basic Variable Rate Home Loan

The basic variable rate loan is very similar to the standard variable rate loan without some of the features that the standard variable rate loan offers. This reduces the cost of the basic variable rate loan. This product may be suitable for borrowers who want a flexible product at a reduced rate compared to that of the standard variable rate loan products.

Fixed Rate Home Loan

A Fixed Rate Home Loan is a loan where the interest rate is fixed and does not fluctuate in the fixed rate period. The rate is contracted not to change during the fixed rate term regardless of what happens in the economic environment. Traditionally the fixed rate term is from 1 to 5 years however there have been products offered that can be fixed for up to 10 years. Generally the loan will be renegotiated at the end of the fixed rate term or will revert to the standard variable loan product. Changes to these products such as extra payments or early payouts during the fixed rate term are generally restricted and costly. This product may be suitable for the investor who wants the security of fixed repayments for a set period.

Line of Credit

Line of Credit or home equity loans are very similar to a bank overdraft account. Existing equity in your property can be accessed up to the facility limit which is predetermined determined by equity in the property and the borrower’s ability to repay the debt. Borrowers have the flexibility to alter their monthly repayments, however the minimum monthly repayment is generally the interest charged to the account each month. Many lenders offer the ability for the borrower to operate this facility as an all in one account.

Low Document Loans

Low document loans are popular products among the self employed. This product is suitable for those borrowers who do not always have all the necessary documentation at the time they require finance. The borrower must still be able to clearly demonstrate that they have the capacity to repay the loan through various declarations & documentation. There may be restrictions on the types of product offered by lending institutions, a premium may be charged on fees and or interest and the amount available to borrower against the security may be reduced.

Non Conforming Loans

Non Conforming loans or credit impaired loans are designed for those borrowers that may have difficulty in obtaining credit due to past credit problems or little to no savings. Generally a risk assessment scale is used by the lending institutions to determine the amount of interest that will be charged on the loan.

Reverse Mortgage (senior’s loan)

Reverse mortgages are designed to meet the needs of asset rich but cash poor elderly borrowers that have little or no income but a lot of equity in their property. These products allow the borrower to borrow funds for any purpose against the equity in their property and generally no repayments are required throughout the life of the loan. Generally up to 20% of the value of the property may be borrowed and the loan is generally repaid after the borrower has passed away and the repayment is made from the sale of the asset by the estate.