Understanding Finance

Type of Home Loans

Low interest rate (lower than a standard variable loan) no frills loan
Rate is variable so it moves in line with Reserve Bank changes
Limited features (e.g. usually no access to offset facilities & more expensive redraw if at all)
Most allow extra repayments
Most have terms of 25 or 30 years

The most popular type of mortgage
A higher interest rate than a basic variable home loan
Interest rates can move up or down which will cause your repayments to increase or decrease with the move
It is more flexible than a basic variable mortgage thus allowing you to make extra repayments without penalty as well as offering other features
Most have terms of 25 or 30 years

Offers a low interest rate usually for the 1st year of the loan. The rate may be fixed, variable or capped
Once the honeymoon period is finished the interest rate usually reverts to the institutions standard variable rate
The initial low rate offers a chance for you to reduce the principal quickly by making extra repayments
Can be a disadvantage if the honeymoon rate is fixed and the standard variable rate decreases during the period
An offset facility can usually be used in conjunction with this loan
Most banks charge penalties if you discharge these types of mortgages within 3 to 4 years

Allows you to fix your interest rate, and thus your repayments, for up to 10 years
Once the fixed rate period is finished the rate will usually revert to the institutions standard variable rate unless you decide to rollover to another fixed term
This is a good loan to be in if rates are rising but if rates are falling you could be out of pocket by thousands of dollars
100% Offset Accounts
This is a separate transaction account which is attached to your mortgage
The money in the offset account is deducted from the loan balance before interest is calculated. This effectively means that your savings are earning interest at the same interest rate as the home loan.
The offset account is much like a normal savings account (i.e. usually offers ATM access and a cheque book)
Available on most banks standard variable and introductory rate mortgages

This is effectively a transaction account and home loan combined
Allows you to directly credit your salary to the account and withdraw your funds via ATM's, EFTPOS, credit card or cheque book, as you need it.
An All in One mortgage enables you to decrease your interest expense by keeping your funds in the account for as long as possible
The interest rate may be higher or you may be charged a monthly access fee for the privilege

Similar to an All in One loan except that you can draw down on the loan at any time up to the prearranged credit limit
This loan has no set term
A higher interest rate is usually paid for a line of credit
Good for investment purposes
A disadvantage is that it is possible for undisciplined borrowers to reduce the equity they have built up in their home