Types of loans:
Variable rate loans Unlike a fixed rate loan, the interest rate on a variable loan will move up and down in line with market interest rates. As a result, your loan repayments can vary widely during the term of your loan, and it’s worth allowing for the possibility of future rate rises before committing to a variable rate loan.
Fixed rate loans This loan locks you into a particular interest rate for a set period (e.g. 1-5 years). Your repayments will remain the same, irrespective of how market rates move during the fixed term, which can make it easier to budget for your loan repayments.
Split loans A split loan divides your loan into fixed and variable rate portions. This gives you the certainty of repayments on the fixed rate part of the loan while still being able to enjoy the savings of possible future rate falls on the variable part of your loan.
Interest only This is a loan in which, for a set period, the loan payments comprise of only interest without any repayment of principal. The interest-only period may run from one year to several years. After this, you need to start repaying the principal or renegotiate another interest only term.
Line of credit A line of credit loan combines the home loan with an everyday transaction account from which the borrower can draw cash up to a pre-approved limit. A line of credit loan requires an interest- only repayment as a minimum each month if the credit limit has been reached. The reduction of the loan balance is entirely up to the borrower as there are generally no set repayments. Each month, the loan balance is reduced by the amount of cash coming in and increased by the amount paid for drawings, direct debits or cash withdrawals.
Low-doc loans Low-doc loans are useful for borrowers who are unable to provide conventional income documentation or for people who may have complicated financial structures (e.g. self-employed). They allow borrowers to minimise the time and effort of collating tax records, bank statements and other documents in order to obtain finance (although they may still be required). Low-doc loans may attract a higher interest rate.