Loan Types

Which loan would suit you?

The loan market doesn’t stand still. New products are launched frequently. At Lending Services Victoria we compare over 1400 different home loan products from various lenders to see which ones suit you and your needs.

The following types of loans are explained:

• Variable Loans
• Fixed Rate Loans
• Split Loan Options
• Non Conforming Loan
• Home Equity Loans
• Line of Credit Loans
• Lo Doc Loans

Variable Rate Loans

Variable Rate loans offer you maximum flexibility and great features, including the option to fix or split your loan, the ability to make additional repayments when you want, and the option to redraw these funds for any purpose when you require it.

Pros:

• Repayments fall when official interest rates fall;
• Standard variable rate loans offer flexibility and additional features, such as the ability to make additional payments, which enables borrowers to accelerate the repayment of their loan, and a redraw facility (take out any extra money that you have put in);
• Lower introductory or honeymoon rates.

Cons:

• Interest rate is higher for standard variable loans than basic loans because they usually offer additional features;
• Repayments rise when interest rates rise.

Fixed Rate Loans

Fixed Rate loans protect you against interest rate rises for an agreed time, so you have peace of mind knowing your repayments won't increase. Fixed rate loans lack the flexibility of variable rate loans such as the ability to make unlimited additional repayments. This is a trade off for the certainty of locking in the rate.

Pros:

• Repayments do not rise if the official interest rate rises;
• Provides peace of mind for borrowers concerned about rate rises;
• Allows more precise budgeting.

Cons:

• Repayments do not fall if rates fall;
• Allows only limited additional payments;
• Penalises early payout of the loan or conversion to a Variable Rate loan.

Split Loan Options

Split Rate loans combine the flexibility of a variable rate and the certainty of a fixed rate, so you benefit when rates decrease and are protected when they increase.

Pros:

• Provides some peace of mind for borrowers concerned about rate rises;
• Provides more certainty in budgeting than a loan which is totally variable;
• Can make additional payments on variable portion.

Cons:

• Allows limited additional payments only
• Repayments will rise with rate rises

Non-Conforming Loans

Non Conforming Loans have been designed especially to help borrowers who do not meet normal lending criteria. Borrowers that fit into this category include those who have an impaired credit history, such as judgements or defaults.

Pros:

• Overlooks poor credit rating

Cons:

• Higher interest rate than traditional loans

Home Equity Loans

Home Equity Loans allow you to unlock the equity in your existing property for other opportunities such as renovating your home, investing in shares or financing an investment property.

Line of Credit (LOC)

Line of Credit loans are interest only variable rate loans that have full flexibility attached to them such as cheque books and credit cards. Most line of credit loans offer interest capitalisation features provided the borrower has sufficient equity in the loan account. Line of credit rates are slightly higher than standard variable rate term loans.

Pros:

• Use the money you need and pay it back when you can;
• Interest rates tend to be lower than credit cards or personal loans;
• Offers flexibility.

Cons:

• Possibly reduces equity in your residential property;
• Slightly higher interest rates;
• Need to be disciplined to make principal payments regularly;
• Can be expensive if not used carefully.

Lo Doc Loans

Lo Doc loans are loans which do not require any formal financial documentation from the borrower. They are generally used by self employed people with a lack of financial statements or complex entity structures making proof of income difficult. Tax returns or financial statements are generally not required.

Lenders usually base their qualification for such loans on an income declaration but no proof of income is required. Terms and credit requirements for lo docs vary from lender to lender and because no proof of income is generally required lenders are more conservative with their lending.