Types of loans available

When you first set out to apply for your new home loan, there are some factors you should be aware of. The amount you can borrow generally depends on what you’re buying and how much money you have left when you take out all your fixed commitments from your net income. If you’re buying a home, most lenders will let you borrow up to 80 percent of the purchase price, or 95 percent if you are willing to take on mortgage insurance.

Some of the different types of home loans available are:

Basic or “no frills” loans
A variable rate loan usually ideal for first home buyers because they have a relatively low interest rate. By paying a relatively low rate it may mean you can pay off the loan faster, however, they often don’t have the features and flexibility of other loans.

Standard variable rate loans
These are the most popular type of loan in Australia and offered by most lenders. It’s a variable rate loan, similar to a basic home loan, but with a few more features and flexibility so the rate is slightly higher. Most come with added features such as redraw, the option to split between fixed and variable, and allowing you to make extra repayments without penalty.

Fixed-rate loans
Ideal for borrowers who like to know exactly what their repayments will be, a Fixed-rate loan sets the interest rate for a particular term – usually one to five years. The advantage of this type of loan is that if rates rise, you won’t have to pay anymore, however, if they fall, you’ll miss out.