Types of home loans in Australia
There are many types of home loans available in Australia, and it pays to understand them before making that decision.
Variable-rate loan – The most popular among homebuyers. This relies on the Reserve Bank of Australia’s changing interest rates, which means borrowers may pay lower or higher in certain months. Borrowers are also allowed to pay their loan faster through extra repayments, redraw facility and offset account.
Fixed-rate loan – This locks in the loan for a period of one to five years at a fixed interest rate, which is typically above the current variable rate. Borrowers don’t have to worry about changing rates on certain months, but they can’t enjoy the other benefits of a home loan either such as extra repayments.
Guarantor loan – Individuals seeking to borrow over 80% of the property’s purchase price but are not keen on paying for lenders mortgage insurance may request a family member or friend to be their guarantor and use a portion of their family member or friend’s property as a security blanket for their own mortgage.
Low-doc loan – Ideal for the self-employed, business owners and freelancers who are not in possession of the usual documents required to get a loan. This loan is tied with a higher interest rate and fees compared to other loans.
Line of credit loan – Also called a home equity loan, this enables borrowers to use the equity of their property as collateral, with the loan amount depending on the value of the property. Borrowers need to make extra repayments or risk extending their loan term.
Non-conforming loan – A perfect fit for those who have a poor credit history, wish to borrow over 80% of the property’s value or are unemployed for a while, but this carries a higher interest rate than the other loan types.