Types of Loans
There are many different loan options on the market, however they are usually broken down into the following categories:
- Basic Loans
- Standard Variable Rate Home Loans
- Introductory or ‘Honeymoon’ Loans
- Fixed Rate Home Loans
- Line of Credit
- Low Doc
- Bridging Loan
- Family Pledge
Basic Variable Loan
Basic variable loans are as simple as they come, which typically offer lower interest rates but fewer features than the standard variable loans. You often have the option to pay for any additional feature required. Interest rates and repayments will vary throughout the loan term.
Standard Variable Loan
Standard variable loans are the most common type of home loan in Australia. The interest rate varies throughout the loan term in response to increases & decreases in the official cash rate set by the Reserve Bank of Australia. These loans generally offer great flexibility, low fees and often offer features such as an offset facility, redraw facility, no limits on additional repayments and in most cases, no early pay-out penalties. They are usually paired with a package for an annual fee which generally covers all banking and includes a credit card.
Introductory Rate or ‘Honeymoon’ Loan
An introductory rate loan generally offers a guaranteed low rate for an initial period of time (usually 12 months) after which time, most will revert to the standard variable rate. The rate can be fixed or variable with some Lenders who offer this option.
Fixed Rate Home Loan
Under a fixed rate loan, the interest rate is fixed for a specified period, usually between one and five years however 10 & 15 year terms are available with some Lenders. This loan gives you the certainty of knowing exactly what your monthly repayments will be and peace of mind knowing the repayments won’t rise. However you won’t benefit if rates go down during the fixed term. You are also usually only able to repay a small amount per annum in extra repayments if anything. If the loan is repaid in full, you may be charged a penalty fee which is also known as a break costs which in most cases is quite costly and should be avoided as much as you can.
Line of Credit Loan
A line of credit loan provides you with access to the equity in your home or investment property up to a pre-approved limit. You access the funds as you need to. The interest rate on a line of credit loan is usually a variable rate and repayments are interest only or they can be capitalised if available credit within the loan is available.
Low Doc Loans
A low documentation loan is suited to investors or self-employed borrowers who do not meet the ‘standard’ lending criteria. This may include those who are unable to provide the required income documentation in support of their loan application, have complex income structures or fluctuating income streams.
Bridging Loans
Bridging loans are used to assist customers with the purchase of a new property for the purpose of owner occupied or investment when the sale of their existing property is still yet to occur. The appeal of these loans are for people who wish to purchase a new property before they have sold their existing property.
Family Pledge Loans
A family pledge of limited guarantee is a facility whereby your relatives can help you purchase a home without them actually giving you any money towards the deposit. Instead, they use some of the equity in their own property to provide additional security for a limited amount of your loan.
This facility reduces the Loan to Value Ratio (LVR) and means that you could actually borrow up to 100% plus costs without paying any Lenders Mortgage Insurance (LMI) costs. This option can save you thousands of dollars and help you get into the property market sooner
Advantages of Family Pledge loans:
- By using a family equity pledge you can borrow up to 100% of the purchase price plus all costs and avoid LMI
- The guarantee provided by the third party is limited to a specific amount, as opposed to the entire amount borrowed
- The guarantee can be released at any time as when the primary security can support the loan in its own right, typically at 80% LVR or lower
- Guarantors can be parents, grandparents or siblings. (some lenders have no rule on who)
Loan Process Considerations
Complimentary Property Reports
Knowing what your property is worth is sometimes hard and when purchasing a property you may like to get an idea of sales history for the area.
At Cube Finance Group, we will provide you with a free property report that gives you information on the property in question including estimated price guide, recent sales in the area and local facilities. When you approach your sale or purchase you will have greater confidence in your decisions and next steps for a successful transaction.
Identification Requirements
Cube representatives are skilled in helping its clients meet bank identification requirements (i.e. the 100 point checks). The simplest documentation for most of our clients to provide is their current drivers licence and valid passport. In addition, we may request copies of your Medicare card, birth certificate or marriage certificate. We support you with information on certification requirements and contacts for Justices of the Peace or authorised witnesses if you require them.
Income Documentation Tips
Most importantly, when applying for a loan, you will be required to show the lender documentation to prove your income and demonstrate your ability to cover repayments.
Documentation requirements change depending on whether you are an employee (also known as a PAYG applicant) or self employed. At Cube Financial Group, with permission, we will contact your accountant to get all relevant information. In doing so we work with them to maximise any possible taxation or other benefits for your situation giving you security that your lending will be working for you over the long term.
Accounting and Documentation Support
As an individual, self-employed business owner or larger developer, you will be asked for a range of financial documentation regarding your income, expenses, assets and liabilities.
To lighten the load for you, Cube Financial Group will guide you on what is needed and, should you be in need of a new accountant, has a strong relationship with a reputable firm to which we will refer you.
CFG receives no financial incentives to refer to our professional contacts.
Conveyancing and Legal Advice
It is very important if you are purchasing a property to have a reliable solicitor or conveyancer to assist in the settlement process. Cube Finance Group has a solicitor we highly recommend to all our clients to provide them with peace of mind that their transaction is in good hands, if you require one.
CFG receives no financial incentives as a result of this relationship.