Types of loans

How do you determine whether a home loan is suitable for you?
1. Set your financial goals, determine your budget and work out the term of the loan (i.e. how long you will be paying it off). You may do this yourself or with your financial advisor or accountant.
2. Ensure the organisation or person you choose to obtain your loan from is a member of the Mortgage and Finance Association of Australia (MFAA). The MFAA Member logo means you are working with a professional who is bound by and subject to a strict industry code of practice.
3. Research the types of loans available so you can explore all options available to you with your mortgage provider.

Basic Home Loan

Introductory Rate or "Honeymoon" Loan

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Basic Home Loan
This loan is considered a no-frills loan and often offers a very low variable interest rate with little or no regular fees. Be aware they usually don't offer additional extras or flexibility in paying off extra on the loan or varying your repayments.

These loans are directed towards people who don't foresee a dramatic change in personal circumstances and who may not need to adapt the loan in accordance with any lifestyle changes, or people who are happy to pay a set amount each month for the duration of the loan.



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Introductory Rate or "Honeymoon" Loan
This loan is attractive as it offers lower interest rates than the standard fixed or variable rates for the initial (honeymoon) period of the loan (i.e. six to 12 months) before rolling over to the standard rates. The length of the honeymoon depends on the lender, as too does the rate you pay once the honeymoon is over. This loan usually allows flexibility by allowing you to pay extra off the loan. Be aware of any caps on additional repayments in the initial period, of any exit fees at any time of the loan (usually high if you change immediately after the honeymoon), and what your repayments will be after the loan rolls over to the standard interest rate.

These loans may be appropriate for people who want to minimise their initial repayments (whilst perhaps doing renovations) or to those who wish to make a large dent in their loan through extra repayments while benefiting from the lower rate of interest.

Tip: If you start paying off this loan at the post-honeymoon rate, you are paying off extra and will not have to make a lifestyle change when the introductory offer has finished.



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