Mortgages
Revolving Line of Credit
Revolving Line of Credit is essentially a facility to allow you access to the equity that has been built up in your house property over a period of time. It can be looked at like a large overdraft where money paid in can be withdrawn again up to the original amount borrowed. It can provide finance for a range of different items such as shares, motor vehicles and home renovations without the need to take out a separate loan for each requirement.
However most people treat their revolving line of credit loans as an amortising product in that they make specific normal monthly repayments but the flexibility is there if required.
Revolving Lines of Credit usually have a higher interest rate than ordinary variable rate loans and can be a trap for those not good at budgeting. For a more safe alternative, a standard variable rate loan with a redraw facility or an offset account is often more suitable, however you can split these loans to suit your requirements.
Mortgage Offset Accounts
Mortgage Offset Accounts become a personal transaction account. The interest that would normally accrue on your account balance is offset against the interest owed on your mortgage loan instead of being credited to the account. You can deposit and withdraw on this account in the same manner as most other savings accounts and can be set up to receive salary credits.
Different lenders offer different features and conditions on their Mortgage Offset Accounts and we need to shop around to secure one that meets your specific needs and future plans.
Salary Loans or All-in-one Accounts
Salary Loans or All-in-one Accounts is a loan where the borrowers salary is paid directly into the loan. This allows the borrower to use his or her mortgage as both a line of credit and a savings account and it also has the effect of a 100% offset account. Although ATM, Eftpos, cheque and other access means are usually available, salary loans encourage borrowers to use a credit card for all purchases and then settle the card in one transaction from the loan account on a monthly basis. This allows the money held in the account during the month to reduce the calculated interest on the loan account for the longest possible period of time.
Fixed Rate Loans - allow you to lock in an interest rate for a particular period of time (normally 15 years although there are a couple of lenders who will go to 10 years.) You then have assurance of what your repayments will be during that period.
You can also split your finance requirements between a fixed portion and a variable portion. The Fixed rate loans have more restrictions placed on the borrowed e.g. most lenders will not allow extra repayments or you cannot pay out the loan during the fixed period without incurring penalties. Features such as redraw or mortgage offset are usually not allowed during the fixed period of the loan, however splitting the loan allows you to take advantage of features available on variable rate loans.
Splitting the loan into two portions (fixed and Variable) can be a good way to hedge your exposure against rising interest rates, usually referred to as a cocktail loan.
You can split your loan into thirds, quarters or more however, some lenders impose a minimum amount required per portion. We need to consider the fees incurred in setting up split loans against your budget and requirements.
There are a vast array of home loans now available in the market place and we can arrange one to suit your individual needs. Below are some samples of the types of loans that we may consider.
Standard Variable Loans
The interest rate can vary throughout the term of the loan - both up and down. The term is usually 25 to 30 years. The advantages of this are that if interest rates fall, your repayments will also reduce; you can usually make additional repayments without incurring a penalty allowing you to pay off your loan faster. Remember, if interest rates rise, your repayments rise as well.
Economisers or Basic Variable Loans - Many lenders offer basic variable loans with lower interest rates than standard variable loans however, with generally fewer features. Like all variable loans the interest rate can vary over the term of the loan. The biggest advantage is price - basic variable loans have a lower interest rate so repayments are lower than the Standard Variable Loans.
Lenders normally do not offer the same range of features or flexibility e.g. many basic variable loans can not be used in combination with other loans and are not portable. It is important that we look into each different lender as we need to assess both the advantages and disadvantages against your requirements and future plans.
Only the interest portion needs to be paid on this loan with no principal required. These loans are usually set for a specific time period and upon expiry of that term the loan needs to be renegotiated or repaid in full.
Some loans can be split with a portion placed on an 'interest only' loan to keep repayments down until the other portion can be repaid or alternatively an asset is sold allowing the fixed portion to be repaid in full.
Some lenders also provide a fixed interest rate option with their interest only loans thereby giving you the added advantage of being able to pay your interest in advance creating a greater tax deduction in the current year. We would discuss this option in conjunction with your Accountant before proceeding with this option.
Capped Interest Loans
Capped Interest Loans set a parameter on the movement of a variable interest rate. This gives you some protection against interest rate rise. However the smaller the parameter is the higher the cost.
Introductory / Honeymoon Loans - offer you a special reduced rate for an introductory period, often six months to one year. The loan then reverts to a standard variable loan.
Whilst this may help initial cash flow, these loans can be on offer with different packages, so again we need to consider your overall requirements and future plans.
Most lenders provide either or both of these type of loans where they do not require the level of documentation normally submitted to confirm your income, savings and other balance sheet items. However, most borrowers will only lend 50%-60% of the purchase price of the property to be purchased and they usually exclude some residential areas all together. Interest rates are sometimes higher depending on the lender.
We need to look closely at your needs and overall requirements to assess the benefits of this type of loan.
