MyRate Education Centre

Mortgage Types

There are a few different types of mortgages available on the market.

Standard variable

• This type of loan will suit almost all borrower types.
• If you choose this loan and you are an owner occupier then the principle and interest repayments could suit you because your balance starts to reduce from the start.
• However, if you are an investor interest only payments may be something to consider allowing you to claim the maximum tax deduction.

100%

• This loan suits first home buyers with limited savings, allowing them to borrow more than they would otherwise be able to with a standard variable rate loan.
• This loan type carries some risk if the market has a downturn. You may end up owing more than what your property is actually worth.
• To apply for this type of loan, most lenders will require you demonstrate a strong income and employment history.
• You may also need to show a bank statement over a 3-6 month period with genuine savings of at least 3% of the property price. Note: Genuine savings do not include a lump sum paid into a savings account or savings put into another person's account for "safe keeping". Part of having genuine savings is you have to be able to show a consistency in saving money over a period of six months. This helps to show you will be able to pay off your plan.
• Remember: a 100% loan does not mean that all costs will be covered by the loan – you will also need funds to cover lender's mortgage insurance, as well as any lender, government and legal fees.
• Due to the fallout from the subprime crisis, many lenders, including ING, have scaled back their 100% lend products and now only offer max LVR of 95%.

Fixed

• Fixed loans have a set interest rate for a nominated term (usually between 1~5 years). This means you have set repayments for that term as well.
• Its benefits are that you know exactly what you will be paying for that certain amount of time, and depending on which way the market fluctuates, you may end up paying a lot less than the variable interest rate.

Construction

• This loan type is paid out in stages to invoices supplied by the builders during construction.
• Some lenders will require a valuation at each draw down stage.
• Once the construction is completed the loan reverts to a standard variable loan of your choice. At the time of converting, your interest rate will be the same as the current interest rate for customers that obtained an Advantage Loan the the time of your initial construction loan settlement.

Line of credit

• With this loan you don’t have to make repayments unless the line of credit is fully drawn.
• Interest is calculated on the daily loan balance.
• Provided the loan balance and monthly interest do not exceed the line of credit limit, the interest can be added on to the loan (capitalised).
• Most line of credit accounts come with the additional convenience of access to the credit via credit card and cheque book.

Offset

• An offset account is a feature of some mortgages. It is a savings account attached to the mortgage, with the balance used to offset the interest charged on your loan.
• Some lenders, such as MyRate, have a free redraw and additional repayment facility on their variable rate loans which have the same benefits as an offset account. Deposits can be banked into your loan account and the loan interest is calculated on the daily loan balance (after the deposit) but the extra funds are classed as available redraws.

Low – doc

• A low – doc loan is a loan specifically for self employed people.
• Applicants only have to sign a declaration, no proof of financials are required.
• Usually, Low-doc loans will allow you to borrow up to 80% of the property value, but LMI is required for loans from 60-80%.
• Low – doc loans will generally have a higher interest rate than full doc loans.
• You are able to switch from a low – doc loan to a full doc loan product at any time but you will have to provide proof of income.