What Kinds Of Loans
What Kinds Of Loans
Standard Variable Rate (SVR)
Advantages
Ability to pay weekly, fortnightly or monthly.
Redraw possible. Extra repayments allowed.
Principal and interest payments possible, so loan reduces over time.
Disadvantages
May have Offset Account available with ready access to savings account by ATM, EFTPOS and cheque. As savings offset the loan amount a dramatic reduction in interest paid may be achieved.
Disadvantages
Not all offsets are “100% offsets”. Interest rate may be higher
Low-frill or Basic Variable
Advantages
Low interest rate. Extra repayments allowed.
Disadvantages
May only suit lifestyle for a short period only.
Possible free online redraw facility.
No off-set available.
Fixed Rate
Advantages
Helps budgeting as your repayments are fixed for a period. Some lenders allow you to make extra payments without penalty. Loan can cost less if market interest rates increase.
Disadvantages
Penalty applies if you break the contract before the end of the fixed rate term.
Loan can cost more if market interest rates decrease.
Combination of SVR & Fixed Rate
Advantages
Having part of the loan at variable and fixed rates can provide peace
of mind that a portion will not be affected by rate changes.
Professional Packages
Advantages
Professional packages normally bundle a number of products (for example a loan, a credit card and a transaction account also known as an offset account). Professional packages provide interest rate discounts for the life of the loan and that may grow as portfolio increases in debt.
Line of Credit
Advantages
Ready access by ATM, EFTPOS and cheque to your approved limit. Extra payments at any time. Reduction in interest paid over the term of the loan may be achieved as all income is paid into the account. Can be convenient for investors.
Disadvantages
Interest rate normally higher than standard variable rate. Disciplined approach needed as ease of access may encourage spending. Interest only, so debt may not reduce if not managed properly.
Bridging Loan
Advantages
Allows greater flexibility as you can move in or build your new home, before you sell your current one.
Disadvantages
You require a stronger financial position because of the greater interest commitment particularly if you do not sell at the price you wanted or by the target date.