Different types of Home Loans

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Consider the advantages and disadvantages of different types of home loans - and how they may or may not benefit your unique circumstances.

The right home loan option for you will depend largely on your current financial situation and what offers are available at the time - and you'll want to ensure you carry out careful research before you make your decision.

Standard variable home loan

Standard variable home loans suit most borrowers due to their flexibility. Changes can be made throughout the life of the loan as either your personal finances or economic conditions vary.

If you are an owner-occupied borrower, principal and interest repayments could suit you, as the balance is reduced from the very beginning.

For investors, interest-only repayments might be ideal because they allow you to claim the maximum tax deductions on your property purchase.

Fixed rate home loan

Fixed rate mortgages set the interest rate at one level for a nominated term - usually one to five years. You have the benefit of knowing exactly what payments are required of you during that period.

You may end up paying either less or more than the standard variable rate, but the advantage is that you have locked in a rate that you're comfortable with and the uncertainty of the situation is removed.

Construction home loan

A construction home loan is specifically for borrowers who are building a new home and can be paid in stages to the builder.

As you make these progress payments, some lenders also require valuations along the way.

Once construction is complete, the loan reverts to the standard variable for the type of loan you have chosen.

Line of credit home loan

With this loan, you don't have to make repayments until the line of credit is fully drawn.

Interest is calculated on the daily loan balance and provided this and the monthly fees accrued do not exceed the line of credit, the interest can be added to the loan.

Most accounts of this kind also come with the added convenience of credit access via debit card or cheque book.

Offset account

An offset account is a savings account attached to the mortgage, with the balance used to offset the interest charged on your loan.

Some lenders also provide a free redraw and additional repayment facility on their variable rate loans, which have the same benefits as an offset account.

Low-doc home loan

A low-doc loan is for self-employed people only and applicants must sign a declaration. In most cases financials are also required.

Low-doc loans generally have a higher interest rate, but you may be able to switch to a full-doc loan at a later date.

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