Loan Types
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Variable Rate LoanA variable rate loan is one which is subject to any interest rate changes, both increases and decreases. This means your repayments will also fluctuate depending on any changes in interest rate.
An advantage of a variable rate home loan is the ability to make an unlimited amount of extra repayments into the loan without any penalties. If you're looking for a product which has an offset account, then in most cases, this will be attached to a variable rate loan. |
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Fixed Rate LoanA fixed rate loan offers you certainty with regards to your repayments. You will not be affected by any change in interest rate from the lenders during your fixed rate period. Fixed rate loans are usually taken out over a 1-5 year period. At the end of this period, you have the option to re-fix your loan or let it automatically convert to a variable rate loan. Most lenders allow you to make a limited amount of extra repayments on a fixed rate loan however, you will be subjected to penalties if you were to exceed the designated amount.
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Split LoansA split rate loan is where your loan is divided into two or more parts, usually with one part variable and one part fixed. Some people like to have the benefit of both a fixed and variable rate loan and the bonus here is that you can choose how much of the loan is fixed or variable.
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Interest Only LoansAn Interest Only Loan is commonly used in the case of investors who instead of building equity through paying down the loan and capital growth, elect to just build equity in captial growth alone. Usually interest only periods are between one and five years although in some cases may be extended beyond this number.
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Introductory (Honeymoon) Rate LoansThis type of loan is typically designed for First Home Buyers, however these days is more widely available. A Honeymoon Rate Loan is usually an initial six to 12 month period where the rate offered is extremely appealing. Like a fixed rate loan, the honeymoon rate will automatically revert to the standard variable rate at the expiry of the honeymoon period.
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