As if the added features offered by different lenders weren't enough, home loans also come in different varieties. But don't worry because we'll share with you some of the most common types of home loans. You may not need most of them here, but being familiar with what they are could help make choosing a loan a lot easier.
Here they are:
How it works: This type of loan allows the borrower to pay interest at a discounted rate at the beginning of the loan, usually the first 12 months. The discount usually comes in 'fixed discount' and 'discounted fixed' rates. The former features a variable discount rate, which moves along the standard variable rate, but at a level below it. Meanwhile, the latter is a completely fixed rate, meaning that the rate will not change regardless of the movements in the market.
How it works: A pro-pack is a feature-laden loan, which may include add-ons such as interest rate discounts on variable rate home loans, fee waivers, and discount on insurance such as landlord protection and income protection. While all these features are great to have, they might not be a practical option if you're borrowing less than $250,000. The reason for this is that a typical pro-pack also comes with hefty monthly or annual fees.
How it works: a construction loan allows you to draw down only the amount you need for a particular phase of the project. Let's say that you're currently roofing the house, which would then be followed by the lock up phase. If you have a construction loan, you'll only get the money you need for the roofing part. This can be advantageous to you since you're not required to withdraw the entire amount needed for the construction at once. What happens then is that you only make interest repayments for the current phase of the project you're in. This helps you lessen the repayments you have to make at one time.
There you have it, some of the most common home loans you might come across with when you're looking to apply for one. While you're at it, we recommend that you speak with our qualified advisors at Rate Detective. They can help you find the perfect loan for you by considering your personal circumstances as well as by providing you with rate comparisons of Australia's top lenders.