Home Loan Lending

In Australia, we enjoy an increasingly competitive lending market with local and international banks, building societies, credit unions and all manner of specialist lenders offering a seemingly endless array of home loan options, including honeymoon rates, introductory rates, standard variable rates, fixed rates, redraw facilities, line of credit loans, professional packages and so on. On this page, you will find a summary of each home loan type.

Standard Variable Home Loans

Standard variable loans are the most popular home loan type in Australia. The interest rate on this loan moves up and down in line with official interest rate fluctuations. Different lenders offer different features and rates on these products, generally according to the amount you are borrowing.

Professional Packages

Lender's professional packages offer a range of discounts off standard loans if you are borrowing $150,000 or over. This discount can range anywhere from .5-.7% or even higher (usually for amounts greater than one million).People borrowing larger amounts of money, often on higher incomes use these home loans because of the flexibility it gives them.

Basic Variable Home Loans

Basic variable loans are loans with lower interest rates, but with fewer features than a standard variable loan. The interest rate can rise or fall over the term of the loan. These loans are typically "no frills" products although there are more features being added by some lenders as the market becomes more competitive. They are typically around 0.5% - 0.7% less than the standard variable rate and are often used by people who want a variable rate, but may not qualify or be interested in a professional package home loan.

Discount Variable, Honeymoon, Introductory, Home Loans

These are variable rate loans with a discounted interest rate off the standard variable rate (commonly over 1%), lasting a certain period of time, usually one year. After this period, they normally revert back to standard variable rates. Sometimes, depending on the lender, interest rates can be fixed or capped during the initial/honeymoon period. These rates are among the lowest rates available and are often used by first home buyers or others who use the structure in line with the way they are investing.

Fixed Rate Home Loans

Fixed-rate loans are where the borrower's interest rate and repayments are fixed for a set period, usually from one to 10 years, and sometimes longer. These home loans commonly revert to the standard variable rate at the time the fixed-rate period has expired, unless "rolled over" for another fixed-rate term (at prevailing fixed rates). People whose income is not likely to vary much or who like predictable budgeting, find fixed rate home loans useful.

Combination/Split Home Loans

Split loans allow borrowers to take part of their loan as a variable rate loan and the other part as a fixed-rate loan (split however you like). While the overall loan amount is considered "a total", each part is treated separately for loan contract purposes. These loans offer borrowers a chance to hedge their bets in times of rising interest rates and give a blend of repayment flexibility and interest rate security.

Line of Credit/Equity Loans

Line of credit or equity loans allow borrowers to borrow up to a specified limit which is secured by a registered mortgage over a residential property. These loans provide access to funds, when required, up to the original limit set. Normally, the minimum repayment required is the monthly interest only. Some lenders require that principal reductions begin to be made after a certain period of time. These loans can be used for pretty much anything. They are a creative way to generate funds for investment purposes, funding businesses, other properties, loans to children to help them buy property, etc.

No deposit or 100% Home Loans

Normally you have to save at least a 5% deposit plus costs before applying for a loan. With a no-deposit loan, you can borrow 100% of the purchase price and buy property sooner without waiting until you save a larger deposit.

Low-Documentation or No-Documentation Home Loans

Low or no-documentation loans are exactly what they describe. These loans require very little or no income documentation to get approval. They are typically used by borrowers who are self-employed or do not have tax returns or financial reports.

Non-conforming Home Loans

Specialist lenders offer non-conforming loans to people who don't meet the banks' strict lending criteria including older borrowers (over 55) for whom a 25-year loan may not be appropriate because they are close to retirement; people with a bad credit history, perhaps with a history of late repayments, loan default or possibly even formerly bankrupt; new migrants with no borrowing record; seasonal, casual or self-employed workers.

You get what you pay for

While different loans target different markets, like everything, you get what you are prepared to pay for. When you apply for a home loan, you are looking for the best value you can get for your lifestyle, the size of the loan, the deposit you have and the type of property you want to finance.

Business Finance Options

There are many different options with business finance and leasing. Leisure Finance can help you decide which option is best for each situation. Each lender has their own programs and their own requirements so we can also help you understand the differences between loan types and lenders, including related fees and charges. Essentially options boil down to variations of the following types.

Fully Drawn Advances (FDA) or Business Term Loan

FDAs or Term Loans are where the full amount borrowed is advanced to the borrower on day one. These types of loans are generally over longer terms (up to 15 years) and may have fixed or variable rates of interest. Repayments may be "Interest Only", or "Principal and Interest".

Business Overdraft

Overdrafts are probably still the most common type of finance used by businesses. An overdraft is a line of credit attached to a cheque account which allows business to operate on a day-to-day basis. The use of an overdraft is referred to as "working capital". Overdrafts are charged at a variable rate of interest, with interest being calculated daily on the balance outstanding. The balance of an account with an overdraft facility should ideally fluctuate between debit and credit as cash outflows and inflows occur. Essentially this facility offers:

• reduced timing differences between payment of creditors and receipt of money from your debtors
• the ability to pay interest only on the funds you use
• a variable interest rate
• fluctuating balance with no set repayments
• access to your funds in a variety of ways including cheque, online or telephone banking

Sometimes collateral is needed for a business overdraft, however some lenders do not require it. While business overdrafts are great for freeing up your liquid capital, they're not necessarily recommended for long-term financing needs as the interest rates can be higher.

Leasing

There are different types of leases, but generally leasing is used for financing the purchase of assets like cars, telephony, computers, equipment, machinery etc. It is a popular form of financing as it saves spending the business' capital, but of course the borrower doesn't own the goods and in effect pays "rental" to the financier. The full lease payment is tax deductible if used 100% for business, but the value of the item cannot depreciate over time. A lease generally requires that a pre-agreed amount (balloon / residual) will be owing at the expiry of the term. Leasing is a specialist field, and one which we at Leisure Finance understand very well.

Commercial Hire Purchase

Hire Purchase is similar to leasing except that the item is seen to be owned by the borrower. This means that only the interest payments made on the purchase are tax deductible. Depreciation is also allowed as a tax deduction. The interest rates on both hire purchase and lease are fixed for the term of the agreement.