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Types of residential home loans with explanations

Discount Variable:
This is an introductory discounted rate offered by lending institutions for an introductory period.

Example: If a current interest rate is 8%pa a bank will offer you lower interest rate, 7.5%pa for a period of 6 months or 1 year. After this period expires the interest rate will go back to 8%pa or whatever is current.

A loan which fluctuates with the current rate.

Interest on your loan will follow changes in the loan market. If the interest rate was 7%pa when you took the loan and a year later interest rate goes up or down by 0.5%pa, your interest rate will be now 7.5%pa or 6.5%pa respectively.

Fixed Rates:
The rate is fixed for a predetermined time.

You sign for a loan with a fixed interest rate, for example 7.5%pa per annum for three years, no matter what changes there are in the current market. At the end of the three year period you can either re-fix your loan at the current rate or move to another choice. Usual fixed terms are: (0.5; 1; 1.5; 2; 3; 4; 5 and 10 years)

Controlled Rate Loans:
Is a variable rate that moves between preset limits.

Example: Your loan has a ceiling rate and a floor rate. If the current interest rate rises above your determined rate your interest rate will not, but if the current interest rates drop below your floor rate your interest rate will drop below your floor rate.

Combination Loans:
A loan split with a proportion of the loan on a fixed rate and the remaining on a variable rate.

Example: Your loan is a combination of loans. You may have 50% of your loan at a Fixed Rate and 50% as Standard Variable. If your loan is $100 000, then $50 000 of that loan will have fixed repayments and fixed interest rate and the other $50 000 will go up and down with the changes in the market.

Line of Credit All in One Account:
Allows the borrower access to funds up to an agreed credit limit. While only paying interest on the balance.

Example: If your credit limit is $100 000 and your current balance is only $80 000 you would have access to $20 000 at call. Asset Lending: Loan secured against your assets. Example: For clients that have their money tied up in assets. If you own a block of land and want to build for a later resale you could have a loan up to 70%-80% of the value of your land.

100%pa Interest Offset Account:
Operates similar to a line of credit facility.

Example: Your home loan is $100 000 and you have savings of $20 000 and want to have access to those $20 000 at call. By placing your savings in your 100% offset account you only pay interest on $80 000. Interest is calculated on the difference between the two accounts on a daily basis.

Short term loan facility.

Example: A bridging loan is often used when you have a property for sale and want to purchase a new property before the original property sells.

Deposit Bonds:
Allows for contracts of sale to be exchanged without the required minimum deposit being paid.

Example: You have a property with equity you wish to use to purchase a second property. On exchange of contracts a deposit of 10%pa of the purchase price is required. As your deposit for the second property is in equity, a deposit bond is required so the process for the second purchase can take place.

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