HOMELOANS AND MORTGAGES 

Wading your way through the literally hundreds of home loans available can be difficult, especially with new products emerging all the time. At Leap Financial guide you to a loan that meets your needs, complete the paperwork, professionally package it with your supporting documents and submit it on your behalf. There is no cost to you in using an accredited mortgage broker.

Variable



Standard variable loans have traditionally been the most popular type of home loan in Australia. Interest rates rise and fall over the life off the loan.. Your regular repayments pay off both the interest and some of the principal.
You can also choose a basic variable loan, which offers a discounted interest rate but has fewer loan features, such as a redraw facility and repayment flexibility.


Pros

The size of your minimum monthly repayments will fall if interest rates fall.
Standard variable loans enable you to make additional repayments when you can afford to. This can reduce the total amount of interest paid.
Basic variable loans often don’t come with a redraw facility, removing the temptation to spend money you’ve already paid off your loan.


Cons

Your repayments will increase if interest rates rise.
You need to be disciplined around the redraw facility on a standard variable loan. If you dip into it too often, it will take much longer and cost more to pay off your loan.
If you have a basic variable loan, you won’t be able to pay it off quicker or get access to money you have already repaid if you ever need it.

Fixed



The lender offers an interest rate that is locked-in, usually the first one to five years of the loan, as such the size of your regular repayments does not change during the period. At the end of the fixed period you can decide whether to fix the rate again, at whatever rate lenders are offering, or move to a variable loan.


Pros

You have certainty around your regular monthly repayments for the fixed period, helping you to budget.
You are protected against rising interest rates.


Cons

In a falling interest rate environment, you will not benefit as your monthly repayments will remain constant.
You may end up paying more than you would if with a variable loan if variable rates fall lower than your fixed rate of an extended period of time.
There is very limited opportunity for additional repayments whilst the loan is fixed.
If you chose to end the fixed period early, there can be significant financial penalties.

Other Plans


Split Rate Loans


Your loan amount is split, so one part is variable, and the other is fixed. You enjoy some of the flexibility of a variable loan along with the certainty of a fixed rate loan.
Pros
Your monthly repayments will fluctuate less than with a 100% variable loan
If interest rates fall, you will receive a reduction in repayments on the variable portion of your loan.
You have the flexibility to make additional repayments to the variable portion of your loan.
Cons
The variable portion of your loan will be subject to interest rate increases immediately.
Any additional repayments are typically restricted to the variable portion of your loan.
If you chose to end the fixed rate portion of the loan, there may be financial penalties.

Interest Only


Your interest repayments are typically lower because you repay only the interest on the amount borrowed usually for the first one to five years of the loan. At the end of the interest-only period, you begin to pay off both interest and principal.

Pros
Your minimum monthly repayments are significantly lower.
Maybe useful in tax planning.
Cons
red xAt the conclusion of the fixed rate period you have not reduced your total level of debt.
red xYou will have significantly higher monthly repayments unless you can renegotiate a further interest only term.

Line Of Credit


You can deposit and withdraw from your home loan on a regular basis, so long as you keep up the regular required repayments. For example, you can deposit your salary and withdraw monthly household expenses. Interest on your loan is calculated on the total balance in the account, so the longer your salary remain in the account, the lower your total interest bill will be.

Pros
green checkYou can use your monthly salary to reduce interest charges and pay off your mortgage quicker.
green checkYou can keep track of your spending and debt management in a single account.
Cons
red xWithout proper monitoring and discipline, you won’t pay off the principal and will continue to carry or increase your level of debt.
red xLine of credit loans usually carry slightly higher interest rates.

Introductory/Honeymoon


Originally offered only to first-home buyers, but now available more widely, introductory loans offer a lower interest rate for the first 6, 12 or 24 months, before the rate reverts to the usual variable interest rate.
Pros
green checkLower regular repayments for an initial ‘honeymoon’ period, allowing you to pay your loan off quicker.
Cons
red xLoans may have restrictions, such as no redraw facilities, for the entire length of the loan.
red xYou may be locked into a period of higher interest rates at the expiry of the honeymoon period.

Low Doc


Often popular with self-employed people, these loans require less financial evidence, but often carry higher interest rates or require a larger deposit because of the perceived higher lender risk. In most cases you will be financially better off getting together full documentation for another type of loan. But if this isn’t possible, a low doc loan may be your best opportunity to borrow.
Pros
green checkLower requirement for evidence of income. May overlook non-existent or poor credit rating.
Cons
red xYou will probably pay higher interest than with other home loan types, or may need a larger deposit, or both.

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