Redlands Mortgages

MORTGAGE TYPES

REDLANDS MORTGAGES HOME LOAN TYPES• Fixed Rate

• Variable Rate

• P&I V’s Interest Only

• Low Doc

• Line Of Credit

• 100% Offset Mortgage

• Construction Loan

• Honeymoon Rate Mortgage

• Deposit Guarantee

FIXED RATE

A fixed rate loan is exactly what it states

You will pay the agreed fixed rate you have setup with your bank for a stated period of time

These loans tend to be fixed from a period of 1 to 5 years and have break clauses if you want to pay off the loan earlier

They are however good if you need stability on the amount you will pay each and every month but far less flexible than the P&I variable rate loans

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VARIABLE INTEREST

A variable rate loan is exactly what it states

You will pay the current bank variable rate which moves up and down with the RBA interest rates

These loans tend to have multiple choices of extras such as extra payments and redraw on these payments

They are however susceptible to the moving rates which affect your repayment amounts Month 1 Month 2 Month 3 Month 4

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Principal & Interest V’s Interest Only Loans

A principal and interest loan requires two amounts to be paid per agreed cycle—a payment for the contracted principal amount, and a payment for the amount of interest charged. This will pay down the amount of debt owed over time

But with an interest-only loan, you only pay (you guessed it) the accrued interest.Paying interest-only can be particularly useful for property investors trying to minimise their outgoings beyond what’s absolutely necessary; e.g. interest payments. This may help investors to limit losses on a negatively geared property, or may even tip their investment into a cash flow positive one. 

Investors who are negatively gearing are generally less concerned with paying the principal amount of their loan debt down progressively. In fact, they may not plan to make a dent in the principal amount at all. Their longer term plan is to recoup the value of the debt, plus a nice tidy profit, by selling the property some years later after it’s gone up in value (this is known as capital growth).

Low Doc Loans

These loan types are popular with self-employed people, these loans require less documentation or proof of income than most, 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 money.

ProsLower requirement for evidence of income. May overlook non-existent or poor credit rating.

ConsYou will probably pay higher interest than with other home loan types, or may need a larger deposit, or both.

LINE OF CREDIT

A line of credit Mortgage is a credit limit

You can have access to the total mortgage limit and use the credit limit as much or as little as you choose

In effect its like a big credit card against your mortgage that can be paid off or used as much as possible

These are high risk and require a good level of discipline to be used effectivelyMonth 1 Month 2 Month 3 Month 4

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100% OFFSET MORTGAGES

Home loan interest is usually calculated every day, based on the balance of your loan each day. At the end of each month your lender will total up the interest from each day in that month (and charge it all at once). That means that every dollar you have in your offset account saves you interest every day that it’s there. And, whenever you need to access your money it is always available to you in the usual ways, like through an ATM or online.

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Mortgage Interest

CONSTRUCTION LOANA home loan with building conditions may allow you to draw funds from the loan progressively as the invoices come in..

An advantage of this loan is that you’re only charged interest on the progressive loan balance, not the full amount. Let’s say your loan is for $100,000 and your first invoice is for $20,000. Your interest will be calculated on your account balance of $20,000 plus anything else you owe (including fees). As you use your loan funds to pay more invoices your interest charges will be calculated on the increased balance.

Another advantage is the loan is interest-only during the building stage of up to 12 months. This might help your cash flow as you’re renovating, especially if you’re renting while you do it. Once your interest-only period has finished you will start paying principal and interest. Qtr 1 Qtr 2 Qtr 3 Qtr 4

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HONEYMOON RATE A low interest rate offered at the start of a loan. At the end of the specified time period the interest rate converts to a standard variable rate.

Honeymoon rate mortgages are also known as introductory mortgages because banks often tempt you with a low rate for the first few years of your home loan. 

These are available on both fixed and variable loans, so you can still tailor your loan to suit your needs while easing into your repayments. 

A discounted rate is all well and good, but be aware that the honeymoon rate is quick to change. Many home owners realise that the rate they'll be stuck with later on isn't the lowest in the market, and could've saved thousands if they went with a standard low rate. 

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Deposit GuaranteeWhat is a Deposit Guarantee?A Deposit Guarantee acts as a substitute for the cash deposit between signing a contract of sale and settlement of a property. At settlement the purchaser pays the full purchase price including the deposit.

Typical Guarantees available:Short Term Guarantee - for settlement terms up to 6 monthsLong Term Guarantee - for settlement terms between 6 and 48 months

Why Use It? Some situations where a purchaser has the ability to purchase a property but may not have easy access to a cash deposit are • Homeowners selling and buying simultaneously• Investors borrowing the full purchase price and the loan funds are not available until

settlement• Investors buying off-the-plan and don’t want to tie up their cash for several years• First Home Buyers who may not have the full cash deposit amount available when entering

into a contract• Downsizers who are asset rich / cash poor• Purchasers buying at auction who may prefer the convenience of not having to put aside

funds for the deposit each time they attend an auction