Choosing the right Home Loan

Choosing the right home loan can be a daunting task.

Crystal Finance is accredited with more than 25 lenders in Australia, each with about a dozen different types of home loan. This means you can have up to 400 different types of loan from which to choose. Fortunately, we can help you with these choices. Most home loans in Australia fall into the following categories:

Standard Variable Interest Rate Loan
  • Most popular type of mortgage.
  • Interest rate can move up or down and will usually require a variation to your monthly repayment
  • Owner-occupier properties tend to be principal and interest (usually repaid within 30 years).
  • Investment properties are usually interest only (usually five years, although some banks will offer longer terms).
  • Most flexible type of home loan available with many frills (weekly, fortnightly, monthly repayments, special repayments, redraw, offset, portability, etc).
  • Loan application or establishment fee of between $500 - $700 can apply. The cost of one valuation is usually covered in this fee.
  • Additional valuation fees apply if multiple properties are being provided.
  • A monthly administration fee of between $8 - $12 applies, depending on which lender is chosen.
No Frills Home Loan
  • Low interest (lower than standard interest rate loan).
  • Interest rate can move up or down.
  • Basic loan (limited or no access to offset or redraw, etc).
  • Principal and interest or interest only are available.
  • Similar fee structure as for standard variable rate home loans.
  • Cannot be rolled into a Discount Interest Rate Package.
Intro Rate Home Loan
  • Sometimes referred to as honeymoon loans.
  • Offers a low interest rate for the first 12 months and then reverts to a standard variable rate loan.
  • Interest rate can be variable, fixed or capped (can go down but cannot increase) in the first 12 months.
  • Penalties can apply if the loan is repaid within three to five years.
  • Similar fee structure as for standard variable rate home loans.
  • Most banks will not allow conversion to the Discount Interest Rate Package if this product is chosen.
Discount Interest Rate Package
  • Variable interest rate discounts of between 0.3%pa – 0.7%pa can apply for the life of the loan.
  • Some banks will also discount their fixed interest rate loans.
  • Discounts apply on a sliding scale to total aggregate borrowings in excess of $150,000.
  • Application and monthly administration fees are waived.
  • Other features include no fees on related savings account and credit card and discounts on in-house insurance policies.
  • Annual package fee of between $300 - $400 applies regardless of the number of loans.
  • Package does not usually apply to the intro rate and no frills home loans. Most other loan products can be included. Some banks will even offer the package to their self certified loans, subject to additional conditions.
Construction loans
  • These loans are generally the same as the standard variable rate loans.
  • In order to maintain the bank's loan-to-value ratio, loan funds are drawn progressively as construction proceeds.
  • Interest is only calculated on the actual balance of the loan and is usually paid monthly during the construction period.
  • Payments are made direct to the builder, who should be registered by the local state/municipal authority.
  • Most banks no longer require an inspection at each progress payment but you will usually have to authorise each payment.
  • A final payment inspection is usually undertaken by the bank to confirm completion of construction to an acceptable standard, etc.
  • Formal repayments commence after the final progress payment is made (either interest only or principal and interest).
Fixed rate
  • Interest rate can be fixed for up to five years or longer with some banks.
  • Repayments are also fixed during this period, which assists with budgeting and is therefore popular with investors - particularly in a rising market.
  • Reverts to standard variable interest rate on maturity of the fixed rate term.
  • Can also be rolled over into another fixed rate term at expiry.
  • Early termination or break costs can be incurred if the fixed rate is broken. These can be considerable.
Offset accounts
  • A separate account is attached to the standard variable home loan.
  • Home loan interest is calculated on the net difference between the loan balance and the funds held in the offset account.
  • The offset account does not earn any interest.
  • Transaction offset is a normal statement transaction account which can be used via ATMs, phone banking, the internet, EFTPOS, etc.
  • Dedicated offset allows for specific withdrawals and deposits to be made, usually by transfer to/from a related transaction account, and some limited internet usage may be permitted.
  • Fees and minimum deposit/withdrawal limits may apply.
Line of credit
  • A full statement transactional account but with a pre-arranged credit limit.
  • Transactions can be initiated by bank withdrawal, ATM, EFTPOS, phone banking, the internet or cheque book.
  • Account can be overdrawn up to the amount of the pre-arranged credit limit.
  • A marginally higher interest rate is usually applied to these loans, which can be included in the Discount Interest Rate Package.
  • No set repayment term or repayments.
  • Interest can usually be added to the balance as long as the credit limit is not exceeded.
Self certified loans
  • These loans do not require the usual documentary substantiation of income.
  • Must be self employed.
  • Low doc loans require a declaration of income and will lend up to 80% of the value of the security property being provided.
  • Expect a slightly higher interest rate and fee structure to apply to these loans.
  • Most major banks and lenders provide low doc loans and may also extend their Discount Interest Rate Package to these loans.