When it comes to lender switching, your choices aren’t just limited to the interest rate. Here’s a quick guide to some loan types and terms you are likely to come across when refinancing.
Basic versus Standard home loans
‘Basic’ home loans are variable rate loans that come
The definition of ‘basic’ varies between lenders, so it’s worth checking that a basic loan won’t limit your ability to make extra repayments and pay off your home loan sooner. You only want to pay for features you’re actually going to use, but keep in mind that the cheapest loan isn’t necessarily the one that’s right for you. Your Aussie Broker can tell you more.
If you have some extra cash or ‘rainy day’ savings, you may be able to put that money to work for you by refinancing to a loan with an offset account. This allows a savings or transaction account to be linked to your home
For example, say you have $20,000 in your linked offset account and an outstanding loan amount of $350,000. Instead of receiving interest on your savings, your monthly interest repayment will be calculated on a loan balance of $330,000.
A package loan bundles your home loan with other financial products such as a transaction account and a credit card, often with fee waivers or discounts.
Packages may also offer a discount on the interest rate that can apply for the life of your loan. An annual package fee may apply, so you need to be confident that any fee waivers and the rate discount outweigh the cost of the package fee.
Line of credit
When you have some equity in your home, refinancing with a line of credit could let you tap into that equity. Unlike a traditional home loan, a line of credit doesn’t provide you with funds in one lump sum payment. It gives you access to funds up to your approved limit with the freedom to withdraw the money when you need it — for home improvements, investing or even a holiday. Think of it
If you’re self-employed or don’t have all the documents normally required as proof of your income, a low-doc loan may offer a solution for you. Rates - either fixed interest rates or variable interest rates — are generally higher than standard loans but may be reduced over time if you make all the required repayments on time.
It’s not necessarily your only option if you’re self-employed. Many lenders will consider self-employed borrowers just like regular borrowers provided you have good records (including tax returns) for your personal income.
Refi Fast track
When refinancing you might hear about something known as the Fast Track refinancing process or FastRefi. Only available via some lenders, this process allows for quick refinancing when an in-person property valuation is not required. The refinancing can be done in around three days because the new lender agrees to take on the debt before the title of the property is transferred.
While the process is quick, the downside is the new lender may require you to pay title insurance to cover their risks.
Interest only refinance
Interest only home loans are a type of loan where your repayments only cover the interest on a mortgage without paying off the principal.
However, it’s important to remember that at the end of the
Split interest rate
If you are looking for a taste of both worlds, you might consider refinancing to a split loan. Essentially splitting your loan in two and charging it at different rates. Generally, part of your loan is fixed for a period of time, while the rest of the balance is charged at a variable rate.
The upside of this option is that it helps you know what your repayments will be for the fixed portion, but you’ll also benefit if rates go down for the variable portion of the loan.
With so many loan types to consider it’s a good idea to get a broker on your side. At Aussie, we’ll work with you to ensure you’re getting the right loan that works for you now and into the future.