MORTGAGE BROKING

The most common interest rate is the variable rate. This is where the rate can fluctuate depending on the RBA and lender’s cost of funds or policies… The lender has the right to change the interest rate at any time, however competition is paramount, so you won’t generally find lenders putting their rates up indiscriminately.

The Reserve Bank of Australia (RBA) sets the official cash rate. The cash rate forms part of the cost (the rate) to the lender. However, because of intense competition between lenders in the variable rate market, most lenders will only change variable rates for existing loans when the RBA increases the cash rate.

Advantage: Variable rate loans generally have no restrictions or penalties for making additional repayments on your loan, or for paying the loan out totally. Additionally when variable rates fall, your monthly minimum repayment will fall. Depending on your lender and loan type we may also have the flexibility to fix the rate at any time or attach an offset a/c to the loan to reduce interest charges.

Disadvantage: If the interest rate increases, your repayments will also increase.

On a fixed rate loan, your interest rate remains the same during the fixed rate term that is chosen, even if market rates change. The fixed rates offered by lenders can be either higher or lower than the variable rate at any given time therefore you need to make a comparison when considering this option, your Odyssey broker will assist and guide you with your choice.. Most lenders offer fixed rate loans, generally for 1 to 5 year terms. At the end of the term, the interest rate usually converts to variable, or to another fixed rate at that time.

Advantage: With fixed rate loans you are not impacted if variable rates increase, because your fixed rate will not change.

Disadvantage: However, if variable rates decrease, you will not receive any benefit, as your fixed rate will remain the same. If market variable rates fall over time, it is possible that your fixed rate could be higher than the current variable rate, so a fixed rate loan could cost you more over time and depending on how long you are fixed for.

This is where you can have your loan part variable rate and part fixed rate, and maybe part principal and interest and maybe part interest only. Cut price loans offered by on line lenders will generally not allow any flexibility like this.

Advantage: This can offer the advantage of having an “each way bet” if you’re not sure about which option is suitable. This option could give you some peace of mind if you’re concerned about rate rises affecting your entire loan amount. You can also make additional payments on the variable portion of your loan, or attach an offset a/c to the variable portion.

Disadvantage: Repayments will rise as the variable rate changes and there is a limit to the amount of additional payments you can make on your fixed rate portion.

This is where you elect to pay either just the interest charged on your loan or the interest and principal. These are referred to as Interest Only I/O, or Principal and Interest P & I. Usually with a Home loan you would elect to pay principal and interest as the rates are lower and with every payment your loan balance is reducing. Whereas with an investment loan you may elect to pay interest only so as to save cash flow and not diminish your loans tax deductibility. Your loan advisor will go through the options for you and advise the most appropriate payment type for your situation.

There are situation though where we recommend to pay just Interest only on a home loan. Eg; During a building loan, where the loan is progressively used, we recommend interest only, as you only want to pay interest on what you are using, then at the end you can move to P&I payments.

Advantage: This all depends on the usage of the loan as there are advantages with both payment methods.

Disadvantage: With an Interest Only loan, the loan balance does not get “paid off” so it may take you longer to repay the loan. Most lenders will apply special conditions to Interest Only loans, such as a restriction on the term of up to 5 years and restricting availability only to finance investment properties.

These are specialised loans for people who have some form of blemish in their credit history, such as a default, or to finance a property that has unusual characteristics. The interest rate on these loans is generally higher than traditional loans.

Advantage: You can still apply for a loan even if you have poor credit ratings.

Disadvantage: The interest rate will be higher than traditional loans.

Suitable for borrowers who are unable to provide sufficient information about their income, or may not have financials available or lodged. Therefore, these loans are only available to people who are self-employed or sole traders. Lenders for these loan types have different policies for the borrower to provide, including; Self declaration of income, Accountants confirmation of income, BAS statement provision.

Advantage: Self employed clients may be able to obtain finance even without up to date financials or lodged tax returns

Disadvantage: Compared to a traditional loan, these loans generally carry a higher interest rate

These specialised loans are most suitable for retirees who own their home, but are looking to release cash.

Advantage: Unlike a traditional loan, there are no periodic repayments required. As a borrower you can choose to get your money out in one lump sum or as a line of credit. You can unlock equity without having to sell your home or assets. The loan generally doesn’t have to be repaid until the property is sold or the owner dies.

Disadvantage: There are interest charges that are accumulated against the outstanding loan balance which could get expensive over time. In addition, there might be numerous fees and insurance costs associated with reverse mortgages which might be added towards the up-front fees.