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Some of the more popular types of loans include:

Standard variable loan

This is one of the most popular types of loan where the interest rate varies throughout the term of the loan. The term can generally be up to 30 years.

Advantages:
  • When interest rates fall so do your repayments.
  • You can make additional repayments without penalties.
  • These loans often come with a lot of useful features such as offset accounts.
Disadvantages:
  • When interest rates rise, so do your repayments.
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Basic variable loan

Lenders now offer basic variable loans with lower interest rates, but with fewer features than a standard variable loan. The interest rates and repayments vary over the term of the loan.

Advantages:
  • Lower interest rates mean lower repayments than standard variable loans of the same amount.
Disadvantages:
  • These loans don’t usually offer the features and flexibility of a standard variable loan, for example they may not be portable (if you sell your home and buy another).
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Fixed Rate loan

Fixed rate loans protect you against interest rate changes for an agreed time, so you have peace of mind knowing your repayments won’t increase. However, you won’t benefit if rates go down during the fixed term and the loan cannot be changed without incurring penalties.

Advantages:
  • Your repayments are predictable for the period that your loan is fixed.
Disadvantages:
  • You have reduced flexibility and may incur early repayment cost if you want to make extra repayments.
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Introductory or Honeymoon loan

These loans typically offer an introductory or discount period in which the interest rate is reduced. Also known as a honeymoon loan, the introductory rate can vary from 6 to 12 months. The interest rate can either be a discounted variable rate, fixed or even capped. Once the introductory period has expired the loan usually reverts to the standard variable interest rate.

Advantages:
  • These loans usually offer the lowest interest rates and can enable a quicker repayment of the principal debt.
  • Some lenders also provide an offset account against these loans.
Disadvantages:
  • You may be locked in to paying a higher interest rate than other comparable products after the introductory period ends.
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Low doc or No doc loans

A low-doc or no-doc loan is ideally suited for self-employed borrowers who may not be able to provide the level of documentation required for full doc loans. No tax returns or financial reports are required but the borrower is required to sign a declaration of income and affordability of the loan.

Advantages:
  • Many of these loans come with all the flexibility and features of a “full doc” loan and are easier to obtain.
Disadvantages:
  • These loans generally carry a higher interest rate and borrowers will also, in most cases, need to have a very clean credit history to be eligible.
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Line of credit

Line of credit facilities or Home Equity Loans allow borrowers to gain access to the accumulated equity that they have in their properties. The Line of credit facility limit is normally determined by the value of the security or property that is being offered along with an assessment of the borrowers ability to repay the higher amount if re-financing.

A major feature of these facilities is that they allow the borrower to redraw their facility back to the original limit, they even allow the borrower to go between a credit and debit balances.

These facilities are known as revolving line of credit facilities, they are similar in operation to the common overdraft.

Most Line of Credit facilities allow for the borrower to operate their loan account as their transaction accounts, thus achieving an “all in one” account. Normally the borrower has their wage or salary deposited directly into the facility, which reduces their balance, thus reducing their daily interest charge. The borrow would then normally pay all their bills using the credit card, and access cash from their line of credit facility from a chequebook, ATM card etc..

Advantages:
  • You are able to have credit available when you may need it without having to apply for a loan or a redraw.
  • By having your wages paid into the account and only drawing amounts when expenses need to be paid you may be able to save yourself interest and pay off your home sooner.
  • Interest rates are usually lower than credit cards or personal loans.
Disadvantages:
  • The line of credit requires good financial discipline to prevent using the equity in your home to fund short term lifestyle costs.
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Special purpose loans

There area number of special purpose loans available including:

  • Construction loans
  • Bridging finance
  • Rural property loans

Please contact your Loan Clinic broker for more information about these more complex products.

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Loan features

Feature
Description
Benefit
For People Who Want to…
Offset Facility A savings account linked to your mortgage, so that the interest earned on your savings is applied to offset the interest charged on your mortgage. Saves interest on your loan. Save interest and pay their loan off sooner.
Redraw Facility Allows you to redraw any funds that you have repaid in excess of the scheduled repayments. A flexible way to gain access to extra repayments. Also saves interest whilst the extra funds are sitting in the loan. Have easy access to extra repayments that have been made.
Loan Portability / Security Substitution Substitute security properties whilst keeping the same loan. Saves the time and expense of having to apply for a new loan. Can be a good way to avoid break costs on an existing fixed rate loan when selling an existing property. Have the convenience of buying and selling property without having to re-apply for new loans each time.
Extra Repayments The ability to pay extra funds into your loan account. Saves interest by reducing the loan balance. Saves interest by reducing the loan balance.
Switch to Fixed Rate Change an existing loan to a fixed rate during the loan term. Safeguard you against potential interest rate rises. Have the option to select a fixed rate at a later stage.
Split Facility Choose to split the loan into fixed or variable portions, or a combination of other allowed products. Allows you to have a number of sub-accounts to take advantage of fixed interest rates or other special features. Have the benefits of a number of product features, and flexible management of multiple loans.
Interest Only Repayments The lender only requires repayments to cover the accrued interest on the loan. Terms of between 1 – 5 years are most common, with the loan converting to principal & interest repayments at the end of the interest only term. Minimises the required repayment on the loan. Pay the minimum required amount off the loan. Also for those who do not have an immediate requirement to reduce the principal debt.
Principal & Interest Repayments Pays not only the interest charges on the loan, but also an amount of money that will actually repay the loan in a given time period. Known as amortisation. Reduces the debt outstanding over time. Increase your equity in the property, and ultimately repay the debt in full.
Fixed Rate Interest rate is ‘locked in’ for an initial term of usually between 1 – 10 years. Will then revert to standard variable rates at the expiry of the fixed term.

Gives you repayment certainty.
**Break costs can apply when making extra repayments or clearing the loan in full during the fixed rate period.

 Have repayment stability, or safeguard themselves against future interest rate rises.
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