Directory on the Different Types of Home Loans

Directory on the Different Types of Home Loans

If you’re on the hunt for your first home, you know there are a lot of decisions to make. Finding which type of loan best suits your needs is probably the trickiest aspect of this journey.

But don’t worry, we’ve got you covered! This FREE resource tackles everything from basic mortgage types through to helpful tips about getting started with loan pre-approvals.

So get ready – real estate expert tips incoming!

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What are Home Loans?
And How Do Home Loans Work in Australia?

A home loan, also known as a mortgage, is a type of loan that is used to purchase a house or property. Aus home loans are typically provided by banks, credit unions, and other financial institutions.

In Australia, all types of home loans work by allowing individuals to borrow a certain amount of money from a lender to purchase a property. The borrower then repays the loan, plus interest, over an agreed period of time.

The property serves as collateral for the loan, so if the borrower defaults on the loan, the lender can foreclose on the property.

How to get a mortgage in Australia?

The process of applying for home mortgages typically involves the following steps:

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Before you start looking for a property, it’s a good idea to get pre-approved for a home loan. This will give you an idea of how much you can borrow and what your monthly payments will be.

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Finding a property

Once you have been pre-approved for a home loan, you can start looking for a property that you would like to purchase.
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Applying for the loan

Once you have been pre-approved for a home loan, you can start looking for a property that you would like to purchase.

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Property valuation

The lender will arrange for a property valuation to be done to determine the value of the property.
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Once the lender has assessed your application and the property has been valued, they will approve or decline your loan application.
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Once the loan is approved, the lender will disburse the funds, and the property will be transferred to your name.

Types of Home Loans

Below are the different types of house loans in Australia:

1. Construction loans

Construction loans are types of loans that are specifically designed to help individuals and companies finance the cost of building or renovating a property. These loans typically have a shorter term than traditional mortgages.

They are often used to fund the construction of new homes, commercial buildings, and other types of real estate projects. They typically have different requirements and interest rates than regular home mortgages, as the lender is taking on more risk by lending money for a property that does not yet exist.

The loan will typically have a draw-down period, where the borrower can draw on the loan as required for the construction, and only pay interest on the amount drawn down.

2. Guarantor loans

A guarantor loan is a type of mortgage loan which uses an individual’s assets or credit standing to guarantee the loan. The guarantor agrees to take responsibility for the debt if the borrower defaults on payments or fails to meet the terms of their loan.

Generally, guarantor loans are unsecured and have much lower interest rates than other types of personal loans. This type of loan can be useful to those with a poor credit history who may struggle to obtain traditional financing from banks or other lenders.

You can have your parents, siblings, relatives, or even ex-spouse to act as your guarantor.

3. Owner-occupied home loans

An owner-occupied home loan is a type of mortgage loan used to purchase a property where the borrower intends to live in the property as their primary residence. These loans are typically considered to be lower-risk by lenders, as the borrower has a vested interest in maintaining the property and keeping up with the repayments.

These loans usually come with features such as redraw facility, offset account and the ability to make extra repayments, which can be beneficial for borrowers. Additionally, some lenders may also offer different types of loan structures, i.e., fixed-rate or variable-rate loans, or split loans, to allow borrowers to choose the loan that best suits their needs.

Some lenders may have different policies for owner-occupied home loans, such as a minimum income requirement or a maximum loan-to-value ratio (LVR). This pertains to the maximum amount of the loan compared to the value of the property. Additionally, there may also be different requirements for first home buyers or second home buyers.

4. Fixed rate loans

Fixed rate loans are a type of loan where the interest rate remains the same for a set period of time, typically between 1 to 5 years. This means that the borrower’s repayments will remain the same over that period, which can make budgeting and managing repayments easier.

This home loan type is popular among borrowers who want to lock in a low interest rate and ensure that their repayments will not change over the fixed rate period. After the fixed rate period, the loan will usually revert to a variable rate, which can change in response to market conditions.

While fixed rate loans offer the stability of fixed repayments, they may be less flexible than variable rate loans. They may also have higher interest rates, penalties or fees associated with breaking the fixed rate period.

5. Variable rate loans

A variable rate loan is a home loan type where the interest rate can change over time. The interest rate is determined by the lender and can fluctuate in response to market conditions, such as changes in the official cash rate set by the Reserve Bank of Australia (RBA). This means that the borrower’s repayments can change over time, which can make budgeting and managing repayments more challenging.

Variable rate loans are popular among borrowers who want the flexibility to make extra repayments or redraw on their loan without penalty. They can be more suited for borrowers who expect to have an income increase over time. They usually come with a redraw facility, which allows borrowers to access extra repayments that they have made, and this can be useful for unexpected expenses.

However, it’s important to note that when interest rates rise, the repayments on a variable rate loan will increase. This can be difficult for some borrowers to manage.

6. Split loans

A split loan is a type of loan where the borrower splits their loan between a fixed rate and a variable rate. This allows the borrower to take advantage of the benefits of both types of loans.

For example, they may choose to fix a portion of their loan to provide certainty and stability in their repayments, while maintaining the flexibility of a variable rate loan for the remainder of their loan.

This way, borrowers can take advantage of the benefits of a fixed rate loan. They get the ability to budget and manage repayments more easily, while also taking advantage of the flexibility and potential lower interest rates offered by variable rate loans.

7. Investment home loans

An investment home loan is used to purchase a property that will be used as a rental property or for other investment purposes. Investment home loans are similar to traditional home loans, but they often have different lending criteria and interest rates.

Lenders may require a larger deposit. They may also take into account the rental income generated by the property when determining the borrower’s ability to repay the loan.

Investment home loans usually have a higher interest rate than owner-occupier home loans, as they are considered to be higher-risk. This is because the property is being purchased as an investment, rather than as a primary residence. Therefore the lender may see a higher risk of default. Additionally, lenders may also require an assessment of the property’s rental income potential and a higher deposit may also be required.

8. Bridging loans

Bridging loans in Australia are short-term loans that are used to “bridge” the gap between the purchase of a new property and the sale of an existing property. These home loan types are typically used by individuals or companies who need to buy a new property before they have sold their current one.

Bridging loans are typically more expensive than traditional mortgages due to the added risk to the lender. They are commonly used for property purchases where the buyer needs to move quickly and the sale of the existing property will take some time.

They are also used for refinancing, development, or commercial property purchases. They can be secured by either the new property or the existing one, and usually have a term of 6-12 months.

9. Refinance home loans

A refinance home loan is a type of mortgage loan that allows a borrower to replace their current mortgage with a new one. They can refinance with their current lender or with a new one.

The borrower can use the loan to pay off the outstanding balance on their current mortgage. Then they can take out a new loan with different terms, such as a lower interest rate or a different loan term.

The main benefit of refinancing is that it can lower the borrower’s monthly mortgage payments and overall interest costs. However, it’s important to consider the costs of refinancing, such as application and legal fees, before deciding to refinance.

10. Low-doc home loans

A low doc home loan is designed for self-employed borrowers or those who have difficulty providing the traditional documentation required by lenders when applying for a home loan.

Low doc home loans may have higher interest rates and require a larger deposit than traditional home loans. They are also typically offered by non-bank lenders, who have more flexible lending criteria.

Borrowers of this type of home loan need to provide less documentation than traditional home loan. This includes an accountant’s declaration or a business activity statement, instead of complete financial statements.

11. Reverse mortgage

A reverse mortgage allows homeowners aged 60 or over to borrow money using the equity in their home as collateral. The loan is called “reverse” because instead of making payments to the lender, the lender makes payments to the borrower. The borrower can choose to receive the payments as a lump sum, regular payments, or as a line of credit.

The loan is typically paid off when the borrower sells the home, moves out permanently, or passes away. At that point, the lender is entitled to the proceeds of the sale of the home, up to the amount of the outstanding loan balance.

12. Non-conforming loans

Non-conforming loans, also known as non-conventional or non-conformist loans, are mortgages that do not meet the guidelines set by government-sponsored enterprises (GSEs). These loans are typically offered by private lenders or non-bank financial institutions. They are intended for borrowers who do not qualify for a traditional mortgage due to factors such as low income, poor credit, having just moved in the country, or an atypical source of income.

Non-conforming loans may have higher interest rates and require a larger down payment than traditional mortgages. They may also have more restrictive terms, such as shorter loan terms or higher fees.

Examples of non-conforming loans include, low doc loans, high LVR (loan to value ratio) loans, interest only loans, and non-resident loans.

It is important to note that non-conforming loans are subject to stricter lending regulations that traditional loans. They may no longer be available in some markets due to regulatory changes.

13. Line of credit home loans

A line of credit home loan allows the borrower to access a revolving line of credit secured against their home. The borrower can access the funds as they need them, up to a certain limit, and only pay interest on the funds they use. The borrower can also make additional payments or pay off the loan in full at any time without penalty.

Line of credit home loans are similar to a credit card, in the sense that the borrower can access funds as they need them. But unlike credit cards, the interest rates are typically lower. The borrower can also use the loan for a variety of purposes, such as home renovations, investment properties or to pay off other debts.

Line of credit home loans can be a flexible and useful financial tool, but it’s important to remember that they can be quite complex. The interest can accumulate quickly and become a large debt.

Work With Our Team of Mortgage Brokers Sunshine Coast

So, there you have it – everything you need to demystify home loans and get started on your Sunshine Coast property journey with confidence.

If you’re looking for more personalised help and expert mortgage advice, our team of qualified home loan brokers Sunshine Coast are here to assist. Our team provides Sunshine Coast locals with a wide range of financial solutions in business and life. With our experience and first-hand knowledge of the financial industry, we guarantee that you’re in good hands.

Don’t hesitate to get in touch today!

FAQs on home loans Australia

The first requirement is that you must be at least eighteen years of age. Additionally, lenders will assess whether or not you have a good credit rating and a stable income stream. To this end, you need to show proof of employment and provide details about any other sources of income. It’s also important to have saved enough money to cover the cost of a deposit. Generally speaking, lenders require a deposit between 5-20% of the purchase price of your chosen property.

In addition to meeting the basic criteria listed above, borrowers may also be required to provide documents such as bank statements and pay slips which demonstrate stability and affordability when it comes to repaying loans.

Getting a pre-approval for a home loan means you have already been approved by a lender with certain conditions before submitting an offer on a property. To apply for pre-approval, lenders will usually assess your income, assets, liabilities and other financial commitments over the past few years. Pre-approvals also provide an estimate of how much money you could borrow from them if approved, as well as an indicative interest rate.

There are many ways to save on your home loan and reduce the amount of interest payable over the term of your loan. These include:

  • Making extra repayments above the minimum each month if possible;
  • Using an offset account to reduce interest accruing on the part of your balance held in the offset account;
  • Consolidating debt into one lower interest rate loan;
  • Taking advantage of any discounts offered by lenders;
  • Refinancing to access more competitive rates; and
  • Considering longer repayment terms or reducing your debt faster with shorter terms (if affordable).

In Australia there are various government initiatives that can support first time buyers. Grants such as First Home Owner Grants (FHOG) can help cover some upfront costs associated with buying property such as stamp duty fees. There are concessional stamp duty rates on certain properties purchased by eligible purchasers, depending on the state. There is also the First Home Super Saver Scheme (FHSSS) which allows eligible borrowers to make voluntary contributions up to $30K towards their first property purchase without having to pay tax on earnings.

What our Clients Say

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I’ve recently had the pleasure of working with the team at Sunshine Coast Financial Solutions to secure a new mortgage. Throughout the entire process, communication was clear, professional & friendly. I was kept up to date and was well informed every step of the way. I wholeheartedly recommend Sunshine Coast Financial Solutions to anyone in need of expert mortgage advice & assistance.
This is the 3rd time we have used SCFS, this time for an investment property and refinance overall.Chris advised us to what our best options were taking into account taxable nature of investment and how best we structure between that and our owner occupied.The team at SCFS found us a much better rate overall and have infact reduced our monthly payments.Chris and team (Adam, Darryl, Shanina) keep you updated every step of the way and make the process seamless and easy even when we have had more complicated lending requirements.We have had the pleasure of referring several of our friends to SCFS who have been equally impressed. We are based in NSW, and absolutely no issues being in a different state.If you are after a personal service, and one that continues to proactively manage the best deal for you ongoing this team will look after you.
Very helpful team with excellent communication throughout the whole process. Would definitely use again and highly recommended!
The team was friendly and very easy to deal with. They made the process of getting a loan easy by walking us through every step.
The experience we had with Sunshine Coast Financial Services was incredible. They were professional, knowledgeable and reassuring from the start of our house purchasing journey right to the finish.Apart from all the team, we were lucky enough to have Daryl Hermann assisting us.He was so positive, helpful, encouraging and always happy to answer any questions that I had and there was plenty….Thanks to SCFS we are now the proud owners of a home we could only have dreamt of.Without a shadow of doubt I would highly recommend anyone looking to purchase a home to give these guys a call.I know I certainly will when I choose to purchase another property.
Easy to deal with, happy with the results
Very supportive, available, thorough and professional- highly recommend.
My partner and I were super keen to get into the property market and reached out to Chris and his team as a result from reading these outstanding reviews and they did not disappoint. The team have been nothing but transparent throughout every process of building our first home and answered all our questions in record time. Thank you for your continuous support! Anyone needing assistance needs to look no further then SCFS! If I could put 10 stars I would.
Just wanted to thank Chris Wilson and Tracey Butler for looking after me again with my home loan. My fixed rate is expiring soon. Weeks ago Chris contacted me to discuss my options, the process and a plan of attack.Tracey diligently stepped in right on cue and executed the plan with a superb outcome. A better than expected interest rate, not just for now but for the future of my home loan. I couldn't be happier.This team makes you feel like they step into their customers shoes as if it was their own home loan. They strive to do everything they can for their customers and in such a friendly and professional manner. Thank you again Chris and Tracey.
Efficient, helpful and honest advise. Highly recommend
What a treat it was to work with Chris and his team, they are extremely professional and we're able to find me a much better deal on my home loan. I'm now saving thousands each year! I couldn't recommend him highly enough 👍
Sunshine Coast Financial Solutions worked magic for this first home buyer. The home-buying process is very daunting for newcomers, when searching for your dream home it's hard to know the usual steps and who to trust. Chris and Adam from SC Financial Solutions provided professionalism and attention to detail each step of the way, helping to relieve stress and bring peace of mind knowing we were in safe hands throughout this life changing decision. I'll recommend SC Financial Solutions to everyone searching for an award-winning knowledgeable, reliable and responsive brokerage team.
This new homeowner is thrilled to leave a review for Chris and his colleague Adam at Sunshine Coast Financial Solutions. These mortgage wizards worked their magic on a loan for me, comparing all leading banks of Australia, with a great result. Their efficiency and advice meant I could make a fast and easy settlement. Chris and his team have made our first home buying experience so much easier.If you need a mortgage, I couldn’t recommend enough🌞🏡 Sunshine Coast Financial Solutions 🌞🏡
Excellent service, fast and efficient. I have been using the SCFS team for years and recommend them to anyone for finance solutions. You lean back and relax while they do the hard work and find you the best deal. Very happy 😊
Today is approval day something I did not think I would be doing in this day and age with how life has been but thanks to the team at SCFS it's all been made possible and easy couldn't recommend a greater team, will definitely be using them for my next few houses
I've been using Sunshine Coast Finance for a number of years over which time they have taken care of the finance for 3 properties, I can't recommend them enough.
On behalf of my wife and I, We highly recommend Chris and his team for your financial needs. They made our process feel smooth and enjoyable, and we will definitely be returning in the future for their services.
My husband and I have worked with Daryl for a while now and the experience has been nothing but beyond exceptional. The work he puts in to help us is incredible. We would be lost without his expertise and guidance. We couldn’t recommend Sunshine Coast Financial Solutions more highly.
It was the first time for me to buy a house. I really had no idea how complicated it is. The Sunshine Coast Financial Solutions team support was amazing; they took care of everything and negotiated a very convenient interest rate. The communication was also fantastic. Great result with a minimum effort. Highly recommended
Absolutely amazing service. From start to finish the communication was 100%. We were kept up to date throughout the entire process and always felt supported. Daryl was so easy to talk to, responded to every question we had and I cannot thank him enough, we really appreciate all that he did for us. I will not hesitate using their service again in the future and have passed on their details to friends! Thankyou again for everything!
Excellent professional and friendly service, excellent communication, kept us informed throughout process. Highly recommend
The team at scfs are awesome. Thank you so much for making my home refinance a breeze. I've been asked by few people now, how I got this so quickly. I said "my broker is the gun". Thank you so much Chris, Shanina, Adam, Daryl and Tracey, for all your hard work, and dealing with me. Definitely 5 stars👍
I highly recommend Chris and his team @ SCF Solutions to anyone going through a divorce or any other life transition that involves financial decisions.Chris’s expertise, practical approach, and easy-going nature provided the clarity I needed to make informed decisions about my financial future. Chris’s open and honest manner empowered me with a strong understanding of my financial position and lending capability which eased the burden associated with the division of the matrimonial home. He treated me like a priority and provided valuable guidance and support every step of the way as I navigated through an emotionally challenging time.Communication during critical times in the process such as loan approval and settlement was outstanding, even when this fell over the Christmas/New Year period. Someone from his team was always available to answer any questions or concerns and provide reassurance when needed.Second time I have engaged Chris over the past 8 years, and I can proudly say I will remain a lifelong customer!If you want the best possible mortgage to suit your specific financial situation then you can’t go past Chris and his team.
Chris and his staff members are always very helpful and informative.
Another brilliant experience with the SCFS team. Excellent from start to finish - thanks so much Chris and the team 👍
Excellent, thank you
My partner and I had Jo and Shanina from SCF help us with our home loan, everything was quick and effortless which is what we wanted. Highly recommend them!We also just had a 1 year review from Tracey and she ensured we were still getting the best rate 🙂
Chris and his team have helped me again to buy a property which was a stress free and quick process. I have complete trust in Chris and would highly recommend his business.
Chris and the team have been very helpful throughout the process keeping me informed every step of the way.SCF saved me lots of money from my current loan and will keep an eye on it from now on.Well done team
Adam and the team made our process super easy and they were very helpful. Would definitely recommend them ☺️
Chris and his team made financing our new home purchase a smooth process that left nothing to chance. With his support we were able to confidently bid on and secure our dream home and he made sure we had the very best deal we could achieve in record time.Chris coached us through each step and was always available to answer our questions and provide guidance when we needed it.Overall his team is professional, friendly, helpful and always approachable.We couldn't have achieved the result we did without his help and we would definitely use his services again.We can thoroughly recommend Sunshine Coats Financial Services and Chris Wilson to anyone looking to arrange their finance. You won't be disappointed!
Chris & the team have been fantastic from start to finish. Patient, professional & supportive throughout the whole property purchasing journey. They have gone above and beyond to help me into a property, I am very happy with my experience from start to finish. I can’t speak highly enough of their transparent and professional approach.
Once again, Chris and the team at SCF have provided us with excellent service. They are professional, efficient and always available to answer questions and concerns. We would highly recommend them.
I recently purchased my home using the SCF Solutions for my financial needs, and I must say that I had a fantastic experience. The person who handled all my transactions on my behalf, Daryl Hermann, was extremely meticulous and efficient. His attention to detail and promptness in completing all the necessary tasks left me truly grateful. I highly recommend SCF Solutions for anyone in need of financial services. Thank you, Daryl, and the entire team at SCF Solutions for your outstanding support!
Chris and his team were absolutely fantastic.Clear and transparent from the start, SCF made the experience of buying our home seamless.Highly recommend SCF for your lending solutions.
So much thanks to Chris and the team at SCFS. We had a very difficult and compressed settlement subject to many finance extensions. The whole way through the journey the whole team were absolutely professional and got us into our new home.I Very highly recommend there services toAll.Your sincerelyCraig Jenkins & Katherine Thompson
Adam and the team at SCF have been fantastic in finalising my re-finance. Adam provided insightful knowledge on lenders that would be more suited to my situation and the best avenues to go forward with. He achieved my expected result within a really short timeframe. No question was too silly. Can’t recommend Adam enough.
The team were amazing to work with. They made the process so easy, kept us updated on the process and gave us multiple options to achieve our goals. Couldn’t recommend them enough!!
Chris and the team make it so easy and hassle free. Cannot recommend them highly enough and wouldn't use anyone else apart from them.
Chris is very professional and always does everything to help us out!
Chris and the team were fantastic in helping us get our mortgage for our first home in Australia. They helped us through the process and were supportive, attentive and helpful throughout the entire process. I would heartily recommend SCF!
Chris was great to deal with, straight to the point and got what we needed done. Explains everything you need to know in detail.Extremely happy with the outcome 👌🏻
I am a repeat client of Chris and his team. In every experience I have had has been 100% positive. Chris and his team do everything possible to make every step through the process explained and run smoothly. I highly recommend anyone looking to finance or refinance to talk to Sunshine Coast Financial Solutions.
the scfs team were fantastic from start to finish in getting my new loan. Nothing was a problem for them. Getting everything sorted very fast. Very fast replies and always keeping you updated.I can't recommend daryl and the team enoughThanks again
Chris, Shanina and the rest of the team were so super helpful, understanding and really got the best rate for me! Not only that their communications were so clear, consistent and they were always available for help and advice! Would highly recommend to anyone!! Thank you team!!
SCFS have assisted us with brokerage a few of times now and Chris, Matt, Shanina and the team have been fantastic every time!