Home Loan
Which loan suits me ?
When choosing a home loan, 3 Sisters Finance will assist you through the home loan process step to step.
We will make it easy for you to decide the features you need from your loan so you can concentrate on the task of selecting a property.
Here we outline the most common types of loans available. Your 3 Sisters Finance consultant will guide you through the best options to suit your specific needs.
Standard Variable Rate Loan
Standard variable rate loan is one of the most common home loan product.
The interest rate varies throughout the loan term. These loans generally offer excellent flexibility, low fees and offer great features such as an offset facility, redraw facility, no penalty for lump payments to the account, if rates go down, so will your mortgage.
Advantage
- Flexibility
- Lump-sum payments can be made without incurring a penalty.
- If interest rates decrease, your repayments will decrease.
- Often offer extra features.
Disadvantage
- If interest rates increase your repayments will increase.
Basic Variable Rate Loan
Basic variable loans typically offer lower interest rates and will not have all the features of a standard variable loans. You often have the option to pay for any additional feature required. Interest rates and repayments will vary throughout the loan term.
Advantage
- Relatively low interest rate.
- Lower repayments.
Disadvantage
- Many of these loans do not have the same features or flexibility as other variable loans.
Intro Rate ‘Honeymoon’ Loan
A special introductory loan rate is offered to borrowers, a guaranteed low rate for an initial period of time (usually 12 months) after which most will revert to the standard variable rate. The rate can be fixed or variable.
Advantage
- Usually the lowest rates on the market.
- Some lenders provide offset accounts on these loans.
- Opportunity to reduce the principal quickly during the ‘honeymoon’ period.
Disadvantage
- Payments will increase after initial introductory/’honeymoon’ period
Offset Account
An offset account is an optional account that allows the loan to be paid off sooner, while keeping savings separate. Rather than putting all your salary and other income into your loan, it goes into an offset account that is directly linked to your home loan. Any balance in the offset account is offset’ against your home loan. This reduces the amount of interest you have to repay, making your money work harder for you.
Advantage
- You can save a substantial amount of interest if used correctly.
- Operates like a normal transaction account with cheque book, Debit Card and other ATM cards etc.
Disadvantage
- May have higher monthly fees attached to the account.
Fixed Rate Loan
For a fixed rate loan, the interest rate is fixed for a specified period, usually between one and five years. This loan gives you the certainty of knowing exactly what your monthly repayments will be and peace of mind knowing the repayments won’t rise. However you won’t benefit if rates go down during the fixed term and a penalty is usually incurred should you decide to break the loan.
Advantage
- Guaranteed fixed rate, if the variable interest rates rises your repayments won’t be affected.
Disadvantage
- Reduced flexibility.
- Extra repayments may incur a fee or be limited.
- If you pay out a fixed rate home loan early, you most likely will be charged a break cost
Split Loans
If you are not certain if you would prefer a variable or fixed loan, you can split your loan. A split loan is a combination of variable and fixed loans. You can benefit from having the flexibility of a variable interest rate as well as having the security of a fixed rate loan.
Loans can be split as many times as the client wishes but there is a minimum loan size for each split. Split loans are effective especially when the market is proving harder than usual to predict and there is a uncertainty on whether the interest rate will rise or fall. This loan option provides a comfortable compromise between the advantages and disadvantages of having a variable and fixed interest rate.
Advantage
- Lenders treat this type of loan as being one application.
- Fixed proportion creates certainty for the borrower
- Borrowers can also benefit from the rate reduction from the variable component.
- It is possible to make additional repayments on the variable component without incurring a penalty.
- Borrowers can benefit from interest rate rises from the fixed proportion of the loan.
Disadvantage
- Penalty may apply for breaking the fixed proportion of the loan or for early loan repayments.
- In the event of an interest rate decrease, the borrower will not benefit from the fixed part of the loan
Line Of Credit
A line of credit is a flexible transactional mortgage loan provides you with access to the equity* in your home or investment properties up to a pre-approved limit. You access the funds as required for investment or for other purposes such as a home renovations, holiday, buying a motor vehicle. The interest rate on a line of credit loan is usually a variable rate and repayments are interest only.
*Equity refers to the market value of your home minus the amount still owing on your home loan.
Advantage
- You can use the money when you need it and pay it back when you can.
- Rates are generally lower than a personal loan or credit card.
Disadvantage
- Unless care is shown it is possible to reduce the equity you have built in your home. Line of credit is only a sensible choice if you are extremely disciplined in managing your everyday finances. If you will be tempted to use the funds for spur of the moment purchases, a line of credit is probably not for you.
Low-Doc/No Do & Credit Impaired Loans
A low documentation (or no documentation) loan is suited to self-employed employed individuals, contractors or small business owners who do not meet the ‘standard’ lending criteria. This may include; those with an impaired credit history, those who are unable to provide the required documentation in support of their loan application.
Advantage
- Simple income declaration form .
- No tax returns.
- No financial statements.
- Can have features such as redraw, line of credit, variable or fixed rates, principal and interest or interest only.
Disadvantage
- Generally a higher interest rate.
- Additional fees and charges.
Construction Loan
The most common type of construction loan involved the building or structural changes of your own home or investment property as well as a granny flat. A construction loan allows you to draw money as is required whilst building at each stage of the building process. Also, with the usual necessary documents required when applying for a loan, construction loans also require a ‘fixed price building contract’ and council approved plans. These loans are usually interest only for the period of building and then become principal and interest once building is completed.
Advantage
- Competitive variable interest rates.
- Facility to draw money when necessary whilst building at each stage.
- Interest only payments during the building period.
- You can make additional payments.
Disadvantage
- Requires a fixed price building contract leaving little room for change whilst building.
- Some lenders charge a fee for every time you draw money whilst building.
- Since it is a variable loan; loan repayments will increase if interest rates go up.
3 Sisters Finance will listen carefully to your needs, and suggest a loan that is right for you.