Types of home loans
When you buy a home you suddenly face new expenses, for example: mortgages, land rates, water rates, house and contents insurance, house repairs and for some people, strata levies. You may find you have less income to meet unexpected expenses. FIDO's Budget planner can help you estimate the impact of these new expenses and will help you decide what type of home loan is right for you.
Standard 'principal and interest' home loans
Most people take out a standard home loan, where you make regular payments to cover the interest on the loan as well as the principal amount borrowed. This usually takes place over an agreed time, for example, 25 years. You can generally repay the loan in full at any time, although you might be charged a fee.
More about standard home loans.
'Low-doc' loans
If you take out a 'low-doc' (low documentation) loan you won't need to give your lender or mortgage broker as many documents to prove your income, assets and liabilities. Low-doc loans can help if you would not qualify for a standard loan, but there are usually some strings attached, so it's vital you understand what you're getting into. It's a good idea to weigh up the extra costs and potential risks involved in a 'low-doc' loan.
More about 'low-doc' loans
Line of credit mortgages
The idea of paying off your home loan more quickly is very appealing and is used by some mortgage brokers to attract you to their line of credit mortgages. Do these types of mortgages really help you pay off your loan sooner?
Read FIDO’s 5 questions to ask yourself before changing your existing loan to a line of credit mortgage.
Reverse mortgages
Reverse mortgages allow you to borrow cash against the value of your home. You usually don’t have to make regular repayments until you leave and move into care, sell your home or die. When the loan ends you, or your estate, must repay what's owing, usually out of the proceeds of the sale of your home.
There are various eligibility criteria for these types of loans.
See if a reverse mortgage could be a solution for you.
Deposit bonds and vendor finance
A deposit bond is a guarantee, usually issued by an insurance company, which can be used by a purchaser instead of paying a deposit on the exchange of contracts for the sale of land. The purchaser must then pay 100 per cent of the purchase price on completion of the sale.
Under the deposit bond, the issuer of the bond promises to pay the amount of the deposit to the seller of a property if the purchaser does not complete the sale of the property. If the issuer is required to pay the deposit, it will seek to recover that amount from the purchaser.
In assessing an application for a deposit guarantee, one of the key issues for the issuer of the bond is whether the purchaser has the necessary funds to complete the purchase. If the issuer is not satisfied of this, they will not issue the deposit guarantee.
Vendor finance
Vendor finance is an agreement where the owner of a property (often called a ‘wrapper’) offers finance to the purchaser. The purchaser never legally owns the property until all the money owing to the vendor has been paid.
The purchaser usually pays an interest rate about 2 to 2.5 per cent higher than the standard home loan, and may also pay a premium over the purchase price of the property to the vendor. Because the purchaser is not the owner, they have limited rights.
If the vendor in their turn has borrowed to financed the property and they default on that loan, the purchaser still loses possession and any possibility of ownership even though the purchaser is not in default to the vendor. The purchaser’s only recourse may be legal action against the vendor who may have no assets.
Back to Loans and credit
More help
Buying a home
Mortgage brokers
Paying off a loan sooner
Loans, families and relationship breakdown
How to complain
FIDO Website: Printed 02/10/2010
