Five Different Categories of Home Loans
 There really is no such thing as a single type of home loan as there are variables that go into the loan beyond dollar amount. However, there are general loan categories within which you will need to get specific details from your mortgage broker or lending institution. Here are five categories:
- 100% Loans
- Variable Rate Loans
- Fixed Rate Loans
- Construction Loans
- Low-Doc Loans
100% Loans --If you are having trouble coming up with a down payment, a 100% loan lets you borrow the full purchase price of the home. However, you will still need to pay for mortgage insurance and lender and legal fees. To qualify you will need a significant income and a solid and stable employment history. Following the world wide economic collapse of 2008, many of these loans are now at 90% of the purchase price. There is a risk of going “upside down” if housing prices in Australia collapse.
Variable Rate Loans –Variable rate loans, which are the most popular category in Australia, charge an interest rate that varies over the life of the loan based on the cash rate set by the Reserve Bank of Australia. There are both standard variable rate mortgages and basic variable rate mortgages. While a basic or budget loan will typically have a lower interest rate, such a loan has less flexible features in terms of the length of the loan and early repayment. There is also an introductory or honeymoon variable rate loan, which starts with a very low rate which increases after a year or two.
Fixed Rate Loans – This category allows you to get an interest rate that stays the same for the life of the loan, usually 5 years. It gives you protection against significant increase in the cash rate which would raise your payments with a standard variable rate loan.
Construction Loans – This is a special category for those building a custom home. Typically payments are made direct to the contractor and the loan reverts to a standard variable loan upon completion of the home.
Low-Doc Loans – This category is meant for self employed people without proof of income. The interest rate will be higher but the loan can be converted when the borrower can provide verifiable proof of income.
For existing homeowners there is a Line of Credit category which allows you to borrow against the equity in your home as needed. Interest is calculated on the average daily balance of what you’ve borrowed.
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