Specialised Loan Types Explained
There are more loan types than just the usual variable and fixed rate loans, and these include lines of credit, split loans and equity finance mortgages.
These less common, but nonetheless very useful loans suit borrowers with quite specific needs and possibly different circumstances to the average home buyer.
Here are the main specialised loan types available:
Bridging Loan
Making the transition from the sale of one property to another can often be problematic, especially if you have committed to buying a new property and your original property has not been sold. Conversely, you might have sold a property, but it may not be due to settle until after the settlement of the property you are purchasing. In both of these situations a bridging loan can be the answer. As the name suggests, this loan allows you to ‘bridge’ the financing gap that can occur between the sale and purchase of two properties. Read more >>
Construction Loan
Whether you are buying a vacant block of land to build your dream home, embarking on a rebuild on your existing property, or renovating your home, a construction loan is an ideal choice. This loan allows you to break up the loan into progressive payments, which usually coincide with the stages your home is reached as building proceeds. For new homes these stages might often include the land purchase, construction of the foundations or floor, construction of the roof and frames, lock-up and final completion. Read more >>
Equity Finance Mortgage
This is a relatively new home loan product that has attracted plenty of attention, but is still not widely available. The equity finance mortgage is designed to work in partnership with a traditional home loan, and basically allows home buyers to, in essence, have a silent financial partner own part of the property, which reduces the expense for you until the time that their property is sold. Home buyers can generally borrow up to 20 per cent of a property’s value. There is no annual percentage rate unless the loan goes into default, and borrowers are not required to make regular monthly repayments on the EFM portion. These loans can be held for up to 25 years. Read more >>
Line of Credit
This is about as flexible as it gets when it comes to home loan products. This loan type is generally well suited to borrowers with higher disposable incomes. The line of credit is set at a limit and secured against the equity in your home – usually a percentage of the property’s value. These loans allow borrowers to draw funds as required to be used as they wish, whether it is for a new car, a holiday or investing in the share market. Interest on a line of credit is charged only on the funds that have been used. Read more >>
Reverse Honeymoon Loan
As the name suggests this type of loan works in the opposite way to a traditional honeymoon loan. It generally starts at a higher rate before descending, usually, to a standard variable rate. This product is highly specialised and not often used. It is aimed at investors who are looking to time the tax deductibility of their investment loan and reduce up front loan costs. The loan converts borrowing costs, including the loan mortgage insurance premium and loan application fees into a higher interest rate over the initial period of the loan. Read more >>
Split Loan
This is the best way to have an each way bet on interest rates. The majority of lenders now offer this loan type, which allows borrowers to fix the interest rate on an agreed percentage of their loan, keeping the other part variable. You are not locked in to a 50/50 split – most lenders will allow you to have a split loan in almost any ratio. This presents you with the opportunity to experience the best of both worlds, and is ideal if you are not confident about committing completely to a fixed rate or a variable rate. Read more >>
