Types of Loans

 

Owner Occupied Home Loans

Finding the right loan is imperative to get the best results and can save you thousands off your interest and fees over the term of your loan. The following are the types of loans available from most lenders today.

Standard Variable Loan

Standard variable loans are Australia's most popular type of home loan. The interest rate varies throughout the loan term. These loans generally offer excellent flexibility, low fees and often include great features, such as an offset facility, redraw facility, no limits on additional repayments and, in most cases, no early pay-out penalties.

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Basic Variable Loan

Basic variable loans typically offer lower interest rates and fewer features than the 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.

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Intro Rate (Honeymoon Rate) Loan

An introductory rate loan generally offers 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.

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Fixed Rate Loan

Under 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.

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100% Offset Loan Account

A 100% offset loan is very similar to an all-in-one loan. 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 100% 'offset' against your home loan. This reduces the amount of interest you have to repay, making your money work harder for you.

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Line of Credit Loan

A line of credit loan provides you with access to the equity in your home or investment properties, up to a pre-approved limit. You have access to the funds as you need them. The interest rate on a line of credit loan is usually a variable rate and repayments are interest only.

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Low-Doc Loans

A low documentation (or no documentation) loan is suited to investors or self-employed borrowers who do not meet the 'standard' lending criteria. This may include normal/current tax returns that have not been completed, or simply may not want to supply them for a one off purchase.

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Credit Impaired Loans

Credit-impaired applicants aren't always the high risk that they are sometimes made out to be, rather: post-GFC lending conditions have made it surprisingly easy for borrowers to fall outside of lenders' criteria whereas, traditionally, they might not have done.

Tightened credit conditions have meant that a borrower may now be disqualified from taking out a standard loan due to credit impairment for something as small as a mislaid $100 utility bill.

Bad credit has no favourites and can affect both those on a minimum wage and those with a seven digit income. A missed household bill payment, divorce, illness or a period of unemployment can affect either  and can easily result in a bad credit rating.

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Construction Loans

If you are building your own home or investment property, a construction loan may be suitable for you. This loan requires a fixed price building contract from a registered builder. These loans are usually interest only for the period of building and then become principal and interest once building is completed. A construction loan allows you to draw money as is required while building. Also, along with the usual necessary documents required when applying for a loan, construction loans require a 'fixed price building contract' and 'council approved plans'.

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Investment Property Loans

When it comes to lending for investment purposes, the loan types are the same as listed above. Therefore it is more about who is buying the property, what advantages there are, amd what structure should be put in place. To enable us to identify the most appropriate product and structure for the situation, it is important to understand your financial situation and structuring requirements for you and the finance.

In order to purchase an investment property, a deposit will be required. This can be achieved by either saving the money or, if you have an existing property (for example a family home), and there is equity available, borrowing against the home for the deposit on the investment property is sometimes an option available to investors.

An investor, who is a homeowner, could buy an investment property without having to find any cash at all, including all the costs associated with the purchase.

To finance an investment property using the equity in the family home you will need to provide both the home and investment properties as security against the loan/s. This gives rise to three possible financing scenarios, those being:

  1. One loan is sought for both the home and investment property. These days you can get a single loan facility, which can have several accounts. In this case we would set up two accounts, one for the family home and the other for the investment property. As they are separate accounts there is no confusion with the portion that is the investment property and the portion for the family home.

  2. Two loans one for each property, where the existing home loan is increased to provide the funds required to facilitate the investment purchase. The increase to the existing home loan should be done with a multi-account loan to ensure the investment portion is separate from the non-investment portion.
  3. Three separate loans one for each property with the third loan sitting behind the loan on the family home which is used to draw the equity needed to facilitate the purchase of the investment property. Usually, in this case and in that of point 2, the loans are arranged so that the total borrowings against the properties negate the need for mortgage insurance (where borrowings are less than 80% of the value of the property).

Which of the above structures is the best? Well that really is largely dependent on how you feel about separating the family home loan from the investment loan and, secondly, how much the lenders are going to charge you in fees for the set up. Of course, if you are to purchase an investment property without using a second property, you will only require a single loan. Our next step is to consider the types of loans that are available.

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Business Loans

A business loan can be used to expand ongoing businesses, setting up or buying a business, or buying commercial property. Business loans can be either interest only or Principal and Interest, variable or fixed.

Depending on either residential or commercial security offered, loans can be from 10 to 25 years.

Types of Business Loans



Term Finance

As it states, these loans are for a set term, which can be from 10 through to 25 years. The term usually matches the asset you are purchasing, so a property loan would be over a longer term than if you are buying the business in the first place.

Term loans can be structured to suit individual needs, from interest only repayments to quarterly reductions. Both fixed and variable interest rates are available.

Overdraft (Lines of Credit)

This is where a lender gives you a limit of how much you can borrow, generally for Working capital requirements. You can draw down as little or as much as you need up to that limit for business purposes, and, although there is a line fee to have this facility in place, the interest charges are only incurred on the portion you actually use. 

Start-ups vs. Existing Business



A good point to consider when seeking business loans for your own business, is that lenders usually consider established businesses less risky than a start-up venture. Speak to your finance broker as they will be able to assess how the bank will see your proposal.

Franchise Funding

Franchise funding is exactly what the name suggests; it is where lenders fund people who are opening a franchise. Lenders are likely to franchise finance because they have proven that their business model works as opposed to a new start-up business. In some cases, if a franchise is on a lender's preferred franchise list, you may be able to borrow up to 65% of the franchise value. 

Management Rights Finance



Management Rights are a very popular business type in Queensland and lenders provide lending options for prospective purchasers of this type of business. The parameters for this type of finance are heavily dependent on the specific details and location of the resort, management experience of the prospective purchasers and the overall profitability of the business.

Debtor / Invoice Finance



With this finance, the lender gives you a percentage, in cash, of what is owed to the business (usually between 80-90%). The amount depends significantly on the age and quality of the Debtors.

Trade Finance



If the business has bought stock from overseas, it can be some time before the finished goods are sold. With trade finance, the lender gives a percentage of the money against the stock that has been purchased.

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Self Managed Super Fund (SMSF) Loans

There are many complex laws restricting the use of SMSF's to borrow money which you need to understand prior to committing to any loan product. Working with the qualified team at Wardle Partners and Compass Financial Solutions before implementing any strategy will offer you peace of mind that this investment strategy suits the investment objectives of the Self Managed Fund and will meet the legislative requirements. Three parties - accountant, financial planner and lender - need to be involved when arranging finance of this nature. Compass Financial Solutions is able to advise you of whether or not this is an appropriate solutions based on your needs and circumstances, as well as help structure a SMSF loan that works for you.

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Equipment and Motor Vehicle Finance

A simple application process, we know who you are and your financial position to enable a quick approval.

Quality products - accessing the most sought after products offering you competitive interest rates and superior customer service.

Confidentiality, we control your financial information which means your financial details are not sent to a unknown third party.

When you need to purchase a new motor vehicle, truck or other business equipment give Compass Financial Solutions a call on 07 5492 0350.

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