STANDARD VARIABLE LOAN
This loan is the most common amongst borrowers. The interest rate is variable and can move up or down, thereby adjusting your repayments. This loan offers more flexibility than other loans as you can usually make unlimited repayments and redraws without penalty.
Many standard variable interest rate loans also offer a 100% offset account whereby any balance in the offset account is deducted from the outstanding loan prior to calculating the interest payable.
BASIC VARIABLE LOAN
A basic loan is also a variable loan but usually offers less features than standard variable loans.
Generally there is a minimum amount that can be redrawn and there is usually a fee involved. These loans generally don’t include an offset account.
A fixed loan allows you to fix the interest rate for a period of time, generally between one and five years, with some lenders seven, ten and even fifteen years.
After the fixed term, the loan usually reverts to the standard variable rate on offer at that time or you may choose to refix the loan for another term. With fixed loans the interest rate is fixed on the day of settlement unless the rate is locked at application which incurs a fee.
The repayments on a fixed loan do not change during the fixed period and provide customers with certainty about their repayments. The majority of fixed rate loans limit the amount of additional repayments which can be made each year, however some lenders offer fixed rate loans with unlimited repayments and redraws. If you decide to sell your home whilst on a fixed interest rate, a penalty will generally apply unless you replace the security with a new security.
LINE OF CREDIT
These loans are extremely flexible and are similar to a credit card with a large limit. You can repay as much as you want and redraw as much as you want.
With this loan it is important to budget appropriately so that you repay more than you redraw otherwise you could end up owing the same amount for a long period of time.
With a line of credit some lenders require the borrower to make an ongoing repayment while others allow the interest to be capitalised such that the loan outstanding increases.