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Product description
When to use
Discount Variable/Honeymoon
These products offer the borrower a discounted rate for the first 6 to 12 months of the loan. The interest rate then reverts to the standard variable rate after the introductory period. Best Interest Rates
These products are appropriate where the loan is only required for the short term (say less than 2 years). Most lenders charge early repayment fees which increases the overall cost. However, there are a small number of lenders that won't charge these fees.
Basic Variable
A basic variable product is a 'no frills' loan, so there are not many features to speak of. Most basic variables offer redraw but at a higher cost. Again, many of these products have break costs. Best Interest Rates
These loan products are best used to finance investment property loans. They suit 'set and forget' style arrangements. That is, most investors set up an interest only loan and arrange for the interest only repayments to be automatically debited from their transaction account. They hardly touch the loan account or need any other features.
Professional Package
Professional packages normally bundle a number of discounted products (e.g. a loan, credit card and a transaction account). Professional packages provide interest rate discounts which exist for the life of the loan. Normally, annual fees apply. Best Interest Rates
Professional packages normally suit people borrowing over $250,000 and/or borrowers with multiple loan accounts. The reason for this is that the interest rate discounts normally more than offset the annual fees.
Line of Credit
Line of credit products are essentially a transaction account and a loan account rolled into one. They are the most flexible product on the market. They do not have a loan term and as such the minimum repayments are interest only. Best Interest Rates
Lines of credits are normally more expensive than standard loans. Therefore, there are normally cheaper alternatives which provide similar flexibility. We would really only suggest the use of a line of credit where regular transactions are required (e.g. renovations, share trading).
Fixed Rates
The interest rate is fixed for a specific period of time (1 - 5, 7, 10 or 15 years). Normally, fixed rate loans limit the amount of extra repayments you can make. Best Interest Rates
These products suit borrowers that are concerned about interest rate increases. There are some significant pros and cons of fixed rate loans which we will discuss in your report. Split loans are also good options.
Offset accounts
Offset accounts work by linking a loan account to a transaction account. Interest is then charged on the difference between the loan balance and the transaction account balance. For example, if your outstanding loan amount was $100,000 and you had $10,000 in your transaction (offset) account then the bank would charge interest on the net balance being $90,000. The benefit of these products is that you can save interest costs by ensuring all spare cash is offsetting your loan thereby saving you interest.
Offset accounts are very useful for owner occupiers (home loans) because they allow the borrower to save in interest costs through any spare cash offsetting the loan principal. Offsets will generally save most borrowers 5% to 7% in interest costs. Offsets can also be useful for investors to preserve tax balances.
