While Banks spend millions of dollars annually on marketing campaigns the reality is that there are really only a few home loan types that are just painted with different colours and are priced differently. Let’s explore them.
Variable rate loans
The interest rates attached to these loans can basically move at the discretion of your bank. They normally follow changes in official interest rates but they don’t have to. They come in the form of Basic, Introductory, Lifetime Discounts, Standard Variable Rate Products and Reverse Mortgages.
Your basic products are directed at those people that need less and love avoiding fees. They shave off some bells and whistles like offset accounts or limit redraws and have a cheap rate and minimal fees.
These products capture your eye with a sharp interest rate for the first couple of years and then revert to a higher rate from then on. They normally come with a full feature set and are low fee.
These loans are normally priced at a discount to the standard variable rate which is sold to be maintained for the life of loan. They are normally used in package deals that require payment of an annual fee and have a full suite of features.
Standard Variable Rates
This product is generally not used as a way to obtain new business but rather price existing products off or revert to after introductory interest rates expire. Given the competitiveness in the market you probably shouldn’t be sitting on this rate. There will obviously be some exceptions to the rule.
This specialist product is essentially used by retirees to help fund their retirement if they have built up equity in the property. All principle or interest payments are repaid when the property is sold or estate is settled after the death of the borrower.
Normally ranging in terms between 1 and 5 years the interest rate is set for the fixed period and does not move. The features of these loans are normally more limited than variable rate loans and can be included in package deals as mentioned earlier. They are less flexible than variable rate loans and attract expensive break fees if cancelled within the contract term so make sure you consider this if going down this route. When your fixed rate expires change it to something more competitive because chances are you will be transferred onto the standard variable rate mentioned earlier which doesn’t give you the best bang for your buck.