Types of Loans
Fixed Rate Home Loan
Key Benefits
Protects borrowers in a rising interest rate environment.
Enables borrowers to budget for the future with confidence.
Principal reductions may be made up to an allowable limit (before break costs apply).
Interest in Advance option available for investment loans only.
Break Costs
What are break costs?
When a bank lends you money at a fixed rate for a set term, the risk associated with movements in interest rates is accepted by the bank. The bank then manages this risk based on the understanding that all the required repayments due over the whole of the fixed rate period will be made in full and on time.
The banks obtain funding on this basis through transactions at wholesale interest rates. If you make a prepayment (that is, you repay ahead of the due date or you pay an extra or higher amount) or change to another interest rate or product or another repayment type, that will change their funding position. If wholesale market interest rates have dropped, this causes a loss to the bank. The estimated amount of this loss is passed on to you as a break cost (subject to the prepayment threshold)
When are break costs payable?
Subject to the banks terms and conditions, break costs are payable on your fixed rate loan when:
• you prepay the total amount owing on your loan; or
• you make prepayments in excess of the prepayment threshold; or
• the total amount owing on your loan becomes immediately due for payment because you are in default; or
• you change to another interest rate option (fixed or variable); or
• you change the repayment type.
Variable Rate Home Loan
Benefits:
• You can make extra repayments to pay off your home loan sooner. Making additional repayments above your minimum repayment amount can reduce the term of your loan and save you money on interest. Visit our website and use our repayment calculators to see the difference that extra repayments can make to the term of your loan and to find out how much you could save.
• You get a redraw facility that allows you to
withdraw your extra loan repayments if you need
to access the money. (Some lenders do have minimum amounts you can redraw, see our Redraw & Offset Information fact sheet for more information.)
• You can use an offset account to reduce the interest you pay. That’s a transaction account linked to your home loan where the balance is ‘offset’ daily against your loan balance before interest is calculated. This reduces the principal amount the interest due is calculated on. (See our Redraw & Offset Information fact sheet for more details).
• Flexible repayment options so you can make your loan repayments weekly, fortnightly or monthly—whenever is most convenient to you. This can help maintain your budget requirements and align with your pay cycle to make it easier to manage your loan repayments.
• You can choose to split the loan to gain more control of the interest rate. That means you can have a fixed interest rate on a portion of the loan for up to five years, and a variable interest rate on the other portion of the loan. This allows you to gain some protection from potential interest rate rises.
• You can switch loans and lenders more easily if you have a variable rate loan. All variable mortgages advanced on or after 1st July 2011 have no early repayment penalties or exit fees. (However, lenders can charge discharge fees to cover the administrative costs and there are other Government charges which may apply.)
Things to think about:
• With a variable rate loan, your repayments will increase with interest rate rises. You should consider how interest rate rises may impact your future financial situation and goals. Use our handy online calculators to help you plan and budget for possible rate rises.
• A basic or ‘no frills’ variable rate loan is one which lacks additional features such as an offset account and as a result, attracts a lower interest rate and fees. This type of home loan is useful for first home buyers who want to keep costs down and those who prefer a simple loan product without all the bells and whistles.
• A standard variable rate loan is suited to borrowers who prefer more flexibility and want the ability to redraw from the loan or place any extra funds in an offset account. These extra features are usually part of a Package Home Loan that includes offset accounts, a credit card and other associated facilities and discounts, for an annual fee.
Home Loan Package
A Home Loan Package is an all-inclusive suite of products attached to a home loan. For an annual fee, you can get benefits such a discount on the variable interest rate, fee waivers for transaction or offset accounts, a credit card with an annual fee waiver and discounts on insurance products.