The value of new loan commitments for housing rose 6.3% to $31.4 billion in November last year, and the value of new loan commitments for owner-occupier housing rebounded 7.6% in November, according to the Australian Bureau of Statistics.

For investors, the value of new loan commitments rose 3.8 %, reaching a new all-time high of $10.1 billion. Investor lending has grown for the past 13 months and accounted for around one third of the value of new housing loan commitments in November 2021.

There are several lending options both home owners and investors can take advantage of, but many will depend on your individual financial situation.

At its basic form, there are two types; principal & interest or interest only. Both are dependent on the rate of interest.

Principal & interest loans mean you are paying off some of the capital, as well as the interest, and interest only means you are paying off just the interest.

For interest only loans, you need to ensure you’ve got some other source of finance to pay off the loan at the end of the loan period.

In this article, we’ve explained some of the different the types of loan available to borrowers and outlined some of the risks and benefits. We’ve also included some of the government schemes aimed at helping first-time home owners.

1. Variable rate

As the name suggests, this type of loan is based on the interest changes in market interest rates. This means your repayments will drop if the interest rates drop, but borrowers need to remember, repayments will increase, if the rates rise.

There are ways to potentially negate the potential of a rate rise though, such as by over paying or by using an offset account.

2. Fixed rate

For this type of loan, borrowers make fixed repayments, often at a slightly higher interest rate than those on a variable rate loan. While it does make it easier to budget, borrowers will not benefit from rate drops, but they will not feel the pinch if there is a rate rise.

3. Split rate

Some lending organisations offer borrowers the option to take advantage of both fixed and variable rates. A split rate loan allows the borrower to pay a portion of their loan at a fixed interest rate, and the rest on a variable interest rate. This is particularly useful if you’ve taken out a large loan, and want to ‘hedge your bets’ with less risk.

4. Low doc

Business owners, freelancers or other self-employed people often don’t have a regular income, so will need additional paperwork to prove they can still service a loan.

Unfortunately, this may result in paying a higher interest rate and/or providing a larger deposit.

5. Guarantor loans

This type of loan requires a family member or trusted friend who owns a home to take on some of the risk of your loan by putting forward equity in their property as security. While the lender will give you the loan, and if you default on it, they will recover the debt from the equity from your guarantor.

It goes without saying, you must be totally sure of the relationship with your guarantor before taking on this type of loan.

6. Investment loans

An investment loan does differ from an owner-occupier loan; they usually require a higher loan-to-value ratio (LVR), which means these loans generally come with higher interest rates.

7. Lines of credit

Sometimes referred to as a reverse mortgage, these types of loans allow you to release some of the equity you’ve built up in your home as cash. People can use this cash for many reasons, such as a deposit on an investment property, or to consolidate other loan types, such as credit cards.

8. Full feature home loans

Some loans do come with extra features, like an offset account and a redraw facility. Some also give you the option to make additional repayments to help you pay your loan off sooner.

However, a full feature home loan may come with higher interest rates and/or administrative charges. Make sure you do your sums to ensure you benefit from any extra costs.

Government help

• First Home Loan Deposit Scheme

Through the National Housing Finance and Investment Corporation (NHFIC), this scheme is an Australian Government initiative to support eligible first home buyers purchase their first home sooner.

10,000 First Home Loan Deposit Scheme places will be available to eligible first home buyers from 1 July 2021 to 30 June 2022.

Under this Scheme, part of an eligible first home buyer’s home loan from a Participating Lender will be guaranteed by NHFIC. This is aimed at enabling first home buyers to purchase their first home sooner with as little as a 5% deposit. More details about this scheme, and other terms and conditions of the scheme can be found here.

• First Home Owner’s Grant (New Homes) 

If you are buying or building your first home, you may be eligible for a $10,000 grant under the First Home Owner Grant (New Homes) scheme. The scheme is managed by Revenue NSW.

You can apply for the scheme when you arrange finance to buy your home. The bank or financial institution providing you with a loan will need to be an approved agent. More details can be found here.

• First Home Owner’s Stamp Duty Exemptions

A first home buyer will not need to pay any stamp duty on new homes valued up to $800,000 and for established properties first home buyers are exempt from paying any stamp duty on homes valued up to $650,000. If the home is valued between $650,000 and $800,000 a concessional rate applies.

We are not financial specialists, so it is imperative you speak to a mortgage advisor and/or a financial specialist to see which loan would best suit your situation, and make sure you’ve done your figures and fully understand the risks before you sign on the bottom line.

We’ve been helping property investors and home owners since 1974, and we’d like to help you!

We’re local and family run, and we’re committed to making your property management journey or sales process as stress-free as possible.

With nearly 50 years in the business, we have the experience to help you get the best from your asset.

We’re always here for an informal chat to answer questions, so give us a ring on 02 4954 8833, send us an email to mail@apnewcastle.com.au or pop into our Cardiff office.