The Home Loan Centre - Canberra's Mortage Provider of the Year 2003

Due to the complexities of the new regulations relating to the provision of loan comparison rate schedules we no longer advertise rates online. However, all of our Mortgage Consultants are equipped with up-to-date hard copies of our comparison rate schedules. You will be given a schedule at your interview if you are a prospective client.

However, The Home Loan Centre strongly believes that interest rates alone do not provide adequate information to assess the optimum loan for its clients. Whilst the Comparison rate legislation has attempted to standardise the interest rate to make it easier to compare, we believe that it has fallen short of this objective because of the items that are excluded from the calculation and because of the effect of a higher ($250,000) standard loan size.

The loan features and issues that our Consultants will consider for you, in addition to the interest rate, are application, valuation and security fees, discharge and deferred establishment fees, ongoing account keeping fees, loan features and flexibility, such as portability, loan splits and ancillary benefits.

A variable rate loan refers to the fact that the interest rate is variable for the duration of the loan. This means that the interest rate will move up and down, in accordance with economic conditions and market forces. The movements in the Official Interest Rate set by the Reserve Bank of Australia, and widely reported in the media, is the predominant benchmark that dictates interest rate movements.

Variable rate loans are the most popular form of home loan in Australia accounting for approximately 85% of all loans. The alternative loan is a fixed interest rate loan which is described below.

You can increase the frequency or amount of your repayments at any time, this is often referred to as advance or unscheduled repayments. This means that you can cut down the term of the loan and by making additional payments you will reduce the amount of interest charged.
Many variable loan products will allow you to redraw the advance or unscheduled repayments, whilst this may incur a small fee (usually between $20 and $50). Increasingly this service is available at no cost. The advantage of this feature is that it provides the borrower with greater flexibility at minimal cost.
Usually variable loans are portable. This means that you can swap the security or mortgage on the loan, allowing you to transfer the loan to your new house if you move. The advantage of this feature is that the paperwork and cost of transferring your loan between properties is often lower than the alternative of repaying the original loan and establishing a new loan for the new property. In practical terms this feature has limited application as it is generally only effective where the new loan is the same or lower than the old loan, it also requires the two property settlements to occur simultaneously.
Variable loans give you complete flexibility so that you have the option to switch all or part of the loan to a fixed rate loan at any time. Some variable rate loans make specific allowance for the borrower to make the switch to a fixed rate loan without cost or at a minimal switching fee.
Many variable rate loans allow the borrower to operate the loan as a “split” loan which means that part of the loan is set at the variable interest rate and part is at a fixed interest rate.

Over the past decade many lenders have introduced “No Frills” or discount variable rate loans to compliment their standard variable rate loans. The main difference between the products is that the “No Frills” product generally has very limited features so that it would not generally include things such as portability and loan splitting. Now all of the “No Frills“ products available from our lenders have the redraw, additional repayment and portability facilities.

Since 2000 the interest rate difference between the two products has generally been around 0.50% with the “No Frills” product priced cheaper but often carrying a monthly fee of $8 to $12 that would not be charged on the standard product.

Most lenders now offer a “professional” or “preferred” program where a borrower can pay an annual fee and have a variable rate loan with all the features of the standard product but subject to an interest rate discount that generally ranges between 0.50% and 0.70% per annum. Access to these products generally has minimum borrowing requirements and may also include minimum income requirements for the borrowers.

A fixed rate loan is where the interest rate is fixed at a predetermined level for an agreed loan term. During the agreed term the interest will not change regardless of what happens to variable interest rates in the period.

The standard fixed terms offered by most lenders are 1,2,3,4, and 5 years, although some lenders have offered fixed rates for periods of 10 or 15 years.

At the end of a fixed term borrowers normally revert to the lenders standard variable rate. However they can opt to apply to fix for another term.

Fixed rates are usually offered on a choice of Principle and Interest, Interest Only, or Interest In Advance terms.

Fixed rate loans offer certainty but limit flexibility. Whilst they protect the borrower from interest rate rises they also limit additional or early repayments so that your repayments are predetermined and can not be varied during the term without cost.

In recent years many lenders have introduced additional flexibility into their fixed rate contracts. These allow for additional payments usually up to a predetermined limit, which is most commonly $5,000 to $10,000 per annum.

Breaking a fixed rate prior to the end of the fixed term can be costly. Many lenders penalise you for economic loss and/or charge a prepayment fee. Every lender seems to have a different way of calculating break costs. It is wise to enquire before entering into a fixed rate loan.

Introductory rates and Honeymoon loans are usually available for an initial period. These products are offered in various ways by lenders, they might be variable or fixed. They are usually amongst the lowest interest rates available on the market. Borrowers should be careful not to be dazzled by the initial rate as at the end of the honeymoon period they will generally find that the loan reverts to a standard variable interest rate. Moreover, many lenders will charge a deferred establishment or break fee where the loan does not run for a minimum period at the standard variable interest rate after the end of the honeymoon interest rate period, this is generally two to three years.

Honeymoon rates have the advantage of offering a significantly discounted interest rate in the period when the loan balance is at its highest and this can be an advantage in allowing repayments to achieve greater principal reductions. On the downside the benefit period is generally too small, on average one year, to make a significant difference in the longer term. The benefits are often offset by the second period when the loan reverts to a standard variable interest rate.

These style loans allow you to access the equity you have in your home. Equity is the value of your home less the amount that you owe on it. A Line of Credit allows you to draw down to the set limit as required, which means you only pay interest on the money you use. In essence a line of credit is similar to an overdraft.

A disadvantage of Lines of Credit or Equity facilities is that unless the borrower takes great care and is good at budgeting and money management, and has reasonable discipline, they can easily spend away the equity that they have built up in their home.

However, these facilities can be useful for debt consolidation if they are properly managed as the interest rate is significantly better than those applicable to personal loans or credit cards.

Lines of Credit don't usually have a set term, they are on-going facilities and often they don't require you to make a repayment unless the credit limit is exceeded (some lenders require that you at least meet the interest charged on a monthly basis). You can usually access up to 80% of the value of your home as an equity loan. Many investors use Lines of Credit facilities to purchase shares.

All-in-one loans are typically variable rate loans which allow you to deposit all of your income into the loan and then withdraw money as required. The longer spare funds remain in the loan account, the greater the interest savings. Most lenders offering all-in-one loans have standard access such as credit card, ATM card, cheque book, phone and internet banking for convenience.

These accounts can save you interest and help to reduce your loan term by allowing all of your surplus cash to reduce your home loan balance at any point in time. Interest is normally calculated daily and charged monthly in arrears, so that every dollar sitting in the home loan is reducing the amount of interest charged. They also allow the borrower to reduce the number of accounts you need and can simplify the structure of their finances. Usually these accounts don’t carry a minimum withdrawal amount.

Having your salary paid directly into your home loan has a positive effect for many of us, as we are less likely to spend it if it automatically goes into the loan account. Although there is the opportunity to make significant savings, it is impossible to say whether an all-in-one account is the best loan product for you without looking at your personal situation in detail. . Historically these style accounts have attracted a higher interest rate but now almost all are in line with the standard variable rate. Borrowers with lower incomes or less disposable income may be much better off with a "No Frills" variable rate. Your Mortgage Consultant can help you determine a suitable option for you.

An offset account is a separate savings account run in conjunction with your home loan. With 100% offset accounts the balance of the offset account is fully offset against the loan balance and interest is charged on the net balance of the two. The offset account will generally operate like a standard transaction account with cheque access, atm cards, internet and phone banking. Often an offset account will have reduced or zero fees making it cost effective as a substitute to the traditional savings or cheque account.

Family Equity loans are a new product that some lenders are offering. In simple terms, this type of loan requires the applicant to engage the help of a family member who has equity in their residential property and is willing to guarantee the loan for the applicant.

The structures of these loans vary between lenders but generally there are three main structures, these are:

The Family member(s) guarantee(s) the borrower and supports the guarantee with a mortgage over some of their property. The guarantee is for the entire loan.
The Family member(s) offer(s) a limited guarantee and supports the guarantee with a mortgage over some property. Generally the guarantee is limited to the amount by which the loan exceeds 80% of the borrower’s security value.
The Family member(s) and borrower(s) aggregate their security and borrowings so that all loans are effectively secured by all the security offered.