Home buyers in Australia have a lot of options when considering which type of mortgage is right for them. Some of the various loan types available are:

• Fixed rate mortgage
• Variable rate mortgages – standard and basic
• Split mortgage
• Low deposit loan
• No deposit loan
• Introductory rate mortgage
• Low or no documentation mortgage
• Line of credit home loan
• Bridge mortgage
• Non-conforming loan
• Reverse mortgage
• Construction or “owner/builder” loans

Each of these mortgage categories has its characteristic benefits and drawbacks that need to be carefully considered. This variety of loan types available can be confusing and intimidating to many home buyers. In order to simplify things, a buyer first needs to consider which category of buyer they fall into. These categories can overlap, but this is a very good first step in deciding on which type of loan is your best option.

First Time Home Buyers

First time home buyers need to consider their current financial situation as well as their financial history when deciding on which choice is best for them. They also must think about how they feel about risk and the economy. This is because first-timers should look at whether they want to stability of a fixed-rate loan or the flexibility and possible savings of a variable rate mortgage. There is also the split mortgage option, which effectively divides the loan into two loans. In this option, a portion of the mortgage has a fixed rate while the rest is variable. This offers home buyers more flexibility with the stability of a fixed rate and the potential cash savings associated with a variable rate home loan. First time home buyers without adequate documentation, credit history or down payment will see overlap with the next category of home buyer, which is the non-traditional borrower.

Non Traditional

Home buyers who don’t fit the “classic” home buyer mode of having a 20% down payment, plenty of tax and employment documentation, poor credit or near retirement are considered “non-traditional borrowers” and need to look into the home loan options that specifically apply to them. Mortgages are available, for example, to borrowers who lack adequate documentation like the requisite number of pay stubs or tax records. New immigrants to Australia and self-employed residents are just two examples of this type of buyer. Other home buyers, especially first-timers, may not have the full 20% traditionally needed for down payment. These buyers can benefit from low-deposit or no-deposit loans.

Buyers need to be aware that lenders consider non-traditional loans more risky. Banks will mitigate the risk involved with lending to buyers who have little documentation, lower down payments or spotty credit by offering loans with higher rates, more fees and other restrictions. Still, these types of loans can be of great benefit to a large class of buyers, allowing just about anyone to enter the realm of home ownership.

Home Upgrades

There are two types of home upgrades: home owners who want to buy a new home and home owners who want to upgrade their existing home or even build a new one. The first group may need a type of home mortgage called a “bridge loan.” This loan eases the stress and difficulty of buying one home while selling another, which can be next to impossible to time perfectly. Instead, home owners can purchase a new home with this loan with the agreement that the funds from the eventual sale of the older home will cover the rest of the loan. Essentially, a bridge mortgage is a loan of funds “just to get by.”

Building a brand new house requires a mortgage called an “owner/builder” loan. This type of loan might be difficult to secure as it requires a lot more documentation and planning. Banks are also a little more wary of this type of loan since there’s no collateral against it – there is no house to foreclose on yet.

Upgrading a home is a great way to add value and profit from eventual sale. Home owners in this situation typically open a home equity loan or “line of credit” loan. This type of loan allows home owners to make their equity work for them by borrowing against it. These funds can then be used for remodelling or home upgrades to add value.

Home Refinancers

Many of these loan types can be used to refinance a home. Refinancing is essentially getting a new loan with better terms and paying off your old mortgage with it. Refinancing can be used to save money by getting a lower interest rate or a more aggressive payment schedule. A reverse mortgage is slightly related to refinancing, and it’s a great way for older home owners to use the value of their home for needed funds.