Your loan could be structured in a variety of different ways – in terms of interest repayment options and loan products available. EFS deals with residential home loans (for your own house or an investment property) and commercial finance loans.
Loans for these purposes can be structured as based on ‘interest only’ or ‘principal and interest’ repayment options.
‘Interest only’ means that for the period nominated (usually 5 – 15 years), you only pay the interest accrued each month on the loan amount. At the end of this interest only period, you owe the full loan amount still.
‘Principal and interest’ means that you pay the interest accrued each month on the loan amount as well as paying off some portion of the loan balance. As the loan balance reduces, so too does the interest amount payable each month.
Another option is a ‘line of credit’ facility. In this case, you apply for a loan limit and draw down (access) the funds that you need – as and when you need them. Interest is charged on a monthly basis on the balance of the funds drawn down.
If you are building, a ‘construction loan’ may be most appropriate. With this product, the loan amounts drawn down are staged to compliment the payments to the builder. This means that you only pay interest on the balance at each stage. During this time, you are not paying off any portion of the loan balance. Once the loan is fully drawn down (to the full balance of the loan), the ‘interest only’ and ‘principal and interest’ repayment options are available to you.
Most loans are offered on a ‘fixed’ or ‘variable’ interest rate basis.
‘Fixed’ rate means that the interest rate is set at the time of settlement for a fixed nominated period (usually 1 – 5 years).
‘Variable’ rate means that the interest rate moves over the term of the loan according to the lender’s rate. A ‘line of credit’ facility can only carry a variable interest rate.