:: Loans
What type of loan do I need? 
Shire First Mortgages provides its customers with a specialised mortgage broking service. We can offer you a choice of many different loans from our panel of lenders.
Most lenders provide the same type of product but not all lenders provide finance for the same reasons.
- Your first step in the loan process is to decide on your loan purpose
- Your second step is to decide on your loan type.
- Your third step is to decide on your repayment type
- Your fourth step is to decide on interest type
- Your final step is to contact us
1. Loan Purpose
The first thing you need to decide is what do you need the loan for. This will help us narrow down the types of loans you can choose from.
Do you want to:
Buy a home or investment property?
Use the equity in your home to invest?
Refinance your existing mortgage?
Buy some land?
Renovate or extend your home?
Fund an overseas holiday?
Buy or lease a new car?
Buy an existing or new business?
Provide working capital for your business?
Buy a shop, factory or office?
Buy or lease machinery or office equipment?
Consolidate debt?
Provide Funds for Retirement?
Your loan purpose will play a big part in determining which lenders you will be able to borrow from and what products you can choose.
If you are self employed you will also need to check your financial records to make sure you have all the information a lender is looking for to support you’re application. If not you may need to look at the range of “lo doc” loans available.
Our consultants are fully trained to help you decide on the loan that’s right for you to make sure you maximise the potential of your property.
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2. Loan Type
Once you have determined what you want the loan for. You need to look at what type of loan will be best suited to you. There are many different types of loans available to borrowers. At Shire First Mortgages we can help you with most types of loans including:
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3. Loan Repayment Types
Most loans are available with a range of different repayment types:
- Principal & Interest Repayments
Repayments made on your loans will be set at a level to make sure that some of the loan balance or principal is paid off with each repayment. For the first few years of your loan this amount will be quite small but as the loan balance reduces your interest costs will also reduce meaning more of your repayment is allocated to reducing your loan balance.
Repayments are set to meet interest costs on the loan without repaying any of the principal.
Most lenders offer you the option of choosing interest only for a period of time generally 5 - 10 years) with the loan then switching automatically to principal and interest repayments.
For some borrowers this option provides them with a welcome cash flow break in those early years of home ownership.
Investors are usually advised to take an Interest Only loan, the theory being that principal reductions on an investment loan are not tax deductible, so therefore the money that forms the principal repayment could be used to further invest in another tax advantaged investment, thereby maximising your tax benefit. Naturally investors would need to consult a tax accountant before making any decisions based on this information.
Many lenders will also allow you to “split” your loan with a portion being interest only and a portion being principal and interest.
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4. Loan Interest Types
A variable interest rate can move up or down according to economic conditions. This means that your loan repayments can also increase or decrease during your loan term. Variable interest rates are set by funders and are aligned to the Cash Rate set by the Reserve Bank. The Reserve Bank meets on the first Tuesday of each month to review this rate. Any movements are usually passed quickly onto borrowers by their funder.
A fixed rate is one which is set for a predetermined term (usually 1 – 10 years). During this term the rate cannot change even if variable rates increase or decrease. A fixed rate loan can help with budgeting as repayments are also fixed. If interest rates go up while your rate is fixed you will not be affected and may save money. If, however interest rates go down, you may be locked into a higher rate than you would be paying if you had chosen a variable rate loan. These days fixed rate loans are not as restricted as they once were, where many lenders allow some principal payments to be made without penalty, although in most cases penalties still exist should you pay out the entire loan whist still in the fixed period.
Capped Rate loans are loans where there is a maximum “cap” or ceiling above which the rate cannot increase if interest rates rise. Unlike a fixed rate, however the interest rate on a capped loan can fall if interest rates decrease. Capped loans offer borrowers a lot of flexibility in times of interest rate uncertainty, however are not offered by all funders.
A Honeymoon Rate refers to a lower rate (usually variable) offered by funders for a short period at the beginning of a loan term (usually 6 – 12 months). At the end of the “honeymoon” period the interest rate of the loan usually reverts to the funder’s standard variable rate.
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