Analysis of housing loan options
In the present era, house loan financing is crucial for the individual as it includes huge financial cost and complex processing activities. Selection of suitable loan option is crucial as each option is associated with their own pros and cons. Consequently, each option is required to be comparatively analysed in order to decide most viable option. Following is the description of different types of loans with the benefits and disadvantages associated with it:
No frills loans
This option provides good value for money for the individual having a limited budget and little spare cash. It provides low ongoing interest rate for the entire life of the loan. The benefit of this loan is its flexibility in payment terms and amount. Further, the individual is entitled to repay the loan early (Randolph, Pinnegar and Tice, 2013). However, variable interest rate enhances interest rate charges, and facility of redraw is not available to individuals.
Professional packages provide tailored home loan plans to individuals in order to provide flexibility to structure debt. The major advantage of this loan option is that it responds as per the borrowing needs and financial goals of the individual (Dungey, 2014). However, in this loan extra cost is required to be paid for additional facilities which are available free of cost in other loan options. This package is beneficial only for individual earning huge amount of money to take benefit of additional facilities which makes their process convenient.
Lines of credit
The line of credit loan option allows individual to borrow money by making use of equity in their property. It can be considered as flexible transaction mortgage in which individual is allowed to access their funds on the basis of their requirements. The loan can be expanded with minimum additional requirements (Vu, Do and Skully, 2015). However, this loan option has higher interest rates and make a reduction in equity due to which value of the property is adversely affected.
This loan option also known as introductory mortgages as in this bank attract with lower interest rates in initial financial years. However, this is for a limited period as in future it can increase. In the case of delay or missing a payment there will be an increase in interest rate (Jacobs, Gabriel and Hulse, 2015). Moreover, with the first trouble honeymoon period is over and the individual has to pay high-interest charges.
In accordance with the above description, the individual is recommended to finance their house loan by making use of the option of no frills. In this option, they will have to pay minimum finance cost and flexibility to modify loan terms as per their convenience.
Books and Journals
Dungey, M., 2014. Mortgage product choice in Australia: The impact of market stress. JASSA, (4), p.44.
Jacobs, K., Gabriel, M. and Hulse, K., 2015. Individualised and market-based housing assistance: evidence and policy options (No. 253). AHURI Final Report.
Randolph, B., Pinnegar, S. and Tice, A., 2013. The first home owner boost in Australia: a case study of outcomes in the Sydney housing market. Urban Policy and Research, 31(1), pp.55-73.
Vu, T., Do, V. and Skully, M., 2015. Local versus foreign banks: A home market advantage in loan syndications. International Review of Financial Analysis, 37, pp.29-39.