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Finding the right home is often a painful and sometimes confusing task. InfoChoice can help borrowers decipher the many and varied home loan options available, as well as answer any frequently asked questions about purchasing a new home, or investment property and the types of mortgages available To understand which home loan best suits their needs, borrowers should arm themselves with as much information as possible about the home loan market. Sometimes the lender with the lowest interest rate, isn’t the most suitable mortgage provider. Borrowers should compare a range of mortgage options, including fees, interest rates and home loan features before making a decision about which home loan provider offers the most suitable home loan product. Start comparing now and arm yourself with as much information as possible to make your home loan decision as easy as possible.
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Home loan: what is it and how does it work?
A home loan, also referred to as a mortgage, is a loan agreement between the borrower and a lender where an amount of money is borrowed from a financial institution for the purpose of purchasing a home or property.
Repayments are made up of the amount borrowed, as well as interest charged by the lender. The amount of interest you pay is determined by the interest rate set by the lender. The interest rate affects your repayment amount and is therefore the most important part of the loan.
Any property purchased is used as security for the loan, meaning the lender has the right to sell it should the borrower fail to make their loan repayments. This enables the lender to settle the debt.
In Australia, home loans are typically paid back over an average of 25 to 30 years. It takes less time to pay off a mortgage if the borrower contributes more to their monthly repayments than agreed upon with the bank or lending institution.
Australians typically borrow between 80% and 95% of a property’s value. This is referred to as the loan principal or loan amount.
The remainder of the money used to purchase a property is referred to as a deposit. A deposit is generally required to be saved and paid before securing the loan.
Borrowers are also encouraged to compare home loans from over 100 home loan providers available in Australia.
Who provides Australia’s home loans?
Put simply, there are many lenders in the Australian mortgage market, each offering a different range of products and benefits.
Even though there is an abundance to choose from, it’s important to know that they are all regulated by the Australian Prudential Regulation Authority (APRA) and other regulatory bodies.
The one thing you can do to see if you want to deal with any of these lenders, is to look up customer reviews and see what their customer service is like.
Lenders can be broken down into the types of providers they are:
The Big Four
The big four banks in Australian banking are Westpac, Commonwealth, NAB and ANZ. These banks are always competitive and offer banking apps, large customer service teams, vast ATM coverage and branches in most suburbs making it easy to always find them. They also have a larger range of mortgage products to choose from.
The big four aren’t the only banks in Australia. There are numerous smaller local banks with their own range of home loans and products. These banks include:
- Bank of Melbourne
- Bank of Queensland
- Bendigo Bank
- Beyond Bank
- Macquarie Bank
- St George
Credit unions and non-bank lenders
There are a multitude of Australian institutions such as credit unions and building societies that are member owned, meaning they work for their members not for shareholders. Many times, these institutions are regional and are not present in every territory.
Some examples are:
- Australian Unity
- Bank First
- ME Bank
Digital banks and online lenders
These banks don’t have a store front and do things entirely online and with phone support. These banks offer competitive rates.
Examples of online lenders are tic:Toc and UBank
A how to guide to comparing home loans
When comparing home loans, it’s important to know what features you are looking for in a loan and then find the best priced loan to suit your home loan needs.
The best way to assess home loans is to compare the key fact sheets from different lenders.
Fact sheets should provide borrowers with an immense amount of information, including the total amount to be paid back over the life of the loan, repayment calculations, fees and charges.
Fact sheets will also provide a personalised comparison rate that can help borrowers compare one particular loan to another.
Credit providers must provide you with a key fact sheet for a home loan if you request one – unless you are choosing an interest-only or a line of credit loan.
There are specialist lenders out there who help with loans for people in unique circumstances, whether it be due to poor credit history, for a bridging loan or even for seniors wanting a reverse mortgage.
The following table provides a comprehensive guide to Australia’s mortgage providers:
|Adelaide Bank||AFG Home Loans||AFM||AIMS Home Loans|
|AMO||AMP Bank||ANZ||Arab bank Australia|
|Australian Military Bank||Australian Unity||Auswide Bank||AWA Alliance Bank|
|Bank Australia||Bank of China||Bank First||Bank of Heritage Isle|
|Bank of Melbourne||Bank of Sydney||BankSA||BankVic|
Home Loan Comparison Checklist
Before you start comparing home loans, it is important to create a checklist so that you can easily tick off whether a provider can meet your particular criteria.
Here’s what should be on your checklist.
The biggest factor in determining the overall cost of the loan is the interest rate. The lower your interest rate, the lower your repayments will be.
The interest rates fee that is the money a borrower is charged for borrowing money. Interest is expressed as a percentage of the total amount of the loan. For instance, if you borrow money from an authorised lender for a house, you pay interest on it. The interest rate set by your lender is based on the Reserve Bank of Australia’s official cash rate and determines how much interest you will earn or pay.
There are two interest rate options: variable and fixed.
With a variable rate, the interest can fluctuate in line with the official cash rate set by the Reserve Bank of Australia (RBA) although some lenders make independent changes.
Here are some popular variable rate home loans:
A fixed rate means your rate remains the same for a fixed period of time, agreed upon by you and the lender. This period is usually between 1 to 5 years. After this, period your loan reverts back to a variable rate.
Here are some popular 3 year fixed rate home loans:
Certain things will hold you in good stead when it comes to being eligible for a home loan. Lenders will look at your personal and financial background to determine if you will be a good candidate. They look for things such as Australian citizenship, stable employment, deposit saved, good credit history and income.
Look to see what features would suit you for a loan that will last you over 20 years. Some important features could be extra repayments, redraw and offset account.
Being able to make extra repayments means you will pay off your loan quicker whilst being able to redraw means, once you have paid enough back into the loan, you can access that amount again without having to re-apply for another loan. An offset account is very beneficial too. The money in that account is offset against your loan reducing your interest rate.
There are two repayment options for home loans.
The first is principal and interest. With this option, you make monthly repayments that include both the principal (amount borrowed) as well as the interest.
This type of repayment option will generally see the entire loan paid off within 25 to 30 years.
The second type of repayment option is Interest only.
With this option, your monthly repayments are considerably lower as you are only paying off the interest and not the initial amount that you borrowed.
You can, however, contribute to the principal at any point in time, to start paying down the debt. As for the principal amount you borrowed, it will not decrease unless you choose to make extra repayments. Keep in mind that interest-only loans may cost you more over the term of the loan.
There are a number home loans types to choose from.
A basic loan has a low interest rate but very few features. This loan may not be for you if you want to make extra repayments or redraw at a later date.
A standard loan offers more flexibility than a basic loan. It offers features such as redraw, ability to switch to fixed rate or even split the loan into fixed and variable portions. This loan usually offers an offset account.
Home loan packages include a standard loan with an interest rate discount of up to 1.2%, depending on your loan amount. The package generally includes an annual package fee of up to $400, with benefits such as a free transaction account and no annual credit card fee.
With a Line of credit loan, you have a credit spending limit. It works much like a credit card. You can take out as much money as you need as long as it doesn’t exceed your loan limit. Eventually you will need to repay the loan in full.
A bridging loan is used when you need to buy a new house but are yet to sell your existing one. This is a loan taken out in addition to your existing one, meaning that you pay the interest on two loans at the one time.
A Construction loan is used If you are building a new house. The benefit of this type of loan is that you can access the funds as you need them to pay the construction workers and you only pay interest on the funds you have used. Construction loans are usually available at a variable interest rate. The loan will revert to principal and interest repayments once construction is finished.
Types of home loans
There are 10.3 million properties in Australia, collectively worth $6.6 trillion. This equates to six million home loans worth $2.1 trillion. According to illion CEO Simon Bligh almost half of all Australian properties are funded through home loans. The balance of homes were either paid for with cash, or paid off over time.
Those with mortgages, generally fall under two categories: those holding variable home loans and those holding fixed interest home loans.
Variable rate home loan
Variable home loans are defined by the potential for interest rate fluctuations.
The variable interest rate may be changed regularly by a lender and is usually dictated by the Reserve Bank of Australia’s (RBA) official cash rate and changes in market interest rates. Due to interest rate fluctuations, your monthly repayments could vary from month to month.
With lower exit fees, more flexible repayment options and useful features like offset accounts and redraw facilities, variable home loans have been found to be the preferred choice for many Australians.
How do variable home loans work?
A home loan with a variable interest rate can increase or decrease whenever the lender decides to modify it. The choice by lenders to raise or lower their rates is reliant on various factors, such as their funding costs, a wish to be competitive or modifications to the official cash rate.
It may seem that this could be a negative choice for some. If interest rates are increased, so too are your monthly repayments, but the benefit that outweighs all negatives is the fact that if the interest rates drop, so too will your monthly repayments.
What to look for in a variable rate?
When comparing variable interest rate mortgages, you should look at three major components:
- Look at the interest rate. A lower rate means lower monthly repayments.
- Features can be useful. Search for loans with the features you need such as an offset account.
- There are a range of fees associated with a variable home loan. Do the maths and make sure the fees that you will pay are worth your while. As long as the interest rate is low, the fees may be acceptable.
Fixed rate home loan
With a fixed rate home loan, the interest rate is locked in for a certain period of time – usually between one and five years.
During this time your repayments don’t change.
At the end of the fixed rate period, borrowers have the option to refix their loan at a new market rate or switch to a variable rate. The benefit of a fixed loan is borrowers don’t have to pay more on their loan if interest rates rise. However, the disadvantage is that borrowers won’t be able to reduce their payments if interest rates drop.
There are a few different aspects of a fixed rate loan you may need to look into before deciding if it is right for you:
- The cost of having a fixed rate may be higher as the rate is usually higher than a variable rate. This does depend on the loan and lender.
- There is less flexibility with a fixed rate loan. Extra repayments might not be possible and there may be higher costs if you choose to leave this mortgage.
- Finally, it’s rare to find a fixed rate loans with offset accounts.
What happens when the fixed period on my interest rate ends?
Once your fixed period is over, your rate will switch to the current variable rate. When you reach that period, look up the revert rate so you know how your repayments will be affected.
It is hard to say if your repayments will be higher or lower once the fixed period ends. The rate at the time depends on the lender, the product and what the current market rates. If the revert rate is high, it would be a good time to refinance or speak to your lender and see if they can offer you a discount
What do I look for when comparing fixed rates?
Finding a good fixed rate product is not too difficult if you know what to look for. You should look for the following:
- A low interest rate: A lower interest rate will mean your monthly repayments will in turn be lower. Locking in a good rate is protection in case interest rates sky rocket.
- Low fees:Research all monthly and annual fees and see which one has the lowest fees for the same features.
- Length:When selecting a fixed rate, you will be offered a choice between 1 to 5 years to lock it in. There are different rates for each length of time. Shorter fixed terms are usually lower so you will find a fixed rate for 1 year is more competitive than that of a 5 year contract.
Should I fix my home loan?
Even though most Australians go with variable home loans, there are some great reasons to fix yours, especially in times when interest rates are incredible low.
The benefits of fixing your home loan
The biggest and most obvious advantage in having a fixed rate is that your monthly repayments will remain the same, month after month. It makes it easier to budget and you won’t have any nasty shocks throughout the fixed period.
And, if variable interest rates rise, you will not be affected during that time.
The disadvantages of fixing
There are numerous reasons why fixed interest rates are not the loan of choice for most Australians.
Fixed rate loans have less features and flexibility compared to variable rate mortgages.
You may need to pay a break cost if you decide to leave a fixed rate loan before the end of the specified term. This can be quite costly, ending up being anywhere from a few hundred dollars to thousands.
If the RBA slashes the cash rate you will end up with a much higher interest rate than is necessary.
Are fixed rates cheaper?
The purpose of fixed rate loan is to give you peace of mind knowing exactly what your repayments will be, month after month. If you are happy with your rate and don’t think you will need to exit the loan for the required amount of time, then a fixed rate could be for you. You just need to always keep in mind that if interest rates drop, your repayments will stay as they are.
There are other mortgage types.
- Split rate home loan
A split home loan is when you divide your loan into two parts.
This means a portion of the loan could come under a fixed interest rate with the remainder being variable.
This is a popular choice by many borrowers, as it gives them the flexibility to make extra repayments on the variable portion, whilst mitigating the uncertainty of fluctuating rates through the fixed part of the loan.
- Low deposit home loan
A low deposit home loan (also known as High Loan to Value Ratio Loan) is one that allows a borrower to buy a home with a small deposit: as little as 5 to 10% of the home value. A low deposit home loan, means the loan amount will be much higher, however it’s a great option if you want to break into the property market but don’t have a sizeable deposit.
- Owner occupier loan
Owner occupier loans are for those who want to live in the property and not rent it out.
These loans are highlighted by lower interest rates and fees as compared to investment loans, as the banks see these loans as less risky than an investment property loan.
- Investment loan
Investment loans may have slightly higher interest rates and fees to those of owner occupier loans. They offer a different selection of benefits and features, that are more relevant to investors such as longer interest-free periods.
- Offset home loans
An offset account is a transaction account linked to your home loan. It is used just like a regular account where you can make withdrawals and deposits, except the interest payment due on the loan is calculated on the net balance of the loan minus what’s in your savings account. This reduces the amount of interest charged on your home loan.
- Reverse Mortgage
A reverse mortgage is for people over 60 years old. It allows them to use the equity on their home as a source of income, allowing them to redraw on that money at any time to use as they please.
How much money can I borrow?
Before you start looking for your dream home, it’s advisable to know where you stand financially as this will indicate how much you will be permitted to borrow.
Lenders will look at all aspects of your finances from your income to your spending habits. So before you approach a lending institution, make sure you have a comprehensive list of all your income and expenditure so you will know exactly where you stand.
InfoChoice has a range of calculators to help you calculate your expenses and borrowing power.
The amount the lender will allow you to borrow depends on a number of things:
- your income and expenses
- your debts and liabilities
- how much deposit you have
- the value of your property
- your credit history
- your employment history
Always check your credit rating in advance so you now where you stand.
It’s also advisable to modify your spending habits in the months leading up to applying for a loan. Reducing any outstanding credit card debt or personal loans will be of enormous benefit to your chances of a successful application.
How much of a deposit do you need to buy a home?
Saving for a deposit is the first obstacle on the journey to buying a home.
If you aim to save 20% deposit of the property’s value, then you will have a better chance at securing a home loan with a more competitive interest rate.
Having an 80% LVR (loan-to value ratio) will put you in a decent position to get a home loan with all the features you may need.
In some cases, you can enter the property market with a deposit of as little as 5 to 10%, but keep in mind these types of loans may have restricted benefits and may also incur Lenders Mortgage Insurance (LMI) fees on top of your loan. These fees can add thousands of dollars to your final loan amount.
What type of home loan fees are there?
There are a variety of fees you will need to budget for.
- Application fee
The upfront fee you pay when first applying for your home loan.
- Service fee
This covers the cost of maintaining your loan. It may change monthly or annually. As a general rule, the more benefits you have with your home loan, the more chances you will incur a service fee.
- Legal fees
These fees are paid upfront and cover the cost of all your legal documents.
- Valuation fees
These fees cover the cost for someone to value your property.
- Settlement fees
The fee charged to have someone present at the settlement of your loan.
- Discharge fee
Once your home loan is paid off in full, you may be charged a discharge fee to cover the completion of the mortgage process and documents.
- Feature fees
Certain features, such as extra repayments, a redraw facility or an offset account may attract a fee. Not all home loans exact these fees.
What types of features are available for home loans?
Having the right features available to you on your home loan may help you pay off the loan in a shorter amount of time. They might even mean you could redraw the money you have already paid into it, to use for other purchases.
Here are is a list of features you should consider when comparing home loans.
- Extra repayments
If your loan allows it, you can make extra repayments whenever you have the extra money. The extra payment comes draws down on the principal, meaning you can pay off you loan in a shorter amount of time. You may also end up paying less in interest, as the interest charged is calculated on your current principal. Not all home loans allow extra repayments. If you are on a fixed interest rate, you may not be eligible for this feature.
- Redraw facility
Certain loans allow you to redraw on the extra repayments you have made into your home loan. The benefit of a redraw facility is you can put any extra money you have into your loan at times when you don’t need to use it. This will decrease the principal and, in turn, reduce the amount you are paying in interest. You can then take that money out and use it at any point in time. Fees and redraw limits may apply.
- Offset Account
An offset account is a transaction bank account connected to your home loan. The money from this account is used to offset your mortgage, which means you’re only charged interest on the difference between the total loan balance and the amount offset. For example, if you owe $200,000 on your mortgage but you have $20,000 in your offset account, the bank would only calculate interest on $180,000.
Who do I speak to in regards to getting a home loans?
Once you have conducted all of your research and made your comparisons, it’s time to approach a bank or lending institution. You can go into a branch or even chat on line. Some lending institutions have mobile lending services where they can send someone to your home or place of work to discuss your home loan needs.
If choosing a home loan provider and relevant home loan product is too overwhelming, you can request the help of a mortgage broker.
Mortgage brokers are experts in home loans who can assess your finances and suggest the best home loans for you. They can also negotiate with lenders on your behalf often resulting in a better deal for you.
Mortgage brokers are paid commissions by banks when they sign up new home loan customers, therefore using their services shouldn’t cost you a cent.
7 steps to take to buy a property
Before approaching a bank or broker, you should put your financial and administrative affairs in order. This means you should:
- Collect all of your financial documents. Include all payslips, bank statements and bills. Also list all your expenditure from food to entertainment.
- Fill out a lenders mortgage application form.
- Get pre-approval, (also known as conditional approval). This means that a lender has agreed to lend you money, but hasn’t proceeded to final approval.
- Make an offer on the property you are interested in.
- The lender will do a credit check on you and make a valuation on the property to make sure it is within a price range that you can comfortably repay.
- Upon application approval, sign the formal offer and contract.
- Prepare for the legal transfer of all documents and property title. This is known as the settlement. Usually a solicitor or conveyancer attends the settlement on your behalf.
10 steps to take to move into your property
There are many more things to consider when buying a home, than just taking out a mortgage. Some of these we have touched on already, but the following points offer a comprehensive guide of what should be considered when applying for a home loan.
- Research property prices and understand your borrowing power?
Your entire buying experience will be dictated by this first step. You need to establish what your income and expenses are, which you can do by using the InfoChoice Borrowing Power Calculator. This will determine how much you can afford in repayments. This is also the time to start researching property prices in the area you would like to purchase, so you have a realistic idea about budget.
- Save a deposit
Have a minimum deposit of 5% saved up to avoid having to pay the extra fee for mortgage insurance. Having a 20% deposit is better.
- Compare home loans
Do your research and find a loan that suits your needs in terms of features as well as a comparative interest rate. You can compare home loan interest rates here.
- Find a property
Finding the perfect home for you is a very personal experience. Search online for properties that have the facilities you need, then go to as many inspections as possible to make sure it looks and feels the same way in real life as it does from the images online. If you find a property that you are serious about, don’t forget to get a building inspection done.
- Get pre-approval
Getting pre-approval gives you peace of mind when it comes to putting in an offer on a property. If you have pre-approval, you know the lender will almost certainly give you the loan, as they have already assessed your financial situation and deemed you a good candidate for a home loan.
- Contract of sale
A contract of sale is a document that is signed once you have put it an offer on a property and it has been accepted. Make sure to have a licensed conveyancer look over the contract and assist you with settlement. There is a cooling off period of three business days where you can change your mind. This is a good time to bring in the building inspector and make sure the property doesn’t have any underlying issues that you weren’t aware of.
- Mortgage application
Once you have put in your deposit and signed the contract of sale, it’s time to get full approval for your mortgage.
After your lender approves your application, you need to wait until date of settlement.
In the meantime, get a few things in order such as building and contents insurance.
This is the day that the property becomes yours and you receive the title and the keys.
All legal checks are performed by the conveyancers to complete the property titles transfer.
- Move in
Time to move in and make this house your home. This is the date that your mortgage repayments will begin.
How do I refinance a home loan?
There are many reasons why people choose to refinance home loans. Refinancing may put you on a lower interest rate or give you a mortgage with cheaper fees.
Refinancing your home loan may also be undertaken if you need to borrow more money for renovations, or consolidate debts.
You will still require a deposit if you are refinancing, but that deposit doesn’t have to be in the form a cash payment. You could use the equity in your current property.
|Amortised Loan||This is a type of loan that requires the borrower to make scheduled, periodic payments. These payments are applied to both the principal and interest and pays off the interest first, with any remaining amount put towards reducing the principal.|
|Bridging Loan||A bridging loan bridges the gap between the sale of one property and the purchase of another.|
|Comparison Rate||A Comparison Rate is the interest rate plus fees and charges rolled into a single percentage rate for ease of comparison.|
|Conveyancer||A conveyancer is a specialist lawyer. This particular lawyer specialises in the legal aspects of buying and selling property.|
|Conveyancing||Conveyancing is the transfer of legal title of real property from one person to another.|
|Deposit||The money required you need to contribute towards your home loan application.|
|Exit cost||The fee charged to borrowers if they exit their home loan early. This is usually applied to fixed interest rate loans.|
|Fixed interest rate||Fixed interest rates are interest rates that are locked in for a certain period of time, usually between one and five years.|
|Introductory or Honeymoon Rate||Discounted interest rates for an initial introductory period are known as introductory or honeymoon rates. These rates will usually revert to a higher standard rate once the honeymoon period ends.|
|Lenders Mortgage Insurance (LMI)||An insurance that protects the mortgage lender, if a borrower defaults on their mortgage. An LMI is typically applied to mortgages where the loan to value ratio (LVR) is higher than 80%, or the borrower has a deposit of less than 20%.|
|Loan to Value Ratio (LVR)||Most lenders require an LVR Of 80%, this means the borrower will pay 20% of the value of the property. Essentially, it is the size of a home loan compared to the value of the property.|
|Offset||An offset account is a transaction bank account connected to your home loan. The money from this account is used to offset your mortgage, which means you’re only charged interest on the difference between the total loan balance and the amount offset. For example, if you owe $200,000 on your mortgage but you have $20,000 in your offset account, the bank would only calculate interest on $180,000.|
|Fees||Mortgages usually come with a range of such as redraw fees that are charged monthly or annually over the life of the loan.|
|Overdraft||An overdraft is an extension of credit from a lending institution. Overdrafts are granted when an account reaches zero or there are insufficient funds to make a withdrawal. In property. It can be used as a line of credit, secured by the equity in the property.|
|Redraw||A redraw facility allows mortgage holders top access extra repayments made into their home loan. Redraw balances can help reduce interest on your home loan.|
|Refinancing||Refinancing is when a mortgage holder takes out a new loan to pay the existing loan. Refinancing usually incorporates lower interest rates and fees.|
|Repayment Holiday||Many Australians took a ‘repayment holiday’ during the COVID-19 pandemic. A repayment holiday puts your mortgage on hold during times of financial stress.|
|Split Rate Home Loans||A split home loan is when you divide your loan into two parts. This means a portion of the loan could come under a fixed interest rate with the remainder being variable.|
|Stamp Duty||Stamp duty is a tax on a property transaction. It is charged by each state and territory, with the amount varying between each. Stamp duty depends on factors such as the value of the property, primary or residence or investment property and your residency status.|
|Switching Fees||The fees paid if you switch from one lender to another.|
|Upfront Fees||Fees charged to process your home loan application. Fees could include appraisal fee, application fee and establishment fees.|
|Variable Rate Loan||Variable home loans are defined by the potential for interest rate fluctuations. The variable interest rate may be changed regularly by a lender and is usually dictated by the Reserve Bank of Australia’s (RBA) official cash rate and changes in market interest rates. Due to interest rate fluctuations, your monthly repayments could vary from month to month. With lower exit fees, more flexible repayment options and useful features like offset accounts and redraw facilities, variable home loans have been found to be the preferred choice for many Australians.|
What is a mortgage?
There is a technical difference between a home loan and a mortgage. A home loan is the funding you receive to pay for the property. A mortgage is the security given by you to the lender to secure repayment of the loan. However, in basic terms, they both mean the same to the buyer: a mortgage is the money borrow money from a bank or financial institute for the purpose of purchasing a home.
How much deposit do I need?
Most home loans require a 20% deposit. You could enter the market with a smaller deposit of 5-10%, however LMI may apply.
What is LMI?
LMI is an insurance policy that some home loan borrowers need to pay for. The purpose of LMI is to protect the lender from financial loss if the borrower can’t afford to meet their home loan repayments. If the borrower defaults on their loan and the sale of the property doesn’t equal the unpaid value of the mortgage, lenders can claim on the LMI policy to make up the difference.
What is Loan-to-Value ratio (LVR)?
Basically this is a fancy way of referring to a minimum deposit. Most loans have a maximum LVR of 80% which means you need a deposit of 20%. It is possible to have up to 95% LVR which means you can offer a deposit as small as 5%. However, these types of loans have mortgage insurance attached (see LMI).
How much can I afford to borrow?
You should examine your finances thoroughly before coming to a figure that will work for you. You need to take into consideration all your forms of income and expenses. You can then decide how much you are able to repay per month on a home loan. You can then approach a lender to work out your borrowing power.
What is Equity?
Equity is the current value of your home minus what you owe on it.
What is mortgage stress?
Mortgage stress is the feeling people experience when their monthly repayments are so high that they struggle to pay the bills. While there’s no official threshold, the consensus is that people begin to suffer from mortgage stress when their mortgage repayments exceed 30% of their household income.
What is a cooling off period?
A cooling-off period of three clear business days applies to private sales of residential and small rural property sales. The cooling-off period gives you time to consider the offer. It begins from the date you sign the contract, not from the date the seller signs it.
How is interest calculated?
Interest is calculated based on the unpaid daily balance of your loan.
Do I need a guarantor for a home loan?
A guarantor is only needed if you don’t have the financial backing and history to have a loan approved on your own. If your financial position including your income, expenses, assets, liabilities, and size of your deposit is not enough, you can use a guarantor to provide additional security to the lender by offering a guarantee. This usually comes in the form of equity in a property that they own as security. However, a guarantor should always be aware of the personal risk in case you default on loan repayments. If this were to happen, they will be held liable to pay back the amount owed to the lender.
What are the options for home loan repayments?
There are two main types of home loan repayments: principal and interest (P&I) or interest-only (IO). Principal and interest means you repay both the interest and a portion of the purchase price each month, so as to pay off the entire loan amount by the time your loan period ends. Interest only means you don’t pay off any of the purchase price of the property and only pay the interest per month, therefore not paying off the loan.
How do banks calculate interest?
Interest is usually calculated at the end of each day. Then at the end of each month, your lender will add your daily interest charges for each day of the month. This monthly interest amount is normally found on your bank statement. Here is the calculation used to work it out. Firstly, you multiply the balance of the home loan (how much you currently owe) by the interest rate, and then divide it by 365 (the number of days in a year ).
Which banks have the lowest interest rates?
Rates change all the time, so it’s important to do your research when it comes time for looking for a lender. These days, it’s as easy as going on line and comparing the banks and lenders, side by side. Make sure to research what features the low interest rate loans offer. It might not be worth your while to pay a lower interest rate at one bank if you can’t access certain features that will be useful to you.
What is the average interest rate?
Interest rates fluctuate regularly for a number of reasons. Always compare rates before deciding on a home loan.
What is a home equity loan?
A home equity loan is a type of loan for people looking to invest in property/shares, buy a new car, renovate, or consolidate/repay debts. Equity is the current value of your home minus what you owe on it. You can use this as leverage to get your next loan.
Is a home equity loan considered a second mortgage?
No. It is also referred to as a line of credit loan. A home equity loan allows lenders to borrow money against the value of their property.
Are home equity loans tax deductable?
Many of the costs associated with owning an investment property can be tax deductible, but always seek advice from a taxation specialist for tax advice as there are always exceptions.
Can I use existing equity as a deposit for a home equity loan?
Yes. Banks will usually accept equity in a property as collateral. Provided you have enough equity, you could potentially borrow the full purchase price of your property in addition to the amount you’ll need to pay the additional fees (e.g. legal fees and stamp duty). The disadvantage of doing this is that both properties could then be at risk if you default on either loan.
What is a first home buyers loan?
A first time home buyers loan usually offers honeymoon rates: a lower interest rate for a set period of time. Rates will revert to the base interest rate once this period is up The base rate is considerably higher, so it is important to know what this rate is before you sign up.
How can I apply for a first home buyers loan?
You can apply for a first home buyer’s loan by talking to a professional broker who can assist you with any queries you have about obtaining a suitable home loan. You can also go directly to a lender (e.g. a bank, building society, credit union).
What is the First Home Buyers Grant?
The Australian Government introduced The First Home Owner Grant as a way to help Australians with their first home purchase. The $7000 grant is available across Australia but there are different eligibility rules and amounts depending in which state you are located in.
How do I apply for the First Home Buyers Grant (FHOG)?
You can directly apply through your state’s or territory’s FHOG online application portal or see if your lender is able to lodge the application on your behalf.
What documents do I need for a home loan application?
You will need the following documents to apply for a home loan:
- driver’s licence
- passport, or photo ID that satisfies your lender’s requirements (i.e. Proof of Age Card).
- current proof of income
- bank statements and payslips
- financial assets, liabilities, and expenses
- list of other assets
- a comprehensive list of your expenditure and savings
- list of outstanding debts, loans and assets
How do I get pre-approval for a home loan using a broker?
Once you have established your financial situation and have all your papers in order, a broker can provide you with a selection of suitable home loans and lenders. The broker will then help you to decide if this product suits your needs. Once this is established, the broker will require supporting documents of your finances, such as expenses, income, assets, debts just to name a few. The next step is for the broker to lodge your application to the lender on your behalf. They will then continue to liaise with the lender right through to settlement.
Can I borrow money for stamp duty?
Yes. Your stamp duty can be added on to the principal amount of your loan. The stamp duty will be paid out of the cash you use as a down-payment on your loan. The value of your home and the state you live in will determine how much your stamp duty will be.
How much is the mortgage registration fee?
Mortgage registration fees can be found on each state’s or territory’s website and vary from state to state.
My loan has been pre-approved. What does that mean?
This means a check on your serviceability of a loan has been completed and according to calculations, you should be able to make mortgage repayments on the amount you have been pre-approved for. Pre-approval is not binding, so you don’t have to continue on with that lender. It’s just the first step to seeing if you are able to get a home loan. Always get unconditional approval before proceeding with any property purchase.
What is a bridging loan?
A bridging loan is a short term loan. It is usually needed when you have purchased a property before selling your first one.
What is a low doc home loan?
A low-documentation (or Low Doc) home loan is a mortgage that can be taken out using less documentation than what is required for a regular home loan. Low doc home loans are beneficial for borrowers who are either self-employed or unable to prove their income through documents such as recent tax returns or financial statements.
What does it mean to refinance a loan?
This refers to the process of starting a new loan with another lender (or the same lender) in order to pay off one or more outstanding loans. Borrowers typically refinance in order to receive lower interest rates or to otherwise reduce their repayment amount.
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