Home Loans

Home Loans

Home loan - mortgage broker cashWe have a large range of lender in our panel, this means that we can access a wide range, 100s, of different home loans. But before you ask us to arrange your mortgage, you may want to think about your situation and objectives.

We have also provided information about some of the different home loan options here so that you can make a well informed decision. If you are still confused or just want us to take care of everything contact us and arrange a free consultation.

Basic Mortgage in Australia

Before you take out a mortgage you must make many things clear. Before you even think about going to a mortgage broker (or the bank) to ask for a mortgage to buy your home you should know some basics so that you know what you are being offered and can compare the options. So you can know just how to get the best out of your mortgage.

Here are some basic concepts:

 The maximum amount of a mortgage depends on several factors. The first limit is given by the value of the home. The banks will only lend up to a certain percentage of the property(s) value that is taken as collateral. The assessment called a Valuation are usually conducted by an independent appraisal company. Some lender have adapted their offer to the customer needs even reaching percentages greater than 100% of the appraised value. However, to obtain this type of loan will require you to have a guarantor with property that they will offer as collateral. The second limitation is income. Typically, the payments on the home loan must be affordable. This is now regulated by law in Australia. Although different lender have different measure on how they calculate affordability. The amount of money borrowed  is called principal. The borrowed principal plus interest must be paid back over the term of the loan. Some loans can have interest only payments for a set period before reverting back to principal and interest payments.

Different repayment options are available depending on the home loan selected, usually weekly, fortnightly or monthly. Payment can be interest only for a set period of time and then either extended on interest only or revert to principal and interest payments. Paying interest only does not reduce the value of your loan. Even when paying principal and interest at the beginning your payments are made up of mostly interest and later when most of the principal has been paied payments are mostly principal.

 Is the time period contracted to repay principal and interest. Nowdays there are lenders offering home loans for up to 40 years which allows the monthly payments to be lower. Usual home loan terms are between 25 to 30 years.

 It is the price of borrowed capital. The interest rate can be fixed if it does not change throughout the life of the loan or variable if it varies throughout the loan depending on market rates. There is split home loans a mixed type, when part of the loan is fixed and part is variable. 

There are also different type of loans available in Australia these include:

Fixed interest rate loan

A fixed interest rate loan is a loan where the interest rate doesn’t fluctuate during the fixed rate period of the loan. This allows the borrower to accurately predict their future payments. Variable rate loans, by contrast, are anchored to the prevailing discount rate.

One form of mortgage loans is fixed. The main feature of these mortgages is that the interest you have to pay will be identical from the beginning to the end of the fixed term. Thus, the repayments are not tied to the vagaries of the economy.

But this is not an advantage in itself, since changes in the economic system can be negative or beneficial to the person required to pay a mortgage. The ups and downs of interest rates may result, in either case, more or less expensive monthly repayments. In summary, the fixed mortgage loan gives you security so you know what you will need to pay.

However, if you want to pay out your fixed loan before the end of the fixed term period you may need to pay an break fee. This is to cover any loss that the lender will have as a result of you breaking the contract.  Depending on the difference in price on the wholesale money market and your fixed rate this could be thousands of dollars.

Variable interest rate loan

The concept of fixed and variable interest rate is self-explanatory. The fixed-rate operations are those in which the interest is calculated by applying a single or stable rate throughout the life of the loan or deposit.

The variable interest rate changes over time. In this case, the interest rate applied in each time period is usually expressed as the sum of an index or reference interest rate and credit spread or a percentage (usually constant). The duration of each periods in which the interest rate is maintained, and the differential is applied may be higher or lower.

Variable interest loans tend to be more popular in Australia but those who are currently shopping for a new mortgage might do well to consider locking in.

Line of credit

Lines of credit are similar to having a big chequebook, but with interest accruing on the balance. A line of credit, or equity line as they’re sometimes called, is an approved limit of borrowings that you can use a piece-at-a-time or all at once.

Let’s say you have a line of credit for $200,000. This means that you can use up to a total of $200,000 all at once or perhaps invest $50,000 in the share market. If you did the latter, you would only pay interest on $50,000 as the remaining $150,000 would be untouched.

If you were to use a further $70,000 for house renovations, for example, then you would be paying interest calculated on $120,000 ($50,000 for shares + $70,000 for investment) leaving $80,000 to use at a later date if required.

Funding for the mortgage repayment can be set as either a loan or a line of credit. With a home equity loan, the lender will forward the full amount of the loan, while a line of credit mortgage provides you with a source of funds that can use as you need.

When you are considering taking out a loan or line of credit home equity, find and compare plans offered by banks, savings and loans, credit unions, and mortgage companies. Search and compare the different options can help you get the most suitable deal. This is where a mortgage broker can help you cut through all of the complexity.

Equity Finance Mortgage

In Australia, Equity Finance Mortgage products are sometimes called Shared Equity Mortgages or SAM’s. These credit products are not designed for retired borrowers. In a traditional shared equity transaction a person who wants to buy a home to live in would take out a loan to buy a substantial part of a property. The remainder of the property would be owned by someone else. The other owner would often be a financial institution or the government. This type of shared equity scheme was designed to meet the housing needs of people who were unable to afford to purchase a home of their own in the commercial housing market.

When you come to sell your property or pay off your loan, you repay the original amount borrowed using the Equity Finance Mortgage plus up to a 40% share of any increase in the value of your property. Conversely, if you ever have to sell your property at a loss, your lender will possibly share up to 20% of any realized loss on your property. There are rules about who you can sell to if you have to realize a loss, including, not selling to a related party.

Application procedure is similar to all other home loan types. So Lenders Mortgage Insurance may be payable if your LVR is not within your lenders guidelines. By using an Equity Finance Mortgage in conjunction with a traditional home loan, it is possible to reduce monthly loan repayments by as much as 25% from what you would otherwise have to pay, using a traditional home loan only.

On the flipside, capital losses may be shared with the lender subject to certain conditions. This loan type is growing in popularity as it allows borrowers to reduce a property’s up front and running costs, as well as traditional mortgage repayments. It also allows buyers to invest in a more expensive property they might not have otherwise been able to afford.

Home Equity Loans

A home equity loan is a loan for a fixed amount of money that is secured against your home. You repay the loan in equal monthly payments over a fixed period of time, the same way you pay your original mortgage.

Usually, the loan amount is limited to 85 percent of the mortgage repayment on your home, though some lenders may allow up to 90% LVR if the funds are being used for investments and you can provide evidence of that. The actual loan amount that you will be able to get depends on your income, credit history, and the market value of your home that the loan is secured against.

Lines of credit with mortgage guarantee

A line of credit home equity – also known as a HELOC (Home Equity Lines acronym of Credit) – is a revolving credit line that closely resembles a credit card. You can borrow the amount you need, whenever you need it, by writing a check or using a credit card linked to the account. You cannot exceed the credit limit amount. As a credit line, your payments are based only on the amount you borrow, not the total amount available. The lines of home equity will also provide certain tax advantages for some other loans do not offer. For details, consult an accountant or tax advisor.

Remember your home is the property that secures the amount you borrow through a loan or a line of credit mortgage. If you do not pay your debt, the lender can force you to sell your home to collect the debts.

Capped interest rate loan

An interest rate that allows to fluctuate, but cannot surpass a stated interest cap. For example, a 10-year loan may be issued to a borrower at 6%, but with a capped rate of 9%. The interest rate can thus fluctuate up and down, but can never go higher than the 9% capped rate. Capped rates are supposed to provide the borrower with a hybrid of a fixed and variable rate loan. The fixed part comes from the capped rate itself, while the variable part comes from the loan’s ability to move up or down with market fluctuations.

A capped rate home loan is generally a variable rate loan with you guessed it, a ‘capped’ rate. A certain interest rate it will not rise above even if variable rates and the Reserve Bank rates are sky high above it.

These loans were more popular 20 years ago or so but haven’t been seen too often in recent times until now.

There is a general consensus that rates are extremely low at the moment and will eventually rise back to their usual heights (approximately 7-8%). With this in mind many people are interested in fixing and want to hear about their options.

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