Finding a home loan that’s right for you.

Encompass not only the borrower’s home loan and investment property loans, but also their basic accounts and credit cards.

As part of a package, the client sources all of their day to day banking needs from the lender that provides their home loan. Generally, the home loan interest rates are significantly discounted but yet still is the lenders’ fully optioned home loan.

In the main, the client’s bank account and credit cards are fee free and home loan applications fees are waived. The client generally pays an annual fee, but due to competition some lenders do not charge an annual fee, (this is by far the exception). The interest rate discount varies in line with the size of the loan and minimum lending of $150,000 is required to be part of the professional package.

With discounts to variable and fixed interest rates, pro packs deliver the cheapest rate to the client.

As the name implies, a no frills loan is generally a lenders variable rate loan with fewer features with minimal or no ongoing fees. This loan has fewer “bells and whistles” than pro pack loans.

The variable loans are >1% cheaper than the lenders standard variable interest rate. As a result, Mortgage & Finance facilitates more no frills loans than any other type of loan.

What are the characteristics of a no frills loan:

• Redraw feature is available
• Minimal or no ongoing fee’s
• In some cases the 100% offset feature is available with no frills loans

Fixed loan home loans are just that. That is, the interest rate will not rise or fall during the fixed rate term. You can fix the rate anywhere from1 to 10 years. We strongly advise our clients to carefully consider the pros and cons of FRHL before they opt for this loan type. The penalties to exit a FRHL early can run into tens of thousands of dollars.

FRHL’s are currently less flexible that variable loans, i.e.

• In the main, you are limited in how much you can make in extra repayments – this ranges from an additional extra repayment of $10 000 per annum to $30 000 over the fixed rate term. We do have one lender that will allow significant additional payments with no penalty.
• In the main, they do not have a 100% offset feature, although one or two lenders do offer this feature
• In the main, they do not have the redraw feature, again – one or two lenders do offer this feature
• Remember the fixed rate you applied for may not be the fixed rate you get when the loan settles. To guarantee that you get the fixed rate you applied for you may wish to rate lock your loan

To counteract the draw backs of FRL’s, we suggest the borrower may wish to consider a combo loan- part fixed and part variable. Ask us about our Combo Loans. (please insert link to combo loans here)

FRHL’s are perfect for investment property purchase.

Before making any decisions read this article ‘Think before fixing your interest rate’.

The Line of Credit (LOC) is the ‘King of Flexibility’. LOC’s are generally evergreen facilities, ie there is no term or end date to the loan. The borrower can use as much or as little of the LOC limit as they would like and only pay interest on what you actually use. Large lump sum repayments can be made at any time and then these funds can be redrawn for another personal purpose.

With cheque book, internet, phone & ATM access to funds LOC’s are the perfect loan product for:

• Share and managed funds investors
• Borrowers who wish to operate their own mortgage minimisation program. (see your financial advisor before embarking on a mortgage minimisation program)
• Borrowers who do not require the total loan proceeds all at once and wish to progressively draw down the loan.

So you have found the home you want to buy, but you haven’t even placed your existing home on the market.

To top it off, the Real Estate Agent is saying, “Don’t bother putting an offer in subject to the sale of your existing house”. What can you do? Consider a home to home loan!!

If you have a sufficient amount of equity in your existing home the lender may fund the purchase of the new home, prior to you selling your existing home.

But hold onto your horses, this loan doesn’t possess magical properties, and there is no denying you would be carrying considerable amount of debt, whilst you sell your existing property.

There are two ways the lender will assist you in making the repayments ie. the lender will allow the interest to accumulate to the loan or the lender will advance you additional monies to help with the repayments.

The lender will allow you up to 12 months to sell your existing house. If this option is for you, we think you will be pleasantly surprised with the interest rates.

Please consult your Accountant and/or Financial Planner before applying for a home to home loan.

A lot of our clients chose to purchase a block of land and build their dream home, as opposed to purchasing an established property.

This way, our clients get the exact home that they want.

Construction loans are more involved than loans to purchase established homes, but let Mortgage & Finance take the hassle out of it for you.

More often than not, initially you will have two loans, i.e. one loan for the land and one loan to construct the home.

On completion of the home, if you desire, the two loans can be consolidated into one loan. During the construction phase, the lender will control the release of funds to the builder. That is, at each stage, (usually 4-5) when the builder requires payment, the invoice will be sent to the bank for payment. The bank will seek the borrowers authorisation before payment.

As the construction loan is drawn down in stages, you, the borrower, only pay interest on what is outstanding.

In the main, construction loans are only available on a variable rate.

These days few loans are written as Standard Variable Home Loans (SVHL). Many SVHL features are available via a Basic Variable Loan (BVL). BVL are up to 1.0% cheaper than SVHL. Many borrowers couple a Professional Package and a SVHL to reduce the interest rate down by up to 1.4%.

The SVHL certainly is fully featured, i.e. 100% offset and fee free redraw are features of SVHL.

This feature is generally only available with Standard Variable Home Loans and Professional Pack Loans. It is certainly not a feature associated with:

• No Frills Loans
• Fixed Rate Loans

It is interesting to note that due to the competitive nature of the lending industry, certain lenders do offer the 100% offset feature with no frills loans and fixed rate loans.

With 100% offset loans, you loan is linked to a bank account you have with that same bank, (your 100% offset bank account).

In the main, the 100% offset bank account is your everyday transactional bank account. For every dollar you have in your 100% offset bank account, the bank does not charge interest on that dollar of your home loan.

If you have a loan with the 100% offset feature, all of your savings should be held within the 100% offset account. That is, consolidate all of your savings into the one account, the offset account.

The offset account will save you interest on your home loan, whilst an interest bearing account will earn you interest, thus raising tax implications.

The Introductory Rate Home Loan starts with a low interest rate (often the lowest on the market) and is suitable if you want lower, fixed repayments during the first 12 months of the loan to make things easier. At the end of the initial 12 month term, the loan converts to the standard variable interest rate or the option of a fixed interest rate.

The advantage of an Introductory Rate Home Loan is that it offers borrowers a chance to reduce the principal quickly by making extra repayments. The main disadvantage is that most banks charge penalties if you payout these loans within the first three to four years.

Another disadvantage of this loan type is that generally, after the first 12 months on the considerably reduced rate, the variable interest rate would revert to the lenders standard variable rate. The standard variable rate can be up to 1.45% more expensive than the lender’s basic or professional variable rate.

Certain lenders will pass on professional package discounts (variable rates) after the 1st year.

Ask a Mortgage & Finance Broker to do the figures as to whether this loan suits you.

This loan is also available as a home loan.

Security and flexibility

Want the security of knowing that your interest rates will not increase for up to 10 years, but don’t want to sacrifice all the great flexibility of a variable loan?

Then we suggest you apply for a ‘Combo Loan’, i.e. fix the interest rate on part of your loan for up to 10 years, and leave the other portion of the loan on a variable interest rate.

First home owners may also find this loan suitable for their situations.

A significant casualty of the global financial crisis was the NDHL. Whilst there now does not exist a NDHL in its purest form, e.g. $250,000 purchase, $250,000 loan, there are situations where certain borrowers will not have to put up a cash deposit.

Examples of these situations include:

• Cocktail Lending facilities structures to lend 100% of the purchase price
• First home buyers purchasing cheaper priced properties
• Purchasers that pledge the equity within a property they already own, as security for the loan to purchase the new property
• Purchaser that have family or friends prepared to offer a security guarantee, i.e. a mortgage over their property for the borrower’s home loan.

Reverse Mortgages are best suited to borrowers who seek to convert the equity in their homes into cash. This style of loan allows the cash-poor, asset-rich to tap into the value of their property without having to sell it.

Reverse Mortgages are available to Borrowers of 65 years of age and above. As a rule of thumb, these Borrowers can borrow up to approx. 25% of the value of their principal place of residence. The reverse mortgage is payable when the house is sold or the last borrower moves into aged care.

It is a given that clients seek independent legal and financial advice prior to applying for a reverse mortgage. Mortgage & Finance also recommends that clients discuss a reverse mortgage with all family members prior to applying for a reverse mortgage. Please avail yourself of the ASIC calculators here.

With any loan there is of course interest to pay, however a reverse mortgage requires no monthly payments. Instead, the loan is paid back with the interest accumulated when the house is sold. In other words, the interest is capitalised which means it’s added to the amount of the loan.

There are a variety of reverse mortgage options and a knowledgeable Mortgage & Finance Broker can help ensure that you are maximising the full benefits.

The vast majority of variable rate loans have the redraw feature, few fixed rate loans have this feature (but some do).

Redraw allows you to redraw from your home loan repayments you have made over and above the minimum.

That is, you are able to draw back the advance payments you have made to your loan. You may use these funds for any worthwhile personal purposes, for example:

• Home improvements
• Updating the car
• A holiday
• Buying shares

Redraw allows you to accelerate the repayments on your home loan, with the comfort knowing that if something unexpected occurs you can withdraw your advance payments.

This will help you to pay your loan off quicker.

Lenders, may or may not charge you a redraw fee and may or may not have a minimum amount that can be redrawn.

Are you self-employed and have difficulty in proving your income?

If you answer “yes”, you may wish to consider a Non-Conforming loan.

Non-conforming loans and non-conforming lenders are also high profile casualties of the global financial crisis.

There still exists lenders that provide non-conforming loans, but there are fewer players in this market segment than 2 years ago.

Changes to non-conforming loans since the global financial crisis:

• Fewer products/providers in the market place
• The borrower requires at least 20% equity within the transaction
• Higher interest rates
• Less lender tolerance to poor credit history

Mortgage & Finance strongly recommends that borrowers seek independent legal and financial advice prior to taking out a Non-conforming Loan.

Are you self employed and at times have difficulty proving your income? Or are you a wage earner and due to remuneration package variables such as bonuses and commission you also have the difficulty in proving your income? If this is the case, then you may consider a Lo Doc Loan for your funding needs.

Instead of having to provide the lender with reams of paperwork justifying your income, all you may need to do is fill in a declaration stating your income. In other instances, the lender may also required trading bank account statements and 12 months business activity statements.

Other lending criteria associated with Lo Doc Loans include:

1. Possession of registered ABN (Self employed borrowers)
2. Minimum 2 years self employed (Self employed borrowers)
3. A clear credit history
4. 20% equity in the real estate transaction

Should your situation not qualify for the Lo Doc policy set-out above, rest assured non-conforming lenders will assess borrowers who have been self employed for less then 2 years or whose credit rating is less than squeaky clean.

Mortgage & Finance strongly recommends that borrowers seek independent legal and financial advice prior to taking out a Lo Doc Loan.

• Are you self-employed and have difficulty in proving your income?
• Is your credit history less than perfect?

Then you may wish to consider specialist lending.

Specialist Lenders look at providing finance to self employed applicants and borrowers with credit file issues.

Characteristics of specialist lending include:

• Pricing for risk, i.e. the more challenging the borrower, the higher the rate
• The borrower is able to “self declare” their income.This declaration needs to be supported by either:
  – A letter from the borrower’s Accountant
  – Six months BAS Statements
  – 6 months business bank account statements
• Being a more expensive (rates and fees) avenue of finance

Specialist lenders will also lend to payout tax debt and credit defaults

Quite often borrowers will take up a specialist loan for 2-3 years, get their affairs in order and then refinance to a main stream lender.

At Mortgage & Finance we understand that the burden of significant cash out lay once the vendor accepts your offer can be difficult or impractical. Your cash may be tied up in a term deposit which may prove costly to break or the majority of your cash may be tied up in real estate equity and accessing this equity may take longer than is practical. And if you are ‘buying off the plan’ your deposit may be ‘tied up’ for up to 5 years!

The solution to these conundrums may be a Deposit Bond (DB). A DB takes the place of the cash deposit required between the time the vendor accepts your offer and the day of settlement. At settlement you must pay the final purchase price of the property (including the amount of the DB). Your loan or cash equity takes the place of the DB.

DB’s are especially useful in purchasing apartments off the plan where the vendor requires a 10% deposit and the apartment may take up to 5 years to complete.

A DB is also useful in Australian states where a 10% deposit is the norm eg NSW.

If you, as the purchaser fail to settle on the property the vendor may then request that the DB issuer pay to the vendor the face value of the bond. The issuer of the DB will then pursue you for the face value of the bond.

Advantages of DB’s:

• Cost effective: The once off premium is generally less than interest costs if you were to raise a loan for the deposit.
• The application process for DB’s is very streamlined and a DB may be available within 5 days of application
• Saves you having to break term deposits or access equity within existing properties
• Especially useful when purchasing apartments off the plan, where your deposit may be tied up for up to 5 years.