The process of selecting the right lender for your home loan starts with you and your particular circumstances. Once we understand that, we can then structure your loan so that it will serve you now and in the future.
First things first …
We explore the issue of ownership structure. Residential lenders have differing rules when it comes to the structure you’re looking to hold the property in.
Some examples of different ownership structures include:
- Family Trust with a personal or corporate trustee
- Discretionary Trust with a personal or corporate trustee
- Hybrid Trust with a personal or corporate trustee
- Personal names as either Joint Tenants or
- Tenants in Common
- Unit Trust with personal or corporate trustee
- Testamentary Trust
We look at the security (property) you intend to offer the bank. Not all lenders will accept all types of properties. If you intend on purchasing four town houses on a single title for instance, we already know that only a small handful of lenders will accept four side-by-side dwellings as security, and they’ll often ask for a 40% or 50% deposit.
When it comes to the question of security (i.e. the property you’re offering to the bank as collateral), a number of other issues need to be taken into account when choosing the right loan. These include:
- Previously paid Lenders Mortgage Insurance (i.e. if you have paid LMI previously, it may be worth staying with your current lender as you will only have to pay ‘top up’ LMI if you wanted to increase your loan. Paying ‘top up’ LMI is a lot cheaper than paying full LMI again)
- EPA issues (Environmental Protection Authority). Think service stations; an underground fuel tank on a hobby farm. Or property with asbestos issues)
- Multiple dwellings on one title; such as granny flats
- Fixed rate attached to the property
- Properties locked in a web of cross collateralisation
- Are there any business loan or bank guarantees secured to the property
- Post code sensitivity – regional, high density
- An island with no bridge to the mainland
- Lenders existing exposure in a multi unit high-rise
- Location of the security – for instance; too close to high voltage power lines or railways
- Type of title – Company Title, Crown lease, Western land lease, Alpine lease, heritage, acreage, zoning/usage (mixed use, rural, primary production)
- Current high valuation with existing lender (is it better to stick with your current lender and utilise the higher valuation?)
- Advantageous sale (also known as a favourable purchase), such as that of the family home from parents to children (e.g. parents sell a house worth $1M to their kids for $700k).
- Special dispensation e.g. Defence Force (DHOAS), Family Equity Gift (do the kids need to use equity in the their parents property to support their purchase), Land Rent (not seen too much these days, but there’s a few of my clients still with Land Rent properties and not all lenders will accept a Land Rent property).
- Usage: Dual Key, serviced apartment. Holiday let, NRAS head lease, student accommodation, anything for the over 60’s (think retirement villages)
- Size of the property, such as a micro-apartment of less than 5Om2
- Condition of the dwelling. For instance; if it’s uninhabitable due to fire damage or termites
- Does the property have any unapproved structures (typically a pergola or deck is fine, however if there’s an unapproved 2nd dwelling on the property or unapproved structural change to the security, lenders may not like this)
- Construction loans. specifically, for terraced house construction with common walls
- Portable homes (no lender will lend for portable homes as a construction loan with progress payments)
- What are the future plans with this property? (Will you eventually rent out this property? Will you need extra funds for renovations in the future? Will you want to use equity in this property to buy another etc.). Depending on what your future plans are, will determine how we structure the loan.
- Are you newly self-employed? Most lenders will want to see 2 years of tax returns (and will average the figures), however a growing business will often have healthier looking tax returns in the most recent year, so you may need a lender that will use your most recent years figures.
Assuming we can meet all of the above criteria, we’ll then base the ultimate selection on:
- Interest rate
- Service. Quick turnaround times means that when you’re making an offer on a property you can negotiate a quick settlement with the vendor (e.g. 3 weeks instead of 6 weeks). This could be the reason why a vendor chooses you over another potential purchaser. Ongoing service after your loan has settled is also something we think about.
- Any other features you may require, such as a local branch presence, fixed rate, ATM’s, website functionality, offset accounts and the like.
Hopefully this has made our process for lender selection clearer and shows you that “interest rate” isn’t the only consideration when selecting the right home loan.
With that, we are confident that the lenders on our panel can solve almost all of your residential loan requirements once we walk you through these initial steps.
Speaking of lenders …
The RBA has dropped the cash rate by 0.25%, to an all-time low of 0.75%. As I predicted, lenders did not pass on the full 0.25% (typical right?).
Below is a list of lenders and their variable rate decrease:
- Adelaide Bank, 0.15%
- ANZ, 0.13% (owner occupied P&I) and 0.25% (Investment IO)
- Auswide, up to 0.14%
- Bankwest, 0.13% (owner occupied P&I) and 0.25% (investment IO)
- Commonwealth Bank of Australia, 0.13% (owner occupied P&I) and 0.25% (investment IO)
- Firstmac, up to 0.20%
- ING, 0.15%
- Macquarie, 0.15%
- Mystate, 0.15%
- NAB, 0.15% (owner occupied P&I) and 0.30% (investment IO)
- St George / Bank of Melbourne, 0.15%
- Virgin Money, 0.15% for P&I, 0.20% for IO
- Westpac, 0.15%
Economists are predicting another 0.25% rate drop in February 2020. I highly doubt that lenders will pass the on the full 0.25%.
Keep in mind that interest rates will not be this low forever, so make sure you take advantage by saving as much as you can (into an offset account) or pay off your mortgage. My advice is to find out what a 5% repayment would be, and pay (at least) that into your mortgage or offset account.