I need a home loan
How exciting! The stars have aligned. You have worked hard to save your deposit and are finally ready to buy your first home… you’re good to go… or so you thought…
You quickly realise that there is much more to this venture than you had originally anticipated.
- Should I look at real estate first?
- Which real estate agent should I go to?
- What’s my maximum purchase price?
- Should I go to the bank first?
- Which bank should I go to – the one where I have my savings?
- How do I know how much I can borrow? What will my repayments be?
- Will my bank give me the right deal? How will I know it’s the right deal?
- What’s this ‘family guarantee loan’ that my friends have told me about? How does that work?
- Should I get a lawyer? Where do I find a good lawyer? Is a solicitor a lawyer? Is a conveyancor a lawyer?.. I’m so confused right now!
- Should I get an accountant? Where do I find a good accountant?
Enough already! It’s time to stop should-ing on yourself and get some good advice from a reputable mortgage broker.
That’s where we come in. Not only will we give you good solid advice, we will help you through the loan process from start to finish and we will do it for free. Seriously, it’s totally worth your while to talk to us first. We can save you time, money and overwhelm. Give us a call and set up a meeting with one of Australia’s top brokers.
Types of home loans
Whether you are ready to buy your first home or your 10th MTM can help! Not only can we provide you with access to an wide range of home loans, we cut through the mortgage jargon and simplify the process. If you are a “First Home Buyer” we will apply for First Home Owner’s Grant (FHOG) on your behalf, introduce you to the right people (lawyers, buyers agents, real estate agents, bankers etc if needed) and hold your hand through the entire process. There will never be a time where you’re wondering what you need to do – we will tell you what to do, when to do it, why you’re doing it and how to do it… and if there is ever a time when you’re unsure, we will be there to answer your call or email – quickly. We know it can be daunting when you buy your first home and we can relieve you of that burden by project managing everything for you.
There is a huge choice of home loans available, and MTM will find the best one to suit your needs and personal situation. Here are just a few of the product types you’re sure to come across:
Basic home loans – or ‘no frills’ loans – offer you a loan with a low interest rate. A popular choice among first home buyers because a basic home loan’s interest rate is often lower than the discounted standard variable rates you would get on a Professional Package*. A ‘basic home loan’ normally comes with no ongoing fees (no monthly fees, no annual fees) but there are some drawbacks such as limited features (e.g. offsets) and less flexibility (e.g. additional charges if you decide to switch loans or change the loan product).
Fixed rate (FR)
If you’re worried about rising interest rates then a FR home loan will allow you to fix your interest rate for a specific period, usually from one to five years. It’s a good option if you would like your repayment to stay exactly the same for the fixed period. The obvious advantage to this is being able to easily manage your cash-flow and enjoy the benefit of the lower rate that you originally locked in if interest rates were to go up.
The potential downside to FR loans is that if interest rates do fall, you’ll still have to pay off your home loan at the FR until the end of the agreed period. Also, if you wish to pay back the loan quickly, or break the loan during the FR (i.e. sell the property or refinance to another lender), you will most likely be charged exorbitant early repayment fees. As a rule, FR loans don’t come with offset ability.
Standard variable rate (SVR)
Generally speaking, SVR home loans are the most popular choice of loan product. SVR home loans normally come as part of a Professional Package. A Professional Package* comes with an annual fee (around $400) and gives you all the “bells and whistles”, e.g. Fee-free maximum reward/Qantas points credit card (which would normally cost around $250pa), fee-free offset accounts, large discounts on home and contents insurance, fee-free ‘everyday’ transaction account, free redraw, loan portability, repayment holiday and more.
Being a variable rate home loan, this means you are susceptible to interest rate rises and if interest rates go up or down, your repayment amount will change in line with your current interest rate. Unlike a FR loan, you can make extra repayments without penalty and you can break the loan (i.e. sell or refinance) with very minimal fees, making this a flexible option.
A good product for both first time and existing borrowers, a SR home loan offers both the ability to utilise an offset account and the flexibility to make extra repayments without penalty. At the same time you would have peace of mind knowing that a large chunk of your repayments will stay the same. You can choose what portion of the loan you would like to be fixed and how much you would like to be variable.
Interest only (IO)
IO loans offer borrowers lower repayment options while maintaining many of a traditional loan’s features. This type of loan allows you to pay only the interest component on a home loan; it does not reduce the principle component. These loans are a popular choice for investors who still have non-deductible (owner occupied) home loan debt. In other words, having IO investment loans will allow you to pay off your owner occupied (non-deductible) debt quicker for maximum tax benefits. That is, if you’re going to have debt, our accountant advises that you’re better off paying down non-deductible (owner occupied) debt before paying down investment (tax-deductible) debt. The downside with IO loans is that nowadays they come with higher interest rates, so come and talk to us to ensure an IO loan is right for you – and please speak with your accountant regarding the tax implications/benefits of an IO loan.
Introductory rate (IR)
Many lenders offer reduced interest rates for a limited time at the beginning of your loan. This low interest rate (also known as the ‘Honeymoon rate’) usually applies to the first 24 months of the loan. The advantage is that IR rates can be lower than the SVR or BR but you should be aware that there is usually a catch with IRs. After the end of the introductory period, the interest rate normally reverts to a higher than normal variable rate. At this point it would be a good idea to speak with MTM about switching the loan to another product, such as the SVR or the BR.
Low doc (LD)
How to explain a LD loan and where it might be applicable … here’s a scenario:
If you’re self-employed (SE), under normal lending criteria most lenders will want to see 2 years tax returns showing SE income. The bank will then average out these two years of income, and use that figure in their serviceability calculations (to work out your borrowing capacity). However if you’re newly SE, say 3 years in, you will only have 2 full years of tax returns showing SE income. If there is more than a 20% variance between the years the bank will use the lower of the 2 years + 20%. For example, you earned $50,000 net (taxable) income in your first year of trading, then you earned $100,000 in your second year of trading. At the time of applying for a home loan, you’re now half way into year three of trading, earning $130,000 (your actual income as at the time of applying for your loan). However when you go to a bank, using the formula above, the bank will only use an income of $60,000 per annum in their servicing calculator. How did I get to $60,000? Remember if there more than a 20% variance, the bank uses the lower of the 2 years + 20%. This would be $50,000 (year 1) + 20% = $60,000. In reality you’re earning $130,000, but the bank is telling you they will only use $60,000. Here’s where a LD loan comes in. Instead of supplying full documentation (i.e. tax returns) you can use business bank statements, BAS’s or even a letter signed off by your accountant as evidence of your current income (being $130,000) and as a result, be able to secure a larger loan. The banks see LD loans as higher risk so in most cases you will have larger fees, a higher interest rate and be expected to contribute a larger deposit.
Typically, a Professional Package will give you the below features:
- Fee free transaction account (normally $5 per month)
- Fee free credit card (if you want it – a platinum style card which normally costs you ~$250 per annum)
- Fee free 100% offset account/s (normally would cost you $5-$14 per month)
- Cheaper insurance (if you want it – home and contents)
- Waives the loan application fee ($600)
- You can make post settlement changes to the loan free of charge (e.g. splitting the loan and/or switching to fixed)
- Redraw, repayment holiday, portability etc.
- No new charges for any new loans (eg another investment property loan in future)
- You can have as many loan splits, per property (with no monthly charges on each split)
- Interest rate discount off the Standard Variable
I would recommend that property investors are on a pro-pack.
Build a secure financial future by using the equity in your home for your investment property (IP). This is the key to building wealth through property.
Okay, you’ve lived in your home for a few years and have been diligently paying down your home loan… you may be wondering what your home is now worth, and I’m sure you’ve heard those “savvy” in-laws talk about all their “equity” last Christmas dinner… you sat there, nodding, but didn’t really have a clue really what they meant. So let me tell you!
An Investment Property (IP) loan is a type of home loan that you would take out to buy an investment property. It is a mortgage solution for those who want to buy a property and rent it out to receive income, but don’t have a lazy few hundred thou’ in the bank to pay cash for the property, so they would need to apply for an IP loan.
So what were your in-laws talking about when they mentioned all of the “equity” they have? Let me give you an example. Your home is worth $500,000 and you still owe $310,000, your equity is $190,000. Sounds straightforward enough but in reality it’s not quite that simple when it comes to accessing that equity through your lender. The lender will send a valuer to your property (sometimes at your expense), and the figure they come up with may not match up to what you think its actual market value is.
Even if your property does value well, banks won’t lend you the full amount anyway because if house prices drop, they don’t want to have an outstanding loan that’s worth more than your property. Generally, banks will lend you 90% of the value of your home, less the debt you still owe against it. This is your “usable equity”. It’s important to note that borrowing over 80% will mean you have to take out Lenders Mortgage Insurance (LMI*) so you will need to add this into the purchasing costs of buying the new IP.
*LMI is a once off cost that is normally “capitalised” (added on top of) your IP loan. It is important to note that LMI protects the bank, not you, as the more you borrow (higher LVR**) means the risk to the bank gets higher. LMI kicks in over 80% LVR.
**LVR stands for Loan-to-Value-Ratio. Visualise this, you have a $100,000 value property (yeah yeah I know, that’s practically impossible these days, but we need to use simple numbers so you can easily pick up what I’m putting down)… So, you have a $100,000 (valued) property with an $80,000 home loan borrowed against it. This is an 80% LVR as you have borrowed 80% of the properties value.
The good news is that your property’s equity will increase both as you 1. pay off your mortgage and 2. the property’s value increases. So, going back to the example above, if your $500,000 home increases in value by 10% over 12 months that’s an extra $50,000 in equity. Also, lets assume you have paid the $310,000 home loan down to $300,000, you have effectively built an extra $60,000 of equity into the property over that year.
IP loan vs Home Loan – what’s the diff? IP loans differ to standard home loans as they have stricter eligibility requirements. One restriction when borrowing for an IP is that your LVR requirements will be higher, meaning you will need a larger deposit compared to buying an owner occupied home. IP loans typically also come with higher interest rates than residential (owner occupied) home loans.
- Interest on the investment loan
- Home and contents insurance and landlord insurance
- Real estate agent’s commission
- Your conveyancing solicitor fees (both in buying and selling the property)
- Maintenance costs
- Council rates
- Decline in value of depreciating assets
- Construction costs (“capital works”)
- Travel expenses to the property to do an inspection, maintenance or repairs
Obligatory Disclaimer: At MTM we are not licenced tax agents, so it is important to speak with your accountant on the above points before you make any life-altering decisions!
Take some of the guess work and uncertainty out of your property purchase and apply for a pre-approval before you begin your search.
A conditional pre-approved loan can help you make sure you don’t miss out
on your dream property.
What is a conditional (pre-approved) loan?
The first thing you need to know is that there are a few different terms for a Pre-Approved loan, which are: 1. Pre-Approval 2. AIP (Approval-In-Principle) and 3. Conditional Approval. Different lenders use different terminologies, and as your broker we like to keep you on your toes by using all three!
What is a Pre Approval? If you walk into a (bank) branch and are printed a Pre-Approval on the spot or even the same day, usually this won’t be worth the paper it’s written on. This is a Conditional Approval – the Conditions being that a credit assessor still needs to look at your application and verify everything including credit checks, employment checks, and verification of all supporting documents still need to be done. This is a waste of your time and if you were to bid at auction using one of these, you could be putting yourself in a risky position.
The type of Pre Approval you’re looking for is a “Conditional Approval, subject to the Contract + valuation”. This would include a full loan submission and depending on your lenders current turn around times, will take 2-10 business days to obtain. This means that a credit assessor has reviewed your application thoroughly, has gone through all of your supporting documentation (payslips, tax returns, PAYG summary, bank statements, rental statements – the whole shebang), has conducted employment checks, has checked your Equifax credit report, double checked serviceability requirements and is happy with absolutely all aspects of your application. At this point the only 2 things left for the bank to verify are 1. Contract of Sale (which you can only get once you’ve found the property) and 2. the valuation (which can only be done after you have purchased the property).
In a nutshell, the credit assessor will take a look at your financial situation, the price range of properties you’re looking at, and the location of where you’re looking to buy, and give you the nod that you’re eligible to apply for a home loan up to a certain limit. You don’t have to take the loan and at this stage the lender is still under no obligation to lend you that amount, but it will show sellers that you’re serious about buying and that you’re confident you can afford the property.
Do I need to have my loan pre-approved?
No, you don’t! If you’ve already found the home you want to buy you can then go ahead and apply for a loan … BUT there are some very good reasons why you should get your loan sorted beforehand.
Some lenders provide a loan pre-approval which is approved for a certain time (usually three months), and providing your circumstances don’t change you will:
- know exactly how much you can afford to pay for a property
- have the freedom to make an offer on a property knowing that your finance is already organised
- have a better idea of what properties to look for, because you won’t waste time looking for something outside your price range, and
- be able to focus on the purchase (once you find the right property) rather than having to sort out the finance at the same time
With a pre-approved loan, there are fewer chances of hiccups with the sale process, and in some cases, vendors (sellers) will accept an offer below list price and take the property off the market with confidence knowing the buyer is serious.
If you decide to make an offer you’ll be in a position to move quickly if your finance is sorted – this will help you avoid being gazumped, and you can bid with certainty at auction*.
*If you are considering bidding at auction, MTM strongly recommends that you apply for a Pre Approval as auction purchases are “unconditional”, i.e. there is no finance clause. If you bid and win, you must settle on the property. If for whatever reason you can’t settle, you may be liable for huge penalties.
There are hundreds of different loans out there in the mortgage marketplace. But basically, they are all based on three key things:
- Principal – the amount of money you borrow
- Interest – how much you pay to borrow the money. It’s calculated on the outstanding principal
- Serviceability – your borrowing capacity, i.e. what the lender deems you can afford
From here, there is a wide variety of loan features and structures to choose from, and it’s worth knowing what’s involved with each to make an informed decision.
Do you need a financial health check?
Just like getting a health check to keep you physically and mentally balanced, a financial health check is great for your bank balance and your peace of mind.
If you haven’t looked at your home loan in the last few years, chances are your loan has become a couch potato and is not working as hard for you as it could be.
Give us a call on 1300 782 524 or fill in the form below and we’ll find the right loan to suit your needs.
We will also teach you how to pay off your loan earlier as well as help you get out of debt sooner!
Get an obligation-free assessment of your financial health to ensure you have the right home loan for your personal circumstances.
Consolidate your high interest personal loan or credit card debt into a low interest “home” loan.
Does it make sense to consolidate debt?
If you’ve got personal debt such as a car loan, personal loan, or credit cards and you’re finding it hard to keep up, it can help with cash-flow to consolidate into a low interest home loan*.
The good thing about consolidating your loans is that you get a chance to lower your monthly payments and save interest. You can structure the loan so that your monthly payments are affordable by spreading them over a longer term so it’s easier to keep up. You can opt to “split” the new borrowings so that it’s not lumped on top of your 30-year mortgage, effectively then you will have 2 loans secured to you home. 1. the original home loan and 2. the new “consolidation” loan. By doing it this way, you will be able to select the term (possibly 5-10 years, instead of 30) and you can focus on paying your “consolidation” loan back as quickly as you can.
The other option is to increase your original home loan to cover the personal debt in its entirety. At MTM, we would only recommend this if absolutely necessary. In doing this, your initial repayments will be less, however if you spread your personal debt over a 30 year term you will end up paying much more interest in the long term and could add years to your mortgage. We think the best option is to keep the “consolidation” loan separate from your original mortgage. That said, this would be the perfect question to ask you financial adviser. If you don’t have one, talk to us ~ we know (and use personally) a range of reputable financial advisers and can introduce you for a no-obligation chat about your personal circumstances.
*To consolidate debt, you must have an appropriate level of equity available in your property, and must also be able to prove serviceability to the new lender. Speak to MTM to see if you have sufficient equity and serviceability to make it happen.
What are the disadvantages to consolidating debt?
Even though consolidating all of your existing credit commitments into a single monthly repayment might sound like a good idea, you must be aware of the potential disadvantages:
- Expense – Some debt consolidation lenders charge fees. Make sure the new loan isn’t going to cost you more than it saves.
- Savings – After all fees and expenses are accounted for, you need to determine if it will save you money over the long run.
- Amortisation – Your new loan will have a different amortisation schedule so check in with MTM or your financial advisor to see how long it will take to pay off your debt. If you extend the loan term then the lower payment may end up cost more in interest in the long run.
- Penalties – Are you going to pay penalties and charges for closing your existing loans?
- Band-Aide vs. Solution – Have you solved the overspending problems that caused the debt in the first place so that you don’t get yourself into more debt?
You may want to keep your existing loans, even if the payments are higher. Remember that in some cases you may actually pay more in interest over time with your new debt consolidation loan.
Steps To Consolidate Your Debt
Step 1 – Gather Your Debt Details
Before you consolidate, you need to know the following for each credit type:
- Balance (what’s owing)
- Interest Rate
- Annual Fees
- Early repayment penalties
Step 2 – Explore Your Options
Now that you know how much debt you’re facing, it’s time to look at your options for consolidating your debt.
- Check to see if you are eligible for low credit card balance transfer rates. If you don’t know what this means, or where to start please come and talk to the team at MTM as we would be happy to give you some guidance here and potentially introduce you to bankers that could help.
- Look into the “snowball” method of paying back your loans. You can accelerate your debt payoff by using the “rollover” method. As soon as the first debt is paid off use the freed-up payment amount to pay down the next debt even faster. Continue the process (building like a snowball) until all debts are paid off. The debt snowball method is the most cost effective, fastest, and emotionally satisfying way to get out of debt.
Step 3 – Apply For Debt Consolidation
Contact MTM to see if you are eligible to apply for a consolidation loan. Your application processing may take 1-2 months so make sure you budget sufficient time.
Step 4 – Stick To Your Commitment
Get out of debt by changing your habits. You need to commit to your planned solution and stick to it. You should keep up with your payments so you will be able to pay off your loan. The trick is to pay as much as you can afford each month so you will get out of debt sooner.
Diving for gold
Save yourself some time and let us dive into the fine print of the many different lenders for you. We will find you the perfect loan to suit you and your circumstances and here’s how we do it:
At MTM we have access to 30+ lenders, with a Business Development Manager (BDM) for each lender. The BDM’s role is to assist us wherever possible, from going through scenarios before loan submission and providing support throughout the application process, through to settlement, if needed. Having established solid working relationships with many BDM’s, we are well placed to receive star treatment for most of our loan applications.
We keep abreast of lender policy which changes regularly. ANZ, MyState and CBA for example, will only need the most recent year’s tax return for self-employed applicants. All other lenders need to see 2 years (and will average out the 2 years) of tax returns.
Some lenders are okay with a PAYG salaried person being on probation; however most lenders will require the applicant to have been employed for more than three months, and off probation. Also, some lenders are better at broking rural blocks of land, some better at small inner city apartments, some are better at 3 or 4 dwellings on a single title.
There are so many variations to a loan application (no one application is ever the same!), and we know where an application will be best placed to ensure a smooth, hassle free, and cost effective outcome for our client.
Here’s what one of our clients has to say:
“For us, what we have loved about working with you is that you make everything so easy. We are time poor and have no interest in reading through pages of documents we don’t understand. It has been a godsend to have you just send stuff marked up ”sign here”!!” ~ Monique and Jeff, QLD