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.