• 2.  Finding the right loan

    Talk to a home loan specialist

    When you’re new to something, but keen to explore it, having access to an objective expert to answer questions, provide guidance, that sort of thing, can make a huge difference in your confidence, knowledge base and eventual decision-making

    Which is why one of the first steps towards home ownership could well be to meet with a home loan specialist.  

    Their know-how and insight could save hours of stress (and even money) when thinking about buying your first home.

    Our home loan specialists can talk about income, budgets and any other financial commitments you may have. They can then provide: 

    • An indication of how much deposit might be needed and borrowing capacity
    • Suggestions on what the right home loan, based on your income, budget and circumstances, might be
    • An update of the costs involved in taking out your home loan. 

    Questions to ask your lender

    When you talk to different lenders (as you should), make sure to have a list of questions on hand. And if in the process you don’t understand something, ask for clarity. 

    This potentially could be the biggest investment of your life, so it’s critical you understand the ins and outs of what’s needed, and what transpires.

    You’ll gain greater confidence and knowledge, and the lender will have a better insight into your needs, so can advise accordingly. 

    • What percentage of the property value can I borrow?
    • How much can I borrow?
    • Will I have to take out lender's mortgage insurance? If so, how much will it cost?
    • What types of home loans are available?
    • Which home loan will suit my needs and lifestyle? Why?
    • Which home loan offers the best variable/fixed interest rate?
    • What up-front fees can I expect?
    • Can I make extra repayments/deposits?
    • What other features does the home loan offer (e.g . debit card, redraw facility, ATM etc)
    • Are there free redraws?
    • Do you allow me to defer repayments?
    • Tell me about the conditional approval process and are there any upfront fees? 
    • How long will it take to process my application?  

    What loans are on offer?

    Self-employed home loan

     

    • There are home loans especially designed for those who may not have  the required proof of PAYG income to apply for a standard home loan or experience fluctuations in income, such as the self-employed.
    • After all, why should this large and grower sector of the workforce be excluded from home ownership because they can’t always provide PAYG proof of PAYG income?
    • Many self-employed loans (sometimes referred to as low doc) give borrowers the option to switch to a conventional variable rate loan after a set time and upon provision of up-to-date finances provided the lender’s credit criteria are met.

     

    Home loan comparison rate

     

    • You’ll often see two figures listed in the context of home loan rates. The second figure, or comparison rate, helps potential homebuyers work out the true cost of any loan, which is helpful when trying to compare like for like home loans between different lenders.
    • Comparison rates include the underlying base rate plus associated fees and charges. For instance, if a lender’s advertised rate is 5.7% p.a., once the fees and charges are included, its comparison rate may be 6.75% p.a. 
    • Comparison rates are calculated using a formula specified by law based on a set amount, loan term and frequency of repayments.  

     

    Basic home loan  

    • Generally offers a lower interest rate but has fewer features than a standard loan. Such home loans can be more suitable for some first home buyers who don’t need all the features of a more expensive fully featured loan. 
    • May incur fees on extra payments and withdrawals.   

    Fixed rate home loan 

    • Provides ongoing certainty of repayment amount (normally for fixed rate periods of up to 10 years) for better budgeting and cash flow management
    • May suit investors or those expecting rates to increase in the short to medium term
    • Once the fixed rate period finishes the rate usually reverts to a variable rate which may change.  

    NOTE: Fixed rate loans usually do not allow higher repayments or withdrawals and if you discharge the loan before the end of the fixed rate period, a break cost, which can be substantial, may apply.

    All-in-one home loan (full feature home loan)  

    • Essentially a transaction bank account and home loan combined
    • Have salary and other income paid into the account, which can offset the interest charged, thus saving you money, as opposed to earning taxable interest
    • Best suited to income earners and the self-employed who are well into the life of their loan. 

    NOTE: The interest rate on an all-in-one type home loan may be higher and include monthly fees.  

    Line of credit loan

     

    • A line of credit works like an overdraft account secured against your property. The biggest advantage of a line of credit is ready access to money at a relatively low interest rate compared to an overdraft or credit card. 
    • Lines of credit are best suited to disciplined borrowers or the self-employed with fluctuating incomes.

     

    Split loan 

     

    • Concerned about interest rates, but dislike the inflexibility of a fixed rate loan? Then you can try a part-variable, part-fixed combination.
    • Such loans can offer features like accelerated repayments, redraw and mortgage offset on the variable portion, without exposing your entire loan to interest rate movements. Some lenders also allow other splits, such as a basic or a line of credit.