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Home Loans Frequently Asked Questions

Basic points to consider while buying a home and getting a home loan

Let us see the pros and cons of each.

Advantages of renting a home

  1. More spending money right now
  2. No worry about upkeep, maintenance and property tax
  3. Greater flexibility on house size, you can keep moving based on your family requirement
  4. Easy to relocate based on your job and other factors

Disadvantages of renting a home

  1. No investment potential – spending on the rented home is always going to be a waste
  2. You have to follow rules and regulations decided by the landlord

Advantages of buying a home

  1. Keep investing and personalising as per your needs and comfort
  2. Your home is a wealth asset for you
  3. A mortgage is actually a systematic saving process
  4. Fixed home loan rates can help you plan better and after some time, you can also refinance your home loan and reduce your expenses

Disadvantages of buying a home

  1. Missed repayments can be a costly affair
  2. A large portion of your wealth will get invested in a single entity
  3. Regular upkeep and maintenance costs
  4. In some rare cases, the price or value of your home may decrease depending upon macro-economic factors

It depends. This is a trend on the rise in Sydney. 

In this, you would ideally buy an investment property with a home loan while you live out of a rented property near to your office or school/college of your kids.

 

But here are some of the advantages of rentvesting

  1. Tax break: If your rental income is not over your home loan interest and other expenses, then you are eligible for a tax break for your losses during your annual tax computation
  2. Property investment happens at a lower cost. If you utilise the rent towards your home loan repayment then you are essentially getting your home at a reduced cost.

 

Here are some disadvantages though:

  1. You are dependent on a tenant for rental income
  2. Investor home loans are often expensive

Some of the costs and fees you need to budget for when buying a property are below:

  • Admin fees from the lender. Lenders have application fees or package fees and then also have to account for the property valuation fees. Finally, there will be other administration fees of their own. Now, these costs range between $600 and $900. Depends on whom you are getting your home loan.
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  • Legal & conveyancing fees. These too range between $1,000 and $1,500. We would recommend you go in with a professional financial services company such as Freshwater financial services, to help you get the best deal possible without paying anything extra.
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  • Mortgage/Home loan insurance costs. Most lenders apply Mortgage Insurance to their home loans that are providing more than 80% of the total cost of the property. They do this to avoid the risk from the death of the home loan acquirer. The only probable way to avoid this is to have a larger deposit. This way, you do not need more than 80% and can hence, skip the insurance part. But what it also means is that you have to be good at saving up-front. 
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  • A building inspection and reporting. Before you sign the Contract of Sale, building inspections are to be done and taken into account for validating the offer. In case this step is avoided, huge penalties are applicable. The reason this rule is so strict is that the cost of the property can be manipulated without proper building inspection. People often under-report to get over 80% of the cost as a home loan.
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  • Inspection for pests and others. This is another inspection that has to be completed before the purchase of the property to validate that the house is safe for living in or dwelling. Such pest inspections usually cost around $500, decided by the size of your property.
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  • Stamp duty. Stamp duty rates apply to all property purchases. You have to account for them. We recommend using our stamp duty calculator here, to assess the amount you need to save or account for it.
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  • Home and contents insurance. After you have signed the contract of sale and your home loan application, you need to be looking at your home insurance cover. This will typically need minimum sum insurance which covers the building. But it is advised to insure a sum good enough to help rebuild your home, in case something does go wrong.
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  • Local council and water costs: Please don’t forget your council fees along with regular home loan repayments.

The answer is it depends. 

In case you have a very good up-front amount saved up. Then, you would require less than 80% of the property cost from the home loan. 

If you also have a sizeable income and assets which are much more than your liabilities, then the need for a guarantor does not arise. 

But if the above conditions do not apply to you, then you would need a person who provides additional security to the lender and be as guarantee.

In a home loan, a lender gives you money after signing a loan contract. 

A mortgage is security lodged against the property title, which provides the lender with security against the funds borrowed. 

The only clause is that the lender has the authority to sell your property in case you default on your repayments.

So the home loan is what the lender gives you and mortgage is the security (your home) you give to the lender.

Two main categories of homes loans repayments methods exist: 

  1. Principal and interest (P&I) 
  2. Interest-only (IO).

A principal and interest loan is the most common home loan. This simply means that your repayments have both the components – Principal and Interest. The proportion of interest will be higher in the initial terms and lesser towards the end. 

An interest-only loan means your repayment just covers the interest charged to be charged on the borrowed amount from the lender. 

This is usually set for a specific tenure such as one to five years post which it reverts to the principal and interest variant.

It is necessary to understand clearly how much you can afford to repay every month before deciding on your home loan or the property purchase value. 

Here are certain key things for you to consider:

  • How much and how often can you make the repayments?
  • Is there any other scope for you to be able to repay beyond the monthly repayment say in two years or five years?
  • How long can you do these repayments comfortably?
  • Is there any scope that you would sell your property within 1-5 years and move?
  • Once you have answers to those questions, then it is easier to decide the kind of home loan you can opt for. 
    • Variable interest rate home loan. This fluctuates based on the changes to base lending rate or interest rates prevalent in the market. This means it can decrease in some cases resulting you being able to pay off more of your loan. Similarly, when the rate increases you will have to pay for a longer period. This kind of loan is suitable for people who are likely to sell their home and move. 
    • The other kind of home loan is a fixed rate or fixed interest rate home loan. This kind of loan has a secure interest rate for a set period, ideally between one to five years. This is more suitable for people who are looking to settle down with their home.
    • Another variant is a split loan. This has both variable and fixed-rate loans advantages. In this, one portion of your loan will be charged as per a fixed interest rate, while the rest is charged as per a variable rate. 

Now before you make up your mind and take the big decision it is always advisable to take advice from a professional.

This is decided as per your borrowing power depending on how comfortably you can repay it. 

It is good to take into all the other costs and charges we mention in the first set of FAQs.

You take a home loan to buy a property which in turn becomes their mortgage. 

Mortgage insurance is then taken out to further protect the bank. 

Initially, you have to do a deposit – a lump sum of cash for doing the purchase. Then account for other costs and expenses with time. 

Typical loans are given for monthly repayments for a set period of such as 30 years. Over this time you have the option to pay beyond your repayment amounts and reduce your tenure or monthly repayment amounts. 

In some cases, you also can transfer your home loan to another lender/bank who is offering you a better deal. 

 you have saved over time.

The lender typically calculates the interest on your home loan at the end of each day. 

At the end of each month, your lender will add your daily interest charges for each day of the month. This is the monthly interest amount normally found on your bank statement.

Say your loan balance is $500,000 with an interest rate of 4.5% per annum. First, you would multiply the balance of the home loan (500,000) by the interest rate (0.045), and then divide it by the number of days in a year (365).

e.g. ($500,000 x 4.5%)/365 = $61.64

What are Equity loans?

They are generally known as an equity home loan. In other words, it is also called a line of credit. 

Equity is the share you have already invested in your property or asset. For example, if your home is worth $800,000 and the loan balance is $300,000, then the equity in your home is $500,000. This can help leverage your eligibility for a home equity loan with your lender.

One can borrow up to 80% of the value of the property. It also depends on the lender and their mortgage insurance guidelines. So in some cases, some may allow up to 95%. But in such scenarios, you’ll have to take up the mortgage insurance.

You can use our calculators to do these calculations easily – https://freshwaterfs.com.au/calculators/

Or you can talk to one of our experts to get a clear understanding of how much you can borrow on a home equity loan?

Home equity helps free up immediate money for you to use in something urgent. As long as it’s for a personal purpose, it can typically be covered. However, to be certain, you will need to check the conditions in your loan agreement on redraw availability with the lender or from a mortgage broker like us – https://freshwaterfs.com.au/.

It is not really considered as a second loan. Instead, as we mentioned before it is treated as a line of credit. 

This kind of loan just allows you to borrow from the part of your home which is under your ownership. 

So in effect, you are just making money by giving the part of your home as another security to the lender.

It depends. There are various factors to it.

  1. How much do you need?
  2. What is the repayment cycle you are comfortable with?
  3. You can also use our calculator to get a fair idea – https://freshwaterfs.com.au/calculators/

We would also recommend you to consult with the lender or a mortgage broker to get more clarity.

It is possible to take them. But it should be a carefully thought out decision based on your financial goals and position. Even the consulting with the lender beforehand can help you make a better call. If you are considering such an investment loan and would like to review all your options first before approaching your lender, please do get in touch with us here – https://freshwaterfs.com.au/.

The cost associated with owning an investment property can be tax-deductible. It is still recommended to consult with a tax specialist who can explain the benefits that may apply to your specific personal and financial situation. For example, owner-occupied purchases and renovations are not tax-deductible.

This can be done. You can use the equity as a deposit. But it’s important to note that you can’t use all of your equity, given that your lender is loaning you money against the value of your property. 

Most banks usually accept equity in a property as collateral against which they can lend.

If your current equity in your property is worth much more than the investment property then you can easily borrow the full purchase amount + the extra fees you’ll need. 

But what this would mean is that both your current property and investment property will be at much greater risk when you default on your repayments.

Basics for First home buyers/owners

It is recommended to first talk with a professional mortgage broker. They can assist you with your queries and suggest a suitable home loan, property size to look at and the lender. Once you are through this the lender will take care of the rest of the process. In case you want to calculate the various costs and the overall budgeting yourself, please feel free to make use of our calculators here – https://freshwaterfs.com.au/calculators/.

The main advantage of a first time home buyer loan is that it typically offers ‘honeymoon’ rates which are lower than the current interest rate for a set period. 

Post this period, the interest rate would revert to the base interest rate.

Lenders get many first time home buyers especially due to the honeymoon rates. A word of caution here would be the base rate that it will revert to once this period ceases. In some cases, these rates may be substantially higher. 

Hence, it is recommended to go in discuss with a mortgage broker first to understand what are the rates and how it would play out financially for you.

This is a federal government-funded grant and you have to apply for it. The federal government has doubled the number of openings for its popular First Home Loan Deposit Scheme. 

When the scheme started in January, only 10,000 eligible first home buyers were able to participate in each financial year. That has been increased to 20,000 for this financial year. 

Under the scheme, the government acts as a guarantor for eligible first home buyers, allowing them to: 

Take out a mortgage with just a 5% deposit.

Skip the usual requirement to pay the lender’s mortgage insurance (LMI).

The scheme includes 27 participating lenders who are now accepting applications.

To be eligible, you must earn no more than $125,000 for singles and $200,000 for couples. 

Also, you must purchase a home under the price cap, which ranges from $250,000 in regional South Australia to $700,000 in Sydney.

Before selecting the kind of home loan, the first thing would be to understand your financial positioning. 

How much can you repay monthly?

How much do you need?

Have you accounted for all the other expenses that come along with the purchase of a property?

How long or the tenure you are looking for repaying back your home loan?

Based on the answers to the above it would be best to consult with a mortgage broker such as Freshwater financial services. 

Now in such discussions, the right kind of home loan is easier to identify. 

Once that is determined, it becomes easier to find and get the most affordable home loan.

The First Home Owner Grant was introduced by the Australian Government to help Australians with their first home purchase. The grant is available across Australia at a base amount of $7,000, although, the total amount and eligibility rules vary between each state and territory.

The process of getting a home loan and other queries

It depends. The standard approval process for a home loan varies between lenders. 

The mortgage insurance is applicable only when you borrow 80% and above from the cost of the property.

Such mortgage insurance for a home loan usually takes up to 48 business hours while it goes through the standard credit process. 

Lenders mortgage insurance is also often referred to as the underwriting.

Comparing different bank home loan interest rates can be a tedious process. There are many free resources online to do the comparison but do not really give you the right picture in terms of your requirement/need. 

So based on your financial position, if you are able to repay a home loan faster then a slightly higher interest rate wouldn’t have much impact and could speed up the entire process of getting the home loan. 

But in other cases, if the interest and cost of the home loan are of utmost importance to you, then a home loan for longer tenure around 30 years and above could help you get a better deal. 

Also, after 3 to 5 years looking at refinancing your home loan can be highly sensitive for such scenarios.

The interest on a home loan fluctuates based on a variety of factors. 

You can use various interest rate comparison websites to understand what is the going rate currently and how much it is. But this being said it might not be the best interest rate for you, specific to your requirement. 

So take your requirement to a mortgage broker. Discuss in detail what is the current income and expenditure levels and the property you are looking to buy.

The following list of documents are required to apply for a home loan:

  • Personal Identification. It can be your driver’s licence, passport, or the photo ID that satisfies your lender’s requirements (i.e. Proof of Age Card).
  • The proof of income. Bank statements for the last year, payslips, or income verification from your employer.
  • Financial scenario – assets, liabilities, and expenses. A detailed list of your current expenditures or savings, any outstanding loans or debts, and assets; with supporting documentation (i.e. rates notice for a property, statements on any loans or credit cards, share statements etc).

To get a very good interest rate deal for your home, you need to have the following:

  • Good deposit amount already saved for up-front costs and other expenses
  • Less number of expenses and outstanding amounts or other kinds of loans
  • Strong assets to liabilities ratio which showcases that you can easily pay off your debts if required
  • No negative impact on your credit accounts previously or in the recent past

Apart from the above if you have a clear understanding of how much you can repayment and for how long, it makes you a very prospective home loan applicant.

A pre-approved home loan is definitive from the lender that you can borrow a certain amount for a fixed repayment plan and for a set period. 

This is usually provided to you once the bank/lender has all your personal financial details and the key details as to where and for how much you are looking to buy property for. 

This helps you optimise your property search to only those homes which you can buy with your pre-approved home loan comfortable and the processing is smoother after your confirmation of the property to purchase. 

This process of pre-approved home loan is usually done with the help of a mortgage broker, who can help you through all the bank/lender requirements quite skilfully.

Initially, a preliminary assessment is also done by the broker and then is sent for the lender to re-verify from their side as well after lodging an application with them.

That would be tough and is applicable only under exceptional circumstances. 

The chances are rare for you to be eligible to obtain a home loan without any deposit money.

Without a deposit, you would more than likely be relying on some of the federal government grants available. But these grants are usually limited in number and there is always a very high competition or more number of applicants. So it might take longer than usual for your home loan to be processed or released. 

The grants usually act as the deposit in such scenarios. 

The only other way some of the lenders do allow you to borrow without any deposit or on no deposit condition is when you agree to extremely high-interest rates. 

This is also something we would not recommend you to do or take up as part of your home loan. As then the tenure and the repayment amount would be very high than normal.

If there is no credit history available at all, such as no car loan, credit card or mobile phone contract or consumer loans. Then obtaining the home loan would depend completely on the lender and the guidelines they have for such situations. 

The reason is that the lender does not have any information or data to rely upon on how good or bad you at repayment of your loans. And without such information, it is very difficult to understand or quantify how you will be able to pay back the home loan. 

The other reason is that repaying loans historically means you have a good habit of saving and spending for only those amounts which can comfortably repay back. But when such credit history is not there, it is tough to understand if you have the discipline to save and repay your home loan. 

But in some cases, you may be able to get a home loan without a credit history. But such lenders assess your assets and liabilities more strictly and might look towards mortgage insurance as well just to be safe. 

Their asset to liability ratio report will also give them an understanding of how risky it will be to give you a home loan or any kind of loan for that matter. 

So we would recommend that you do buy things on credit and repay them back before looking towards applying for a home loan. It reduces a lot of hassle and helps avoid other safety precautions which a lender might take against you albeit unnecessarily.

The easiest rule of thumb is to not take the maximum amount offered by your lender. Instead, look at what can be comfortably paid off by you in the tenure provided by the bank. 

Also, apart from the deposit, prepare yourself for the upfront and ongoing costs. Only when you have money for all of them should you apply for a home loan. Else there will be many unpleasant shocks and expenses. 

Just to give you a recap on what those upfront and ongoing costs are: stamp duty, moving expenses, legal fees, registration fees and searches, as well as body corporate fees if you are buying into a strata-title, after settlement. 

Other factors you will need to think about are how much your lender is willing to lend you, your personal circumstances and your financial goals over short and long-term periods. It is worth noting that if you decide to borrow more than 80% of the total value of your home loan, you will be subject to paying lenders mortgage insurance.

You should crunch the numbers and work out a budget before the application process, so you’re aware of what you can comfortably afford.

It varies lender to lender. 

But once you have decided which lender to go in with the help of your mortgage broker, you will be getting an estimated time from them. 

The timeframe is usually denoted in the number of business days and is from the date of your application is lodged with them. 

While the pre-approval in itself depends on the lender whether they want to offer it to you or not. But once, agreed the process is pretty straight forward and happens on the confirmed time frames.

When applying for a home loan the lender requires you to disclose your financial commitments to determine your serviceability or borrowing power. If you have reached the HECS/HELP income threshold, then it’s likely you are required to start repaying the debt. At this point, your HECS/HELP debt is a liability that is taken into consideration when applying for a home loan. Some of the factors that can affect your borrowing power include the size of your HECS/HELP loan, your taxable income, the repayment rate of your income threshold, and your lender’s criteria.

Having a car loan or any other kind of loan in itself does not impact your ability to get a home loan. 

What it will do impact is the amount of money you can borrow and the interest rate/tenure as well. 

It all boils to the fact which is your ability to repay all the loans put together.   

When reviewing your application for a home loan, the lender has to consider your financial situation (e.g. your income, ongoing commitments and living expenses). 

They perform this check to ensure you have sufficient income to meet these expenses in addition to the proposed loan, without putting you under any undue financial strain. 

So, if you’re thinking about obtaining finance for a new car, as well as buying a home, you may want to take a look at our https://freshwaterfs.com.au/calculators/ first.

A few banks may give an online application measure that will give you pre-endorsement. 

Be that as it may, most loan specialists actually expect you to give supporting documentation (for example payslips, proclamations and so on) to approve your pay and costs. 

A pre-approval is ordinarily valid through for three to three and a half years and will, for the most part, give you an indication of how much you can afford without being under a financial strain.

Most traditional lenders will not consider you as an eligible borrower if you have the bad credit history.

And in case if you have any outstanding defaults, you will not be considered at all. 

This is bad for the lenders/banks as you do not really have enough financial support to pay your past loans. Then giving you a new home loan would mean you will be financial stress and will not really be able to repay any of your loans properly. 

Your credit history gives a lender an indication of your past ability to repay debts, and a bad credit history increases the risk in the eyes of the lender. 

That being said, it’s not impossible to get a home loan with bad credit. Some lenders might consider customers with bad credit history, however, it may come at an additional cost, either in the form of higher fees, higher interest rates and mortgage insurance.

To find out how strong your financial situation is, you can request a free credit report from any of the following providers*:

*These providers may offer free credit reports on a trial basis. Please ensure you check the fine print before entering your details.

Yes, loans are available from lenders to purchase a vacant block of land. 

It depends on whether you are looking to build now or later in the near future. 

Keep in mind that land loans are riskier to banks in the form of security, as during economic downturns property values can drop, meaning if you default on the loan, the property (i.e. land) may be difficult to sell. 

So lenders usually require a higher deposit for a land loan due to their increased level of risk.

Most lenders have set criteria based on which they decide what are the acceptable sources of income.

Especially, when it comes to repaying a loan. 

So, if the benefit you are receiving is ‘acceptable’, some lenders can assist you in and even sanction your home loan. 

But we would highly recommend you to ask yourself the following questions

Is there any other household income that can help you out if the need arises?

Is the benefit sufficient to repay the proposed loan?

Have you enough deposit money for the home and other upfront + ongoing expenses?

Would you have enough left over after meeting all these expenses for your living expenses and current commitments?

There are certain options available for retirees. 

These options help them to get a home loan. 

Most of them depend on your personal and financial position, including your assets and income streams. 

But we have seen retirees finding it difficult to get a home loan as lenders will generally deem retirees as a heightened borrowing risk. 

Their life expectancy is also another problem as they cannot pay back a loan with a term of 25-30 years and do not really have a regular income.

To find out how much you can borrow for a home loan, head to our Borrowing Power Calculator. From here, you’ll be able to get an indication of not only how much you can potentially borrow, but also how much your weekly, fortnightly, and monthly repayments will be.

The minimum is five per cent of the property’s value.

This is for your deposit, although this will vary from lender to lender. 

It’s important to factor in the minimum deposit amount, plus costs (i.e. lenders fees, legal, registration and search, stamp duty, building, and pest inspections). 

That being said, if you borrow more than 80% of the value of the property, you will need to factor in lenders mortgage insurance which will be added to your loan amount. 

While it can be frustrating to take the extra time to build up a larger deposit, the less you borrow, the lower your repayments will be.

Investing

There are a few fees and costs that you may need to budget for when buying an investment property:

  • Lender costs cover the administration fees including the lender’s own valuation. These costs will typically cost between $600 and $900.
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  • Legal and conveyancing fees usually cost between $1,000 and $1,500.
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  • Mortgage insurance costs. Lenders mortgage insurance is applied to loans where the borrower has a deposit of less than 20% of the purchase price.
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  • Building inspection and report is to be carried out by an expert before you purchase the property. The Contract of Sale should take into consideration the building inspection, giving you the option to withdraw the offer without any significant penalties. The cost of a building inspection and report varies, depending on the size of your property.
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  • Pest inspection. This report should be completed before you purchase your property to ensure the building you are purchasing is free from pests. The Contract of Sale should take into account the pest inspection, allowing you to withdraw if pests are found to be a problem with your property, without incurring any additional costs. A pest inspection will typically cost around $500, depending on the size of the property.
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  • Stamp duty. Stamp duty rates depend on the property’s value and are set by each state and territory. Concessions are not usually available for purchases of investment properties and stamp duty is considerably higher. There may also be stamp duty on the mortgage.
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  • Rates. Rates are a form of property tax that is normally issued quarterly by the local government body or council where the property is situated. The amount of rates payable is at the council’s discretion.
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  • Body corporate. Units, townhouses and duplexes may be charged body corporate levies to cover insurance and expenses for the upkeep of common areas. These levies are usually issued quarterly and can vary in price due to a range of factors, like the size of your property and the number of common areas that require regular maintenance.
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  • Landlord insurance. If you’re investing, landlord insurance is a safety net that covers rental properties for damages or destruction.

After applying for your home loan, it’s a good idea to start looking at home and contents insurance. Some lenders require a minimum sum insurance policy, which will cover the building should anything go wrong. Once you sign a Contract of Sale, consult your legal representative to see if you need insurance cover immediately, as well as the minimum sum to cover the rebuilding costs.

Once you have settled into your new home, you will need to budget for council and water costs, along with your regular home loan repayments. If you are buying a unit or townhouse, you will need to factor in body corporate levies on top of all these fees and costs.

There are many reasons why investing in property can be beneficial:

  • Capital growth is the increase in the value of the property over time.
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  • Rental income is the income you receive by renting out your investment property and is often referred to as yield.
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  • Tax benefits. If the cost of owning your property – including interest repayments, strata fees, maintenance, and other property-related fees – is more than you receive in rental payments, the Federal Government will allow you to offset the loss against your taxable income. This is called negative gearing.
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  • Leverage can help you use the equity from your current home or property to assist with the purchase of another property. Equity is your home loan amount subtracted from the estimated value of your home. For example, if your home is worth $500,000 and you owe $200,000, you may have up to $300,000 in equity to potentially put towards purchasing an investment property.

It’s recommended that you speak to an accountant or tax specialist to gain a clearer understanding of your full financial position, so you can make a suitable investment decision.

Most of the same features are available for both investors and owner-occupiers. However, some lenders may charge higher rates for investment properties if the associated risks are higher.

Negative gearing is when the annual cost of owning your investment property – through interest repayments, strata fees, maintenance, and other property-related fees – is more than the income you make from that property. This loss can be used to reduce your income tax bill. Simply put this is the formula to calculate it -> Tax deduction for an Investment property or Negative gearing= Cost of owning investment- interest repayments + strata fees + maintenance and upkeep costs + council fees + other expenses. The value usually is in the negative and can be deducted from your annual tax.

Landlord’s insurance (or investment insurance) will cover your property against damage or theft caused by the tenant, damage from specified weather events.

 

In some cases, it will also help with any loss of rent due to a tenant’s default. 

It may also cover you for any liability if say such as a tradesperson being injured while working on your property.

A self-managed superannuation fund loan is when you withdraw money from your super fund to invest in property. 

There are rules and restrictions around this. 

But it’s important to speak to a financial adviser or tax specialist to understand any implications to your personal and financial situation.

The loan that’s right for you is the one you’re most comfortable repaying off in the agreed tenure or period. 

This is the loan you can really afford for years to come and not be worried about defaulting on repayments.

When taking out an investment loan, you have several great options: variable, fixed and split being your main choices. 

We recommend you go through the pros and cons of each kind with your consultant or a mortgage broker before confirming them.

A redraw facility allows you to withdraw money from your home loan.

This is possible only when you have been making payments above and beyond the required repayment amount. 

So basically you are withdrawing from the ‘pool’ of extra repayments you’ve already made.

And not from the repayment amount you are stipulated to repay your lender.

This though does not impact your loan it has its own disadvantages. 

One such drawback being withdrawal fees, a limited number of free redraws, and minimum or maximum redraw amounts. 

Additionally, if you’re adding to the life of your loan by cancelling out the extra repayments you’ve made, which could cost you much more in interest eventually in the long term.

It depends. To take a better call or decision on this we would recommend you to sit with a mortgage broker and understand your personal circumstances and financial goals. 

As interest rates can fluctuate, a fixed rate may be ideal if you want a set repayment amount over a set period. This helps many households forecast their repayments during the fixed period and budget accordingly.

But you might not really be able to take advantage of market conditions that will reduce your overall interest.

Yes and no. It depends. 

Based on your type of home loan, making extra repayments may reduce the amount of interest you’re charged on the principal of your loan. 

In some cases, it might also mean your interest rate is dropping and the repayment amount is dropped. In other cases, it could be the tenure that gets impacted. 

Just bear in mind that, depending on the type of loan you have, making additional payments on your home loan may attract penalties and hidden fees as stipulated by your lender and type of loan. If you’re in a position to make supplementary payments on top of your regular repayments, please do only if paying more will save you in the long run.

Congratulations! Paying off a home loan is a huge milestone that most households look forward to for many years. Once your loan balance reaches $0, you might think you now own your home outright. 

However, the bank or lender will still have a mortgage lodged on your Certificate of Title. 

To remove or discharge the mortgage, there will be some paperwork you need to complete with the bank. In return, they will provide you with a Discharge of Mortgage document that you need to lodge at the titles or lands office in your state. Before doing so, think about whether or not you are likely to wish to borrow more money from the same lender in the future.

You may be able to salary sacrifice to help pay off your home loan, at your employer’s discretion. Contact your employer to determine whether or not salary sacrificing your home loan is an option, and if it’s in line with your lender’s terms and conditions. Bear in mind that there may be additional administrative fees your employer may charge for this service. We also recommend you talk to a tax specialist to determine whether salary sacrifice is right for you.

Depending on your type of home loan, you can pay it off faster by taking advantage of a few tips:

  • Update your repayment cycle. Increase the frequency of your repayments i.e. weekly or fortnightly in line with your pay cycle. This way you can shorten the life of your loan because you’ll pay less interest over the life of your loan. For example, you’ll make 26 fortnightly repayments as opposed to 12 monthly repayments in a year.
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  • Make extra repayments. If you’re in a position to do so, additional repayments will decrease the amount of money you owe, lowering the interest you’ll pay on the life of your loan. Start small and bump the amount up in line with your budget. 
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  • Make lump-sum payments. If your lender does not have a limit, making lump-sum payments, such as tax returns or work bonuses, are excellent ways to shorten the life of your home loan.
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  • Use an offset account. An offset account can reduce the amount of interest you are charged on your loan. For instance, if your home loan is $450,000 and you have $25,000 in your offset account, you’d only be charged interest on $425,000.
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  • Undertake an annual home loan health check. Every year you should review your home loan to determine whether or not it’s worth refinancing to find a more competitive interest rate.

As previously discussed, yes. But only if you have enough equity in the home. 

But as mentioned before as well. You are placing yourself under the risk of losing both properties if, for whatever reason, you are unable to make the repayments. 

It’s strongly recommended that you plan ahead to mitigate such financial risk. 

For instance, if you’re planning on starting a family or changing careers, you should have a realistic plan to accommodate any changes that may affect your income and therefore your ability to repay the loan.

Yes, you can borrow additional funds on your existing home loan to buy a car. But this is usually subject to your overall financial position and your lender’s criteria.

The real reason why some people do this is that you are able to take advantage of a cheaper interest rate when compared with the interest rates of car loans. 

This might hence, be a better way to buy a car. 

But it is always good to save some money upfront before taking this route. A rule thumb is to save for at least 6 repayment schedules beforehand. 

This is just to be financially safe and not default on the repayments.

It is required to demonstrate that the person being added to the home will also be getting a direct benefit due to the addition. However, based on circumstances or situation things can be seen differently by lenders. 

Therefore, it is recommended that you speak to your lender for assistance firstly and then try to understand what the costs might that would be associated with adding someone to your home loan.

And also the benefits thereof.

Yes. This is possible if you have enough equity in your home and you are meeting all of your lender’s borrowing criteria. 

The only thing would be that you are increasing the home loan amount to cover renovations. This would also mean in certain cases, you will end up paying more than normal.

Your repayments will depend on:

  • the type of loan you are taking out
  • the principal amount of the loan
  • the interest rate (the type of interest rate – variable, fixed or split)
  • its repayment frequency
  • the length or tenure of the loan term

Most home loans are monthly repayments as part of your loan contract. 

But you can also choose your repayment cycle (i.e. weekly, fortnightly, and monthly). It may be a good idea to aim for a more frequent cycle, rather than monthly repayments, as you will make more repayments over the year, ultimately shortening the length of your loan.

Refinancing

A refinance home loan refers to the process of switching home loans and moving from one lender to another. 

Refinancing and switching home loans may help you save money.

If you’re thinking about switching home loans to another bank, you should speak to a mortgage broker like https://freshwaterfs.com.au/.

To refinance your home loan, take the following action:

  • Calculate the current mortgage costs.
  • Shop around. 
  • Get approval from a new lender with the help of a mortgage broker.

You will need to ask your lender and take advice from a mortgage broker. The entire process generally takes between two and four weeks to refinance your home loan.

Depending on the terms and conditions of your current home loan, the standard refinancing process begins with checking to see whether your current lender will charge you any costs to switch home loans to another product or lender.

The amount of money you can borrow when refinancing depends on your individual circumstances and your financial position.

The simple answer is that you could get a better deal if your home loan is no longer right for you, which is why it’s always worthwhile shopping around and compare.

This will depend on the terms and conditions of your current loan, so be sure to do your homework on this. Best would be to consult with a mortgage broker.