Frequently Asked Questions
How much can I borrow?
Borrowing capacity is calculated by adding in your income, liabilities and dependants. Every lender has a different method of calculation and different policies for how they accept income, so ask us to do the calculating for you!
How much deposit do I need?
If you are a first home buyer then a 5% deposit that you have saved over 3 months will get you started. Non first home buyers can also use 5% however they will likely be charged mortgage insurance. If you have a second security property (eg a parent’s property) you may not need any deposit.
What is LVR?
LVR (loan to valuation ratio) is the loan amount divided by the property valuation expressed as a percentage.
What is mortgage insurance and how much does it cost?
Mortgage insurance (lmi) is an insurance policy that is taken out by the lender on loans they consider to be high risk – generally loan with less than a 20% deposit. LMI covers the lender but is paid for by the borrower. Its charged on a sliding scale of zero for loans at 80% lvr up to approx. 3% of the loan amount for loans at 95%. Often this fee can be added to the loan amount but generally not over 95% - like most policies there are some exceptions to this.
How long will the process take?
This is also very lender dependent. Each lender has their own queue of applications and depending how long that queue is will depend on how long the process will take. Assisting the lender by providing accurate and up to date documents will speed the process up.
I have had credit problems in the past – will this matter?
We have a number of lenders on our panel and some of them are specifically for borrowers with credit issues. You should be able to get your free credit file at www.mycreditfile.com.au.
Should I get a pre-approval?
Pre-approvals can be helpful when you are shopping around, however they are not a formal loan offer and don’t always become a formal loan offer. The lender you start with for a pre-approval may not be the best lender for the property you end up buying. Talk to us about pre-approval and whether it’s the best option for your situation. A finance clause when you find the right house may be more helpful to you finding the right lender.
Should I get an interest only loan?
The repayment on your mortgage will always include the interest payable on the amount borrowed, no matter what kind of loan you have. If you have a Principal & Interest loan (P&I), part of your repayment will also be allocated to reducing the balance of the loan. With an Interest Only loan (IO), your repayments only pay the interest that is due and do not reduce the balance of your loan. As a result, an IO loan can only be obtained for a limited period (usually up to five years). At the end of the IO period, the loan will automatically convert to a P&I loan unless you make an application to extend the IO period.
IO home loans are not designed for every type of borrower. For example, they are not recommended for standard owner- occupied home buyers as the less you pay off the principal amount, the more you end up paying in interest over the life of your loan. Your repayments are likely to be a lot higher as well, so there are very little benefits to an IO loan for owner-occupier home buyers. However, IO loans can be very useful for property investors if you want short term cash flow and your exit strategy from the loan is to sell the property.
Should I get a fixed rate loan?
A fixed rate home loan allows you to set your interest rate for a period of time. This is usually in the range of one to five years. Sometimes, you can arrange to secure your interest rate for longer. Fixing your interest rate can be a suitable option for some people, however you should be aware of the following: • Fixed rate home loans often have higher interest rates than variable rate home loans. Often, the longer the fixed rate term, the higher the interest rate is likely to be. For example, a five-year fixed loan will usually have a higher rate than a three-year fixed loan. • If interest rates do not rise, or if they fall during your fixed rate period, you could then pay more interest than you would if you had a variable rate home loan.
What’s good about fixed rate home loans?
- During times of low interest rates, locking in a fixed rate could work to your advantage, because you can retain a low rate for a fixed term even if the rates rise steeply. Depending on the lender and the current interest rate, this could potentially lower your repayments and the total interest paid over the loan term.
- You know exactly how much your repayments will be during your fixed rate term, which can make budgeting easier. Things to consider
- Less Flexibility around redraw and offset. These features may not be available during the fixed rate period.
- Break costs. The decision to break your fixed rate loan is entirely up to you however a break cost may be applicable. Break costs may apply if you want to exit before the end of the fixed term or you prepay part of or your entire loan before the end of your fixed rate period or you switch to another product, interest rate or payment type before the end of your fixed rate period or you want to end the loan as part of selling the property.
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