Low Interest Rates

A slightly lower interest rate can easily save you thousands of dollars over the life of your loan.

Compare the Comparison Rates for the loans to ensure you are comparing like with like. The comparison rate is a tool to help consumers identify the true cost of the loan; it includes the nominal interest rate and fees charged through the regular life of the loan.

Low fees

There is a range of fees to compare between mortgages. Fees charged through the regular life of the loan are included in the Comparison Rate advertised. The cost of certain fees are not included in the Comparison rate and need to be considered separately, these include:

• Early repayment fee — when switching to another lender.
• Switching fee — when you change between fixed and variable mortgage.

Flexibility

The ability to make extra repayments regularly or once off. These payments can make a big difference in paying out the mortgage early and saving on interest.

Things to consider:

• Early repayment facilities allow you to make extra repayments to your mortgage, saving you interest
• Redraw facilities allow you to put surplus cash into the mortgage instead of a separate account, also reducing the amount of interest you pay.

Portability

Ability to transfer the same loan from one property to another. This feature:

• Saves you money on fees both in paying out your old loan and applying for a new loan.
• Is ideal if you are planning to move homes before the loan terminates.

Pre Approval

A pre-approval is similar to full finance approval except that the property you intend to purchase has not yet been determined.

There are many 'versions' of home loan pre-approvals and many are only indications. If you want something you can rely on, what you are looking for is unconditional pre-approval.

Principal and interest

Each repayment you make comprises a reduction in principal and interest.

• The repayments on these loans are higher and interest only loans as the principal is gradually repaid over time.
• Ideal for homeowner occupiers, who would like to own the home outright at the end of the loan.

Interest only

Your monthly repayments are comprised of only your interest charges.

• You do not pay off any of the principal, thus repayments are much lower than a Principal and Interest loan.
• Interest-only loans are popular ways of borrowing money to buy an asset that is unlikely to depreciate much and which can be sold at the end of the loan to repay the capital. For example, second homes, or properties bought for letting to others.

Fixed loans

Interest rates and repayments are fixed for a set period, usually between three to five years.

• The bank bears all the risk of interest rate movements
• Usually lack the flexibility of early repayment and redraw offered with Variable loans,
• The steady repayments this make it easier to budget.

Consider a fixed loan if:

• You think interest rates are going to rise
• Finances are tight and you need certainty
• You don't want features such as redraw

Variable loans

This is the most popular type of loan in Australia. The interest rate (and your repayments) will vary throughout the term of the loan, so they may rise or fall.

• You are bearing all the risk of interest rate movements
• Benefit from early repayment and redraw facilities.
• The interest rates are usually lower than fixed rates.

Consider a variable-rate loan if:

• Interest rates are more likely to fall than rise
• You can afford to ride the swings and roundabouts of interest rate movements.
• You expect to make extra repayments

Split loans

This loan can give you the best of both worlds. You fix one part, and let the other part vary according to market fluctuations.

Do I need a mortgage broker?

A mortgage broker can provide valuable assistance when buying a home. Their services include:

• Assessing your financial situation
• Finding and an appropriate loan to match your requirements
• Managing the process application process through to settlement.

Mortgage Broker commissions

In return for their services the broker will receive a commission from the lender they recommend, typically 0.5% to 1.5% of the mortgage. So before agreeing to the mortgage ensure:

• You compare the rates they offer with rates offered directly by the lenders. [This can be done quickly online]
• You are advised on the best loan for your needs not the one which pays the highest commission to the broker

Introductory loan - Honeymoon rates

The lender offers significantly lower interest rates for a limited time, usually between six and twelve months. After the introductory period, generally, rates revert to the standard rate. Applicants should only consider the loan if they are able to meet the standard rate the loan will revert to.

Transactional Account or All-In-One loan

This type of loan is normally set up as a combination of the mortgage, savings account and credit card. All your income and cash deposits are payed into this account, which reduces your loan balance. Benefits include utilising the interest free credit card periods for everyday spending to reduce interest costs.

Mortgage Offset account

The mortgage or loan account is linked to a savings account into which your salary and other cash can be deposited and from which you can withdraw to pay everyday expenses. For as long as money sits in the savings account, it is 'offset' against your loan and no interest is charged on that amount.

Application process

Step 1: Loan Application

Your first step is to apply and get conditional approval. When you meet the lender they will:

1. Try to get an understanding of your needs and goals
2. Explain the different options available
3. Help choose the home loan solution that suits your circumstances best
4. Show you how much you can borrow and what your repayments would be
5. Help you complete the application form

Documentation to bring:

• Identification - Passport/Drivers License/Marriage Certificate/Birth Certificate
• Your two most recent pay slips
• Most recent Group Certificate
• Copy of employment contract and/or a letter from your employer
• Statement for all savings accounts
• Statement for all credit cards, personal loans, leases etc.

Step 2: Assessment and Verification

The lender will assess your application to determine whether you meet their serviceability requirements. This process includes:

1. Confirmation of your income and employment
2. A credit reference check
3. Assessment of your supporting documentation

Step 3: Pre-approval

If all is well you will receive pre-approval for the mortgage. At this point you are free to start making offers or bidding at auctions.