Variable Rate home loans

Are very common loans offered by nearly all lenders and banks, with this product the interest rate fluctuates according to the market index, as set by the Reserve Bank.

It means the interest rates move up or down with the market so your repayments go up or down!!

They are generally 30 year term but can be shorter if required; they are normally principle plus interest repayments in 360 monthly instalments, ending up with no debt at the end of 30 years.

They generally have the ability to allow extra repayments and redraw of funds paid above the minimum.

How to win:-

1/ Divide your monthly repayment by 4 and pay that weekly from the week your loan settles and you will reduce the length of you mortgage by 4-6 years (providing no other factors influence the mortgage, interest rates, redraw etc)

2/ pay any extra funds into your mortgage until needed then redraw the funds

3/ Set up an offset account. (It is as savings account that has the same interest rate as the mortgage, the earned interest is paid into your mortgage offsetting some of the mortgage cost ) Note: As these normally have a $395 annual fee you would need to have over $50,000 to offset the $33 per month fee

4/ Get an investment property, so you have 2 properties increasing in value, you then sell the investment after 10 years ( depending on value increases and pay out both mortgages) (Remember the tenant pays most of the cost of the investment property for you)

How the banks try to win:-

1/ Offering honeymoon rates ( Temporary discounts) 1 or 2 years generally, these are just to get people through the door, with the hope that at the end of the discount period that the clients will be too busy to challenge the rate increase.

2/ By increasing rates outside of reserve bank official rate rises, (which they can do at any time)

3/ Adding annual or monthly fees

4/ by convincing clients to change their loan structure and taking the term back up to 30 Years

5/ They also sell you as many extra products as possible ( credit cards, insurance, car loans etc) the more products they can sign a client up to the less likely the client is to move their finances to another lender.

Fixed interest rate loans

A fixed interest rate loan is a loan where the interest rate does not fluctuate during the fixed term of the loan. This allows the borrower to accurately predict their future payments.

These loans convert to a variable interest rate at the end of the fixed term, ie 1,2,3,5 or 10 years

They are generally attached to a 30 year mortgage, however shorter mortgage terms are available

How to win:-

1/ Have 80% of your mortgage Fixed interest rates and 20% variable, so you can still make extra repayments

2/ If interest rates rise a fixed interest mortgage will still stay at the same rate until the end of the fixed tem.

3/ It makes budgeting easier as you know what your monthly cost will be

How the banks try to win:-

1/ They set limits on extra repayments, they don’t allow redraw (there are 2 exceptions to this rule currently)

2/ They make it very difficult / expensive to change the loan or lender during a fixed term

Investment Mortgages

These are variable or Fixed interest rate mortgage specifically for residential investment properties.

The repayments can be Principle & interest or interest only, generally for a 30 year term

How to win:-

1/ Have a long Fixed term, that way the rent will increase (CPI) but your repayments will stay the same

2/ In some instances investors should go with interest only repayment by doing this they reduce their repayments freeing up funds towards the purchase of another property

How the banks try to win:-

1/ They tend to charge the loan to a higher interest rate

2/ The banks make it very difficult / expensive to change the loan or lender during a fixed term

Company / Self-employed loans

Lender will lend up to 95% of the value of the home, Fixed & or variable mortgages,

Low-doc / Company / Self-employed loans

These are specifically designed for Self-employed or clients with their own companies that have not yet lodged their tax returns

Requirements:-

ABN must be registered for over 3 months (most lenders want 2 years)

GST registration 1 day (most lenders want 2 years)

Loans up to 90% of the value of the property (most lenders want Lenders mortgage insurance for loans above 60%of the value of the property)

Lenders Mortgage insurance

Any mortgages that are above 80% of the value of the property are required to have lenders mortgage insurance. Lenders mortgage insurance insures the lender and not the purchaser,

It is normally a substantial one off fee.

By using Lenders Mortgage Insurance, lenders are able to offer lower deposit home loans.

Generally the insist you:-

1/ Are able to show a 5% deposit that has been saved over a 6 month period

2/ Have a clean credit history / High credit score

3/ Have been with your current employer for 12 months

( All these terms vary with different lenders so please contact us with your scenario)

Warning: Lenders Mortgage Insurance protects the lender if a borrower is unable to meet their mortgage repayments and the property has to be sold

OPTIONS

1/ Parental guarantee

This Takes joint security over the parents property (80% secured on the new home & 20-25% secured by the parents’ home) this negates the Mortgage insurance as neither loan is above 80%

So no mortgage insurance is required,

See the example below

Brett & Rebecca are purchasing a property for $500,000(5% deposit $25,000 Lenders mortgage insurance premium $17,409 Prox )

If Brett & Rebecca’s parents have their own home (with or without a mortgage) and are happy to have it used as joint security,

Brett & Rebecca borrow$500,000, $400,000 secured by their new home and $100,000 secured by the parents’ home. Saving $17,409 Prox

2/ Capitalize the premium

Some lenders will allow the premium to be added to the mortgage up to 98% of the value of the property

3/ 15% Deposit

Some lenders will pay the mortgage insurance premium providing you can pay a 15% deposit

Default or bad credit loans

Various lenders will offer mortgages to people that have gone through circumstances that have left them with Defaults, Judgements or even bankruptcy.

1/ They will lend up to 90% of the value of the property

2/ The interest rates and loan terms vary according to risk

3/ Generally bankruptcy needs to have been discharged for at least 12 months

Conveyancer

A conveyancer is a specialist lawyer that handles the legal aspects of buying and selling residential property, A conveyancer can also be (but need not be) a solicitor,

They manage the legal process of moving land or property from one owner to another

They will let you know the funds you will need at settlement, (Stamp duty, land rates etc)