Home Loan Rate – Australia

Has mortgage jargon left your head spinning? Cut through the confusion with this easy to understand guide that explains the common features of a mortgage & how they can help you to repay your loan sooner!

Redraw

Loan redraw gives the borrower the power to withdrawal any additional repayments to which were made on top of their minimum loan repayment. Eg If the borrower has been making an additional repayment of $100 on a monthly basis, then after 12 months they will be able to redraw $1,200. Note that the borrower is not restricted by the 12 months duration before they can redraw. However, please be advice that some lenders may charge a fee for loan redraws and in the case of fixed rate loans, redraw is not available.

Extra Repayments

This feature grants the borrower the freedom to make extra repayments into their loan on top of their minimum loan repayment. Eg, the borrower has a minimum monthly loan repayment of $1,000; but instead of paying the minimum figure they pay $1,500 per month into their loan. This means that they have made an extra repayment of $500 into their loan. Please note that for fixed rate loans, extra repayments is not available.

Discounts Available for Higher Loan Amounts

This feature is a discount against the loan interest rate to which most lenders provide against their standard variable (professional package) loans. Eg, CBA offer what is called a MAV concession for their customers for loans starting from $150,000 – $349,999 at 0.50% discount per annum. The larger the loan amount is the higher the discount is.

Mortgage Offset Account (100% Offset)

An offset account is a regular cheque account that has ATM, cheque book and internet access that is linked to the borrower’s home loan when the loan is setup. Instead of earning interest on the money in their offset account, the borrower is able to save interest on their home loan. Eg, if the borrower has a loan with the balance of $100,000 and they have $10,000 in their offset account then the interest is only calculated on the loan net balance of $90,000.

Line of Credit Option

A line of credit mortgage is a type of loan that allows you to use the loan as your cheque account and allows you to draw down and repay the loan as you choose. It is similar to a credit card in that it allows you to withdraw funds at anytime up to a set limit. You are also given a choice to make repayments on either a monthly basis or with some loans you don’t have to make a payment as long as you remain below the limit. A line of credit can be used to purchase most types of properties, whether it be a family home or an investment property. As the borrower you can use the line of credit to carry out renovations, pay your bills or invest in shares.

Ability to change to Fixed Rate (Fixed Rate Loan)

This is the feature to which the borrower is allowed to change from a standard variable rate loan to a fixed rate loan. A fixed rate loan is a loan where the interest rate is guaranteed to remain the same regardless of what happens with the variable rate market. Usually, the interest on a fixed rate loan is only fixed for part of the loan term, typically 1 – 5 years.

How can you buy a home without a deposit? In a post-GFC world there are no loans available that will allow you to borrow 100% of the purchase price without providing additional security. In the past it was possible to obtain loans for up to 106% of the purchase price through lenders such as First Permanent, who did not require any additional security for their loans.

In modern times, the only loans that can allow you to borrow 100% are known as guarantor home loans. There are several different types of guarantees, however the most common is known as a family pledge home loan where your parents offer their home as additional security for your loan.

This isn’t as risky as it sounds! The guarantee can be limited to just 25% or less of the loan amount. You can apply for income protection insurance and life insurance to reduce the risk that you will be unable to make the loan repayments. You can also avoid borrowing to your limit which will enable you to have enough spare funds to make additional repayments, and so clear the guarantee as quickly as possible.

What are the benefits for you of using a family pledge mortgage? Firstly you can borrow 100% of the purchase price, or even a little more to cover costs such as stamp duty & solicitors fees. Secondly the approval criteria is less stringent because the lender has more security for their loan. Thirdly you will not be required to pay for expensive Lenders Mortgage Insurance (LMI).

What are the risks to you and the guarantor? The main risk is that if you are unable to make the payments on your home loan then the lender may ask the guarantor to make the repayments for you or may call in the guarantee. In the worst case scenario the lender will try to sell the borrower’s property before trying to sell the guarantors.

We see the main complication of family pledge home loans is generally not when the borrower cannot make the repayments, as this is very rare. The main complication is when the guarantor and borrower have a falling out and the guarantee is required to be removed. In these cases the borrower can apply to remove the guarantee and if they owe over 80% of the property value then they may be required to pay LMI.

Several lenders such as St George Bank, CBA, ANZ, Westpac & NAB all offer this type of loan product. However only St George calls theirs a “family pledge home loan”, the others refer to their loan using different names such as family equity, fast track or deposit kickstart.

Always borrow responsibly and seek legal & financial advice before applying for any type of loan with a guarantee involved.

Australians are known for their innovation and the desire to live the Great Australian Dream of owning a home on a 1/4 acre block of land.  While most people choose to pursue this dream by buying an existing house, some choose to build their homes to their specifications and with their own designs.  They likewise would want to handle the ordering of materials, the scheduling of construction, and other details on their own.

These people are the owner builders of Australia, who build their own homes from scratch without the help of construction companies or licensed builders.  Such a practice has become a growing trend, and a lot more people are choosing to go at it on their own and enjoy the additional control and extra savings.

The only limitations you have is your creativity, the budget you have and in some cases the lack of creativity of the local council!  Aside from that you are totally in control.  However, this control can sometimes work against you, as there is always a tendency to overspend when it comes to the finishings of your home. Who wouldn’t want their home to be perfect?

Owner builder home loans

There are a lot of joys and advantages to being an owner builder.  However, one of the main disadvantages is the difficulty of procuring a home loan.  This is because banks and non-bank lenders are somewhat wary of financing an owner builder project.  There are more risks involved, and there is no guarantee that the project will be finished, hence the apprehensions of the major banks.

With the help and aid of specialist mortgage brokers such as the Home Loan Experts, you will be provided with sufficient choices of lenders who trust owner builders and allow them to borrow enough to complete the project.  You can view their webpage on owner building or call them on 1300 889 743.

How does the process work?

If you don’t understand how the process of building a home actually works, then we would strongly recommend that you read the Owner Builder Guide. This will explain the steps involved in building your home, and how to get the most from your sub-contractors and suppliers.

Happy building!