Home Loan Rate – Australia

Most people think of banks when buying a home, but banks are not the only ones writing mortgages. An Australian banking license is not required for issuing a mortgage, and sometime non bank lenders can provide you with more competitive terms and better rates. Before making a decision on financing, you should understand some basic information about mortgages. 

Understand the Terms

All lenders use the same terms. Here’s a quick review of what you must know when seeking a home loan, regardless of what type of lender you choose. 

Loan to Value Ratio (LVR) – The bank will not loan you more money than the house is worth, and they like to loan you a little less. LVR is determined by dividing the amount of the mortgage by the value of the home. If your house is worth $100,000 and you borrow $80,000 towards it, then your LVR is 80%. 

Assets – Any property you own is an asset. Your home will be the largest asset you own. 

Equity – The home’s value above and beyond what is owed on a mortgage is the equity. A home that is worth $200,000 with only $75,000 owed on it has $125,000 in equity. 

Liabilities – Any other debt you have is a liability. This includes loans for University, credit cards, and autos. 

Loan Maintenance Fee – This is a fee levied by lenders over the term of the loan. 

Principal – This is the amount of money that is currently owed and that interest will be paid on. 

Types of Mortgages

Basic Variable 
This mortgage is very basic. The interest rate is set according to the Reserve Bank and will go up or down along with it. Extra payments are typically allowed, and terms are usually 25 or 30 years. 

Standard Variable 
This is the most popular mortgage type. The interest rate will be slightly higher than a basic variable loan, but there is more flexibility. Extra payments can be made and there are other attractive features. Terms are typically 25 or 30 years. 

The Honeymoon Rate 
Also known as an introductory rate, these loans feature a low fixed interest for the first year. After that, it reverts to a variable rate. It’s a good idea when interest rates are rising fast, but can work against you if the interest rates fall during that first year. Most banks expect that you will keep these mortgages for 3 to 4 years and will charge penalties for not doing so. 

Fixed Rate 
The interest rate, and the payments, can be locked in for a period of 10 years or less. Once that time is done, it will revert to a variable rate. This is another good option in times of rising interest rates, but can work against you should the rates begin to fall. 

100% Offset Accounts 
These are essentially savings accounts that can be attached to your variable or introductory rate mortgages. This account works to help you reduce the amount of interest you pay every month. 

All in One Loans 
Your home loan and transaction account are combined. Payments are made directly from the account, allowing you to keep the funds available to you for as long as possible. Interest rates may be higher, or you may have to pay a monthly fee for these loans. 

Line of Credit 
You can take a line of credit against the equity you have built up in your home. There is no set term, and it’s good to have the money available in case you need to make repairs. However, it is easy to spend that equity and these loans should only be used with great care. 

Know the Types of Titles

Torrens Title 
Traditional single family homes typically have a Torrens title clearly naming who the owner of the property is. 

Strata Title 
Townhomes and condos are popular because owners do not have to do as much maintenance. Strata titles define the individual unit by the airspace it occupies, and a strata corporation is named to handle the common areas shared with your neighbours. 

Community Title 
Buying in a community with its’ own pools, parks and playgrounds provides you with plenty of entertainment for the kids. It also means that you might have a community title. Your home will be owned by you, but the community title is necessary to cover those shared areas. 

Company Title 
When buying a condo, townhome, or apartment you should check to see if a Company title is in place. Rather than an individual owning any one unit, all units are owned by the company and buyers purchase shares in the company. Company titles are set up so that all owners in the company can have some impact on any potential sales of other units. This means that the neighbours could prevent you from buying the apartment, or selling it later. Most lenders are leery of these properties, and might require a larger down payment from you. 

Advantages of a Non Bank Lender

• Oftentimes, you can get a lower interest rate by going through a non traditional lender 
• They may provide you with better customer service, including faster application times. 
• People with credit problems, unusual properties, or specialized loans are more likely to be approved with these lenders. 
• They will make loans with higher LVR’s, allowing you to put less money down. 
• Self-employed people do not have to produce as much paperwork. 

Disadvantages of a Non Bank Lender

• Upfront fees and loan maintenance fees might be higher, offsetting savings from lower interest rates. 
• The chances of your loan being sold are higher with non bank lenders. 
• There is a higher risk of the institution going out of business, wiping out any benefit from superior customer service. 
• They might be slow to pass on dropping interest rates to their customers, in some cases the decreases won’t be passed on at all. Increases to the interest rate, however, are passed on as soon as they occur. 
• They are quicker to repossess if you fall behind. 

Competition is always a good thing. Lower rates and better terms result when banks and non bank lenders are competing for your business. Before signing any mortgage, however, you should understand how the process works, know the terms, and know exactly what to expect out of your new mortgage.