Fixed-rate loans allow you to fix your interest rates and repayments for an agreed period of time. This is generally set for one to five years, but can be up to seven years. At the end of the fixed term period, the loan will generally revert to a variable loan or you may choose to roll over for another fixed term at the rates applicable at that point in time. This is also a good time to review your overall financial position, and see what other loan offers are available.

Many clients like the fact that these loan repayments will not change during this period and with absolute certainty, they can budget their repayments.

The interest rate in a variable interest loan is, as you may have guessed, variable. The interest rate charged by your lender may vary throughout the life of the loan according to market conditions and indicators such as the Reserve Bank of Australia’s cash rate.

In other words, the repayments associated with the loan can also go up or down at any time. Many variable loans now offer a wealth of features such as an offset account or the ability to make extra repayments and redraw funds. Some institutions also offer basic or ‘no-frills’ variable loans with a lower interest rate but fewer features.

You'll often hear the media refer to the “standard variable interest rate” or SVR. This a benchmark rate, used by banks and lenders. These rates are not what customers usually pay, as they are typically only referenced rates and they are certainly not the rate a lender will offer you. When a lender says they will give you a discount of 1%, they are discounting off the SVR.

The amount of your loan will generally have a direct relationship to the amount of discount offered. If you decide to choose a variable interest home loan, a lender will generally offer you a discount on the variable rate anywhere between 0.10% and 0.70%, depending on the size and features of the loan. Larger loans with low LVRs can attract a discount of up to 1.4%. 

Categories of variable interest rate loans are the basic variable rate loans, which often feature lower interest rates. These loans tend to have limited features, although most will give you an option to redraw.

Honeymoon and introductory loans offer you a lower interest rate, discounted from the standard variable rate at the beginning of your loan. This can assist you in the first few years of your loan; however, honeymoon rates tend to revert to a higher variable rate at the end of the term.

Often, clients then consider a refinance option but please remember that there are costs involved in refinancing.

They are usually variable rate loans that only last for a short ‘introductory’ period of around one year although the term can vary from six months to up to three years. Sometimes these rates may be fixed or capped during the agreed time period.

To understand offset account benefits, you must first understand that the interest rate payable on your home loan is calculated every day.

An offset account is a separate savings account directly linked to your home loan. The balance held in the offset account is offset daily against the loan eg $330,000 loan balance – $20,000 offset balance – interest is calculated on that day at 310,000

The account is usually only available with a variable rate loan and not on basic, low-interest loan. To maximize the benefit of your offset account, you would deposit your pay in to the offset and receive a deduction on the interest due on your loan. This interest saving is then used to reduce the outstanding principal or debt.

Redrawing on your existing home loan is a fast and easy option. If you have an existing variable rate home loan and you’ve made additional repayments on your mortgage, you may be able to redraw those funds to use for any purpose.

These are packages offered by lenders that, for the payment of an ongoing fee, offer a range of discounts and special features on their products. The main features are:

• Discounted interest rate
• Fee-free offset account
• Annual fee-free credit card

Other features vary between lenders.

If you have a Viridian line of credit, you have the freedom and flexibility to withdraw funds from your home loan up to the agreed limit, or increase your home loan balance to access additional funds. This option is ideal for smaller renovations to your home.

If you're planning renovations, consolidating your debts or just need extra cash, topping-up your home loan could be the perfect solution.

You can borrow additional funds on your existing home loan without taking out a separate loan, saving time and paperwork. You can also take advantage of a lower interest rate compared to some other loan types.

Your home loan should be regularly reviewed and assessed against your objectives, and to make sure you are getting a market leading interest rate. With the amount of competition in the market place today and lenders all competing for your business, you should regularly discuss this with us. We can either approach your current lender to get a better rate, or we can look at other lenders to see if there is a better rate.

A good time to do this is when you are renovating or investing, or just looking to get some extra funds. 

People are often confused by the difference between the deposit required by the real estate agent (REA) and the amount required by the bank to qualify you for a loan.

A deposit is what the REA will ask for, in order for you to secure the property. This is usually 5-10% of the purchase price.

Generally, lenders want to see a savings history (over a minimum of three months) that equates to 5% of the purchase price. For example, to qualify for a loan for 400k, you will need to 20k in genuine savings. But remember, there are alternatives to general savings. Feel free to book an appointment to go through your options.

When purchasing a home, most lenders will request that you show proof of “genuine savings”. This is to show that you have a deposit, but more important that you have an ability to save money.

You’ll need to have at least three months’ worth of savings to assess your genuine savings.

A lender may ask to see bank statements to show you are contributing on a regular basis, and to prove you haven’t borrowed an amount of cash to put in your account for show.

A few examples of genuine savings are:

• Regular deposits to your savings account over a three-month period;
• Term deposits that have been active for three months;
• Equity in an existing property;
• Gifts from family, or an inheritance that has been held in your savings account for a minimum of three months.

There are a number of great initiatives for first home buyers.

Grants

In Victoria first home buyers are entitled to a $10,000 grant for new properties. These include house and land packages, off-the-plan purchases and properties that have never been lived in.

Stamp duty

A 50% stamp-duty reduction is available for first home buyers whose purchase is greater than $600,000.

Lender specials

From time to time, lenders offer specials, such as $1000 cash to first home buyers. Remember though, conditions always apply.

Invest the time to develop a list for your ideal property. Different people will value different things in a property, and the important thing to remember is satisfying your own check list. Things to consider are:

• proximity to your work, friends and family;
• proximity to schools;
• proximity to shops and services;
• availability of transport; and
• availability of hobbies and interests

Some people dread it, and some people think it’s a good thing. The bottom line is, in Australia if you borrow more than 80% of the value of a property, all lenders will require you to pay lenders mortgage insurance.

The amount of the LMI depends on the loan-to-value ratio. So if you’re borrowing 81% of the value of the property, the LMI isn’t going to be much. However, if you borrow 95% of the property value, the LMI will be much more.

Lenders mortgage insurance does not insure you. It insures the bank against you defaulting. The benefit of LMI is that you would not be able to borrow more than 80% of the value of the property without it.

People who are pro LMI say that it is a way that allows first home buyers and people without large deposits to get in to the housing market earlier, and it is also a great security feature for the bank.

Borrowing for an off-the-plan purchase needs to be organised in a very methodical way. Most loan approvals only last three months, though they can stretch to a maximum of 6 months. When you think about buying off the plan, remember your property will take 1-2 years to construct, by which time your loan approval will have expired. The real loan approval will take place 3 months prior to the completion of your off-the-plan purchase.

One of the benefits of buying off the plan is that you save on stamp duty. As you are paying for the land portion (and if you’re buying an apartment or townhouse), the land portion is smaller and so is your stamp duty. For example, if there are 50 apartments on a block of land, your stamp duty will be cheap that if you alone were paying the stamp duty.

There are a couple of specialist lenders who will give you a form of approval that will last 18 months. However, you will need to supply further evidence of income at the end of the process. Valuations can be tricky in relation to off the plan because you are borrowing against the valuation that won’t take place until the building is complete. It’s a complex process, so please book an appointment with us (or the mortgage broker of your choice) before proceeding, to ensure you’re informed and protected.

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