Step 1 - Decide what Type of Borrower you are
Step 2 - Determine what Product Type you are thinking about, and we will discuss in further detail
Step 3 - Decide the Loan Type you want or a combination of types to best suit your needs and concerns
Step 4 - Decide if you want Fixed or Variable Rates or Both
Borrower Types
First Home Buyer
Essentially is an individual or couple, over the age of 18, that have never owned a residential property to owner occupy in Australia before.
First Home Owner's Grant
A grant offered by the Federal Government, overseen by State Governments, to offset the implication and costs of the GST for new home buyers. To be entitled to the Government Grant for a First Home Buyer, the criteria is as follows;
- All parties must be natural persons, they cannot be a company or acting in the capacity as a trustee
- All parties must be over 18 years of age
- All parties must have Australian Citizenship or residency
- All parties must live in the new property for a continuous period of at least 6 months within the first twelve months of ownership.
- All parties must not have received an earlier grant under the First Home Owner Grant Act 2000 or corresponding act of an Australian State or Territory.
- You and your spouse must not have previously held an interest in residential property in Australia prior to 1 July 2000. This includes investment homes
- You and your spouse must not have previously held an interest in residential property in Australia on or after 1 July 2000 in which you or your spouse have resided (Ownership of an investment property after 1 July 2000 will not prevent you from obtaining the Grant provided you have NOT lived in the home)
Up Grader / Down Grader
A property owner that either wants to trade their home for a larger or smaller home, due to their individual circumstances. It could be the addition of a family member or all of the children have moved out. Either way it is a potential change in property ownership.
Investor
An individual, couple or structured entity that wants to buy real estate to invest in, the properties can be negative geared if the property runs at a loss or positive geared if the property runs at a profit.
Debt Consolidator
An individual or couple that want to use the equity in their home to payout and close off some smaller debts, like credit cards, car loans, personal loans, etc, utilising the cheaper home loan rates as opposed to hefty credit card rates.
Refinancer
A property owner that is not happy with their current loan or lender and wants to take their lending business to another loan product or loan lender for a better suited loan. That can be for the rate and fees or for the benefits the new loan product offers them.
Equity Releaser
An individual or couple that want to use the equity in their home to release money to use as they please, eg: go on a holiday; do minor renovations to their home; upgrade their car; start a share portfolio; use as a deposit on a new investments house; etc.
Product Types
Professional Pack
Where a lender offers discounts along with added benefits, like credit cards, offset accounts etc to a client base that meets their criteria, generally based on loan limits and incomes of the applicant. This type of product usually has an annual fee that covers the cost of all the bells and whistles added.
Standard Variable
A standard product offered by all banks, the rates on this product are a benchmark set by the lenders to determine other product rates by. It is a variable product, generally with few added benefits and dearer than most other products that the lender offers.
Basic or No Frills
As an alternative to the Standard Variable product, this is the “economy” version, it may have some added benefits but generally not too many as the rates on this product are cheaper than the Standard variable loan.
Reverse Mortgages
A fairly new loan designed to help seniors to release built up equity to allow them to live a better lifestyle. The loan does not have repayments and all interest and costs are capitalized to the loan amount, so the loan is continually increasing. When the property is sold or handed down via will etc, the loan will need to be repaid in full.
Equity Mortgage
Designed to help people get into homes that are either up to 20% more in value or the customer is unable to service the full loan. There are two loans set up, one by a private investment company Rismark, who offer you up to 20% of the property value as a no repayment loan, the second portion is offered by the bank and will offer you up to 80% of the property value as a normal loan, however, the total of the two loans can never exceed 95%. When you sell the property, Rismark are repaid their initial contribution along with a portion of the capital growth on the property. (that figure is dependent on the original loan offered by Rismark)
Honeymoon or Introductory
Designed to entice the borrower to that lender by offering you a cheaper fixed rate for the first and or second year, the loan then generally reverts to the lender’s standard variable rate.
Construction Loans
Designed to allow the borrower to buy land and build a home to their requirements. The lender can look at “House & Land packages” or land first and then the Construction. Either way, the loan is assessed as an end value, determined by the lenders valuer, and the loan allowed is determined by that end figure. The loan is controlled by the lender and they pay the builder directly via “Progress Payments”. The building contract will have Stages that determine the state of completion of the property and the lender will pay out on the amounts requested using those stages.
Lines Of Credit
Designed to give the borrower flexibility, the loan has a maximum limit. You can deposit and withdraw like a normal cheque account as long as you at you do not exceed the limit, or you would be in breach of the loan terms. The loans can be evergreen (the loan limit never decreases) or amortising (the limit decreases each month - as per a normal term loan), depending on the lender.
Loan Types
Full Documentation
A loan that requires full disclosure and proof of all incomes, assets and liabilities. The rates on this product are generally cheaper and you can borrow up to 95% of the property value. If you borrow more than 80% of the value of the property, you will be charged Lenders Mortgage Insurance.
Low Documentation
A loan that only requires full disclosure and proof of all assets and liabilities. The borrower can certify the incomes but must have an ABN and if declaring over $75k (current level determined by the ATO) must have GST registration. The length of time for ABN and GST is determined by the lenders. The rates on this product are generally dearer than a fully documented loan and you can only borrow up to 80% of the property value, some lender may allow you to go higher at a bigger rate. If you borrow more than 60% of the value of the property, you will be charged Lenders Mortgage Insurance.
No Documentation
A loan that requires NO disclosure or proof of any incomes, assets or liabilities. The rates on this product are generally dearer again and you can borrow up to 70% of the property value. Some lender will only go to 65%.
Amortising
Refers to the type of loan repayments, it means the loan is to be paid off and the limit on the loan reduces each month over the term of the loan until the loan is fully repaid.
Evergreen
Refers to the type of loan repayments, it means the loan does not need to be paid off each month, the limit on the loan remains the same each month over the term of the loan, until you reach the end of the term and the loan then needs to be repaid in full.
Rate & Payment Types
Variable Rate
Where the rate on the loan fluctuates with the market, the Lender determine what it cost to buy the funds and what marging they need to put on top to make money. As the Reserve Bank determines the rate it buys cash at, the lenders use that as a benchmark.
Fixed Rate
Are determined by the lender based on what they believe is going to happen in the market. The rates are locked in, regardless of what happens during that time period in the market, for a fixed term. You can get 1, 2, 3, 4, 5, 7 & 10 year fixed rates (dependent on the lender).
Interest Only Rate or IO
When a loan is set as Interest Only, you do not have to make principle repayments, this means you are not paying the loan down, simply paying the monthly interest determined by the bank. The bank calculates the daily balance and multiplies it by the loan rate working out your daily interest. At the end of the month they then add all of the figures up and charge you the interest. (eg: $200,000 loan amount at 7% interest rate simply means you repay $1166.67 per month)
Principle & Interest Rate Or P&I
Where the borrower makes principle and interest repayments to pay down the loan. Again the bank calculates the repayments via a fairly complex calculation. (eg: $200,000 loan amount at 7% interest rate over 30 years means you repay $1331 per month - assuming no changes to rate, term or loan amount over the period)
Loan Fees
Government Fees
Stamp Duty on the Purchase Contract – charged by your conveyancer, this cost varies if the purchase property is for investment or owner occupation, also if you are a First Home Buyer.
Stamp Duty on the Loan Contract – charged by the lender as it is worked out on the loan being applied for. Again the cost varies if the loan is for investment or owner occupation, also if you are a First Home Buyer.
Transfer Fees – charged by the conveyancer to determine the costs to transfer the value of the home into your names.
Mortgage Registration Fees – charged by the conveyancer and is the cost to register your new mortgage in your name.
Bank Fees
Solicitors Documentation Preparation Fees – costs for the lenders bank to prepare the new mortgages and loan contracts
Application Fees – the lenders fee to apply for a loan with their institution
Redraw Fees – costs to take any additional funds you have paid into the loan back out
Annual Fees – costs by the lender for you to continue to have their loan and facilities in place
Account Management Fees – the cost for the lender to continue to manage your loans
Exit Fees (DEF) – the cost for you to repay your loan and leave the lender, also known as Deferred Establishment Fees
Transaction Fees – the costs applied to deposits and withdrawals on your accounts
Break or Switch Costs – the cost to change your loan product to another loan product. Some fixed loans may incur Break costs, which come about by breaking your loan contract earlier than it should be.
Lenders Mortgage Insurance - a one off fee charged by the Mortgage Insurer at settlement of your new loan, to cover the lender in the event that you as a borrower default on your home loan. The Mortgage Insurer will sell off the property and repay the bank the proceeds, any shortfall will be expected to be covered by you, the borrower. Please understand this fee is a Risk fee, it does not protect you the borrower in anyway and is calculated by a tiered scale, the more you borrow against the value of your property - the higher the risk - the higher the premium.
Purchasing Fees
Conveyancing Fees – the cost for your conveyancer to prepare any documents and act on your behalf of the purchase, they will attend settlement and can read over your loan contracts to point out any issues. They help with the purchase contract and do any searches you deem necessary to ensure there are no problems with the property you are buying.
Building Inspection – the costs to have a builder come to your new property and ensure there are no structural issues with the property you are intending to buy.
Pest Inspection – the costs to have a pest control professional to come to your new property and ensure there are no pest issues with the property you are intending to buy.
Related Links
First Home Owner Grant
Step 1 - Decide what Type of Borrower you are
Step 2 - Determine what Product Type you are thinking about, and we will discuss in further detail
Step 3 - Decide the Loan Type you want or a combination of types to best suit your needs and concerns
Step 4 - Decide if you want Fixed or Variable Rates or Both
Borrower Types
First Home Buyer
Essentially is an individual or couple, over the age of 18, that have never owned a residential property to owner occupy in Australia before.
First Home Owner's Grant
A grant offered by the Federal Government, overseen by State Governments, to offset the implication and costs of the GST for new home buyers. To be entitled to the Government Grant for a First Home Buyer, the criteria is as follows;
- All parties must be natural persons, they cannot be a company or acting in the capacity as a trustee
- All parties must be over 18 years of age
- All parties must have Australian Citizenship or residency
- All parties must live in the new property for a continuous period of at least 6 months within the first twelve months of ownership.
- All parties must not have received an earlier grant under the First Home Owner Grant Act 2000 or corresponding act of an Australian State or Territory.
- You and your spouse must not have previously held an interest in residential property in Australia prior to 1 July 2000. This includes investment homes
- You and your spouse must not have previously held an interest in residential property in Australia on or after 1 July 2000 in which you or your spouse have resided (Ownership of an investment property after 1 July 2000 will not prevent you from obtaining the Grant provided you have NOT lived in the home)
Up Grader / Down Grader
A property owner that either wants to trade their home for a larger or smaller home, due to their individual circumstances. It could be the addition of a family member or all of the children have moved out. Either way it is a potential change in property ownership.
Investor
An individual, couple or structured entity that wants to buy real estate to invest in, the properties can be negative geared if the property runs at a loss or positive geared if the property runs at a profit.
Debt Consolidator
An individual or couple that want to use the equity in their home to payout and close off some smaller debts, like credit cards, car loans, personal loans, etc, utilising the cheaper home loan rates as opposed to hefty credit card rates.
Refinancer
A property owner that is not happy with their current loan or lender and wants to take their lending business to another loan product or loan lender for a better suited loan. That can be for the rate and fees or for the benefits the new loan product offers them.
Equity Releaser
An individual or couple that want to use the equity in their home to release money to use as they please, eg: go on a holiday; do minor renovations to their home; upgrade their car; start a share portfolio; use as a deposit on a new investments house; etc.
Product Types
Professional Pack
Where a lender offers discounts along with added benefits, like credit cards, offset accounts etc to a client base that meets their criteria, generally based on loan limits and incomes of the applicant. This type of product usually has an annual fee that covers the cost of all the bells and whistles added.
Standard Variable
A standard product offered by all banks, the rates on this product are a benchmark set by the lenders to determine other product rates by. It is a variable product, generally with few added benefits and dearer than most other products that the lender offers.
Basic or No Frills
As an alternative to the Standard Variable product, this is the “economy” version, it may have some added benefits but generally not too many as the rates on this product are cheaper than the Standard variable loan.
Reverse Mortgages
A fairly new loan designed to help seniors to release built up equity to allow them to live a better lifestyle. The loan does not have repayments and all interest and costs are capitalized to the loan amount, so the loan is continually increasing. When the property is sold or handed down via will etc, the loan will need to be repaid in full.
Equity Mortgage
Designed to help people get into homes that are either up to 20% more in value or the customer is unable to service the full loan. There are two loans set up, one by a private investment company Rismark, who offer you up to 20% of the property value as a no repayment loan, the second portion is offered by the bank and will offer you up to 80% of the property value as a normal loan, however, the total of the two loans can never exceed 95%. When you sell the property, Rismark are repaid their initial contribution along with a portion of the capital growth on the property. (that figure is dependent on the original loan offered by Rismark)
Honeymoon or Introductory
Designed to entice the borrower to that lender by offering you a cheaper fixed rate for the first and or second year, the loan then generally reverts to the lender’s standard variable rate.
Construction Loans
Designed to allow the borrower to buy land and build a home to their requirements. The lender can look at “House & Land packages” or land first and then the Construction. Either way, the loan is assessed as an end value, determined by the lenders valuer, and the loan allowed is determined by that end figure. The loan is controlled by the lender and they pay the builder directly via “Progress Payments”. The building contract will have Stages that determine the state of completion of the property and the lender will pay out on the amounts requested using those stages.
Lines Of Credit
Designed to give the borrower flexibility, the loan has a maximum limit. You can deposit and withdraw like a normal cheque account as long as you at you do not exceed the limit, or you would be in breach of the loan terms. The loans can be evergreen (the loan limit never decreases) or amortising (the limit decreases each month - as per a normal term loan), depending on the lender.
Loan Types
Full Documentation
A loan that requires full disclosure and proof of all incomes, assets and liabilities. The rates on this product are generally cheaper and you can borrow up to 95% of the property value. If you borrow more than 80% of the value of the property, you will be charged Lenders Mortgage Insurance.
Low Documentation
A loan that only requires full disclosure and proof of all assets and liabilities. The borrower can certify the incomes but must have an ABN and if declaring over $75k (current level determined by the ATO) must have GST registration. The length of time for ABN and GST is determined by the lenders. The rates on this product are generally dearer than a fully documented loan and you can only borrow up to 80% of the property value, some lender may allow you to go higher at a bigger rate. If you borrow more than 60% of the value of the property, you will be charged Lenders Mortgage Insurance.
No Documentation
A loan that requires NO disclosure or proof of any incomes, assets or liabilities. The rates on this product are generally dearer again and you can borrow up to 70% of the property value. Some lender will only go to 65%.
Amortising
Refers to the type of loan repayments, it means the loan is to be paid off and the limit on the loan reduces each month over the term of the loan until the loan is fully repaid.
Evergreen
Refers to the type of loan repayments, it means the loan does not need to be paid off each month, the limit on the loan remains the same each month over the term of the loan, until you reach the end of the term and the loan then needs to be repaid in full.
Rate & Payment Types
Variable Rate
Where the rate on the loan fluctuates with the market, the Lender determine what it cost to buy the funds and what marging they need to put on top to make money. As the Reserve Bank determines the rate it buys cash at, the lenders use that as a benchmark.
Fixed Rate
Are determined by the lender based on what they believe is going to happen in the market. The rates are locked in, regardless of what happens during that time period in the market, for a fixed term. You can get 1, 2, 3, 4, 5, 7 & 10 year fixed rates (dependent on the lender).
Interest Only Rate or IO
When a loan is set as Interest Only, you do not have to make principle repayments, this means you are not paying the loan down, simply paying the monthly interest determined by the bank. The bank calculates the daily balance and multiplies it by the loan rate working out your daily interest. At the end of the month they then add all of the figures up and charge you the interest. (eg: $200,000 loan amount at 7% interest rate simply means you repay $1166.67 per month)
Principle & Interest Rate Or P&I
Where the borrower makes principle and interest repayments to pay down the loan. Again the bank calculates the repayments via a fairly complex calculation. (eg: $200,000 loan amount at 7% interest rate over 30 years means you repay $1331 per month - assuming no changes to rate, term or loan amount over the period)
Loan Fees
Government Fees
Stamp Duty on the Purchase Contract – charged by your conveyancer, this cost varies if the purchase property is for investment or owner occupation, also if you are a First Home Buyer.
Stamp Duty on the Loan Contract – charged by the lender as it is worked out on the loan being applied for. Again the cost varies if the loan is for investment or owner occupation, also if you are a First Home Buyer.
Transfer Fees – charged by the conveyancer to determine the costs to transfer the value of the home into your names.
Mortgage Registration Fees – charged by the conveyancer and is the cost to register your new mortgage in your name.
Bank Fees
Solicitors Documentation Preparation Fees – costs for the lenders bank to prepare the new mortgages and loan contracts
Application Fees – the lenders fee to apply for a loan with their institution
Redraw Fees – costs to take any additional funds you have paid into the loan back out
Annual Fees – costs by the lender for you to continue to have their loan and facilities in place
Account Management Fees – the cost for the lender to continue to manage your loans
Exit Fees (DEF) – the cost for you to repay your loan and leave the lender, also known as Deferred Establishment Fees
Transaction Fees – the costs applied to deposits and withdrawals on your accounts
Break or Switch Costs – the cost to change your loan product to another loan product. Some fixed loans may incur Break costs, which come about by breaking your loan contract earlier than it should be.
Lenders Mortgage Insurance - a one off fee charged by the Mortgage Insurer at settlement of your new loan, to cover the lender in the event that you as a borrower default on your home loan. The Mortgage Insurer will sell off the property and repay the bank the proceeds, any shortfall will be expected to be covered by you, the borrower. Please understand this fee is a Risk fee, it does not protect you the borrower in anyway and is calculated by a tiered scale, the more you borrow against the value of your property - the higher the risk - the higher the premium.
Purchasing Fees
Conveyancing Fees – the cost for your conveyancer to prepare any documents and act on your behalf of the purchase, they will attend settlement and can read over your loan contracts to point out any issues. They help with the purchase contract and do any searches you deem necessary to ensure there are no problems with the property you are buying.
Building Inspection – the costs to have a builder come to your new property and ensure there are no structural issues with the property you are intending to buy.
Pest Inspection – the costs to have a pest control professional to come to your new property and ensure there are no pest issues with the property you are intending to buy.
Related Links
First Home Owner Grant