ANY QUESTIONS you would like answered?

Here is our list of common questions people have about home loans, mortgages, terms and definitions. If you can’t see the answer to your question here, drop us a line or give us a call. We’re always happy to help. If it’s something you are wondering about, chances are others are too, so we will add it to our list

When I’m choosing a loan do I just pick the lender with the best comparison rate?

The AAPR (Annualised Average Percentage Rate) or Comparison Rate is a percentage rate which takes into account the overall costs of a loan. This includes interest rate, set up fees and ongoing fees. It is a legal requirement for lenders to supply a Comparison Rate for each of its loans. However they are not obliged to include all of their fees and charges in that rate. So you’ll need to dig a little deeper with your research. You may be best off talking to an experienced loan planner who knows all the extra fees and charges to look out for and who can also advise you properly about how to structure a loan so it is most suitable to your needs.

Is it a good idea to pay off my loan faster than the agreed term?

The obvious answer is yes! The faster your amortisation (regular payments made to pay off a debt), the less interest you pay and the more quickly you will have equity in your property. However, you should talk to a loan planner about the best way to do this. It may mean paying MORE off your payment each month or it may mean paying MORE FREQUENTLY. The other thing to keep in mind is that there can be fees and charges applied to early repayments of loans. As well as the regular discharge fees, early repayment can attract Break Costs (if you repay a fixed term loan early) and a Deferred Establishment Fee (a fee sometimes charged if a loan is paid out within 3 to 4 years of its establishment).

I have approval in principal from a lender. Does this mean I can go ahead and purchase a property?

Approval in principal means that you have met the initial criteria of that lender and you are eligible for a loan. However there may be more conditions for you to meet so you will need to wait before going ahead with a purchase. This is sometimes also called pre-approval. Once you have what is called unconditional approval it means you meet all of the eligibility requirements and the lender is prepared a to make a written offer to lend you money. Be aware that even once you have unconditional approval lenders will generally reserve the right to withdraw the loan at any time.

What is the difference between collateral and equity?

Collateral is an asset or part asset used to guarantee a loan and protect a lender’s interests. Equity is the amount of a property which is not covered by debt. Therefore, equity can be used as collateral.

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I have heard about capitalising interest. What does this mean?

Capitalising interest is when you add interest back onto your loan rather than make repayments. The result is to increase the size of your loan. This is most often used for bridging loans, construction loans and Business/Investment loans.

What are DSRs and LVRs?

A DSR is a Debt Service Ratio. It is the percentage of your income which is available to make loan repayments for the term of a loan. LVR stands for Loan-to-Value Ratio. This is a ratio of your loan compared with the value of your property. In other words, how much is owed versus how much is owned. It is often used to measure a borrower’s equity in a property.

Is a Home Equity Loan the same thing as a Line of Credit?

Not exactly although they can be similar. A home equity loan is where you borrow money against the equity in your existing property. A line of credit is similar because it is a type of credit that a lender will offer that gives you immediate access to part or all of a pre-determined amount of cash upon demand. A line of credit may be either unsecured or secured with personal assets such as bonds, term deposits or equity in a home.

What is mortgage insurance and do I need it?

Lenders Mortgage insurance (LMI) is designed to protect lenders from borrowers who default on loans. It’s not really your choice. It is something that lenders will charge in specific situations. It is usually charged for loans that are more than 80% of the value of a property. It is also commonly charged on Lo Doc loans – generally where the amount being borrowed is more than 60% of the value of the property. As a rule of thumb, the higher the Loan-to-Value Ratio, the higher the insurance premium.

What are portable loans?

Portable loans are loans that you can carry across if you are selling one home and buying another. The benefit of them is that you don’t have to refinance. The restrictions are that the loan amount usually has to be the same or lower than the one for your existing property.

What is a Reverse Mortgage?

These loans are generally for people in the later part of life who own their home and wish to access extra cash (for things such as living expenses, travel etc …) With a reverse mortgage people can borrow against the value of their home and access the equity without having to sell the property. Repayments are not required during the life of the loan. All amounts owing (including interest and all fees and charges) are recuperated from the value of the estate at the time of the borrower’s death.

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