Mortgages & Loans

Step 1 - Application

Our services are free of charge. When you contact us we will ask you to provide some details.  This will enable us to begin the process of researching an appropriate mortgage or loan.  We will give you a list of the documents we need to process your loan and arrange a time for a meeting.
This can be at your place or you can come to us.

 

Step 2 - Contact & Review

You can provide us with all other necessary information at the meeting.  We will then submit your loan to the agreed lender.

 

Step 3 - Approval Process

We will keep you informed regarding the progress of your loan application and let you know when it is approved.  We will then explain how final settlement will be processed.

 

 

What Mortgages are Available?

 

Principal and Variable Interest

This type of mortgage is the most popular choice in Australia.  Let’s say that you borrow funds for your home and take out this kind of mortgage over 30 years.  You can usually elect to make repayments monthly, fortnightly or even weekly.  We will discuss these options later. 

The lender will calculate your repayments and debit your bank account each payment period.  Each repayment will consist of interest charged and a repayment amount of the principal (amount borrowed).

Bear in mind that as the repayments are equal, and initially the loan amount is large, most of the repayment will be interest.  Through the life of the loan the repayment amount, if it remains the same, will gradually consist of more principal repayment and less interest as the loan amount outstanding reduces. 

Now, the interest on this loan is variable.  What does this mean? It means that if the base rate, which is a kind of benchmark for banks and other financial institutions set by the Reserve Bank of Australia (RBA) is changed, then lenders will tend to pass on this change, or part of it, to its borrowers. This however, does not preclude lenders from making changes without the base rate changing.

Any changes to the interest rate on your mortgage will alter the amount you pay each month, fortnight or week.  Hence the high publicity given in the press to any changes, or anticipated changes.

Currently, interest rates here are at historic lows as we progress through a cycle of reductions.  The RBA does this to stimulate demand for housing and to encourage business borrowing and investment.  The idea is that this will flow through the economy, stimulating growth and employment.  Let’s hope it works!  If the economy “overheats” and money is “easy” then the RBA may raise interest rates to curtail ill-considered projects and perhaps to reduce the chance of a housing “bubble” where real estate becomes much overpriced.  If this happens the end result can be a crash in house prices when supply overtakes demand.

In a nutshell, if you opt for a variable rate mortgage, then your repayments will undoubtedly vary over the life of the loan.  The downside is that they can increase, the upside is that they may well decrease also.  In the longer term, this variation or volatility should even out, but there have been odd occasions in the past where interest rates have spent a short time being very high, creating mortgage stress and in some cases foreclosure.


Principal and Fixed Interest

In this instance, the difference is that the interest charged on your mortgage is at a fixed rate for a time period that you can select.  Many banks and institutions offer a fixed period of from one to 15 years.

If you are uncomfortable with the chance of your mortgage repayments varying on the upside, then this may be an option for you.

The downside is that if the base rate falls and lenders pass this on, you will still be stuck with your fixed rate until the end of its term.

The current fixed rates at any given time will reflect the lender’s view of where they believe interest rates are headed in the future.

However, with this type of mortgage you have certainty.  This may help you sleep at night!

 

Principal and Interest, Part fixed, Part Variable

Sometimes referred to as “cocktail” loans, part of the amount borrowed attracts a fixed rate of interest and the remainder has interest charged at the current variable rate.  They allow the borrower to assess the probability of a rate change and select a proportion accordingly.


Interest only

With an interest only mortgage you make no repayment of principal, your total repayment for any period is the interest due on the loan.  “But the house will never be mine!” I hear you say.  And you’re right but there are some good reasons to opt for interest only at least for a period of time.  You may face a temporary period of time where your income is reduced.  A lender may allow you to convert to interest only for a fixed time.

However, interest only loans tend to be favoured by real estate investors. The logic goes like this.  I am buying a property as an investment.  At some point I will realise the capital growth in this investment by selling the property.  Why then, should I put any more money into it than I have to?  What would have been used as repayment of principal can be invested elsewhere.

 

Construction Loans


Before looking at the difference between a construction loan and a standard mortgage, it is important to realise that the criteria for obtaining a construction loan are pretty much the same as those for a mortgage.


Therefore you need to approach the borrowing process in the same way. The amount you can borrow will depend on your deposit, income, assets, liabilities and savings or investment history.  Just like a mortgage.


A finance broker can help you assemble the necessary documents and make the application for the loan.


The important difference between a construction loan and a standard mortgage is that whilst the home is being constructed, your only payments are for the interest being charged on the amount you currently owe at any given time.


Payments start with the purchase of the land, and then the amount you owe would gradually increase as you pay the builder for the completed stages of the build. Usually the interest is charged monthly or fortnightly.


A good guide to fair stage payments is found in a Victorian Government Act which lay down the following percentages of the full contract price:


1. Deposit 5%
2. Base 10%
3. Frame 15%
4. Lock Up 35%
5. Fixing 25%
6. Completion 20%


Once the loan is fully drawn down, the construction loan is converted to a mortgage. This may still be interest-only if negotiated, or more likely a principal and interest mortgage at the standard variable rate or a fixed rate.

               To see "How Much Should Stage Payments Be" ,  click HERE

 

Honeymoon or low start loans

Many lenders will offer an introductory interest rate that is less than the current standard variable for a year or two.  This deal may also include a reduced deposit.  However, you should carefully read the small print.  There may well be a lock-in clause where the borrower is obliged to stay with the lender for a period after the end of the honeymoon at a higher rate of interest.

 

Lines of Credit

With this type of loan you can use the funds available up to the limit of the loan but only pay interest on what is outstanding.  Usually you must make a minimum payment monthly to cover interest and any fees or charges.  You can also have your salary and other income paid into this loan to help keep interest down in the same way as you might with an offset account.

 

 

 

 

 

 

 

 

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