What is the best loan for you? Is it the cheapest home loan?
That’s completely up to you. What your needs, goals, priorities and personal situation are. For most people their objective is two-fold:
- Make the purchase of their home possible - so they can enjoy and feel safe. All in a place that’s both convenient and desirable
- Get out of debt as soon they can
Get the mortgage that makes your dreams come true -
- A loan makes something possible today that otherwise would take decades to achieve
- Borrowing is most suitable for assets that can grow in value. That could be your home
- With a secure and steady income, along with wise purchasing and borrowing strategies, your goals can be achieved and risk managed
How does home loan selection affect me?
Honeymoon interest rates give you a 'leg up' at the start, but sometimes we can find you a loan with even lower rates that don't automatically jump up after a short period.
An Offset account may be an important and effective feature of your new loan, but it might also be an unnecessary expense. Have a chat to us about your needs and plans for the property in the future, as it’s important to know if and how an offset account might be necessary for certain situations.
Having a loan with your existing bank may be convenient, but it's always worth checking to see if a total move to a different bank can significantly better achieve your objectives. This could be through lower fees and interest rates — with all the features you need.
Many things need to be considered, and that's why you need to talk with a loan adviser at Grace Loans. Simply call 02 4905 0250 or fill out our enquiry form
How do I choose a Home Loan?
Some people have no plans to move, no plans to invest and they don't really care about the ease of banking and other features. They simply want a loan that enables them to own their home as soon as possible. So the best loan for them is one with low fees and a low-interest rate. That discount on the interest rate would generally last for the life of the loan, and they could focus on making extra repayments, helping the amount owing drop even more.
If an offset account is available while retaining the low fees and interest rate, it could reduce the interest paid and speed your debt repayment. Giving you the ability to make additional payments.
For other borrowers, additional objectives may need to be factored in. They may want a loan that’s easy to work with using internet banking. Some seek the benefit in using equity from their home using it to leverage their investments, and for that, they need multiple loan portions to keep the debt funding purposes separate. That’s why having a budgeting app that can receive data feeds from their bank is becoming increasingly important for many.
Sound complicated? That's why you need a loan adviser. Someone who knows loans. And all the strategies that work. Who understands you and your situation.
Home Loan FAQs
How much can I borrow?
The number one most asked question, with an answer that’s different for each person. Because it's all depending on what your income is and the value of the property(ies) that you have to use as a security for the loan. (See the answers for "Serviceability" and "LVR" below)
What is a "LVR"?
LVR stands for "Loan to Value Ratio." It’s calculated by dividing the loan amount by the value of the securities involved. Lenders limit the amount you can borrow according to this LVR rule. Generally, most people can borrow up to 80% LVR (that’s 80% of the value of the property) without penalty. In some cases, by paying for "Lenders Mortgage Insurance" (See "LMI" below) up to 95% can be borrowed, or even 97% where the cost of the LMI becomes included within the loan amount ("capitalised LMI").
What is "serviceability"?
Your ability to generate enough income to cover loan payments is described as "serviceability." Each bank has its own way of calculating how much income you need. The interest rate will be higher than present rates in the calculation to allow for rates going up in the future causing undue stress on your financial situation. Credit cards and loans not being refinanced will have payment amounts increased to cover the amount owing as if the facility was fully drawn. That means that if you have a credit card with a very large credit limit it will be harder to qualify for a loan.
Part of the equation that most people ignore is what they spend their money on. With your broker being required to make reasonable enquiries into your spending, including examining bank accounts, to verify your estimates of your living expenses. While the banks will have minimums for each family situation, they want it to be adjusted upwards to match your particular situation. Where you have obligations such as insurances, pay TV and club memberships, those amounts will all need to be added on top of their minimums or your other normal living expenses.
What is "LMI"?
"LMI" is "Lenders Mortgage Insurance." This insurance doesn't protect you, it protects the lender. Many lenders will ensure all of their loans, only passing this cost to you when you’re over 80% LVR (see LVR question above). A few lenders will go up to 85% LVR without charging you for LMI, and several of the major banks will allow up to 90% LVR for certain medical professionals.
LMI costs vary according to the LVR and amount borrowed. With slight variations from one lender to another. It's not unusual for a borrower to be charged something on the order of $10,000. Part of your mortgage broker's preliminary assessment will be to provide an estimate of what the LMI charge will be for the recommended lender. Your broker should also be able to show you how the LMI varies from lender to lender in your particular situation.
Is loan interest tax deductible?
That's a great question, to answer that you’ll have to head over to GraceFinancial.com.au, our financial planning website, and learn more about tax-deductible investment expenses there.
What documentation do I need to provide to apply for a loan?
It varies slightly from bank to bank, but for PAYG income earners this would be typical:
- Your last two payslips
- Your last Notice of Assessment (Find it at MyGov - ATO) or Group Certificate (from your employe)
- ID verification with Drivers Licence & Passport or Birth Certificate + proof of change of name, if applicabe
- Medicare card
- The last six months of statements for all transaction accounts and credit cards
- Rates statements for existing properties being used as security
- The contract for properties being purchased (unsigned but with purchasers' names and purchase price)
For self-employed borrowers, generally you’ll need to have your ABN for two years, and most lenders want two years of financial reports, tax returns and Notices of Assessment too.
As a First Home Buyer, is it better to buy an existing property or one that is newly built?
You may be aware that you only get the First Home Owners New Home Grant (FHOG) here in NSW only if you construct your home or purchase one that no-one else has lived in. In either case, there’s a stamp duty concession that eliminates stamp duty up to a certain purchase price. What’s interesting however is that in the typical situation where you build your own home, the land purchase happens before the home is built, with stamp duty here in NSW being very minimal. So, if you add the savings in stamp duty to the FHOG in each case, there isn't that much of a difference.
As we compare, first let’s consider how much you could save purchasing a new home with the FHOG. Let's say the land cost is $200,000 and the build cost is $300,000. Stamp duty in NSW on the $200,000 would be $5,490. Plus, at the time I'm writing this, you should get $10,000 for the grant, given that you qualify. Making your total contribution $15,490.
Now, what about the existing home? Let's say it is also $500,000 in total. There would be no FHOG, but the savings on stamp duty would be $17,990.
The bottom line is that you need to come to us, provide the details of your situation to us, and we’ll help you work out your best possibilities, based on what we know about lenders' policies. Leaving you to decide which way you want to go.
How do I get started?
Simply call 02 4905 0250, or fast track your application by completing our Preliminary Application Form. This gets many of your details directly into our systems, enabling us to get things underway much quicker.