How to Ensure You Get the Best Terms on your Home Loan – Part 1

Buying a home is not as simple as just popping round the estate agent’s office and signing a piece of paper that shows you’re now the owner of a three-bedroom detached with a massive backyard. For thousands of Australian buyers, it can take weeks or even months to successfully complete the process.

Unless you have enough money to be able to buy the property outright, one of the first steps you will need to take to purchasing your dream residence is securing a home loan. It is imperative that you are aware of your finances and your various options to ensure that the application is successful and goes off without any major hitches along the way.

In this first part of our on-going series aimed at helping you get the best terms on your home loan, we will look at a few basic things Australians homebuyers need to know before applying for a home loan

Do You Have Enough for a Deposit?

Before you even think of looking for a lender, you’ll first need to assess your current financial standing, your savings and the security of your income stream. You will also want to check your credit rating. Why is this all important? Well, the reasons are twofold. First of all, these are the things that any lender will scrutinse before deciding whether you are a viable loanee, and secondly, most lenders will only loan out 80% of the property value. This means that it is up to you to finance the remaining 20% of your property’s value from your savings and from other means, which can be one of the toughest hurdles you will need to overcome, especially if you are a first-home buyer.

What If I Don’t Have the Remaining 20%?

If you don’t feel you can meet the 20% deposit requirement, all is not lost. Some lenders are actually flexible enough to let you borrow as much as 95% of your home’s value, so it’s always worth asking. However, there is a catch: if you plan to take out a loan exceeding your lender’s limit, you will be required to pay lenders mortgage insurance (LMI). This type of insurance gives your lender protection in case you eventually are unable to fulfil your financial duties. Your lender will arrange this for you, so you simply need to pay a one-off premium upfront when the home loan is granted to you. Alternatively, you can ask that the LMI premium is added to your loan, which allows you to pay it off over the course of a few months.

As a general rule of thumb: the higher your deposit, the lower the LMI you will be requested to pay by your lender.

What Type of Interest Best Suits Your Needs?

You’re probably aware that there are several different interest options available on the market, but what makes one more suitable for you over others will depend on your needs and situation.

If you’re the type of person who doesn’t mind taking a few risks for a higher chance of paying lower interest rates, you might want to consider a variable-rate loan. The interest rates on these types of loans are tied to the movements of the economy or the monetary policies of the Reserve Bank of Australia (RBA). This means that the amount you pay each month is likely to change over the term of the loan.

The upsides to this type of arrangement, apart from the chance of paying lower interest rates, is that you are able to make extra repayments, and switching loans is far easier. However, the big downside is the budgeting nightmares that will arise from constantly fluctuating rates.

If you prefer to have everything planned out to the last penny, then you might be better off with a fixed-rate home loan. This allows you to be protected from sudden hikes in interests for a period of time. This is a double-edged sword, however. Fixed-rate interests don’t last for the entire life of the loan, only for a few years at most. Once this time is up, your interest automatically switches to a standard variable rate. Also, you will be limited in the extra repayments you can make, you won’t have access to redraw facilities, and the lender may charge you break fees if you repay the loan within the fixed-rate period.

The last option is the split loan. It works by dividing your loan into two parts — one will have a fixed interest rate while the other gets a variable rate. There is usually no limit as to how you will divide your loan; it will all be up to you.

What Extra Features Will You Need?

To make the most of your home loan, you need to look beyond the basics of interest rates. There are several other features that can make or break a great mortgage deal. For instance, the ability to make extra repayments at no additional cost. Having this feature will allow you to settle your loans faster and cut down the overall interest charge.

Another nifty feature is having the ability to redraw finances. This allows you to use the extra repayments you have made to finance other projects like a home renovation, a car upgrade or any other major life event. You will usually only get this facility with variable-rate home loans.

Some of the other handy home-loan features are repayment holidays, top-ups, offset accounts and line-of-credit facility which we will cover in later parts of this series.

We hope you’ve found the information in this article useful. If you need more details, why not contact the experts at Grange Finance Pty Ltd today?

7 Personal Loan Tips and Tricks

Whether you are looking for some cash to leverage your investment, to pay off some heavy debts or to launch your business, here are seven smart tips for requesting a personal loan!

 

#1. Don’t ask for more money than you need!

A few years ago, when requesting a loan, it was common for the bank to offer you an amount greater than what you asked for. In this way, if the initial reason for requesting it was to change your house’s kitchen, you finally ended up also reforming the bathroom or buying new furniture. Nowadays, this trend has changed a lot, both on the part of banks and customers. The former no longer grant loans so lightly and the latter request only the money they need to cover a specific purpose. Are you looking for a personal business loan in Melbourne? Call Kingsley Finance! They can help you obtain your personal business loan at affordable rates!

 

When you ask for a loan, you will have to return the money they have lent you, along with interest, commissions, etc., making the total amount owed considerably higher than what they loaned you. Therefore, when requesting a loan, it is best to adjust the amount you want to ask as much as possible and avoid paying more interest.

 

#2. Return it as soon as possible

When the entity with which you contract a loan asks you how long you want to return it, try to make it as short as possible. You must take into account your income and make sure that you can periodically assume the fee. After that, do calculations and try to adjust the repayment term as much as you can since the longer it takes to return it, the less security the bank will have and the higher the interest will be. This is one of the factors that makes the price of loans more expensive. On the contrary, if you pay instalments of a higher amount, you will repay the loan earlier in a shorter period, and it will be cheaper.

 

#3. Don’t be late for payments!

When you take out a loan, you must pay the instalments within the term you have set with the entity, without delaying a single day. If you comply with the payment later than what is contemplated in the contract, the entity may penalize you by applying default interest, which is usually much higher than common interest. If this situation repeats itself or you stop paying a monthly payment, your debt will not disappear but will increase, and your assets or bank fees could be seized. Therefore, before requesting a loan, make sure that you can pay for it and, above all, comply with the payments on time.

 

#4. Justify the expense

When you ask for a loan, most entities will ask you what you intend to invest that money in, since it is information that provides them with certain security. It is not the same that you want a loan to pay off previous debts than to buy a car. For this reason, most entities offer specific loans to finance a particular purpose; for example, the purchase of a vehicle, home renovations, studies, etc. These products have very specific conditions and advantages. However, for the bank to grant you these benefits, you must prove that the loan’s purpose is the one you have indicated with the corresponding documents.

 

#5. Do not resort to “fast money” and without guarantees

When you apply for a loan, entities usually take a few days to confirm that you can lend you money. To do this, they will ask you to provide guarantees that show that you can return it. If you are an employed person, the most common thing is that they request your payroll, which must be of sufficient income, and your employment contract may require that it be indefinite. If you are self-employed, you will also have to demonstrate financial solvency through invoices, bank statements or other types of documents.

 

However, some entities offer “fast money” and without the need to provide payment guarantees. You must be careful with this type of loan, as they could charge you higher interest or commissions than other entities.

 

#6. Look at the APR

When hiring a loan, you not only have to look at the interest that you are going to be charged, but other conditions can make your loan more expensive. Thus, when you ask for a credit or a loan, many entities may require you to hire certain products such as insurance or cards or charge you certain commissions that can make the product cost much more expensive than it seemed if you only took into account the interest. Therefore, when you are going to hire a loan, look at the APR (Annual Equivalent Rate), which is the one that includes the total cost of the loan, including commissions, interest, expenses and commissions.

 

#7. Compare different personal loans

Without a doubt, the best option to get the most suitable loan for each person is to compare the different products on the market and offered by various entities.