Unusual Property Mortgages

2011 May 17

Buying property is thrilling, stressful, and a little frightening. There are so many terms to understand, and an incredible amount of paperwork to sign. Interest rates have to be considered, along with down payments. Buying a standard home is a relatively simple process that most people are familiar with. But what happens when you’re trying to buy an unusual property? You will find that the process for buying these properties is a little different. It can be done, but it’s important to know what to expect.

Mortgage Terms

Loan to Value Ratio (LVR)
This is simply a quick way for lenders to know how the amount loaned compares to the actual value of the property. The amount of the mortgage is divided by the appraised value of the property in question. Most banks like the LVR to be below 80%. If the LVR is higher than 80%, they will require you to get Lenders Mortgage Insurance (LMI) to help protect their investment.

Commercial Mortgage
This mortgage is required to secure real estate that will be used for business purposes. Commercial mortgages are used for buying office space, warehouses, retail stores, and some rental properties.

Residential Mortgage
This mortgage is designed for buying houses and other residential property. Fees and interest rates are typically lower than for commercial mortgages, and lenders will allow higher LVR’s.

Torrens Title
Most people think of their home and understand that they are the ones listed on the title. A single document names the absolute owner. This is known as a Torrens title, it is the most common type, and getting a mortgage for one is a relatively simple process.

Strata Title
This title is for a privately owned property that is connected to another property. Apartments and town homes that are privately owned, for instance, would have Strata titles. The property is defined as the airspace occupied by an individual unit, and a strata corporation is created to take care of common areas used by multiple owners. Mortgages with these titles are also relatively simple.

Community Title
When an entire community has common areas such as parks, playgrounds, or pools; a Community title is necessary. It covers a subdivision or neighbourhood and allows all the individual home owners to also have ownership in, and responsibility for, the community areas. These are also basic titles that do no usually present problems for borrowers.

Company Title
These titles date back to the pre-Strata title era. Before apartments and townhomes were divided up into individual dwellings with each property defined as the occupied air space, ownership was addressed with a company title. The apartment building or town home was owned by a company. People wanting to buy a townhouse would not simply buy that home, but would buy shares in the company. The problem with these mortgages is that the other owners in the company, your neighbours, have to give consent for anyone to sell, lease, or mortgage their individual unit. Banks do not like these titles, and buying a property that uses one can be challenging.

What the Bank Looks For

LVR 
This is high on the banks priority list of concerns. A general rule of thumb is that higher risk properties will be limited to lower loan to ratio values. When a property is more desirable and easier for the bank to sell you can borrow more money against the value.

Saleability
The bank wants to know that they can recoup their money if you default. Properties that only appeal to a few people are harder for the bank to sell and will be harder for you to get a mortgage on. 

Stable Value
Banks like knowing what a property will be worth over the life of the mortgage. When a property has a history of an unstable value, most lenders will be leery of it. If the value fluctuates too much over the years, the bank will require a lower LVR, so you’ll have to put more money down.

Legal Issues
Banks don’t like legal issues and challenges. They want to know that they can sell your property if you don’t make the payments. Company titles, in particular, are not something banks want to get involved with. You can still get a mortgage, but you might wind up having to lower the LVR by making a larger down payment.

Unusual Properties Types and Their Challenges

Luxury Properties with High Price Tags
Luxury mansions are great to look at and visit, but most lenders hesitate to put up their money for them. When you’re looking at properties valued at over two million dollars, lenders want to limit how much of that value they are actually holding. The reason is simple. If you default on the loan, the bank wants to know that they can sell the property and at least get back the money they have paid out.

Inner City or High Density Buildings
It seems like such a great idea to buy an apartment building and become the ultimate landlord. But then you go for financing and start running into challenges with mortgages. Some lenders simply don’t like financing these buildings. They may have several types of restrictions regarding building size, location, height, and how many apartments it has. Luckily, you can still find mortgages for these structures. The trick is to find a bank that doesn’t have a specific inner city property policy, or high density building policy.

High Rise Apartments
While these buildings may be nicer and more luxurious than an inner city apartment building, it can still be challenging finding a company that will write a loan. These unusual properties often run into the same challenges as inner city properties.

Company Title Properties
As discussed before, these multi-unit properties have a more involved process for buying or selling any units. Because the neighbours have a say in the transaction, most banks are leery to get involved at all. It is possible to find lenders that will go up to 85% LVR, but most try to stay below 60% LVR.

Serviced Apartments
These buildings are designed for short-term stays. They typically do not have permanent residents, but people who need somewhere to stay for a few weeks or a few months. They are usually furnished and serviced by the entity that owns the building. A lovely investment for rental income, finding mortgages for these properties can be problematic.

There are lenders who will still provide mortgages on these unusual properties, provided certain requirements are met. The requirements can be quite stringent, but may allow you to go up 80% LVR, depending on the bank. If the requirements can not be met, you may be limited to 50% LVR.

Multiple Properties on a Single Title
It is possible to have multiple properties placed on a single title. Some investors prefer this for simplicity. The problem is that when too many properties are listed on a title, the bank will define those properties as being commercial units. This works greatly in the banks favour, because you will have to take a commercial mortgage with a lower LVR and higher fees. You will fare much better on terms and lending amounts if you choose a lender that will still allow you to take a residential mortgage on the properties.

Mortgages are available for any of these property types. The key lies in knowing why the banks will avoid making the loan, and how to work around the issues. You can get a home loan on a luxury property; you just have to know what type of lender to search for. There are mortgages available for unusual properties, as long as you know how to work with the bank.

Loan To Value Ratio (LVR)

2011 May 15
by admin

When discussing home loans and mortgages, you may often hear the term “loan to value ratio.” The loan to value ratio, or LVR, refers to the ratio of the loan amount to the value of the property. It is typically expressed as a percentage. 

This ratio is extremely important in all aspects of lending. The majority of banks and financial institutions have lending policies for each type of loan that are related to the loan to value ratio. For example, the bank may only allow up to an 80% loan to value ratio on investment loans, but may allow up to 95% LVR on loans used for a primary residence. 

In order to calculate the loan to value ratio, one must divide the principal loan amount by the value of the home. A $200,000 loan on a house with a value of $300,000 would have a loan to value ratio of approximately 67%. When a lender calculates the loan to value ratio for the purchase of a piece of property, they will either use the valuation amount or purchase price, depending on which is lower. The worst case scenario occurs when the purchase price is higher than the valuation, resulting in a higher loan to value ratio than was anticipated. High loan to value ratios mean higher mortgage insurance premiums. In addition, if there is a significant enough difference between the value of the home and the purchase price, the loan may be declined. 

When a loan to value ratio is calculated for a refinance, the valuation amount is always used. On rare occasions, a lender may use valuations even if they are higher than the purchase price for a home loan, but usually only if the sale contract is several months old. 

If possible, one should always obtain a valuation prior to submitting an application for a loan. This can save a lot of unnecessary trouble and inflated hopes in situations where the valuation amount will determine the borrower’s ability to secure the loan. Once the borrower has determined that he or she will meet the lender’s loan to value ratio requirements, the application can be submitted. 

Typically, a lender will require mortgage insurance for any loan with an LVR of more than 80%. However, for lo doc loans, this percentage may be as low as 60%. For first time buyers, the loan will usually have a relatively high loan to value ratio. In fact, in many cases the loan to value ratio will be 100% for first time buyers. Fortunately, most first time home buyers are eligible for the First Home Owner Grant, which can be used to pay the majority of the required mortgage insurance. In addition, first home buyers are exempt from stamp tax in some states.

In the event that a loan applicant is not eligible for the First Home Owner Grant and cannot afford a deposit of 20% or more, he or she will have to pay stamp tax and mortgage insurance, which often requires a loan with a loan to value ratio of more than 100%. If the borrower does not wish to pay these extra costs, he or she could ask someone to act as a guarantor. 

A guarantor is someone who signs an agreement stating that he or she will take responsibility for the loan repayments if for some reason the borrower can no longer pay. This person is usually a relative, but may also be a friend in some cases. The guarantor’s assets will be used to secure the loan, which can bring the loan to value ratio down to a percentage low enough to avoid mortgage insurance. In some cases, a guarantor may be needed in order to secure the loan at all. 

If a guarantor is utilized, he or she can either sign a guarantee for the full amount of the loan or for a limited amount. In a limited guarantee, the guarantor will be responsible for only the percentage of the loan needed to bring the loan to value ratio down to an acceptable level. For example, if the original loan to value ratio for a borrower is 95%, but the bank will only allow ratios of 80% or lower without mortgage insurance, the guarantor would need to sign for 15% of the loan amount so that the borrower can avoid the insurance premium. 

Loan to value ratios (LVRs) are very important tools used by lenders to make decisions and determine costs. A lender may only approve certain types of loans if their loan to value ratio falls under a set limit. In addition, lenders typically charge mortgage insurance premiums to the borrower when the loan to value ratio is above a certain percentage. Avoiding these extra costs can be very helpful, so sometimes it may be in a borrower’s best interest to seek out a guarantor.

Mortgage Offset Accounts

2011 May 8
by admin

A mortgage offset account has also been referred to as an offset home loan, an interest offset account, or simply an offset account. All of these terms refer to the same thing: a mortgage that is linked to a bank account. Crucially, the interest that you owe toward the home loan is based on owed balance of the loan minus the balance in the bank account.

How Does an Offset Account Work?

You can use the account just like a standard bank account. You can deposit and withdraw funds, write checks, use an ATM, and access your account online. When the bank calculates your interest, it is as though all of the money in the offset account has already been applied toward the loan.

As an example, if you owe the bank $500,000, and you have $10,000 in your offset account, the interest that you owe will be based not on the full $500,000, but on $490,000.

How Can the Bank Do This?

Why is the bank able to do this? It comes down to the way that banks work. When you make a deposit at the bank, the law says that they have the right to lend out a specific percentage of those funds and earn additional interest on them. Every time that you give money to the bank, whether it is to pay off a loan or simply to make a deposit into your bank account, you are actually giving the bank access to those funds.

For this reason, the bank doesn’t really see the funds any differently. Whether you are paying off a loan or making a deposit, they can use the funds that you give them in order to make additional loans and earn additional interest on them.

Does it Make Sense to Use an Offset Account?

An offset account is not the perfect solution for everybody, but for certain strategies it can be extremely beneficial. The important thing to keep in mind is that it is all relative. If you could earn more interest by putting the money into a savings account than you can save by putting it into an offset account, it doesn’t make a great deal of sense.

In reality, the amount of interest that you can earn from a savings account is usually very small in comparison to the interest that you are charged on a home loan. For this reason, it often makes more sense to use an offset account than a savings account.

Combining a Credit Card and Offset Account

One strategy that some people claim is helpful is to combine the benefits of an offset account with a credit card. If you pay all of your living expenses using a credit card each month, you will maximize the amount of money available in your offset account for the majority of the month. Each month, you can then use the offset account to pay off all of your credit card debt.

By using the credit card for your living expenses, all of your income and savings go toward reducing the interest on your home loan. This means that your regular payment will take a larger chunk out of your principle, meaning that you will be closer to paying off all of your debt on the home loan. Of course, the crucial part of this strategy is that you don’t go overboard with the credit card, and that you use it in such a way that allows you to pay it off each month.

Diverting Income to an Offset Account

By combining all of your accounts into one, an offset account gives you a bigger picture of what is going on with your financial situation. If you have investment properties as well as personal properties that you are lending through, an offset account allows you to divert all of your income through the offset account, reducing the interest that you have to pay on your home loan.

Turning Personal Property into Investment Property

It’s not uncommon for a borrower to buy a home for their own personal use with the expectation that they will eventually buy a better home and use the old one as an investment. Rather than selling the old home, they can rent it out and earn a passive income on the property.

One strategy that has proven very effective for some people would be to purchase the first property with an interest only loan linked to an offset account. Any extra payments they then made toward the loan could go into the offset account.

First of all, this would mean that the borrower would pay no extra interest on the loan. As long as they were able to make a payment equivalent to that of a standard loan, rather than that of an interest only loan, they would actually end up spending less in interest than they would with a standard loan. 

Later on, when the property became an investment, they would be able to enjoy some tax benefits. The principle of the loan would remain unchanged, and all of the interest charged would be tax deductible.

Not only that, but all of the funds that had been placed into the offset account could then be used in order to buy the next home.

In summary, the borrower has managed to take out an interest only loan without needing to pay any more interest than they would need to pay with a standard loan. They also manage to get the most out of their future tax deductibility when the property turns into an investment.

How to Determine if an Offset Account Will Save Money

One important thing to realize is that an offset account typically comes with a yearly fee. Before deciding to use an offset account, you need to be sure that it will save you more than the cost of this fee.

The first thing that you will need to determine is the average amount of money that will be in your bank account for the entire year.

In a situation where the interest rates are especially high, the amount of money that will need to be in your bank account if you want to break even will be lower.

To determine how much would need to be in your bank account, you would divide the cost of the annual fee by the interest rate. As an example, suppose that the annual fee was $400, and the interest rate were 10%. You would simply divide $400 by 10%, which gives you $4,000. This means that, on average, there would need to be $4,000 in your account each day.

This might mean that your account balance is near $8,000 for half of the month, and near $0 for the other half. You will need to take a look at your daily account balance over a period of a month to determine this exact value.

Of course, this only tells you if the interest savings are worth more than the annual fee. It doesn’t tell you if you would be better off placing the money elsewhere, such as in a saving’s account, or a different high yield investment. Only you can determine whether it makes more sense to use that $4,000 for something other than to offset your interest.

Learn more about mortgage offset accounts.

First Home Owners Grant (FHOG)

2011 May 7

Buying a home is an exciting process, but it can be very expensive and intimidating. This is especially true if you have never bought a home before. If you are preparing to buy your first home, there is an excellent government-sponsored opportunity you need to be aware of- The First Home Owner Grant.

The First Home Owner Grant Act was created when the Australian Government realized that the population needed some help in building and purchasing homes. They invented this unique scheme to encourage families to purchase a home of their very own. Increased rates of home buying not only boost morale, but also improve the economy. 

The First Home Owner Grant or FHOG was first introduced to the public in July of 2000. This grant was designed to counter the effect of the Goods and Services tax on first home ownership. Though the FHOG is a national scheme, it is funded and administered by individual territories and states. The grant offers $7000 to first time home buyers that satisfy all of the necessary criteria. 

In order to qualify to receive the First Home Owner Grant, the applicant must meet all of the following conditions:

1. The applicant must be a first-time home buyer. If either the applicant or the applicant’s spouse owned and occupied a home after July 1, 2000, the applicant will not qualify. In addition, neither the applicant nor the applicant’s spouse is allowed to have owned an interest in any land in the country of Australia that contained a residence prior to July 2000. If the investment property purchase was made after July 1, 2000, the applicant will still be eligible as long as he or she has never resided at the property. 

2. The applicant must be a person and not an entity such as a company or a trust. The applicant must be an Australian citizen or a permanent resident that is at least 18 years old. 

3. The applicant must be under contract to purchase or home or have entered a contract to construct a new home that commenced on or after July 1, 2000. If the applicant is an owner-builder, the foundations must have been laid no earlier than July 1, 2000. 

4. The value of the applicant’s property can’t exceed $750,000. At least one of the occupants must keep the home in question as their primary place of residence for at least 6 continuous months. This period must occur within 12 months of construction of the home or settlement. 

5. The applicant must have never received a grant under the First Home Owner Grant Act in any territory or state in Australia. Similarly, the applicant’s spouse may not have received a grant either. 

6. Joint applicants are restricted to filling out only one application and receiving on $7000 grant under this program. 

7. The home in question must be located in Australia. 

The amount awarded under the First Home Owner Grant Act is the same regardless of the value of the house constructed or purchased. In addition, the amount doesn’t change based on the amount financed. Whether the mortgage value is $50,000 or $500,000, the grant will still be worth $7,000. To apply for the grant, the buyer or builder can visit one of many banks or lending institutions that are included in the list of approved agents. 

In addition to the First Home Owner Grant Act, different states and territories have other ways of helping first home buyers as well. Some areas offer concessions or exemptions from stamp duty payments, while others offer additional grants. 

If the applicants both meet certain criteria, they may even be eligible for additional funds from the government. These extra grants are referred to as a first home bonus and do not require a different application. One is automatically considered for the first home bonus upon completing the application for the First Home Owner’s Grant. 

The First Home Owner Grant is an excellent opportunity for all eligible first time home owners in Australia. It was created to stimulate the country’s housing market and economy by helping home buyers with their first purchase. Home loans often provoke anxiety in first time buyers, but this grant offers buyers the incentive they need to go ahead with the process. If an applicant meets set criteria, he or she will qualify for this grant regardless of the value of the home purchased or built. The grant is for the same amount, $7000, no matter what the price of the home was. This opportunity can only be taken advantage of for your first home purchase, so don’t miss out! Visit your nearest bank or other qualified lender and see if you meet the eligibility requirements.

Tips For Auctions And Private Treaties

2011 May 5

The process of buying a house at auction can be nerve racking. It is important that you understand that when your bid is successful in an auction, you will be signing a contract to pay for the house on the same day. You have no recourse if you want to change your mind after the purchase. Please do your homework and make yourself aware of all of the things that could potentially go wrong when buying a home at an auction. Here are some tips that can help you make the most out of buying a house at an auction or through a private treaty. 

Pre-approval 

You must get pre-approval for a home loan before an auction. Your loan application must be properly assessed and approved, subject to a valuation of the property. Many lenders will not pre-approve mortgages because many people who apply for them choose not to proceed with the purchase of a home. Some banks see processing mortgage pre-approval as a waste of resources. Check your local banks and lending institutions to see if any will pre-approve a mortgage before you bid on a home at auction. 

Making an Offer Before the Auction

If you are absolutely set on buying a specific home, you can try making an offer before the auction commences. Make an offer that is realistic but still under your maximum bidding amount. You should put the offer in writing along with your preferred time frame for settlement of the auction. Vendors often like when buys make bids before the auction, as they are happy to secure a favourable price instead of putting the home up for competitive bidding. If the vendor comes back with a counteroffer, it may be to your advantage to offer slightly more and advise the vendor that that it is your final offer before the auction begins. If you get no response, it may not be in your best interest to contact them again. If the same vendor contacts you immediately before the auction, tell them that you may or may not be bidding. Their reaction can often tell you if they are seriously considering your bid. 

Setting Your Limit 

You should always set the limit of how much you are prepared and able to spend before the auction starts. Once you have determined your personal limit, never go over it. One idea is to pick a reasonable number as your limit and to make bids that are several thousand dollars or more below your limit. If you are approved to for $300,000, it may make sense to bid $278,500 on a home, as your bid would beat those approved for $275,000 or $278,000. It may seem like a strange strategy, but it can pay off big time if you bid on the right home at the right auction! 

Don’t Take Guide Prices Seriously 

Intentional under quoting of the expected sale price of a house is illegal in some places and definitely unethical, but it still happens often. It is very common for properties to sell for significantly more than the amount that the property is listed for in the price guide. Many real estate agents either don’t know the actual value of a property or they are trying to get as many potential buyers as possible to become emotionally attached to the property before the sale. This should go far in showing you why informed buyers need gauge on what properties are worth for yourself. If you don’t know what a certain house is worth, do some research about recent selling prices of other comparable homes in the area. You can attend multiple auctions and research past sales. You should also research the property itself to see what it last sold for. Then you can compare that to the information that you’ve found researching the prices of other similar homes in the area. The key is to go to the auction informed so that you can make an informed purchase. 

Negotiate Contract Changes Before Auction 

The contract for sale will outline what is included in the sale of the property as well as the time frame for settlement of payment due to the seller. This contract can be negotiated but that must be done before the auction commences. The vendor is not obligated to change their contract after a house is sold at auction but some may be willing to do so. 

Tips for Private Treaty Sales 

The private treaty method of buying a home is often a bit less stressful than buying a home at an auction, particularly if you are purchasing your first home. A private treaty sale will often be handled by a real estate agent, though it can also be arranged directly by the owners of the house. Buying a house by private treaty means that you should not have to exchange contracts until you have a mortgage loan approved by a bank. 

Don’t Show Your Hand 

It’s fine to express interest in a house to the agent or vendor handling the sale, but you should try not to show too much emotion. If you can, let them know you are interested in some of the other properties at the auction. Disclosing your finance position to an agent or vendor is usually not a wise thing to do. Agents will ask if you have approved financing or if you have are able to put down a deposit. These questions help the agents get information about you as a buyer, though that information can be used against you later. Don’t be rude, but also don’t give them so much information that they’ll have the upper hand in negotiations. 

Do Your Homework 

Find out as much information as you can about how much other properties in the same area have sold for in recent months. You can go to auctions and learn about local property market trends. If more than 75% of the houses at the auction have sold, this would be indicative of a thriving market. If less than 50% of the houses have sold it would be considered a slow market. 

Don’t Believe Anything That They Say 

Agents will often say that there’s a higher offer on the table than a bid that you have just made. It’s best not to believe them if they tell you this. Remember to stay within your limit and never negotiate a price over it. You may have to show them that you are willing to walk away. If you do this, you won’t have to worry about bidding against yourself and paying an artificially high price for you home. 

Put your offer in writing 

Real estate agents are obligated to submit all offers to the seller for review. You should always submit your offer in writing. Remember that your offer is not legally binding until both you and the vendor have signed the contract. Remember that you can negotiate not just the price, but also the settlement time frame and the items included in the sale. Always negotiate changes to the contract before the auction and always make special conditions, such as a longer settlement time frame, known to the vendor upfront as well.

Get expert advice

If you need additional advice then consider asking friends who are experienced property investors as they often bid at auctions. There are useful resources such as property investment forums that you can use to access the experience of others if you don’t have friends who are investors.

In addition to this you should always use an experienced conveyancer for your purchase. They can help you with your due diligence up front, to ensure you don’t run into any traps later on.

5 Year Fixed Rate

2011 May 4
by admin

5 year fixed rate home loan

How can I know which lender is offering the lowest 5 year fixed rate?

Unfortunately, no one publishes the lowest 5 year fixed rate in the market at any given time so it is not as easy to find one. If they did, all one had to do is look it up on a loan comparison site. This is something you would have to dig around to find out for yourself if you are considering taking out a 5 year fixed rate. Each lender considers a number of unique factors when setting their rates. For instance, there are discounts given for huge loan amounts. The percentage for these discounts varies from one lender to another. Now, few people know of the existence of these discounts because they are not advertised. There are also discounts for loans taken alongside professional packages, whose percentage varies from lender to lender.

Fixed rate loans attract a number of charges and fees which are not obvious from the start. It is wise to get the advice of mortgage consultants such as Home Loan Experts, who know the in-workings of a large number of lenders. They will help you understand how each lender’s policy works and find you the most affordable 5year fixed rate.

Can you have an offset account and pay extra off your 5 year fixed rate loan?

Some lenders offer this flexibility. Unfortunately, it is an option available with only a few lenders. Most 5 year fixed rate lenders do not allow clients to have an offset account. A good number of those that allow extra repayments limit them to a certain amount. Again, mortgage experts will help you find a lender who offers this.

Can I change my loan into a split loan?

No. The 5 year fixed rate cannot be changed into a combination or split loan where you pay a fixed rate in one half of the loan term and a variable rate in the other half. The fixed rate remains constant all through the fixed rate period. This will be clearly stipulated in the loan agreement.

Implications of locking in your rate

It is common for lenders to give you a different rate (usually higher) than the one quoted to you during your inquiry. Sadly, you have no way of knowing the actual rate they will give you because the rate is decided on the settlement day of your loan. So you get a quote for 6% and excited that the rates are bearable, you apply for the loan. However after the loan settlement, your statement reads a different rate, higher by 1% – 2%; and being a fixed rate agreement, there is nothing you can do about it.

This is a loophole lenders use to net in new customers. They know that application and loan settlement are weeks apart. So they quote the lowest rate for you, knowing full well they will give you a higher repayment rate. The excuse you will often hear is that the rates went up before settlement could be done and there was nothing they could do to revert to the old rates.

Because of the uncertainty of the rates, most lenders give you the option to lock in your rate, but at a fee. A few really good ones actually do it for free. How this works is that on the day you are applying for the loan, they give you the opportunity to lock in the day’s rate. Alternatively, they fill in the quote you were given in your quote if you prefer. Go for this option if the rate is lower. With a rate lock in place, the lender will not be able to twist the rate to a higher percentage and your loan repayments will be based on the quoted rate.

Rate lock policies differ from one lender to another. It is important to get an understanding of what each policy means before choosing your lender so as to know how this will affect your finances.

Is a 5 year fixed rate more cost effective than a variable rate loan?

You will save money. With a fixed rate loan, you already know how much it will cost you to repay the entire loan. You can actually work out your total instalments and know how much your repayment sum will add up to after 5 years. The greatest advantage of this kind of loan is that your minimum instalments remain level across the 5 years.

Compared to a variable rate loan, the fixed rate offers a high level of certainty, something you are never quite sure of with a variable. The interest rate over the first half of year one may be low then it suddenly increases in the second half of the year, pushing your instalments higher. What happens when you hadn’t budgeted for it? You run the risk of defaulting, which has its own consequences.

20 yeas ago, variable rates were a better choice because rates were taking a downward trend mainly because of the competition building up. Today, the opposite seems to be happening and with a fixed rate, you are protected against future increments.

Are there times when it is unwise to take a 5 year fixed rate loan?

Yes. If you are likely to opt out of the loan in the course of the loan term, it is best not to take it up in the first place. Exiting the loan in the initial years is especially costly as you have to pay termination fees which are often high. An honest evaluation is needed here.

Different lenders calculate the termination cost is calculated differently and what may be low for one lender could be high for another. Basically, if the prevailing variable rate in the market is higher than the fixed rate you’ve been paying, the break charges will be low. If on the other hand the variable rate is lower than your fixed rate, the higher your termination fee will be.

The fees charged are directly proportional to the difference between the fixed rate and the prevailing variable rate. The greater this difference is, the higher the cost will be for you. Whether low or high, you will lose money either way. The only way to avoid this is by not taking the loan.

Who qualifies for a 5 year fixed rate loan?

This option either as an investment loan or home loan is best left to people who have experience in investing and who have a solid back up that they can use to make repayments should their financial situation change.

It is also ideal for people who are sure that their financial situations will not be negatively affected over the course of the 5 year fixed period. People looking to buy a retirement home or family home which they intend to own for years to come will benefit from a 5 year fixed rate. Those looking to build investment property which they intend to run for a long period will find the 5 year fixed rate more economical.

If you are not sure whether your circumstances qualify you for a 5 year fixed rate, you should consult an expert who can assess the situation and give you the best option.

95% Investment Loans

2011 May 3

What is a 95% Investment Loan?

A 95% investment loan is ideal for those of you who do not have a large amount of savings.

With this type of loan, the bank will fund up to 95% of the purchase price of the loan and the borrower must contribute the remaining 5% of the loan amount. The borrower must also pay any associated legal fees and stamp duty.

General Information about 95% Investment Loans

Banks are usually reluctant to lend more than 90% of the purchase price. The mortgage lender must have a certain level of assurance that they will be able to recover the full amount in the event of a default on the loan. The 95% investment loan only allows the lender a 5% buffer if the borrower defaults on the loan.

However, where you have pre-existing equity in any property, this will support your application. The banks take other factors into account, including, your credit score, employment status and the strength of your finances.

The lender will also consider the type of property that the investor is buying, whether it be a free-standing home, unit, apartment or town-house.

Refinancing borrowers typically do not qualify for 95% investment loans.

Loan types and rates

Banks offer a variety of loan options with different fees and rates. Borrowers should shop around so that they can get the best deal.

Many banks offer low and fixed rate or variable interest rates. Some 95% interest loans do not charge application fees or account keeping fees.

Some banks offer interest only payments for up to five years or more.

Tax benefits of 95% investment loans

There are a variety of tax benefits associated with owning an investment property.

A tax professional can help investors to reduce the amount of tax payable. Some typical deductions may include fixtures, fittings and others.

Rental income and 95% investment loans

Typically, investors have large property portfolio and may be receiving a large portion of their income from rent.

However, most banks prefer that you have additional sources of income, as the rental market fluctuates and there may be periods where you do not have tenants and therefore have no income stream.

As such, some banks have restrictive policies which only allow you to include 75% of your rental income. Although, there are some lenders which may accept 80%.

How much is Lenders Mortgage Insurance (LMI)?

Lender Mortgage Insurance (LMI) is applicable for 95% loans. The amount may vary from 1.5% to 3.5%, of the loan amount. Depending on the size of your loan, this can be quite a significant sum!

However, some lenders allow borrowers to include the LMI as part of the loan amount.

Apply for an investment loan

Maximise your chances of getting approval and find out how you can get great discounts and competitive rates.

Get a 95% investment loan today.

A Quick Guide To Home Loans

2011 April 27

Perhaps you ask yourself, “Why must I do all this song and dance just to get a home loan?” Unfortunately, in today’s economy, mortgage requirements are shifting and changing. Work is difficult to find. Employment stability is iffy at best. Mortgage applications are scrutinized and controlled by authorities and lenders. Borrowers struggle to learn the rules and to present a winning argument. Acquiring the funds for a home purchase is difficult but not impossible.

Fifty years ago, transportation was limited, and workers were not enabled to easily move from place to place. Government enforced work regulations also lacked the power and control of modern times. The banks were local, the population smaller, and people called one another by first names. Workers often entered the job market at an early age, and then remained at the same company until death or retirement released them from the assigned duties. Men and women were proud of their job and their reputation. Missing work was not an acceptable option; neither was defaulting on a loan.

Over time, such long-term jobs have become less frequent. Temporary agencies now sprinkle the employment landscape. Job stability continues to shift and decline. In the search for new jobs, hope, and a promising future, people are forced to acquire new skills. Likewise, lenders also adapt to the new environment. Banks have developed a profile of the ideal borrower, yet they still seek the workers of yesteryear, the men and women who find one job with one company and stick to it year after year. Workers with a history of employment changes are seen as a risk, even a gamble to the lender.

Upon a review the legislation boundaries that require banks and other lenders to take responsibility for granting a line of credit, it is easy to understand the lender’s position in the matter of borrower approval. When it comes to a borrower’s employment history, lenders must make certain that their decisions are based upon the letter of the law.

A creditable, or valued, borrower is generally seen as a person with a stable income and a good debt-to-income financial management ratio. These figures provide the bank or mortgage company with a “big picture” image of a client’s credit worthiness. As with any relationship, time and long-term stability builds trust; it is the same with your lender of choice.

In order to begin the loan process, a mortgage hopeful needs to consider the following bank protocols and best practices:

  • The lender prefers that the perspective borrower have a minimum two-month history within their present job field. This time range is hopefully linked to the same occupation and same employer. However some exceptions can be made depending on the bank’s lending policies.
  • Given that the worker may be in compliance with occupation and work history requirements yet still be new to a given employer, probationary employment conditions may apply. The typical lender demands that a perspective borrower be free of any probationary employment restrictions.
  • The prospective borrower must list and explain in full any job changes that affect their ability to repay a loan.
  • The prospective borrower should prepare an accurate and verifiable list of any personal assets that can serve as loan security. This can help the applicant better balance and qualify the income ratio to the loan amount.
  • The typical lender does not penalize mortgage applications for progression to an alternative job within the same industry and/or company.

The economy has caused changes in the way people are employed in today’s world. Contractual and part time jobs have become the norm. In many events, applicants with limited time on a new job are still able to evidence a strong work history. When this is supported by verifiable maturity in credit management that is free of defaults on prior loans, most banks will be lineate judgment in the matter.

IRAs, savings accounts, and wise investments also establish borrower creditability. Even when a borrower is weak on employment history, a strong record of sound money decisions can often shift the scales toward a favorable decision. However never mistake, kindness for weakness; when granting credit to any client, all assessors must uphold bank protocols.

Lenders must consider a borrower’s overall financial picture. Supply them with timely and accurate information. Be honest, but careful with word choice. Practice strong work habits. Be thoughtful concerning job changes. Plan for future financial needs. Live within your current means. Such habits will promote a lifestyle that helps satisfy the long-term lending protocols of any bank or mortgage company.

Live in a manner that enables a loan officer to facilitate your transition from dream to home ownership.