Types of Mortgages: Which One is Right for You?

In Australia, there are several types of mortgages available, and choosing the right one depends on your financial situation, goals, and preferences. Here are some of the most common types of mortgages:

  1. Variable rate mortgage: This is a type of mortgage where the interest rate can change over time based on market conditions. Variable rate mortgages typically have lower interest rates than fixed-rate mortgages, but the rate can go up or down over time. Variable rate mortgages are popular with homebuyers who want flexibility and the potential for lower interest rates.
  2. Fixed rate mortgage: This is a type of mortgage where the interest rate stays the same for the entire term of the loan. This makes budgeting easier, as your monthly payment will not change. Fixed-rate mortgages are popular with homebuyers who want certainty and stability in their mortgage payments.
  3. Split rate mortgage: This is a type of mortgage where part of the loan is on a fixed rate and part is on a variable rate. This provides some of the stability of a fixed-rate mortgage and some of the flexibility of a variable rate mortgage.
  4. Interest-only mortgage: This is a type of mortgage where you only pay the interest on the loan for a set period of time, typically 5 to 10 years. After that, you start paying down the principal. Interest-only mortgages are popular with investors who want to maximize their cash flow and tax deductions.
  5. Line of credit mortgage: This is a type of mortgage that allows you to access the equity in your home as a line of credit. You can use this line of credit to fund home renovations, investments, or other expenses. Line of credit mortgages are popular with homeowners who want flexibility and the ability to access their home equity.

When choosing a mortgage, it’s important to do your research, compare offers from different lenders, and work with a trusted mortgage professional who can help you understand your options and choose the right mortgage for your needs. Additionally, it’s important to consider factors such as interest rates, fees, loan features, and repayment terms.

How to Get Pre-Approved for a Mortgage

Getting pre-approved for a mortgage is an important step in the homebuying process. Here are the steps to get pre-approved for a mortgage in Australia:

  1. Check your credit score: Your credit score is an important factor in getting pre-approved for a mortgage. Check your credit score and report to ensure they are accurate and up-to-date.
  2. Gather financial documents: Lenders will require you to provide documentation of your income, assets, and debts. Gather documents such as pay stubs, bank statements, tax returns, and any other relevant financial documents.
  3. Research lenders: Research different lenders to find one that offers the type of mortgage that best fits your needs. Compare interest rates, fees, and loan features.
  4. Complete a pre-approval application: Once you’ve chosen a lender, complete a pre-approval application. This will require you to provide personal and financial information, such as your income, assets, and debts.
  5. Wait for the lender’s decision: The lender will review your application and make a decision on whether to pre-approve you for a mortgage. This typically takes a few days.
  6. Receive your pre-approval letter: If you are pre-approved, the lender will provide you with a pre-approval letter. This letter will state the maximum amount you are pre-approved to borrow and the terms of the loan.

Getting pre-approved for a mortgage can give you an advantage in the homebuying process. It shows sellers that you are a serious buyer and can help you determine your budget for house hunting. Keep in mind that pre-approval is not a guarantee of a loan, and you will still need to complete a full loan application and meet the lender’s requirements to obtain a mortgage.

Mortgage 101: An Introduction to Mortgages

A mortgage is a type of loan that is used to purchase a property, typically a home. The borrower (also known as the mortgagor) makes regular payments to the lender (also known as the mortgagee) over a set period of time, usually 15 to 30 years.

Here are some key concepts to understand when it comes to mortgages:

  1. Down payment: This is the amount of money the borrower puts down upfront when purchasing a home. It is usually a percentage of the total purchase price, with 20% being a common amount.
  2. Interest rate: This is the percentage of the loan amount that the borrower pays to the lender as a fee for borrowing the money. It can be fixed (meaning it stays the same over the life of the loan) or variable (meaning it can change over time).
  3. Amortization: This is the process of paying off the mortgage over time through regular payments. Each payment includes both principal (the amount borrowed) and interest.
  4. Loan term: This is the length of time over which the mortgage is paid off. Common terms are 15 or 30 years.
  5. Settlement costs: These are fees associated with the purchase of a home, such as settlement fees, title search fees, and legal fees. They typically range from $300 to $500.
  6. Lender Mortgage Insurance (LMI): If the borrower puts down less than 20% of the purchase price, they may be required to pay for LMI, which is insurance that protects the lender in case the borrower defaults on the loan.

When shopping for a mortgage, it’s important to compare offers from different lenders and consider factors such as the interest rate, loan term, and closing costs. It’s also important to have a good understanding of your own financial situation, including your income, expenses, and credit score.

RBA Update – October 2021

The Reserve Bank of Australia (RBA) has kept the cash rate at a record-low 0.10%

The Reserve Bank of Australia (RBA) has kept the cash rate at a record-low 0.10%, as the overwhelming majority of commentators expected.
 
Throughout this year, the RBA has said repeatedly it will not increase the cash rate until underlying inflation is within the 2–3% target range.
 
The RBA said this is unlikely to happen until 2024, because for inflation to rise, wages growth will first need to pick up from its current sluggish rate.
RBA October Statement
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5 simple steps to home loan approval

1. Pre-qualify

The principal aspect you need to know before you begin searching for a house is the amount you can spend. There is no point taking a gander at million-dollar houses on whereas you can just bear the cost of half of it.

Get an estimate of your borrowing power with our free calculator.

CALCULATE NOW
 

That is the reason the initial phase in our home loan approval process is to apply for a no-commitment pre-qualification. Essentially enter some basic information into our pre-qualify form and get a quick gauge of the amount you might be eligible to borrow.

It’s important to note prequalifying for a loan is not the same as approval. This figure is based on the information you submit. Credit checks and property valuations still need to be performed before you are granted formal approval.

Please taking note that being prequalified for a loan is different to approval. This figure depends on the data you submit. Credit checks and property valuations have to be performed before you are granted formal approval.

Complete our online form for an instant,
obligation-free, pre-qualification assessment

 

PRE-QUALIFY

2. Application

You may apply for a mortgage either before or after you make an offer on a new house. Without a signed contract of sale, an application will proceed to the conditional approval stage, but formal approval will not be given until the contract of sale is issued and all conditions are met.

Documentation to check your identification, wages, expenditures, properties, and liabilities must be submitted with application forms. Your lending specialist will tell you exactly which documents we need, but they usually contain the following:

Evidence of income

  • PAYG: Recent payslips & employment letter or your tax assessment notices for the last 2 years.
  • Self-Employed: Proof of both your own and your business’s earnings.

Details of assets & liabilities

  • We’ll need information on your assets and liabilities, as well as your living expenses. Your loan professional will be able to tell you which documents to send once again.

Identification documents

Signed contract of sale

We’ll run loan serviceability and credit tests once we’ve received your application and all supporting documents to see whether you can easily afford to repay the sum you’ve applied for.

 

3. Conditional approval

If you submitted your application without first finding a home, you now have 90 days to find a new home before the conditional approval expires and you must reapply. Notice that conditional approval is not a guarantee; it is contingent on the purchasing property passing inspection.

We will order a formal valuation of the property if you have already provided us with a signed property contract. The appraisal is performed on-site to determine if the property is appropriate for mortgage financing. A report detailing the property’s value as well as any related risk factors will be sent to us. The final value provided by equivalent sales in the region and the property’s condition.

You will be expected to pay a lender’s mortgage insurance (LMI) premium if you have applied to borrow more than 80% of the property’s value. Before moving to formal acceptance, the application must be accepted for LMI.

 

4. Formal approval

Your home loan will become unconditional after all conditions have been met, and formal approval will be given. If the selling contract includes a financing clause, formal approval means you are now committed to buying the house.

Your home loan will become unconditional after all conditions are met, and you will receive formal approval. If the selling contract includes a financing clause, formal approval means you’ve decided to buy the house.

 

5. Settlement

So Money will pay the property’s provider the final settlement payments, and you will be told when this happens. At this point, you should schedule a time to pick up the keys to your new home with the real estate agent.

Our lending experts are available to assist you in the process and answer any questions you might have.