HOME LOANS

Why Choose A Broker?

Choice

When you’re buying a house, it all comes down to choice. Your realtor didn’t show you one house and say “this is all we have” so why pick a mortgage that way? Mortgage brokers offer a large range of choices.

When you go into a bank, most institutions only have two or three home loan packages. The rates aren’t personalized to your financial situation and most of the time, the terms aren’t well explained. Even the best bank employee can’t give you more choices than their company offers, but mortgage brokers can.

Since they aren’t employed by a specific institution, they aren’t going to push a home loan on you that doesn’t fit. Instead of the two or three choices your bank can offer, a broker will go over 20-30 options with you. They’ve studied all the home loan programs in the area and have the inside scoop on each bank.

Personalisation

The amount of information home loan applications take is crazy. Lenders need to know every last financial detail before they’ll even consider opening their safe. Unfortunately, most average consumers miss something or have red flags in their applications. Without a broker to catch these mistakes, banks would simply throw these applications out (or raise the rate).

A broker, on the other hand, has the expertise to find any glaring or dream-ending mistakes in your application. If there are issues with your history, they can help find the right home loan to work around it.

If the bank has any questions about the application, they’ll get answered faster going through the mortgage broker. Without one, the original mortgage seller would have to call you in, sit you down and go over the discrepancies/questions. A mortgage broker can answer a phone call and get your application back in the running before you could even drive to the bank.

Convenience

We’ve all spent hours pouring over computer screens and googling average APRs. Working with a broker saves you time. Instead of you having to stay bent over your screen, a broker shows you suitable, personalized options. Once you’ve decided on a program, they handle the paperwork along the way.

There’s no need for you to get all dressed up for interactions and meetings with lenders, your broker can do that. They already have relationships with banks and work on your behalf. With a broker your home loan will get approved faster and save you time.

Return on Investment

Some people are under the impression that working with mortgage brokers is more expensive than taking out a bank loan. They are mistaken. The amount of choices brokers can offer will more than pay for their services down the road.

Say you bought a house and used your local bank’s one-size-fits-all rate. Your rate is *8.9 APR. You don’t pay the bank employee commission at first, but if the rate a broker might have offered you was *6.9. Over a thirty-year mortgage term, that extra APR percentage will have cost you more than hiring a mortgage broker.

*These are examples. Rates depend on listing price and credit eligibility.

Closing the Deal

Even with the option of mortgage brokers, some homeowners still choose to blindly go through their bank. It seems easier at the time, but the convenience will cost them hard earned money down the road. When you’re financing your dream house, do something good for your future self and let a broker find the right home loan for you.

First Home Buyers

While buying your first home should be one of the most exciting moments in your life, it can quite quickly become a stressful experience, with constant questions running through your head, like:

• where and what can I buy?

• how much deposit will I need?

• how much can I borrow?

• who should I borrow from?

• what are all the other costs involved?

• how can I repay my mortgage quickly, and

• what other decisions do I need to make during this process?

Our Alchemy Finance brokers will help ease the stress and guide you through the entire process to ensure that all your needs and options are considered. We professionally manage this exciting time of your life to reduce the time and stress throughout the purchase, ensuring the process remains as it should be; exciting!

If you are researching your finance options, everyone will be advertising “the best deal”. But what they may omit to tell you about are the hidden costs, or just as importantly how to structure your finance to suit your ongoing and future needs.

With access to a variety of lenders, we can guide your decision to ensure you receive the best outcome for your situation.

How Much Can I Borrow?

The total amount you can borrow depends on two things:
What you are buying and how much money you have left after accounting for all fixed commitments from your net income.

Your borrowing capacity will be determined by combining your income and outgoings to be sure you can comfortably handle your home loan repayments. As a general rule, mortgage repayments should total less than one third of your income.

Use our Borrowing Power Calculator to estimate how much you can borrow.

What Deposit Will I Need?

The size of your purchase deposit is very important for several reasons. The more you put as a deposit, the less you will have to borrow, the lower your repayments, and the less you will have to pay over the lifespan of your loan. 

Most lenders require a 10% deposit, as well as a history of savings, however if you are borrowing more than 80% of the purchase price a mortgage insurance payment will most likely be necessary. 

Contact an Alchemy Finance broker, and together, we will look at your personal circumstances and work to determine your deposit requirements.

Deposit Bonds

A deposit bond is a guarantee by an insurance company to the vendor that they will receive their 10% deposit, even if the purchaser defaults on the contract of the sale. 

You, the purchaser, provide this guarantee by paying a small premium to the insurance company. This deposit bond allows a deposit to be paid without using cash from their own accounts, with no money changing hands until the settlement. 

Once settled, the purchase price is paid in full, and the bond simply lapses.

Buying With Someone Else?

A tenants-in-common arrangement is the most common way to buy a property between two or more people who aren’t married, or in a de-facto relationship. This method allows the property ownership to be split in any way. It can be divided equally, or in other proportions.

This also means your share of the property can be left to a person of choice when you die, as opposed to the interest passing automatically to the other owner under a joint tenant agreement. 

This shared property ownership only works under strict rules, and with a tight contract in place. All aspects of the agreement must be in writing, and a legal representative should be consulted. It is of utmost importance that the following two points are covered: what happens if one owner wants to sell their share, and what happens if an owner cannot meet the repayments.

Stamp Duty

Payable stamp duty varies from state to state. 

This amount will be advised to you by your conveyancer/legal representative, or you can check your state’s website:

ACT

www.revenue.act.gov.au

NSW

www.osr.new.gov.au

NT

www.revenue.nt.gov.au

QLD

www.osr.qld.gov.au

SA

www.revenuesa.sa.gov.au

TAS

www.treasury.tas.gov.au

VIC

www.sro.vic.gov.au

WA

www.dtf.wa.gov.au

Insurances

Mortgage Protection and Lender’s Mortgage Insurance

Both Mortgage Protection and Lender’s Mortgage Insurance (LMI) are for two different situations.

The former, mortgage protection, is insurance paid to support you in case you become involuntarily unemployed, or are unable to work due to illness of disability. As your mortgage is likely to be the biggest financial decision made in your life, it makes sense to ensure that even through unforeseen circumstances, you can continue to meet your financial commitments.

Lender’s mortgage insurance protects the lender in the event that you default on your repayments. It is usually required when your deposit is below 20% of the purchase price of the property.

Home and Content Insurance

Home and Content Insurance covers both partial and total loss of your home, as well as any damage or loss incurred from adverse events, such as fire, water damage, etc. Without, you may be left to foot the bill for necessary, and often expensive repairs to your home, or when replacing valuables. While Home and Content policies can be purchased separately, it is often simpler and more cost-effective to combine them under one package.

Income Protection

In the event of sickness, or injury, Income Protection is designed to reimburse you a predetermined percentage of your monthly income (typically 75%) should you becoming unable to work. This insurance will ensure you can manage your financial obligations, maintain your lifestyle, and protect your family and home while you’re unable to work.

Life Insurance

A lump sum payment provided to your beneficiaries in the event of your death, life insurance will help your family manage their future without your ongoing earning capacity. With various levels of cover, life insurance can be tailored to fit your priorities.

Total and Permanent Disability (TPD)

Provided you can no longer work, or in the event that you die due to illness or accident, you can opt to cover yourself for total and permanent disability, or death options. When combined with life insurance, security can be provided for you and your family for the rest of your life.

Choosing The Right Home Loan

There are various types of home loans on the market, all offering differing rates and features. It is important to understand the benefits of each in order to make an educated decision on which path to take. Our Alchemy Finance brokers will guide you through your options to find the solution that suits your needs.

Below are a few of the different types of loans on offer to help get you started:

Honeymoon Loans

With lower repayments for the first six to twelve months, a honeymoon loan’s payments increase to a standard variable loan after this period. It is important to ensure the increased payments can be met following the initial period. You could also be faced with a fee following the end of the honeymoon period to switch to another loan type, or a rate that is not as competitive as other in the market.

Basic or “No Frills” Loans

A variable loan rate with a relatively low interest rate. Repayments will rise and fall with fluctuations in interest rates. With no extra options available, the low rates for these loans couldn’t mean that you can repay the loan faster. Keep in mind to check the loan conditions – particularly your ability to make additional repayments, and pay-out without a penalty, to ensure they suit your circumstances.

Standard Variable Rate Loans

The most common type of loan available, repayments with a standard variable loan with fluctuate with interest rates. This loan offers more flexibility than the basic or “no frills” loan, such as a redraw facility, the option to split between fixed and variable, extra repayments and portability. These extra options should be taken into consideration when choose your type of variable loan.

Fixed Rate Loans

These loans have a set fixed interest rate for the specified period – usually one to five years. With advantages such as allowing you to organise finances and repayments without the risk of rising interest rates, this is offset by not benefitting from a drop in rates. Following the end of the term, all fixed loans automatically revert to the applicable variable rate. At this stage, you have the option to lock into another fixed rate for a new term, switch to variable, or go for a loan wherein you split with a percentage fixed and the remainder variable. These loans may have limited features, as well as lack the flexibility of 100% variable loans. There may also be early exit fees and limited ability to make extra payments.

Equity Line of Credit Loans

Using the equity in your home for things such as home renovations, investments or other personal purchases, repayments for this type of loan are determined by the interest rate applicable at the time. If you have sufficient equity, you will need to make a separate application for a line of credit loan. An added advantage of this loan is the ability to make unlimited repayments as these are not set. It is important to check the conditions of these loans as they are sometimes more expensive than standard products.

Professional Home Loan Packages

These loans are offered to provide an all-in-one package. It offers interest rate and fee savings on your home loan, credit card and transaction accounts and some lenders will waive annual fees. Annual fees ranging from $120 to $395 is usually application on these loans.

Some professional packages also offer increased flexibility, with some banks willing to waive product switching fees when changing from a variable to a fixed rate, or converting a principal and interest type loan, to an interest only loan.

Bridging Loans

This loan may be necessary when buying one property before the existing one is sold. A bridging loan covers a financial gap, and is generally secured against your property as you are utilising equity in your existing property. These loans are usually short term and more expensive than other types of loans.

Applying For A Loan

When approaching a lender for the first time, identification will be the first priority. When applying for a home loan, you’ll need identification up to the value of 100 points. A driver’s license is worth 40 points, a credit card can earn 25 points, and a birth certificate up to 70 points. Of these, only original documents qualify.

Through the application process, your lender will want to ascertain your:

• Capacity to repay,
• Financial risk,
• Collateral, and
• Existing assets.

You will also be asked:

• If you have dependent children,
• How long you have lived at your current address,
• What you owe and own,
• Your personal insurances, and
• Your credit card details.

It is advisable you have:

• Your two most recent payslips,
• Group certificates from the past two years, and
• Documentation from your employer detailing income and length of employment.

If self-employed, applications should provide the past two years of tax returns, or financial statements and accountants’ details. Some institutions may even request for a profit and loss statement certified by a registered accountant.

Also needed are:

• Savings details,
• Bank statements including transaction, savings or passbook accounts,
• Investment papers including managed funds or term deposits,
• What you owe and own, details of personal loans, credit cards or charge cards, and
• Tax liability if self-employed

Approximate value of assets such as furniture and jewellery, as well as life insurance policies and superannuation should also be included.

Loan Approval

Before you make any offers, it is best to have your loan pre-approved. This will allow you to focus more on a price-range and give your full attention to the purchase. Remember that a vendor may also accept a lower than advertised price knowing that your finance is organised. They may want a quick and hassle free sale.

Once formally approved, we arrange mortgage documents for you to sign. We will also go through the contract to ensure you understand its contents.

Step By Step Guide To Purchase

Step 1 – Pre-approved Loan

With the confidence to make a calculated offer, knowing how much you have for the deposit on your property of choice is essential.

Step 2 – Right Home, Right Location

Researching your chosen suburb by checking all advertised listings in newspaper, the internet and real estate agents will allow you to know the prices of comparable properties. By visiting open houses and attending auctions, you can be more informed of the realistic value of a property, and if it fits your families growing needs.

Step 3 – Making an Offer

For properties sold by private treaty, you will need to make an offer to the real estate agent. Organise for your conveyancer/legal representative to check the contract of sale once obtained.

Properties being auctioned are frequently open to offers prior to the auction date. However, if sold at auction you will usually be required to pay the deposit of 10% immediately. For an auctioned property, the contract is unconditional and no cooling off period applies. Make sure your conveyancer/legal representative has checked the contract and organised pest and building inspections before bidding at an auction.

Step 4 – Legal Representative/Conveyancer

The real estate agent will provide the copy of the contract for sale, which must then be given to your conveyancer for advice and checking. Your cooling off rights will be advised (these vary from state to state). Once signed by both parties, the contracts are legally binding. Indicated on the contract will be when the deposit must be paid. If no pest and building inspections have been carried out, it is advisable that they are ordered by your representative.

Step 5 – Final Loan Approval

We will organise for all loan documents for the balance of the purchase price to be prepared and signed.

Step 6 – Insurance

You will be required to organise building insurance by your lender.

Step 7 – Final Inspections

Just prior to the settlement date, arrange for a final inspection with the real estate agent. Ensure all inclusions on the contract for the sale are in working order. Check light switches, power points, air conditioners, exhaust fans, hot water, swimming pool equipment and security systems and request copies of all manuals for stoves, dishwashers, etc.

Step 8 – Settlement

Your conveyancer will attend to settlement. It is on this day that the balance of the purchase price is paid to the vendor. Stamp duty and lenders mortgage insurance (if applicable) will also have to be paid. You can collect the keys for your new home from the real estate agent once settlement has been advised.

If something goes wrong…

If you have signed a contract to buy a house, it may be a costly exercise to withdraw, even if you have not reached a settlement. If the cooling off period has passed, the contract is legally binding. To get out of the contract, you are potentially liable to pay compensation to the vendor. This is usually based on the amount it would take to re-sell the house, including any loss on the subsequent sale. Remember to read your contract carefully to be fully aware of the consequences of defaulting on the contract. If you do not wish to proceed with a contract, seek independent legal advice as soon as possible.

How To Repay Your Mortgage Sooner

Make Extra Repayments

For home buyers, the most common mortgage requires both principal and interest payments. On a typical 25-year mortgage, the first five to eight years are when you’re primarily paying off interest, so anything extra paid will help shorten the lifespan of your loan and cut your interest bill. Make extra payments as early as possible as these loans are interest-heavy upfront, so the faster you repay the better.

Consider the frequency with which you make repayments to reduce interest, such as weekly or fortnightly.

Mortgage Offset Account

A mortgage offset account can save interest on your loan. Your mortgage is linked to a savings account into which your salary and other cash can be deposited and from which you withdraw to pay bills, credit cards, etc. For the period of time money sits in this account, it is ‘offset’ against your loan and so reduces your interest bill.

Make an Annual Lump Sum Payment

Utilise a windfall, such as an inheritance or work bonus, as well as tax refunds, and apply it directly to your principal. Check your mortgage document to find out how often you can repay and in what amount.

Prepay a little every month

Get a copy of your loan amortisation schedule which will show the breakdown of interest and principal. If you’re making a payment for November, for example, look at the next line down on the principal reduction line and you will see that the principal reduction for the next month, December, is say $24. Making that $24 payment early, means that your “true” mortgage balance is one payment less after the principal is prepaid. So in essence, you’d be making an extra payment each year.