Home Loans 101: Understanding loan options

Loan options can be confusing to those new to mortgages, or sometimes even those that have had home loans for years.

Here’s a 101 to get you up to speed on loan types:

1) Basic home loans

Basic home loans or ‘no frills’ loans offer borrowers a loan with a low interest rate. This interest and principal repayment loan can be popular with first home buyers. A basic home loan’s interest rate can be half to one per cent below the standard variable rate, which is sometimes combined with minimal ongoing fees. Potential drawbacks can include limited features, less flexibility, and additional charges if you decide to switch loans or pay the loan off sooner.

2) Fixed-rate home loans

Worried about rising interest rates? A fixed-rate home loan will allow you to fix your interest rate for a specific period, usually from one to five years. It can be a sound option when interest rates are on the rise, or in times of economic uncertainty. Should interest rates plummet, however, you’ll still have to pay off your mortgage at the fixed-rate until the end of the agreed fixed-rate period. Additionally, keep in mind that you may be charged a fee commonly called a break cost or economic cost, should you decide to break your fixed term or switch to another product. You may also be limited in making extra repayments.

3) Standard variable-rate home loans

A popular mainstream choice, standard variable-rate interest and principal home loans allow you to borrow money for a set period of time, during which you make regular repayments. The interest rate can vary depending on fluctuations in the official cash rate, so it is likely to go up or down depending on the market cycle.

4) Split-rate home loans

Want the best of both worlds? A split-rate home loan offers both flexibility and security. A good product for both first time and existing borrowers, split loans allow you to customise your loan’s interest rate as you see fit: fixing a portion of your interest rate to give certainty to your monthly repayments during the fixed-rate term should rates increase, but also flexibility through taking out a variable-rate portion.

5) Interest-only home loans

Interest-only loans offer borrowers lower repayment options, while maintaining many of a traditional loan’s features. This type of loan allows you to pay only the interest component on a mortgage; it does not reduce the principal component. They are a popular choice for investors seeking good capital appreciation on their investments.

6) Low-doc home loans

If you’re self-employed, a contractor or a seasonal worker and do not have a regular income, a low-doc loan may best suit your situation.

 

Different home loan options may or may not suit you depending on your circumstances. It may also be a matter of personal choice, whether you prefer to fix in your rates for certainty, or prefer to stick with the market rate with a standard variable loan.

If you have any questions about loan types don’t hesitate to ask.

 

Want trusted advice on which loan type best suits your needs and circumstances? You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

Six winning strategies for auctions

Auctions are competitive and stressful for most bidders. Here are six smart strategies that could improve your chances of winning.

1. Dont show your hand

Revealing your maximum bid limit to the agent before the auction could encourage them to push you a little further. For example, during the auction the agent might indicate you’re close to meeting the vendor’s expectations, to try to persuade you to bid above your limit. It’s in their interest because they’re usually earning a commission based on the sale price.

2. Ask if the reserve has been met

Bids must reach the vendor’s reserve price before the property is officially ‘on the market’ and then sold to the highest bidder. If the property doesn’t meet the reserve it will be ‘passed in’.

The reserve price is usually set on the day of the auction, or the day before. The auctioneer often doesn’t know the reserve until just before the auction begins, and they don’t have to reveal it to bidders – but you can still ask.

If you discover the reserve, you can wait to bid until it’s reached. This tactic might even persuade the vendor to lower the reserve during the auction if they’re not getting enough bids.

If you’re the highest bidder for a passed-in property, you may be invited to negotiate with the selling agent. Be wary of high-pressure sales tactics here, and remember that cooling-off periods don’t apply to contracts signed on auction day.

3. Ask questions (but know the rules)

You can talk to the auctioneer during the auction to find out information that may be helpful in winning. For example, Consumer Affairs Victoria says you can ask the auctioneer a ‘reasonable’ number of questions, and you can ask them to identify who has made a bid. You can also ask whether the property is ‘on the market’ yet (has it met the reserve price?). Be visible and within earshot of the auctioneer to avoid miscommunication.

Make sure you know the rules, as it’s illegal to disrupt an auction. The auction rules are generally made available at least 30 minutes before the auction, and the auctioneer should also announce the rules before bidding starts.

4. Bid like a pro

Bid with confidence and state the full price to let your rivals know you’re serious. A confident call of ‘$500,500’ (as opposed to a quiet ‘500’) will remind the room of how much is at stake.

You can also try ‘knockout’ bids and offer well above the last bid or the auctioneer’s suggested figure, to intimidate less-confident buyers. If bids are being made quickly you might want to try to slow things down by bidding in smaller increments than the auctioneer suggests.

Pre-auction tip: Ask the selling agent how many people have requested property reports. This will give you an idea of the number of serious bidders.

5. Employ a professional

You can enlist a buyer’s agent (also called a buyer’s advocate) to bid for you. They’ll have no emotional attachment to the property and should only bid what they believe it’s worth (within your limit). They should also have plenty of auction experience and know the tricks of the trade. The Real Estate Buyer’s Agents Association of Australia offers some tips for choosing a buyer’s agent.

You could also ask a friend or family member with auction experience to bid for you. But remember that you’re the one who has to pay, even if they win by exceeding your limit.

6. Be prepared to cut your losses

Accept property reports and legal fees as sunk costs that are part of the auction process. You’re better off spending a few hundred dollars checking a property than bidding hundreds of thousands without doing the pre-auction groundwork. On auction day, if you hit your limit, walk away to avoid temptation.

Auctions can be challenging, especially when there are emotions involved. Sensible, practical strategies can give you the best chance of being the last person standing – or at least stop you from overcommitting – on auction day.

 

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

5 reasons why pre-approval makes things a whole lot easier

Whilst it is not a mandatory requirement for home buyers to seek a pre approval, doing so can make things considerably easier.

So why might that be?

 

1) You get a clear and accurate price range

Whilst you can use a borrowing calculator to work out your approximate buying power, different lenders have different requirements and getting pre approval gives you a far more accurate price range.

 

2) It reduces the financial risks associated with finance ‘falling through’

Home buyers who aren’t able to secure finance by the date of settlement are at risk losing their deposit. Not only is it devastating to not only be going ahead with the purchase, but vendors are within their rights to keep the deposit paid as there is a breach of contract.

 

3) Greater leverage in negotiations

You can also use your pre approval as extra leverage when negotiating with vendors as you are less likely to have to pull out of the contract last minute because you can’t get finance. You will also have a clear ceiling price to work with in negotiations and are less likely to be pushed into paying over your budget.

 

4) It gives you time to look around

Most pre approvals last between three to six months, so you have plenty of time after you’ve received the pre approval to look around for your new home.

 

 5) A faster final approval process

Getting pre-approved means you’re likely to have a faster final approval process too, so you won’t be waiting around to hear from the bank before you can settle your contract and move into your new home.

 

So whilst it isn’t mandatory, we would recommend getting pre approval in writing before beginning the search for your next house as an absolute must. And definitely before any negotiation that might involve signing a contract or paying a deposit.

If you need any more information on pre-approval, feel free to get in touch.

 

 

 

For specialist lending advice, you can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

Navigating your way to your first home loan

Although applying for your first home loan may be the biggest financial decision you’ll make, it doesn’t need to be an overwhelming one. With the right preparation, a realistic understanding of your financial position and some professional guidance, you can position yourself as an attractive first home loan customer and gain approval in no time.

So what should you do?

1) Clean up your credit

Before applying for your first home loan, make sure you are creditworthy in the eyes of a lender by obtaining a copy of your personal credit file (you can get a free copy of your credit report at the veda website). Your credit history will be a key factor that a lender will consider when deciding to process your loan application. If you have a history of credit defaults, be prepared to explain honestly and up-front to the lender why those defaults occurred, how you remedied the situation and how you’ve taken steps to ensure the situation will not repeat itself.

2) Check your financial position

It’s also important to conduct a self-assessment of your financial position. This is to work out the amount you can borrow and the ease with which you’ll be able to manage your repayments. Try creating a spreadsheet of your income, expenses, assets and liabilities. Make sure you are honest with yourself about your everyday living expenses and commitments. Your home loan repayments should equate to no more than a third of your income, give or take your expenses. Then consider the extra costs of buying a home (on top of the purchase price) such as legal fees, lender establishment fees, stamp duty (if no government concession applies) and so on. You may also want to look into the availability of any available government concessions or grants that may help reduce the overall cost. A mortgage broker can help you assess your financial position to ensure the amount you wish to borrow is feasible in your circumstances.

3) Be deposit-ready

Although it’s true that some lenders don’t require a deposit – or require only a minimum deposit – you may want to aim to have a solid 20 per cent deposit saved up. Also factor in the additional costs of buying a home such as conveyancing, stamp duty and removalists. Saving a deposit is a good idea for two reasons:
– A 20 per cent deposit could mean you do not have to pay for Lenders Mortgage Insurance (LMI). LMI is a premium amount that a borrower must pay to the lender when the loan-to-valuation ratio exceeds 80 per cent. Some lenders may make the loan available without having to get this insurance.
– A 20 per cent deposit immediately tells a lender that you are financially disciplined and responsible – attributes that will encourage lenders to look favourably upon your first home loan application.
If you do not have a 20 per cent deposit, don’t despair. Your mortgage broker will provide you with some options to help you find the right loan product. If you need any tips on saving a deposit, check out raising a deposit.

4) Do your research

Finding the right first home loan often entails so much more than just interest rates. You should try to research a range of products and investigate their fine print, including any set-up and break fees, loan structures, flexibility options such as redraw and offsetting, repayment options and guarantees. A good mortgage broker will have expert product knowledge that they can discuss with you to determine what loan would best suit your lifestyle and needs, both now and in the future (for example, when starting a family).

5) Gather your documents

To facilitate a fast assessment of your loan application, it’s helpful to gather recent copies of your pay slips and evidence of any other income. Also, gather copies of your bank account statements and credit card statements. If you’ve been employed for only a short time, try strengthening your application by obtaining letters of reference from your current and previous employers. If you are self-employed, a way to show your monthly income, outgoings and cashflow is by having business invoices and receipts on hand in case the lender requires such evidence of your earnings.

 

It can be easy to get overwhelmed when looking for your first home. Getting in touch as soon as you can with a good mortgage broker who can help position you as an attractive borrower to lenders, can help make things much easier.

 

For specialist lending advice, you can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

 

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

 

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

Why would you use a Mortgage Broker?

Research has revealed that 53% of Australian’s now use a mortgage broker for their lending needs, up from 35% ten years ago. So why are Australian’s increasingly using the services of a broker?

 

1) A choice of lenders

With an extensive panel of lenders (including the major banks), mortgage brokers are able to compare hundreds of loans to find a loan that gives you the best fit for what you need. If you go direct to a bank, they will only show you their lending products. Better choice across the whole market = a better loan and interest rate tailored to your needs. Here is the panel of lenders that we have at Choice Home Loans.

 

2) To save time

With today’s increasingly busy lifestyles you probably don’t have hours to devote to ‘shopping around’ to find the best loan and to go back and forth to a bank. Mortgage brokers are customer service focussed and most will come to you at a time and place that suits you – whether that is at home or work, during or after hours.

 

3) It’s free and could save you money

There is no cost to you for the services of a broker. Brokers get paid commission on loans from lenders, but regardless of whether you go direct to the bank or through a broker, the interest rate and fees to you will be the same. Very often, given brokers knowledge of the lending market and the access they have to special lending deals – using a broker can get you a better interest rate than going direct. Last year our clients who refinanced saved on average $3,800 a year in interest, a huge saving from finding a better rate in the market.

 

4) They are finance experts 

Mortgage brokers are experts in financing options, with an in depth understanding of the overwhelming array of loan options available. Many loans seem to offer a great deal, but they could have penalties, fees and charges you may not be aware of, or they may not offer the flexibility you require in the future. Mortgage brokers ensure that you find the best loan for your specific requirements, now and into the future.

 

5) They are with you for the loan and beyond 

Unlike constantly changing bank staff, Mortgage Brokers are often with you for the life of your loan and beyond. Mortgage Brokers usually own their own businesses and are committed to their clients for the long term, keeping in touch to make sure your loans are still right for you and that circumstances haven’t changed. How often does the bank call to tell you that interest rates have changed and you can get a better deal? Probably not often! But don’t be surprised if this is something your broker does.

 

There are significant advantages to using a mortgage broker. Whether you have an existing loan which needs a health check to see if it’s still the right fit and the best interest rate, or you are in the market for a first or next home, or it’s time to stretch yourself and get an investment loan – it’s a great idea to get in touch with your mortgage broker.

 

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

For specialist lending advice, you can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

 

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.