There is something very special about moving into a newly built home or putting the finishing touches on a major renovation. Maybe it is the look and feel of new paint and fresh flooring, or just knowing you have kicked a worthwhile goal.
Whatever the motivation, plenty of Australians are rolling up their sleeves, with the value of building approvals jumping 14.7% from December 2023 to January 2024. Meanwhile, on the renovation front, we are not just pimping our pads for looks and lifestyle. Almost half the home renovations carried out in 2023 were designed with a ‘green’ focus to improve energy efficiency, according to Houzz Research.
The upshot is that planning a new build or renovation can be exciting and rewarding. But long before you kick back and enjoy it, you may need to decide how to pay for it all. And a constriction loan could be the right tool for the job.
How do construction loans work?
Construction loans work a bit differently from regular home loans. Instead of receiving a lump sum from the lender, which is usually the case with a traditional home loan, a construction loan drop feeds funds in line with various stages of the project.
If you are building a new home, a lender will typically make progress payments across give main stages:
Laying the slap
Erecting the frame
Reaching lock-up
Fitting out the home, and
Completion of construction.
This arrangement can offer valuable advantages.
For starters, paying out smaller sums during the construction period may provide a level of protection for the borrower against a building being paid for work that is not completed. In addition, while the project is underway, the loan interest is only calculated on the funds drawn down, not on the final total value of the loan.
During the constriction period, you will generally be asked to make interest-only payments. This can be a lot kinder on your budget than principal plus interest payments, especially if you are renting while builders are at work.
What to watch for with construction loans
Building projects do not last forever, and neither do construction loans. When your home or renovation is complete, your construction loan will typically roll into a regular home loan.
It can all sound very simple, and usually it is. However, a key challenge with construction loans is that they are not offered by every lender.
It is important to speak to us at an early stage. We can help you identify lenders with construction loan options that meet your needs and budget, plus guide you through the application process. Our support can save you time and leave you free to focus on the project.
If you are looking to build or renovate, talk to us about your funding options and we will aim to help you get the ball rolling on your construction project sooner.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
Do you need a home loan in a hurry? You could be in luck. Plenty of lenders are keen to crunch loan approval times, but there is a lot of borrowers can do to potentially speed up the process too.
Finding a home to buy can take time, and when the right place comes along it can feel as though you need to sign the sale contract fast to stake your claim. But from there, you are going to need a home loan, and that’s where timing becomes critical.
The good news for home loan applicants is that average turnaround times have reached new record speeds at some of the bigger banks, while processing periods for smaller lenders have also reduced, according to the latest Broker Pulse Survey. But don’t let that lull you into a sense of complacency.
It is important to have your loan ready to go to by settlement, usually six weeks after you have signed and exchanged congrats (however this period of time can potentially be negotiated with the seller). Otherwise, if you don’t have finance sorted by settlement date, the seller may be able to charge interest and penalty fees.
So, there can be a lot riding on getting your home loan approved in a timely fashion.
The general rule for loan approval times
How soon your home loan can be arranged often varies between lenders. Some lenders boldly claim that it can take as little as an hour, but that is not usually the case.
To play it safe, allow about four to six weeks from the time you submit your application to have the funds available.
But if you require funds sooner than that, then it could be a matter of us helping you line up a lender with quicker turnaround times (and then having us hassle them a bit for good measure).
What is usually more important is that you focus on the home loan that matches your needs, rather than racing in for a mortgage that can be arranged in record time.
5 ways to help speed up the home loan process
Borrowers can do plenty to try and speed up the loan process. Here are five steps you can take to help keep application and approval times tight:
1. Talk to us first
We can explain your borrowing power, let you know how big a deposit you may need, and check if your finances are in the shape it takes to get the green light from lenders. We also have access to resources that estimate how long approval times currently are with potential lenders.
2. Get your paperwork together
Gather all the documents a lender is likely to ask for, including copies of payslips, birth certificates and other ID, plus bank account statements for the past 36 months. If you are unsure, this is a step we can help you with.
3. Try and hold off on any major changes
Big life changes, such as starting a new job or business just before you apply for a loan, can leave lenders asking questions. Try to maintain your budget – your usual spending/saving patterns – and your current job, to avoid a ‘please explain’ from lenders, which could delay the loan approval.
4. Double-check that you have completed the application accurately
Any mistakes on your application form can see the paperwork returned to you for corrections, putting the brakes on the whole process. Once again, we can help minimise any potential discrepancies in your application.
5. Ask us about loan pre-approval
Waiting until you have paid a deposit to apply for a mortgage can be a high-stakes high-stress strategy. Loan pre-approval is a way to help you speed up the loan application process while also potentially boosting your bargaining power with vendors.
Call us today for more tips on getting your loan across the line, we would love to help you move into your new home sooner!
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
It is commonly known that the bigger your deposit, the smaller your home loan and therefore the lower your monthly repayments. Today we will investigate another way your deposit size could reduce your repayments: by potentially reducing your interest rate.
A question we are commonly asked is “How can I get a lower interest rate?”
There is no straightforward answer to this one as it usually depends on a myriad of factors, including whether lenders see you as high risk or low risk, the competition in the market at the time and how big your deposit is, or more technically, your ‘loan to value’ (LVR) ratio.
What is LVR?
LVR refers to how much of your home’s value you are borrowing.
If you plan to buy a home priced at $600,000 using a deposit of $120,000, you will need to borrow $480,000 or 80% of the property’s value. For lenders, this means you will have an LVR of 80%.
Why does this matter? Well, a bigger deposit lowers your LVR. This in turn helps reduce the risk you represent to a lender. A loan with an LVR of 80% may be seen as less risky than one with an LVR of 90%.
As a general rule, lenders tend to reward borrowers for that reduction in risk with a lower home loan interest rate.
But note: these figures do not include stamp duty and other up-front costs, which you may also need to budget for.
Average interest rates by LVR
Mozo checked out the average variable rates for different LVRs. As you can see below, for home loans with an LVR of 95%, meaning a 5% deposit, the average variable rate is about 7.38%. Borrowers who can pull together a slightly bigger deposit may see their rate fall. As a guide, on an LVR of 90% (deposit of 10%), the average variable rate falls to 7.13%. That is a potential rate raving of 0.25%. This may not sound like much, but along with lowering your monthly repayments, a lower rate could mean paying less interest charges over the life of your loan.
LVR 95%: average variable rate of 7.38% p.a.
LVR 90%: average variable rate of 7.13% p.a.
LVR 80%: average variable rate of 6.85% p.a.
LVR 70%: average variable rate of 6.81% p.a.
LVR 60%: average variable rate of 6.77% p.a.
How your LVR can see you save in other ways
Your LVR doesn’t just shape the rate you are likely to pay.
If you have a small deposit, usually less than 20%, you could be asked to pay lenders mortgage insurance (LMI). This type of cover protects the lender if you can’t keep up your loan repayments. LMI can be a substantial up-front cost.
There are options for first-home buyers with a small deposit to avoid this expense. For example, the First Home Guarantee Scheme allows eligible buyers to purchase a first home with just a 5% deposit and no LMI.
What if I am refinancing my home loan?
If you are refinancing your mortgage, your LVR will be shaped by home equity. The same basic rule applies. The more equity you have in your place, the smaller the loan you may need. This may help lenders see you as a lower risk (all other things being equal), so chances are you may be offered a lower rate.
How can we help?
With so many loans and lenders to choose from, home loan interest rates can vary widely, and your deposit or home equity can play a role in the rate you pay. But a variety of other factors come into play also.
That is why it is important to speak to us if you are buying a first home, your next home, or refinancing. We can help you find a home loan that’s suited to your needs at a competitive rate in line with your LVR and any other contributing factors.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
Mortgage brokers have notched up a new personal best, with seven out of every 10 new mortgages settled thanks to their help! This is a sure sign that mortgage brokers are delivering the goods when it comes to helping Australians move into their dream homes.
According to the latest data from the MFAA, in the nine months to 31 March 2023 (whilst interest rates were rising), mortgage brokers helped settle more than 70% of all new residential home loans.
It is the first time ever that brokers have helped settle more than 70% of home loans over a three-month-plus period. For context, just two years earlier, brokers were helping settle between 50-60% of new home loans.
Why are more Australian home buyers turning to mortgage brokers?
For starters, it looks like word is getting out about how much help we can provide when it comes to giving an informed choice with your home loan. And in this environment of higher interest rates, it is important to be sure your home loan offers value.
With a wide network of lenders, including big banks, small banks and non-banks, brokers are well-placed to help you choose the loan that is right for you.
It does not end there. Here are five more reasons why Australians are turning to brokers for help…
1. Brokers to the legwork
There are hundreds of home loans to choose from, but who has got the time to find a loan that suits your needs? Your broker does!
Better still, your broker does a lot of the legwork, sorting the paperwork and supporting your loan application right through to settlement. This lets you sit back, relax and focus on moving into your new home.
2. Brokers are flexible
You are busy, right? That is why brokers offer flexible appointment times. What to chat after hours? No problem. Prefer to chat online rather than face-to-face? Can do.
It may seem like a minor benefit, but the flexibility brokers offer is a big deal when you are flat out with work, family, or just busy house hunting.
3. Brokers provide tailored facts
Brokers provide clear details to help you make informed decisions. From your borrowing power, to how much of a deposit you really need, and what your loan repayments will be under various scenarios, we will crunch the numbers based on your unique situation. It takes the guesswork out of buying a home and lets you plan ahead.
4. There are no additional costs and a best interests duty
It often comes as a surprise that a broker’s home loan help comes at no cost to their clients. That is because brokers are paid a commission by lenders.
Unlike the banks, we are (happily) bound by a best interests duty which means we will always put your best interests first.
So, while banks and digital lenders might try to tempt you with cashback offers for loan products that may not really be in your best interests (due to fees, high interest rates, and other undesirable loan terms), we will only ever match you up with lenders and loans that are in your best interests.
5. Brokers keep working for you over the long term
Chances are that you will have your home loan for quite a few years. We will be with you along the way to help make sure your home loan continues to be the right option for you, no matter how your life changes.
Call us today to see why more Australians than ever are partnering with a broker.
FAQ
A: Mortgage brokers have achieved a new milestone by helping settle over 70% of all new residential home loans in the nine months leading up to 31 March 2023.
A: Australians are increasingly seeking the expertise of mortgage brokers due to their ability to provide informed choices, especially in an environment of rising interest rates, ensuring home loans offer value.
A: Brokers assist in finding a loan that suits the buyer’s needs, handle the legwork of sorting paperwork, and support the loan application through to settlement, allowing buyers to focus on moving into their new homes.
A: Brokers offer flexible appointment times and are willing to communicate through various means, including after-hours chats and online consultations, accommodating the busy schedules of their clients.
A: Brokers provide clear, tailored information based on the client’s unique situation, including details about borrowing power, deposit requirements, and loan repayment scenarios under various conditions.
A: Surprisingly to many, a broker’s home loan assistance typically comes at no cost to the client, as brokers are paid a commission by the lenders.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilizes her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
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Shifting Tides in Mortgage Brokering: Beyond the Big 4 Banks
In the ever-evolving landscape of the mortgage market, one of the most significant challenges facing borrowers today is the extended turnaround times for home loan processing. Understanding and adapting to these delays is crucial for a successful home loan strategy.
Current State of Home Loan Turnaround Times
Recent trends indicate a noticeable increase in the time it takes for lenders to process and approve home loans. Factors contributing to these longer turnaround times include heightened demand for mortgages, operational constraints among lenders, and the evolving role of technology in the lending process.
Impact on Homebuyers and the Property Market
Longer turnaround times are creating a ripple effect in the property market. For homebuyers, this means navigating a landscape where securing a property purchase quickly can be challenging. The delays can also contribute to heightened competition and pressure in the property market, potentially affecting property prices.
Navigating Challenges in Property Investment
Strategic Property Investment: Longer turnaround times emphasize the need for strategic property investment. Professionals guide homebuyers in identifying opportunities, ensuring informed decisions in a competitive market.
Market Dynamics and Competition: Understand market dynamics through property investment insights. Professionals provide valuable perspectives on competition, enabling buyers to make well-informed and timely decisions.
Price Trends and Property Values: Property investment experts offer insights into price trends. This aids homebuyers in navigating a market influenced by delays, supporting strategic decision-making.
Mitigating Challenges Through Property Investment Strategies
Investment-Driven Decision-Making: Embrace investment-driven decision-making in property purchases. Professionals can advise on aligning homebuying strategies with broader property investment goals for optimal outcomes.
Timing and Opportunity Identification: Property investment specialists assist in timing decisions and identifying opportunities. This involves leveraging delays to secure properties with growth potential and favorable pricing.
Risk Management in Property Acquisition: Property investment experts guide in managing risks associated with delays, assessing the impact on property prices and developing strategies to mitigate risks.
Strategic Purchase Planning: Incorporate strategic planning into property purchases. Professionals help devise plans that consider longer turnaround times, ensuring homebuyers can still make advantageous property investments despite market pressures.
Adapting Investment Goals: Property investment professionals assist in adapting goals to current market conditions. This involves aligning investment objectives with the evolving landscape to optimize outcomes in property acquisition.
Property Portfolio Optimization: Optimize property portfolios through informed investment strategies. Professionals guide in making adjustments based on market pressures, ensuring a well-balanced and resilient property investment portfolio.
Navigating the New Lending Landscape
Prospective homebuyers need to be prepared for these extended processing periods. Key steps include:
Financial Preparedness: Ensure your finances are in order, with a clear understanding of your borrowing capacity.
Understanding Lender Requirements: Familiarize yourself with different lenders’ criteria to streamline the application process.
Considering Pre-Approval: Obtaining pre-approval can give you a clearer idea of your budget and make you a more attractive buyer.
The Role of Technology in Streamlining Processes
Technology is playing an increasingly important role in the mortgage application process. Innovative digital solutions are being employed by lenders to streamline applications, though the full integration of these technologies is still a work in progress.
Working with Mortgage Brokers
In times of extended loan processing, the expertise of mortgage brokers becomes invaluable. They can guide you through the complexities of the application process, manage paperwork, and keep you updated on the status of your application.
Preparing for Future Market Changes
The mortgage market is dynamic, and turnaround times can fluctuate based on various factors. Staying informed about market trends and being flexible in your home loan strategy can help you navigate these changes effectively.
Longer home loan turnaround times require borrowers to be more proactive and strategic in their approach to securing a mortgage. By understanding the current landscape and preparing accordingly, you can enhance your chances of success in the competitive property market.
FAQ
A: Recent trends indicate a noticeable increase in the time it takes for lenders to process and approve home loans, influenced by factors like heightened demand for mortgages, operational constraints among lenders, and the evolving role of technology in the lending process.
A: Longer turnaround times are creating challenges in the property market, making it difficult for homebuyers to secure property purchases quickly and contributing to increased competition and pressure, potentially affecting property prices.
A: Homebuyers are advised to engage in strategic property investment, understand market dynamics, and gain insights into price trends and property values to make informed decisions in a competitive market.
A: By embracing investment-driven decision-making, timing decisions effectively, and managing risks associated with delays, homebuyers can mitigate challenges and capitalize on opportunities.
A: Technology is increasingly important in the mortgage application process, with lenders employing innovative digital solutions to streamline applications. However, the full integration of these technologies is still in progress.
A: Mortgage brokers can guide homebuyers through the complexities of the application process, manage paperwork, and keep clients updated on the status of their applications, making their expertise invaluable during extended loan processing times.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilizes her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
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Navigating the Path to Your Ideal Australian Home Loan .
Homeowners have been battling rising interest rates for over a year and a half now, but a new report reveals the important step some savvy borrowers are taking to rein in higher rates.
It is no secret that refinancing has the potential to slice a big chunk off your monthly loan repayment. According to Canstar, 1 in 10 mortgage holders chased a better deal in 2023 and switched to a new lender to save on their repayments. But what is surprising is that 9 in 10 didn’t. So, what is holding them back?
Some Score a Discount, Others Don’t
To be fair, many homeowners have been on the front foot this year. According to Canstar, 1 in 5 homeowners with a mortgage have negotiated a better rate with their current lender. Having a chat with your bank can be a fuss-free way to save, especially if they come to the party with a rate discount.
A further 14% of homeowners say they have tried to switch to another lender but weren’t able to do so because they didn’t have enough equity or didn’t meet the new lender’s requirements.
That is why it pays to speak to us before talking to a lender. We have in-depth knowledge of different banks’ lending criteria, so we know which lenders are likely to give you the green light for a better deal.
There are too many borrowers wearing higher rates
The thing is, there are plenty of homeowners who have just copped rising rates without acting. As Canstar puts it: “Too many borrowers remain complacent even in the face of rising repayment costs.”
The scary thing is that 49% of Australia’s homeowners with a mortgage don’t intend to change lenders at all. Some believe they have a good interest rate, but as many as 1 in 5 think that refinancing is too hard.
Busting the myths
It is great if you think you are paying a competitive interest rate but the key is to know for sure.
Right now, variable home loan rates are anywhere from 5.69% (very rare) to 9% plus. With that sort of range, there is plenty of scope to save, especially as lenders often make lower rates available to new customers.
There is an easy way to know if you have a good rate – pick up the phone and call us. If you are worried that refinancing is hard work, rest assured that we will do the bulk of the leg work for you. We will sort through hundreds of home loan options to find the loan that is right for your needs. We will also make the paperwork easy and liaise with your old lender and your new bank.
If you are keen to find out if you can do better with your home loan, give us a call and we will help you put your best foot forward going into 2024.
FAQ
A: Refinancing involves replacing an existing loan with a new one, potentially with better terms or lower interest rates. It can significantly reduce monthly loan repayments, making it a smart financial move for homeowners.
A: According to Canstar, 1 in 10 mortgage holders in 2023 switched to a new lender to save on their repayments. This trend indicates a growing awareness among homeowners about the benefits of refinancing.
A: Despite the advantages, 9 in 10 homeowners haven’t refinanced. This could be due to a lack of awareness, perceived complexity of the process, or satisfaction with current rates.
A: Yes, negotiating a better rate with the current lender is a viable option. Canstar reports that 1 in 5 homeowners successfully negotiated a better rate with their existing lender.
A: Many homeowners are reluctant to change lenders due to contentment with their current rate or the belief that refinancing is too complicated.
A: Homeowners can consult with financial experts or mortgage brokers to evaluate if their current interest rate is competitive and explore refinancing options.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
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Maximizing Mortgage Efficiency: The Power of Offset Accounts
In today’s dynamic financial environment, understanding and utilizing efficient mortgage strategies is crucial. One such strategy is the use of offset accounts, a tool that can significantly reduce the interest on your home loan and potentially shorten its term. This article delves into what offset accounts are, how they work, and the myriad benefits they offer to homeowners.
Understanding Offset Accounts
An offset account is a savings or transaction account linked to your home loan. The balance in this account is ‘offset’ against your home loan balance, meaning you’re only charged interest on the difference. For instance, if you have a home loan of $500,000 and an offset account balance of $50,000, you will only be charged interest on $450,000.
Benefits of Using an Offset Account
The primary advantage of an offset account is the potential savings on interest payments. By maintaining a higher balance in your offset account, you can significantly reduce the amount of interest accrued over the life of your loan. This can also lead to a reduction in the overall term of your mortgage, allowing you to pay off your home loan faster.
Strategic Use of Offset Accounts
To maximize the benefits of an offset account, consider depositing your salary and other income directly into it. Additionally, using a credit card for daily expenses and paying it off in full each month can allow your offset account balance to remain higher for longer, thus reducing your interest payments even more.
Tax Implications and Considerations
Offset accounts can also have tax benefits. Unlike earning interest on a regular savings account, which is taxable, the money saved on your mortgage interest through an offset account is not considered taxable income. However, it’s important to consult with a tax professional to understand any specific implications for your situation.
Who Can Benefit the Most?
Offset accounts can be particularly beneficial for certain types of borrowers, such as those who may refinance or move homes in the near future. First-time homebuyers and property investors can also find significant value in these accounts, provided they are used strategically.
Choosing the Right Offset Account
When selecting an offset account, consider factors such as account fees, limitations, and whether it is fully or partially offset. It’s also important to ensure that the offset account is compatible with your specific home loan product.
Considering Account Fees and Charges
Annual Fees: Some offset accounts may have annual fees attached. It’s crucial to weigh these fees against the potential interest savings to determine if the offset benefits justify the cost.
Transaction Fees: Assess any transaction fees associated with the offset account. While some accounts offer unlimited transactions without charges, others may have limitations or charges beyond a certain threshold.
Interest Rates: Explore how the interest rates on the offset account compare to other savings or transaction accounts. A competitive interest rate can contribute to maximizing the offset benefit.
Understanding Fully vs. Partially Offset
Fully Offset Accounts: In a fully offset account, the entire balance offsets against the home loan principal. This means that the interest is calculated on the outstanding loan amount minus the balance in the offset account. This type of offset account provides the maximum potential interest savings.
Partially Offset Accounts: A partially offset account offsets only a portion of the account balance against the home loan. This is usually a percentage, such as 50% or 80%. While it still reduces the interest payable, the savings are not as substantial as with a fully offset account.
Impact on Interest Savings: Choosing between fully and partially offset accounts depends on your financial goals. Fully offset accounts generally offer greater interest savings but may come with different features and fees.
Compatibility with Home Loan Product
Loan Compatibility: Ensure that the offset account is compatible with your specific home loan product. Different lenders may have variations in how they structure offset accounts, so it’s important to choose one that aligns seamlessly with your mortgage.
Accessibility and Integration: Confirm how easily you can access and manage the offset account. Some accounts may offer online banking, mobile apps, and integration with other financial tools for convenient management.
Redraw Facilities: Understand if the offset account comes with redraw facilities. This feature allows you to access additional payments made into the home loan, providing flexibility in managing your finances.
Offset accounts are a powerful tool in the arsenal of any homeowner looking to efficiently manage their mortgage. By understanding and strategically using these accounts, with guidance from a mortgage broker, you can make significant strides in reducing your mortgage term and saving on interest payments.
Frequently Asked Questions
What is an Offset Account?
An offset account is a savings or transaction account linked to your mortgage. The balance in this account is offset daily against your home loan balance, reducing the interest you pay on your mortgage.
How Does an Offset Account Work?
The money in your offset account is used to reduce the balance of your home loan for interest calculation purposes. For example, if you have a $300,000 mortgage and $10,000 in your offset account, you’ll only be charged interest on $290,000.
Can an Offset Account Save Me Money?
Yes, an offset account can save you money on interest payments, potentially cutting thousands of dollars and years off your home loan.
Are There Different Types of Offset Accounts?
Yes, there are full and partial offset accounts. A full offset account offsets 100% of its balance against your loan, while a partial offset account only offsets a portion of its balance.
Can I Access Funds in My Offset Account?
Yes, funds in an offset account are usually easily accessible, similar to a regular checking account, providing both flexibility and convenience.
How Does an Offset Account Compare to Making Extra Repayments?
Both strategies can reduce interest payments, but an offset account offers more flexibility, as you can access your funds if needed.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
Unlocking Buyer Advantages: The Power of Home Loan Pre-Approval
There is a lot to be said for having your home loan pre-approved. Here are three ways pre-approval can help you get ahead of the competition.
Here is a handy tip: you don’t have to wait until you have found a home that you would like to buy before making mortgage enquiries with a lender. It is possible to have a home loan pre-approved before you even start to attend open home inspections.
This means that you can be ready with your loan, with only a few formalities to sort out as soon as you have found the right place. Even better, pre-approval does not mean you are committed to taking out a loan as it is not a problem if you have a chance of plans.
Here are three ways home loan pre-approval can put you in front in today’s market.
Pre-approval gives you a budget to stick to
When it comes to a big step like buying a home, there is no room for guesswork.
With a pre-approved home loan, you know exactly how much you can borrow, and that is the foundation of your home-buying budget. It means you can focus on a home within your price range and make an offer with confidence.
Pre-approval is especially important if you plan to bid at auction. It sets a clear line in the sand for your highest bid.
You can act fast
In today’s market, homes are selling in turbo-charged timeframes. Figures from CoreLogic show the median selling time across our capital cities is just 27 days. So, you need to act fast to avoid missing out! Sellers will not wait around while you head to the bank to see if you can qualify for a home loan.
Having pre-approval in place means that you can get the ball rolling as soon as you find the right home, without having another more organised buyer beat you to it.
Pre-approval can show you are a serious buyer
Nothing says ‘genuine buyer’ like a home loan pre-approval. Make sure you let the real estate agents know that your loan is pre-approved. It adds clout to your negotiations and gives vendors confidence that you have the finances to follow up on any offer that you make. But consider keeping some information up your sleeve such as how much you have been pre-approved for. After all, the goal for the real estate agent is to get the best price for the vendor, not the buyer.
How reliable is pre-approval?
Home loan pre-approval is not guaranteed that you will get a personal loan. You will not get the green light for sure until you have found a place to buy, and the bank has checked that the property meets their lending criteria.
The lender will also want to see that your personal finances have not changed since you got the pre-approval on the loan.
While there are not many downsides to obtaining a single pre-approval, getting too many over a short period of time with multiple lenders can potentially negatively impact your credit score and ability to take out a loan as lenders might suspect you are financially unstable.
Which pre-approval is better?
Home buyers are often surprised to learn that pre-approval is not available with every lender. Even amongst banks that do offer these services, not all pre-approvals work the same.
You may come across two types of pre-approvals:
System-generated pre-approvals
This type of pre-approval is generated by a lender’s computer based on the information that you enter about yourself. You can get a quick result this way, but the catch is that the analysis is not thorough making the outcome unreliable.
If any details you enter are incorrect, the bank’s IT system may wrongly say you don’t qualify for a home loan.
Fully assessed pre-approvals
This type of pre-approval involves your bank’s credit team taking a close look at your finances, credit score and other personal and financial details to be sure you can comfortably manage a home loan.
A full assessment takes more time, but it is worth the wait. It can help you feel more confident that you will be offered a home loan when you find your ideal home.
Do you want to find out more about pre-approval?
If you are looking to buy a home and want to get an edge over the competition (to put in an early offer, for example), then pre-approval might be a much-needed ace up your sleeve.
We can help you work out which lender and which loan product is a good fit for your pre-approval situation. Call us today to take the guesswork out of home loan pre-approval and give yourself a head start over other buyers in the market.
Frequently Asked Questions
What is Home Loan Pre-Approval?
Home loan pre-approval is a process where a lender evaluates a potential borrower’s financial situation to determine how much they can borrow before they find a property to purchase.
Why is Getting Pre-Approved Important for Home Buyers?
Pre-approval gives buyers a clear idea of their budget, strengthens their position in negotiations, and speeds up the buying process once they find a property they like.
How Long Does Pre-Approval Last?
Typically, pre-approval lasts for 3 to 6 months, but this can vary depending on the lender.
What Documents are Required for Home Loan Pre-Approval?
Commonly required documents include proof of income, employment verification, credit history, and details of current debts and assets.
Can I Make Multiple Pre-Approval Applications with Different Lenders?
Yes, you can apply for pre-approval with multiple lenders, but be mindful that each application may impact your credit score.
Does Pre-Approval Limit My Options to a Single Lender?
No, getting pre-approved with one lender does not obligate you to take out your mortgage with them. You are free to shop around for the best mortgage deal.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
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A Complete Guide to First Home Loan Deposit Scheme for First-Time Homebuyers
Navigating the journey of purchasing your first home can be as daunting as it is exciting. Amidst the sea of paperwork, financial decisions, and the quest for the perfect property investment lies the First Home Loan Deposit Scheme (FHLDS), a beacon of hope for many first-time homebuyers. This comprehensive guide aims to demystify the scheme, providing you with the knowledge and confidence to take that first step towards homeownership.
Understanding the First Home Loan Deposit Scheme
The FHLDS is an Australian Government initiative to support eligible first-time homebuyers. The scheme allows for a smaller deposit, as little as 5%, without the need for Lenders Mortgage Insurance (LMI). This can translate into significant savings, but what exactly is the First Home Loan Deposit Scheme, and how does it work?
What is the First Home Loan Deposit Scheme?
The scheme is designed to help first-time buyers enter the property market sooner by underwriting home loans for eligible participants. It’s a form of financial support that bridges the gap between the minimum deposit most buyers can save and the 20% typically required by lenders to avoid LMI.
Eligibility Criteria
To qualify for the FHLDS, you must:
Be a first-time homebuyer who has not previously owned or had an interest in a residential property in Australia.
Have a taxable income of up to $125,000 per annum for singles or $200,000 for couples.
Intend to be the owner-occupier of the purchased property.
The Role of Mortgage Brokers
Mortgage brokers can be invaluable in guiding you through the home loan process. They can help you understand the intricacies of the FHLDS and work with you to find a suitable lender. Their expertise can simplify the complex landscape of loans, rates, and terms, tailoring a solution that fits your unique financial situation.
Preparing for Your First Home Purchase
Before diving into the property market, it’s crucial to prepare. Here’s a checklist to get you started:
Budgeting: Assess your finances and determine how much you can realistically afford to borrow.
Saving: Focus on saving for a deposit, keeping in mind the 5% minimum for the FHLDS.
Credit Score: Check your credit score and take steps to improve it if necessary.
Interest Rates and Loan Options
With the FHLDS, you’re not restricted to one type of loan or lender. Interest rates and loan options will vary, so it’s essential to shop around. Compare the offerings from various lenders, including the loan terms, features, and flexibility, to find the best fit for your financial goals.
Navigating Paperwork and Compliance
The application process for the FHLDS involves its fair share of paperwork. From proof of income to identification, you’ll need to have your documents in order. Ensure you understand the requirements and deadlines to avoid any hiccups in your application.
Case Studies and Success Stories
Many first-time buyers have successfully navigated the FHLDS to purchase their first home. These stories can provide insights and inspiration, showcasing the scheme’s potential to make homeownership accessible.
The First Home Loan Deposit Scheme is a significant stepping stone for first-time buyers. It requires careful consideration and a thorough understanding of the financial commitment involved. By taking advantage of the scheme and leveraging the expertise of mortgage brokers, the dream of owning your first home can become a reality sooner than you might think.
Frequently Asked Questions
What is the First Home Loan Deposit Scheme?
The First Home Loan Deposit Scheme is a government initiative to help first-time homebuyers purchase a home with a lower deposit requirement.
Who is eligible for the First Home Loan Deposit Scheme?
Eligibility criteria typically include being a first-time homebuyer, meeting income caps, and purchasing a property within a specific price range.
How much deposit do I need under the scheme?
The scheme allows first-time homebuyers to purchase a home with as little as a 5% deposit, with the government guaranteeing the rest.
Can I use the scheme in conjunction with other government grants?
Yes, the scheme can often be used in conjunction with other government programs like the First Home Owner Grant.
Is there a deadline for applying to the scheme?
There may be specific intake periods or caps on the number of applicants each year, so it’s important to check current deadlines.
What happens if I sell the property purchased under the scheme?
Selling the property may have implications on the benefits received under the scheme, and it’s advisable to consult with your lender or financial advisor.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
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Comprehensive Guide to Home Loans for Individuals with Bad Credit
Securing a home loan can be a daunting prospect, especially for those grappling with the additional challenge of bad credit. However, a less-than-perfect credit score doesn’t necessarily close the door to homeownership. This guide aims to shed light on the pathways available to individuals with bad credit, offering hope and practical solutions for those who dream of buying a home.
Understanding Your Credit Score
Your credit score is a numerical representation of your creditworthiness, and it plays a pivotal role in a lender’s decision to offer you a personal loan. Bad credit is typically considered a score below 580. Lenders use this score to assess the risk associated with lending to you. Recent changes in mortgage rules have made it slightly easier for individuals with lower credit scores to secure loans, but understanding your score and how it impacts your options is the first step toward homeownership.
Loan Options for Bad Credit
Several loan options cater specifically to those with bad credit:
FHA Loans:
Insured by the Federal Housing Administration, these loans are ideal for low-to-moderate-income borrowers with credit scores as low as 500.
VA Loans:
Available to veterans and active military personnel, VA loans offer competitive terms, even with bad credit, and often do not require a down payment.
USDA Loans:
Designed for rural homebuyers, these loans sometimes offer no down payment options for those with poor credit.
HomeReady® and Home Possible® Loans:
These programs from Fannie Mae and Freddie Mac are tailored for low-income borrowers with credit scores of 620 or higher and offer low down payments.
Choosing the Right Lender
Not all lenders are created equal, especially when it comes to bad credit. National banks might have stricter requirements, while local credit unions could be more flexible. Online lenders often provide more lenient terms for those with bad credit. It’s crucial to shop around and find a lender that understands your financial situation and can offer the best terms for your circumstances.
Improving Your Loan Approval Chances
To enhance your chances of loan approval:
Work on improving your credit score by paying down debts and disputing any inaccuracies on your credit report.
Save for a larger down payment to decrease the lender’s risk.
Consider a cosigner to bolster your application.
The Cost of Bad Credit
A lower credit score typically means higher interest rates, which can significantly increase the total cost of your loan over time. It’s essential to weigh the pros and cons of securing a loan now against the potential benefits of improving your credit score first.
While bad credit can complicate the process of getting a home loan, it doesn’t make it impossible. With the right knowledge and preparation, and the assistance of a mortgage broker, you can navigate the mortgage landscape, find a loan that fits your situation, and take a significant step toward homeownership.
Frequently Asked Questions
What is considered bad credit when applying for a home loan?
Bad credit is typically considered a credit score below a certain threshold, which varies by lender but is often around 600 or lower on the FICO scale.
Can I get a home loan with bad credit?
Yes, it is possible to get a home loan with bad credit, but the options may be limited and often come with higher interest rates and additional requirements.
What kind of interest rates should I expect with bad credit?
Interest rates for bad credit home loans are generally higher than for standard loans, reflecting the increased risk to the lender.
What steps can I take to improve my chances of getting a home loan with bad credit?
Improving your credit score, saving for a larger down payment, and reducing your debt-to-income ratio can help increase your chances of getting a home loan.
Can government programs assist me in getting a home loan with bad credit?
Government programs like FHA loans, VA loans, and USDA loans can assist individuals with bad credit in obtaining a home loan.
What should I be cautious of when seeking a home loan with bad credit?
Be cautious of predatory lenders offering bad credit home loans with extremely high fees or interest rates, and always read the terms carefully.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
Comparison Rate calculated on a secured loan amount of $150,000 for a term of 25 years. WARNING: This Comparison Rate is true only for the example given and may not include all fees and charges. Different terms, fees and other loan amounts might result in a different Comparison Rate. Fees and Charges Apply. Terms and Conditions are available on request.
