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You can save thousands of dollars whether you're a first home buyer, investor, or you're refinancing, by making the right choice of mortgage. Brisbane has a competitive range of flexible products and sometimes the choices can be overwhelming! It's very important to make sure you know what you're doing before you apply for any loan. This article will assist you by providing a handy checklist of points to consider.
Brisbane Mortgage Tip 1. Make sure you have your mortgage arrangements in place before you put an offer in on a property. What you need is a pre-approval, and most financial institutions can help you with this, usually to a pre-set amount based on your equity and capacity to repay.
This is useful because you can inspect potential properties more confidently, and buyers will be more open to your offer if you can show them that you have pre-approved finance.
Brisbane Mortgage Tip 2. Know your terminology. Here are several important ones:
- Loan To Value Ratio (LVR): This is simply the amount of the loan divided by the value of the property you are buying or re-financing, turned into a percentage. So if the property is worth $500,000 and you are borrowing $400,000, your LVR is 400,000 / 500,000 = 0.80, or 80%.. Typically a lender can go to an LVR of 80%, but under certain circumstances can increase this to 90% or sometimes higher. The higher the LVR, the bigger the potential risk to the lender, and thus the higher the costs you can expect to pay.
- Serviceability. This is your ability to meet the monthly or fortnightly payments required for the loan. Your serviceability will be determined by your income, minus your expenses.
- Equity. This is value that you have in assets minus any debt against those assets. IN the above example, the real estate value is $500,000, and the debt is $400,000 so excluding other costs, the equity is $100,000.
Brisbane Mortgage Tip 3. Beware of the "Hidden" costs.
Any loan has administrative and other costs associated with getting into it and also getting out of it! It is wise to carefully consider these before you sign anything. Some important costs associated with real estate mortgages are:
Costs going in:
- mortgage stamp duty
- setup fee
- search fees
- valuation fees
- legal fees (for the finance, not the property!)
- brokerage fees - often these are not paid by you, but the lender, but not always.
Costs getting out:
- "Break penalty fees" These can be quote considerable
- legal fees
- administration fees
- search fees
Brisbane Mortgage Tip 4. Interest rate isn't the only thing to consider…
With interest rates, don't fall for the trap of assuming that a lower rate is always going to result in the cheapest loan for you! There are many other factors, and you need to consider ALL the fees and costs over the expected life of the loan to make a proper estimation of which loan is the most economical.
Setup fees, payment frequency, and break costs are just three of several factors other than interest rates that can substantially affect the amount you will pay, and the speed with which you can pay off your mortgage.
Here is the best way to get the best interest rate and mortgage deal.
5. Interest Only or Principal and Interest Loans
A normal home loan is Principal and Interest (P&I). This means that your payments each month are paying off some amount of the actual sum borrowed (principal), as well as the interst component. The benefit of this type of loan is that you are progressively reducing the outstanding loan amount over time. Typically you won't pay much principal off in the first few years, but the longer you keep paying the loan, the quicker you pay off the principal.
Interest only loans have repayments that are structured purely to pay the interest and no principal. These types of loan are usually favored by investors, as they minimize payments. If you use this type of loan be aware that whenever you come to finally pay out the loan, you will not have reduced the amount owing at all!
6. "Low doc" and "fully verified"
These terms refer to two different ways in which the lender will establish whether or not you can "afford", or "service" the loan. The normal method is called "fully verified" and this refers to a standard application process in which you provide the bank with proof of income in the form of pay slips, tax returns, or business Profit and Loss statements from an accountant, if you are self employed.
Low doc loan, on the other hand rely on a declaration of your assets and income which you sign off yourself as a Statutory Declaration. This is beneficial particularly for self employed people who's tax returns may be prepared for taxation purposes, and as such take into account depreciation and other non tangible costs that do not really affect your day to day cashflow.
Low doc loans can also be useful for people who are property investors and derive some of their income from capital gain from property trading etc.
These loans cost more in interest rates, and typically require a sound equity position before you can utilize them.
Brisbane Mortgage Tip 1. Make sure you have your mortgage arrangements in place before you put an offer in on a property. What you need is a pre-approval, and most financial institutions can help you with this, usually to a pre-set amount based on your equity and capacity to repay.
This is useful because you can inspect potential properties more confidently, and buyers will be more open to your offer if you can show them that you have pre-approved finance.
Brisbane Mortgage Tip 2. Know your terminology. Here are several important ones:
- Loan To Value Ratio (LVR): This is simply the amount of the loan divided by the value of the property you are buying or re-financing, turned into a percentage. So if the property is worth $500,000 and you are borrowing $400,000, your LVR is 400,000 / 500,000 = 0.80, or 80%.. Typically a lender can go to an LVR of 80%, but under certain circumstances can increase this to 90% or sometimes higher. The higher the LVR, the bigger the potential risk to the lender, and thus the higher the costs you can expect to pay.
- Serviceability. This is your ability to meet the monthly or fortnightly payments required for the loan. Your serviceability will be determined by your income, minus your expenses.
- Equity. This is value that you have in assets minus any debt against those assets. IN the above example, the real estate value is $500,000, and the debt is $400,000 so excluding other costs, the equity is $100,000.
Brisbane Mortgage Tip 3. Beware of the "Hidden" costs.
Any loan has administrative and other costs associated with getting into it and also getting out of it! It is wise to carefully consider these before you sign anything. Some important costs associated with real estate mortgages are:
Costs going in:
- mortgage stamp duty
- setup fee
- search fees
- valuation fees
- legal fees (for the finance, not the property!)
- brokerage fees - often these are not paid by you, but the lender, but not always.
Costs getting out:
- "Break penalty fees" These can be quote considerable
- legal fees
- administration fees
- search fees
Brisbane Mortgage Tip 4. Interest rate isn't the only thing to consider…
With interest rates, don't fall for the trap of assuming that a lower rate is always going to result in the cheapest loan for you! There are many other factors, and you need to consider ALL the fees and costs over the expected life of the loan to make a proper estimation of which loan is the most economical.
Setup fees, payment frequency, and break costs are just three of several factors other than interest rates that can substantially affect the amount you will pay, and the speed with which you can pay off your mortgage.
Here is the best way to get the best interest rate and mortgage deal.
5. Interest Only or Principal and Interest Loans
A normal home loan is Principal and Interest (P&I). This means that your payments each month are paying off some amount of the actual sum borrowed (principal), as well as the interst component. The benefit of this type of loan is that you are progressively reducing the outstanding loan amount over time. Typically you won't pay much principal off in the first few years, but the longer you keep paying the loan, the quicker you pay off the principal.
Interest only loans have repayments that are structured purely to pay the interest and no principal. These types of loan are usually favored by investors, as they minimize payments. If you use this type of loan be aware that whenever you come to finally pay out the loan, you will not have reduced the amount owing at all!
6. "Low doc" and "fully verified"
These terms refer to two different ways in which the lender will establish whether or not you can "afford", or "service" the loan. The normal method is called "fully verified" and this refers to a standard application process in which you provide the bank with proof of income in the form of pay slips, tax returns, or business Profit and Loss statements from an accountant, if you are self employed.
Low doc loan, on the other hand rely on a declaration of your assets and income which you sign off yourself as a Statutory Declaration. This is beneficial particularly for self employed people who's tax returns may be prepared for taxation purposes, and as such take into account depreciation and other non tangible costs that do not really affect your day to day cashflow.
Low doc loans can also be useful for people who are property investors and derive some of their income from capital gain from property trading etc.
These loans cost more in interest rates, and typically require a sound equity position before you can utilize them.
Get Your Free Ebook "How To Get Out Of Debt In Half The Time & Pay LESS per Month!" AND access the best deals and lowest interest rates from all the major banks. Click Here Now.
Get Your Free Ebook "How To Get Out Of Debt In Half The Time & Pay LESS per Month!" AND access the best deals and lowest interest rates from all the major banks. Click Here Now.
