MORTGAGES INFORMATION

Please see information on Mortgages below.

        

What is a Mortgage?

Whether you're a first time property buyer or looking to refinance your existing home, a mortgage is essential. Very few people in the world could pay for an asset as large as a home with cash on the spot. A mortgage is a type of loan on your home you borrow money from a financial institution to pay for the home and make repayments slowly over a set period of time.

There are lots of loan types on the Australian market, and which type you should get depends on:

  • your personal circumstances
  • how much you can afford to borrow
  • the value of your property
  • your age/income

Getting a mortgage is, for many Australians, an important first step alone or with a partner. Many people spend years building up to their first home so choosing a mortgage should be done with consideration and forethought.

What Types of Mortgages are there?

A mortgage is a loan on your home and is often referred to as a home loan. In Australia, there are many different mortgage products on offer. These include:

  • Introductory Rate

Some mortgages have an introductory or 'honeymoon' rate. This means you are offered a lower interest rate for the first few years before the actual (or original) rate kicks in. This is a great option for first time buyers as it allows for time to get used to a new home loan and to find your feet before repayments begin in earnest.

  • Standard Variable Rate Home Loan

This is the most regularly offered home loan. The interest is variable, so it changes according to movements in the market. This type of mortgage usually lasts about 25 years.

  • Fixed Rate Home Loan

This is another commonly offered home loan. The interest rate is fixed and is therefore not subject to changes in the larger market. This mortgage is much shorter and lasts from between 1 to 5 years.

  • Non Conforming Loan

This is a mortgage aimed at people whose credit rating is not ideal. The lender will usually carry out a 'risk assessment' and will then offer an interest rate. The rate is likely to be a bit higher than on a standard mortgage because a low credit borrower is a higher risk to the lender.

  • Reverse Mortgage

This is a mortgage aimed at seniors and those of a pensionable age. The premise works in that asset rich elderly people who do not have a large cash flow can borrow money against the value of their home.

How to Choose a Mortgage

When deciding to take a home loan, you will need to consider a variety of factors. Firstly, think about whether your cash flow and your finances can handle the 'up and down' nature of a variable interest rate can you handle the fact that interest rates might change during the period of your loan?

If you want a clearer picture of what is in store, then you might prefer a fixed rate loan that way you can plan how much of your income goes to the loan, and know that this won't change. In other words, you might be less prepared to take on changes or even surprises.

Some loans allow you to fix a portion of it and leave the rest variable this way you can hedge against rate rises while at the same time taking the benefit of decreases in the interest rate. Remember: there might be additional costs for fixing, unfixing or switching a loan, so give yourself adequate time to consider all of the options.

How can I get a Home Loan?

Before you head for a lender or broker, have a look around for the many offers on the mortgage market. Familiarize yourself with the terminology used and ask friends and family of their experiences. Use comparison sites to check the main features of each lender and compare the extras the fees and the rates.

Once you have figured out what type of loan would suit you, you can go about applying. Here are some things you can ask the lender:

  • What are the fees?
  • Is there an early repayment penalty?
  • What is the comparison rate (or AAPR average annualized percentage rate)?

What is AAPR?

AAPR is short for average annualized percentage rate this adds interest rate plus fees and gives you the real interest rate that you will actually pay, rather than the one which is advertised. It is sometimes called the comparison rate.

When you see loan offers, you might see an attractive range of features and an interest rate. But once you take into account all of the other aspects such as fees and charges, you will see that you might actually be paying quite a different rate. This is the AAPR. Ask your lender for a fee breakdown.

What is a Remortgage?

A person might want to remortgage their home for a number of reasons. In most cases it involves increasing the amount that they are borrowing. By remortgaging, you are ending your current mortgage and starting a new one either with the same lender or with a new one.

A remortgage involves a new survey of your home to see what its value is now. You might be subject to penalty fees or other costs by carrying out a remortgage, but you might find that the benefits of remortgaging outweigh the disadvantages.

Why do people remortgage? Well, they might have seen a better, lower, interest rate offer from another lender. Another reason might be to release equity. So, rather than take on a new loan they remortgage their home they are basically taking a larger loan to pay for anything, perhaps to pay off debts, or for home improvements.

If you are thinking of remortgaging with a new lender, discuss it with your existing lender they might be prepared to negotiate your current rate to a lower one.

        


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