Australian Mortgage and Loan Information

Yes, It is time for a comprehensive analysis of your current home loan?

It seems all the major lenders are tinkering with their home loan offerings. They are playing their cards pretty close to their chest, but you can be assured of one thing, old loan holders will be treated like lepers’ were in the olden days once the new offering is about.

You will be getting plenty of encouragement from the tellers at the bank to speak to their home loan professional.

The “new stuff” will no doubt be irresistible, but will include new clause’s enabling the lender to boot you out of your home if you don’t comply with their current whim or fancy.

Please be prepared. Use a mortgage broker if you can. Heck, use two and play them off against each other.

Rates are on the way up, be ready.

Can we expect another cut in official interest rates in June 2009? Or has the Australian economy hit its bottom. These vext questions will only be answered in the fullness of time. But, Australia’s major lenders have raised their fixed mortgage rates by nearly half a percent. Do they know something we don’t. Probably. So is now a good time to fix you rate?

My thoughts are no! If you are in a panic about rates, I still say no. If you simply must fix, fix a portion of your loan, not the lot. How will you feel if rates go down to 2% after you have fixed at 6%. There are lot of folk who have fixed at 8%, they now find it very expensive to refinance. I say remain flexible if you can.

My gut feel is that a lot of borrowers are enquiring about fixed loans and the Banks and other major lenders are simply taking advantage of the demand. They all have plenty of cheap money from over seas and from the Government deposit guarantee. First home owners may consider a fixed loan, as it will provide certainty for at least a five year period and give them a chance to accumulate some equity.

Before you take a fixed rate loan, be warned that there is devil in the fine print and a hefty cost if you decide to refinance your loan before the fixed term expires.

Basic Variable Home Loan.

Basic Variable Home Loans are generally the most inexpensive home loans available. They are inexpensive as they generally do not have all the bells and whistles that Banks and other Lenders add to their more profitable products. A Basic Variable Home Loan will suit most home buyers. Especially if you are the kind of home buyer who likes to pay their debts off quickly.

A Basic Variable Home Loan will provide you with the absolute essential for Home Ownership. It will provide the money to help you purchase your property. The maximum you can borrow is generally up to 95% of the purchase price of the property subject to a lenders valuation. Some lenders will lend up to 105%.

Your Basic Variable Loan will most possibly be a Principle and Interest Term Loan for a period of 1 to 30 years. Principle and Interest means that your payments will pay off both the interest the Bank or Lender charges for your loan and some of your original loan amount. Some progressive lenders will allow a period of say 10 to 15 years of interest only. Interest only is an important feature.

Most Basic Variable Home Loans also offer you a redraw facility at a certain level, internet and phone banking access, loan increase availability, no early repayment fee, unlimited extra payments and choice of payment frequency.

Another important feature offered by many lenders is a full offset account. This is a very worthwhile feature and can help you pay off your mortgage more quickly.

These Basic Variable Home Loans have a lot to offer no matter what the direction of home loan interest rates. They are worth considering for both refinance or purchase.

Free money from the government.

Australians aged 18 and over at last have some help to save for their first home. The First Home Buyers Deposit Saver Scheme became a reality today as the first accounts were made available by a couple of the major banks.

The scheme essentially provides the opportunity for free money from the government. The more you can save for a deposit on your first home the less likely you will be slugged mortgage lenders insurance by your home loan lender. If you can keep your lvr below 80%, that is have a deposit of at least 20%, you can save thousands.

You could use the money not wasted on lenders mortgage insurance to furnish your new home.

Here are the facts:

The following is an extract from the official fact sheet presented by the Government of Australia Treasury 2008.

First Home Saver Accounts – Fact Sheet -

Account Holders Overview:

First Home Saver Accounts (FHSAs) are the first of their kind in Australia and will provide a simple, tax effective way for Australians to save for their first home through a combination of Government contributions and low taxes.

Eligibility
An individual can open an account if they: are aged 18 or over and under 65;
have not previously purchased or built a first home in which to live; do not have, or have not previously had, a First Home Saver Account; and provide their tax file number to the provider.
Penalties will apply if a person opens an account where they are not eligible to do so.

Contribution arrangements
Contributions may be made by the account holder or another party, such as an employer, on behalf of the account holder. Contributions will be made from after-tax income. The Government will make additional contributions which will be paid directly into the account, after the individual has lodged their tax return and the provider has submitted the relevant information to the ATO. The Government will contribute 17 per cent on the first $5,000 (indexed) of individual contributions made each year. This means an individual contributing $5,000 will receive a Government contribution of $850. No minimum annual deposit is needed to keep the account open. The account can remain open for as long as necessary or until the account holder turns 65, at which time it must be closed.

Level of tax on accounts
Contributions will not be subject to tax when contributed to an account. Investment earnings (or interest) will be taxed at a rate of 15 per cent. Withdrawals will be tax free. FHSA balances will be exempt from the income and assets test.

Account balance limit
There will be a limit of $75,000 (indexed) on the overall account balance. If an individual reaches the account balance cap, no further individual contributions will be able to be made. Earnings and any outstanding Government contributions will still be able to be credited to the account after this time.
Contributions that exceed the limit will be returned to the account holder.

Four-year savings horizon
To withdraw their funds, minimum contributions of $1,000 need to be made over the course of at least four separate financial years. If an account holder is purchasing a property with another individual(s) who also holds an account, only one account holder needs to meet the four-year requirement. If one person meets this, then the other individual(s) can also withdraw their funds.

Withdrawals for a first home purchase
Individuals will be able to withdraw their account balance tax free to buy or build a first home in which to live. The full amount will need to be withdrawn and the account closed. The individual will need to live in the home for at least 6 months within the first 12 months of purchase or completion of construction. Individuals can close their account and contribute the full amount to superannuation at any time. Penalties will apply to individuals where they fail to meet the withdrawal or occupancy criteria.

Other circumstances
Where an individual’s circumstances change during the life of the account so that they no longer wish to purchase a first home, they will not be able to access the account but can transfer the balance into superannuation and close the account. Penalties will apply if funds are withdrawn and not used to purchase a first home in which to live. If an individual moves overseas, they can continue to make contributions into the account, but will not receive any Government contributions. Individuals will be able to access their funds tax free once they reach age 60, consistent with superannuation.

Early release provisions
By transferring the account balance into superannuation, individuals may apply to access the superannuation early release provisions of severe financial hardship, compassionate grounds or terminal illness.

Account providers
Public-offer superannuation providers, life insurers, friendly societies, banks, building societies and credit unions will be able to offer the accounts. Banks, building societies and credit unions will be able to offer deposit accounts and superannuation providers, life insurers and friendly societies will be able to offer investment-linked accounts.

Anyone who is eligible should pursue this opportunity. Parents should encourage children, grand parents should encourage grand children. Speak to your mortgage broker, visit your bank or credit union. Get it happening, its free money.

A home loan mortgage finance application can be tricky, so it is important that you have all your personal and financial information ready before you meet with your mortgage broker.

Personal Information:

The first thing you need to do is prove who you are. Chances are your home loan lender is going to be advancing you many thousands for your property purchase, so they want to be sure you are who you say you are. You will need the obligatory 100 points of identification if you are going to secure a home loan or mortgage. You will need: Birth Certificate (certified if applying for first home owners grant) or Passport, drivers licence, Medicare card, credit card statements, maybe an account from a utilities provider with you current address, some other photo id and maybe a letter from your mum. You will also need to provide details of where you have lived for the last 5 years or so.

Financial Information:

If you are an employee, you will need at least your last three payslips that clearly identify you and the amount you earn. A letter from your employer may also be useful here if they are willing. They will need to state your employment start date, gross income and condition of employment as a minimum. You may also be asked to provide your PAYG Payment Summary for individual non-business. If you have more than one employer get a statement from them all. If you are self employed you will need your last two years tax returns and assessments for yourself and any other tax entity you trade under. Self employed applicants may also be able to use Low Doc or No Doc options to certify their incomes.

You will also need at least 6 months of saving account statements to show your savings history, lenders think a solid savings history indicates that you will be able to make the sacrifices necessary to keep up the payments on a home mortgage. In some cases 6 months of credit card statements, including the most recent, showing their balance and limit. Personal loan details and statements showing repayment outstanding balance figures and payment history. Store account statements and details.

You will also need paperwork explaining any bad credit history you may have. It is best to get this stuff up front to avoid any delays with your application. Contact a credit reference supplier and find out if you have anything to worry about if you are not sure.

If you are buying a property you will need to supply a Contract of Sale. The front page of a Contract of sale is generally enough for most of the major lenders. If you are refinancing, you will need 12 months mortgage statements on the loan to be refinanced and a recent council rate notice. If you are building it will be best to supply a complete copy of your building contract including the specifications and plans.

That’s just about it. You will also need your notepad or diary to take notes from your mortgage broker interview. I suggest you print this Blog and use it as a reminder. Oh and tell your mum you love her and that you appreciated all the times she cleaned up after you!

PS: Be prepared, get some mortgage checking software.

25% more buying power for first home buyers and up-graders

John Howard’s legacy

The 2003 Prime Minister’s Home Ownership Task Force formed by then Prime Minister John Howard, fielded a large number of new ideas about increasing the affordability of home ownership in Australia. One of them has become a reality.

A new type of mortgage has been unveiled this year that can boost a home buyer’s spending power by 25%. Called an Equity Finance Mortgage, this new mortgage product will allow owner occupier home buyers to purchase a home up to 25 per cent more expensive than they might have been able to afford using a traditional stand alone home loan. Without paying more per month.

This is good news for first home buyers especially, you now have a better chance of gaining a toe hold in the housing market. Up-graders or itch cycle home buyers will also benefit, allowing them to head to more up-market address’s sooner.

The potential mortgage holder or home buyer must have a 5 per cent deposit. They must also qualify to service a conventional home mortgage equal to or less than 75% of the purchase/valuation price of the home. The rest of the purchase can be funded by an “Equity Finance Mortgage”.

What’s the catch? Well, one Bank is calling their offering a Shared Equity Mortgage, that is Bank speak for joint venture. Your lender is offering to do a joint venture with you. When you sell your house in the future you will have to share 40% of any gains with your lender. That’s right! 40% of the gain as a substitute for 25 years of loan repayments. It sounds to good to be true, so there has to be some devil in the detail and I strongly recommend you consult a quality Mortgage Broker.

It is worth a look, but get some advice. I for one will be exploring the possibilities.