Australian Mortgage and Loan Information

Check Your Mortgage Documents

Unfortunately, I know someone who is having to sell their home at the behest of a Lender. This is real mortgage stress.

The lender has demanded a loan be repaid or refinanced within 30days. So much for the mortgage holiday deal?

Their problem stems from having a cocktail of home loans on their residential property. One of their loans is a line of credit. Unfortunately they did not read their mortgage documents thoroughly. By not keeping their line of credit mortgage active and under it’s limit, they have trigged the lenders get out clause. If they can’t refinance the line of credit, the other home loan will also have to be refinanced. They had something called an all monies contract.

I have referred them to a mortgage broker who assures me he can help them. However, I think this situation highlights the need to read the fine print of your mortgage documents and get advice if you don’t understand what you read.

In the current economic climate, lenders will be inclined to manage their risks quite harshly. So please get your mortgage doc’s out and get an understanding quickly.

Having a home loan with the lowest interest rate is preferrable, it means we will pay less back to our lender. But is it always the best fit for our particular circumstance?

I have just come back from my meeting with my mortgage broker. We have had a frank discussion about my circumstance’s and the way I feel about my current “Line Of Credit” lender. The upshot is, it is time to move on.

My broker originally suggested no less than twelve suitable products and lenders. Going though the details, features and benefits of each product took us about 15 minutes. We have narrowed it down to 3.

The table below sets out the details of each as at 11/11/2008. I use my Line of Credit for Investment, so no comparison rates are quoted.

Lender:……………Colonial……..ANZ………..RAMS

Product:..Line Of Credit..Equity Manager…Line of Credit Pro Pack2

Rate at 11/11/08:…7.79%……..8.32%……….7.49%

App Fee:……………….$600……….$600………….$600

Reg Fees:……………..$12 pmth…..$150 pyr……..$300 pyr

Split Acc’s:……………..Yes…………Yes…………….Yes

Credit Card:…………….Yes………..Yes……………..Yes

Cheque Acc…………….Yes………..Yes………………Yes

Internet Banking:………Yes………..Yes………………Yes
Interest Only:…………..Yes…………Yes………………Yes

As you can see there is quite a difference in current interest charged and yearly fees. I currently favour the Colonial Product, but my broker is leaning me toward the ANZ. He feels the ANZ product offering is much more clearly defined. A higher rate yes, but ultimately easier to manage. This is his opinion, and my circumstances will be vastly different to many. The important thing here, is that I have complete confidence in my broker. I think I am going to go with his recommendation.

Lowest rate is not always best! But don’t take my word for it, contact a reputable broker and have a chat. They are a lot like the old fashioned Bank Manager. They want to help and they want your ongoing custom.

A Home Equity Loan allows you to turn the equity you have built up in your home into cash to use as collateral for buying bargain priced assets in the current financial turmoil.

National property prices in Australia have surged by more than 60% over the last 7 years giving many home owners substantial equity to borrow against – Equity is the difference between what you owe on your home loan and what the property is actually worth.

Home Equity loans are commonly used to retire and consolidate high interest consumer debt or to purchase expensive items like a vehicle or boat. I think it would be better used to obtain a deposit on an investment property, to renovate and increase the value of your existing home or do what an old guy called Warren Buffet does: buy shares, listed property trusts and other income earning assets.

There are 2 main types of Equity Loans. There is the lump sum cash type where you get a lump sum for a particular project or investment where you start paying interest immediately. This loan could be any one of the types lenders offer like standard variable or fixed rate, but generally means refinancing your entire loan to access your equity. The second and my favourite is the Line of Credit type where you only pay interest on the part of the loan you have drawn down on. This type of loan can be in addition too and sit on top of your existing mortgage. It can also be a low doc loan. If set up properly and kept track of, it can be your loan for life, meaning you should never have to go back to the bank to apply for new loans for investment projects or similar.

If you have good cash flow from your job or business an equity loan can be a great leverage tool to facilitate investment in assets that appreciate in value to increase your wealth.

Call your mortgage broker and check out your equity. The global stock market crash has made some solid companies bargain buys. The equity in your home may be the key to taking advantage of this opportunity.