First-time Home Buyers

If you are new to the property market, you may feel or believe that it is challenging and intimidating. However, you don’t have to battle with those feelings if you have a partner to walk you through the processes. The experience will be easier and exciting for you. SIF Broking is the perfect partner in this scenario.

SIF Broking will walk you through everything you need to know about the financing of the property you are purchasing, including the government benefits for first home buyers. We will be with you every step of the way as you complete your First Home Owner Grant (FHOG) and Stamp Duty Exemption papers. We will also be available to help you understand other issues such as the minimum deposit needed, size of the loan you require to get, and how many monthly repayments you need to plan for. SIF Broking – mortgage broker Melbourne is a reliable partner as you start your journey from applying for a loan to owning your home in no time. 

Loan to Value Ratio (LVR)

The Loan to Value Ratio (LVR) is the deposit you need to put down before a lender allows you to borrow money. It is calculated as a percentage of a property’s purchase price. Most of the time, when you wish to borrow over 80% LVR, your deposit is less than 20% of the value of the property. In this case, you need to pay the Lender’s Mortgage Insurance (LMI).

The LMI protects the lender in case you default and fail to repay the loan. When the LVR is low (less than 80%), the lender is exposed to less risk, and this allows the clients to stand a better chance of qualifying for better interest rates. For instance, if you purchase a property for $600,000 and have a deposit of $180,000 – you need to borrow $420,000. This means your LVR will be 70% or 0.7 of the purchase. 

If this calculation seems hard to understand, SIF Broking is available to help you with that. We can help you calculate the LVR and work out the total deposit required to secure the loan that would enable the property investment to go through. 

Types of Home Loans

Basic Home Loans:

A Basic Home Loan doesn’t have all the additional features that the other types of loans have. However, the basic home loan offers people a preferential interest rate. Although it is not as popular as the Standard Variable home loan, it is generally cheaper and has lower annual interest rates. Thus, allowing you to pay your home loan faster and with lower interests.

The basic home loans are usually recommended for first home buyers. The interest rate can range from 0.5% to 1.5% lower than what you may get from the standard variable home loan. In most cases, the lender charges lower or no monthly fees.

Regardless, you have to adhere to the payment schedule as they may not be as flexible as the standard variable loans. With the basic home loan, you don’t get to enjoy some extra features that are available on a standard variable loan, such as offset accounts or switching loans. This means that the basic home loan is less flexible than the standard variable loan. However, some lenders may allow you to pay for the extra features. This is where SIF Broking comes in. We help you make an informed decision by looking at all the features and deciding the most suitable type of loan that would work for you, in terms of the benefits and the repayment plan.

Basic home loans in a nutshell:

• More affordable
• Lower interest rates
• Reduced ongoing costs
• No frills loan
• Usually more suited for owner-occupied borrowers

Fixed-rate home loans:

As we go through the interest rate cycle increases, a variable interest rate home loan could become less affordable by people on a tight budget. With that in mind, some customers may contemplate to take up a fixed rate home loan. Although it is tough to determine the next direction of interest rates, a fixed-rate loan allows you to have the security of knowing how much you will be paying per month over the fixed-rate term. The interest rates are fixed for a specified period, which usually lasts from a year to five years. After that period, you can decide to either change to a variable rate home loan or continue with another fixed-rate loan.

Benefits and costs of a fixed rate home loan:

When you decide to take up a fixed rate home loan, you will know the amount you will be paying per month over a fixed-rate period. With a fixed-rate home loan, a change in interest rate will not affect your repayments when the interest rate goes up or down. If the interest rate declines, you will continue to pay a higher interest rate however if the interest rate increases, you will be paying a lower interest rate since you have fixed your loan. Another drawback with a fixed loan is that it is less flexible. This type of loan is very limited in terms of paying additional payments or paying it off during the fixed term without being charged fees and penalties.

When should you take out a fixed rate home loan?

It is tough to determine the best time to fix a home loan rate. Regardless, it helps if you have a basic knowledge of the economic conditions of the country and how they are affecting the interest rates. With this knowledge, you are in a better position to make an informed decision on whether it is a good time to fix your home loan rate or not. To stay informed, read financial news, and consult other financial experts.

You should keep in mind that you cannot predict when the interest rates will spike or decline. Even the experts in this field cannot forecast with 100% accuracy the direction of the interest rate. To ensure that you don’t get dealt with a bad hand, you can consider setting the rate for a relatively short period, for a year. If the interest drops, you wouldn’t be obligated to continue paying higher interest rates per month for more than 12 months.

Fixed-rate home loans in a nutshell:

• Monthly loan repayments stay the same for the agreed fixed period
• It has a fixed interest rate
• Exit fees are high
• It isn’t as flexible as the other loan types
• You may get access to limited extra repayments and redraw options

Standard Variable Home Loans:

The standard variable rate home loan is the most popular and widely used home loan product. Its popularity stems from the features it offers such as flexibility, features and affordability. The standard variable rate home loan usually enables you to make additional payments and redraw the extra repayments from the mortgage. You may be able to refinance it by changing lenders or loan types before the mortgage is repaid.

Standard Variable home loans in brief:

• Possible to make extra lump sum payments
• The repayment plan is flexible
• It has additional features like Redraw and Offset facilities
• It has the option to split the loan
• It comes with additional portability feature
• The interest rates may be higher
• It may be necessary to take up a package with a monthly fee

Credit Impaired/Non-Conforming Home Loan:

Credit impaired people and those working unconventional jobs find it tough getting a home loan. However, you can find what is right for you when you know everything about home loans. The non-conforming loans can be the right loan solution for you. Recently, it has become easier to obtain these types of home loan due to the increasing number of lenders that are now offering them. In the past decade, several lenders have started offering non-conforming home loans. Thus, if you have an impaired credit history, work an odd job, or are retired, then your chances of getting a home loan are almost as good as other people.

The credit impaired and non-forming loans have similar features to traditional and conventional home loans. However, in non-conforming loans, the lender charges higher interest rates and other fees due to the higher risk they are exposed to. For the non-conforming loans, you might be needing to have a larger deposit upfront before accessing the loan. The features of this type of loan might be less flexible than standard home loans. Regardless, the lender will allow you to choose between variable, fixed, and split loans.

Low Document Home Loan:

Low Doc, Short Form, or Express Application loans, are all names used in place of Low Document Home Loan. This type of loan is designed for the self-employed individuals or people that don’t have the conventional proof of regular income. Contractors, entrepreneurs, and seasonal workers are those found in this category. The name low doc came from the fact that the documents needed to process this type of loan differs from that of the traditional home loan. Despite that, you will still have to satisfy the various policies of the lender and the other documentation requirements.

Some of the policies include you signing an income declaration, a letter from your accountant, tax statements, and an Australian Business Number (ABN), 12-24 months of financial statements. With the low doc loans, the lender is exposed to a higher risk since the borrower doesn’t have a guaranteed and constant source of income. For this reason, the lenders demand higher deposits from the clients. Loan to Value Ratio (LVR) in this type of loan is somewhere between 60%-80% and it is based on the satisfaction level of the lender with the submitted documents. Usually, the lender charges a higher rate on low doc loans.

Low Doc home loan in brief:

• Developed specifically for self-employed clients
• Documentation flexibility needs to show the ability to repay
• Desired LVR is usually capped at 80%
• Might need Lender’s Mortgage Insurance (LMI) or other similar fees, which increases the cost of the loan

The information provided in this article may be too much to digest for some. Perhaps you may want to consider using a mortgage broker to find you next home loan. It is part of what mortgage brokers do. Get in contact with one.

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