INDI FINANCE

There are a variety of government incentives designed to assist first home buyers achieve their dreams and reduce the savings needed to cover certain costs of buying a property.

Speak to a mortgage broker, like Indi Finance, to understand these incentives and whether they suit your purchasing scenario.

To determine how much you need for your deposit, you first need to figure out how much you can afford to borrow. At Indi Finance, we can help you plan out your loan and deposit amount, as well as any associated fees and charges (purchase costs) you will need to cover to achieve your goals.

Aside from the costs associated with your home loan, there are additional costs to hold and maintain your property including:

• Council rates
• Household bills such as water, gas, electricity and internet
• Home and contents insurance
• Body corporate fees (if you live in a unit or apartment)
• Maintenance costs such as gardening, gutters and sporadic repairs

It is worthwhile creating a monthly budget to understand your incoming and outgoing finances so you can be sure you’re not just working and living in the house without any of the fun stuff.

When buying your home, it may be worth holding a savings buffer to handle any of those rainy-day events that may come up from time-to-time. This also gives you some extra flexibility to absorb the costs of holding a property without living day-to-day or holding off taking care of something until you scrape together the funds.

Aside from your purchase price, there are some costs and fees to budget for when buying property, including:

• Conveyancing
• Building and pest inspection
• Stamp duty
• Property transfer fees
• Government fees and charges
• Loan application fees and charges
• Moving costs

Loan to Value Ratio (LVR) is the percentage of your home’s value covered by your mortgage.

For example, if the home you’re buying is valued at $600,000 and you’re borrowing $450,000 to pay for it, your LVR is 75 per cent and would be calculated like this:

($450 000 loan ÷ $600 000 property value) x 100 = 75% LVR

The lower the LVR, the lower is the risk to the bank. Generally, lenders consider loans with a LVR over 80 per cent of the property value to be high risk.

Lenders may require you to pay Lender’s Mortgage Insurance (LMI) if they consider your LVR too high.

Lenders Mortgage Insurance (LMI) is an additional cost when borrowing your loan. It covers the insurance policy taken out by the bank when you borrow an amount (typically) over 80 per cent of the value of your home.

As the leverage position poses a greater risk to the bank if the value of the property falls, they take out an insurance policy to ensure they are protected and able to recoup the full amount borrowed.

In certain circumstances, it may be beneficial to borrow over 80 per cent and wear the costs associated with LMI (and higher interest charges). People sometimes choose to do this so they can borrow more and provide less of their savings when purchasing a property.

A pre-approval, also known as conditional approval, provides a buyer with an indication of what they can borrow from a bank.

A pre-approval provides buyers with confidence as they can enter the market with a clear understanding of their lending and purchasing limits. Final approval will still be subject to a final assessment of your home loan application and the property being purchased.

Speak to a mortgage broker, like Indi Finance, to understand how a pre-approval can work for you.

When buying a property, your home loan repayment will be determined by the amount of money you borrow, the interest rate provided by the bank and the loan term.

It is important to understand the proposed home loan repayments before you take out the loan. As much as you can borrow to your maximum amount, this may not suit your overall lifestyle and household budget. Selecting a home loan amount which requires repayments you’re comfortable with, will help you balance your mortgage and lifestyle.

Principal is the amount of money you have borrowed from your bank.

Interest on a home loan is the cost a bank will charge for lending to you. The interest charged over the life of the loan provides the bank with a return on their investment for lending you the funds.

A bank typically calculates the interest on a home loan at the end of each day. Then, at the end of each month, the bank will add the daily interest charges (for each day of the month) and the total is the interest figure you usually see on your home loan statement.

A comparison rate helps you compare the actual cost of home loans because it includes the interest rate, fees and charges payable during the term of the loan.

If you’re comparing different loans from multiple banks, the comparison rate will enable you to find out how much a given home loan will cost you, in addition to the standard interest rate.

A loan feature which allows you to make additional repayments above minimum required, which saves you money on interest and can be drawn out of your loan if required.

Please note that the redraw value is typically realised once you are at least a month ahead on your repayments. For example, if you pay an additional $20,000 and your minimum mortgage repayment is $2,500, then your redraw value would be approximately $17,500.

A loan feature which allows you to hold additional funds (savings) in a transaction account aligned with your loan so you can save on interest. For example, if your loan balance is $480,000 and you hold $20,000 in your transaction account, the amount of interest charged would be based on total position of $460,000 rather than $480,000.

Yes, most loan products enable you to pay ahead. Typically, you may have 30 years to repay your mortgage, which means 30 years of interest charged. Making extra payments above your minimum requirements, puts you on track to pay off the loan in less time which also means you are saving on interest charged.

The additional money you pay on the loan will be held as redraw.

There are different ways to pay off your home loan early, these include:

• Change your repayment frequency
• Make extra repayments
• Make lump sum payments
• Use an offset account

You can ask a mortgage broker, like Indi Finance, to undertake a home loan health check to ensure you’re in a position to pay off your mortgage as soon as possible. They will do this by reviewing your circumstances and uncovering strategies for you to get the most out of your loan.

By reviewing your loan and ensuring you have a market competitive interest rate, you will limit the amount it is costing you to hold your loan. Paying less interest means you will pay the loan off faster as repayments cover more of the principal (your loan value).

Equity is the difference between what you owe on your property and what its value is. A bank can complete a valuation on your property to determine your equity position.

If you think your property value has increased, it can be worth doing a new valuation as an improved equity position can have a positive effect on your home loan. Some lenders provide discounts on your interest rate because more equity means lowered risk for the bank.

Speak to your mortgage broker to find out how equity can work for you.

Get a FREE Property Report here.

Although you won’t be able to borrow against the full value of your home, you may be able to draw from the value of your home to fund other projects such as renovations or to cover the deposit and costs to purchase another property.

An improved equity position can also have a positive effect on your home loan. Some lenders will provide discounts on your interest rate because more equity means lowered risk for the bank.

It is important to note that having equity doesn’t always mean you can use it. Your ability to borrow will still determine how much you can borrow on top of what you currently owe.

Speak to your mortgage broker to find out how equity can work for you.

Get a FREE Property Report here.

You may be able to leverage the equity in your home to cover the deposit and costs on a new property. Using equity is generally much easier than saving for another deposit.

Speak to your mortgage broker to find out how your equity can work for you.

Get a FREE Property Report here.

You may be able to leverage the equity in your home to cover the deposits and costs on a new property. Using equity is generally much easier than saving for another deposit.

A mortgage broker, like Indi Finance, can help you do this by refinancing or restructuring your current loan to include the extra money you need.

This will need to be considered by the bank according to their policies and through a new pre-approval to check you can afford the new debt. Your broker can also help navigate this.

Get a FREE Property Report here.

Most home loan features are available for both investors and owner-occupiers, and the two types of home loans generally function the same way. However, some lenders charge higher rates for investment properties if the associated risks are higher. The fees charged on investment home loans may also be higher.

Yes. We need to notify the bank when you change the use of your home from an investment property to your principal place of residence. This may result in lower costs for you to hold the property (such as interest rates).

Speak to your mortgage broker and tax accountant to understand what these changes in circumstances mean for you.

This means you’re only required to pay off your interest charges for the agreed period and aren’t required to pay anything towards your home loan principal.

These types of home loans can have advantages for property investors but will typically be more expensive overall compared to a standard principal and interest home loan of the same value.

Generally, an interest-only home loan is offered as an investment product as a strategy to reduce costs to hold your investment whilst gaining from the increase in value over time.

By speaking to a mortgage broker, like Indi Finance, you will be able to compare your loan against others on the market.

Your broker can also help you apply for a better deal if one is available to suit your circumstances. This might include taking a look at the features included in your loan and determining if you’re using them. If not, a loan without these features may reduce your costs.

Refinancing is the process of switching your home loan to one offered by a different lender. This may save you money, but it’s important to understand the pros and cons before deciding whether or not the switch is right for you.

Some of the advantages of refinancing may include achieving a lower interest rate or consolidating your debts and improving your cashflow. Disadvantages could be the cost benefit and increasing your home loan or loan term.

Speak to a mortgage broker, like Indi Finance, to determine whether refinancing could work for you.

Speak to a mortgage broker, like Indi Finance, who can check how your loan rate stacks up against others on the market. They will talk you through the comparisons they have made and the best options to suit your circumstances. If there is a benefit to making a move, your broker will assist you through the process of switching banks by applying with the new lender and filling out the forms to release you from your old loan.

Your borrowing amount will be determined by the interest rate, home loan product, value of your property and lending policy of the bank. Your borrowing amount is calculated against your intended future financial position.

Speak to a mortgage broker like Indi Finance, to understand your borrowing options.

Although there are no exit fees for leaving your current bank, there can still be some costs involved when refinancing, these include:

• Mortgage discharge – this is a general fee your current bank will charge to finalise your accounts and process the loan being released; think of it like an admin fee.
• Government/transfer fees and charges – this includes registering the new loan against your property title and also releasing the original bank from the title.
• Application fees – The new lender may charge you fees to cover the costs of valuation and processing of the new loan to the bank.

The cost to move differs between lenders and may be incorporated into your new loan so you are not immediately out of pocket. On average, the cost to move between banks will be approximately $750. Speak to a mortgage broker like Indi Finance to considering whether to refinance.

In most cases, nothing, as mortgage brokers are usually paid a commission by the banks for referring your home loan to them. On average, most banks pay a similar referral commission.

As mortgage brokers, we’re held to account by law to provide a loan suitable for our clients, in their best interests. This ensures there is no favouritism with any particular lender.

A mortgage broker is paid by the bank that we refer your loan to. This payment is made in two components, one for the initial referral and another amount for retention of the loan with the bank until it is paid out in full.

• Percentage of loan amount at settlement – UPFRONT
• Percentage ongoing for the life of the loan – TRAIL

The upfront is conditional on a minimum period the loan is retained at the bank and could incur what’s called a ‘clawback’ if the loan doesn’t meet these conditions.

If the loan is refinanced or is paid out within two years of the settlement date, the bank may reclaim the upfront commissions from the mortgage broker.

Typically, this will be:

• 100 per cent within the first 12 months
• 50 per cent within 12-24 months of the loan settlement date