Information Guide Booklet. Home Loans

Transcription

1 Infrmatin Guide Bklet Hme Lans This Infrmatin Guide bklet prvides yu with general infrmatin nly. It will als help yu t better understand any recmmendatins we have made fr yu.

2 Infrmatin Guide Hme Lans January 2013 Abut Us Newealth is an independently wned Australian private cmpany. Nt being wned by any banks, life insurance cmpanies r fund managers has permitted Newealth t better service clients, identify strategies and recmmend slutins that meet their needs. This Infrmatin Guide prvides yu with general infrmatin nly abut brrwing t purchase a residential prperty. It will als t help yu t better understand any recmmendatins we have made fr yu in this regard. D I need a lan pre-apprval? Strictly speaking yu d nt have t get yur lan pre-apprved befre signing a cntract t buy a hme. Hwever if yur lan is pre-apprved then yu can be cmfrtable in the knwledge that yu will have little truble btaining finance. What is LMI? LMI is an acrnym fr Lenders Mrtgage Insurance. If yu are brrwing ver 80% f the value f a prperty then yur lender will prbably require that yur lan is insured due t the increased risk. This insurance prtects the lender, nt yu and the lender will pass this premium n t yu as a nce ff fee when yur lan is advanced. If yu were t default n the lan and yur lender was t lse mney then they can claim n their LMI plicy t recver their lss. What des LVR mean? LVR is an acrnym fr Lan t Valuatin Rati. This is a term used by lenders t describe the percentage f the prperty value yu are brrwing. It is calculated by dividing the lan amunt by the value f the prperty r the purchase price, whichever is the lesser. Fr example if yur hme was wrth $1,000,000 and yu decided t brrw $600,000 then yur lan wuld have an LVR f 60%.

3 P&I lans Variable principal and interest lans are where the interest rate is charged n a variable basis and mves up r dwn in accrdance with mvements in interest rates as set by the Reserve Bank. Advantages- Variable P&I lan Mnthly repayment falls when fficial interest rates fall Able t make additinal repayments Redraw facility which lets yu take ut any additinal principal repayments Lw intrductry r hneymn rate Lwer interest rate versus equity type lans Disadvantages- Variable P&I lan Mnthly repayment rise when fficial interest rates increase Fixed rate lans A fixed rate lan is a lan that has a fixed interest rate and therefre fixed lan repayments. The time perid f these lans can vary but yu can usually lck in yur repayments fr between 1-5 years. Althugh the fixed rate perid may be 5 years, the ttal length f the lan itself will generally still be fr 25 r 30 years. At the end f the fixed lan perid yu can decide whether t fix the lan again at the then market interest rates r cnvert t a variable interest rate fr the remaining term. Advantages- Fixed rate P&I lan Mnthly repayments d nt rise if the fficial interest rate rises Prvides predictability Allws mre precise budgeting Disadvantages- Fixed rate P&I lan Mnthly repayments d nt fall if the fficial interest rate reduces Allws nly limited additinal payments Penalises early payut f the lan Interest Only lans Interest nly lan d nt require any principal t be repaid during the term f the lan and s yu have mre mney t renvate/imprve the prperty. At the end f the interest nly perid hwever, usually fr 1 t 5 years yu must start making principal and interest repayments fr the remaining term f the lan.

4 Line f Credit lans Uses the equity in yur prperty and allws access t funds when needed. These prducts are ways t raise funds fr investment by prviding cash up t a pre-arranged credit limit. Each mnth the lan accunt balance is reduced by the amunt f cash cming in and increased by the interest cst and withdrawals. Advantages- Line f Credit lan Disadvantages- Line f Credit lan Flexibility t use the mney yu need and pay it back when yu can Interest rate tend t be lwer than credit cards r persnal lans rates Imprved cash flw because it nly requires at minimum an interest-nly repayment each mnth Usually higher interest rate than a P&I lan Need t be disciplined t make principal payments regularly Can be very expensive ver the lng term if the utstanding lan balance is nt reduced. Lw-dc Lans A lw-dc r n-dc mrtgage can suit investrs r self-emplyed brrwers lking t refinance, purchase r renvate. N tax returns r financial reprts are required but they cme at the cst f a higher interest rate. Nn-cnfrming lan Peple with pr credit ratings ften have truble surcing a hme lan. Many lenders nw ffer what are knwn as nn-cnfrming lans fr peple in this type f situatin but at the cst f a higher interest rate than traditinal lans. While lenders are willing t verlk prir credit prblems, they will want t see sme evidence f yur ability t repay the lan. A larger depsit/equity is als required cmpared t traditinal lans. Why d peple refinance? Refinancing is the prcess f repaying yur ld hme lan with a new hme lan, usually frm a different lender.

5 Refinancing t save mney is the main reasn why peple chse t refinance. If yur lender is n lnger cmpetitive then yu may have little alternative but t mve n. The difference between lenders can be stark and it s pssible t save mney just by changing hme lans. Other peple refinance t cnslidate debt. This is the prcess f paying ff multiple debts such as yur hme lan, credit card, persnal lan, HECS debt and s n in int ne hme lan. The mre expensive unsecured lans are paid ut by yur new lan which means that verall yu will have a lwer interest rate and lnger lan term which will reduce the size f the mnthly repayments and the amunt f interest yu pay. Other reasns include fr refinancing include yur current lender nt being able t apprve a lan increase, t release equity in the prperty and r because yur current lender desn t give yu a gd level f service. Why wn t my bank match the ffer frm the lender yu are suggesting? Mst lenders tend t ffer yu the wrld when yu first apply fr yur hme lan but then stp giving yu a high level f service and gd interest rate discunts when yu have been with them fr a few years. Banks knw that if yu have yur hme lan, bank accunt and credit card all with the ne bank then yu are unlikely t g t thrugh the hassle f changing all yur accunts. Because f this they ften refuse t give yu the same discunt that they are giving new custmers, even when yu threaten t leave. Review Yur hme lan shuld be reviewed at a minimum f nce per annum.