Loan FAQs

Frequently asked questions about loans:

Home Loan FAQs

Home loans

The fundamentals of loan agreements are mostly understood, yet most people have questions about home loans and mortgage loan finance generally. Hopefully we can address your Home loan questions here.

What is a home loan anyway?

A home loan is a sum of money advanced at interest by the lender to the borrower for the main or dominant purpose of buying or refinancing a home, against the security of that property, or in conjunction with other real property as security.

How is the Loans secured for the lender?

A home loan agreement consists of two documents; 
The loan agreement which sets out the amount of the loan, the term of the loan, establishment fees, charges, interest rates, obligations of the mortgagor, penalties for defaulting, terms and conditions of granting the loan. This is summarised in the Letter of offer provided by the Lender. The loan agreement is enforceable at law, but without security is of little value to a lender. So a second document is required to protect the lender [mortgagee] against default on the part of the borrower [mortgagor].

The Mortgage document. This repeats much of what is in the loan agreement, but contains the pledge of the property being mortgaged from the borrower to the lender should the borrower default on the loan. [The word Mortgage is from old French, roughly translated meaning a pledge [by the borrower, or mortgagor] onto death. This means that a home loan is a serious legal document, not be taken lightly. You should always have your legal adviser explain the loan and mortgage documents to you so you understand the implications to you. In many circumstances it is also advisable to seek the advise of your financial adviser as one can explain the legal implications and the other the financial implications.
For a free application for a home loan click here now. and select the home loan that best suits you and an Australian Mortgage Member will refer you to the best mortgage option free.

What is a LoanMate Home Loan?

The LoanMate range of home loan solutions offers you many advantages over traditional finance options, including:
Competitive mortgage rates in the prime, sub-prime lo doc, and nonconforming loans.
with no ongoing fees and charges
High LVR's on any mortgage over $50,000, and up to $2,000,000.
LoanMate's lower rates and free account keeping means you can:
pay less for your home loan every month for life.
be able to service a bigger loan comfortably.
meet serviceability where you can't on a bank loan rate.
buy a better or bigger home.
become an investor sooner.
pay your home off sooner.
Have more money left over every month. 
Income verification and "no doc" options.
You can get a yes from us where your bank says no due to serviceability guidelines. We have options where you don't have to prove income at slightly higher than normal rates.
Free direct salary crediting.
This means you can put your salary directly into your home loan, reducing the interest payable, and redraw funds as required.
Build up "rainy day money" and pay off your home in a fraction of the time it normally takes using mortgage reduction strategies.

Free redraws any time.

Use the "savings" you have accumulated in your mortgage to make purchases, or pay unexpected bills, or build wealth by building the deposit for your first investment property.
Free Voluntary lump sums payments anytime.
So you can pay out your home loan fast.
Be able to redraw any time up to the reducing credit line.
Free account splits [up to four splits]
Free Internet banking
Free phone banking.
Free B pay
Free switching.
Change from fixed or variable when you like.
 And yes you can keep your bank account with your bank. We're only interested in the mortgage!
No need to change banks, just your mortgage!!
Is this Australia's best home loan? You be the judge!
For a free internet application apply now.

How is a home loan repaid?

We believe that home ownership is a great concept, and most people would benefit from a home loan, as it allows one to buy a home on a small initial payment [deposit] and then pay off the home loan in a comfortable repayment schedule.

This is called amortising the home loan, or a principle and interest home loan where part of the principle is repaid with every repayment. This is the main home loan option in Australia. Home loans can be repaid weekly, fortnightly or calendar monthly.

The other option is an interest only repayment schedule where the home loan principle amount borrowed is never repaid, only the interest is paid. [Variations of this can be the evergreen line of credit, but more on that later.] Whilst this seems a poor deal to the borrower, it has crucial advantages.

The loan repayments are smaller and therefore more affordable.

It allows borrowers to do other things with the money that would go to paying off the principle.
It allows borrowers to enjoy any capital growth for a minimum of outlay and repayment. Most investors use this option, as the only profit in investing in negatively geared property is difference between the buying price plus entry costs, and the selling price less exit costs.
In the last few years home prices in major population centres near high paying jobs have outstripped the wages growth of the jobs in these areas, so buying a home is less affordable than it was in the past in real terms for most people. So "renting the money" instead of repaying it may be the only way to get on the home ownership ladder.
This may be a good option to start off with and to switch to principle and interest later as incomes rise and the repayments are more affordable.

Another option have the principle and interest home loan and to buy a cheaper home in the outer suburbs and the pay it off and build equity to move closer to high paying work. But the reality has been that most of the capital growth and rises in value have happened in the near suburban areas of major capital cities, so this may be more costly option in the long term.

In the option above an interest only home loan may allow you to buy the home in the area near work, saving commuting time and expenses now, and selling and buying expenses down the track, and maybe yielding better capital growth, if you could crystal ball such an outcome.

In the end you have to get a roof over your head, so whether you rent one, rent the money to buy one or amortise the loan, it has to be affordable enough to make provision for your other expenses.

What are my obligations under a home loan agreement?

The four main obligations under a home loan for the borrower are:
To make repayments in a timely manner.
To maintain the land and improvements [home] in good order.
To pay the council rates as and when they fall due
To insure the home.
Most people are not aware that failure to do any of these things puts the borrower in breach and default of the agreement. These costs need to be factored in when considering a home loan.
Is this Australia's best home loan? You be the judge!
For a free internet application apply now

My home loan application has just been declined! Why is this?

If you have applied for a home loan and been declined, it could be any of several reasons. The lender should advise you of this but many choose not to. The reasons for decline can be:
It could simply be that your application was poorly presented. We may be able to get it through. Please apply here and we will see what we can do. Please advise that you have been declined and by which lender.
Poor credit history including:
Defaults and judgments of any party to the loan
Lack of job and employment stability or full time work of any applicant.
Number of dependents. Many lenders don't like more than two children, as children rearing is a growing expense, and possibly because this may impact on a mothers ability to stay at work. Mums that work and raise a family have their hands full. When its a large family, family is a full time job in itself.

It is therefore a good idea to buy a home before you plan a family, even its a modest home and not big enough for the size of the family planned. If you move and have equity built into the home, then this will lessen the loan required to the next home and this will make repayments easier. We have lenders who may help here.

The Home [Security] may be outside lenders guidelines. If this is the case we may be able to assist, so apply here.
Should the property value not stack up, you will usually get a loan offer of a lesser amount.

Unsatisfactory savings history or deposit, or insufficient funds to complete the purchase. We may be able to get over this with another lender, or mortgage insurer.
Is this Australia's best home loan? You be the judge!
For a free internet application apply now.

What types of home loan lenders are there?

 Home loan lenders fall into four groups.
Banks and Building Societies. The traditional home loan lenders in Australia.

Non bank Mortgage providers. A fast growing sector in the home loan market in Australia. have around 30% of the market. Many offer better deals than banks, usually with no ongoing fees and charges.
Non conforming lenders. Lenders that lend outside normal bank lending guidelines. This is a rapidly growing niche in the home loan market in Australia. We have several home loan mortgage lenders who will assist where banks say no.
Lenders of last resort. Private mortgage funds normally administered by legal practices that specialise in this form of lending. We occasionally arrange this type of loan, for business people and developers who want fast decisions [money in seven days is common] and be in and out of deals frequently. The higher interest rates are of no concern as they want to be in and out of the deal in 12 months or less with large profits. Can roll these home loans over, and even get interest paid in advance so no repayments required!
Is this Australia's best home loan? You be the judge!
For a free internet application apply now.

What types of home loans are there?

Australia is the most competitive home loan market in the World, and has the largest choice of loan products. new ones, or derivatives of old ones are constantly being touted by lenders. Examples of options available are:

Principle and interest home loan. The jewel in the crown of Australian lending, and by far the most popular home loan product for home owners. The loan is amortised [paid back] of the given period, usually between 10 and 30 years in Australia.
Variable Interest only home loan. In high cost home areas such as Sydney and Melbourne this option reduces loan repayments by foregoing principle repayments. This makes the home loan more affordable and allows the buyer to settle on property that may otherwise be out of reach.

Fixed Interest only home loan. The investors favourite home loan, as it allows an investor certainty in repayments. Also used by people that fear interest rate spikes that we saw in the late eighties and mid seventies. Usually not as flexible as the variable loan, and set at a higher interest rate. Since the mid nineteen nineties those that have elected to have a fixed interest rate loan have lost big time, as interest rates have continued to fall or stay flat, with many people locked into loans that are several percentage points higher than the market rates.

Line of credit. The home loan that is becoming more popular all the time, mainly due to mortgage reduction concepts. A line of credit is a flexible variable interest loan option [the interest varies with market variations on the cost of the money lent]. The line of credit that allows an unlimited amount of payments and redraws in any month. It is usual a variable interest only facility, but there are many variants including: 
All in one account. Includes a cheque book and credit card to better manage your money.

Evergreen. Interest only. The home loan you never have to pay back as long as to meet your mortgage obligations.
Principal and interest. This one offers the safety of repaying the loan and having the surpluses when you need it. Many people with lines of credit tend to use it to improve their lifestyle rather than pay out the home loan early, or as an investment facility.
Interest only then amortising. This home loan model allows low repayments and the safety of repayment of the loan.
Cocktail. Any combination of the above in one loan with separate accounts. Sometimes called 'blends'.

Split loan. Unlike in the US, and many other developed nations, Australian's don't enjoy tax deductibility on mortgage loan interest. The split home loan offers a split account home loan facility that allows you to convert the existing home into a tax favoured investment and buy a new home to live in. Created by Austral Mortgage in the mid 1990's then condemned by the TAX office. The tax office didn't like investors using the capitalising of interest on the investment property, and rapidly paying off of the non tax home loan. The Tax office has lost the battle after three court losses the tax rulings have gone in favour of the investors, and lenders who sat on the fence are now clambering to offer them.

Check with your Tax advisor to see what the latest rulings are with loan.

Portfolio loan. Line of credit that has multiple accounts [up to ten] Ideal for business people with multiple investments, who want to run all their home business and investments in one account to save on fees and charges.

Offset loan. A home where you have two accounts [often fees and charges apply to both] a savings account and home loan account. The interest of the home loan is offset by the savings in savings account. Be careful. These are touted as 'as good as' lines of credit but come in complex derivatives.