Where Can I Find The Lowest Home Loan Rate?

Where Can I Find The Lowest Home Loan Rate?

 

If you want to find the lowest rate home loan, you may be doing yourself a disservice.

 

Like most consumer products, a cheaper price doesn’t necessarily mean the best value. In fact, the cheapest product on the shelf may be the worst on offer.

 

Finance is no different. Many loan products that advertise a low interest rate are lacking in other features.

 

This is why it is important to look beyond rates and find a loan that is suited to your needs.

 

Keep in mind the needs of an investor are different to those of a home buyer.

 

Ditch The Comparison Sites

Comparison sites are useful for comparing rates, but they don’t compare what’s actually important – the back end and features.

 

Some mortgage brokers are the same, being stuck in an interest rates mentality, forgetting about the structure of the loan.

 

For example most people wouldn’t choose a phone plan just because it is the cheapest one out there. Instead, they would consider the ways in which they use their phone, and then choose the package that offers the best value for their needs.

 

Loans should be no different. And, since you will be entering into a mortgage that may take 30 years to pay off, it is important to think of how your needs may change over the long term.

 

You don’t want to have to break your contract early and pay out the remaining interest charges.

 

Consider Your Needs

You may be a home-buyer wanting to apply an offset account. You may be a property investor looking to release equity in a year’s time.  Either way, you will need to choose a loan that will allow you to fulfil your short and long term goals.

 

Will you need to redraw into the mortgage from time to time? Will you want to make extra repayments? Will you want to revalue your property to release equity within six months of the purchase date? Do you need to fix rates for a set period?

 

When it comes to questions such as these, comparison sites may not give you the answers you are looking for.

 

The cost of not considering these questions is often unexpected nasty surprises such as hidden fees, charges or exit costs.

 

How To Find The Best Loan

While it can be hard to sift through the credit policies of all the lenders available, a finance strategist can help you narrow it down.

 

By getting a clear idea of your goals, and developing an understanding of how you will need to use your loan, they can do the sorting for you.

 

Contrary to popular belief, most mortgage brokers don’t charge extra in the form of higher interest rates. If they do, and they don’t disclose it, they are dodgy – plain and simple.

 

Instead, brokers are remunerated through a commission that is paid by the lender.

 

A good mortgage strategist will save you hours of your precious time. Going through a good broker will give you piece of mind that you have the best loan product for your needs.

How Soon Can I Withdraw Equity?

How Soon Can I Withdraw Equity?

 

If you plan to build a property portfolio, you need to be able to withdraw equity.

Before entering a mortgage, you need to know how soon you can withdraw equity.

Here are a number of questions you need to ask before agreeing to any loan!

 

1) Can You Withdraw Equity At All?

Not all lenders allow you to withdraw equity. Some will cap the amount you can take out. Others won’t let you access it at all.

A big mistake many people make is to fix their interest rates. This essentially puts a freeze on their whole mortgage. They can’t withdraw equity.

Finance Manager for Zinger, Graham Turnbull, says a client who had previously fixed repayments before coming to Zinger found.

The terms and conditions of the fixed rate agreement prevented them from withdrawing equity until the term was over.  That’s a long time to wait in a booming property market!

The alternative was to break the contract and pay $20,000 in break costs!

If you intend to withdraw equity, you need to let your broker know this from the beginning.

 

2) How Soon Can You Revalue The Property?

Lenders and loans can vary when it comes to revaluing in order to access equity. Some allow valuations six months after the purchase, while others need a minimum of 12 months.

Graham says, in some cases, lenders may not require a valuation at the time of purchase, but will accept the sales contract as proof of the purchase price instead.

Under this arrangement, it can sometimes be possible to order a valuation much sooner.

Graham says, as part of Zinger’s duty of care to its clients, a valuation will usually be ordered on the first anniversary of purchase.

This can help portfolio-building investors move on to their next purchase if they have enough equity available to fund another property deposit.

 

3) A Bank Valuation Is Not A Market Appraisal

When it comes to getting your property valued, you may be surprised to find it’s valued at less than what a real estate agent would suggest.

While bank valuations may be deemed “conservative” by many, it is important to understand that banks perception of value is different from a home buyers, or investors.

“The banks are looking at property in terms of how suitable it is to hold as security,” says Graham.

Valuers must present a fair and unbiased assessment so that the lender can determine the property’s value against the loan they are issuing.

Real estate agents may present the highest value they believe they can sell the property for.

A bank valuer will assess how much they believe they could sell the property for fast, in order to recoup a loan.

 

4) You May Not Be Able To Access 100% Of Your Equity

Just like a standard home loan, you can usually access up to 80% of your equity without paying Lenders Mortgage Insurance (LMI). So, while you may own $200,000 of equity, you may be limited to accessing $160,000.

 

5) Are Your Properties Cross-securitized?

If you have tied together your existing properties by cross-securitizing (or cross-collateralising) them, you may find it difficult to access equity.

For example, say you had two properties that were cross-collateralised. The first property dropped by $50,000 since you purchased it, but the second went up by $50,000.

In the eyes of the lender, those two properties have evened out in value. In other words, the poorly performing property has negated the value of the well-performing property, and there is therefore no equity available.

 

6) Has Your Property Increased In Value?

Whether or not the property has increased in value is an obvious factor that will affect how soon you can withdraw equity.

Graham says, a mortgage broker can run a market report before ordering a valuation. This can give a good indication of what the valuation may come in at.

He says a poorly maintained property may affect how much equity is available.

“We would always encourage property owners to maintain their property,” he says.

“If there was anything that needed doing and they had neglected it, that may affect a future valuation.”

 

A Finance Strategist Can Set You Up With The Best Loans For Accessing Equity

While most people get stuck on finding the cheapest rate, a good finance strategist can help investors find the best loans to suit their goals.

Choosing the right loan to begin with should help ensure you are on the right track to achieving your goals as a property investor; removing roadblocks before they even arise.

How Much Can I Borrow?

How Much Can I Borrow?

Calculating how much you can borrow is not as simple as you may think. Different banks might come to different decisions on how much to lend you. Here are some things they look at before deciding.

 

Lending Is Case By Case

Finance Manager for Zinger Finance, Graham Turnbull, says lending is a case by case scenario that depends on the borrower’s serviceability and credit history.

[Serviceability is a word that banks use to describe the borrower’s financial ability to pay back a loan.]

A number of different income and expense considerations are taken into account before deciding how much an individual can afford to borrow.

 

How Do Banks Assess Borrowing Capacity?

Before a bank lends you money, they need to find out if you can afford to make the monthly repayments on this amount.

They may do this by using a variety of different calculations such as Net Income Surplus (NIS).

The NIS shows the lender how much money the borrower will have left each month after paying for expenses and making mortgage repayments.

To calculate NIS, lenders will aggregate all sources of income before subtracting living expenses, and debt obligations. This includes monthly repayments on the new debt and monthly repayments on any existing debt.

Each bank is different. While most banks calculate NIS in this way, the way each financial institution treats income and expenses can vary.

 

Not All Income Is Treated Equally

Most banks will distinguish between different types of income.

For instance, income from a self-employed person is usually seen as less secure than that of a permanent, full-time employee.

The amount of time an individual has worked in their role can also affect serviceability. If a person has only just started at a new job, their income will be seen as less secure than that of a person who has worked 12 months in their role.

Uncertain income sources, such as rental income, investment income, Centrelink payments, bonuses and commissions, will usually be given a “haircut”.

This trimming strategy is used to reduce risk to the bank – and the borrower.

 

Expenses

When it comes to assessing a borrower’s level of expense, lenders apply a minimum benchmark that is based on the Household Expenditure Measure (HEM).

To the banks, it is almost irrelevant having a level of expense that is lower than this benchmark – even if you actually do. This is a safeguard to ensure that if your expenses do increase, you will still be able to make repayments.

 

Dependants

If you have dependants, you will have a greater level of expenditure than if you are single and without children.

 

Existing Debts

Lenders may load up your repayments on existing debt in order to reduce risk. While you may be paying interest only at a low interest rate, lenders will calculate this expense as though you were paying both principal and interest at a slightly higher rate.

 

Mortgage Repayment Buffers

Banks will also apply the above mentioned strategy to the repayments on the new loan. Even if you will be paying interest only for the first five years, the lender will use an “assessment rate” at higher interest on both interest and principal repayments.

 

Credit Cards

The limits on your credit cards are also taken into account when calculating expenses. The banks want to know that you will be able to pay your mortgage even if you max out each month.

 

Credit History

Banks may be reluctant to lend you money if you have a bad credit file. Missed payments and multiple loan applications may mean lenders will see you as a high risk customer, affecting how much you can borrow.

 

Put Your Best Foot Forward

Graham says, speaking with a finance strategist is the best way to find out how much you can borrow. He says, in order to present your best self to the banks, it is helpful to do the following:

 

  1. Stay in control of paperwork and have all income and expense statements in easy reach.
  2. Demonstrate a good savings history and manage statements to demonstrate consistency and financial control.
  3.  Check your credit file and clear up any black marks.

Let's chat

Take the next step and book a chat with a Financial Strategist today.

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Zinger Finance can find a solution, no matter what your finance needs are. If we can’t help, we will find you someone who can!

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