Home Loan Features
ADNA Financial Services can help you to choose a loan with the features and benefits that are right for you. We can recommend a loan for your particular needs and we take care of all the paperwork. When your ready, talk to us about your next steps.
The following tips will help you not to fall into the trap that many Australians do each year when looking for that perfect home loan.
Here are some Home Loan Features explained (click + sign for more information):
- Additional costs associated with home loans
Generally, you will require additional funds to cover fees and costs of approximately 5 – 7% of the purchase price. These costs may vary due to many factors based on your unique circumstances. Here are some of the costs outlined:
Stamp Duty – is the State Government tax on mortgage documents and the property price.
Conveyancing – is the legal transfer of the Property Title from one person to another.
Lenders Mortgage Insurance (LMI) – Additional cost for you to pay if borrowing more than 80% of the property value. This cost gets added to your home loan amount via small increase in your ongoing loan repayments.
Building Insurance – You should have your building insurance policy activated as soon as the contracts are exchanged. You should also include contents insurance if you are an owner occupier. If you have purchased an investment property that has tenants you should also consider landlord insurance. An ADNA Financial Services Mortgage Specialist can refer you for a quote with our preferred insurer.
Goods and Services Tax – will be charged with new house and land packages, your real estate agent’s selling commission, conveyancing and solicitor fees, valuation fees, moving costs etc.
- Common Terms
Interest only repayments
With this feature you only pay the interest on the loan, not the principal, usually for the first one to five years although some lenders offer longer terms. Many lenders give borrowers the option of a further interest-only period. Because you’re not paying off the principal, your monthly repayments are lower. These loans are especially popular with investors who pay off the principal when the property is sold, having achieved capital growth.
Making Extra repayments
If you pay more than the required regular repayment, the extra amount is deducted from the principal. This not only reduces the amount you owe but lowers the amount of interest you repay. Making extra repayments regularly, even small ones, is the best way to pay off your home loan quicker and save on interest charges.
Weekly or fortnightly repayments
Instead of making regular monthly repayments, you can opt to pay off your home loan weekly or fortnightly. This can suit people who are paid on a weekly or fortnightly basis, and will save you money because you end up making more repayments in a year, cutting the life of the loan faster.
Repayment holiday
You can take a complete break from repayments, or make reduced repayments, for an agreed period of time. This can be useful for travel, maternity leave or a career change. Options vary from lender to lender.
Direct debit
Your lender automatically draws repayments from a chosen bank account. Apart from ensuring there is enough cash in the account, you don’t have to worry about making repayments.
Professional package
Home loans over a certain value are offered at a discounted rate, combined with discounted fees on other banking services. These can be attractively priced, but if you don’t use the banking services you may be better off with a basic variable loan.
Cross Collateralisation
Cross-collateralisation is a term used when the collateral of one loan is also being used as collateral for another loan. If a person has borrowed from the same bank, a home loan secured by the house the person lives in, an investment property loan secured by another investment property, and so on. These assets can be used as cross-collaterals for all the loans.
If the person pays off the investment property loan and wants to sell the investment property, the bank may reject the proceeding because the investment property is still being used to secure the home loan and other loans. Essentially, cross-collateralisation only expires when the borrower has no outstanding loan with the bank.
- Helpful Checklist of documents required when applying for a loan
Most lenders require the same documents to approve a loan. This is a general checklist so some of the documents may not apply to you. Your broker will confirm which documents you will need.
Make sure you bring the documents below to your meeting with your broker to help fast-track your loan application.
Personal Identification
- 100 points of ID are required. This can be in form of:
- Current Drivers Licence Please note if these documents are in your maiden name, you will also need to provide a copy of your Marriage Certificate.)
- A current Passport or Birth Certificate.
Other documents that help build up 100 points include:
- Medicare card
- Credit card
- ATM/Debit card
- Council Rates Notice
- Pensioner Concession card
- Health Care card
- Tertiary Student ID card
Income details
PAYG applications
- Two consecutive computer generated payslips (latest, not more than one month old) confirming at least three months’ YTD income.
OR (where above not available):
- Two consecutive computer generated payslips (latest, not more than one month old) with less than three months’ YTD income plus one of the following:
- Latest year’s group certificate
- Most recent financial year PAYG summary, tax assessment notice or lodged tax return (with accountant or tax agent details)
- Last computer generated payslip from last financial year showing at least three months YTD income Employment contract, signed and dated, with employment conditions Employment letter (not more than one month old) with employment conditions Latest year’s tax return and notice of assessment.
- When payslips are not provided by the employer:
- Employment letter (not more than one month old) with employment conditions e.g. occupation/role of applicant, length of employment and current base income plus
- Three months’ bank statements (latest not more than one month old) showing salary credits that match employment letter.
Self-employed or company director applications
- Tax returns from the past two years and a minimum of one year’s Tax Assessment Notice (personal and company/business/trust if applicable).
- Balance sheets and Profit & Loss statements for two years (if applicable).
- Most recent ATO assessment notice.
Company/Trust applications
- Every Director/Trustee must complete a separate Financial Details section on the application form. If there are more than two Directors/Trustees the application form should be photocopied and completed by all Directors/Trustees.
- Guarantor(s) must complete section 15 including Guarantor solicitor’s details.
- Company/Trust balance sheets, P&L statements and tax returns from the past two years with an ATO Assessment notice.
- Tax returns from the last two years with a minimum of one year’s Tax Assessment notice for all directors.
- A completed Company and Trust application form.
New purchase applications
- A copy of Sale and Purchase Agreement for the property you are purchasing.
- A copy of Sale and Purchase Agreement for your current property, if it is being sold.
- Bank statements/fixed investment certificates/share certificates from the past three months to confirm your deposit where LMI is applicable.
- Evidence of deposit funds to complete.
Investment property applications
- Current Tenancy Agreement
- Current Rental Statement from the managing real estate agent
- An estimate of achievable rental income to be confirmed in writing by a licensed real estate agent independent of the agent involved in any related sale.
OR
OR
Rental Income (require one of the following for each property)
- Latest rental statement issued by a real estate agent showing the name of owner and the owner of the property address.
- Latest tax return showing gross rental income received from property.
- Letter from real estate agent advising the expected rent to be received and the address of the property.
Refinance applications
- Home loan statements for the last six months for all loans being refinanced, latest not more than one month old.
- Last three statements for all personal loans, overdraft accounts or credit cards etc being refinanced, latest not more than one month old.
- Provide up to date rate notices and body corporate levies (where applicable) for all security properties.
Construction
- Construction is ready for immediate commencement after land settlement.
- Fixed price, Fixed term, industry standard building contract with progress draw schedule (or fully detailed tender).
- Copy of plans and specifications.
First Home Owners Grant (FHOG)
- Fully complete FHOG application form with relevant documentation attached.
Fixed Rate applications
- If applicable, include a Secure Rate Guarantee Fee.
- A Secure Rate Guarantee Fee is payable if you choose to lock in the Fixed Rate to provide you with certainty until settlement of your loan.
- The Fixed Rate will be held for 90 days from receipt of this fee.
- Payment must be made with your application.
- Offset account
An offset account is an everyday savings account which is linked to your home loan. You can also use it to deposit your salary into the account to help you make payments on your home loan. Any money paid into the savings account is deducted from the balance of your home loan before interest is calculated. The more money you save, the lower your regular home loan repayments. You can access your savings in the usual way, by EFTPOS and ATMs. Lenders provide partial as well as 100% offset accounts.
Advantages
- An offset account could help you save thousands of dollars over the life of your home loan as well as eliminate the tax bill on your savings.
- For example you have a $325,000 home loan with an interest rate of 5.20% p.a. If you keep $2,500 in your offset account, you’ll only pay interest on $322,500 of the loan.
- This will add up over time – so not only will you pay off your 30-year home loan five months earlier, you’ll also end up saving approximately $8,923.
Disadvantages
- Offset accounts are often only available with variable home loans and can have account-keeping fees. You need to ensure that you won’t end up paying more at the end of the term than if you had taken out a basic home loan with a low interest rate. These accounts may have higher monthly fees or require a minimum balance.
- Other Consumer tips
Do you ever wonder where all your money goes?
The average household in Australia spends about $70,000 a year on general household items. But it’s not only big ticket items, like rent, groceries or bills that eat into our bank balances. It’s the small items that really add up.
Most of us have ‘leaks’ in our pockets. Every day we spend money on items that we rarely budget for, such as coffees, magazines, takeaways, cash withdrawals, unnecessary fees and charges or ‘set and forget debits’ which can be a real drain on our savings over time.
So, what can you do to plug these money leaks and make sure you’ve got enough to last until payday?
One approach is to track and review your spending and then slowly start to change your habits.
Try and follow the following 5 tips below, it could be easier to do than you think.
1. Keep track of every dollar you spend
Keep receipts for every purchase you make and then add the details to a spreadsheet or notebook at the end of each month. At the end of the month, tally up your receipts and compare them with your bank statements to jog your memory on where you spent your cash withdrawals.
2. Review your statements
Identify where you are paying unnecessary fees and charges, such as for a home telephone line or a gym membership that you rarely use. And check what money you have spent at bookstores or games shops that you could have borrowed from a library or downloaded for a better price.
3. Change your spending habits
Once you’ve identified your money leaks, you can start taking steps to reduce them:
Work out how much you are spending on the little things. Set yourself a daily limit and make sure you don’t go over it.
- Check the back of your shopping list for discounts at local stores or cinemas.
- Buy in bulk when sales are on.
- Try a new recipe at home rather than getting takeaway.
- Read a book or go for a walk rather than go shopping when you’re feeling like you need a change in mood.
- Prepare a menu and only buy what you need at the supermarket, so you don’t waste food and money.
- By being aware and mindful of how much you spend on impromptu purchases, you’re more likely to stem any leaks before they ruin your budget plans.
4. Set up a budget
Have an annual budget, so you can plan how much you intend to spend and how much you can afford to save for things like holidays, renovations or school fees. Ask us about our budget planner to help you get started.
5. Have an emergency savings plan
We all need to put aside money for emergencies or unexpected events. With the money you save in reducing your money leaks, you could set up an emergency savings account for when your fridge needs replacing, your car needs repairs or when you have an unexpected trip to the doctor.
Or if you can save 5% to 10% of your income (pretend you don’t even earn it). Have it direct debited to a separate savings account, one that you cannot access easily.
By having this fund set up, it will give you peace of mind that you have some rainy day money to draw on when your leaks dry up!
- Other things to be aware of...
Brokers are NOT qualified to give you legal, taxation or financial advice (unless they have additional qualifications). If your circumstances require specialised advice, seek it from a professional in that particular field.
Make sure that you can afford the proposed monthly payments. Do not agree to payments that you cannot comfortably make. Remember, everyone that goes bankrupt was approved for the home loan at some stage!
Never sign a contract without knowing and understanding all terms of the loan. If you are unsure of anything, you should seek independent legal advice.
Exercise your rights!!! If you feel you have not been treated fairly, do something about it. You can contact ASIC, COSL, the MFAA or FBAA. They will all have information on their websites to help you if you feel you need to make a complaint.
- Redraw facility
If you make extra repayments on your home loan, a redraw facility lets you take the extra money out again if and when you need it. So rather than saving your money in a separate account, you can reduce the amount of interest charged on your loan?by paying more than you have to—and access the extra money when you need it.
Advantages
- A redraw gives you extra cash to do things like pay bills or do renovations without having to apply for another loan. You can use it as many times as you like to draw down money, as long as you don’t exceed the credit limit on your loan. Knowing you have access to funds can provide peace of mind.
Disadvantages
- The downside of a redraw facility is that there could be fees or withdrawal restrictions placed on the amount you can redraw. The upside of this is it prevents you from making too many withdrawals and might help stop you from spending more money than you can afford.