First Home Buyer Information
Having good credit history is critical to getting a home loan. Even though there are lenders who do specialise in helping people with poor credit history, it does usually come at higher interest rates, higher deposits and fewer lenders to choose from.
Your credit score is also important to keep in check. Credit scores are calculated by credit reporting agencies and are one of the indicators a lender might use to assess an application.
Credit reporting agencies not only calculate your credit score, they also keep a record of past enquiries, repayment history and current credit limits.
Your credit score can make a significant impact on your borrowing power.
A lender will assess your loan affordability and provide an estimate of your maximum borrowing amount. However, it is essential that you work out what you can afford and what repayments you are comfortable with.
Having a good understanding of your budget is essential in making good finance decisions. Start by measuring your income against your expenses. It is important to consider not only your income and expenses now, but what they will be after you have purchased your home and in the future.
Be realistic and don’t overcommit yourself. Give yourself a buffer as interest rates could go up increasing your loan repayments.
Calculating the amount you need to contribute can be quite complicated and can differ considerably from lender to lender. Bank policies will make you consider things like Loan to Value Ratio (LVR), Lenders Mortgage Insurance (LMI) and Genuine Savings.
The amount you are borrowing as a percentage of the property value or purchase price. The lower the LVR, the less risk to the bank.
Paying LMI is one of the ways you can achieve the dream of home ownership sooner without needing a 20% deposit.
If you want to borrow more than 80% LVR then you will most likely have to pay LMI. The more you borrow above 80% the higher the cost of LMI.
Most lenders will require that part of your deposit is made up of ‘genuine savings’ (i.e. not from sale of an asset or gift).
Genuine savings can be proved by providing bank statements over a 3 month period that shows consistent savings history that results in 5% of the purchase price.
Lenders will have different policies relating to ‘genuine savings’.
A guarantor loan could mean that you are in your home sooner and potentially save you thousands of dollars in expensive Lenders Mortgage Insurance (LMI).
If you have a family member who is willing to help (i.e. a parent), and that person has equity in property, then they may be able to offer what’s called a ‘security guarantee’.
This type of guarantee allows you to borrow a small amount of money secured against their property to help pay for your deposit and purchase costs.
Put simply, you borrow 100% of the purchase price (plus purchase costs), of which 80% is secured by your new property and the other 20% (plus purchase costs) is secured against your family members property.
Your family member is guarantor for the smaller portion only (not the full amount). And because your total lending is under 80% of the value of the two homes combined, you don’t pay Lenders Mortgage Insurance (saving you thousands).
The example below demonstrates a possible guarantor structure for the purchase of a $400,000 property intended to be your principle place of residence.
Purchase costs are estimated to be $20,000 (Stamp Duty, Government Fees, Solicitor Fees & Loan Fees).
Calculating the amount you need to contribute can be quite complicated and can differ considerably from
lender to lender. Bank policies will make you consider things like Loan to Value Ratio (LVR), Lenders Mortgage
Insurance (LMI) and Genuine Savings.
Interest rates can vary considerably throughout the life of a loan. A fixed rate could make budgeting a lot easier, as you know exactly what your repayment is going to be during the Fixed Rate period.
A fixed rate however does come with some limitations like limited redraw, capped ’extra’ repayments and potentially higher exit costs.
A variable rate is considered to be more flexible, allowing unlimited extra repayments, access to redraw and no early termination fees. Your loan repayments could go up or down at a moments notice so it is important you have a buffer in place if this happens.
Most home loans are ‘principle and interest’ which means your repayments will reduce the loan balance each month as well as cover the interest for that period.
With an ‘interest only’ loan, you will only pay the interest, meaning your balance will not reduce. Interest only loans will cost more over time due to the balance not reducing, thus the interest charge per month will not reduce. The typical maximum period for an interest only loan is 5 years, at which time will revert back to principle and interest.
Interest only loans should only be considered when there is an alternative strategy in place for debt reduction. They should not be used to make the loan more affordable.
Most lenders will have a ‘basic’ variable rate home loan. This loan generally comes with a discounted interest rate, along with normal loan features such as the ability to make extra repayments, redraw facility, low exit fees, etc.
A ‘Professional Package’ is similar in that you receive a discounted interest rate and usually the features above, but this package also offers an offset account and credit card.
An offset account can reduce the amount of interest you pay on your home loan. You can use this offset account for savings or as an everyday transaction account. Money in your offset account effectively comes off the balance of your home loan when calculating interest, thus saving you money.
- Pay once per month, on the same date each calendar month.
- Each year, you’ll pay $12,000 in repayments.
- To calculate a fortnightly payment, a bank will multiply your monthly repayment by 12, then divide by 26 (the number of fortnights per year).
- Each year, you’ll pay $12,000 in repayments.
- To calculate a half monthly payment, a bank will divide your monthly repayment in 2, which you then pay each fortnight. By doing this, you’ll end up making 26 payments per year, which is the same as paying for 13 months per year.
- Each year, you’ll pay $13,000 in repayments.
- Half monthly paid fortnightly can significantly reduce the interest you pay on your loan and knock years off your mortgage.
Protectingyour lifestyle
A lot can happen over your lifetimeFinancial hardship can happen to anyone
It’s safe to assume that our standard of living, health and family are important to us. However, there are certain events, such as serious illness or injury, which can put your home, lifestyle and future plans at risk.
What’s your back up plan?
If you haven’t got a clear plan, you’re not alone. People don’t even like to think about it – even though they need to.
145470
Diagnosed with cancer
532393
Hospitalised due to injury
60952
Heart attack
37992
Stroke
*Estimated number of cases in Australia per year
My Protection PlanProtects You
Covering yourself is easy with My Protection Plan. Best thing is – the benefits are all paid to you or your estate.
My Protection Plan gives you protection for a wide range of critical life events across four areas:
Pays a benefit on diagnoses of a listed medical condition – listed below.
Benefit can be used for any purpose.
- Neurological Conditions
- Alzheimer’s disease – dementia (diagnosis)
- stroke (of specified severity)*
- multiple sclerosis (with impairment level)
- Cancers and Tumours Conditions
- benign tumour in the brain or spinal cord (with neurological deficit)*
- cancer (excluding early stage cancers)*
- carcinoma in situ of the breast (of specified severity)*
- chronic lymphocytic leukemia (of specified severity)*
- melanoma (of specified severity)*
- prostate cancer (of specified severity)*
- Heart Conditions
- cardiac arrest (out of hospital)*
- cardiomyopathy (with significant permanent impairment)*
- coronary artery bypass surgery*
- heart attack (of specified severity)*
- aortic surgery*
- Other Serious Conditions
- chronic kidney failure (end stage)
- severe burns (of specified extent)
- loss of independent existence
- Trauma Benefits will not be payable where the condition does not meet the policy definition.
If the condition has an asterisk, (*) a 90 day qualifying period applies. This means that if the condition first occurs, becomes reasonably apparent or is first diagnosed in the 90 days after:
- the policy start date, the benefit will not be payable.
- a benefit increase, the increase in benefits will not be payable.
Spare your family financial hardship. Pays a benefit if you die or are diagnosed with a terminal illness (min. $100,000 and max. $1,000,000).
Benefit payments can be used for any purpose – paid to joint owner, estate or nominated beneficiaries.
This benefit provides a Funeral Advancement payment – a $10,000 advancement of the Death Benefit. These funds can be used to help with urgent expenses while a claim is being assessed. (payment of the Funeral Advancement does not mean that the claim will be accepted).
Financial assistance while you’re on the mend. Pays a benefit (maximum $7,500) if you suffer a fracture of your:
- Skull (excluding bones of the face or nose)
- Jaw
- Collar bone
- Shoulder blade
- Upper arm (between the elbow and shoulder)
- Forearm (including wrist but excluding elbow or hand)
- Pelvis
- Thigh
- Kneecap
- Leg (between the knee and foot)
A $10,000 advancement of the Death Benefit.
"A medical doctor can a repair a man physically, but only insurers can repair a patient’s finances"Dr Marius Barnard
At The Broker Team, your broker’s services extend beyond just helping you find the right loan. We’ll also help you understand the risks of borrowing – whether you’re buying or refinancing.
My Protection Plan is a product we offer that can assist with managing these risks. You should, however, read the Product Disclosure Statement (PDS) and consider whether this product meets your needs (available at www.aligroup.com.au).
[protection_plan_calc]
*Premium rates are not guaranteed. Current as at 5th April 2021. To see how your premium is calculated, click here.
