Home Loans & Finance
Home Loans & Finance
Choosing the right home loan is a vital part of the home-owning process. Whether new to home buying or considering ways to lower your current mortgage by switching lenders, our team can empower you with the necessary knowledge to help you make the best financial decision. We have created an exclusive ‘Guide to Refinancing’. Download your copy here.
We work closely with a number of different lenders, giving us a variety of options and thus, providing you with the best possible choice.
When broken down, the word ‘mortgage’ actually means an engagement until death. However, at Option Wealth, we strategically connect you to a loan structure that will help you pay off your home or investment much sooner, adding years to your life and life to your years!
Along with returns and lodgement, Option Wealth Accounting will also provide clients with core services they need to keep their SMSF compliant and effective by providing the below administration services.
This is about as simple as it gets when it comes to home loans, which probably explains why the basic variable is often called a ‘no-frills’ loan. These loans generally offer the lowest interest rates, which are variable, but can be light on features.
Many – but not all – basic variable loans do not allow the borrower to, for example, make extra repayments, redraw on these funds, or to take advantage of a mortgage offset account by having their salary paid directly into their loan account. These loans are closely linked to rates set by the Reserve Bank of Australia (RBA), so official rises or falls will affect basic variable rates.
These loans have the advantage of lower interest rates, but on the downside, their lack of flexibility might not suit borrowers who want to pay off their loan quickly through increased payments, mortgage offsets and other strategies. Despite its disadvantages, the basic variable is a popular loan type, particularly with homebuyers or investors who plan to meet their minimum monthly payments over the term of their loan, and have little use for flexible features – but still want competitive rates. The simplicity of these loans, along with their generally lower rates, makes them particularly popular with people on tight budgets and with many first home buyers.
Be aware that what some lenders call their basic variable loan can in fact come with a reasonable raft of features, and there can be significant differences between the many basic variable loans on offer. At Option Wealth we can help you find the one that’s best for you.
This loan type is a step up from the basic variable loan, and is very popular. As the name indicates, they have a variable interest rate, meaning it can fluctuate up and down, generally in line with changes to official interest rates as set by the Reserve Bank of Australia (RBA).
It is interesting to note though, in the past, some major banks have chosen to raise their standard mortgage rates higher than official interest rate rises announced by the RBA. In some cases, the increase was almost double the official rate rise.
The standard variable loan is a common choice for first home buyers as its simplicity makes it is easy to compare lenders. They are also attractive because they are traditionally the most flexible of all the home loans and offer an array of features that can be used effectively to make faster inroads into reducing your debt. This means less interest paid overall and a shorter loan term – all good points and money savers.
Popular features of standard variable loans include mortgage offset facilities, where you can have the interest you owe on your home loan reduced by the interest you earn on your other accounts, without any dilution to tax; and the option to make extra payments which can enable you to pay your loan off faster and reduce overall interest costs. Another popular feature of most standard variable loans is the ability to redraw your additional repayments if you wish to.
While the main advantage of this loan type is its flexibility, it is important to remember that with variable interest rate loans that interest rates can rise, so borrowers need to be prepared for this eventuality. That said, standard variable rate loans can be the best choice for all types of borrowers, including investors, owner-occupiers and first home buyers.
An increasing number of first homebuyers are choosing this type of loan as they enter the property market, and it is easy to see why. The fixed rate offers certainty when interest rates may be volatile. Knowing your repayments are locked in can make it easier to budget, which can be a great comfort to first homebuyers, especially if interest rates are on the way up.
The key to making this loan type successful is timing. This means locking in the fixed rate when rates are lower. People often decide to lock into a fixed rate too late, usually after rates have already started to climb.
If your loan is fixed while interest rates are low, and a series of rate increases follow, borrowers are insulated from these.
The obvious downside of this is that interest rates may fall, but the borrower remains locked in to the loan at the higher rate. This can result in paying more interest than you would have under a variable loan. Indeed, our research has shown that fixed rates tend to be more expensive over time in 70% of circumstances than a variable rate.
Another disadvantage of the fixed loan is the expense that can be incurred if you try to pay out your mortgage before the fixed term is up. Many lenders impose penalties to borrowers who want to pay off their mortgage or refinance with another lender. These costs will vary, so it is good to understand this clause before signing any agreement to fix your rate.
After the introductory period, the loan then reverts to a standard variable rate. This loan is very attractive to first home buyers who want to take advantage of the safety net a lower interest rate offers while they get used to paying a mortgage. It can also give them a financial head start, especially if they are able to make additional payments, provided the loan allows this.
The important thing to remember about this loan is that it is a honeymoon – at the end of the honeymoon period it will roll over to what is likely to be a higher interest rate.
Lenders will usually impose additional exit fees for borrowers who want to pay their loan out during the honeymoon period, so you need to be aware of these. Some lenders will fix the rate during the honeymoon period. Other lenders will maintain a honeymoon rate that is an agreed amount less than the standard variable rate, for example it may be maintained at a rate that is one per cent below the current standard variable rate.
Honeymoon loans are great for giving you a short term bonus, but the fact they revert to a standard rate after the honeymoon’s over means you need to evaluate the loan’s long term features as well.
Low Doc Loans
For many of these borrowers, their past income does not reflect their existing income or their capacity to service a home loan. A number of banks and other lenders are now providing low doc loans in response to demand from such borrowers. The major difference between this product and a standard home loan is that borrowers are not required to provide the same level of tax returns, financial statements, pay slips or other documentation to prove their savings/credit history, earnings and financial position.
Instead they sign a declaration stating their current income, and the lender uses this to process the application. But this does not mean low doc loans are always easier to get; they are in fact generally harder – and they often cost more. Lenders will usually charge a slightly higher interest rate than the standard variable, and the loan to value ratio (LVR) is generally restricted to below 80 per cent.
The LVR is defined as a percentage of the property’s value that is mortgaged – for example if you buy a home for $500,000 and have borrowed $400,000, then your LVR is 80 per cent. To ensure that the purchase price of the property is a true reflection of its actual value, lenders will usually require an independent valuation of the property the borrower proposes to purchase.
It’s also worth knowing that following the turbulence in financial markets since 2008, low doc loans are becoming more difficult to obtain now due to tightening credit standards of lenders.
Option Wealth will advise you of all the fees and charges associated with this type of loan, as they do vary greatly and are often significantly higher than for standard loans.
Bridging loans are generally taken out for short periods of up to 6 months, and lenders will usually take security over both properties until the second sale is finalised. There are several ways these loans can be established, with some lenders allowing borrowers to add the interest payments to their loan to relieve day-to-day financial pressure.
Other lenders may require borrowers to demonstrate that they can service both loans. All lenders can be expected to impose strict conditions on bridging loans, so it is wise to get expert advice – which Option Wealth will provide. Remember that a bridging loan is designed for short term use, so it is important to be motivated to sell the original property at the right price.
Generally, repayments on a construction loan are charged on the amount that has been drawn down and are usually interest only. This rate can vary from lender to lender but usually hovers around the variable rate.
After each stage is complete, a valuer appointed by the lender will usually inspect the property and, if this is satisfactory, finances for the next stage will be released to the borrower. Once the construction is complete your loan will revert to your preferred choice of variable, fixed, principal and interest or interest only. It is important to establish your preferred choice or ensure you have the flexibility to move to a more suitable loan once construction is finished.
Most lenders, but not all will require you to enter into a fixed priced building contract with a licensed builder.
Equity Finance Mortgage
When you sell the property or settle the loan, you are required to repay the original EFM amount plus a percentage share of any increase in the value of the property. This percentage is calculated on the percentage of the property’s value that was originally borrowed (ie 20, 15, 10 per cent or another amount).
On the flipside, capital losses may be shared with the lender subject to certain conditions. This loan type is growing in popularity as it allows borrowers to reduce a property’s up front and running costs, as well as traditional mortgage repayments. It also allows buyers to invest in a more expensive property they might not have otherwise been able to afford.
EFM loans are specialised products and you should speak to your Option Wealth Consultant for more details.
Line Of Credit
These loans allow borrowers to draw funds as required to be used as they wish, whether it is for a new car, a holiday or investing in the share market. Interest on a line of credit is charged only on the funds that have been used.
While this might seem like a dream come true – and it is indeed one of the most flexible home loans on the market – a line of credit requires plenty of discipline in managing finances on the part of the borrower. This can be very difficult when you have such easy access to your funds.
Using funds to finance other purchases, such as cars, may impact on the time it takes to own your own home, but if you use the funds for investments with good returns, you can effectively build your wealth. It is very important to shop around for this type of loan as conditions and costs will vary, and seek expert advice from your Option Wealth Consultant about whether this is the right product for you and your circumstances.
Reverse Honeymoon Loan
This product is highly specialised and not often used. It is aimed at investors who are looking to time the tax deductibility of their investment loan and reduce up front loan costs. The loan converts borrowing costs, including the loan mortgage insurance premium and loan application fees into a higher interest rate over the initial period of the loan.
Generally the term of this rate is up to 12 months. Investors like reverse honeymoon loans for two reasons – they are not required to have the cash up front for expenses and it offers the potential for tax benefits.
Given the sophisticated nature of this loan type, it is important to get independent accounting advice to ensure it suits your needs. You should also do plenty of your own research into this loan type, and Option Wealth Consultants are happy to help get you started.
You are not locked in to a 50/50 split – most lenders will allow you to have a split loan in almost any ratio. This presents you with the opportunity to experience the best of both worlds, and is ideal if you are not confident about committing completely to a fixed rate or a variable rate.
A major advantage of this loan type is the fact that you can continue to make extra repayments on your variable loan as it maintains all of its flexibility and options. Most fixed rates do not offer the option to make extra repayments, but they will provide some insulation if interest rates start to rise.
This loan type is becoming increasingly popular with borrowers who want to take advantage of the opportunity to spread the risk in uncertain economic times. It is important to compare split loans as fees and conditions vary greatly.
A less known but highly effective type of split loan facility is called a cascading split loan. This is where you have a number of split loans with a combination of variable and fixed rates each, all with different (cascading) expiry dates. This structure reduces the risk of all of your fixed rate loans expiring at the same time and at a period when rates might be at their peak.
This often operates best when your mortgage offset account is used as your primary bank account – for savings, lump sum payments and salary payments.
Do note too, offset accounts are more common with variable rate loans, and not always available on fixed rate loans.
To demonstrate how a full mortgage offset account works, we’ll take a $200,000 mortgage as an example, on which you pay interest. Let’s say you also have $20,000 savings in an offset account, earning interest. When the $20,000 in the savings account is offset against the $200,000 owing on the mortgage, you will only be charged interest on a home loan debt of $180,000 ($200,000 – $20,000 = $180,000).
It is important to get professional advice to ensure this product suits you and your circumstances. Also check the interest rates for both your mortgage and the offset account – they can be different (the interest rate you earn on your savings can often be less than the interest rate you pay on your home loan). Some loans will offer the same rate of interest on the mortgage and the offset account and these are known as full offsets.
Mortgage offsets can be very effective if used correctly, but bear in mind that lenders often charge a higher than average rate on the mortgage, usually up to about 0.15 per cent, or may charge additional monthly fees, for the privilege of having this feature. It is important to do your sums, as it might not suit your circumstances, especially if you have a large mortgage and little savings to put in the offset account.
It also provides borrowers with a safety net, as they can access the extra payments if required, down the track. This is particularly suited to first home buyers who are not likely to have extra funds in the early stages of their loan, but may in the future.
You will need to talk to your Option Wealth Consultant for the best redraw deals, as they vary between lenders. It is important to be aware of the costs involved, which may include set up, activation fees and redraw fees. There may also be limits on redraw withdrawal amounts (both maximum and minimum).
Principal And Interest
A principal and interest loan requires borrowers to make payments on the interest accrued on the mortgage, as well as repay a part of the principal. In this way, repayments on principal and interest loans actually reduce your debt. Repayments are calculated and spread out so that the last scheduled payment fully pays out the loan.
These repayments will be higher than for an interest-only loan, but they will help borrowers pay off their home loan. If you are planning to buy a property to live in long term, then it is likely a principal and interest loan will better suit your needs.
Repaying both interest and the principal will allow you to gradually increase your equity in the property by reducing the size of your mortgage, and at the end of the loan term you will be the sole owner of your home.
Interest-only loans are generally more widely used by investors, who are attracted by the tax saving aspects and are usually not likely to hold the property for the term of the loan. They are not ideal for owner occupiers who are more focussed on building equity in their property, as the underlying home loan debt is not reduced with interest-only.
Be aware though that with an interest-only loan, there is still the potential for the property to increase in capital value as real estate prices rise, which will have a positive impact on the borrower’s equity. An interest-only loan works well for investors who want to use the property to generate rental income and capital gains.
Option Wealth Solutions can help you with your deposit to secure the property you intend to purchase.
Sometimes you may not have ready access to the cash deposit required to secure your next home (exchange contracts) or you may prefer a more cost effective or convenient alternative to using your own cash. In these cases a Deposit Bond could be the answer.
Deposit bonds are a substitute for the cash deposit needed when purchasing a home and can be issued for all or part of your deposit, up to 10% of the purchase price.
The deposit bond works like a bank guarantee, the issuer of the bond (usually an insurance company) promises to pay the deposit to the vendor of the property in the event that the purchaser does not complete the sale.
It gives you the freedom to concentrate on finding the right property – and keeps your savings earning interest right up until the day of settlement.
Situations where a deposit bond might be an option:
- Having sold your current home but funds are not yet available for your new home’s deposit
- As a first home buyer you don’t have the full 10% cash deposit required in cash
- As an investor and the loan funds are not available until settlement
- You do not want to pay a penalty for breaking a fixed term investment or selling shares
- You may want to attend one or more auctions without having to put aside funds for the deposit each time.
Standard deposit bonds are available for settlement periods of up to 6 months, and longer terms bonds of between 6 and 48 months, are available which often suits purchasers who are buying off the plan, under construction or land with extended settlements.
Deposit Bonds replace the need for a cash deposit, but they do not remove your obligation to pay the full deposit and purchase price at settlement.
How much do they cost?
The cost of a deposit bond is based on the value of the property and the length of time to settlement. At the very least you can expect to pay around 1.2% of purchase price. It’s a one-off fee that’s usually partly refundable if you don’t use it.
As an example if you were purchasing a home for $500,000 and needed a 10% deposit of $50,000 to exchange contracts, it would cost you approximately $600.00 to get a deposit bond in place.
What are the cost savings of a deposit bond?
The cost savings could be considerable. For example, the fee for a $30,000 short term guarantee is $360. Short term finance may cost you $727 based on an application fee of $450 (often 1.5% of the borrowed amount), plus interest payable of $277 (assuming an 8% interest rate over six weeks).
By using a deposit bond, you have saved $367.
What do you need to apply?
To apply, you just need to complete an application form and show us that you have sufficient funds to complete the purchase at settlement. Examples include:
- A loan approval
- A copy of the Contract for property sold that will assist in the purchase of the new property
- Funds accessible prior to the completion date, such as savings, a fixed term deposit, or share certificates
- Evidence of other funds that will assist in the purchase such as the First Home Owners Grant.
Looking To Refinance Or Consolidate Debt?
Is your current loan no longer suitable or you want to reduce financial pressure by consolidating?
If your current home loan is no longer meeting your needs, or you’d just like to secure a better home loan deal, refinancing can be a sensible strategy. Many loans today have flexible features designed to save you money that might not have been available when you first got your loan.
What is refinancing?
Refinancing simply means taking out a new home loan to replace your existing mortgage. It’s a strategy that can give you access to a wider range of loan features. Or you may simply need additional loan funds to complete a major project like home improvements. However for many home owners, the key appeal of refinancing lies in the ability to secure a more competitive interest rate.
How much could I save?
Refinancing your loan can deliver valuable savings, however there is also a range of costs to consider, and it’s important to check that the savings of refinancing outweigh the expense. Along with upfront charges applicable to the new loan, you may face ‘exit’ fees on your current loan. Refinancing a fixed rate loan could incur ‘break’ costs. In both cases the costs can be substantial.
Your own personal Mortgage Consultant can do the sums for you. They will review your current loan to assess its suitability for you both now and in the future, and they’ll ask whether any exit fees or break costs apply if you choose to refinance away from your current lender.
Our goal is to ensure that refinancing is worthwhile for you, securing the best long term loan for your needs and taking the hassle out of arranging a new loan. We’ll do the leg work for you to move to a new lender.
Option Wealth ensures the right choice for you
Today’s mortgage market offers a wide range of lenders and loans. Option Wealth can help you make the right choice, with access to a broad selection of lenders including some of Australia’s leading banks.
Option Wealth’s unique loan selection system lets us track down the loan best suited to your needs. Our system involves a proven 6-step process that takes an in-depth look at your situation to provide a thorough understanding of your needs. It lets our mortgage consultants confidently recommend the loan options that are appropriate to your circumstances.
Best of all, our mortgage broking service is free of charge to our customers – you pay nothing at all.
Debt consolidation simply means folding a number of (higher interest) debts into a single loan – typically your mortgage – as the interest rate on home loans tends to be far lower than for other types of credit. Consolidation can be a worthwhile option if you have a number of outstanding debts including personal loans and/or credit cards, which could be charging interest rates approaching 20 per cent.
The process of debt consolidation is quite simple. Your home equity offers a source of funds to pay out your other debts, leaving you with just one low-interest loan. It can streamline money matters, provide savings on interest charges and offer valuable peace of mind.
Your experienced Mortgage Consultant can explain how you could benefit from debt consolidation, and find the loan that is right for your individual circumstances.
We’re here to help. No stress. No hassle.
Option Wealth is here to help at every step of your journey – from your initial meeting with us through to finalising and settling your new loan arrangements. And we always put your interests first.
To discuss refinancing, please make contact with one of our Mortgage Consultants on 1300 878 898 or email us at firstname.lastname@example.org Our Mortgage Consultant will arrange to meet with you to work out which home loan product suits you best. Alternatively, make an appointment to visit our Milsons Point offices, where it’s possible to have your home loan approved within 24 hours.
Finally, as you know things do change over time, including not just your own personal circumstances, but also interest rates, home loan products and the economy. As part of our commitment, we’ll review your home loan every two years, to ensure you continue to enjoy the best loan available for your needs. It’s part of Option Wealth’s dedicated service, to be with you every step of the way, making home ownership easy, manageable and more rewarding for you.
Frequently Asked Questions
If would like further information, or have other questions you’d like answered, please contact us today.
What does a mortgage broker do?
What does this service cost?
Why would I use Option Wealth instead of a bank?
For what purposes can I borrow money?
- to buy a home
- to buy a residential investment property
- to refinance an existing home loan
- to refinance an existing loan and consolidate your other debts
- for investment purposes (other than property) where you provide enough equity in residential property as security
- most other purposes (such as buying cars, holidays, weddings, school fees) secured by your home.
- Implement a Mortgage minimisation program
What type of loans do you help me get?
How much income do I need to qualify for a home loan?
How much deposit will I need for a home loan?
In some cases a lender will ask you to show that you have saved the deposit yourself to demonstrate that you have the savings history. This acts as a good indicator that you will be able to afford your home loan repayments. If you offer less than a 20% deposit you will also be required to take out mortgage insurance to protect the lender.
Where does Option Wealth source its loan funds from?
What is mortgage insurance?
How quickly can the loan be settled?
What’s the difference between fixed and variable rates?
The interest rate of a fixed rate loan is just that – fixed (or set). It remains unchanged, for a specified period, often a number of years, regardless of changes to interest rates generally.
Should I choose a fixed or variable interest rate?
How do I know which loan is best for my needs?
What is a split loan?
What is a comparison rate?
The comparison rate can be compared against the rates of other loans and loans with other lenders. It is also important to consider the features of a loan rather than just the interest rate when comparing loans. No monthly fee, repayment flexibility and money saving features such as 100% mortgage offset, can make a huge difference to the final cost of a loan.
Is there support available for me if my financial situation changes?
Option Wealth recognises that people’s circumstances change, for this reason, we offer our Commitment to you, to make sure your home loan can change to meet your needs.
Sometimes however your financial circumstances can deteriorate (loss of income, loss of job, sickness etc) and you may need support through these difficult times. All lenders we deal with comply with the Uniform Consumer Credit Code (UCCC) which sets out various levels of protection to consumers and obligations on lenders, which includes conduct surrounding support through financial hardship. We can assist you if needed by being a conduit between you and the lender. You should also be aware that under the UCCC, protection is provided to make sure lenders deal with you fairly in times of hardship.