Should I have a fixed or variable rate?
How does negative gearing work?
How does a 100% Offset Loan work?
Should I go for the discount variable rate for
the first year?
What is a Line of Credit?
What is a Redraw Facility?
Why should I want a Portable Loan?
How big a deposit do I need?
Can I get a loan if I have bad credit?
Should I have a fixed or variable rate?
There are advantages and disadvantages to both. A fixed rate
means that even if the Reserve Bank lifts interest rates,
your repayments will remain the same for the fixed period
of the loan. The opposite is also true, though, that if the
Reserve Bank lowers interest rates, your repayments will not
decrease. Fixed rates are often helpful for budgeting, as
you know what you will have to pay. The disadvantages are
that fixed rates often limit or even prohibit additional repayments.
The advantage of variable rates is that you can make additional
repayments as you wish to pay your loan off sooner.
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How does negative gearing work?
Negative gearing is a tax minimisation strategy where you
have a net tax loss due to receiving less rental income from
your investment property than the costs of maintaining that
property. This net tax loss is offset against your salary
income, so you pay less tax on your income. Thus, whilst your
property is generally increasing in value over time, you are
reducing your taxable income.
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How does a 100% Offset Loan work?
This type of loans allow you to deposit all of your income
into them, reducing the amount of interest you pay, and you
access the loan to pay for your living expenses. The longer
you leave the money in the loan without drawing on it, the
less interest you pay. The downside is that many lenders charge
additional fees or higher interest rates for offset loans.
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Should I go for the discount variable
rate for the first year?
Generally speaking, taking out a discount variable rate for
the first year does not work out the best in the longer term.
Often they mean higher interest rates when the discount period
is over, and often involve extra charges if you try and change
the loan later on. What saves you money now, will probably
cost you money later.
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What is a Line of Credit?
A line of credit is more like a personal loan secured against
your property. There are a two basic types – revolving
and reducing lines of credit. A revolving line of credit allows
you to draw down to the prearranged credit limit as you require
(usually about 80% of the value of your property). This can
be great for property investors who can use the one loan to
buy and sell property without having to keep re-applying for
home loans.
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What is a Redraw Facility?
If you have been making extra repayments above the minimum,
a redraw facility would allow you to draw on that extra money
if you wished, for a holiday or to buy a car for example.
This can be a good way of saving, because the extra money
that is paid into the home loan is reducing the interest you
will have to pay for as long as you leave it in the loan.
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Why should I want a Portable Loan?
This allows you to take your loan with you when you sell your
property. This means you don’t have to pay new establishment
fees and other costs when you buy your new property. This
should be considered when you do not intend to stay in your
new home for good.
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How big a deposit do I need?
The bigger your deposit the better – but you should try
and make it as large as 20% of the value of the loan you want.
If you are trying to borrow more than 80% of the value of
a property then the lender will probably take out mortgage
insurance (which protects them, not you). Mortgage insurance
covers the difference between the sale of the home and the
outstanding loan debt. This can be fairly expensive for you,
the borrower. Also, the larger your deposit, the more you
can borrow.
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Can I get a loan if I have bad credit?
Mortgage Australia will do their best to get you a loan irrespective
of your credit history. It is important that you notify us
of any past credit problems, however, as they will be revealed
as the loan process occurs. Also, we have access to 'second-chance
loans', for people who have had problems in the past.
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