Mortgages Australia

Is 'Mortgage' just another name for a Home Loan?

No, it's actually a little more than that.

It has become common to use the terms "Mortgage" and "Home Loan" interchangeably, but it's useful to understand the differences.

How a Mortgage differs from a Home Loan

A loan is where someone lends you money to fund a purchase. There are two things that distinguish a Mortgage from a loan.

Firstly, a Mortgage is specifically used to finance the purchase of "real estate" - which means land, and any improvements to that land (e.g. houses, garages, sheds, etc).

The second thing that differentiates a Mortgage from a Home Loan is that the borrower gives the Lender a lien on the property as collateral for the loan.

This means that if the borrower doesn't meet their repayment obligations, the Lender has the right to sell the property to recover the money you owe. This process is known as foreclosure.

How to avoid foreclosure

Foreclosure is a costly process - financially and emotionally. So it's important that you borrow no more than you can comfortably repay. That's why you should only borrow through an MFAA member.

MFAA members have the experience to know what is an appropriate amount for you to borrow - and are ethically bound to try to ensure that you don't over-extend yourself financially. Talk to an MFAA member today - they are the Essentials of Borrowing

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Guide to Mortgage Process

Every person seeking a home loan has to undergo a number of steps from start to settlement. Understanding what happens in each step helps you prepare for the process.

Preparation

• Know your finances and budget inside and out and prepare a list of your assets.
• Do some initial research about home loans and mortgages.
• Make sure any mortgage provider you approach is a member of the MFAA.
• Find out some more information and research the proposed mortgage provider .

Initial Contact

• Find out which lenders are on your mortgage provider's panel or what loan products your lender offers.
• Advise how much money you are seeking to borrow and outline your finances and personal details.
• Organise a time and place to meet.
• Determine what documents you need to bring to the meeting.

The more information you can provide your mortgage provider in this step the more prepared they are for your meeting.

The Meeting

There are usually five stages:

1. Introduction: will cover what will happen in the interview, information about the company you're dealing with (their panel of lenders, or their products if a lender) plus their commissions and fees.
2. Qualification: provision of documents to support your financial situation and budget; discussion about the size of the loan you require and its use i.e. investment or principal place of residence.
3. Offer: discussion of loan products, matching you to a loan product/s, if using a lender a discussion about the types of loan products, other mortgage providers will also discuss products and compare the different loan products from their panel of lenders. Use of calculators to determine repayments and upfront and ongoing fees. Deciding what loan/s to apply for.
4. Application: Completing the application form, and declaring the information provided is correct.
5. Close: Informing what happens next, and up to settlement, expected time frame for the next contact and returning of original documents.

The Application

Your mortgage provider will:

• Review the application, check details and complete any missing information.
• Attach supporting documents.
• Complete a serviceability sheet to outline your ability to pay back the loan.
• Send onto the assessor.

The lenders assessor will:

• Log the application, allocate a file number to it and confirm receipt of application.
• Check it is completed correctly and has all relevant documents (or return it if incomplete).
• Undertake detailed review and complete relevant checks.
• Log all the information onto your file.
• Pass the file to the team leader with a recommendation to approve or decline the loan.

If approved by the lender a pre-approval or conditional approval is sent back to the mortgage provider to inform the borrower.

Pre-approval or Conditional Approval

Advises your loan is approved subject to certain conditions e.g. finding a property. The conditional approval usually lasts for about three months and should not cost you anything.

Valuation

The lender will conduct a valuation on the property you have chosen to show its market value and ensure they are lending within their guidelines.

Unconditional Approval

Granted when all the conditions of the loan have been met, and all costs are determined such as establishment fees, stamp duty, and lenders and solicitors fees.

Letter of Offer

Outlines the terms, conditions and costs of the loan. Get your solicitor to review the Letter of Offer and if okay, sign it and send it back to the lender so their solicitors can proceed to settlement. Once signed, it becomes the credit contract.

Mortgage Documents

Sent with the Letter of Offer, they outline the agreement between the lender, borrower and the Office of State Revenue. The details of the mortgage are recorded on the Certificate of Title along with the name of the borrower/owner and the mortgage lender. This process will be managed between the lender and your solicitor.

Settlement

Settlement occurs when the loan funds are drawn down to pay for the remainder of the property and the relevant costs. The date of settlement will be managed between the lender and your lawyers.

Celebration

Arrange to get the keys from the real estate agent and open the champagne!

_{Disclaimer: This document is for information purposes only, and must not be relied upon as a substitute for professional services or legal advice.}

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Australia Interest Rates

Guide to Interest Rates

If you have home loan, or are thinking about taking out a home loan, you should understand how interest rates are applied to mortgages you can assess how an increase or decrease in interest rates will affect your repayments.

How Interest Rates are Determined…

The Reserve Bank of Australia (RBA) sets the official interest rate, dependent upon how the economy is performing at the time. In its monthly meetings, the RBA looks at the inflation rate and key economy indicators such as unemployment, consumer price index (CPI), Producer Price Index (PPI) and Retail Sales, and from analysing this information sets the interest rate.

The RBA use interest rates as a tool for controlling monetary policy. For example, if economic activity is deemed too high it may try to slow things by raising the official cash rate i.e. stops you from spending money by increasing your loan repayments.

The lending institutions then lend the money to you, the consumer, at the rate they borrowed it at plus their margin the fee you pay for the use of the money.

Visit the RBA website to find out more information about Monetary Policy.

Interest Rates on Home Loans…

There are two types of interest rates that apply to home loans - variable and fixed. You can choose whether you’d like a variable or fixed interest rate, or a combination of both, depending on the type of loan product you decide on.

Variable Interest Rates

The majority of home loans in Australia have been taken at a variable interest rate. As the name implies, variable loan rates will fluctuate as the market and the official cash rate does. Therefore if the official cash rate rises, your loan interest rate rises and so does your repayments on the loan, and vice versa. Loans with variable interest rates tend to offer more flexibility in payment options.

Fixed Interest Rates

This type of interest rate allows you to fix the interest rate you borrow at for a certain period of time within the overall loan term. Fixed terms tend to be from one to three years however some lenders may offer 10-15 year terms. With a fixed interest rate you have the certainty of a set monthly repayment as you are not affected by changes in the official cash rate. This is positive when the official cash rate rises as your repayments would not increase, however you cannot reap the benefits of a reduced repayment if the official cash rate falls. With a fixed interest rate your loan provider is taking the risk on the market, which is based on their assumptions about future interest rate movements.

What’s Been Happening in the Market…

Interest rates have been decreasing for over a decade, and for the last few years Australians have enjoyed low interest rates - on 23 January 1990 the official cash rate was 17 – 17.5%, and on 26 January 2007 the rate was 6.25%.

What Interest Rate is Best for You…

• Your loan decision should be based on a mortgage product suited to your individual needs not on a type of interest rate.
• Ensure that an increase in interest rates is factored into your loan so you are not left short.
• You should be able to switch between interest rates over the loan term without having to refinance.

Speak to your mortgage provider, who should also be a member of the MFAA. Under of code of practice MFAA members are encouraged to continually improve their industry knowledge by keeping abreast of economic trends and undertaking MFAA approved and run courses and industry seminars.

Looking for More Information on Interest Rates…

Most newspapers, television and radio news broadcasts contain information on interest rates, official cash rates and the housing market in their financial and property sections. Additional information can be found on banking and financial institution websites.

For more information check out Melbourne home loans expert MortgageJet

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