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How to compare home loans

Credit Simple — Mon, 02 Dec 2019 08:10:43 +0000

Want a more efficient and effective way to compare home loans? Just follow these steps:

1) Identify the non-negotiable features you need.

Google those features and shortlist the banks that offer them. Forget about the others, as there’s no reason to spend time of offers that don’t suit your needs.

Case Study

A 10% home loan deposit is below the 20% threshold for most loans. Kath googled the feature low-deposit home loans and saved the links to all relevant home loan providers offering that feature.

Learn here about all the features you might need.

2) Narrow your list even further by looking at the comparison rates.

The comparison rate is a government-mandated rate that lets you quickly compare home loans side-by-side since it incorporates the impact of fees into the interest rate. We’ll look at fees and interest rates later but for now, the comparison rate makes it easy to weed out unfavorable loans.

Understand

Use the comparison rate to quickly weed out unfavorable loans and for quick calculations, but also get familiar with the fee structure for negotiation purposes.

Choosing a lender based only on the comparison rate doesn’t help you understand the actual fee structure, which is important if you want to negotiate.

3) Research each loan’s interest rate, fees and other features.

List your new loan options from step two in a column and put three headings across the top:

Actual interest rate. This is how much your debt will grow each year. The lower the better.
Fees. There are dozens of possible fees (think “application fee” and others). Look for options with lower and cheaper fees. Learn all about home loan fees here.
Comparison rate. The effective interest rate after fees are factored in.
Features. All options on your list will contain your non-negotiable features. This list is for other features you may find useful.

You’ll now have a table where you can fill out the relevant details. So get filling!

Note

This guide just focuses on variable-rate interest loans. Fixed-rate home loans are more of a special feature you can sometimes take advantage of for a short period of time.

4) Talk to the banks.

It’s a highly competitive market, so call all the banks on your list and try to negotiate a better rate, citing lower rates you’ve found elsewhere.

See if they’ll drop fees that other banks don’t charge or that don’t seem relevant.

If they agree, ask them to quote you a new comparison rate – then plug that into your table.

If you’re not the assertive type or you find this too time consuming, you can always talk to a home loan broker to help negotiate with banks on your behalf.

What is a mortgage broker?

A mortgage broker is a middleman who negotiates home loan terms with lenders, on behalf of you the borrower.

With a broker, you only have to explain goals and financial position once – and they will go off and speak to multiple lenders for you.

They’re usually paid by charging referral fees for successful loan referrals. So make sure they’re not simply passing you off onto a preferred lender rather than the one that’s best for you.

5) Sort by comparison rate.

Look at the banks that have the best rate and then consider if you feel comfortable taking out a loan with them.

This is where you can take soft traits into account:

Do you feel more comfortable with one of the big 4 or are you OK with a smaller bank?
Did you establish rapport with the loan officer?
Do you find any of the other features from your table useful?
Do you like the look and feel of the lender’s app and other online tools?

Note

There are other factors besides the comparison rate that determine how much you’ll pay over time, including the length of your loan, how often you make payments (weekly, fortnightly or monthly), your deposit size and others.

However, most of these options are standard variables that most banks will offer. If you want to estimate the actual cost of your loan over time based on your comparison rate and these other options, you can use one of the many home loan calculators available online.

That’s all there is to it

Comparing home loans doesn’t have to be complicated, but you do have to be thorough. As long as you do the research and stay organised, you should be able to home in on the right loan for your needs.

Once you do, the next step is to fill out your application.

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What home loan features do you actually need?

Credit Simple — Wed, 27 Nov 2019 01:00:44 +0000

Here is a list of the most common home loan features lenders offer with their home loans.

You might not need all of these features, so don’t overlook a loan with an attractive interest rate and fee structure for flashy features you might not even need.

With that out the way…

Here’s your list of home loan features

Offset account

An offset account is a transaction account linked to your home loan. The money in this account could offset the money you owe, meaning you’re only charged interest on the difference. Plus you can easily withdraw your money from this account if you ever need it.

Loans with offset accounts can sometimes come with higher interest rates. Sure you can save a lot in interest, but if you don’t plan on carrying a large balance in the account or you’d be tempted to spend the easily accessible funds, it may not be worth it.

Extra repayments

This is when the lender lets you pay extra on top of your normal agreed-upon repayments. It can help you pay less in interest and/or pay your loan off early.

But be aware that if you pay off a fixed-rate loan early, you may incur a fee called a break fee or break cost (break costs don’t apply to variable-rate home loans approved on or after 1 July 2011*).

Redraw facility

A redraw facility goes hand-in-hand with extra repayments. It basically lets you access the funds from your extra repayments if you need them down the road. If you haven’t made any extra repayments, you can’t get any money out.

There is sometimes a fee for withdrawing these excess funds, so you should only use this feature for emergency situations.

Repayment holiday

A repayment holiday lets you take a short break from making your regular payments if you’ve previously built up enough of a buffer through extra repayments. It will apply those extra funds toward your monthly repayments and it comes in handy during transitional times like starting a new job, having a baby, losing a job or retiring.

Fixed-rate loan

This is a loan where the interest rate doesn’t fluctuate with the Reserve Bank’s official cash rate. Lenders usually only offer fixed-rate loans for periods of 1-5 years, after which your loan will revert to the variable rate.

Fixed-rate loans often have higher-rates to start off with, and it’s usually more expensive to pay them off early. However, they do offer consistency.

Split-rate loan

A split-rate home loan is a feature that lets you split your loan into two loan products: a fixed-rate loan and a variable rate loan. This lets you enjoy the flexibility and additional features of a variable-rate loan while also benefiting from the stability and consistency of a fixed-rate loan.

Remember that your fixed-rate portion will usually revert to a variable rate at the end of your fixed-rate period, which will vary based on the lender.

Interest-only loan

If you need to reduce your monthly payments, some lenders will offer an interest-only payment for a short time (usually up to 7 years). That means your payments won’t be large enough to cover any of the principal, which is the actual amount you borrowed.

This is great for first-time buyers whose funds are tight and investors who want to minimise taxes. However, it means that you’ll pay more in the long-run so it’s not good to make a habit of it.

Low-deposit loan

Most lenders will pony up 80% of the home’s value, meaning you have to come up with the other 20% first. But some will offer low-deposit options and may give you up to 95% of the home’s value.

If you’re able to score a low-deposit home loan, you’ll usually be required to purchase Lenders Mortgage Insurance (LMI) that will protect the lender if you default.

If you think you can scrape together the rest of the deposit and you’re happy to enter the market a little later, it’s probably best to wait and avoid the extra costs.

Home loan portability

Home loan portability is a feature that lets you keep your existing home loan but transfer it to a new property. It’s an alternative to refinancing that can save you both time and money, although there may be some fees involved.

How to think about features

When comparing home loans, you should first identify the features that you absolutely need. For example, if you need a low-deposit loan because you only have 10% saved, then it doesn’t make sense to compare any loan without this feature.

After that, you should think of all the other features as nice-to-haves and decide if having any of these features is enough of a boon to counteract slightly higher rates and fees on loans that don’t offer them.

The information in this blog post is general in nature and does not constitute personal financial or professional advice. It is not intended to address the circumstances of any particular individual. We do not guarantee the accuracy and completeness of the information and you should not rely on it. Before making any decisions, it is important for you to consider your personal situation, make independent enquiries and seek appropriate tax, legal and other professional advice.

*https://www.legislation.gov.au/Details/F2019C00090

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Home loan fees you may encounter

Credit Simple — Mon, 25 Nov 2019 06:00:10 +0000

Most home loans come with their share of fees. Don’t fret over the length of this list, as you probably won’t be subject to all of them. You may even be able to convince your lender to nix a few.

It’s also not an exhaustive list as every lender has its own fee schedule.

Important

Make sure you understand your lender’s specific fee schedule as it can differ from lender to lender.

Without further delay… your list of the most common home loan fees you might see:

Upfront fees

These are one-off upfront fees you may encounter at the beginning of the home loan process. They may include fees to your lender and to interested third-parties like the government and your solicitor.

Upfront lender fees

Application fee. Also be called an establishment fee and it pays for the lender to organize your loan whether you settle or not. Some lenders will waive this fee.
Valuation fee. Pays for a qualified independent valuer to assess your home’s value. Some application fees may cover this up to a certain amount, with you paying any difference.

Upfront government fees

Stamp duty. A percentage of the total cost of your property, which goes to your state’s revenue department (percent varies by state). It’s more of a tax than a fee.
Mortgage registration fee. Pays the state to register the purchased property as the security on the home loan.

Other upfront fees

Conveyancing fees. Fees paid to your solicitor or conveyancer (if you choose to use one) to help you prepare and organise your contract.

Ongoing fees

These are regular, ongoing fees you may have to pay your lender throughout the life of your loan.

Monthly service fees. A regular monthly account-keeping fee.
Annual fees. A yearly fee that usually only applies to package home loans, which are home loans bundled with other financial products.

Exit fees

These are one-off fees you may have to pay when you pay off or close out your loan.

Discharge fee. Also called a settlement fee, this applies when you close out your loan (ie, pay it off, sell your property or refinance).
Early-repayment fee. Applies when you pay off your loan early. Lenders can charge this on any fixed-rate loan but cannot charge this on variable-rate loans approved from 1 July 2011*.

Special fees

These are fees you might have to pay if you’re taking out a special type of loan, like a fixed-rate loan or low-deposit loan.

Rate lock fee. A special fee to lock in your rate with a fixed-rate loan.
Security guarantee fee. A special fee that applies when you have a guarantor on your loan.
Lenders Mortgage Insurance (LMI). An insurance premium that applies when you take out a low-deposit loan (usually under 20% deposit).
Redraw fees. Apply when you withdraw funds from a loan account that you’ve made extra repayments into.

Bottom line

Fees are a fact of life, especially for a financial product you’ll carry with you for a long time. It’s important to become familiar with this list before you start researching home loans. That way you won’t be caught off guard when you do come across these fees in your search and you’ll know what you’re talking about when it’s time to negotiate your loan terms.

*https://www.legislation.gov.au/Details/F2019C00090

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Six million homeowners could get a better mortgage

Credit Simple — Thu, 19 Sep 2019 05:07:39 +0000

Up to 6 million Australians could save up to $40,000 over the life of an average 25-year mortgage, following the introduction of new laws by the Australian Government, according to consumer advocate group www.creditsimple.com.au.

The introduction of Comprehensive Credit Reporting (CCR) means Australian banks are about to load millions of records with the credit bureaux, and lenders will now be able to see the positive records of the country’s 6.4 million home owners for the first time.

www.creditsimple.com.au CEO David Scognamiglio said the introduction of millions of new consumer spending records will generally see credit scores improve.

“Until the introduction of CCR in 2014, banks could only judge how much to lend to home buyers based on their ‘negative’ credit score – for things like defaulting on their credit card – which gave an unclear picture on what they could actually afford to borrow.

“Good qualities like paying their credit card or car loan on time were never included, he said.

Registries like illion would now house the new data, allowing up to 90 percent of home-owners to qualify for better mortgage deals.

“Home-owners may be able to get up to 0.5% off their current mortgage rate once their positive credit history is included on their credit record.

“For the average $372,902 home loan, that works out to be a saving of $112 per month, or $40,000 over 25 years.

“Better data gets you better deals, with some of the lowest in the market now being offered at 3.2%. A lot of people have a 4 in front of their mortgage now, when they should see a 3, and in some cases even a 2.

“Until now, your bank has held all your positive credit or payment information. Under the new system, that information will be held by the credit bureau and shared with other lenders, encouraging new entrants into the market and breeding more competition,” he said.

Mr Scognamiglio noted the system would also help protect more vulnerable consumers as more data also helped the Banks know when not to lend.

“It is more important than ever to make sure you pay your loans on time – missed payments will make your score go down.

“A good score means you are a valuable commodity to a bank.

“Banks will see you are a great payer even if your history is with another bank. That’s a game changer, and will breed new competition into the market, which means rates will get better.

“You should get a better rate if you have a good score, and you should use it as an opportunity to get a better rate,” he concluded.

To obtain your free credit score and report, visit www.creditsimple.com.au

For media enquiries contact Apollo Communications on (02) 9660 4995 or after hours on 0417 170 084.

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How to find the best home loan for your needs

Credit Simple — Wed, 11 Sep 2019 01:50:03 +0000

Of course you want a home loan with low interest rates, minimal fees and an offset account that lets you deduct 100% of the balance from the amount owed. But other than that, the definition of the “best” loan varies based on your personal circumstances.

Ready to apply? Check out our offers page for a range of home loan offers to suit your needs.

See offers

The basics

As described in the intro, there are three basic things all hopeful Aussie homeowners will want to look for in a loan:

A low interest rate

Some loans will come with fixed interest rates meaning the lender bases your interest rate on market rates at the time of the loan and locks this rate in place for the loan duration.

Others come with variable interest rates where the rate fluctuates based on whatever the market rates are at any given time.

Either way, your bank will charge what’s called a spread, which is the percentage they charge you over and above market interest rates. The best home loan for you will be the one with the lowest spread.

Minimal fees

Lenders will often charge a number of fees as you apply for and configure your loan. These can include:

Application fee. A fee you pay just to apply for the loan.
Valuation fee. What your lender charges to assess the value of the home you want to purchase.
Search processing fee. What your lender charges to do a title search on the property.
Service fees. A monthly fee your lender charges for general record-keeping and other ongoing loan-related tasks.
Redraw fee. A fee to withdraw money you’ve already paid toward your loan.
Late payment fee. A fee for paying your monthly mortgage payment past the due date.
Switching fee. What your lender charges you to switch loans internally within the same bank.
Portability fee. A fee to shift your home loan from one house to another using the same lender, in order to avoid many of the other set-up fees associated with a brand new loan.
Discharge fee. A final fee you pay when you pay off your loan or move to another lender.
Repayment fee. A fee your lender charges, in addition to your discharge fee, if you pay your loan off early. These don’t apply to variable rate home loans taken out after 1 July 2011.

This is not an exhaustive list, so make sure you check the list of fees for a few different lenders and look for lenders with the lowest possible fees.

It’s also worth searching for a lender who will waive some of these fees.

100% offset account

An offset account is a transaction account linked to your mortgage. With an offset account in place, you pay interest not on the outstanding loan amount but on the outstanding loan amount minus whatever you have stashed away in your offset account.

Meaning the more you have in the offset account, the less you’ll pay in interest.

The best offset accounts are the ones where the bank offsets the entire balance rather than a percentage of it.

Another advantage of having an offset account is that the money is there to use if you ever need it.

Other ways to find the best home loan for you

The tips described above apply to nearly anyone looking for a loan. However, there are other factors to consider when trying to score your best home loan.

After all, what’s best for one person isn’t necessarily what’s best for everyone.

Here are some questions you can ask yourself to determine if a particular loan is right for you:

Are you struggling to save a large enough down payment? Most lenders offer a maximum loan-to-value ratio (LVR) of 80% (ie, a minimum down payment of 20%). However, you still have options if you can’t come up with that much. You can find a lender that offers a higher LVR, in which case you’ll have to pay for additional insurance to offset their risk. Or avoid paying insurance by finding a lender that will let a family member guarantee a portion of your loan by using some of the equity in their own home as collateral.
Is the loan for an investment property? Investment property loans are in a whole different class than owner-occupier loans. That’s because each exposes lenders to a different level of risk and the tax implications are different. If your loan is for an investment property, you’ll need to find a loan designed specifically for that purpose.
Do you need other financial products? Many lenders will offer you discounts on other products if you have a home loan with them. For example, a bank might waive the annual fee on a credit card that might otherwise have an annual fee attached to it. If you need other financial products, the best home loan for you will be one that offers these types of perks in addition to low rates, minimal fees and everything else that makes a loan desirable.
Do you have a strong credit history? Lenders prefer low-risk borrowers who don’t overextend themselves and who pay their debts on time. The best lender for you will be one that won’t penalise you with high interest rates based on one or two bad marks on your credit file. If your credit history is a bit spotty and you’re in no hurry for a home loan, you can always wait a little bit longer and take steps to improve your credit score.

Bottom line

Apart from being approved in the first place, the most important thing is to find a loan that will save you money – whether that’s through securing a low rate, avoiding fees, scoring monetary perks, avoiding unnecessary insurance payments or any mix of the above.

How this plays out will differ from person to person based on individual circumstances. So do your research and make sure to take all of these variables into consideration when comparing lenders.

And don’t forget to check out some more of our mortgage and home loan tips here.

The information provided in this article is general in nature and does not constitute personal financial advice. It has been prepared without taking into account your personal objectives, financial situation or needs. Before making any decisions, it is important for you to consider your personal situation and seek appropriate tax, legal and other professional advice.

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Everything you need to know about online home loan calculators

Credit Simple — Wed, 04 Sep 2019 07:14:06 +0000

Online home loan calculators can be among the most valuable tools you’ll find as you seek to maximise your borrowing capacity, nab the best deal and work out the most cost effective way to pay the darn thing off.

What is a home loan calculator?

“Home loan calculator” is actually a catch-all term that applies to an entire category of calculators that each has its own function.

For example, one type of calculator will estimate how much you can borrow, while another will let you experiment with different payment strategies. There are even calculators that will help you estimate your stamp duty based on where you plan to buy your home.

Some require more input from you than others, so you’ll need to know what to expect from each one before jumping in.

With that in mind, here are the most popular types of home loan calculators you’ll find on the net. Keep in mind that they all provide estimates only.

Home loan eligibility calculator

A home loan eligibility calculator helps you calculate the size of loan you may be eligible for. You’ll have to input some of your personal financial details such as:

Your income
Your annual expenses
How many dependents you have
Any other loan repayments you are making
The amount of interest you expect to pay
The term (or length) of your loan

If you’ve entered everything correctly, the calculator will estimate how much you’ll be eligible for but you’ll still need to go through the application process to get the true amount.

These can also be called borrowing calculators or borrowing power calculators.

Loan repayment calculator

You can think of a loan repayment calculator as a mortgage calculator, since this type of calculator helps you understand the details of your mortgage once you know how much you plan to borrow.

It will estimate how much you’ll pay on an ongoing basis, how you will pay down your interest and principal over time and how much in total you’ll spend by the time it’s all said and done.

A loan repayment calculator doesn’t require as much input as the borrowing calculator does.

You’ll just need to provide the following:

How much you’ll be borrowing
The term (or length) of your loan
Your interest rate and whether it’s variable, fixed or introductory
Whether you plan to repay the loan monthly, fortnightly or weekly

Home loan offset calculator

An offset account is a transaction account linked to your home loan. The more money you stash away into this account, the less you pay in interest on your home loan.

An offset calculator lets you see how your repayment plan will benefit from a well-funded offset account.

Stamp duty calculator

Stamp duty is a tax you pay on large purchases and transfers of property, like real estate and vehicles. The amount you’ll pay differs based on the value of the property and where the property is located.

It’s important to know how much you’ll pay in stamp duty because this expense can cut into the amount you’ll ultimately be able to borrow.

A stamp duty calculator simply asks you for a few details like:

How much you’re paying for the property
The state or territory where the property is located
Whether or not you’re a first-time buyer (as certain concessions may be available if you are)
Whether you’ll be living in the property or will be using it for investment purposes.

Other calculators

You may come across other home loan calculators, but most are just fancier versions of the loan repayment calculator:

Extra repayments calculator. This lets you see what happens to your repayment plan if you decide to voluntarily increase your payment amount at a particular point in the future.
Lump sum calculator. This shows you what will happen to your repayment plan if you decide to make a large lump sum payment at some point in the future.
Home loan split calculator. This shows you how your repayments would look if part of your loan was set to a fixed rate and part of it to a variable rate.
Home loan comparison calculator. This lets you compare the repayment plan for two loans side-by-side, based on the differences in interest rates, loan term and fees.

Who offers home loan calculators?

Nearly every home loan lender will offer a suite of home loan calculators to help you understand what you can expect when it comes time to actually apply for a loan.

Here are some lenders who offer one or more of the home loan calculators mentioned above:

Suncorp
HSBC
IBA (currently undergoing updates)
ING
Bendigo Bank
Ubank
IMB
Loans.com.au
CUA
Keystart
Aussie Home Loans
ANZ
Commonwealth Bank
NAB
Westpac

Each lender has different criteria it uses to work out your loan details, so each calculator might have small differences that take their particular criteria into account.

For example, each lender will have a different fee structure, which may include an application fee and ongoing account fees (you can avoid some of these fees by taking advantage of special offers).

That said, the calculators are only meant to provide estimates and are not considered loan offers.

The point is to educate yourself and to determine if you’re ready to take the next steps – which in most cases will be to start the application process or speak to a home loan advisor.

What else do you need to know about getting a home loan?

Using a home loan calculator is a good way to educate yourself about how home loans and repayments work, but they aren’t the only tools you’ll need to get a full picture of your borrowing power.

For example, they don’t take your credit score or credit history into account, and these pieces of information play a huge role in a lender’s decision to actually approve the loan.

With a free Credit Simple account, you can access your credit score and your credit history any time you want. Having this level of insight will help you work out ways to improve your score or to identify any dodgy activity like identity theft.

We also have a learning library where you can learn to prepare for and optimise your home loan.

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What you need to know: Four questions to ask before you get your first mortgage

Credit Simple — Wed, 10 Oct 2018 18:02:50 +0000

So you’re in the market for your first mortgage. It’s a lot of money, right? You’re about to borrow hundreds of thousands of dollars, and no doubt you’ll want to know you’re not paying more than you need. We’ve put together a checklist for you.

Have you shopped around as well as you could?

Don’t forget this: the interest you’ll pay on your mortgage over the next 10, 20 or 30 years is worth a lot of money to someone. That means the lenders will be ready to compete to have you as their customer. If you just roll along to your current bank, they probably won’t take you past their very standard basic offering. You can almost certainly do better than that. There’s sure to be another lender out there who’s keen for your business and ready to make a deal that’s better for you. It can really pay to shop around. The question you need to be asking all the way along is, what’s the best rate I can get?

Have you negotiated as hard as you could?

After you’ve got yourself a good rate, don’t stop there. Don’t be afraid to go on asking other lenders if they can match the deal you’ve been offered. Another bank could be willing to give you a better rate if you bring the rest of your accounts to them. Have you asked if that would get you a better deal? Always be asking for that little bit extra.

Have you checked out mortgage brokers?

Brokers can be valuable because they know what their lenders are doing. They may be able to help you find a loan if a bank says no, and may be able to get a better deal than if you went direct. They know the criteria each lender uses, they know the interest rates, they can help you put a loan application together and they can do the negotiating on your behalf. However, some banks don’t deal with mortgage brokers. Different lenders pay different commission rates to mortgage brokers, so they may want to put you with a particular lender because it benefits them more, even though it may not be the best deal for you.

Have you structured your mortgage as well as you can?

Is it true what they say, that over the lifetime of the mortgage, you can end up paying twice the cost of the house? You could do, but you don’t have to. It really boils down to what your interest rate is and how long you take to repay. Let’s say you’ve bought the home of your dreams for $750,000 with a mortgage of $600,000 and you’re paying 5.3%. Over 30 years you’ll pay $1,198,878. Bring the term down to 20 years and in total it’ll cost you $973,713. But if the best rate you can get is 6.5%, then over 30 years you’ll end up paying $1,364,624 in interest and principal for the $600,00 you borrowed. The way you structure your mortgage really matters. Every little percentage point you can shave your interest rate, every month you can shorten your term, the better you’ll be doing.

So before you even start shopping for that loan, ask yourself: have you done as much as you can to get the amount you borrow down before you even start? Can you save a bit more of a deposit? Can you find a cheaper house?

So you’ll want to be making repayments as high as possible – the sooner you pay off that mortgage, the less you’ll pay in interest. Don’t just accept the term the lender sets you. If you think you can get it done in 20 years, don’t settle for 30.

What else? Four more tips for first timers

Get yourself an account that links your savings account to your loan. Even if your savings don’t earn any interest, it reduces the amount you’d pay on the loan. The same goes for a revolving mortgage, where your pay goes into your mortgage account and you spend from there. This also reduces the amount of your loan accruing interest.

Make sure you’re not in too deep. That 95% loan may sound great, until it’s time to pay it back. Be sure you’ve had a clear-eyed look at what you can afford to spend, and what would happen if any of you income dried up.

It’s just as important to make sure you’re not borrowing more than you need. Some lenders may try to tempt you into borrowing more, because that’s great business for them.

Check out an online mortgage calculator. It’s easy to get a very clear idea of the many options you have to structure your mortgage by crunching the numbers again and again, trying out all the different possibilities, so make an online mortgage calculator your friend. Most of the lenders have them on their sites. Don’t brush past them, there are many thousands of dollars at stake and it’s all your money!

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How to make your mortgage work better (and harder) for you

Credit Simple — Wed, 10 Oct 2018 18:02:45 +0000

For most of us, there’s nothing we spend more on each month than our mortgage. So there’s never a month where it’s not worth asking: “Could I be doing better? Could I be getting closer to paying it off? Could I be paying a bit less in interest?” Here are our top tips for making sure you’re putting the least in and getting the most out.

Push your bank a bit harder

It’s always worth bearing in mind that banks don’t usually do as good a deal on home loans as they could for one very important reason: they don’t need to. If you push a bit harder they will, but most people don’t. Here’s what you can do to get a better deal, according to Scott Pate of the Barefoot Investor:

Don’t get seduced by fancy extras

Things like repayment holidays and special features may look appealing but there’s a good chance they actually seduce you into paying for things you won’t use much, if at all.

Fixed rates might look good, but they may shut you out of a better deal

If you want to know for sure that for the next five years you’ll be paying a certain amount then fixing your rate is worth it, but what if you see a better deal six months from now? If you fixed your rate, you may not be able to move over to that deal or if you do, there may be penalties.

Push hard to get the cheapest rate possible

It may cost your bank a decent amount of money in marketing costs to replace you. That equals bargaining power. If you call and tell them you’ve applied to refinance with another bank and their rate is a certain amount cheaper than you’re currently being charged, and that you’d like them to match the offer or send you the forms you need to switch, you may well get a better rate. If they don’t match it, it may be worth saying “that’s not good enough” and ask if they would speak to their supervisor.

Sound like a hassle? It can be. But is it worth it? You bet it is. Let’s say you get them to drop your rate 0.5 per cent. Apply that to the cost of your mortgage over say 15 or 20 years and look how much that phone call will be worth to you if they come to the party. That’s some serious money, and well worth your time.

Put that foot on the accelerator and get the debt down faster

Can you find another $500 or $1000 a month to pay off your mortgage each month? Put it another way: would you like to have your mortgage paid off three or five or seven years sooner? A small amount extra each month can make real inroads into that debt. If you just make the minimum payment, that works a lot better for the lender than it does for does for you.

So what can you do to get it paid off faster?

Make higher repayments than you have to. As long as there is no penalty for doing so, top up your repayment whenever you can and add extra lump sums as you go.

Go fortnightly. Can you pay half your monthly amount each fortnight? If you can, you’ll end up making more payments for the year.

Act like you didn’t get a break. Has your interest rate dropped? Good – don’t drop your repayment level and you’ll be making more progress.

Act like you’re not doing better. Had a pay rise? Don’t live like you have, keep spending the way you were and put the rest into your mortgage.

Shrink the calendar. Can you shorten the term of your loan? If you can cope with an increase in your repayments, do it, it’ll make a big difference.

The post How to make your mortgage work better (and harder) for you appeared first on Credit Simple.

Mortgage Help: How to refinance your home loan

Credit Simple — Wed, 10 Oct 2018 03:59:23 +0000

A mortgage can easily end up costing you thousands more than it needs to, maybe tens of thousands, if you’re not always looking for the best deal. Sometimes you can do better by refinancing to a mortgage with a lower interest rate. But it’s not something you want to be doing without some careful preparation and homework.

What do you need, and what will it cost you to change?

Before you start refinancing, find out exactly how much you need to borrow. If you just make your own rough guess, you could end up borrowing too little or too much. Ask your lender exactly how much you’ll need to pay to clear the mortgage on a specific date. You also need to establish if there are any fees or charges for early repayment.

It’s possible that refinancing could end up costing more than you expect. You need to be sure that what you save on interest payments won’t be wiped out by ongoing fees or charges for making the switch. That could include:

Early repayment fees
Application fees from the new lender
Legal costs
Valuation costs

Have you sorted out your finances and got your credit file looking as good as it can?

Before you start knocking on doors for your refinancing deal, you want to make sure the lenders will be seeing you at your best. They like to see that you’re managing your money well, and that you’re in a position to pay them on time. So here are some things to be especially mindful of in the weeks and months before you start making an application.

No, or few, other applications for credit
No erratic or heavy spending
Keep out of your overdraft
Make sure your credit report looks as good as it can, and that there are no errors in it that could count against you.

Now would be a good time to look through your score and reports (click here to check yours with Credit Simple instantly and free).

It used to be that lenders would just multiply your main income by up to five times to work out your maximum remortgage size. These days it’s more complicated. They’ll look at all the numbers to work out if you can afford the repayments. That means all your debts, all your outgoings, your basic salary and any other relevant income. You can use our free online spend tracker Money Simple to get a good handle on this and see if there’s anything you can adjust to make your spending look better to home loan providers.

What if it all goes wrong?

So you make your application and you wait to hear back and … bad news. Turned down.

Here’s what not to do: don’t immediately apply somewhere else, because if you get turned down again, you’re going to start looking less shiny on your credit file and that can turn into a bad spiral as the next lender and the one after that turns you down because … your credit report isn’t looking that good because people have been turning you down.

If you get rejected, stop right there and take careful stock of everything in your credit status, and work out if anything needs fixing before you apply again.

The post Mortgage Help: How to refinance your home loan appeared first on Credit Simple.

What credit score do I need to buy a house?

Credit Simple — Tue, 10 Apr 2018 20:16:07 +0000

Are you thinking about taking the next big step in your life and applying for a home loan? Buying your own property is a major part of becoming financially stable in the future, because you have a huge investment as a part of your portfolio. However, if you don’t have a clean credit report, you could find it difficult to get favourable terms on your mortgage.

When a lender looks at your application for a home loan, they’ll consider more than just how much money you earn with your partner, or your total deposit. They’ll also look at how sensible you’ve been with money in the past.

Advantages of a clean credit report in Australia

Having a clean credit report means lenders will see you as a responsible borrower. Their risk is lowered because you’ve proven you’re less likely to default on payments. They are therefore more likely to offer you a lower interest rate and give you a longer loan term (more time to repay).

If you’ve been responsible with money in the past, your home loan terms will be more favourable.

While you should ideally have 20 per cent of your home loan total saved for a deposit to avoid having to pay for lenders mortgage insurance (LMI), some home loan providers could offer you a greater total loan amount if you have good credit. While this means you’d have to pay for LMI as well, it could help you get into your dream home sooner than you thought possible.

Buying a home with bad credit

It is possible to buy a home with bad credit, but ultimately you may have to pay more over the term of your mortgage. Lenders may not offer you the same interest rates as people with good credit because of the perception that you pose more of a risk. There are some specialty lenders who offer home loan products designed to suit those with bad credit. This may mean you can still take the next step in your life without having to wait five years for that pesky default to come off your credit report.

Your credit report affects your overall credit score, and home loan lenders are likely to look at both to determine your risk level. Your credit score characteristics are:

Excellent: The top credit score is 1,000 (3.5% of Aussies)
Superb: 800 to 999 (22% of Aussies)
Great: Between 700 and 799 (41% of Aussies)
Average: Between 500 and 699 (23% of Aussies)
Room to improve: 300 to 499 (3 % of Aussies)
Below average: 0 to 299 (7.5% of Aussies).

These percentages are correct as of April, 2018.

Borrowers with a credit score in the Excellent range will be offered the best credit terms, including a great interest rate. Repayments are likely to be structured to suit your needs so you’re likely to be in the most beneficial spot financially.

Those benefits are likely to decrease along with a lower credit score. As you drop into lower categories due to missed payments or lots of credit enquiries, the interest rates you’re offered are likely to be higher, making your total loan repayments either take longer or be more expensive per month. Your lender is less likely to be flexible with your loan terms as well, because they may not perceive you as a reliable borrower.

If you have a Below Average credit score, and defaults listed on your credit report, you’re more likely to have to turn to specialised bad credit home loan providers. While these lenders are likely to offer high interest rates and often require a strict 20 per cent minimum deposit to minimise their risk, still the service offers you the chance to buy a home and become more independent. Bad credit doesn’t stop you from taking the next step up the ladder of life, but it can certainly make it more expensive.

Buying a house with bad credit is possible, but it will be expensive.

Your partner’s good credit report matters

When you’re thinking about applying for a home loan, you’ll have to consider your partner’s finances as well. If either of you has a bad credit report or low credit score thanks to some bad decision-making or money management in the past, you’ll both suffer a higher interest rate.

If your partner has a clean credit report to match yours, you’ll be seen as having a stable financial base and lenders will jump at the opportunity to fund your endeavours. What’s more, people with better money management skills are more likely to stay together, according to research from the US Federal Reserve.

The research points out that people with good credit scores are more likely to get married, or more likely to find a partner with a similar credit history. Couples with mismatched credit reports or scores may be less likely to stay together. If both of you have a firm grip on your finances, you’re unlikely to miss a repayment or bill or anything else to do with money. Not only does your partner’s credit report matter to your chances of buying a home together, it’s may also be a fair indication of how successful the relationship is likely to be in the long run.

A good credit report can help you to buy a home, and may make it more affordable over the long run. For more information about your current credit report, get in touch with Credit Simple today.

The post What credit score do I need to buy a house? appeared first on Credit Simple.