FAQs

Apt Mortgages

FAQs

These are fees that are levied for processing an application for a loan, such as a home mortgage from a lender.

Application fees are charged to cover some of the costs involved in processing the application.

Also known as a Pre-Approval or an Approval in Principle (AIP). This approval is a special type of approval where the bank assesses the application for a loan prior to the client purchasing a property.

The bank assesses the borrowing capacity of the clients by assessing their incomes, expenses and other characteristics.

A Pre-approval is very advantageous for the clients actively looking for a property. This sets out a more specific budget for the client as the banks agrees in principle to lend a specific $$ amount.

After we add the deposit available with the client to the proposed loan amount the clients get a realistic value of the house they can bid for.

A Pre-approval should not be confused with a full approval as at this point, the lender has no obligation towards you or funding your application.

A professional conveyancer or conveyancing solicitor is someone who assists with the settlement and title transfer process during the home buying process.

This specific professional ensures that the client meets all legal obligations and the rights are protected during this transaction. Both buyers and sellers would require the services of a conveyancing professional, because both sides have certain obligations that must be fulfilled in a Contract of Sale.

A conveyancer is a specialist who specialises in “real property” related law known as conveyancing.

A Solicitor can practise in many areas of law including conveyancing and can be involved in transactions that require a professional’s attendance in court

A Conveyancer usually charges less than a Solicitor, but is limited in the areas he/ she can represent you.

A rate lock shields the borrower from fluctuations in interest rate for the duration of the lock period. This is mostly used in the case of Fixed Interest Rate loans. Usually there is a time gap between the date of approval of the loan and the actual settlement (drawdown of the loan).

Fixed rate applicable to your loan account is the interest rate on the date of the settlement, not on the date of loan approval (rate listed on the Letter of Offer). This means that there is no surety that, the borrower opting for a fixed rate gets the same rate as disclosed by the bank on the Letter of Offer.

“Rate Lock” removes this uncertainty for the borrower as the bank guarantees to lock the current rate for the client, hence saving the client from any future rate rises from the date of loan approval to settlement. Banks have different time period for the rate lock which can range from 60 days to 3 months. Most lenders also charge a fee for the rate lock.

A comparison rate helps customers identify the true cost of a loan. It includes the interest rate, the fees, and the charges related to a loan, combined in a single percentage figure. A comparison rate is made up of the following factors:

  • the loan amount
  • the loan term
  • the frequency of repayments
  • the interest rate; and
  • the fees and charges connected with the loan.

A credit report consists of an individual’s credit history prepared by the credit bureau. A credit history enables credit providers to evaluate one’s ability to give out repayments on a new loan or a credit card. Here are some factors which determine the creditworthiness of a loan applicant:

  • Personal information
  • Details of other credit cards held
  • Defaults in bill payments or loan repayments
  • Debts that were overdue but have now been settled
  • Past credit applications
  • Repayment history on different loans you have taken in the past

Home loans with a fixed interest rates are the ones which have the rate of interest fixed for some specific time period of the whole duration of the loan generally between one to five years. In simple words you enter into a fixed term contract with the bank where in, the bank agrees to charge a set percentage interest rate for the specified period giving you a cushion from any future interest rate changes.

These loans may provide huge benefit when the interest rate in the real estate market are going higher. However, when interest rates come down, you may be at a loss. A fixed interest loan is helpful if you have a strict budget in place as it provides the certainty of the repayments you will be making in future.

A honeymoon or introductory rate, unlike other home loan products, is often much lower. However, this low rate only lasts for a certain amount of time. The honeymoon rate is a blessing for many first home buyers as it gives them a chance to ease into the repayments and learn how their mortgage works.

Other borrowers use this time to make extra repayments so that they are not only prepared for when the rates revert back, but also put extra money towards their loan.

The First Home Owners Grant (FHOG) is a one-off tax-free State/ Territory Government payment available to most people who plan on buying their first home in Australia. Each State/ Territory sets out the rules and legislation in relation to the eligibility of the payout. However some basic features to be eligible for a FHOG are-

  • He/she must be an Australian citizen or a permanent resident who is buying or building his/her first home in Australia.
  • The property in question must be a recognised house, unit, or flat that is specifically designed for people to live in.
  • You or your partner must not have purchased a property to live-in Australia before.
  • You must occupy the home within 12 months of settlement or within 12 months of completion of construction, if it’s a newly built home.
  • You must apply for the grant within 12 months of settlement or completion of construction.
  • Contracts must be exchanged between the buyer and seller before the cut-off dates, and the money is paid at the time of settlement.

Interest-only loans enable a borrower to repay only the interest on the principal amount over the term of the loan. They are preferred by borrowers as the repayment amount is much lower than on the standard loans.

You can veer the money you save in the process for other things like home improvements. You start making the principal repayments once the term of the loan is over.

These loans prove to be beneficial for investors as their interest payments are tax deductible. They don’t need to worry about repaying the principal amount as this will be done when they sell the property once it appreciates in value.

An investment loan is usually provided to borrowers who plan to invest money on buying investment properties. Buying an investment property is a great way to build your wealth. An investment loan comes in with a range of investment home loan options to suit your purchasing needs.

Interest rate charged for an investment loan may be higher than the interest rate on an owner occupied loan.

In an event where the deposit for the property is less than 20% of the purchase price, the client may have to take an additional insurance known as LMI.

Lenders mortgage insurance is a one off payment, paid at the time of drawing down on the loan and it protects the lender in the unfortunate event when the borrower defaults on the home loan. When lenders agree to lend a customer money, there is a small risk that they won’t get the money back if the customer is not able to meet the repayments.

This insurance helps lenders expand their area to who they are able to lend to by taking some of the risk out of lending the money. It means that more people are likely to get a loan and the home they want, sooner.

Lenders’ mortgage insurance should not be confused with mortgage protection insurance, which covers borrowers for the payment of their mortgage instalments in the event of unforeseen circumstances including unemployment, illness or death.

A Loan offer Document (Letter of Offer) is the formal Agreement that sets out the terms and conditions of a loan between the lender and the borrower seeking the loan.

The borrower may be an individual(s) or any legal corporate entity. Upon an unconditional approval of the loan application, this document needs to be signed by the borrower and the lending bank or the financial institute.

This Loan offer contains some vital information pertaining to the loan. Some of the important information contained in the Loan Offer Document include

  1. Name(s) of the borrower(s)
  2. Property address(es)
  3. Term of the loan
  4. Loan amount
  5. Current interest rate.

The borrowers need to sign and return the fully signed loan offer back to the bank within a stipulated time frame specified in the Loan Contract.

Further to this the loan offer has a validity date i.e. the loan has to draw down (settle) prior to the expiry of the validity date.

In case of expiry of the Loan offer Document, a fresh application may need to be made with the bank/ lender to seek the same finance.

Loan to value ratio  refers to the fraction of money you borrow (the loan amount) compared to the value of the property. Lenders will take your LVR into account before agreeing to give you the money required to purchase your property, as a means to analyze your risk as a borrower. Borrowers with a higher LVR are considered to have a higher risk factor.

The LVR is calculated as the amount you need to borrow divided by the value of the property. Eg: If you take a loan of $400,000 against a property of $500,000. The LVR in this case is 80%.

Most lenders charge a fee for making a loan available to you. It is highly recommended that you check the fees beforehand to know how much the loan is going to cost you. Different lenders are going to have different fee structures. There are various components to the fee structure of lenders and one of them is the monthly service fee. It is the monthly fee that lenders charge to execute your loan.
Monthly repayments on a loan are divided into two components, Principal and Interest . In simple words, the first part goes towards paying off the outstanding loan amount itself and the rest goes into paying off the interest due on the outstanding loan amount. Your lender will work out precisely how much you will be required to spend on each periodic repayment so that you can pay off the loan within the agreed term. This is called an amortisation schedule and lays out how much of your repayments go towards the principal and the interest respectively.

Redraw is a feature attached to home loans that allows the borrower to withdraw any additional money deposited to the home loan account.. The variable rate loans do not restrict the borrower from putting additional money in the loan account. This additional money is over and above the minimum monthly stipulated installment as per the loan contract. The surplus money in the loan account is the “Redraw amount”.

The redraw amount is the difference between the limit of the loan account and the current loan balance. a The bank charges the interest on the loan balance (not on the loan limit). This means if an extra payment is made into the loan, the bank will start charging a lesser interest resulting in an accelerated amortisation of the loan.

The freedom of taking this money out any time from the loan account gives the borrower extra options to park the surplus savings. Till the time this surplus cash is not required, it may be kept in the loan to save paying extra interest.

Redraw facilities usually comes at a price in the form of fees charged by lender per redraw.

Some lenders also limit the number of redraws a month, yet others have a maximum and a minimum redraw amount for each time.

Refinancing involves trading your old home loan for a new one with a new interest rate and term. This comes handy when you realize that your old loan package is not longer offering you the flexibility and facilities for your changing needs. That is when you can opt to refinance.

When you refinance, you utilize some or your entire funds to repay your current loan. You can either choose the new loan from your existing or a new lender. People choose a refinancing if they want to raise cash for renovations, avail a cheaper rate of interest or to pay off other debts like credit cards.

When you purchase a land or building, you will be liable to pay stamp duty to the Australian government. The amount differs with each state/ territory. The stamp duty depends upon the market value or the purchase price of the property, whichever is greater.
A loan is to be repaid within a stipulated period of time and that time period is called the term of the loan. Usually lenders provide you with the option of a maximum term of 30 years, some even going up to 40 years, . With the increase in the term of loan , monthly repayments decrease. 25 year and 30 year loans are the two most frequently used loan terms.

A valuation is done to help the lender confirm, while selling or buying any property, that they are lending a borrower the money responsibly. Lenders must ensure that they are not giving out a home loan that is more than the value of the property on the market.

When taking out a home loan, the home is used as a security. This security means that a borrower can borrow more at a lower interest rate, . For lenders it means that if a borrower has any difficulty with the loan and is no longer able to make repayments, then they may have to sell the property to pay back the loan.

With a variable rate home loan, your loan repayments are dependent on market conditions, in particular the base rate set by the Reserve Bank. Your repayments can increase if interest rates rise, and decrease if the interest rate falls.

Some of the benefits of choosing variable rates home loans are-

  1. Competitive or low introductory interest rates on loan repayments
  2. Make extra payments without penalty
  3. Weekly, fortnightly or monthly repayments
  4. 100% offset facility available
An offset account is a savings account that is linked to the home loan. The interest rate is calculated by the bank on the net balance of the loan account and the savings account. The offset account may be a fully transactional account or a non transactional account. A transactional account is an account that may be used as a day to day account that allows you to use it for day to day spending and it usually has a linked debit card while a non transactional account usually restricts the number of transactions that are allowed from it.
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