Frequently asked questions about “Loans ”
- What is the maximum amount I can borrow?
- Should I get a fixed rate or the variable rate loan?
- How much does Home Loan Advice Centre’s service cost?
- Can I pay extra off my loan?
- How much can I save by paying extra off the loan?
- Can I link an offset account with the loan?
- What is mortgage insurance and do I have to pay it?
- Can I redraw excess funds from the loan?
- What are the ongoing fees associated with the loan ?
- Should I go for the honeymoon rate loan?
What is the maximum amount I can borrow?
Each bank calculates your maximum borrowing capacity differently using their own serviceability calculators. We run your figures over all the banks calculators and determine the amounts each bank is willing to offer you. We can also suggest ways to increase your borrowing amount if required. In general, the higher your income and the lower your other liabilities are, the more you can borrow. See the How much can I borrow page and the Purchase capacity index page for more information.
Should I get a fixed rate or the variable rate loan?
It depends on your circumstances and your outlook. Fixed rates are usually a little higher than variable rates so you have to weigh up the alternatives ie comparative cost of each option, the requirement you have for certainty in your repayments, what you believe rates will do in the future, and the question of how long to fix for. Fixed rates have the benefit of giving you full knowledge of what you repayments will be over the term you fix however they also have a number of disadvantages. These include
- there is limit to the amount of extra repayments that can be paid off the loan each year. Most lenders limit this to an extra $5K or $10K over your agreed repayments
- there may be significant break costs if you have to break the fixed rate period before its expiry date ie if you decide to refinance or sell the security property.
- the fixed rate is usually set at time of settlement – not at the time the rate is quoted to you at the beginning of the arrangement of the loan. You can however “lock” the fixed rate upfront however there usually a charge for this and the amount is dependent on the lender you are using.
How much does Home Loan Advice Centre’s service cost?
It costs you nothing. Home Loan Advice Centre is a member of the Professional Lenders Association Network of Australia. As a group we refer large volumes of loans to each bank and commissions are paid back from these lenders based on this volume.The end result is that you end up with exactly the same loan as if you went to the bank directly but gain through getting our knowledge and advice on which banks it is worthwhile for you to approach and which banks are not. You also gain from our knowledge of loans and advice on the best way to structure your loan. The whole picture. The right loan.
Can I pay extra off my loan?
As long as it’s a variable rate loan, virtually all banks allow you to pay off as much as you like in extra repayments. With fixed rate loans the situation varies between banks. Most limit the extra amount you can pay off to $5000 per year but some allow up to $10,000 extra per year. Splitting your loan to half variable and half fixed overcomes the problem if you want pay extra and still have the security of a fixed rate loan.
How much can I save by paying extra off the loan?
You can potentially save very large amounts in interest cost by paying the loan off more frequently and by paying off extra amounts. The software used by Home Loan Advice Centre can show you exactly how much you would save in any given scenario and suggest ways you can achieve the greatest savings. Setting your loan up with an offset account also can be a way to pay your loan off more quickly because any funds placed within this account is effectively equivalent to paying principle off your loan.
Can I link an offset account with the loan?
It depends on the actual loan. There is no set rule but most standard variable rate loans and honeymoon rate loans will allow them but most discount variable rate loans won’t. They are useful to have because they save on interest and are convenient however there are other ways to set your loan up to do the exact same thing.
What is mortgage insurance and do I have to pay it?
Mortgage insurance covers the bank in case you default on your loan repayments. It does not cover you – the borrower. As a general rule, the banks require you to pay for this if the loan amount you are requesting is greater than 80% of the purchase price. The only way to avoid it is to borrow less than 80% or provide additional real estate security to bring the loan to value ratio (LVR) to below 80%.
Can I redraw excess funds from the loan?
It depends on the actual loan. Most variable rate loans have this facility and the cost varies between $15 and $50 per redraw and the minimum amount is usually $2000. Some loans allow free redraw.
What are the ongoing fees associated with the loan?
It depends on the actual loan. Most loans have a monthly service fee of around $8 to $10 however others have none. Usually the loans which have a monthly fee have a lower interest rate which can often make them worthwhile. There are also a number of premier package loans on offer by many of the main lenders which charge an ongoing yearly fee of between $295 and $350 and where the benefits are rate discounts and other advantages.
Should I go for the honeymoon rate loan?
Honeymoon rate loans can be good for those people in a situation who want as low a rate as possible in the early days of their loan – usually the first 12 months. After that these loans usually default to the standard variable rate. Whether it is better to go for the honeymoon rate loan or a discount variable rate loan from the out set is dependant on the client’s individual preference and situation however it is very simple to calculate exactly the interest payments for each option to determine which is best for you.