Author: Darin Hindmarsh

Ready to be a homeowner? Intellichoice works with you from start to finish Buying a home is one of life’s biggest milestones, and in Australia, it’s something that many of us aspire to. Granted that purchasing a home is a cause for celebration, but it’s a fact that it will involve so many complicated processes. Things like mortgages, owner-builder construction, and repayment schemes could stress out even the best of us. For first-time home buyers who haven’t learned the ins and outs of the industry, it’s easy to feel overwhelmed. Here’s where we come in handy. Intellichoice understands that potential home buyers can easily decide and plan for a new home when they have all the information relating to homeownership. That’s why we’ve developed this comprehensive guide on all things home loans. We’re your partner in confidently navigating the home loan process.  From figuring out which home loan product suits your needs, to learning about the step-by-step home loan application process, how to qualify, and of course, home loan Australia updates, we give you the latest information to reach your homeownership goals.  Do I Need a Home Loan? Purchasing a home, whether it’s a small property or a vast estate, would always be a major expense. Home loans save you the trouble of having to come up with hundreds of thousands up to millions at one go in order to purchase a property. Australian banks and lenders typically require a deposit of around 20% of the total home loan unless using Lender Mortgage Insurance ( LMI). Other lenders may approve with just 5% or even if you have a bad credit. Your home loan could be anywhere up to 95% of the purchase price of the home. The home’s price tag won’t be the sole expense – there are also other costs taken into account, including stamp duty, conveyancing fees, and other legal costs. Home Loan Fees and Costs As a first-time home loan applicant, be familiar with these different terms and concepts: Principal – This is the amount of money you borrowed from the lender. The regular repayments will have a fraction that goes toward paying off the principal, so the amount goes down until you pay off the entire home loan eventually. There are interest-only loans, in which repayments only cover the interest rate the lender places on your loan. This is much cheaper but will make the repayment journey much longer because you’re not paying off the principal amount while at an interest-only arrangement. Interest Rate – This is the amount that the bank or lender charges for borrowing money. The interest rate is expressed as a percentage, and may either be fixed-rate or variable rate. There have been multiple interest rate hikes from 2022 to 2023, spelling the end of Australia’s low cash rate.  Package Fee – Depending on your lender, the home loan will have a package fee that is the premium for what features come with the loan. For instance, if it has a credit card or an offset account feature, it may have additional fees. Application Fees – Applying for a mortgage involves numerous legal processes. You’ll be paying for conveyancing fees, mortgage registration fees, and other government-issued fees. Each state and territory may have different  Lender’s Mortgage Insurance – Lender’s Mortgage Insurance (LMI) is a form of assurance for the lender that’s included in a home loan if your deposit is less than 20%. Try to avoid having to pay LMI as much as possible because it could add thousands to your loan at the onset.Stamp Duty – Each state imposes a levy to purchase the land. Stamp duty will vary per state and is set according to the value of the estate. What Are the Steps to Home Loan Application? Intellichoice can assist you in each of these phases: What is Pre-Approval? Pre-approval is the pre-qualification for a certain mortgage that a bank provides either via public or proprietary information. If you want to secure a pre-approval, major banks and lenders offer an in-bank consultation, and from there you can complete the application process online. This usually takes anywhere from a few hours to a couple of days. Getting a pre-approval is not a compulsory requirement and isn’t offered by all lenders. However, it’s a good barometer of your capacity as a home buyer as it signals that you are ready to make an offer on a given property.  Take note, however, that being pre-approved does not automatically mean you will actually be approved for the loan. It is just an indication that you are a preferred home buyer who can handle a mortgage when there’s stiff competition for a property. First Time Home Buyers Australia has a First Home Owners Grant (FHOG), a national scheme that provides a one-off payment for prospective home buyers who want to enter the property market. There are different eligibility criteria and terms per state or territory. For instance, the New South Wales Scheme is valued at $10,000 for a new house or townhouse costing $600,000 and new home buildings valued at $750,000. Meanwhile, the Queensland First Home Owners’ Grant provides $15,000 for properties worth less than $750,000.  Only select home buyers can apply for the FHOG, and eligibility varies in every state, but these are the general requirements:  For more information, visit the First Home Owner Grant page here. Types of Home Loans Australia Potential home buyers have several mortgage options to choose from. Each one has its own advantages and drawbacks:  Fixed Rate Home Loans What: Fixed-rate home loans are set in a way that the interest rate is fixed over the duration of the mortgage period. For example, an interest rate of 4% per annum over a period of 10 years means that whether the Reserve Bank of Australia (RBA) changes the interest rate over that time, you will still be paying the same interest rate.  Why: Fixed rate home loans give clients a predictable path for their mortgage repayment journey. Regardless of industry fluctuations, your monthly budget for repayments will stay the same. Fixed rate mortgage is ideal for borrowers who want a stable repayment scheme.What to Expect: While fixed rate home loans are stable, the drawback is how inflexible they are. You won’t benefit from any interest drop should they happen. In addition, fixed rate mortgages don’t allow repaying earlier than the fixed term or selling the property without break-away fees.  Variable Rate Home Loans What: Variable rate home loans are affected by the market changes. If the RBA announces a cash rate increase, banks and lenders will also increase the mortgage rates. In short, the interest you pay on your home loan changes as the industry does. Why: Variable rate mortgages have several benefits. First, these loans allow unlimited repayments for when you are able to pay earlier. You’re not strictly bound to the mortgage period unlike in a fixed rate home loan. Variable rate home loans also don’t charge breakout fees as would a fixed rate term will. Lastly, you can take advantage of offset account or access to a redraw facility. What to Expect: Variable rate home loans fluctuate – prepare to repay higher or lower per month depending on the interest rate changes. If financial professionals project an interest drop, a variable mortgage will be advantageous. Otherwise, it could result in much higher repayments. Split Rate Home Loans What: Split-rate home loans are where you experience a portion of both the fixed rate and the variable rate in one mortgage period.    Why: Split rate home loans give clients the advantages of both a fixed rate and a variable rate loan. You have the stability that a fixed rate provides, while the variable loan portion brings more flexibility especially if the real estate market lowers the interest rate.  Aside from enjoying the best of two worlds, a split rate home loan allows additional repayments on the variable phase of the loan. This gives the option to repay faster than on a purely fixed rate setup.What to Expect: Borrowers can set up the split rate home loan at equal ratios, or you can put more weight on one over the other (e.g., 60% fixed, 40% variable rate). Be ready for the change once the portion of the loan ends – either an interest rate drop, or a higher rate depending on the industry trends. Check Out Our Home Loan Resources Your home buying journey is more informed with our tools here: Property Buying Calculator (link) – This calculator estimates all the costs that come with buying a property. You can factor expenses like lender fees, insurance, stamp duty, and more. Home Loan Calculator (link) – Use this smart calculator to get an estimate of how much you can borrow based on income and living situation.  Comparison Rate Calculator (link) – If you have two home loan options but can’t decide which is better, our comparison rate calculator factors in the interest rate, upfront fees, and charges to display a single percentage rate. It won’t take into account LMI, government charges, and lender features.    Frequently Asked Questions (link) – Whether you’re a new home buyer or a client who wants to refinance an existing home loan, you will have a lot of questions. Our FAQs covers the most timely and important details for you.  You can always reach out to our Intellichoice home loan experts to discuss and weigh your options.  Book a Chat Today

What credit score do I need for a home loan? Whatever your financial position, home loan Australia requires several quotas for you to be eligible for a mortgage. And one of the core requirements is a satisfactory credit score, which must be over a specific rating.  A healthy credit score is one proof that a borrower is financially capable and responsible to manage a home loan. This guide is all about understanding your credit score, what rating is ideal to secure a mortgage, what will disqualify you, and what steps can prepare to improve your credit score if needed. What is a Credit Score? Credit score, or credit rating, is a numerical representation of a person’s accumulated borrowing and repayment history. Lenders and financial institutions look at your credit score to assess if you can repay debt responsibly.  Based on this number, plus other criteria, your lender can set the appropriate loan amount they can lend you and at what interest rate. How Is My Credit Score Calculated? Australian credit report agencies are the bodies that calculate credit scores, but they do not explain outright how credit rating calculations are done. Financial institutions prefer to keep this information to prevent people from manipulating the system. Hence, there are key criteria to determine what number your score falls under, but the exact algorithm is kept secret. Calculating your credit score means looking at these factors: Payment history. Your track record of making timely payments on loans, credit cards, store cards, and other credit accounts. Late payments or defaults could affect your credit score. Length of credit history. This refers to the duration of your accounts, including the age of oldest account and average age of your credit accounts. Credit use. How much your credit limit is and how much available credit is left is also examined. Inquiries. Any loans or inquiries you have taken out, including personal loans, home loan, renovation, or guarantor for another person. Stability. Banking systems also look at job and home life security. For example, how long you have lived at your current residence, and if you switch jobs frequently – clients who aren’t as stable could have a lower credit rating. Asset Position. Banks assess if your reported assets and savings are consistent with your income, age, and background. So even if you’re at a high-income bracket but you don’t own assets, you may have a lower score.  What is the minimum credit score in Australia? There is no magic number that automatically points to a home loan approval. Your credit rating could vary depending on how the credit scoring agency calculates your number.  Overall, the general consensus is that if the credit rating is out of 1,200, then any score above 853 is considered excellent, while any score above 661 is good. If you are scored out of 1,000, a credit rating of 690 upwards is excellent, while above 540 is good. If your score is below 509, you may be considered high risk and would affect your chances of securing a home loan. You could opt for bad credit home loan products, but they usually come with higher interest rates. Of course, having a high credit rating could mean more negotiating power when considering the interest rates that lenders can offer your mortgage. But credit score isn’t the only factor; there’s the official cash rate from the RBA, the lender’s loan product features, the loan amount, deposit, and overall trustworthiness as a borrower. How do I find out what my credit score is? There are free Credit Check services online which could give you a range of where you sit between 0-1000. These services will ask for certain information to calculate your score. You can also see what accounts are registered on your credit file, the type of credit products you’ve held recently, credit requests, and repayment history. Why do I have low credit score even if I’ve never had loans or credit cards? Not having debt isn’t an edge for creditworthiness; banks have to have a record of how you make repayments, how you manage credit accounts, and such in order to rate your credit score. Having zero loans means you simply haven’t demonstrated creditworthiness. Can I make my credit score higher? If you have an average credit score, or if you’re considered to have bad credit already, you are still perfectly capable of applying and getting approved for home loans – as long as you have the income and stability to manage repayments. Bad credit home loans (link) are designed for clients who are looking for a home loan but aren’t able to secure a standard mortgage application.   To help improve your credit score, or maintain it at a good range for a home loan application, here are a few strategies to focus on: Overall, don’t fret in case you have a lower score now. Your credit score isn’t static; you could always make big financial and lifestyle changes to improve your rating. Finding stable employment and housing, making timely payments on debts, and beginning to save or invest will achieve a turnaround in your credit score and capacity to apply for a home loan. Can I apply for home loan with a poor credit score? Yes, you can. As we’ve said, credit score is only one of many factors that lenders assess when looking at a loan application. There are specialized products that work around a bad credit home loan, especially if your financial history and other criteria are in the green. Do keep in mind that applying for bad credit home loans may have certain implications, like the following: Still have questions about your credit score? Credit score is a major factor when banks review home loans. Ensuring your financial situation is in order before applying for a home loan can make your application more seamless. If you have a less-than-typical credit rating, it’s best to seek advice from expert mortgage brokers. Intellichoice is your reliable home loan Australia specialist team. We can walk you through the process of checking home loan requirements, finding customized mortgage products that can be best suited for you.  We can assist with pre-approval, credit score advice, and bad credit home loans. Simply get in touch with our loan specialists today to get started.

Changing your mortgage? Intellichoice assists in reviewing your loan and finding more competitive options Am I eligible? (button) I want to speak to a broker (button) If you’re a homeowner, you understand that a mortgage is one of your biggest monthly expenses. And with higher interest rates, increased repayments could add a burden to you and your family. But did you know that it’s entirely possible to reduce your mortgage repayments or save on interest? The strategy: refinancing. Refinancing your home loan means replacing your existing home loan with a new one. It can be a smart financial move when you need to consolidate debt, prefer a new loan product, or want to tap into your home equity. At Intellichoice, we keep your refinancing options open. We’ve come up with this Refinancing Guide to highlight the ins and outs of refinancing. Homeowners can understand what steps are involved in refinancing; when it’s best to do it, and explore the best loan terms, rates, and features for what’s best financially.  Our mortgage brokers work with a network of lenders and banks to provide competitive rates and unique features.   Refinancing Explained Refinancing involves switching to a new loan to pay off the existing loan at a lower rate or with better features that a borrower can take advantage of. Refinancing is popular right now, as the housing industry has experienced successive interest rate hikes.  The process can be a big help to improve your monthly repayments, especially if you can secure a lower interest rate or unlock the current equity of your property. You can refinance with your current lender or apply at a new one – some banks offer waived application fees and cash back. How Refinancing Works If you decide to refinance in order to obtain a lower interest rate, you should expect to see the advantages of refinancing within two to three years of making the switch.  For instance, you have an existing home loan for $300,000 with a fixed interest rate of 5% over a 30-year term. Your monthly mortgage payment is approximately $1,610. After four years, interest rates have dropped to 4%, and you decide to refinance. You obtain a new loan for the remaining balance of $270,000 at the new interest rate but still over a 30-year term. Your new monthly repayment may approximately be $1,287. While this calculation does not include other expenses, it’s an example of how refinancing could save a couple of hundred dollars monthly and slash repayments through the years.  Now, let’s say you have been granted a 90% home loan for a $500,000 home; you’ll be required to pay about $10,000 for mortgage insurance. Your overall mortgage amount could be about $460,000.  After a few years, the value of your property may have risen by $20,000, and you might want to refinance to get a lower rate. Now, that would make sense, but you will still be paying off the loan of $460,000, around 90% of the property value. To be approved, you will still be required to pay $10,000 in lenders mortgage insurance. Refinancing, in this instance, isn’t necessarily advantageous because you’re not lowering your monthly repayments. Why Refinance? Refinancing is relevant when mortgage holders want to switch to a more practical home loan arrangement. The general rule is to consider refinancing every three to four years because banks usually offer better interest rates to new customers. Refinancing looks at what’s out in the market for the most suitable loan product. The hikes in interest rates push borrowers to refinance, because if a homeowner is paying more than 30% of after-tax income to mortgage, it’s already a “mortgage stress” situation. Fixed rate home loans were popular during the pandemic, as the interest rate was lower during that time. However, most borrowers who entered in these mortgages during the pandemic are vulnerable to mortgage stress and “falling off the rate cliff”.     Mortgage brokers have, on average, been instrumental in getting a 0.68% reduction in interest rates by facilitating refinancing for those who have fixed rate home loans. Refinancing is one way you may be able to reduce your mortgage repayments during this current climate of interest hikes. Steps to Refinancing Refinancing takes about four to eight weeks, from application, valuation, review of documents, to settlement. It will take longer if the lender receives a large number of new applications. You can always take advantage of fast refinance options, but take note that refinance terms and conditions and eligibility won’t be the same as a traditional loan. Step 1: Review the cost of refinancing There are attractive promos when banks offer refinancing, so you can take advantage of lower interest offers, refinance cash back, waived application fees, and more.  You can discuss with our mortgage broker if indeed, the refinance fees and features outweigh your current mortgage setup. Remember, while banks compete with each other, you still have to determine if the refinance option is better than what you have right now. Step 2: Maximize your equity Equity is the difference between the value of your property and the mortgage balance you owe on it. To avoid paying the Lenders Mortgage Insurance, you’d need at least 20% equity of the loan, and minimum 5% of  equity.  Step 3: Compare home loans Get the best help in the industry – our Intellichoice mortgage brokers have access to various reputable lenders around Australia who can cater to different financial needs. Even if you have bad credit, have certain constraints, or want to improve the interest rate, we can do the legwork in finding the ideal refinance loan.   Step 4: Prepare your documents  Banks and boutique lenders will require case-specific documents, but these are the general documents you need to ready for a refinance: Step 5: Get a conditional approval Upon submitting your application with all the documents, you can expect a conditional approval within seven business days or depending on the lender’s timetable. Step 6: Prepare the home for proper valuation Some lenders make do with valuation generated online, however, those with high LVR loans, banks could require an in-person valuation of the property. This is so they are able to make an informed decision about the refinancing application. Expect a couple of days to get this processed.  Step 7: Finalize the formal approval Once you are approved, the lender will send pertinent documents you need to sign, including mortgage discharge forms, loan offer papers, titles office and other forms.  Step 8: Settle your old loan After formal approval, your new lender will be the one to handle the switch. They will contact your existing lender to transfer the details. The new lender will outline the new loan agreement, repayment method, and any new features. Refinancing Home Loan: What Should You Expect Refinancing sounds appropriate for many who are struggling with high-interest rates now, but be mindful of these considerations: Unexpected issues with the new lender. From unsatisfactory customer service, issues with post-settlement procedures, to fewer branch access and online features – these and other reasons may and other reasons could bring dissatisfaction for a mortgage holder like you. You could pay LMI twice. If your loan value is more than 80% of the property purchase price, paying LMI when you refinance a couple of years later means you still owe more than 80% of the total property value. It could delay paying off your loans even if you end up with a lower interest rate when refinancing. Multiple credit inquiries could affect your score. Making too many applications that require credit checks could make your credit score lower. Remember, having over four credit enquiries in a year could discourage banks and lenders from approving your refinance application. When to Consider Refinancing    Mortgage holders can benefit from refinancing in these instances: Get a better interest rate Rising interest rates are major reasons why you’d want to check if other loan products are in the market. And with so many lenders and mortgage products available, borrowers have a wide range of options when it comes to interest rates. By shopping around and comparing rates, you can potentially find a better deal.  Our mortgage brokers can help you stay informed about the latest promotions and offers across banks and lenders. Consolidate existing debt Refinancing can be a viable solution for mortgage holders who are struggling with multiple debts and want to consolidate debt repayment. By rolling all your debts into the mortgage, you can simplify your finances, and possibly, save money paying less interest and loan fees. One example is credit card debt. Consolidating any existing credit card debt into the mortgage could reduce your overall interest payments on all debt. You can consolidate up to five different debt facilities, and make the repayments manageable. Refinancing helps to lessen fees associated with credit cards and personal loans. Plus, you can keep track of the monthly repayment instead of multiple payments to different lenders.  Enjoy additional home loan features Refinancing to a new mortgage plan means you could enjoy some introductory features that include any of the following: Offset account – An offset account provides a transaction account linked to the mortgage. When interest is calculated after subtracting the deposit placed in the offset account, you can enjoy reduced monthly interest fees if the account has a sizable amount. More flexible repayments – unlike a fixed rate home loan, refinancing to a variable rate allows extra repayments at zero cost. If you can, you can pay off the mortgage sooner. Repayment holiday – some lenders offer a break from mortgage repayments if you change jobs, apply for maternity leave, or have an extended leave of absence.  Find out if you’re eligible for a refinance by talking to our financial experts.  Book a Chat Today I want to refinance (button)

In times of rising interest rates, a split home loan can help homeowners enjoy both fixed-rate and variable-rate benefits at a set period they choose. A split mortgage allows for more flexibility, but with fees, you should thoroughly consider it before committing to the split. This article aims to provide a useful overview of how a split home loan works, whether they are more expensive compared to other loan types, and what they entail for mortgage holders. What is a split home loan?  A split mortgage is an option that allows you to allocate a portion of the loan term to a fixed interest rate and another portion to a variable interest rate. Split home loan isn’t a product; rather, it is a type of interest rate type that offers the flexibility to enjoy different rate structures. Splitting the mortgage can be 50:50, 60:40, or any other ratio that can give you the best terms. Say you are applying for a 30-year loan of $300,000 – with a 50:50 split. The first $300,000 would be subject to a fixed interest rate, and then come the time for the other half then the $300,000 would attract the variable rate. The fixed rate won’t be affected by cash rate fluctuations whether it increases or decreases. For example, the above amount with a fixed rate of 4.50% would be around $1,520 per month. Once that ends, the variable rate would be set to the bank standard variable rate (BSVR), assigned by lenders. A 2% hike for example would add over $300 to your repayments. Split mortgage provides the opportunity to hedge against potential interest rate fluctuations when fixed while maintaining flexibility with extra repayments during the variable phase. Why consider a split mortgage Split home loan keeps things flexible and balances your interest rate benefits. Here are some advantages to this setup: Interest rate security – By splitting the loan, borrowers can enjoy the stability of a fixed interest rate for one portion, providing assurance against rising interest rates and predictable repayments. A borrower may be able to save thousands in case the interest rates experience massive hikes. Flexibility – Split mortgage enables you to hedge your bets. By diversifying the risk, the fixed portion keeps the repayment amount set, while you can open for earlier repayments once the variable rate happens. Moreover, you have complete control over the split, which can be 80:20, 50:50, and so forth. Unlimited repayments – once the variable phase of the loan comes, you can make extra repayments on your debt and reduce the size of the loan quicker than if you were stuck with a fixed rate. Additional features – Splitting the home loan allows you to access loan features more accessible to variable rate loans like a full offset account or redraw facilities. What are the drawbacks? Split mortgage has its fair share of potential traps. These include: Rate timing risk – The variable rate portion of a split home loan exposes borrowers to potential rate increase and overstretched monthly budget due to higher repayments. In addition, missing out on potential cash rate drops during your fixed rate years will also keep your repayments higher than they need to be. Complexity – Managing multiple loan portions can be more complex and may require closer monitoring of interest rate movements as well as potential ongoing fees. Added costs – Split mortgage may not necessarily save you on costs because it incurs additional account-keeping fees, such as loan splitting fees or valuation fees. You could be charged a break cost if you repay early while on the fixed term. Less availability – Not all lenders offer split mortgage. Opting for one could leave you with only a couple of options as opposed to applying for a standard home loan with either a fixed rate or a variable rate. If you’re not sure what split ratio is the best for your loan application, an experienced financial adviser or mortgage broker from Intellichoice may assist in researching the best rates and split loan providers.     Is split mortgage more expensive? In terms of cost, split home loans do not necessarily have higher interest rates or fees compared to other loan types. However, it’s essential to consider the terms and conditions offered by different lenders carefully. Some lenders may have specific product structures or pricing variations for split loans, so it’s advisable to compare options and seek professional advice to find the most suitable and cost-effective solution. The split mortgage can offer access to valuable features, like an offset account that allows you to get on top of repayments to offset the interest payment on the loan. The key to making a split home loan worthwhile is to maximize the timing and features effectively. It’s also crucial to consider where the housing market is right now regarding the interest rate cycle. If the trend is on the increasing side, then fixing could be the smarter move. But once the rates drop again akin to what was recorded during the lockdown, then having a variable rate could keep mortgage repayments low.  Have any questions? You can always call our mortgage specialists to get an in-depth view of what a split loan arrangement could look like, and if it aligns with your current and future financial plans.

When managing their home loan repayments, clients always seek options that provide financial flexibility and control over their finances. A redraw facility is one such feature that can prove beneficial for homeowners. It allows voluntary extra repayments for the mortgage and lets you take out any extra repayments you’ve made should you need them for other purposes. Opting for a redraw facility is a popular way to pay off the mortgage sooner, but is it a great option? In this article, we delve into the concept of a redraw facility for home loans, how it works, its advantages, and considerations for borrowers. What is a redraw facility? A redraw facility is a feature some lenders offer as part of their home loan products. It allows borrowers to make additional repayments beyond their regular scheduled payments, effectively reducing the outstanding loan balance. If you have a redraw facility, you can access extra repayments made previously. These are payments on top of the minimum mortgage repayments set by your lender. The crucial advantage is that it permits extra repayments AND access to these repayments when needed, providing a flexible way to pay off the home loan and earn cost savings. However, lenders set different terms with redraws. This could range from assigning an app or a card for the funds’ access to setting limits to how much you can access. Lenders discourage re-borrowing (redrawing) an amount higher than a client can reasonably repay within the original loan term (e.g., 30 years). Plus, there may be redrawn fees should you wish to proceed with the transaction. How does it work?  Let’s say Shane has a loan amount of $400,000 at an interest rate of 5% for 30 years. His monthly repayment is calculated at $2,147.29. If he makes additional repayments without utilizing redraw facility – say an extra $200 each month – the total monthly repayments become $2,347.29. The extra amount reduces the principal loan of $400,000 faster, which leads to interest savings over the life of the loan. If Shane utilizes a redraw facility, he makes the same additional monthly repayments of $200 but will enjoy more flexibility. For instance, let’s assume that after 24 months, Shane faces an unexpected expense of $4,000. He decides to access the accumulated extra repayments from the redraw facility to cover this expense. Over 24 months he has $200 x 24 = $4,800 in extra repayments in the redraw facility. Shane can withdraw $4,800 from the redraw facility to cover his unexpected expense. This withdrawal does not impact the regular repayment schedule or loan term. In 25 years, the extra repayments would amount to $200 x 300 = $60,000. However, if at this time he decides to redraw the $60,000, that would shoot up the monthly repayment to about $4,000 with only 5 years remaining, which the lender would deem too high. They will have the discretion as to what amount can be redrawn that would keep the mortgage repayments appropriate and realistic for the remaining loan amount. Is a redraw facility available in every home loan?  Not all lenders offer this type of feature in their mortgage products. Redraw is typically available on variable home loans and less so on fixed rate loans. After all, fixed rate is indeed that – fixed rate. You are not allowed to make extra repayments in the first place, let alone have the option to redraw these repayments later on. Our Intellichoice mortgage professionals can search in our network of lenders which home loan product has a redraw facility to make sure you can maximise its advantages. What are the pros of a redraw facility?  Less interest – Making extra repayments (if your home loan allows it) can lead to interest savings over the loan term. As the outstanding loan balance lessens, the interest charged on your principal amount also decreases. Flexible access to funds – The ability to access extra repayments provides clients with a safety net during unfortunate times of financial strain. This is especially important for those without an emergency fund. Tax efficiency – Unlike funds placed in a savings account, extra repayments in a redraw facility are considered part of the home loan, not assessable income. Clients won’t be liable for income tax on those extra repayments. What about the cons?  While accessing a redraw facility makes your extra repayments potentially more worthwhile, there are also downsides: Redraw fees and limits – Some lenders impose fees every time you use the redraw facility, and there are minimum and maximum withdrawal amounts. Lender’s control – When you opt for a redraw, that money essentially belongs to your lender. The bank will be the one to stipulate the terms, which could mean less control for you over your funds. Repayment schedule – Using a redraw facility may alter the original repayment amount and schedule. This can affect the mortgage term and your interest amount paid over the course of the loan. Redraw vs. offset account – Some clients prefer an offset account over a redraw facility, because it is relatively harder to access funds in a redraw than in an offset account. With an offset, you open a separate savings account linked to the home loan, in which you can withdraw the funds. The balance offsets the loan principal, reducing the interest payable without affecting the repayment schedule. What to consider in a redraw facility  Check with your mortgage broker and lender if these key aspects of the redraw are right for you: Fees: Lenders could assign a flat fee or charge an activation fee when the borrower uses the redraw facility. Redraw frequency per year: Some redraw facilities have a set number of free redraws and you have to pay once you exceed this number. Minimum amount: Banks vary in setting the minimum redraw amount – anywhere from $500 to $5,000 depending on your mortgage product. Maximum amount: Lenders also set a maximum redraw amount which can be accessible regardless of how much extra repayments you make over the life of the loan. Fixed rate and redraw: Some fixed-rate home loans do have a redraw option. The arrangement is that you can make extra repayments but only up to a certain limit, say, $10,000, during the fixed term of the loan. You can redraw the amount when needed. Home loans with a redraw facility A redraw facility is a valuable tool that gives homeowners financial flexibility and the potential to save on interest costs. Borrowers can reduce their outstanding debt and access these extra funds if required by making additional repayments to their home loan. Of course, there are considerations. When considering a redraw facility, you should be aware of any fees, withdrawal limits, and the impact on their loan term. Discuss your options with our mortgage broker for a more informed decision. Please give us a call or fill out our appointment form today to get started.

Fixed-rate home loans are significant right now in the Australian property market – with over 880,000 households holding fixed-rate mortgages expiring in 2023, the switch to variable rates could mean they need to find hundreds if not thousands of dollars more on top of their regular monthly home loan repayments. The era of cheaper, fixed rates during the pandemic is replaced with debt stress and potentially mortgage prison. Let’s discuss fixed-rate home loans, how they are instrumental in stabilizing the housing market, and what owner-occupiers and investors can learn when managing fixed-rate mortgages. What is a fixed-rate home loan?  A fixed-rate home loan refers to mortgage products with a fixed interest rate. Borrowers can choose between two types of interest rates – fixed and variable. With a fixed-rate loan, you lock in an interest rate for a given period, usually between 1 to 5 years, although in some cases, the lender offers up to 10 years of a fixed-rate period. Going on a fixed rate means you have the same amount of mortgage repayments throughout its duration, regardless of the housing market increasing interest rates or experiencing lower rates. This contrasts with variable rate home loans, which change in rates regularly, as they are influenced directly by the Reserve Bank of Australia cash rate, the lender’s loan terms, and the overall Australian economic trends. Clients with fixed-rate home loans benefit from a prolonged period of lower interest rates than borrowers with variable-rate loans. This gives you time to prepare for higher rates, with the capacity to accumulate savings during the fixed period. What happened to recent fixed-rate home loans? Most mortgages taken out during the pandemic have expired in 2023 or will continue to do so over the coming years – this is consistent with Aussie home buyers’ tendency to apply for a fixed-rate home loan for an average of 3 years or less. So, from 2020-2023, these fixed rates have made home repayments more practical than if they were to settle for higher, variable-rate home loans. During the COVID-19 pandemic, fixed-rate loans increased, with almost 40% of outstanding housing credit value from fixed-rate mortgages. This is about twice the usual size before the pandemic.    Even though Australians benefited during this time, the end of fixed-rate home loans now spells a significant challenge.     Year 2022 saw 590,000 fixed-rate loans that reverted to variable rates, this year has over 880,000, and another 450,000 borrowers will have higher variable rates in 2024. Many of these mortgage holders risk falling behind on their scheduled repayments if they cannot adjust to the much higher loan costs – adding hundreds up to thousands of dollars every month. Experts estimate that if borrowers spend more than 30% of their income on mortgages, that’s already too much and could result to mortgage stress. An analysis by Experian credit services suggests an upward trend in delinquency levels and are now back at levels seen before government programs to support pandemic needs were put in place. Who should choose fixed-rate home loans? For both owner-occupiers and investment property buyers, the biggest reason to fix your mortgage rate is to enjoy certainty. Fixed-rate loans lock in a consistent interest rate for a predetermined period, shielding you from market fluctuations. Now, trying to get the timing right is always a difficult proposition, and you’d trust that lenders would always be one step ahead in the housing market. It’s best to work with a mortgage broker service so that you can review your options in the best way possible. The main point of fixing your interest rate is to be comfortable locking in a deal you can plan for financially. Advantages of fixed-rate home loans Set repayments – A fixed-rate home loan’s primary advantage is its stability. Borrowers can plan their finances more effectively, knowing that their repayments will remain constant for the fixed-rate term. Insulation from rate rises – During rising interest rates, fixed-rate borrowers are shielded from the impact of higher rates. This stability can protect against potential financial strain. Budgeting ease – With consistent repayments, homeowners can create long-term budgeting plans with greater confidence, making it easier to manage other financial commitments. What about the disadvantages? Limited flexibility – Fixed-rate home loans often come with restrictions and limited flexibility compared to variable-rate loans. Prepayment penalties and higher break costs may apply if the borrower decides to refinance or pay off the loan before the fixed-rate term ends. Insulation from rate decreases – While some fixed-rate loans allow you to switch to a lower variable rate if rates drop, not all lenders offer this option. Fixed-rate holders may miss out on potential savings if interest rates decrease significantly. Rigid, locked-in rate – The fixed-rate period means borrowers are locked into the agreed interest rate, regardless of any market reductions. This can be a disadvantage if interest rates fall during the fixed-rate term. Limited additional features – Fixed-rate loans may offer fewer additional features, such as offset accounts or redraw facilities, than variable-rate loans. Why choose a fixed-rate home loan? The numbers show that clients with fixed-rate loans avoided making higher loan repayments – equivalent to 3 months’ worth of the new required repayment once the fixed rate expires. But note that the longer you have a fixed rate, the more practical your repayments will be compared to a variable-rate loan. Fixed-rate is also a more appealing loan type for newer borrowers because they have less time to build equity or have the necessary liquidity to manage variable rate rises. Of course, fixed-rate borrowers should also consider preparing for higher rates – learn from the lessons of the pandemic and post-pandemic rates – and expect much higher repayments once the fixed rate ends. How should I compare fixed-rate home loans? Every lender offers fixed-rate mortgage products, but it pays to consider carefully other costs and fees before you commit to a loan. Comparison rates that mortgage services publish include upfront and ongoing fees. It also shows the revert rate applied once the fixed period ends. If the comparison rate is significantly higher than the advertised rate from the lender, the fees or the revert rate will likely be increased. Check the offers from different lenders to find the most favorable terms, prices, and features that suit your needs. Considering the different fees helps you get a more accurate ‘cost’ of the fixed-rate mortgage product. Let our mortgage professionals help you with every significant financial decision. We are here to research loan options and evaluate your financial goals to ensure the most informed choices are in your hands when you decide on fixed-rate home loans.