If you’re thinking of buying a house in Australia, saving for a deposit probably seems like given. After all, that’s what lenders use to secure your mortgage! But while putting down a deposit for a home is the simplest and safest way, it may not be the only way. Under the right circumstances, you can acquire a no deposit home loan that allows you to take out a mortgage with zero down payment.
So, how do you buy a house with no money out of pocket, exactly? Read on for everything you need to know about no deposit home loans.
There are three ways you may be able to purchase a home with no deposit:
This is when a guarantor, such as your parents, uses the equity on their own property to secure your loan. In this situation, you could borrow up to 105% of the purchase price and don’t need to show any savings.
The amount you can borrow under a guarantor loan depends on the type of borrower you are. Borrower types are as follows:
Of course, these amounts may vary from lender-to-lender. Therefore, you’ll need to ask what you’re eligible for before taking out a guarantor loan.
You may be wondering ‘Can you be gifted a deposit for a house?’ The answer is yes, if you’re very lucky, your family can indeed gift you a non-refundable deposit to buy a home! But will need to be considered as genuine savings above 90% – So will need to be sitting in your account for at least 3 months or with rental history 12 months for certain lenders in regards to First Home Buyers.
A personal loan
If you have a very high income, clear credit history and less than $10,000 in existing debt, you may be able to get a personal loan as a deposit. If you fit the criteria, it’s fairly easy to borrow up to $20,000 as a personal loan and 95% of the value of your property as a home loan. However, borrowing this amount of money isn’t suitable for everyone.
A personal loan could be either a hindrance or help when it comes to applying for a mortgage. It all depends at how good you are at making your repayments on time. If you make your repayments late (or not at all!) this can sabotage your chances of securing a mortgage. However, if you consistently make them on time, this can increase your credit score and solidify for your reputation as a responsible borrower.
Yes, it is possible to use the First Home Owners Grant (FHOG) as a deposit. This is a nationwide scheme designed to make it easier for first-time buyers to purchase a property. This one-off payment ranges from $5,000 to $20,000, depending on where in Australia you live (be sure to check out eChoice’s guide to the FHOG in your state) However, in most cases, this won’t be enough to cover a deposit.
The minimum deposit to purchase a home is generally 5% plus costs, but you also will need to pay Lenders Mortgage Insurance. Generally, most lenders ask for a deposit of 10 to 20%.
No, the First Home Owners Grant is only available for residential properties. While the rules vary from state to state, you must move into the property within 12 months or purchasing and live there for between six to 12 months.
Using a credit card is an increasingly popular option for loan deposits. The 2016 Genworth Homebuyer Confidence Index found that around 20% of first home buyers had admitted to using a credit card to reach the deposit amount for their home loan, which was up from 3% in 2013. However, due to credit card limits, this is generally used as a ‘top-up’, not to pay the full deposit. For example, if you were buying a property worth $400,000 with a minimum deposit of 10% and you only had $30,000 saved, you could use the credit card for the remaining $10,000.
You can acquire a home loan with no savings if you use a 105% guarantor mortgage or are gifted the deposit. If you go down the traditional route with your mortgage, you may also be able to bypass the genuine savings requirement if you can prove six to 12 months of rental history. However, this will depend on your lender.
If you are purchasing a low-cost property, meet the criteria to borrow a high loan, and are claiming the First Home Owners Grant, it may be possible to purchase a property with a $10,000 deposit. However, chances are you will end up paying at least this amount in Lenders Mortgage Insurance.
When applying for a home loan, most lenders want to see genuine savings. But what does that mean, exactly? While each institution will have its own policies, this will generally mean savings held or accumulated for at least three months.
As mentioned in this article, you can seek financial assistance from a lender or guarantors to help put a deposit down on a property. The First Home Owners Grant also exists to help first time buyers put down a deposit, however this is only applicable to residential homes.
So, you’ve decided you want to go down the traditional route for a home deposit? There are various steps you can take to get there faster:
Determine how much you will need
The first step for saving for a home deposit is determining how much you will actually need. Even if you haven’t decided on exactly what you want to buy, start window-shopping around in the areas you’re interested in. While this may change in accordance with current market value, this will give you an idea of median prices. Then, look at how much you will be able to comfortably borrow and payback in light of your current financial circumstances. Factor in your FHOG eligibility and this should give you a starting point for how much you’ll need for a deposit.
Manage your debts
Whether it’s credit card repayments, a personal loan or small lending services like Afterpay or ZipMoney, now is the time to get on top of any debt obligations.
Cut back where possible
Many people choose to move back in with their parents or with housemates to reduce their living costs. Other options include selling a car and catching public transport, eating out less and eliminating expenses that are ‘wants’, not ‘needs’.
Create a savings plan
Once you’re aware of how much you need to save, what you can cut back on and any debts you need to pay back, you can create a budget and savings plan. This will not only help you get your deposit together but also satisfy the genuine savings requirements when applying for a home loan.
Yes, it is possible to apply for a home loan without the assistance of a mortgage broker. However, it can be a confusing, stressful and time-consuming process if you’re not up to speed with real estate jargon and current property market.
A mortgage broker will be able to find you the best mortgage deals and ensure you’re well-placed to get approved for a loan. Contact one of eChoice’s experienced mortgage brokers today and get one step closer to buying your dream home.
This information is a guide only and is an estimate only based on the past 12 months of aggregated online mortgage enquiries from eChoice and partner programs.
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After scouring the housing market for some time, you’ve fallen in love with a home that ticks all your boxes. Now you’re wondering how you make an offer on the house without paying more than you need to. We explain everything you need to know during this exciting time.
Australian homes typically sell by private treaty, where the vendor sets the price of the property, or via auction, which involves making a bid over the reserve price to secure the property. Both buying processes are completely different and how you make a house offer will depend on the selling process of the property.
Before taking a serious look at the property market, seek pre-approval from your lender first. By doing this you will know the limits of your budget and won’t set your sights on something outside what you can afford.
Seeking pre-approval, sometimes called conditional approval, also puts you in a stronger position when making an offer as it makes you more attractive to vendors.
Although you can make verbal offers on a house, for clarity on details and terms it is best made in writing.
In your letter of offer the following should be included:
You may also want to seek legal advice before making any formal offers.
Making your offer is as simple as contacting the property agent and letting them know the amount you’re willing to pay – to start with a verbal offer is fine.
Tips on making your offer:
Once you’ve given your verbal offer to the agent, they’ll take you through the process of formalising a written offer.
There are three typical outcomes once you make an offer on a house.
Even after making a formal offer the buyer has several stages to withdraw from the sale before it is finalised.
An offer is not a legally binding contract and can be withdrawn before the seller accepts. You can revoke your offer by giving the agent a written letter informing them of your offer withdrawal. If you decide you want to revoke an offer, don’t waste time. It becomes much more difficult and costly to revoke and offer once it is accepted.
Most states also have mandated cooling-off periods. This gives the buyer several days to reconsider their purchase after the exchange of contracts. However, withdrawing from the sale at this point will come at a financial cost to the buyer.
Home loan lingo got you down? Check out the eChoice finance glossary for help with those pesky terms!
A lowball offer is an offer considered to be less than what the property is actually worth, and is a tactic many home buyers might consider in a slow market. However, while it’s natural to want to get ‘bang for your buck’ in any purchase, a lowball offer is not always a good tactic in home buying.
Research the sale history of the property and look at similar property types in the area that have recently sold to get an idea of the worth of the property.
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Generally speaking, a vendor cannot back out of a sale once an offer has been accepted, however, there are few exceptions. This could include a vendor cooling off period being stipulated in the contract or the buyer not meeting the requirements of the contract.
As a seller, you should seek legal advice for a better understanding of what breaking a legally binding contract would mean for you.
The amount of money you put down as a deposit is subject to your lender and their criteria. Some let you borrow up to 95% of your property’s value so you may only need to put down 5% to have your loan approved.
But, it’s a good idea to aim for more – you won’t have to borrow as much, you will have lower repayments and you will lower the amount of interest paid over the lifetime of your loan.
You’re also in a better position to negotiate lower interest rates with lenders because you pose less of a risk with less to repay.
When you put down 20% of the sale price or more, you also avoid paying Lender’s Mortgage Insurance. This is a way to protect the lender when you borrow a large fraction of your purchase price. This cost can either be upfront or made in addition to your repayments.
You might also like: What is Lenders Mortgage Insurance and How Can It Be Avoided?
Selling a property comes with its own set of worries, one of the most important being knowing when to accept an offer.
Take time to consider what you are willing to accept and what conditions you might negotiate on when you place your home on the market. Some things to consider:
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It is best practice to respond to all offers, and if you are selling through agent, they will likely push you to give an answer to any offer. If you choose to reject or counter the offer make sure you respond in a timely manner.
Buyers making an offer can bid lower than the asking price, although some agents may not commit to writing an offer if it is too low. Most vendors will not go below 5% – 10% of their asking price but there are factors to consider:
There is no legal requirement to use a lawyer to make an offer on a house but it is advisable to speak with either a lawyer or a specialised licensed conveyancer to look after your transaction. They can help guide you through negotiations and offers, although the real estate agent will also provide guidance where needed.
In a slow market or a buyer’s market, you may want to consider lowering the price of your home. Before you lower your asking price, consider what offers you are willing to accept and whether it’s the right time to sell if offers are low.
Selling in a buyer’s market – when there are many properties for sale and competition among vendors is high – means prices are driven down. Consider how motivated you are to sell at the given time and assess whether your asking price is inflated. Consider reducing the price or waiting out the market.
Some other things to consider include:
When a property is “under offer” but the sold sticker has not gone up, this means that it is still subject to a few conditions. This can include cooling off periods or pest and building inspections. At this point you can phone the agent and find out which conditions are still being determined so you can keep track of whether it will return to the market. You can still inspect the property to make sure it ticks all your boxes, and then if need be, sit tight and wait.
Often contracts for the sale of residential property come with a cooling-off period, though, it is rare buyers to pull out of a sale. Under a contract of sale, terms can be changed to waive, reduce or even extend a cooling-off period. These terms are discussed and settled in pre-sale negotiations.
Extra conditions may be added to your contract of sale such as your ability to obtain finance or the sale of your current property.
If you buy a house at an auction, say goodbye to a cooling off period. Cancelling after securing the property at auction will become an expensive exercise, so be confident in your choice and your finances before this.
You might also like: What is a cooling-off period?
Contract cancellations need to be made in writing and usually within a period of time and at a cost. Look above to find the cooling off laws in your state, and if you fall within that time.
You can also pull out if the seller fails to fulfil a condition under the contract. But if you want to withdraw after this period of time you should speak to a lawyer about the consequences of breaching a contract.
Legally there is nothing stopping a real estate agent from disclosing if other offers have been made and what the magic number was. But, according to Lisa Suryawan, Sales Manager of Xynergy Realty, she says:
“It’s best not to share what the offer amount is however we could give an indication of a range where the offer might fall.”
Ask the seller why they wish to sell
The best offers aren’t always the highest price. You also need to understand what is motivating them to sell and try to use this to your advantage.
This is why it is important to ask:
Look at what recent sales suggest, then assess if the offer seems high or low.
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Looking for a home loan? Contact eChoice. With access to 100s of mortgage products from over 25 different lenders, eChoice brokers have the resources to help you find the perfect home loan. Best of all? We do all the paperwork!
This information is a guide only and is an estimate only based on the past 12 months of aggregated online mortgage enquiries from eChoice and partner programs.
Submitting your enquiry
An eChoice home loan expert will be in touch soon.
You saved up for the deposit, did all the paperwork and scored yourself a home loan. Congratulations, all your hard work has paid off! But what happens if after a month, a year or a decade you realise your home loan situation is no longer the best fit? Whether you didn’t score yourself the best possible mortgage rate at the time or your financial circumstances have changed, it’s a common scenario.
The good news is, you’re not locked in for life. At any time, you can refinance and switch over to another home loan. But what are the costs of refinancing, and how do they stack up against the benefits? Here, we give you the lowdown on everything you need to know about refinancing your home loan.
Generally, the objective of refinancing is to find another mortgage with a lower interest rate or repayments. So, the first step is to speak to your current lender to see if they have a more competitive option. This may include discounted interest rates or waived fees.
You should also look around at the rates and specials offered by different lenders, as well as the costs involved in switching over.
Approval can take anywhere between a day to eight businesses days. From there, your new lender will communicate with your old lender to let them know you will be exiting, and take care of any necessary steps like title transfer. Or, if you’re staying with the same lenders, they’ll switch over your mortgage. Then, you will go through the settlement process again, just like you did with your original home loan.
So, what costs are involved in refinancing a home? And is there a penalty to refinance your mortgage? Here’s the breakdown:
Discharge: While early exit fees are no longer a concern for those looking to refinance, you will typically need to pay a discharge fee to your old lender to close down the loan. This ranges from between around $100-$200 and the details of the discharge fee can usually be found in your initial loan contract. If you have a fixed rate loan, you may also need to pay an extra break fee for ending your loan during that period.
Setup fees: Your new lender will charge you an application fee to cover processing your documentation. This generally includes the application fees, valuation fees, mortgage registration fees and settlement fees. Mortgage registration fees will usually cost around $120, a bank valuation fee will cost around $220 and application fees will usually cost around $500.
Title insurance: If you choose to do a fast-track refinance, you may also be asked to pay title insurance to cover the period before your property title is officially transferred, which can set you back around $500 to $3000. However, some lenders will cover this cost for you.
Lender’s Mortgage Insurance: If you’re refinancing a larger loan or haven’t yet accrued 20% equity on your current loan, you may also need to pay Lender’s Mortgage Insurance (LMI). Your lender will sometimes carry out a new property valuation on your property. If you’re valuation is low, lenders will be likely to make you pay lenders mortgage insurance. Before choosing to refinance, be sure to ask for an upfront valuation as a precaution to avoid paying this extra and often costly fee.
All of these fees can add up quickly, so it’s important to determine upfront what you’ll owe to avoid any hidden costs.
You may have to pay stamp duty if you are refinancing. The stamp duty will usually amount to 0.35% of the loan and will include GST, but this will vary between states. You may be liable to pay stamp duty if you increase the amount of your loan during the process of refinancing or name of the borrower is changed. On top of these costs, you may be charged with a mortgage registration fee for switching to a new lender.
Yes, some lenders offer no-closing cost refinancing, but the trade-off is normally a higher interest rate which affects your total mortgage balance. This is because a borrower will pay closing costs in order to pay for the title searches, title insurance and application fees. By paying a higher interest rate, you will end up covering these costs. While it can be tempting to reduce your up-front costs, be sure to ask how it will affect your total mortgage repayments.
When refinancing, your old lender will need to transfer property ownership to the new lender. This involves title insurance costs, which is often paid by the lender. However, some lenders do charge you a title insurance fee, so be sure to ask about it from the get go. The process of transferring ownership from the old lender to the new lender can take up to two weeks, and insurance will be able to act as a safety net in circumstances where the property has not been transferred properly.
Title insurance can cost anywhere between $500 to $3000 for fast track refinancing and will typically paid before the title is officially transferred. Most mortgage providers will also need to do a title search, to confirm you own the deed to the property but this only costs around $30.
The best bank or lender is always the one with a home loan that fits your individual financial needs. To ensure you’re getting the best possible deal, it’s a good idea to talk to your current lender first.
Different banks offer different refinancing incentives. For example, Commonwealth Bank offers a $2000 cashback bonus when you apply by 6 April 2020 and fund by 12 June 2020 for loans that are $250,000 and over. This applies to:
So, is it smart to refinance your home loan, or a big mistake? Well, there are plenty of good reasons you might refinance your property. Many people choose to do so to reduce the interest rate on their existing home loan. This can lower your monthly repayments and allow you to build equity in your home at a faster rate.
Or vice versa, they may want to switch from a fixed rate to take advantage of the lower insurance rate that normally comes with a variable home loan. As we’ll cover later, some people also choose to refinance and take cash-out, which allows them to borrow against the equity in their home.
To ensure your home loan is legally-binding, your broker or lender will typically enlist a solicitor to prepare your loan documents on their behalf. These are sent to the solicitor for them to review, and back to you to sign. This is to ensure the whole legal transaction will run smoothly and will mitigate the chance of any legal dramas in the future.
You can also approach a lawyer yourself for legal advice on your mortgage and assist you to manage the various channels of correspondence that will be involved in the refinancing process.
The process of refinancing can be complex and one that you are not familiar with. For those who are new to refinancing, you are probably wondering what kind of paperwork and documents you need to provide to your lender. Many of these will be similar to the documents you provided when you applied for your current mortgage. Typically you will be asked to provide:
There’s no minimum term to refinance your home – you can do so within the first year. However, you may find some lenders will not refinance a mortgage they issued to you within the last 120-150 days, in which case you will need to wait or go elsewhere. The actual refinancing process can take anywhere between three days if you choose a lender that offers a ‘fast-track’ process or up to four weeks if you go with the standard process.
There’s no definitive right or wrong time to refinance your property. However, there a few things to take into consideration to make sure it’s worth the cost and effort at this point in time. Firstly, you want to look at how much equity you have already built in your property. This is the difference between the value of the home and how much is still owing.
Generally, you will be in a more favourable position to refinance when you have at least 20% equity in your home. This is because the lender will generally see you as lower risk and provide you with a better deal. It’s also a good idea to find out whether you will need to pay for Lenders Mortgage Insurance again. This can easily add up to thousands, which can outweigh the benefits of switching your home loan.
According to the Australian Bureau of Statistics, there has been a decrease in the total value of home loan switching commitments were down 2% in November 2019 from $9.83 billion to $9.63 billion. You should only refinance when your current home loan terms are no longer serving you. If you’re happy with your lender, there’s no reason you have to make the switch.
You may be wondering ‘should I do a cash-out refinance?’ This is when you borrow against your home’s current equity. This can generally be used for whatever you like, whether it’s renovations, a new car, a wedding, education or another property — but only up to a certain amount. Generally, most lenders allow you to borrow 80% of the value of the property, minus the debt that you have left to pay. A cash-out refinance may be a good option for you if you are able to invest the money into something that will pay off in dividends, such as renovating a property to increase its value or negative gearing on an investment property.
Most lenders will issue a valuation (not an appraisal) when you apply for a home loan and refinancing is no exception. Unlike an appraisal, this is legally-binding and must be carried out by a qualified professional. Valuations are usually far more detailed than appraisals, which are primarily carried about to give real estate agents an idea of a property’s value. The purpose of the valuation is to get an unbiased evaluation of your home’s market value, to help the lender determine their risk in lending to you.
Something as minor as cracks in your walls or an untidy garden can affect your property valuation and as a consequence, affect the success of your refinancing application. Some ways you can score better on your property valuation include:
A low valuation can make refinancing more difficult for property owners. In fact, a study by online lender State Custodians showed that one in seven home owners were unsuccessful in refinancing their mortgage because the value of their property had fallen.
However, this doesn’t necessarily mean you’ve reached a dead end. In this scenario, you should seek a second opinion on the value of your home. You may want to consider making the touch-ups recommended in the previous section. It can also help to be present for your valuation, so you can answer questions about anything that isn’t immediately clear.
Now that you know the costs of refinancing as well as the benefits, you can make an informed decision as to whether it’s the right choice for you. Whether you’re buying your first property or want to make the switch, eChoice’s mortgage brokers can help you compare hundreds of home loans to find a suitable option.
Navigating which home loan is right for you can feel like an overwhelming responsibility. Especially as a first home buyer, learning about all your options and weighing them up can be a tricky task to wrap your head around.
We’ve simplified one home loan feature – offset accounts – and answered your frequently asked questions to alleviate some of that stress.
An offset account is a savings account or an everyday account which is linked to your home loan account. It works to ‘offset’ your home loan balance daily, meaning you are only paying interest on the difference between your principal loan and the balance in your offset account.
You can offset your loan 100% with your transaction or savings account. The offset account can either be linked to a variable rate loan – which is more common – or a fixed-rate loan.
With a smaller amount to charge interest on, you could save thousands as you pay off your home loan.
As mentioned above, interest is only charged on the difference between your principal home loan and the balance in your offset account.
Here is an example to better explain how this benefit would play out over time. The variable interest rate in this hypothetical is 4.77% against a $300,000 home loan.
This is generally dependent on how much you “offset” your home loan, your variable interest rate and your principal loan amount.
For instance, let’s say you have $10,000 in your offset account for the life of your loan and you borrowed $320,000 at 7% over 25-years. Over the lifetime of your loan, you’d save yourself $46,000 and you’d shave 18-months off your loan term.
Redraw facilities and offsets accounts are both common features of a home loan that help reduce the amount of interest you pay. However, there are a few key differences to keep in mind when deliberating between the two.
No – the point of an offset account is to reduce the amount of borrowed money on which you are paying interest and to shorten the lifetime of your loan.
With such a wide range of products and features available to be tacked on, it is likely you will have more than one route to help you make the most out of your home loan. Offset account aren’t for everyone and with the benefits you will find some negatives.
It is now easy to add features to a fixed loan. Whether it be a 100% offset, partial offset, a redraw facility or the chance to make additional repayments, there are options available. Some loans may give restrictions on how long the offset may last though, for example you might only be allowed to have a 100% offset for a year on your particular fixed rate loan.
It depends. Generally, lenders will only allow you to link one offset account to one loan. You might find a lender who will allow you to have multiple offset accounts, but this will be harder to track down.
So, if you had a home loan of $400,000 and split this loan into two $200,000 sums, you can have one $200,000 loan linked to one offset account with $10,000 and another linked to an offset account that has $20,000 saved.
The total you will be charged on would be $200,000 + $200,000 – $10,000 – $20,000 = $370,000.
Yes, you can. Unlike a redraw facility, you can immediately access your savings in an offset account.
When selecting a home loan to pair up with an offset account, here are some features to keep in mind:
Words by Michelle Elias
A professional mortgage broker at eChoice can help you determine whether an offset account is the best route for you. Chances are you will have a few options to weigh up.
From mourning the end of a relationship to ironing out the living and parenting arrangements, divorce is difficult enough as it is. However, if you have a joint mortgage on a property together, it can add a whole new level of complexity.
Regardless of whether you both remain in the home, the mortgage still needs to be paid off and it’s not always as simple as splitting it 50/50. The good news is, by familiarising with the guidelines around home loans and divorce, you can make sure you’re prepared in the unfortunate event your marriage ends.
There’s no one-size-fits-all solution when it comes to property split in a divorce – it depends on the individual circumstances of your family and home. Typically, in any relationship longer than 12 months, each party is entitled to a share of the assets. How the division of assets occurs depends on a number of factors such as:
This can apply to not only the property itself but also the home loan debt if you are encumbered by a mortgage.
You may be wondering “can you hold a shared home loan account after divorce?” After all, surely paying the loan repayments back equally would be the simplest option. Yes, it is indeed possible to take out a joint mortgage and both remain liable for the debt until it is paid off. However, there are various reasons that this may not always be feasible. Perhaps one partner has a lower income, will have increased rental or childcare costs or simply doesn’t feel they should have to pay for a home they no longer live in. In this case, there are a few other divorce and mortgage options:
Below, we’ll talk through these options in more detail
Yes, you can transfer your share of the property to your ex-spouse. However, this means they would have to refinance the home to buy out your share and take your name off the home loan, as well as the property title.
If you go down this path, you will be eligible for the Capital Gains Tax rollover relief, meaning you won’t be required to pay CGT on the share you sold to your ex-partner. This is because they would be assumed to receive capital gain or loss in the event they sell the property in the future.
On the flipside, you can also buy your partner out of the mortgage and remove them from the home loan. However, in order to do so, you would need to qualify for the mortgage on your own. If you’re eligible, you will be able to refinance and extend your mortgage to 95% of the property value.
You may also be able to increase your home loan to pay out a divorce settlement. In this situation, you may be required to pay Lenders Mortgage Insurance (LMI) if you loan more than 80% of the property value. However, the good news is, you generally won’t be liable for stamp duty, as it’s usually not payable on a transfer of equity.
In order to qualify for the mortgage on your own when buying your partner out, you must meet certain criteria, including:
Technically, you can remove your ex-spouse’s name from the property title yourself. However, this tends to be quite a complex and time-consuming process and the last thing you need in a divorce is more stress!
Firstly, you will need to seek the consent of your home loan provider to take your ex-spouse’s name off the mortgage. With the help of the lawyer or conveyancer, you’ll then fill out a transfer title form. You can usually find this on the website of your applicable state or territory government department. You will need to provide the names of the people involved in the transfer, the Torrens Title details and the share of the property being transferred.
Wondering how to refinance a home loan after divorce, exactly? Well, refinancing is simply replacing an existing debt obligation with another one under different terms. So, in the case of refinance after divorce, you would be putting the mortgage in one name.
If one of you decides to stay in the home, the other partner can put the profit from selling their share of the mortgage towards a new home loan.
Another strategy is selling the home and keeping the assets. There are various benefits to this. It ensures that asset division is fair, reduces the emotional baggage and allows both parties to start afresh using the proceeds from the sale of the property. If you’ve owned the property for many years, then chances are you will also have a considerable deposit for the purchase of another property after the division of the proceeds.
However, if you and your ex-partner are not on amicable terms, this can be a difficult process. You have to collaborate on the sale of the property and agree on a real estate agent and price. You may even have to prepare the property for sale together. If you are not on good terms, you may also want to sell faster. This can lead to rushed selling the property for a reduced price, just so you can move on.
If you do choose to sell the property and divide the proceeds, then it’s important to seek legal advice. This ensures strategy ensures asset division is fair.
What happens if your partner is still on the home loan, but refuses to make their share of mortgage repayments? There are a few steps you can take in this event.
Firstly, you should contact your lender and inform them about the situation. While they will still require mortgage payments, you may find that they are willing to reach a compromise about the repayment schedule pending the division of your property in the Family Court.
You may also choose to sell the home. This ensures your mortgage will be paid and eliminates any potential negative consequences. The balance of the proceeds of the sale may be held in a trust until you and your ex-spouse meet a final agreement.
You may also be able to get a Court Order for spouse maintenance to ensure your ex-partner complies with the ongoing mortgage repayments.
Dealing with mortgages after divorce can get complicated and messy, and it’s not something you should have to go through on your own. eChoice’s experienced brokers could help you decide on the best course of action to reach a positive resolution. Contact us today for joint mortgage separation guidance on refinancing or selling.
While saving for a home deposit is undoubtedly challenging, decoding home loan jargon can prove almost as difficult! From caveats to capital gains tax, you may feel like you need an encyclopaedia just to get through a meeting with your lender. But while not all home loan terminology is going to be relevant to your personal situation, there’s one that all home-buyers should familiarise themselves with: the loan to value ratio, or LVR.
No matter what type of property you’re buying or where in Australia you live, this is a concept that applies to anyone taking out a mortgage. Read on for your guide to the loan to value ratio, including what it is, how to calculate it and what it means for borrowers.
The loan to value ratio (LVR) is a term commonly used by lenders to determine your borrowing power. Essentially, it’s the amount you need to borrow, calculated as a percentage of the current value of your home.
So, how is the LVR calculated, exactly? In order to calculate LVR on a mortgage, lenders must first determine the value of your property. They do so by carrying out an independent valuation of the property. They then divide the loan amount by the value of the property and multiply it by 100 to get a percentage.
For example, if the lender valued your property at $300,000 and you have a $270,000 loan amount, you would calculate your LVR like this:
$270,000 ÷ 300,000 = 0.90
Therefore, your LVR would be 90%
You can use this loan to value calculator to help you determine your LVR.
Lenders use independent valuers to give them an accurate and unbiased appraisal of a property’s value. There are a few factors lenders use to determine how much a property is worth. These include property type, age and condition and geographic location, as well as current market conditions and zoning restrictions. There are also three different types of valuations.
Full valuations: This involves a full, in-person inspection of the home. It’s generally used in scenarios where there is a higher risk to the lenders, such as high loan amounts, more complex transactions or properties in areas where there was been a rapid increase in property prices that may not be sustainable.
Curbside valuations: This is essentially a ‘drive-by’ valuation of the property, where the lender will examine the condition and location externally from the street. This is generally used in situations with a lower loan amount, where no lenders mortgage insurance will be paid.
Desktop valuations: This is when no inspection of the property is carried out and the lender calculates the LVR using the median price of the property. It’s generally used in capital cities and with low loan to value mortgages.
Not all lenders will ask for a full property valuation, which typically cost between $250 and $450 each. Some lenders won’t worry about a property valuation if the property already satisfies their lending criteria. Other lenders will use a desktop or computer-generated assessment.
A lender usually orders a property valuation if:
This occurs most commonly when a property has been purchased off the plan and the value has gone up or down since the contract was signed. It can often happen in situations of favourable purchase, which is when someone is purchasing a property off their family as a discounted price.
While some lenders will allow you to borrow up to 90 to 95% of your property’s value, you will begin to accrue LMI (Lenders Mortgage Insurance) once you surpass 80%.
The amount you need to pay in Lenders Mortgage Insurance depends on a number of factors, including:
To get an estimate for your LMI premium, multiply your LMI rate your LMI rate by your loan amount.
For example $90,000 x 0.932% = $838.80. Then, add the applicable stamp duty on LMI for the state you are buying the property in.
So, what is the maximum loan to value ratio? Turns out, some lenders will allow you to borrow 100% LVR if you have a guarantor to support the application. This would involve using a family member or friend who owns a property to use it to secure the higher home loan.
Going just $1 over the 80% threshold can easily cost you thousands of dollars in lender’s mortgage insurance. The good news is, you can reduce your LVR by saving up a larger deposit for the property you want to purchase – therefore reducing the amount you need to borrow.
Your loan to value ratio isn’t the only metric used by lenders to determine your borrowing power. When applying for a loan, your debt to income ratio is one of the primary factors used to determine your risk.
It refers to the percentage of your gross monthly income that goes to paying your monthly debt payments. To calculate your debt to income ratio, add up all your monthly debt obligations (for example, credit card repayments or other loans), then divide them by your gross monthly income (how much you earn before tax and other deductions).
Lenders also use the loan to value ratio to calculate how much cash you can pull out on a refinance. As the property value of your home may have changed since you bought the property, they will carry out an independent bank valuation. Most lenders will allow you to borrow up to 80% of the value of the property, minus the debt that you have left to pay.
Home equity is the difference between what your home is worth and the amount you owe on your mortgage. A home equity loan allows you to access funds by borrowing against this balance through a lender.
Given most banks will likely lend you no more than 80% of your home’s current value, here’s how to calculate your home’s usable equity:
Let’s say your home is worth $500,000 on today’s market and you still owe $200,000 on your mortgage.
So, if your home is worth $500,000 and you still owe $200,000 on your mortgage, you have $200,000 of useable equity towards the purchase of an investment property.
Yes, just like any type of credit, you must pay back a home equity loan within the timeframe laid out in your terms. Failure to do so can result in legal action or in a lender taking your property as payment. However, you generally have a much longer time to pay back a home equity loan, as well as more flexible terms around repayment.
Need help securing a loan to purchase your dream property? Our experienced brokers have access to hundreds of competitive home loan deals, so we can help you find the right lender for you.
Trying to sell your home while buying another can be tricky – especially when it comes to timing. Sometimes you’ll find the ideal property before selling your existing home, leaving less funds available for your purchase. But the good news is that a bridging loan is sometimes available to cover the shortfall.
Bridging loans can be complicated to get your head around and it is a decision that requires careful deliberation. We have created an entry-level guide answering popular questions to help you gain a better understanding on the matter.
A bridging loan is designed to ‘bridge’ the gap when you’re trying to secure a new mortgage for a new property but haven’t yet sold your existing property. This loan allows you to buy your new place without waiting for the old one to sell. They are particularly helpful in locations where properties can stay on the market for a while. Before buying, you should look into the clearance rates of your area to get a rough idea of how long selling might take. This also means that while you wait for your first property to sell you are accruing interest on both loans.
Bridging loans usually take two forms: open bridging loans or closed bridging loans.
Closed bridging loans are used when a date of sale on your existing property has been determined. These loans are considered less risky by lenders as the property is already sold and they are aware of when they will receive payment. In this type of bridging loan, you will pay for the loan, any interest accrued and fees on the date of the sale.
Open bridging loans are used when you have found your next property but have not yet sold your old property. You should know that lenders aren’t a big fan of the uncertainty that comes with this arrangement. In this situation, you’ll need proof that your old place is being advertised and be ready to answer a lot of questions on your new property too. An open bridging loan can be made between six months up to 12 months. If this one-year limit is exceeded, you may face higher interest rates.
A bridging loan can be quite risky and isn’t the best option for many people. You may be better off asking for an extended settlement period or just waiting for the sale of your old property.
In an open bridging loan – the usual form – you will have between six and 12 months to sell your existing property. If you have a closed bridging loan, your loan will last until your date of sale. This is called the ‘bridging period’ and your repayment terms will depend on your lender. During the bridging period, you may be asked to make repayments on the loan. However, some lenders will freeze your bridging loan repayments and only ask for repayments on your existing loan.
Under a bridging loan, you can borrow up to 80% of the peak debt. Peak debt is made up of your new property’s sale price plus your existing mortgage. This means you need to have at least 20% of the peak debt in your savings to act as a deposit for your new place.
How much your bridging loan costs is a simple calculation made by the banks. The banks take the price of your new home, add the remainder of your mortgage and then subtract the most likely sale price of your current home. This valuation from the bank will cost you a couple of hundred bucks per property. They will also reduce your projected sale by about 15% as a “fire sale buffer” in case your property falls short of the expected price.
This final number is called an “ongoing balance” or “end debt”. Much like a normal loan, the banks will then assess your ability and reliability in paying off this loan.
The total amount borrowed is called the “peak debt” which includes the ongoing balance of your existing mortgage, plus your new mortgage and all associated fees including stamp duty, legal fees and lender fees.
It can – if you repay your bridging loan on time, this will improve your credit score. But, if you make late repayments this will be detrimental to your credit score. We recently put together a guide on credit scores which will give you an in-depth explanation.
Traditionally, those looking for a loan are expected to provide their credit score to judge their reliability to lenders.
With a bridging loan though, the lender is mainly worried about the security put up by the borrower – this part is non-negotiable. With a bridging loan, the lender is protected because defaulting on repayments would give them the right to sell the security under the terms. As the lender has this added protection, less weight is given to the individual’s credit history.
Yes – bridging loans are designed to finance your new purchase before your old property is sold and settled.
Yes, they do, and some lenders have now lowered interest rates to standard rates. Previously, the rate for a bridging loan was higher.
No, you cannot. Under a bridging loan you can borrow up to 80% of the peak debt. Your peak debt is the sum of your new property’s sale price plus your existing mortgage. This means you need to have at least 20% of the peak debt in your savings to act as a deposit for your new property.
Words by Michelle Elias
If you’re looking at buying your first home, chances are you’ve heard the phrase ‘Lenders Mortgage Insurance’ thrown around, or maybe even the acronym ‘LMI’, but how many of us know exactly what this means?
If you’re anything like most first-time home buyers, you may be totally worried and confused about this supposed extra cost towards buying a home, that only some people have to pay. You may be wondering who pays LMI, why they pay it and exactly what costs are involved.
If you’re new to the property investment world, don’t fret because we’re about to give you the low-down on everything you need to know about LMI, including what it is, how you can avoid it, and why you might need to pay it.
Lenders Mortgage Insurance is a form of insurance that is paid by the home loan owner but designed to protect the lender, just in case you default on your home loan and can no longer make your repayments.
The important thing to recognise is that not everyone pays for LMI. Usually, LMI is only required when the borrower is taking out a loan for 80% or more of the value of the property (meaning they do not have the ‘traditional’ 20% deposit). This percentage is otherwise known as the Loan-to-Valuation-Ratio or LVR, and in most cases, if your LVR is over 80%, you will most likely be required to pay for Lenders Mortgage Insurance.
An important distinction to make is that LMI is not there to cover you (or your guarantor), it simply exists to protect your credit provider in the event that you cannot pay back your loan.
The Loan-to-Value-Ratio (LVR) is used to help determine whether you will need to pay Lenders Mortgage Insurance. Usually, an LVR value of over 80% suggests that you will need to pay LMI.
The LVR can be calculated by dividing the loan amount by the value of your property. Alternatively, if you’re not a fan of numbers you can use eChoice’s LVR Calculator instead.
For example, if Jenny was getting a loan of $300,000 and her property was worth $450,000, her LVR would be approximately 67%, meaning she would most likely get away with not needing to take out LMI.
However, if Jenny’s LVR was 80% or greater, in most casesshe would need to take out LMI.
|Loan amount||$390,000||Loan to value ratio (LVR)|
|Loan amount||$410,000||Loan to value ratio (LVR)|
Copyright © Finconnect (Australia) Pty Ltd trading as "eChoice", ABN 45 122 896 477 Australian Credit Licence 385888, is a wholly owned subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124.
The purpose of this calculator is to assist you in estimating whether you will need to pay lenders mortgage insurance (LMI) based upon the information you put into the calculator.
The results of this calculator are estimates only. They are based on the information you have provided. If you change any of the information, you will obtain a different result. Other fees, charges and costs may apply.
The actual amount you can borrow, and the applicable loan repayments, can only be determined once you submit a full application to us and we assess your application using our credit criteria applicable at that time.
Before acting on the results of this calculator you should seek professional advice and speak to an eChoice consultant.
Lenders Mortgage Insurance (LMI) is usually a one-off payment that lasts for the life of your loan. The cost depends on your Loan-to-Value-Ratio (LVR) as well as the amount you wish to borrow, and generally, as your LVR or borrowing amount goes up, so does the price of your insurance.
The following table can help you to estimate your potential LMI costs.
Know the cost of LMI premiums
|Property Value||Deposit||LMI Estimate*|
|First Home Buyer||Buying Again|
All calculations have a loan term of 30 years and are estimates only.
Calculate the cost of LMI premiums
To help you out, this calculator can also be used to estimate the cost of your Lenders Mortgage Insurance (LMI). Simply follow the link and enter your estimated property value, deposit amount, whether or not you are a first home buyer, as well as your loan term.
Despite looking very gloomy, Lenders Mortgage Insurance (LMI) does have some benefits for the borrower that make it well worth your consideration.
LMI also means that borrowers are able to buy a home sooner since they do not have to wait until that have the traditional 20% deposit. Depending on the market, as well the buyer’s personal circumstances, despite the extra cost associated with LMI, this could very well leave them better off in the long run.
Of course, whether LMI would be an advantage or disadvantage to you depends entirely on your personal situation. Whilst for some, there may be a benefit to forking out for LMI and entering the market a little soon, for others, it may be wiser to wait and save for a bigger deposit. To assess which camp you sit in, we suggest you carefully consider the market you are trying to buy into as well as your personal circumstances, and if possible, seek the advice of a financial advisor.
Whilst LMI is a one-off payment, with most insurers there is usually some flexibility as to how it is paid.
The first way to pay for LMI is in a one-off, upfront payment. However, although for some people this is no problem, for many others this can be hard, considering that if they had a tonne of money sitting around, they would have been able to meet their minimum deposit in the first place (and avoided LMI altogether).
The second way to pay for LMI is to capitalise the payment into your mortgage. Capitalising LMI into your mortgage essentially means that the cost of LMI is added to your home loan, meaning that you pay it off in regular installments just like you would with your normal home loan repayments.
In most cases, LMI can be avoided by having a deposit that is over 20% of the value of the home. This could mean saving for longer or deciding to buy in a more affordable location, where your deposit will have a bigger ‘kick’.
In some cases, having a guarantor can also allow you to borrow more and help you to avoid paying for LMI. This means having someone in your family, such as your parents, putting some of their house up as equity to help increase yours, effectively making your deposit worth more.
Working out whether or not you will need to pay for LMI, as well as working out strategies to avoid it, is dependent on your individual circumstances so it’s always better to check with your lender (or potential lender) as to whether you will need to pay for LMI.
In some cases, LMI is refundable within the first one to two years, however, it depends on the conditions of your policy. For some policies, LMI refunds are not available under any circumstances.
In other cases, if within a certain amount of time (again, usually under two years) the homeowner decides to refinance and move lenders, for some policies the LMI can be refunded (or partially refunded). Again, whether this is possible is entirely dependent on your home loan policy.
It’s important to note that, even if your LMI is refunded, if your equity has not increased and your LVR is still greater than 80%, you will most likely still need to take out LMI (again) for the new home loan policy.
The most important thing to keep in mind is that the option of LMI being refundable is not a given, and it will depend on your particular policy – so be sure to ask!
Unfortunately, when you move lenders, Lenders Mortgage Insurance (LMI) is not able to be transferred. However, in some cases, if you stay with the same lender, they will give you a discount on the new LMI policy – rather than have you move to a new lender altogether.
Always consider that although you may be required to take out LMI again, this new lenders policy might be so good that it offsets this added cost. At the end of the day, every circumstance is different and only you, or your financial advisor, can really say which option is best for you.
Words by Kathryn Lee
Wondering whether you’ll be required to pay for Lenders Mortgage Insurance? Speaking to an eChoice mortgage broker can help you to assess your borrowing power and whether you’re eligible for a home loan without paying for LMI.
With South Australia’s real estate market currently going from strength to strength, there’s never been a better time to get on the property ladder. And the good news is, if you’re thinking of buying your first home in SA, you don’t have to do it alone. The South Australian government has a First Home Owner Grant to make it more affordable for you to purchase a residential property.
The First Home Owner Grant was introduced nationwide in July 2000 by the Howard Government. Originally designed to offset the newly introduced the GST (goods and services tax), the scheme reduces the financial burden on Australians buying their first home. Each state and territory has its own FHOG, so it’s important to familiarise yourself with the requirements and regulations in your state before you apply. Read on for your in-depth guide to everything you need to know about the First Home Owner Grant SA.
You may be thinking “Wait, is there a First Home Buyers Grant in SA, too?” They’re actually one and the same.
When it was first introduced, the FHOG was called the First Home Buyer Grant and was worth up to $7,000 with it originally applying to new homes being built and established property. Since then, the terms of the grant has changed 10 times, in response to the changing national budget and real estate prices.
You can look at these changes below:
The FHOG is currently $15,000 in South Australia for eligible home buyers purchasing a new residential property. This applies to any fixed dwelling suitable for residence, including a house, apartment, unit, townhouse or vacant lot that you intend to build a home on.
If you are purchasing a new or substantially renovated apartment and entered into the agreement before 30 June 2018, you may also be eligible for the off-the-plan (OTP) Stamp Duty Concession. This gives you a partial discount on stamp duty for new or substantially renovated apartments apartments valued up to $500,000.
Unfortunately, the First Home Owner Grant for established homes ended on 30 June 2014. If you are thinking of purchasing an existing home in South Australia, you will not be eligible for the FHOG.
In order to claim the First Home Owner Grant in SA, you must meet the eligibility requirements. These include:
For more information on grant eligibility, please visit the First Home Owner Grant Eligibility Checklist provided by Revenue SA. This checklist is easy to use and helps you to avoid any confusion.
If your circumstances change after you’ve received the grant or you fail and you no longer meet the eligibility criteria or you fail to move into the property within one year, you will be required to pay back the grant. If not, you may be taken to court or face penalties.
There are two ways to apply for the First Home Owners Grant in South Australia. If you are not applying for a home loan, you can apply directly yourself through the Revenue SA website. However, many do-it-yourself applications are rejected due to form inaccuracies. In order to avoid issues and speed up the process, it’s best to apply through an approved agent. This can be your bank, lending institution, mortgage broker or solicitor. They will be able to submit the application on your behalf, and do this at the same time as your home loan.
Revenue SA has an list of approved agents.
Whether you are applying directly or through an approved agent, there are a few things you should do to help ensure your application is successful:
The amount of time your grant takes to be processed depends on how you are applying.
If you are applying through an approved agent, you will receive payment at the date of settlement.
If you are applying directly, you will receive payment within five days after the approval of the application, provided you have provided proof of lodgement for registration with the Lands Title Office.
If you are applying through an approved agent, you will receive payment on the date of the first progress payment (from your agent)
If you are applying directly, you will receive payment within five days after approval, following proof of foundation being laid (you must provide a copy of the first progress invoice)
If you are applying through an approved agent, you will receive payment when appropriate supporting evidence is provided to your payment
If you are applying directly, you will receive payment within five days of RevenueSA approving the application lodged with sufficient supporting evidence.
Until December 31 this year, first home buyers may be eligible for the HomeBuilder scheme. The HomeBuilder stimulus package was introduced as COVID-19 recovery initiative and could see first home buyers receive up to $25,000 for new home builds. This incentive that is being provided by the federal government means that first home buyers in SA could receive up to $40,000 in grants if they receive the $15,000 first home owners grant from the SA state government.
However, the grants do not come free as there are a range of eligibility requirements. The scheme is restricted to owner-occupiers who are making ‘substantial renovations’ on their home. In order to qualify, you must have already spent at least $150,000 on renovations and you must be enlisting the help of builders during this process. There is also a means test, so if you’re a couple who earns more than $200,000 a year or an individual that earns more than $150,000 a year- then you will not be eligible. You can read more about the scheme here.
If you’re not buying a home in South Australia, then you may be eligible for the First Home Buyer Grant in another state. Just remember that all states have different rulings, so you need to read the legislation before applying for the FHOG.
Are you looking to buy your first home in South Australia? Get in touch with eChoice. Our brokerscan help you understand the First Home Owners Grant SA and ensure your application goes smoothly. Plus, we have access to 100’s of mortgage products, so, we can help you find a competitive deal on your mortgage.