Here we have answered some of the most frequently asked questions about home loans.
What is a Home Loan?
To take out a home loan is to borrow money from the bank to either buy property or land. The loan is secured against the value of the property and to pay off your loan, there are a set number of minimum repayments required to pay off the loan in full during the loan term. These minimum repayments consist of principal, which is the amount you have borrowed as well as the, interest accrued. If you would like to know what your minimum repayments would be on a specific loan amount, you can use our Loan Repayments Calculator. If you are able to, you can make extra repayments onto the loan to pay it off faster.
What is a Mortgage?
A mortgage is a written agreement that provides security to a lender over one or more of your properties as part of a loan contract. The lender may have the right to repossess one or more of these properties if the borrower fails to repay the loan under agreed conditions.
What is an Offset account?
An offset account is a transaction account linked to your home loan. It gives you the ability to use your savings to reduce the interest payable on your home loan. You can make deposits or withdraw from the account, as you would with any regular transaction account. The big difference is you can reduce the amount of interest charged on your home loan based on the balance of your transaction account. The higher the balance and the longer the funds stay in your transaction account, the less interest you’ll pay on your home loan.
What is Redraw?
Redraw is a facility that allows you to access extra repayments above the minimum amount that you’ve made on your home loan. If you make extra repayments on your home loan, these will go into your available redraw and you can access this money whenever you would like. Maintaining a redraw balance also reduces the interest charged on your loan as interest is based on your outstanding loan balance which does not include any available redraw.
Is there a fee to access Redraw?
No, Bank First doesn’t charge a fee for you to access your redraw at any time. This applies to all loan products at Bank First and may vary depending on the financial institution your loan is with.
What is better, Offset or Redraw?
Offset accounts and redraw facilities both have the potential to save you interest on your home loan, but there are important differences. An offset account is a transaction account which is used for everyday needs. You can withdraw money, make deposits, purchase goods and pay bills - but your funds (the savings balance) are maintained in the transaction account and not the home loan. Redraw is feature of your home loan. To access available funds you need to transfer the required amount from the home loan to your transaction via Internet Banking. Unlike drawing funds from an offset account, redrawing funds from your home loan has a minimum amount of $500. If the loan is in joint names, both borrowers may need to authorise each redraw transaction. For some people these differences can be a benefit as it may reduce the temptation to spend.
There may be different tax implications with using your redraw feature or offset account if your home loan is for investment purposes. The interest charged on an investment loan may be tax deductible. But you may not be able to claim any portion of the loan you have redrawn from your home loan for non-investment purposes like a holiday or a private car.
What is a Comparison Rate?
A comparison rate is often referred to as the ‘true cost of a home loan’ or ‘true rate’, the comparison rate includes the interest rate, application fees and any other fees or charges that are known and will apply during the loan term. The comparison rate on our home loan interest rates are calculated on a secured loan amount of $150,000 for a term of 25 years.
What is Lenders Mortgage Insurance or LMI?
LMI is a one-off premium that is added to the loan and paid for by the borrower and is normally payable if the loan to value ratio is 80% or more. LMI protects the lender against loss if the security property is sold for a price which is lower than the loan balance.
What is Loan to Value Ratio or LVR?
Loan to value ratio is the percentage of how much you have borrowed against the property value. For example, if you have borrowed around $500,000 and the actual value of your property is $600,000, your loan to value ratio would be approximately 83%. The higher the deposit that you can save, the less money you will have to borrow against your security and so your LVR will be lower.
What is Equity?
Equity is the difference between the value of your property and the amount of money that you owe on it. For example, if your home is worth $550,000 and you owe $400,000 on your loan, your equity is $150,000.
What is a Guarantor?
A guarantor is someone who provides additional security for your home loan. A guarantor offers part of the equity available in their home to ensure there is enough security available for you to maintain a loan to value ratio of under 80%. A guarantor can help with reaching your deposit saving goal sooner as you would not need as much of a deposit.
What is a Split loan?
A split loan is when you can divide your home loan into two or more parts. You may choose to fix a portion of your home loan and keep some of it variable. In order to split your home loan or to see if this is the right option for you, you can call one of our consultants to discuss your loan further on 1300 654 822.
How much can I borrow?
Calculating your borrowing capacity or how much you are able to borrow differs from person to person and is based on your current salary, savings and financial commitments. We have an online Borrowing Capacity Calculator where you can enter your own financials to get a rough idea of your borrowing capacity.
What is a Top Up?
A top up on your home loan is when you choose to borrow more money against the equity in your property. For example, say you are wanting to get some renovations done on your home and are looking to borrow more money on top of your existing home loan. For this, you would apply for a home loan top up on your current loan. This would mean your current loan repayments would increase based on how much extra you are borrowing.
What is Refinancing?
Refinancing is replacing your current home loan with a shiny new one – typically with different features, different interest rates and sometimes from a different lender.