Choosing my first home loan

[hypnotic]

Hi all,

I am currently looking to buy my first property very soon, and now i am at the stage of choosing my first home loan. It's so bloody complicated and too many things to look for and too many calculations and such a huge decision to make.

I have bought magazines and read through websites and home loans etc and still finding it really hard to decide as there are so many variables. (pardon the pun)

This a first home owners(live there for 6 months) and then 6 months later a investment property.

I would like to pay it off asap and be able to effectively reduce my tax. (although i am in the 30% bracket only)

I would appreciate all of your help in giving me some good solid advice or PM me a particular home loan that will suit me.

Thanks millions!!!!!!!!!!!!!!!

 

[deftfear]

Hi Hypnotic,
I was recently in a simlar situation as yours a few years back, I'll explain my situation and you can take what you want from it.

I bought a home and got a line of credit as I had a regular income and I was budgeting well and saving a fair portion of my pay every week. If i wasnt saving a lot every week I would have gotten a normal loan with principle and interest payments on a weekly basis.

I lived in the house for 6 months and was put into a situation where I moved out of the house and began renting it out. Unfortunately due to the line of credit, i had been taking out personal money from the loan to pay credit cards, general living expenses etc and the tax deductible portion of my interest slowly became smaller and smaller. Given the opportunity again I would have gotten an offset account which would have kept all of the interest tax deductible and also decreased the interest paid as much as possible.

The offset account appears to only be worthwhile if you have a decent amount to park in the offest account due to the higher interest rate these loans attract. However if you are looking to use the money saved to buy other investements (such as shares) it makes the money easy to access.

Obviously everyone's situation is different, there are a couple of things for you to think about, and it certainly can't be seen as advice.
Cheers.

 

[Knobby22]

If you are in one of the industry superfunds (and you should be as they have less fees and better performance than the retail funds) then you can get a housing loan through Members Equity, the superfunds bank.

No fees to set up the loan, very cheap interest rates, you can withdraw your equity at no cost, etc. My loan has been with them since I bought my house and they have always had 5 star rating through Connex over the last 6 years.

The only problem, they will knock you back if they consider you are not stable enough or do not have enough deposit.

K22

 

[Space Cadet]

hypnotic,

I got my first home loan many moons ago now when mortgage rates were well into double-digits.

Even though I had a large-ish deposit my plan still was to pay off the loan asap. Back then we didn't have as many options and products available as today and making a home loan choice was much easier.

My main criteria at the time was that I must be allowed to make extra payments whenever I wanted with interest calculated daily so that the benefits of extra payments would be instant.

The benefit of extra payments was that the return on the extra payments due to the interest saved was effectively an after tax return and with mortgage rates in double-digits, the returns were very significant.

So, if you have the discipline to save extra income and not blow it of fast cars, or worse still on fast women then one option to consider is a simple home loan with no bells and whistles but has interest calculated daily and allows you to make extra payments at any time without penalties

With a discipline to save and make extra payments you should be able to get the same benefits as some of the other more complicated, and probably more costly, loans with their frills and bells and whistles.

 

[dr00]

we are looking at buying another property and changing our loan at the same time. we're probably gonna go with virgin home loans, they seem to have all the fruit but without the interest rate to match.

 

[Judd]

Go for a basic home loan with no re-draw facility as that removes any temptation to spend what you really don't have.

A general rule of thumb is the 12 in 1000, ie for every $1000 borrowed repay $12, which results in paying off the loan in 10 years or so. Can be daunting but worthwhile as overall it means you do not worry about the ups and downs in interest rates over the period. Eliminates the need for aditional repayments as the interst savings would be small. Use an Excel spreadsheet to work that aspect out.

Alternative is to divide monthly repayment by two, add on $100 or so and re-pay every fortnight.

Don't do what we did and go for a line of credit. I stuffed it due to lack of discipline required. However, you may be more disciplined.

Do not be fooled by all the hype on how much interest you will save by doing this or not doing that as it is all notional. Once you repay a mortgage the $40,000 (or whatever) in interest saved does not magically appear in your bank account. The whole concept is to get rid of non-deductible debt as quickly as possible.

 

[stickman]

HI

Have a look here

http://www.infochoice.com.au/banking/homeloans/default.asp


cheers

 

[Rafa]

i hope its not illegal to plug, (i certainly don't work or own shares in this)... but Adelaide Bank provides 100% offset, with a fixed rate loan.

Gives you all the benifits of a fixed rate loan, with the ability to chuck in as much as you can in the offset account (most fixed rate loans have a 20K max limit)...

I have also borrowed money from my parents and put that into the offset account and pay them the interest instead of the bank!

Works a treat, as long as you maintain financial discipline... i.e. not spending the money in the offset on a fast car!

 

[Space Cadet]

Attached is a spreadsheet that calculates loan repayments, loan amounts and loan terms which might be of help.

 

[finnsk]

Hi all,

I am currently looking to buy my first property very soon, and now i am at the stage of choosing my first home loan. It's so bloody complicated and too many things to look for and too many calculations and such a huge decision to make.

I have bought magazines and read through websites and home loans etc and still finding it really hard to decide as there are so many variables. (pardon the pun)

Thanks millions!!!!!!!!!!!!!!!

What I did I startet talking with mortgage brokers about the different options that was available because I was like you I also found it too complicated after a few months and a lot of brokers I new which loan that was for me, then all I had to do was to call a broker that I liked from the conversations "remember ask a lot of questions even silly ones" and of I went.
BUT be careful dont put in a application that a bank or lending institution might refuse because it might go on to your credit rating so you will not be able to borrow money at all, ask your broker to make a dummy application first so to speak just to make sure that you will be approved.

Good luck

 

[nioka]

VERY important. Best of luck

 

[hypnotic]

Firstly i would like to thank everyone for their advice. I got some good information from them.

I am seeing a mortgage broker tonight and ask about the best package for me.

Thanks space cadet for attaching the excel. I amde a similar one myself but your looks much better : . I am keeping it.

I'll definitely won't put an application that they may refuse!

Thanks Rafa i'll keep that one in mind when i talk to the mortgage broker tongiht and see what he/she thinks.

I see that offset accounts usually have highly interest rates and have all these fees and charges. Are they better off in the long run if I am thinking that i would still investments like shares and probably won't have a huge amount of money there to offset the interest?

Knobby22: If you are in one of the industry superfunds (and you should be as they have less fees and better performance than the retail funds) then you can get a housing loan through Members Equity, the superfunds bank.

Can you explain to me what it is? I really have no idea. i don't think i am in an industry superfund... *shrugs*

 

[Knobby22]

They are Bernie Frazer's funds.
Remember the tv adds "the super of the future"
And now they do adds with two people on the same job and show that the one with the industry superfund gets an extra $120k at retirement.

Look up www.membersequity.com.au and that will list all the funds that are in it.

They are the cheapest one of the largest and they don't go through mortgage brokers.

 

[bvbfan]

Shop around is my advice and try to see if you decide on a bank whether they will match competitors interest rates.
I think the major banks will if they are reasonable, they are losing a lot of customers to the new players like ING, Rams etc

Of course banks have stricter criteria so you may get declined with them but another provider may accept. But watch the rates in this case

 

[patomunoz]

my best friend is a broker
she says they can cut their fees and increase the loan interest rate..
thats how they make money

if you are credit impaired and want a loan i can send over the details
she specialises in credit impaired clients

 

[Smurf1976]

In my opinion, regardless of who you borrow the money from you should borrow no more than a mainstream bank (Commonwealth, ANZ etc) would approve. They generally have lower lending limits than the "sub prime" lenders but there's a good reason for that - they are trying to make sure that you can actually repay the loan and not end up getting repossessed.

So I would be looking at the major banks websites and using their "how much can I borrow" calculators. Don't borrow more than that amount even if some smaller lender offers it.

That said, there's nothing wrong with borrowing from the non-major bank lenders, just don't borrow more than a major bank would lend you for that level of income, deposit etc.

As for actual loans, get a "no frills" one which allows extra repayments IMO. You're paying an awful lot for extra "features" that will only end up seeing you take longer to repay the loan (either due to the higher interest rate or through using the redraw etc).

 

[Mofra]

BUT be careful dont put in a application that a bank or lending institution might refuse because it might go on to your credit rating so you will not be able to borrow money at all, ask your broker to make a dummy application first so to speak just to make sure that you will be approved.

Biggest myth in mortgages. I've been in mortgages for a number of years (both securitised & deposit holding organisations), and have never knocked back a client due to large activity on their CRAA - many high net worth clients have a full CRAA as they have borrowed plenty to obtain income producing assets, and often have commercial enquiries on their personal CRAA as well - many tax reduction products also require credit checks also.
I suspect this is just another Today Tonight myth designed to scare the mums & dads.

For the record, most Pre-App loans still appear on your CRAA, as criteria for approval is always a clear CRAA (ie no defaults, judgements or companies under external admin).

 

[Buster]

Hi all,

I am currently looking to buy my first property very soon, and now i am at the stage of choosing my first home loan. It's so bloody complicated and too many things to look for and too many calculations and such a huge decision to make.

G'Day Hynotic,

I have to back Knobby up with Members Equity.. I've had property loans with St George, Adelaide Bank, Aussie Home Loans.. and ME was by far the most pleasant experience..

Bugger all fee's also.. If I were to consider purchasing more property I would definately go with ME again..

Hope it helps

Buster

 

[hypnotic]

G'Day Hynotic,

I have to back Knobby up with Members Equity.. I've had property loans with St George, Adelaide Bank, Aussie Home Loans.. and ME was by far the most pleasant experience..

Bugger all fee's also.. If I were to consider purchasing more property I would definately go with ME again..

Hope it helps

Buster

I have seen the mortgage broker last night, he seemed pretty pathetic (sorry i hope he doesn't read this forum), he didn't really guide us into a loan that i wanted and didn't really seem like he knew a lot about home loans and was only offering from the larger institutions like CBA etc.. which made me wonder if they are giving him larger commissions, so that he would reccommend them.

This lead me to think, why do people go to mortgage brokers? This one really didn't do much for me, i don't think he would even make an effort to get the cheapeast loan for me. I guess he is no financial planner, but at least give me some idea.

Also what is the difference between say the smaller institutions and the big banks? It seems to me the smaller ones are offering better products and cheaper rates. Are there any risks?

Also has anyone bargained the interest rates from the loans? Is it possible? and How?

Knobby, thanks for that, now you mention the ad i know which one your talking about. I will have a look at ME, thank you for your suggestion and Buster too.

I should be relatively comfortable borrowing the right amount. I have budgeted and made sure i still got enough to put into shares.

Thanks smurf, after yesterday's unproductive meeting with the broker i think i might try the no frills option and get a better rate and deal, i don't really need anythign too fancy but i want to have an offset account as it will probably be an investment in the future. But then again i don't even know how much money i will have in the offset account if i am investing on shares.

Thanks again for the replies, keep answering those questions for me if you can.

Cheers all,

 

[Marvin Martian]

CBA 1 year fixed 6.69. If you apply over the net you waive the usual 600$ set up fees. takes about two weeks pretty straight forward. cheers