LOANS

HOME LOAN FREQUENTLY ASKED QUESTIONS

1. Can I refinance my loan through LoansInsurance™?
2. Do I need insurance?
3. How much of a deposit do I need for a home loan?
4. What is mortgage insurance?
5. When is a guarantee required?
6. Do I need a solicitor or not?
7. Can I prepay my interest?
8. Can I make extra repayments?
9. Can I access my extra payments?
10. Can I capitalize my interest repayments?
11. Is my Home Loan portable?
12. What is security?
13. What is Mortgage Repayment Insurance?
14. What if I do not want Insurance anymore?
15. Are there transaction fees on my account?
16. What if I do not want to pay any fees?
17. Can I use my line of credit for my business?
18. What is this comparison rate that I see everywhere?
19. Can I borrow if I have bad credit?
20. If interest rates go up can I change my loan?
21. Who determines whether the interest rates go up?
22. What documentation will I need to obtain a loan?
23. Where can I source important statutory & legal information?

2. Do I need insurance?

Yes. Under law, all lending institutions insist on having their security property insured to protect them. There are various forms of insurance, such as car insurance, landlord insurance, life insurance to name a few, but usually the banks require general insurance for the replacement value of their security.

Should you choose LoansInsurance™ to obtain your finance, we will pay your home insurance (buildings only) for the first 12 months of your loan.

3. How much of a deposit do I need for a home loan?

Traditional home loans require a deposit of 20% plus settlement costs (i.e. Stamp duty, application fees, lenders fees, registration fee, etc).

Through the introduction of mortgage insurance, some lending institutions can provide up to 100% of the property value to approved purchasers. However, many lenders limit their borrowing ratios to 95%, meaning that the applicant has to provide the 5% plus costs (see above).

For a comprehensive appraisal of your situation please contact a LoansInsurance™ consultant today.

4. What is mortgage insurance?

LoansInsurance™ advises that mortgage insurance is required by law when a lender provides you with a mortgage exceeding 80% Loan to Valuation Ratio (LVR). The premium charges will relate directly to the LVR that the lender extends to you. The Mortgage insurance premium or charge is a direct cost to you the applicant not the lender, it will be paid directly to the insurer who is providing the insurance to the lending institution.

A once-only premium is paid at the start of the loan and the amount of the premium is dependent upon the amount of the loan and the value of secured property. The higher the LVR, the higher the premium.

Lenders Mortgage Insurance protects the lender when you are unable to meet your repayment obligations. It does not provide any direct benefit to borrowers, but because it protects the lending institution, they are able to offer a better interest rate and higher lending ratios to you, the borrower, since they do not incur losses that may arise from defaulting loans.

5. When is a guarantee required?

Lending Institutions will usually require a guarantee to be given in the following circumstances:

1. Where the owner or co-owner of a secured property is not a borrower.
   e.g. A property owned by husband and wife, but loan to be in wife's name only.
   
2. Personal guarantees from directors where borrowings are made in the name of a company or trust.

6. Do I need a solicitor or not?

At LoansInsurance™ the decision about whether to use a solicitor or not is up to you.

Refinancing: It is quite common for borrowers not to use a solicitor if they are merely refinancing an existing loan with another lender. In these circumstances there is no transfer of property to attend to, and the lending institution will prepare the Loan Agreement and associated mortgage documentation.

You will need to comply with certain information requests from the lending institution and will need to carefully read your loan documentation.

Please Note: If you are unsure of any of the terms and conditions provided to you by the lending institution, then we recommend you seek your own legal advice.

Purchases: If you are purchasing a property someone has to take care of the conveyancing (permits, searches, title registration etc.).
Depending on which State you live in you have up to 3 choices:

1. Employ a solicitor to act for you;
2. Use a specialist conveyancer (not an option for residents of Queensland or Tasmania); or
3. Do-it-yourself (you can buy conveyancing kits to help with this).
   

As with most things, you tend to get what you pay for, and the cheapest option is not always the best. The bottom line is that you need someone with the necessary experience to do the job properly should problems arise. Ideally you want a solicitor who works for a specialist conveyancing firm, or a solicitor with considerable conveyancing experience.

We do not recommend the do-it-yourself approach.

7. Can I prepay my interest?

Some investors choose to pre-pay interest, up to 13 months in advance. In return for receiving the interest up-front, some lenders will negotiate a discounted rate of interest. This may be particularly attractive to investors wishing to maximise their tax-deductible interest in the current tax year. When the interest is calculated up-front for a period of up to 13 months, there is no need for the borrower to make additional repayments until the pre-payment period ends.

Please Note: LoansInsurance™ recommends that borrowers obtain independent advice from their accountant or tax advisor before requesting a prepayment of interest.

8. Can I make extra repayments?

Yes. Most lenders only require that you pay the minimum monthly repayment by the due date. You can do this by paying weekly, fortnightly, monthly. Depending on your loan agreement you can make additional repayments, please always refer to your special conditions or contact your lending institutions before making extra payments. On specific loans the interest on your loan account is calculated based on the closing balance at the end of each day, so any additional repayments start working for you immediately.

Please Note: Not all lending institutions allow extra repayments or they may limit the extra amount you can pay for fixed rate loans.

Please discuss with your LoansInsurance™ consultant or read through your loan agreement with your lending institution prior to making any extra payments on a fixed rate loan.

9. Can I access my extra payments?

This is commonly known as a redraw facility. If you make repayments over and above the required monthly repayment, your lending institution will maintain a separate running total of these payments, so that they can see at any time how much you are in "advance" with your repayments. If you have a redraw option on your loan facility, the lender will allow you to redraw these funds on request (although they more often than not they prefer to leave the account in advance by sufficient funds to cover the next monthly repayment). There may be a fee for a redraw, and there may also be a minimum redraw amount.

Please discuss with your LoansInsurance™ consultant or read through your loan agreement with your lending institution prior to making any redraw requests.

10. Can I capitalize my interest repayments?

Some lending Institutions will permit borrowers to capitalise interest on an investment loan line of credit facility, where there is a linked loan (usually secured by the borrowers owner-occupied residence) receiving sufficient repayments to cover the principal repayment on the investment portion.
However the Australian Income Tax Ruling TR98/22 states that the Australian Taxation Office will not accept any extra interest payable on the investment portion (as a result of capitalising interest) as an allowable deduction against income.

Please Note: LoansInsurance™ therefore strongly recommends that borrowers seek independent taxation advice before considering such a loan facility.

11. Is my Home Loan portable?

Home loan portability is only applicable if you are selling your current home and replacing the security the bank has for your loan facility, with another property, either prior to the sale of your old home or on the same day.

Loan portability means that you are substituting the security with your current lender.

12. What is security?

Security or Security Property is something of value that the banks will lend money against. Typically banks will lend against real estate. They will determine the extent of credit based on an independent valuation. Lending institutions normally restrict their lending to an 80% LVR (Loan to Value Ratio), however lending institutions may lend past this ratio if you agree to pay mortgage insurance.

13. What is Mortgage Repayment Insurance?

Mortgage Repayment Insurance is a specified product offered by insurance companies to protect you in the event of:

1. Disability –Illness or Injury (accident)
2. Involuntary unemployment
3. Death

If one of the above occurs, Mortgage Repayment Insurance will assist you with the repayments on your mortgage.

If you would like a qualified LoansInsurance™ representative to discuss your personal insurance needs please contact us.

14. What if I do not want insurance anymore?

You must maintain general insurance on your house at all times to protect yourself. In the event of fire you may lose your house and still be left with a debt to the bank that you will have to repay.

If you do not want the Loans Insurance policy from CGU Insurance Pty Ltd any longer you can cancel by advising the insurer directly.

15. Are there transaction fees on my account?

Each lending institution is different. LoansInsurance™ will aim to provide you with the best possible mortgage that suits your needs. At the time of application, you will be advised whether your loan account will attract any fees, what they are and how often they are charged.

16. What if I do not want to pay any fees?

Your LoansInsurance™ consultant will advise you of the benefits of the mortgage facility that you choose. If you do not want to pay any transaction fees then there will be a product available to you, but it may not have the flexibility of other loans.

17. Can I use my line of credit for my business?

Yes. Provided that you have a Business Line of Credit.

If you have a Residential Line of Credit then you are not permitted under the terms and conditions provided to you by the lending institution to use it for business activities.

18. What is this comparison rate that I see everywhere?

The Compulsory Comparison rate (sometimes referred to as Average Annualised Percentage Rate) is legislation introduced on 1 July 2003, intended to give you an average composite rate over a specified period, taking into account any fees and charges. It is usually based on the projected interest, fees and charges to be paid over a period of 7 years.

Whilst it can provide a useful comparison across products, it does not take into account all relevant factors.

For example, it does not:

1. Consider the benefit of any off set balances
2. Cater for any additional lump sum repayments or
3. Make any allowance for the convenience of additional features and services such as redraws, insurances, credit or debit cards.

Each lending institution, as required by law, provides CR or AAPR.

19. Can I borrow if I have bad credit?

Whilst not all lenders will, there are lenders within the Sector that will lend to credit impaired applicants.

If you have bad credit it is best to speak to one of our trained consultants to discuss your options. Here at LoansInsurance™ we do not discriminate and try to assist all customers with their requests.

If you feel your credit is impaired in any way please obtain a copy of your credit file by going to www.mycreditfile.com.au or phone (02) 9464 6000.

20. If interest rates go up can I change my loan?

Yes. Provided that you have a variable interest rate you can fix all or part of your loan facility when you please. There may be a variation fee on application so please discuss these options with your LoansInsurance™ consultant prior to contacting your lending institution.

Please Note: If you have a fixed rate loan and wish to change it, there will be what is referred to as ‘Break Costs’. This is a fee that the lending institutions charge which is the difference between the ‘cost of funds’ when they lent them to you and the ‘cost of funds’ in the current market.

This may not always apply so feel free to discuss this with your LoansInsurance™ consultant prior to changing your facility, to avoid any unnecessary costs.

21. Who determines whether the interest rates go up?

The Reserve Bank of Australia (RBA) is responsible for interest rates. Their role is to ensure that the economy is stable and given that one of Australia’s major forms of assets is its property portfolio, their role is vital to the strength of the property market.

They monitor the world markets to ensure that Australia’s interest rates are always competitive and to protect you the consumer.

22. What documentation will I need to obtain a loan?

1. General Requirements

• Borrowers must demonstrate stable employment and income to qualify.
• A borrower must have been in the same or similar line of work for a minimum of two years.
• If employment has changed in the last two years, previous employment details must be included in the application.  Any gaps of 60 or more days must be explained by the borrower in writing.
• 100 points of Identification required
• Copy of Rates notice for any real estate properties owned by applicant
• Proof of savings to complete any purchase
• Personal bank account statements for the previous 12 months
• Personal bank account statements for credit cards 3 months
• Personal bank account statement for consumer loans 6 months
• Personal bank account statement for home loans 12 months
• Satisfactory credit reference report

2. Waged Employees

• Group certificates for the previous two years and two computerised recent pay slips.

3. Salaried Employees

• A letter from employer detailing current base salary and any additional income and detailing any packaging arrangements.
• Copies of last two pay slips.

4. Self-Employed

• Proof of self-employment, ie any three of the following:
• Business license or registration (with tie-in to borrower)
• CRAA commercial listing report
• Business bank statement (with tie-in to borrower)
• Signed accountant prepared financial statements
• Signed CPA reviewed or audited files
• Copy of title registration, or other evidence of equipment ownership
• Copy of business cheque (with tie-in to borrower)
• Certificate of incorporation with ACN
• CRAA company search confirming directors and/or shareholders
• Signed income tax returns with all schedules for the most recent two year period, or personal bank account statements for the same period
• If the loan application is dated more than 120 days after the end of the business fiscal year, a signed year-to-date profit and loss statement or bank statements confirming the level of gross income
• If income is derived from a partnership, the applicant must submit partnership income tax returns for the most recent two year period.  These documents must support the applicant’s reported income
• Income from self-employment is determined by averaging the income for the past two years, as verified by tax returns and all schedules

23. Where can I source important statutory & legal information?

www.apra.gov.au
Australian Prudential Regulatory Authority the Government body responsible for supervising banks, building societies and other financial institutions.

www.asx.com.au
Australian Stock Exchange. Check out the latest share prices of banks and other financial institutions.

www.liv.asn.au
Law Institute of Victoria General legal information on buying and selling a home.

www.qls.com.au
Queensland Law Institute Public services has some useful brochures for homebuyers.

www.reiv.com.au
Real Estate Institute of Victoria. Has a useful advise section

www.hpaa.nsw.gov.au
Home Purchasers Assistance Authority some helpful guides for home buyers.

www.buildingcommission.com.au
Building Commission is a statutory authority that oversees building control systems in Victoria.

For information on duties, land titles and fees, and conveyancing fees, see:

ACT:
www.reiact.com.au
www.act.gov.au
www.rgo.act.gov.au

NSW:
www.reinsw.com.au
www.osr.nsw.gov.au
www.lands.nsw.gov.au
www.lawsoc.nsw.asn.au

NT:
www.reint.com.au
www.nt.gov.au/ntt/revenue

QLD:
www.reiq.com.au
www.osr.qld.gov.au
www.dnr.qld.gov.au
www.qls.com.au

SA:
www.reisa.com.au
www.treasury.sa.gov.au
www.lssa.asn.au

TAS:
www.reit.com.au
www.tres.tas.gov.au
www.taslawsociety.asn.au

VIC:
www.reiv.com.au
www.sro.vic.gov.au
www.liv.asn.au

WA:
www.reiwa.com.au
www.dtf.wa.gov.au

Please Note: Laws may vary from state to state and these links are for reference material only. If you have a specific question please contact LoansInsurance™ today.