Our customers are always asking us questions. To help you understand your home loan even better, we have put the Top 10 Customer Questions below.
Top 10 Home Loan Questions
1. What is the best investment deal/loan package?
Each person is different, and the loan or loans we suggest will depend upon how that person wants to utilise their loan. For example, a person may want to buy a property and make minimum payments for the next 30 years. Another person may want to pay off their property as soon as possible. Someone else might be buying a development property, whereby they want to knock down the existing home and build two more on the property. Chances are that each one of these scenarios will have different loan options. So once we know what an individual wants to do with their property, we will put a strategy together to suit their needs.
2. Switching home loans – savings versus cost.
We currently have a bank home loan with a balance of $150,000. We are on the standard variable rate and also pay $10 per month in account keeping fees. How much is it going to cost to move from our current bank to Assured Home Loans? And also, how long will it take for us to actually see the money we are saving (after expenses)?
First of all, we will look at what your home loan needs to do for you. We will then suggest the best way to use your loan in order to save the most amount of money. On average it will cost you around $600 – $800 to change lenders if you are on a standard variable rate. However, this may change depending on the lender.
The time it will take to see the money you are saving can vary, depending on the product you choose. But when considering that our available rates are around 0.7% below standard variable rates offered by most of the major banks, you should save around $1000 per month. At Assured, we should also be able to remove the ongoing loan fees so that will save you another $120 per year. Based on these savings you should be better off in around 6 months.
3.What is the different between a line of credit and an offset account?
There are quite a few differences between these products and it is very important to understand how they work. Quite simply, a line of credit is like having a big credit card. Similar to a credit card, they can be disastrous when in the wrong hands. The lender will agree on a limit that you can borrow to, and in most cases these loans are interest only and do not need to be reduced. For example, the lender will value your home and normally lend you 80% of that value.
So if your home is worth $200,000, then your limit will be set at $160,000 or an agreed amount. Now, let’s say you currently owe $100,000. You will then have $60,000 to spend on whatever you want. At the end of each month the lender, in most cases, will only require you to pay the interest charged to the loan. Problems are heightened with these types of loans when they are sold in conjunction with a credit card. The idea of this is that all your pay goes into the loan and you use your credit card for your everyday spending. At the end of the month you pay your credit card off. Unless you are disciplined, you could get into trouble. So be careful!
An offset account is an account that is connected to your home loan, and the money that is sitting in your account is offset against your loan. Most people will have all of their pay go into the offset account to build up the amount offsetting their loan. In turn, this saves interest on their home loan.
For example, if your loan balance was $150,000 and you had $20,000 in your offset account, the lender will subtract the amount in your offset from your loan balance and charge the interest on that amount. Using the figures above, you have $150,000 – $20,000 = $130,000. The difference here is that you can see what you have in your offset account. You can also see what you have available to spend, less your normal minimum payment, rather than all your money going into one loan like a line of credit. Each month your payment will be made from your offset account and will reduce your loan. These accounts can also have a credit card linked to them however we do not recommend it. Each person is different and there are many other issues to consider before taking out either of these loans. Make an appointment with a broker and take the time to understand them before making the decision to go ahead.
4. How much do you make from our loan with you?
Assured Home Loans is paid a percentage of each loan we successfully submit to a lender and subsequently settles. The amount can vary depending on the loan amount. The most important thing you need to know is that it does not cost you any more to have Assured Home Loans submit your loan to the major lenders, than if you were to go directly to the lender yourself. Our service to you is free.
5. Why should I come to Assured and not go to my bank?
This is a question that is often asked and the answer is simple; choice. We offer more than 30 different lenders for you to choose from and our job is to suggest the loan option that we believe will suit your needs. Let me ask you this question; if you were to ask your bank manager “who has the best home loan?”, do you think he/she would recommend you to the opposition bank down the street? As a broker, that is what we do. We find you the right loan with the right lender.
6. Won’t you sell me the home loan you make the most money from? How can I know?
Most brokers work on repeat business or referrals, and if this was the case they would not last very long in the industry! Sooner or later they will get caught out if they’re not doing what’s best for their clients. If you are unsure, you can ask our agents how much they will be paid, and they will be happy to tell you. Most importantly, make sure you have been offered a variety of loans to pick from and then make your own decision on which loan you want.
7. Should we consider putting all our debts under one loan?
This question has been asked many times over the years as most people don’t want their car loans going for 25 years! Quite simply, it won’t go for this long if you don’t want it to. Let’s say you have a pile of debts that you want to put all into one loan to simplify your payments. What we would suggest is that you continue to pay the same amount that you are currently paying for the balance of the loan period. For example, if you put your car loan into your home loan then sure, the payments will be based on 25 years. But if you were to keep your repayments the same as previously set which was probably based on 12-13%, your loan will be paid off sooner because you are being charged a lower interest rate. It’s the same with any credit that you consolidate into your home loan.
HERE’S AN EXAMPLE:
|Home loan||$150,000||25 years at 8.5%||$1,208|
|Car loan||$20,000||5 years at 13%||$455|
|Personal loan||$8,000||7 years at 12%||$141|
$178,000 over 25 years at 8.5% = $1,434
As you can see the minimum payment would be $1,434, however we suggest you continue to pay $1,804 per month if you can. If you did this ongoing you would actual have all your debts including your home loan paid off in around 14 years knocking a massive 11 years off of your loan and saving thousands of dollars. There are a lot of other considerations to take into account as this is a simple calculation and we will be happy to compare your figures and show you the real savings in person and how it can work for you.
8. Should I fix my home loan or stay on a variable rate?
This is a question that we would be asked at least 20 times a week, especially when rates are on the move upwards. History shows us that if you stayed on a variable rate for the entire term of your loan you will be better off. In saying that, if you are in a position where your budget is stretched and any rate rise would put you in financial hardship, then a fixed rate could be a solution. The problem here is that most fixed rates will offer a small window of opportunity when rates are on there way up.
For example, in January 2008, the standard variable rate was around 9.8% and there was talk of rates going higher. Lenders were offering fixed rates as low as 8.7% which looked like a good deal. Here we are in November (11 months later), and we have seen rates drop by around 1.5% with more on the way. Savings would have been short-lived. In most cases, fixed rates are far less flexible than variable rates and many features are turned off when you fix your loan.
9. How do I work out how much a lender will give me to buy a home?
I have always told my clients that they should be more focussed on how much they can afford to pay back, rather than what the lender will give them. The easiest way to answer this is to use a real example. Think about the rent you currently pay and imagine how much it would need to go up before it caused some discomfort. So instead of looking at a dollar amount that you want to spend on a home, consider how much you want to pay per week off a mortgage, and then work backwards. In some cases your lender may give you $100,000 more than you could afford or feel comfortable paying back. I hope this helps.
10. Should I save up a bigger deposit before I buy a home?
My suggestion here is that if you are comfortable with the payments on a home loan then you should get into your first home as soon as possible. Quite often we hear someone say that they want to save more for a deposit, however it depends on how quickly you can save.
Here is an example, if you decided to save an extra $10,000 to buy a home and it will take you at least 24 months, you need to consider how much house prices will increase in that time. If we take an average price home of around $300,000 it is not unreasonable to suggest that this home could increase by 5% per year. So even though you saved an extra $10,000, the home has increased by around $30,000 so you are effectively $20,000 worse off. Consider how long you have taken to save your current deposit, or call us and we will be happy to help you do the sums.
If you’d like to talk to one of our experienced home loan consultants to assess what your finance options are,