How much deposit do I need?

We explain this in three different scenarios:

Ideal scenario: 20% of property purchase price. This way you don’t need to pay any lender mortgage insurance and you save money here.

Most people do: 10% of property purchase price. You will be paying lender mortgage insurance to the lender and depending on the proposed use (owner occupier or investment), loan size and the state of security, this can be expected around 2% of the property price. You may need to pay this 2% upfront if the lender didn’t allow this insurance amount to be added into the loan.

At least: 5% of the property purchase price. In this situation, your application needs to be very strong (such as stable job, not many credit checks in the recent past, etc) to get approved. Also, the lender mortgage insurance premium jumps significantly from what we estimated above. Most of the lenders don’t allow to add this insurance premium to be added to the loan when you are borrowing 95% already. You would need to come up with extra funds for this as well.

In all the above scenarios, please note that you also need to bring extra money for stamp duty expenses and other closing costs (such as the legal, council, etc), which is another 5% of the property purchase price. Sometimes, you may be eligible for stamp duty concession or even exemption so these costs may vary accordingly. Please contact us to discuss your circumstances.


What is the offset account?

This is a normal day-to-day transaction account that also has the additional benefit of interest offset. If you have any money in this account, then the interest amount is offset from the home loan account. For example, you have $10,000 in the offset account and home loan balance is $80,000 today, the lender will charge interest on the difference (=$80,000 - $10,000 = $70,000) only. If the account is the everyday offset account, then they calculate the interest on daily differences.

If you need, you can still withdraw funds from offset account by using your debit card and all other functions of everyday banking facility is still there. Most of the offset accounts come usually with the package home loan products.


How much can I borrow?

Borrowing capacity depends on your income, nature of employment, a tax-free component on your salary, existing loan commitments (such as car loan, personal loan, credit cards, etc). The capacity also depends on your living expenses such as food and grocery, childcare and education, travel, transport, entertainment, medical, etc. Lenders need to be satisfied that the declared living expenses are in line with the general Australian standard for the family size and income level that you have.

Above variables make the things complicated and trying to know borrowing capacity online without having proper information about above income and expenses is simply not possible.

A general rule of thumb we can suggest is you can borrow up to 5.5 times of your gross income, assuming that you have no other liabilities and no dependent children. For example, if your household combined income is $110k per year, you can expect to borrow up to $605,000. You can then add the deposit you have to calculate how much property price you can look up to.

We highly recommend to contact one of our brokers and discuss your personal circumstances to get an idea about the reliable estimate of your borrowing capacity.

In all the above scenarios, please note that you also need to bring extra money for stamp duty expenses and other closing costs (such as the legal, council, etc), which is another 5% of the property purchase price. Sometimes, you may be eligible for stamp duty concession or even exemption so these costs may vary accordingly. Please contact us to discuss your circumstances.


What is package home loan?

Most lenders naturally want you to use their banking products when you borrow home loan from them. In order to encourage you to do so, they offer the home loan into two broad categories – basic home loan and package the home loan.

When you choose the package home loan, they charge you some annual fee but also offer you lots of incentives such as no annual fee on the credit cards, provision of an offset account, ability to split your loan to fixed and variable, etc. Don’t be afraid of annual fees, if you knew how to use the package properly and set your money management accordingly, you will reap more benefits than that you pay on annual fees.


What is variable and fixed rate loan?

When you are borrowing, you can have all your loan amount either variable rate loan or fixed rate loan. Depending on your needs, you can also make it hybrid, i.e. part fixed and part variable. The brief descriptions of these loans are as below:

Variable rate loan: The interest rate is left variable. Every time and again, your lender reviews their funding costs and determines the interest rate they would like to charge you. If the rate goes up, as a result, your home loan rates go up and if it goes down, your rate goes down too. With this loan, you can make unlimited extra repayments if you want to and offset account is also connected to the loan account. This means any extra money you have on your offset account reduces the interest on your home loan. The downside of this product is that there is no certainty on the rate movement.

Fixed rate loan: You can fix interest rate on your home loan for a set period (from 1 year to 7 years, for example). Most popular fixing periods are for 1 year, 2 years and 3 years. When your rate is fixed, you continue to pay the same interest rate no matter what happens in the lender funding costs. If the rate goes up, you still pay the same rate that you fixed at.

If the rate goes down, then again you can’t change to variable rate as you continue to pay the pre-set rate until expiry. If you want, you can break the fixed rate agreement anytime but this comes with the breaking costs. Please check with your lender before taking any such action.

In case you have some extra money that you want to pay towards the loan amount, such fixed-rate loans may not allow more than a certain amount during the period. The offset account will not work (with some exception of the special loan products) when you have fixed interest rate loan product.