Why use a mortgage broker vs Bank?
The biggest advantage of a broker over a bank is choice, when you sit in front of a broker you are sitting in front of 30+ banks and 100+ products versus visiting a banker who has access to only one bank’s products. This is especially important at time like now, when the banks are saying ‘no’ more, and by having more choices you’re likely to get a ‘yes’.”
Brokers often own their own businesses and are committed to their clients in the long term, with many years of industry experience. They deal in different types of home loans and have good loan structuring experience which could save you thousands in the long run.
If you’re looking for specialised assistance with your loan, it pays to talk to a specialised broker. For example, if you’re starting property investing, look for a broker who specialises in property investors. Bank staff often don’t have the training or experience in one area, but service whoever happens to walk in to the branch.
- Follow Up
Following up the progress of your loan application is time consuming and frustrating. A good mortgage broker will have a system for chasing you up, keeping you informed and saving you time.
- Personal Banker
Your mortgage broker is like the perfect personal banker, they know what needs to be done, they make sure it happens and because it’s their own business, they’re in for the long haul. Bank staff change often so even when you find a good personal banker they change jobs before you know it.
What does it cost to refinance a home loan?
Home loan refinance costs will vary depending on your individual circumstances. Some common refinance costs to enquire about, though, are:
Application fees – The fee associated with making a new loan application. This fee can range from $0 up to $1,363.
Discharge fees – An administration fee paid to your current lender to pay out the existing loan in full and to prepare the required documentation.
Valuation fees – A fee charged by the new institution to cover the cost of obtaining an up to date valuation on the property that you are offering as security. Generally, the incoming bank covers the cost of the valuation.
Land registration fees – These are the fees to remove the existing mortgage from your current lender and register a new mortgage to your new lender.
Lenders mortgage Insurance (LMI) – If you have less than 20% equity in your property, your new financial institution may charge you lenders mortgage insurance. This protects the lender against mortgage default.
Ongoing fees – Some home loans will charge on ongoing fee. This fee ranges from $0 up to $750 per annum.
Break fees – If you have a fixed rate home loan, you may also be hit with a contract break cost if you decide to refinance during the fixed rate period. This represents compensation for any loss of profit to the bank by your decision to break the contract. Break costs may or may not be charged depending on interest rate movements at the time.The overall costs will vary depending on which institution you are currently with, which institution you are going to and which state/territory you live in.
You can use our Loan Comparison Calculator to work out the difference in repayments between two loans. But you will also need to calculate the other fees and charges into your estimations.
Should I go fixed rate or variable rate
Should you choose a fixed or variable home loan? No matter what the interest rates are doing, a fixed rate home loan will not be for everyone. It’s important to think about fixed vs variable rate home loans and the pros and cons of fixing your home loan.
Advantage of a fixed rate home loan
The main advantage of a fixed rate loan is that it gives you cash-flow certainty. That is, you know exactly how much your loan repayment will be over the fixed term period.
When you are a new home owner or are perhaps setting up a business, or have some other significant demand on your cash, this certainty can give you great peace of mind.
Disadvantage of a fixed rate home loan
The main disadvantages of fixed rate home loans are that fixed term loans tend to be inflexible – and can be expensive if you break the contract! You also miss out on the benefits of any interest rate decreases over the timeframe of your fixed term.
Remember that as always, conditions and potentially fees will apply to fixing your home loan, and you should look at the comparison rate of products on your shortlist as well as their current advertised rates.
Fixed rate home loans provide stability of knowing that the repayment will be the same every month.
A fixed rate term does lock applicants into one interest rate for a period of time, however; so, if interest rates drop, it might end up costing comparatively more in interest.
For this reason, it’s important to think carefully when choosing whether to fix a home loan and how long to fix for.
What happens at the first meeting with a mortgage broker ?
Your first meeting with a mortgage broker is an opportunity to make your dreams a reality. They have the expertise to help you do this, but you will need to pitch in as well, of course. It’s important to do your homework before the first meeting.
Your mortgage broker will also expect you to have your documentation prepared as much as possible. This includes having two pay slips ready or, if you’re self-employed, having two tax returns at hand.
You will also need evidence of any other income and assets such as investment properties, shares, dividend income and other investments. If you go into the first meeting with all the information prepared, it makes it much easier for you to explain your position and for your mortgage broker to understand exactly what your current financial circumstances are.
Particularly where you are meeting with the mortgage broker for the first time, ensure that you bring at least two forms of photo ID (passport and drivers license are ideal but if you don’t have these then birth certificate and medicare card can also be useful) and that the spelling of your name is identical on all forms of ID.
You should expect your mortgage broker to ask a range of questions about your current and future lifestyle and financial situation, so he or she can take into account factors such as whether you are planning to start a family, start a new business or relocate.
Your mortgage broker is trying to understand who you are and what you are looking to achieve, to help you meet your goals. Meeting your goals is made possible through the range of products a mortgage broker has access to, as opposed to a bank that will only offer its own products, combined with the mortgage broker’s expertise in finding the right product.
Working with a mortgage broker gives you access to literally hundreds of different financial products from many different financial institutions. This differs from approaching a bank, which will only be able to make recommendations about its own financial products.
Remember, mortgage broker is at your side not the bank’s side.
What is home equity?
Equity – the difference between what your home is worth and how much you owe on it – is a crucial concept in property investment.
Equity is what proportion of your home you own (its value less the mortgage).
- Useable equity is what proportion you could use to buy another property.
- Typically, banks will lend up to 80% of the value of a property.
- Rule of thumb? You can afford an investment property that’s four times the value of your useable equity.
Equity is the difference between the value of your home—and how much you owe on it. Your stake… and the bank’s. So if your home is worth $500,000 and you still owe $320,000, your equity is $180,000.
The great thing about equity is that you can use it as security with the bank and borrow against it:
- to extend your home
- to start a business
- to buy a car
- to go on a holiday, or
- for any other use the bank allows.
Most importantly, you can use the equity in your home to buy an investment property.
TOTAL EQUITY AND USEABLE EQUITY
Keep in mind you can’t use all your available equity. Since the bank is lending you money against the value of your home, they won’t lend you the full amount. Why? Because if house prices dip, they don’t want to an outstanding loan that’s worth more than the asset (the customer’s property).
Typically, banks will lend you 80% of the value of your home, less the debt you still owe against it. Consider this your useable equity. However, it’s possible to borrow more than 80% if you take out Lenders Mortgage Insurance (LMI).