Home Loans

At Best Value Home loans, finding you the right home loan for you is the only thing that matters to us. Our wide choice of lenders allows us to get the right loans for all types of borrowers and circumstances.

Types of home loans

There are a range of specialised products available designed for different circumstances. From loans for first home buyers to reverse mortgages for the retirees and loans for self-managed super funds (SMSF).

Bridging Loans

If you wish to buy your next home before the existing home is sold, or are waiting for completion of the sale of an existing property prior to buying a new one, a bridging loan may allow you to complete the transaction now.

Bridging finance allows you to obtain finance to ‘bridge’ the gap between paying for a new property and receiving the proceeds from the sale of your existing one. The lender will take security over both properties until the sale of the existing one is complete. The bridging amount or ‘peak debt’ will not be allowed to be above 80% of the value of both properties.

Some lenders will allow you to capitalise the interest payments (add them onto the loan) for a period of time or until the 80% limit is reached, to help with cash flow. The bridging loan may be slightly more expensive, however the borrowers nominate which product their loan defaults to after the bridging period is over. When you sell your existing property you just pay the proceeds from the sale off the balance on the bridging loan, and revert to your nominated loan product.

Construction Loans

When building a new home, you will not need the entire amount of the loan drawn down all at once. Construction of a dwelling is generally divided into five stages. Your repayments during construction are interest only. The loan is drawn down into five progressive draws as follows:

• Purchase of the land
• The pad (The floor- concrete or timber)
• Roof (usually including frames)
• Lock up
• Final

This means that interest is only being calculated on that amount which has been physically drawn down, and you are only making repayments on the portion you have used. When construction is complete, you can nominate which product or loan type your loan reverts to.

Many lenders will normally lend only around 60-70% of the land value for purchase. However, some lenders are lending up to 90% of the land value. Most lenders will estimate the completed package will be based on the value of the land, plus the cost of the building materials, as if completed.

For example: If your land has been purchased for $350,000 and the cost to build was $350,000, a valuation should put the total value of the house and land at $700,000.

After each stage is finished, a valuation is usually performed to make sure that the stage is complete according to the requirements set out in the fixed price building contract. Once the valuer is satisfied, they will contact the lender and authorise the next payment.

Construction loan application checklist

Most construction finance applications are assessed according to the standard process and many of the same documents are required, along with a fully completed ‘build pack’ (or ‘Bank Pack’) which includes:

• Signed fixed-price building contract (or Tender) between borrower and a licensed builder
• Stamped, council-approved building plans
• Copy of builder’s insurance policy
• Interest-only repayments during construction and a switch to principle and interest repayments thereafter
• The ability to make extra repayments

You may be able to switch to a more flexible product upon completion of construction. Some lenders offer a 100% offset account that allows you to save on interest by parking any cash in this account. Your Best Value Home Loans broker can set you up with the right lenders.

Family Guarantee

Do your parents want to help you buy a home or invest in property? A family guarantee is a way for your parents or family to help you purchase a home without them actually providing the cash for a deposit.

Your family members can use their own home’s equity to provide additional security for a portion of your loan amount. This reduces your loan to value ratio and can also save you thousands of dollars in Lenders Mortgage Insurance (LMI) by reducing or even avoiding the need to pay LMI. So you get into your home faster and cheaper with help from your family.

Example:

Mark is planning to purchase a $500,000 property with a $25,000 deposit (LVR of 95%), which means Lenders Mortgage Insurance (LMI) of $14,185 could be payable.

If Marks parents agreed to provide a family guarantee using their additional security, the LVR would reduce to 80%.

This would result in the LMI premium requirement being waived, saving Mark up to $14,185.

Some lenders will do a limited guarantee with means the security from mum and dad is limited to 20-30% of the debt and not 100%. Your Best Value Home Loans broker can advise the best options available.

If you are not eligible for a family guarantee loan see Wrap Mortgages.

Interest Only loans

This feature allows you to pay off only the interest portion of the loan for a set period, usually one to five years. It will help reduce your regular repayments for a period of time. Using an offset account you could elect to make regular additional repayments to reduce the principal.

This is the loan type property investors use to obtain maximum deductions because interest is tax deductible but principal repayments are not.

An interest only period is normally up to 5 years at a time. Although some lenders will do 10 years or more. A line of credit is also popular with investors.  It is a revolving interest only facility with added flexibility when required (See Line of Credit).

Interest Only in Advance

An Interest Only In Advance loan allows property investors to prepay up to 12 months interest in advance at a time and receive a discount off a fixed interest rate. In addition, it may be beneficial for some investors to claim a tax deduction for a full year’s interest in a particular financial year.

Introductory Rate/Honeymoon loan

This loan product targets first homebuyers. Also known as honeymoon loans, due to the ‘honeymoon period’ during which you pay a discounted interest rate. These loans usually offer a very cheap rate for an initial period of time, generally 12 months.

The introductory rate can be either a discounted variable or a discounted fixed rate.

The discount variable is a variable rate, but fixed at a certain level or margin below the standard variable rate. This means that for the introductory period, the discounted rate can move up or down with the market. The discounted fixed rate is a fixed rate for the introductory period of the loan, and will not change.

Honeymoon loans are generally only offered to new borrowers. Most of these loans will revert to the standard variable rate after the introductory period. This means that any benefit you may have had may be negated by the fact that you might now be paying the lenders most expensive variable rate.

Borrowers trying to exit a loan at the end of the introductory period can be charged a fixed amount, for example $1,000. Some lenders charge a percentage of the original loan amount if the loan is exited within the first two years – a whopping 2.5% of the original loan amount, for instance. We can help you avoid the pitfalls when choosing this type of loan.

Line of credit or equity loan  

A line of credit is similar to having a big credit card at home loan interest rates. A line of credit, or equity line as they’re sometimes called, is an approved limit of borrowings that you can use bit by bit or all at once. A line of credit facility is often called an ‘Evergreen facility’ because it does not have a set term. Recent legislation changes by The National Credit Consumer Protection legislation – (NCCP) has meant that there are only a couple of true evergreen facilities left in the market.  We know who these are. Most new line of credit loans have 5-10 years as interest only and then become principle and interest loans for the remaining term.  Businesses should be careful not to get a business line of credit as it will usually have an annual review and could be cancelled at the whim of the bank.

A line of credit loan facility can be a great way to access the equity in your home and can be used for things like home renovations, investments or other personal purchases.

When used for business or investments the interest would be tax deductible.

Let’s say you have a line of credit of $300,000. This means that you could use the total of $300,000 all at once or use $80,000 to renovate your house. If you did this, you would only pay interest on $80,000, as the remaining $220,000 would be untouched. If you were to use a further $50,000 to invest in the stock market, for example, then you would be paying interest calculated on $130,000 ($80,000 for renovating and $50,000 for investment) leaving $170,000 available as rainy day money or another possible future use.

You could also use a line of credit for mortgage reduction. When repaid the credit could be borrowed again for tax deductible purposes.

Lo Doc Loans

Lo Doc loans have been available in Australia for a number of years. At first they were only offered by non-bank lenders but as regular banks began losing market share in this area they jumped on the band wagon.

These loans are popular with self-employed people who have income and assets, but are unable to provide the required financial statements or tax returns at the time of application.

Lo Doc lenders do not require traditional proof of income such as company financials or tax returns. Instead, borrowers generally complete a declaration that confirms they can afford the loan. This is known as self-certification. Borrowers should be aware that interest rates and fees are higher with lo-doc home loans. Lenders mortgage insurance (LMI) fees often applies and they are usually capped at 80% of the valuation of the property.

Borrowers wishing to obtain a low-doc loan will normally need to satisfy three main requirements:

• Self-certify their income
• Confirm their self-employment status (if appropriate) – usually with a Registered ABN or accountant’s letter; and
• Have a clean credit history and good repayment record for existing or previous loans

As there are only two mortgage insurers in Australia, any income declared in an application with one lender might affect any future applications with another lender or mortgage insurer. If the declared income is different on subsequent applications, the mortgage insurer may question this.

Non-conforming loans

Non-conforming loans are mortgages that do not conform to a lender’s typical loan underwriting criteria. Applicants with poor credit history, or patchy or non-ongoing employment may qualify. Nonconforming loans may go as high as 90% LVR. The interest rate is based on the severity of the credit history.

Sometimes non-conforming loans allow an unfortunate financial situation or event to be managed until the borrower is more financially secure.

After a couple of years properly conducting their non-conforming loan, borrowers may be considered for a regular mortgage again.

Non Resident Loans

Nonresident lending is for foreign investors not residing in Australia and temporary residents such as those on temporary visas like a 457, 475, 487 and 495 visa holders living and working in Australia. Most lenders will only loan to an 80% LVR. With a 457 Visa a home loan can be as high as a 90% LVR. These loans require Foreign Investment Review Board approval and specify the type of property that must be purchased.

Migrants on a 457 Visa, on a Subclass 487 visa, Skilled Graduate 487 Visa or Skilled Regional Visa 495 can borrow up to a 90% LVR. Student Visa holders will be limited to an 80% LVR.

Professional Packages

Professional packages or Pro Packs, can offer genuine discounts and special benefits. Most professional packages require that you earn at least $60,000 pa and the home loan be in excess of $250,000. Greater discounts can be offered for larger loan sizes.

This loan is a fully featured loan with all the bells and whistles. The benefits vary between lenders, but can include variable interest rate discounts of between 0.50 and 1 per cent for the life of the loan, no fees on further applications and other discounts. There are usually annual fees but the discounts will outweigh those costs.

Pro Pack discounts usually include:

• Interest rate discounts on variable rate home loans
• Fee free valuations, top-ups and loan switches
• Credit cards with no annual fee
• No application fees on future home loans
• Discounted offset and savings accounts

Some lenders may offer a waiver of mortgage insurance premium on a loan, instead of reducing the rate, as part of a professional package. Some lenders are also waiving the annual fee in return for a slightly higher interest rate.

Reverse Mortgages

Today many of us simply do not have enough super to live comfortably in retirement.

A reverse mortgage allows you to borrow against the equity in your property without having to make repayments.

In retirement, this provides the cash flow that people need. It is available to residential property owners who are retired and meet the age criteria of the lender.

A reverse mortgage loan can free the equity people have in their property without it being sold. Depending on their age, applicants can borrow up to 45 per cent of the value of their home with funds advanced in one payment on settlement, or in instalments as needed.

Some of the most common reasons for using a reverse mortgage are:

• Holidays
• Medical expenses
• New car or motor home to go travelling
• Unexpected emergencies
• Home Renovations
• Home maintenance
• Investments

No repayments are required over the life of the loan. Interest fees and charges are capitalised into the loan and repayment is deferred until the property is sold, the borrowers are no longer living in the house, or the borrowers are deceased.The borrowers can choose to make payments at any stage if they wish to reduce the loan balance.

Lenders will require all applicants to seek independent financial and legal advice when taking out a Reverse Mortgage.

From 18 September 2012, all new reverse mortgage contracts carry ‘negative equity protection’. This means you cannot end up owing the lender more than your home is worth.

Self-Managed Super Fund (SMSF) Loans

SMSF loans allow the use of superfunds as deposit on investment property. SMSF loans can be for residential property up to a maximum LVR of 80% and commercial property to a maximum 70% LVR. There are many differing lending policies of those lenders who do SMSF loans. Your Best Value Home Loans broker has the expertise to get the right lender for each circumstance.

Split Loans

There can be beneficial reasons to split your home loan including extra flexibility or possibly reducing the risk of interest rate increases over a fixed period. A split can also separate loans for tax reasons or for other personal reasons.

In a fixed and variable split, you can combine the flexibility to access a redraw facility or make larger repayments on the variable split and have the certainty of repayment on the fixed component.

Example 1:   A $400,000 loan is split as follows:

$350,000 Fixed and $50,000 Variable;

This is a split with control of interest rate risk as the primary concern.

Example 2: A $400,000 loan is split as follows:

$350,000 as a basic home loan

$50,000 as line of Credit

This split allows the majority of the loan to be on a .5% cheaper interest rate, saving money over the Line of Credit interest rate. The Line of credit allows flexibility to invest and keep the tax deductible interest to be separated from the non-tax deductible home loan.

Best Value Home Loans can structure splits to suit your circumstance.

Standard Variable Home Loans

Standard variable loan products move up and down with the official cash rate set by the Reserve Bank of Australia. However, the major banks have recently moved out of sync with the RBA and not passed on the full official rate reduction. Standard variable comes with all of the bells and whistles. This can include offset accounts – where you place any savings in an account that is linked to your loan, to ‘offset’ the amount of interest you pay. Standard variable loans allow you to make extra repayments and offer a redraw facility. This is the most expensive variable rate product a lender has.

Most people will be better off with a packaged discount like a Pro Pack because this offers all the benefits of a standard variable loan but at a discount. Others who may not want all the features maybe better off with cheaper basic variable loans.

Trust Loans

Borrowing in a trust name is often done for asset protection and to ascribe ownership in tax advantageous ways. There are many different types of trusts;

Family trusts, hybrid trusts, unit trusts, discretionary trusts, bare trusts and testamentary trusts to name a few. Not all lenders will do trust loans, some will decline you and others will give you a business loan (not advisable). Your Best Value Home loans broker is an expert in this type of lending and can advise on the appropriate trust lending structure for each circumstance.

Wrap Mortgages 

In some cases property buyers may be ineligible for a conventional loan due to insufficient savings, an insecure or short term job or a prior credit default.  A wrap mortgage is like a rent to buy transaction. The main difference is that the buyer does not have a mortgage and the seller does have a mortgage with a lending institution. The seller places an interest rate buffer of 1-2% on the mortgage and sells the property to the buyer on a fixed price contract with a future completion date.

Agreement is reached that the buyer will refinance to another lender in say 3 years and assume ownership at the agreed contract price. This time frame allows the buyer to prove stability of repayments and residency and make good on whatever issue prevented them from securing a property conventionally.

For the buyer, a property wrap enables them to purchase a house despite their previous drawbacks. The buyer takes over the responsibility of repaying an existing mortgage. Some risks could be that the property drops in value in the future or the buyer does not meet the repayments and the mortgagee could repossess the home.

Parents wishing to help their kids who may not be eligible to do a family guarantee loan now could consider this type of mortgage. Your Best Value Home Loan broker can advise the steps required to action this.