Saturday, August 20, 2022

How Do Mortgages Work In Australia

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Are There Any Sharia Home Loans Or Islamic Banks In Australia

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If youre Muslim, then you may havewondered for a long time about how you can get a mortgage so you can own yourown home and stay true to your religious beliefs.

In Islamic banking, charging interestis forbidden under Sharia law, so most home loans wont be appropriate forMuslims thankfully there are Sharia-compliant mortgages and products availablein Australia.

How Long Do I Need To Be In My Current Job Before I Can Apply For A Home Loan

Different lenders each have their own criteria for employment, but there are general guidelines to be aware of.

Many Australians currently find themselves in new jobs due to Coronavirus and other reasons. As of January 2021, mortgage interest rates are at all-time lows, with some lenders offering rates of under 2.00%. Read on to understand how to get a home loan when you’re in a new job.

The nature of your work can have a big impact on whether you secure a home loan.

Its not uncommon, for instance, for home buyers to be knocked back for a loan even by the bank theyve always used, just because of their employment status.

This highlights how being an established customer of a bank is no guarantee that youll be offered a home loan.

What matters is the length of time youve been in your current job the longer, the better. Heres what you need to know.

Apply For Your Loan Today

Before applying for your loan you should read our page and the relevant page for your residency type .

Once you have determined that you may be qualified for a home loan then or contact us via phone on +61 2 9194 1700 from overseas or 1300 889 743 from within Australia between 9am 5pm Sydney time and one of our consultants will discuss the various options with you.

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How Does A Mortgage Work

A Victorian mortgage, one for any kind of land use in Victoria, is the same as a mortgage in any other state or territory in Australia. When youre looking for a mortgage in Victoria, there are two main types to choose from:

  • Owner Occupier. An owner occupier home loan is one for regular or traditional owners, who are borrowing money to buy a home they intend to live in.
  • Investment. An investment home loan is one where the borrower is looking for a mortgage to buy an investment property, whether it be residential, commercial or for a housing development.

If youre looking for the right mortgage in Victoria for you and your family, the type and amount of mortgage repayments and interest rates will also be high on your list. There are two kinds of interest rates with all mortgages in Victoria:

  • Fixed home loan. With a fixed home loan, the interest rate, and therefore the mortgage repayments, will stay the same over the agreed fixed period, which is usually between 1 and 5 years.
  • Variable rate home loan. With a variable mortgage, interest rates, and therefore mortgage repayments, can increase or decrease over the life of the loan. Internal and external variables such as the costs to the bank or lender delivering you the loan, and the state of the national or international economy, can impact on the rise and fall of interest rates of your home loan.

What Mortgage Amount Could I Qualify For

Australian Mortgages

A lender will weigh up multiple factors when deciding your approval amount. For example, they will consider your income, partners income, dependents, living expenses, and more. Applying for pre-approval can be a good way to determine how much you are eligible for whilst making you a more attractive buyer.

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Find The Best Home Loan Rate For You

Getting a home loan doesnt have to be complicated and time-consuming. You just need to have the right information and the right team on your side to land the best deal out there.

If youre preparing to purchase property in Australia, Rateseeker is here to help you buy your dream home with all-time low rates. Simply tell us what you need help with, then well help you compare home loans and get approved faster.

If A Broker Gets Paid Based On How Much The Bank Makes Does That Mean They Wont Try To Get Me A Discount On My Home Loan

Mortgage brokers may be paid by banks, but they work for borrowers. Its in a brokers interest to recommend home loans that suit your finances, as if you cant afford a mortgage and default on your repayments, the broker would lose their trail commission.

A mortgage broker can negotiate with a lender on your behalf, and get you lower interest rates, waived fees or extra bundled services for your mortgage. While discounted home loans make less money for lenders, many banks will still offer brokers the same commissions anyway, as they recognise the value of the broker introducing them to new customers.

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How Can I Tell That My Broker Isnt Biased Towards Loans That Pay Higher Commissions

Mortgage brokers are obliged to recommend home loans that you can afford, both under Australian law and the codes of practice for the professional organisations that licensed brokers belong to. However, they arent always legally obliged to recommend the cheapest possible home loans, or loans that pay less commission.

Dont be shy about asking your mortgage broker how theyre paid, and what commissions theyll receive from different lenders for recommending their loans. Find out if there are other options available that could better suit your finances but pay the broker a lower commission. Licensed mortgage brokers are obliged to be upfront with this information.

Other questions worth asking:

Should I Take Out A Personal Loan For A Home Deposit

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It is possible to get a personal loan for a house deposit, but many providers will be hesitant to accept a borrower without genuine savings. You should only take out a personal loan for a house deposit if youre confident in your ability to repay both at the same time.

Lenders who allow personal loans for deposits will usually require you to have a high income, and may charge you a higher rate due to a greater perceived risk.

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What Is A Mortgage

A mortgage is a type of loan where real estate is used as collateral. A mortgage is typically used to finance your home or an investment property so you don’t need to pay the entire amount upfront. The borrower then pays back the loan, with interest and principal, over a period of time through a series of repayments. The lender is usually listed on the title of the property until the borrower repays the entire loan.

Mortgage repayments consist of principal and interest. The principal is the amount borrowed from the lender to buy the property. The interest is the cost of borrowing the money.

Other Things To Consider

Youll be buying a home in a way thatsconsistent with your religious values and teachings. You may have been waitingsome time to do this!

Most Islamic mortgages have broadly thesame features as regular products, including the option to overpay or even justto pay the lease amounts.

Most Sharia-compliant institutionsoffer pre-approval so you know the price bracket to concentrate on beforeactually applying for the mortgage.

You may find your deal more expensivedue to the particular nature of Islamic mortgages and the fact that therearent many providers.

The prohibition on ambiguity oftenmeans that your provider will want to see very clear evidence that you can payyour mortgage and that you have a long history of sound financial management.Theres no low doc Sharia mortgage.

Youll have to show that you have thedeposit ready to go and also declare any other assets, liabilities or debtsthat you have. Theres no escape from legal fees, conveyancing fees or stampduty, either!

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Should I Go Directly To A Bank To Get The Mortgage

You can go directly to lenders in Australia, but each one has different criteria and you may not necessarily be offered the most suitable loan, or the best deal available. A specialist broker will know the exact mortgage application requirements and can source the best possible deal. Theyll also know of any restrictions and administration requirements, which will save you a lot of time, cost and hassle.

How Do Joint Mortgages Work

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As housing affordability becomes a growing cause of concern, individual home buyers are finding it harder to step into the property market despite low-interest rates on home loans, thanks to increased prices and high home loan deposits.

But the Australian property buyers are not deterred. To overcome this obstacle, more and more Australians, especially younger ones, are joining hands with spouses, lovers, siblings and even friends to take out a joint mortgage for purchasing their first property, and more.

In a recent analysis by Commbank, it was revealed that the number of mortgage applications with two or more applicants has increased to 67% in 2016 from 64% in 2014. Applications forwarded by single applicants are petering out.

Online mortgage place HashChing further revealed that approximately 90 percent of the first home buyers using the platform are applying for joint home loans, a significant increase from 61 percent at the beginning of 2016.

Joint Mortgage: Meaning

In order to break into the steely property market, co-owning a property may be your only solution. Under this arrangement, two or more individuals co-own the property while putting together their savings towards a larger home loan deposit and a joint mortgage. However, as ideal as the plan may sound, it is fraught with risks unless you understand the process properly and obtain individual legal advice.

What are the joint mortgage options possible?

Joint tenants

Tenants in common

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Do I Need A Mortgage Broker To Arrange My Home Loan

Unlike other countries, most Australian mortgage brokers do not charge fees for their services and offer the same loans at the same prices!

There are over 300 banks and other lenders in Australia and over 1,000 different types of loans.

For this reason it is essential to obtain the help of an expert when applying for your loan.

This is why more Australians choose to obtain their home loans through a broker than by approaching banks directly.

Find Out Their Complaints Process

Check the brokers complaints process and make sure theyre part of an independent external dispute resolution scheme, such as the Credit & Investments Ombudsman or the Financial Ombudsman Service , both of which are approved by Australian Securities & Investments Commission .

This means that problems will be easier to resolve if they do pop up which hopefully they wont!

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How Do Banks Treat The Foreign Exchange Risk When Lending To Australian Expats

James Ridley: Okay. Now, thats important consideration. Youve given us a good run down there. As we progress forward again, next slide. Its huge. Its a big important factor that Australian expats need to be aware of, and its foreign currency risks, or as weve got the FX risk.

Jeremy Harper: Yeah.

James Ridley: So youve mentioned it previously, already, when you engage a provider. And I just want to flesh that out a bit, you know, how does FX risk play into getting a mortgage? And I suppose, is there a situation where a lender, if they know that youre in the U.S. and the U.S. dollar starts to go backwards, and the Australian dollar goes back up to say, 80, 90, 95%, who knows? How can that play into this? If Ive already got a mortgage or getting a mortgage. What are those sort of factors I think about?

Jeremy Harper: Good question. So I guess, the first thing is the repayments of the mortgage.

James Ridley: Yes.

James Ridley: Yeah. Okay.

Jeremy Harper: The next thing to consider is maybe looking at a fixed loan where you lock in the interest rate. So you have one variable thats not going to move, and then you understand that thats going to be my monthly repayment for the next two, three years. And thats not going to change. Again, the only thing you need to think about is the FX over that period.

James Ridley: Yeah.

Which Lender Should I Choose

Home Loan Process [What it is, Step by Step] in Australia

There are literally hundreds of home loan lenders to compare in the Australian market, and each tries to differentiate itself with its products, service or the customer base it appeals to. Your choice of lender comes down to your own unique circumstances.

One thing you should keep in mind when choosing a lender is to ask them for the key facts sheet for any home loan you might be considering. This is a document lenders are legally required to provide, and it includes:

  • Loan amount and term
  • Any establishment and/or ongoing fees
  • Total amount to be paid back
  • What happens if interest rates increase
  • How you can repay your home loan faster

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What Kind Of Banking Packages Are Offered

Many of the major lenders in Australia offer banking packages with their mortgages, these are known as Professional Packages or Pro Packs for short.

A typical Professional Package will have an annual fee of $300 to $400, however in return for this fee, you will be eligible for a large rate discount on your loan, waived application fees, waived monthly account keeping fees, a free credit card with rewards and discounts on insurance.

As a general rule, these package discounts are better suited for home loans over $250,000.

What Does A Mortgage Broker Do

A mortgage broker is essentially a middleman between you and the lender. They assess your finances and borrowing power, and then come up with a list of home loans for you to choose between. However, while they will pick options from a number of different lenders, they likely wont consider all of them, as many brokers wont work with credit providers unless they pay a commission.

Fisher says a good broker will not only determine how much youre able to borrow from various lenders, but also the maximum amount that you should borrow, based on market trends and fluctuations.

We sit with them, understand their situation, do analysis of all their expenses, their incomes, understand their plans, and then look and research around the various lenders that are suitable, he says.

We make sure a client can afford it if rates go up to 7% or 8% and how that is going to impact on their lifestyle, or how it will impact if they get a loan tomorrow, versus what theyre paying in rent today.

Many times Ill talk clients down from what their expectation was before they walked in, around how much they want to borrow, because it doesnt make sense financially and would have put them under financial stress.

What do banks look for in loan applications?

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What Happens If Your Mortgage Is Foreclosed

There are two ways a lender can collect if you fall behind on payments through the courts in a process called judicial foreclosure, or with a trustee in a process called non-judicial foreclosure. If you cant make your payments, its essential you know the timeline and processes for how long a foreclosure will take.

Judicial foreclosure. A judicial foreclosure is a court process and generally takes much longer than a non-judicial foreclosure. It gives you more time to either find a way to bring the mortgage current or make plans for other housing arrangements.

Non-judicial foreclosure. If you signed a note and a deed of trust at your closing, then you are probably in a state that allows a non-judicial foreclosure process. The courts are not involved in this process, and the foreclosure process timeline may be much faster, leaving you with less time if you are unable to bring the payments current.

Glossary Of Important Terms

Q& A

If youre starting to look for your perfect new place in Australia, the jargon can be a bit bewildering. Here are some important terms to help you:

  • A loan-to-value ratio – this is the value of the mortgage expressed as a percentage of the total property value.
  • Standard variable rate – the standard interest rate offered by the bank.
  • Repayment mortgages – with a repayment mortgage you pay back both interest and the capital amount borrowed over the term.
  • Interest-only mortgages – here, you pay only the interest accruing on the capital borrowed, with the capital to be repaid in full at the end of the term.
  • Fixed rate mortgages – the interest rate is fixed for a set period of time.
  • Variable rate mortgages – the amount you pay in interest can be changed by the bank if the SVR changes.
  • Pro-pack – package of financial services including a home loan, targeted at higher earners and covering a range of banking services.

Buying a new home is a big step, and when youre buying in a new country, it can be a daunting process.

In recent years the mortgage market in Australia has become more difficult for foreigners to navigate as major lenders have pulled funding for expat buyers. However, if you do your research, and have a great local broker you can still get a deal that works for your circumstances. Before you know it, you could be sunning yourself in your new home or summer place in Australia .

Good luck with buying your new home!

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Variable Rate Home Loan

A variable rate home loan is one in which the interest rate can change over the life of the loan. This can happen at any time, but is most likely to happen following the Reserve Bank of Australia’s monthly cash rate meeting.

Rates change for a variety of reasons, including the RBA official cash rates, bank funding costs, profitability and the bank’s appetite for home loans.

Some common variable rate features:

Extra repayments

Many variable rate home loans allow you to make additional repayments in order to pay down your home loan faster. This can add up to a massive savings in interest payments over the life of your loan. Have a look at the calculator below to see how extra repayments can impact the total amount you pay for a home loan.

Offset accounts

Offset accounts are transaction accounts attached to your home loan. Any funds in the account are used to offset the interest you’re charged. For example, if you place $10,000 in your offset account, and you have a loan amount of $350,000, your interest will be calculated on a loan amount of $340,000 rather than $350,000. Offset accounts usually give you complete access to your funds like any other transaction account. As with the extra repayments mentioned above, offset accounts can help you save a significant amount over the life of your loan. Check out our calculator to see how an offset account can save you money.

Redraw facilities

Variable rate pros and cons:

Pros
Cons

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