Looking to buy a house and get a loan? Here are a few issues you need to tackle before you take out a mortgage. Picture: Getty
For most Australians, a mortgage is the biggest financial commitment of their lives, so knowing what to ask before taking the plunge can be the difference between fiscal success and stress.
John Tindall, a Choice Home Loans mortgage broker in Wattle Grove, Sydney, shares the key questions all potential borrowers should ask before taking out a mortgage.
How much can I borrow?
“People understandably focus largely on how much they can borrow, without entering financial stress into the equation,” Tindall says.
Calculators which estimate borrowing capacity are available online, but are often a “one-size-fits-all” assessment.”
“They don’t cover all scenarios, such as part-time or casual income and may not cover off the benefits and costs of lenders’ mortgage insurance. For certainty, it’s easy to apply for a pre-approved loan,” Tindall says.
This information is of a general nature and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.
What are the fees?
The comparison rate offered by a lender provides a guide to the actual cost of a loan, by reflecting for example, annual fees.
“People should also ask for an estimate of the additional transaction costs, such as government charges, like stamp duty, lender fees and lenders’ mortgage insurance. As a broker, I provide a “money-in, money-out” summary, so this is all very clear,” he says.
What is lenders’ mortgage insurance and do I need it?
Lenders’ mortgage insurance is an insurance designed to protect the lender in case the borrower can’t meet the loan repayments.
It’s generally charged when the deposit is less than 20% of a property’s purchase price.
The cost depends on the percentage of the value borrowed and the loan amount, but it varies between lenders.
“Although a potential additional cost, lenders’ mortgage insurance can make the difference between getting the desired property and missing out,” Tindall says.
What features do I need?
These can include offset accounts, redraw facilities, branch versus online banking, additional repayments or the certainty of fixed rates.
“Like a new car, what features you need or want needs to reflect what you want to do now – and in the future. For example, redraw and offset facilities can be a great way to save up for a future holiday. You should discuss these with your broker or banker.”
How quickly can this be done?
It’s best to have at least a conditional approval before house-hunting, Tindall says.
“Depending on loan volumes, some lenders can take twice the time to approve a deal than the normal cooling off period allows. If you need it quickly, be prepared to work quickly and collaboratively with your broker or banker.”
Can I get a First Home Owner Grant?
First-timers should always ask about any grants they may be eligible for, Tindall advises.
Funded by states and territories and administered under their own legislation, such grants make funds available to first home buyers and are often coupled with savings on stamp duty.
“The eligibility for such grants is also often misunderstood, so do your research,” he says.
This information is of a general nature and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.
