Variable

Standard variable loans are the most popular home loan in Australia. Interest rates go up or down over the life off the loan depending on the official rate set by the Reserve Bank of Australia and funding costs. Your regular repayments pay off both the interest and some of the principal.

You can also choose a basic variable loan, which offers a discounted interest rate but has fewer loan features, such as a redraw facility and repayment flexibility.

Pros

• If interest rates fall, the size of your minimum repayments will too.
• Standard variable loans allow you to make extra repayments. Even small extra payments can cut the length and cost of your mortgage.
• Basic variable loans often don’t come with a redraw facility, removing the temptation to spend money you’ve already paid off your loan.

Cons

• If interest rates rise, the size of your repayments will too.
• Increased loan repayments due to rate rises could impact your household budget, so make sure you take potential interest rate hikes into account when working out how much money to borrow.
• You need to be disciplined around the redraw facility on a standard variable loan. If you dip into it too often, it will take much longer and cost more to pay off your loan.
• If you have a basic variable loan, you won’t be able to pay it off quicker or get access to money you have already repaid if you ever need it.

Fixed

The interest rate is fixed for a certain period, usually the first one to five years of the loan. This means your regular repayments stay the same regardless of changes in interest rates. At the end of the fixed period you can decide whether to fix the rate again, at whatever rate lenders are offering, or move to a variable loan.

Pros

• Your regular repayments are unaffected by increases in interest rates.
• You can manage your household budget better during the fixed period, knowing exactly how much is needed to repay your home loan.

Cons

• If interest rates go down, you don’t benefit from the decrease. Your regular repayments stay the same.
• You can end up paying more than someone with a variable loan if rates remain higher under your agreed fixed rate for a prolonged period.
• There is very limited opportunity for additional repayments during the fixed rate period.
• You may be penalised financially if you exit the loan before the end of the fixed rate period.

Interest Only

You repay only the interest on the amount borrowed usually for the first one to five years of the loan, although some lenders offer longer terms. Because you’re not also paying off the principal, your monthly repayments are lower. At the end of the interest-only period, you begin to pay off both interest and principal. These loans are especially popular with investors who plan to pay off the principal when the property is sold, having achieved capital growth.

Pros

• Lower regular repayments during the interest only period.
• If it is not a fixed rate loan, you have the flexibility to pay off, and often redraw, the principal at your convenience.

Cons

• At the end of the interest only period you have the same level of debt as when you started.
• If you’re not able to extend your interest-only period, you could face the possibility of increased repayments.
• You could face a sudden increase in regular repayments at the end of the interest-only period.

Low Doc

Popular with self-employed people, these loans require less documentation or proof of income than most, but often carry higher interest rates or require a larger deposit because of the perceived higher lender risk. In most cases you will be financially better off getting together full documentation for another type of loan. But if this isn’t possible, a low doc loan may be your best opportunity to borrow money.

Pros

• Lower requirement for evidence of income. May overlook non-existent or poor credit rating.

Cons

• You will probably pay higher interest than with other home loan types, or may need a larger deposit, or both.

Explaining the Loan Process

Find out what’s involved in taking out a loan, from start to finish.

Talk to us, or if you’ve not already used a mortgage broker, ask us to call you or phone 1300 00 TP TP. It costs nothing to speak to a friendly and professional TP broker, who can quickly help find out how much you can borrow and which loan may suit your needs, plus answer any questions about the process.

How does the process work?

Arrange a pre-approved loan

If you haven’t started your property search, or are still looking, a pre-approved loan can be useful. It gives you a clear picture of what you’re spending limits are and gives you peace of mind that if you find a property you really interested in you can move quickly to make an offer. And it may put you in a stronger negotiating position than other potential buyers who don’t have pre-approval. A TP broker can take care of the paperwork to lodge a loan application.

Find your property

Make sure you do plenty of homework when you’re on the hunt for a new property. Research property prices in the area, potential capital growth and existing and planned infrastructure, such as roads, public transport, schools and shops. If you’re unfamiliar with property values in the area, consider a full valuation carried out by a registered valuer before making a final decision.

Make an offer and sign a Contract of Sale

Whether you buy property at auction or make an offer on a listing, your agreement with the vendor only becomes a legal commitment when a Contract of Sale (Offer of Acceptance in WA) has been signed by both parties. This contract will confirm the selling price as well as any terms and conditions. Your commitment will usually be subject to lender approval, a building inspection report and a pest inspection.

The period from signing a Contract of Sale to Settlement – when the property becomes legally yours – is usually six weeks (shorter in some states, such as Queensland).Note: even if you have a pre-approved loan, your lender will still need to complete a valuation of the property you have chosen before issuing full approval.

Pay a deposit

A deposit is required once a Contract of Sale has been signed by both parties (sometimes called ‘exchanging contracts.’) You won’t yet have access to your home loan, so your deposit will need to come from savings or elsewhere. You may also be able to arrange a deposit bond until settlement. Speak to a TP broker about your deposit options.

Appoint a conveyancer

You will need a solicitor or conveyancer to check the legalities of the Contract of Sale. Your conveyancer will also check all rates and taxes have been paid, check land use or building approvals for the property and order any relevant searches. They may also help sort out any inspections.

On settlement day, the conveyancer will check the correct amount of money has been transferred from your lender to the seller and all fees – such as Stamp Duty – are paid, so you can take legal ownership of the property.

Cooling off period

If you didn’t buy your property at auction, you may have a cooling off period when you can cancel the contract, although there may be a small penalty. Cooling off periods vary from state to state so check with your relevant state authority in terms of what your rights may be.

Typical Loan Features

One size doesn’t fit all when it comes to home loans

Make sure you choose a loan with the features and benefits that are right for you. A TP broker can recommend a loan for your particular needs – and take care of all the paperwork. When you’re ready, talk you your broker to discuss next steps. When you’re ready, talk to you your broker to discuss next steps.

Here’s a guide to common loan features and benefits:

All in one home loan

This combines a home loan with a cheque, savings and credit card account. You can have your salary paid into it directly. By keeping cash in the account for as long as possible each month you can reduce the principal and interest charges. Used with discipline, the all-in-one feature offers both flexibility and interest savings. Interest rates charged to these loans can be higher.

Professional package

Home loans over a certain value are offered at a discounted rate, combined with discounted fees on other banking services. These can be attractively priced, but if you don’t use the banking services you may be better off with a basic variable loan.

Checklist of Loan Documents

Most lenders require the same documents to approve a loan. Make sure you bring the documents below to your meeting with your broker to help fast-track your loan application.

This is a general checklist so some of the documents may not apply to you. Your broker will confirm which documents you need.

Personal identification

• 100 points of ID are required. A current Passport or Birth Certificate = 70 points. Drivers Licence = 40 points. (Please note if these documents are in your maiden name, you will also need to provide a copy of your Marriage Certificate.)
• Other documents that help build up 100 points include: a Medicare card, Credit card, ATM/Debit card, Council Rates Notice, Pensioner Concession card, Health Care card, Tertiary Student ID card.

Income details

• The two most recent payslips from your employer. (Ideally these will show the company name, number of payslip and year-to-date income figure).
• The most recent Group Certificate from your employer.

If self employed:

• The last two year’s personal and business tax returns and ATO assessments.
• Other income details

You may also need:

• Rental income statements or bank accounts showing rental income for any investment properties
• Proof of share dividends or interest earned
• Centrelink letter confirming family tax benefits
• Centrelink letter confirming permanent government pensions
• Private pension group certificate or statement
• Proof of any other regular, ongoing income.

Additional documents for refinancing

• Documentation on your existing loan including the date the loan commenced, loan period and any financial penalty payable if you exit the loan early
• Statements for the last six months for any existing home loans and personal loans
• The most recent Council Rates Notice and building insurance policy on the property or properties being offered as security
• Credit cards
  • If you have credit card debt, statements for the last six months.
  • If you don’t owe anything on your credit card, the most recent statement.

Additional documents if you already own a home

• Statements for the last six months for any existing home loans or personal loans
• Your most recent credit card statement
• Copy of the Contract of Sale for the property you’re buying
• Statements for the last six months to show your savings/investment history. (This could include share certificates, savings account statements, term deposit statements, etc.)
• If other funds are being used for the purchase, evidence showing where the funds are held.
• If other funds are being given to you, which are not already in your bank account, you will need a Statutory Declaration from the person giving you the money.

Additional documents for investors

If you already have investment property/ies:

• Evidence of income such as rental statements.
• A copy of the tenancy lease.
• A Council Rates Notice.
• Copy of the Contract of Sale for the property being purchased.
• A letter from a property manager indicating likely rent for the new property.

Additional documents for borrowers seeking a construction loan

• A copy of a valid builder’s fixed price tender, including all specifications.
• A copy of Council approved plans.