Home loans come with a lot of jargon and a lot of small but important questions. We’ve pulled together answers to the ones we get asked most often. If you don’t see yours here, book an appointment with our team and we’ll walk you through it.
What is a mortgage or home loan?
A mortgage is a loan from a lender that lets you buy a property, secured against that property. If you’re unable to keep up repayments, the lender has the right to take possession of the property and sell it to recover the outstanding loan. The mortgage takes the form of a contract between you and the lender. This contract sets out the terms and conditions, including interest payments and how the principal is repaid.
What different types of institutions offer home loans?
Home loans are offered by a range of different lenders, including banks, credit unions and building societies (known as Authorised Deposit-Taking Institutions, or ADIs), as well as non-bank lenders that aren’t authorised to take deposits. Non-banks add real competition to the market, which helps keep rates and costs lower than they might otherwise be.
How much deposit do I need to buy a home?
You’ll generally need to show personal savings of at least 5% of the purchase price, plus enough to cover the statutory and legal costs of the purchase. Savings accounts, term deposits, shares or equity in other property can all count towards this. Maximum LVR (loan-to-value ratio) varies by lender, and some will go as high as 95%, though borrowing above 80% means paying lenders mortgage insurance.
What can I use money borrowed through my home loan for?
You can generally use a home loan to buy a property to live in or as an investment, repay an existing mortgage through refinancing, build a new home or make improvements to one you already own, access equity in a property you own, or for other purposes such as business use or paying down other debts.
How do I know if I can afford my loan repayments?
Your lender will assess your ability to meet repayments based on your income, broader financial situation and current circumstances. This is why it’s worth being accurate and thorough when you apply. Lenders also test affordability against an interest rate higher than what you’ll actually pay, known as a serviceability buffer. This helps make sure you won’t be caught out if rates rise after you settle.
How long does it take for a home loan to be approved?
Once you’ve submitted your loan application along with all the documents your lender needs, you should generally allow around 7 working days for a formal decision. A pre-approval can often be arranged sooner, based on an initial assessment before all your documents are finalised.
What is a top-up on my loan?
A top-up is where you borrow more under your existing mortgage, rather than taking out a new, separate loan. Some lenders instead offer this as a “further advance,” which is a new loan linked to your existing mortgage. Either way, the lender will generally review your existing loan and current circumstances before deciding whether to offer it.
Can I still get a home loan if I have been bankrupt in the past?
It’s possible, though it depends on your circumstances. Standard home loans are unlikely to be available if you have been bankrupt, but there are specialist lenders who focus on exactly this kind of situation and may be able to help.
How do I make my loan repayments?
Direct debit is the most common method. You sign a direct debit authority at settlement, and the lender takes the scheduled amount from the account you nominate, weekly, fortnightly or monthly. Make sure the money is there each time, because a failed debit can attract a dishonour fee and shows up on your account conduct.
Can I make extra repayments on my home loan?
Usually yes on a variable loan, and this is the simplest way to cut the interest you pay over the life of the loan. Most lenders let you increase the regular direct debit amount, or make one-off payments into the loan account. Fixed rate loans often cap how much extra you can pay each year, so check before you start.