Q How much can I borrow?

This depends on a range of factors including your personal circumstances, the price of the property and any valuation that may be required (a bank valuation may not be the same as the purchase price). Depending on the lender, they may be prepared to lend up to 95% of valuation, depending on your ability to repay. It’s worth noting that loans of more than 80% valuation often require mortgage insurance, which the borrower pays for.

Q What is the difference between fixed and variable rates?

Fixed interest rates are locked in for a period of time and don’t fluctuate, so payments remain constant for that period whereas variable interest rates vary according to market conditions. Variable loans will increase or decrease over time which will directly affect your payments.

Q What is a split loan account?

Split loans give you the flexibility to structure a home loan in a way that best suits your situation. You can fix a portion of your home loan so that you have certainty with your repayments and have the other portion on a variable rate.

Q What is an offset account and how does it work?

It’s an everyday account connected to your home loan that lets you get money out of an ATM, pay bills or write cheques. Being linked to your home loan it assists in getting the Principal down and ultimately saving you interest. With interest calculated daily, every cent you have in an offset account works to pay off your home loan faster.

Q What’s a redraw facility?

This is when you withdraw extra money that you’ve paid into your variable rate home loan. The amount simply gets added to the amount you owe. You can redraw as you need, as long as you have available funds in the loan.

Q Can I make extra payments or pay a lump sum?

Yes, most loans have this facility allowing you to reduce the original amount borrowed so you pay less interest over the long haul.

Q Can I Switch Loans?

Making the decision to change loans or refinance, is difficult as there are hundreds of loans available from hundreds of lenders. On top of that, there are other factors to consider such as how long do you want your loan period to be or how much you can afford each month? Some loans have early pay out penalties and other costs you will need to consider. Sometimes re- financing is not the answer and not the right option for you.

Q Am I eligible for the First Home Owner’s Grant Scheme of $7000?

You will be eligible to apply if you:
are buying your first home
are an Australian citizen or permanent resident
intend to make the home your principal residence, and
start living in the home within a reasonable time. The payment will be the same regardless of your income.

Q What is Lenders Mortgage insurance (LMI)?

LMI protects lenders against loss should a borrower default on their loan.

Q What is the difference between a Principal and Interest Home Loan and an Interest-only Home Loan?

A Principal and Interest Home Loan is where the principal and the interest are repaid together for the term of the loan. An Interest-Only Loan allows you to pay only the interest on the loan. Property investors are suited to Interest-Only because it maximises the investor’s tax deductions.

Q How can I reduce my mortgage?

The secret to financial security is making your money work for you.
Here are some tips to obtain financial security:
Evaluate – review your current financial position comparing your total income against all outgoings.
Budget – recording your day to day expenses is the key to financial control. By using your cash flow more effectively you can reduce your current commitments.
Plan – set your future personal and financial goals. This will give you an incentive to succeed.
Select – choose a loan that offers features and benefits that match your individual lending needs, not just now but into the future. This will assist you to repay your loan sooner.

Q Should I refinance?

Decide whether your existing financial arrangements still suit your current circumstances. If your current loans or credit card debts are not providing you with the desired results and you are paying too much, consider refinancing or consolidating your debts to achieve a financial benefit. These days, there are a wide range of finance products from many different lenders available. Finding the right loan may greatly reduce your loan term, interest payments or repayments enabling you to obtain greater financial security.

Q What tools can I use to help me select the right loan?

This can often be a daunting task. For those that like to do research before meeting with a broker or lender, there are many websites that have very basic information such as interest rates. Unfortunately there are many variables that come into play when selecting a home loan. Ratesonline provides very comprehensive information on over 700 home loan products that is updated daily.
You are able to research many loans and submit an enquiry or application and will be contacted by either a broker or lender.

Source: www.ratesonline.com.au

This term means two things:

1. The ability of buyers to afford, i.e. the percentage of salary they can afford to pay on a mortgage.

2. With all available resources where can they afford to buy?

No: 1

Is self-explanatory.

No: 2

Lots of buyers say they can’t “afford” a property because they are looking to live close to the CBD or in the area in which they grew up.

To get “into” the market buyers must compromise and broaden their horizons, put up with some inconvenience by living in another suburb they can afford.

For example, look further out.  If buyers are looking to buy in say Glen Waverley, it is very difficult to find a good house under $500,000, yet another 10 minutes along the Monash at say the Hampton Park area there are 72 houses for sale as of 9th July priced between $150,000 and $250,000.  All over the Melbourne metro area there are similar examples.

Buying in a non-preferred area will at least get your equity working and after a reasonably short time something in a preferred area may be “affordable” because your equity base is increasing.  This assumes capital gain which in the short term, one to two years, may not be great because of a quiet period of low activity but history tells us that capital gain in real estate is a given over time.

Auction: An auction is one of the two main methods of sale and in Melbourne they account for around 30 per cent of all property sales. At an auction the property sells to the highest bidder as long as the vendor accepts the price.

An auction is regarded as is the most effective way of determining the true market value of a home and are popular in areas of Melbourne where there is a reasonable level of competition.

There are a range of other rules that apply to the conduct of an auction including rules covering the conduct of the auction, responsibilities for the vendor, agent and purchaser.

Buyers should be aware that unlike private sales, a cooling off period does not exist for when a property is purchased at an auction.

Private sale: Private sales account for around 70 per cent of all property sales and are more common the further from the CBD the property is located. Unlike an auction the property is advertised for sale and the sale price is negotiated between the vendor and the prospective purchasers.

Purchasers of properties at private sale generally have a cooling off period of three business days.

Vendor bid: A vendor bid occurs when an auctioneer or the vendor bids on the property during the course of an auction. It must be clearly announced and is normally a sign by the vendor or auctioneer that a higher amount needs to be offered to secure the property.

Capital growth: It’s often used in real estate to describe the increase in the price or value of a property. For instance, the median price of a house in Coburg in this year’s March quarter was $509,250 and a year ago it was $407,500. Therefore the capital growth is the difference between the two, $101,750, divided by the earlier figure, $407,500, which equates to 25% over a year. Capital growth is also known as capital appreciation.

Investment return: From a real estate perspective, an investment return is very similar to the capital growth figure. It is the percentage of change in value of the investment over a given period of time.

Gross rental yield: This is frequently used to compare the investment return on a property investment. To calculate the amount, you divide the yearly rental income by the purchase price of the property. For instance, the yearly rental income on a three-bedroom house in Coburg is $18,200 and the median house price is $509,250 resulting in a gross rental yield of 3.57%.

Clearance rate is used as an indicator of market sentiment. It is the total of the properties sold before the auction, at the auction or the day after the auction divided by the number of auctions scheduled that day. For instance, if a property is sold before the auction, six sold at auction and one the day after the auction and 10 properties were listed, the clearance rate is 80%. The REIV publishes clearance rates and the actual number sold before, after, passed in and passed in on vendor bid, which provides transparency to market analysts and casual observers.

Owners Corporation is a new term in Victoria and replaces the term “body corporate”. An owners corporation commonly exists in units, apartments and medium-density housing when there is shared property, such as a driveway, stairs or car park. It can have as few as two members and there are rules governing how owners corporations operate and their roles. If you are considering buying a property, the vendor needs to declare that it’s an owners corporation member and provide details on its workings.

The median value is the middle price in a series of sales where half the sales are of lower value and half are of a higher value. For example, if 15 sales are recorded in a suburb and arranged in order from lowest to highest value, the eighth-placed is the median price. Medians are used rather than average prices because they are unaffected by a few unusually high or low prices, making them a more accurate indicator of true market activity.

The vacancy rate: The REIV surveys member agencies to build a register of the percentage of private rental homes that are vacant. The vacancy rate is simply the number of vacant rental properties that an agency has on its books divided by the number of rental properties they have. For instance, if an agency has 100 rental homes on its books and five are vacant then the vacancy rate is 5%. The vacancy rate is a general measure and it may be the case that the vacancy rate is higher in one suburb than another. It may also differ depending on the type of property.

( Source: REIV Website from 10 June 2008)