Home Loans – Various Terms and Information
***** Each situation is unique so please speak to one of our staff about any questions you may have about the information below and how it may apply to your individual situation *****
Offset Account Feature
An offset account is a transaction account linked to a home loan. An offset account earns no interest but the balance in the offset account reduces the amount of interest paid on the linked home loan. The more money in the offset account, the less interest is paid on the home loan.
Redraw
A redraw is not a transaction account, rather a facility attached to a home loan.
In order to access the redraw facility, prior extra repayments would have had to have been made on the home loan. Any amount of extra repayments paid in the past can be accessed, if required, by using the redraw facility.
A redraw is different to an offset account, but both redraw and offset help reduce the amount of interest paid on the home loan. A redraw does not provide a transactional account benefit but the money out of redraw can be transferred to a transactional account when needed. Online redraws are normally fee-free. In-branch redraws may attract fees.
LVR = Loan to Value Ratio
LVR or Loan to Value Ratio is the ratio that shows the borrowed amount (loan) as a percentage of the property value (value).
If the property value is $1,000,000 and the borrowed amount is $800,000, the LVR is calculated by dividing the loan by the value, so, $800,000/$1,000,000 = 0.80 or 80% LVR. When borrowing funds for a property purchase or a refinance, the desired LVR is usually 80% or less. Loans that have LVRs higher than 80% may attract LMI (Lenders Mortgage Insurance), an extra charge for the borrower that is added to the loan amount. Some lenders have policies that allow the clients to borrow more than 80% LVR without paying Lenders Mortgage Insurance. Some examples where higher LVRs are allowed without LMI: for doctors, lawyers, veterinarians, registered nurses and midwives, first home buyers or buyers who qualify for some of the Government Scheme Loans (such as Family Home Guarantee, Regional First Home Buyer Guarantee or First Home Guarantee).
LMI = Lenders Mortgage Insurance
LMI (Lenders Mortgage Insurance) is an insurance premium that is added to the loan amount in some instances. LMI is an insurance that protects the home loan lender against potential losses in case the borrower defaults on their home loan. Lenders pass on this cost to the borrower if the borrower does not meet the minimum deposit requirements or other criteria. Even though LMI can cost the borrower extra when the loan is established, the alternative of saving up for the extra deposit may take too long and may cost the borrower even more long term (as a result of rising housing costs). Each situation is unique, so it is a good idea to discuss the benefits and the downsides of the LMI with a finance consultant.
Security Guarantee – Purchase a new home without a deposit
Sometimes it is possible to avoid paying LMI if there is a possibility of using a second security for the purchase of a new home. This is commonly the case with young adults who can purchase a new home (and borrow 100% of the purchase price plus purchase costs) with the help from their parents who can offer their home as a second security for the loan. Usually, 80% of the purchase price is secured to the new purchase and 20% plus the purchase costs is secured to the second (security guarantee) property. When the smaller loan is paid off or the purchased property grows in value, it is possible to secure the full amount to one property and release the second property from the guarantee.
Government Schemes to Help Purchase a Property
First Home Guarantee
Available to first home buyers with as little as 5% saved for a purchase of their first home – no LMI applies. – Qualifying Criteria Apply
https://www.nhfic.gov.au/what-we-do/support-to-buy-a-home/first-home-guarantee/
Family Home Guarantee
Available to single parents (child must be under 18) who have as little as 2% saved for a purchase of a new home (first or subsequent home) – no LMI applies. – Qualifying Criteria Apply
https://www.nhfic.gov.au/what-we-do/support-to-buy-a-home/family-home-guarantee/
Regional First Home Buyer Guarantee
Available to regional purchasers who have as little as a 5% deposit saved for a first home purchase – no LMI applies. – Qualifying Criteria Apply
https://www.nhfic.gov.au/what-we-do/support-to-buy-a-home/regional-first-home-buyer-guarantee/
FHOG – First Home Buyers Grant
A $10,000 First Home Owner Grant (FHOG) is available in Victoria when you buy or build your first new home (does not apply to established homes). First home buyers who purchase an established or a new home will be eligible for stamp duty concession as long as they meet certain criteria (such as purchase a home that does not exceed a value defined by the State Revenue Office – SRO).
https://sro.vic.gov.au/first-home-owner/applying-first-home-owner-grant
