Home Loans Frequently Asked Questions

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

• If you switch your loan from fixed interest to variable rate
• When you apply for a top-up home loan
• If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
• When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

Like other mortgage lenders, ANZ often prefers a home loan deposit of 20 per cent or more of the property value when you’re applying for a home loan. It may be possible to get a home loan with a smaller deposit of 10 per cent or even 5 per cent, but there are a few reasons to consider saving a larger deposit if possible:

• A larger deposit tells a lender that you’re a great saver, which could help increase the chances of your home loan application getting approved.
• The more money you pay as a deposit, the less you’ll have to borrow in your home loan. This could mean paying off your loan sooner, and being charged less total interest.
• If your deposit is less than 20 per cent of the property value, you might incur additional costs, such as Lenders Mortgage Insurance (LMI).

Credit inquiries are records on your credit file that appear when you apply for a loan. If you have multiple credit inquiries on your file, lenders may see you as a high-risk borrower.

• Hard inquiries appear on your credit file when the lender reviews your credit report before approving.
• Soft inquiries do not appear on your credit file.

When you have multiple credit checks for mortgage or other loans, reflecting on your file can negatively impact your credit score. These remain on your credit report for two years; however, their impact reduces over time.

Generally, lenders prefer if you've had one or two hard inquiries over the previous six months. More than this may result in the lender declining your mortgage application. However, your overall credit history is important, and if you have a consistent history of timely payments and low revolving credit balances, the impact of multiple inquiries may be lower.

The amount of money you can borrow through a mortgage depends not only on your salary but also on your creditworthiness, your savings, and other debts you are paying off.

For instance, you could be earning $5,000 a month, but if you are making repayments of $2,000 and are only able to put away $500 towards savings, you may not have much borrowing power.

Consider using an online calculator to figure out how much you can afford to borrow, based on your salary and expenses.

When changing or refinancing your home loan, you may focus on paying less interest, but you should also account for other fees charged by your existing lender as well as the new lender. Your current lender will likely charge a loan discharge fee and possibly also a settlement fee, which can together cost you a few hundred dollars. Applying for a new loan will similarly involve an administration fee as well as a property valuation fee if the new lender insists on verifying the value of your home. Further, depending on the state or territory you live in, you may need to pay duties and fees to register the change in your mortgage. 

You may want to think about why you are changing home loans, and then use a refinancing calculator to see how you can get the most out of the switch. For instance, if you are refinancing your mortgage to pay it off faster, you could check if another lender will offer a shorter loan period, involving larger repayments. You should check whether your current mortgage lender is willing to renegotiate your loan terms before you approach a new lender and thus save on some of the fees. 

If you are finding it difficult to qualify for a home loan in Adelaide because you don’t have much of a financial history or you made some mistakes with money in the past, it might be worth speaking with a financial adviser and working on improving your financial situation