FAQ

Helpful Information

First Home Owner’s Grant
Stamp duty
Lenders’ Mortgage Insurance
What is a credit rating?
What costs can I expect?
What are comparison rates?
Budgeting… Do I need to do it?
Interest rates & rate changes
What is equity?
Refinancing your loan
Buying a new home
What documentation will I need to provide?

First Home Owner’s Grant
The First Home Owner Grant (FHOG) was implemented on July 1 2000 by agreement of the Commonwealth, States and Territories, to help offset the impact of the introduction of the Goods and Services Tax (GST). Each state and territory is responsible for administration and approval of the FHOG in their corresponding area. Eligible applicants of the FHOG were entitled to a one-off payment up to $7 000. However the Australian Government announcement says that effective from 14 October 2008:

- First home buyers who purchase established homes, will receive a boost of $3,500 till the 31st December 2009.

- First home buyers who build a new home, or purchase a newly constructed home will receive a boost of $7000 to the existing grant, taking their grant to $14,000 till 31st December 2009.

Applicants must be at least 18 years of age, have never owned a home previously (either separately or jointly in any part of Australia) and must be an Australian citizen or permanent resident. For the home owners to be eligible, the home must be intended to be the main place of residence, and must be occupied continuously for a period of 6 months, commencing within 12 months of the completion of the transaction (date of purchase, or completion of construction.)

Joint applicants are eligible for one grant for a single property only, and the grant is not applicable to vacant land. To find out more about the FHOG in your state visit the Australian Government FHOG website .

As an additional free service, Integrity-Innovative Loan Solutions will assist with your FHOG application and submit it to the lender to process on your behalf. We make the FHOG application process as easy as possible for you by looking after completion of the bulk of the application.

Stamp duty
Stamp duty is a tax which is imposed by the government on certain transactions. Stamp duty is paid on mortgages, motor vehicles, insurance, land and property. First Home Buyers who meet certain specific criteria may be eligible for concessions regarding stamp duty.

The Duty Concession applies to the purchase of a property by a First Home Buyer. A concession of up to $4 000 is applicable to the purchase of established dwellings with a purchase price of $350 000 or less. Alternately, a concession of up to $2 400 is available when vacant land is purchased at a price of $175 000 or less, provided a dwelling is erected under a comprehensive home building contract on the purchased vacant land within two years from the date of agreement of purchase. To be eligible for a duty concession, you must have applied for a FHOG. Your eligibility for the Duty Concession is then also assessed.

For further detailed information on Duty in your state, visit the Australian Taxation Office websitetoview all State and Territory revenue office contacts and links.

Integrity-Innovative Loan Solutions recommends that you always seek professional advice before entering into any contract. The information provided above regarding Stamp Duty and the FHOG is to be used as a general guide only, and should not be used as a substitute for professional advice.

At Integrity-Innovative Loan Solutions we are happy to assist you with Stamp Duty and FHOG applications.

To see how much stamp duty may be payable on your property purchase, use our Stamp Duty Calculator .

Lenders’ Mortgage Insurance
Lenders’ Mortgage Insurance is common amongst many borrowers, but particularly with first home buyers. It allows individuals to enter the market with a smaller deposit than usually required, which is a benefit to them as they can borrow a much higher amount than possible without the Insurance. Lenders’ Mortgage Insurance (LMI) protects the lenders, because they are taking a greater risk by lending the borrower a higher percentage value of the property. When eighty per cent or more of a property’s value is borrowed, LMI insures the lender so if the borrower defaults on the mortgage, the lender takes possession of the property to sell. As the size of the loan is so large, the LMI acts as an additional protection to the lender. The insurance covers the potential difference between the amount still owing on the loan, and the net proceeds from the sale of the property which the lender is then left to cover. The Mortgage Insurer will then seek compensation of the amount paid to the lender from the borrower.

The contract for the LMI is specified by the lender, and the cost is calculated as a percentage of the loan amount. The higher the percentage of the property value you borrow, the higher the loan amount, and therefore the higher the cost of the LMI.

LMI is usually calculated as an amount between one, to two point five per cent of the loan. The fee associated with LMI is usually passed onto the borrower in either a once off fee, or occasionally, the amount is able to be capitalised, or added onto the initial loan amount being borrowed.

In some circumstances, the cost of LMI can be tax deductible for investors, but each individual situation varies. For more information, contact us so you fully understand your rights and obligations associated with LMI which may change depending on the lender and your circumstances.

What is a credit rating?
The credit rating of an individual plays an imperative role in the approval of their loan, and how much they are able to borrow. Credit rating determines which type of loan you may be able to qualify for, so the better your credit rating is, the better chance you will have to be able to negotiate the loan. Your credit history shows when credit has been applied for previously, and for how much, as well as any overdue/ unpaid accounts or bankruptcy you may have had in the past.

Before you apply for a loan, you can make sure your credit history is up to date free of charge, on mycreditfile.com.au . If there are incorrect details on your file, this gives you a chance to have them corrected and so improve your credit rating before it is assessed as part of your loan application. It also gives you an idea of how your credit history is, so there will be no surprises during the loan application process.

Other things which affect credit rating are limits on credit cards, other loan repayments (e.g. car loan, student loan) and how often your report has previously been requested by creditors. Too many enquiries by creditors (e.g. when buying a car) may lower your credit rating. Loan approval is largely based on the percentage of your income which is used to pay off debts or other financial liabilities. So your chances of having your loan approved, or having a larger mortgage approved, are much better if you have less existing financial liabilities.

What costs can I expect with my loan?
There are a number of costs associated with all loans, and these should be fully investigated before committing to any loan. The cost of each fee associated with the loan should be familiar to the borrower, as well as when these fees need to be paid, and if they have the option to be rolled into the loan or if they have to be paid separately. Other costs to remember include the deposit for the loan, stamp duty, valuation fees and of course, the standard repayments on the loan (usually paid monthly or fortnightly, with the amount of the repayment dependant on the size of the mortgage.) Borrowers need to make sure they are aware of all the costs associated with the loan so that they can budget adequately, and will not get any surprises during the period of the loan.

Some fees which may apply to your loan include:

Application or establishment fees.
Fees to lift repayments, make lump sum repayments, or repay the whole loan early. (For fixed interest loans only.)
Exit fee. This fee sometimes applies when you seek to refinance with another lender within the first few years of the loan.
Service fees. Usually charged monthly and used to cover administration and maintenance costs of the loan, as well as wages for staff, IT software or hardware etc.
Bank solicitor’s fees.
Fees to lock in specific interest rates. The interest rate of a mortgage may fluctuate between the time you apply and the time you settle, so you may ask the Lender to lock in the rate for a specific period. Sometimes there are fees associated with this service.
Fees if extra money is borrowed on the mortgage once it has already been established.
Consultation fees, at Integrity-Innovative Loan Solutions, our initial consultation is free of charge to you.

Which of these fees apply, and how much they cost, depends on the lender, broker, and the loan product chosen. The borrower should be aware of these fees and if they apply to their loan, before the settlement of the loan. We will provide details of applicable fees at the time of application.

What are comparison rates?
Comparison rates in Australia were introduced in July 2003 to help home buyers consider the true cost of different types of loans. All lenders must disclose a benchmark comparison rate in their advertising of all home and personal loans. To many people, sometimes honeymoon loans look like a great option due to the lower initial interest rate. However, often if they are compared to other loans on the market, they can actually work out to be substantially more expensive than other loan products in the long term. Comparison rates help the buyer to think about the long term cost of their loan. By combining relative fees and interest payments and showing them in one rate, this helps the borrower to assess which type of loan best suits them and their circumstances.

Budgeting… Do I need to do it?
Budgeting allows spending to be kept track of. Anyone can benefit from budgeting, as it helps the individual to allow money to be put away each month for a deposit to cover the costs of owning your own home. Having and sticking to a budget may increase the individual’s chances of getting a mortgage approval. A structured and regular savings pattern is established which makes the loan application stronger, therefore increasing the chances of the application being approved by the lender. New homeowners need to budget for bills and utilities such as water, rates, and electricity, as well as allowing for any unexpected expenses such as those for repairs, replacement or maintenance. This is often a struggle for new homeowners as when renting, paying these bills is not the responsibility of the tenant.

Budgeting allocates an amount of money the individual is aware of, and that they are then able to spend per month. This means they are less likely to build up huge debts on non-essential items which they cannot repay.

Some tips for implementing a monthly budget include:

Record all daily expenses (no matter how small) for a month. Include groceries, car fuel, lunches, clothing, entertainment etc.
Identify all considerable regular monthly expenses such as rent, electricity, phone, car loan, insurance, childcare, credit card bills, education costs etc. Calculate an average total you need to set aside to pay these expenses each month.
Calculate your monthly after-tax income. Include in this figure wages, bonuses, tips, investment income and any government allowances (e.g. child support, pension etc.)
Compare your expenses and savings with your net income. Look for ways you can minimise your expenses and increase your savings. Often non-essential areas such as entertainment, clothing, and dining out can be cut down. Also, reducing the number of credit cards you have helps to manage finances.

Once you have created your budget and consolidated an increase in your savings, it becomes easier to make plans for the future. The more you save each month, the faster you can buy or improve your home. Saving each month for an emergency fund is also useful as it can provide extra peace of mind in case an accident or unexpected circumstances occur.

Repaying additional repayments on variable rate loans with a redraw facility is a great way of saving as you quickly accumulate available funds for possible redraw and save interest on your mortgage. Mortgage offset accounts work in a similar way. At Integrity-Innovative Loan Solutions we can explain which facility is appropriate to your needs.

Interest rates & rate changes
Interest rates are controlled by The Reserve Bank of Australia. One of the major roles of the Reserve Bank is to try and keep inflation under control, and they do this by adjusting interest rates accordingly. The Reserve Bank meets eleven times a year and reviews the level of interest rates. If the price of goods and services are increasing too quickly, inflation will rise. If inflation is too high (the desired rate is less than 3% per annum) the Reserve Bank tries to reduce it by increasing interest rates. When interest rates increase, the economy slows down because there is less money left over to spend, which decreases demand, and therefore slows the economy and decreases inflation. The reverse happens if inflation is too low. The Reserve Bank will reduce interest rates to encourage more spending. The idea of this is to boost the economy and create more jobs, therefore increasing inflation. Announcements are made after meetings by the Reserve Bank Board, with a decision to either increase or decrease interest rates, or to leave them unchanged.

What is Equity?
Equity can be defined as the dollar amount of a property that is actually owned. For example if your house is worth $300,000 but you have a $100,000 mortgage, the amount of equity in your property is $200,000. As your mortgage decreases, the amount of equity rises.

Refinancing your loan
Refinancing can be a simple process which involves changing your existing loan from one lender to another. The mortgage market is very competitive, so lenders are frequently introducing new packages and offers. Often it pays to have your loan reviewed by your broker on a regular basis to take advantage of the best loan for your situation. Common reasons for refinancing include unlocking the equity in your home, consolidating debt, or to take advantage of a better interest rate.

Refinancing often helps if you would like to invest in a property, but don’t have a large enough cash deposit, by potentially providing you with some of the funds required. Or, if you would like to add value to your home, unlocking your equity through refinancing may be one way to help finance renovations. Refinancing can also help with debt consolidation. If you have a number of debts such as personal loans, and credit card debt, it may be possible to move all your repayment commitments into your home loan through refinancing it. If there is sufficient equity in your home, refinancing to repay high interest debts may save you money.

The other main reason people refinance their loans is to take advantage of a better interest rate. Often with uncertainty about interest rate rises, you may prefer to lock in a fixed interest rate for your loan, rather than be at the mercy of the Reserve Bank and have increased repayments in the future that you may not be able to cope with.

Buying a new home
As a prospective buyer, it is important to be very thorough with your inspection of open homes. You don’t want to spend your hard-earned money on a home which isn’t exactly what you want and need. When going to open homes, do not simply skim through the rooms. As well as getting a “feel” for the home, you need to look at practical things as well. Are there enough power points, and are they in sensible locations? Is the condition of the carpet good, or will it need to be replaced soon? Is this house in a location close to the services (buses, schools, gyms) you need and use? Is the floor level? What sort of heating is installed?

Small things like this are very important to be aware of, as if they are not appropriate, may require further expenditure. After having just spent hundreds of thousands of dollars on your new home, you do not want to have to pay to have the floor fixed, more power points put in, or adequate heating installed. Remember, this will be on top of the repayments you are already making on your mortgage. It is also a good idea, when in the market for a new home, to see how much similar houses in the area are being sold for. You can use this as a rough guide to know what you can afford, how much you expect to have to borrow, and if the house you are looking at purchasing is cheap, expensive or equally priced in comparison to similar houses in the area.

What documentation will I need to provide?
To obtain loan approval, a number of documents may need to be provided, however the documents required vary depending on the lender and loan type. Common documents which are often required include proof of income (e.g. group certificate, pay advices), details of assets (savings, shares etc.), details of liabilities (other loans, credit card debt etc.) and proof of identity.

For more information about any of these areas, or to organise a loan, please contact us .

Return to top of page