Mortgage Broker FAQ's

Frequently Asked Questions

What is an LVR?


LVR stands for Loan to Value Ratio. It's a percentage calculated by dividing the loan amount by the property value. For example, a $400,000 loan secured by a $500,000 property gives us an LVR of 80%.




How much deposit do I need?


The amount of your deposit will have a significant impact on the range of loans and lenders we can consider. As a general guide, aiming for 10% of the purchase price is a good starting point. Borrowing up to 80% means you will not have to pay a Lenders Mortgage Insurance (LMI) premium. Borrowing over 80% usually means you will have to pay an LMI premium. LMI is an insurance premium that protects the lender, not the borrower. LMI premiums vary significantly from lender to lender and are a major factor we consider when researching which lenders to recommend. Loans where the LVR is higher than 80% often have higher interest rates depending on the lender.




Can I use a guarantor?


Having a guarantor can help to reduce the overall Loan to Value Ratio (LVR) which can in turn save on Lenders Mortgage Insurance (LMI) premiums. There are several lenders that can consider Guarantor scenarios in certain circumstances.




Will my credit history affect my loan options?


If you are concerned about your credit history we recommend that you obtain a free copy of your Credit Report from a provider such as www.mycreditfile.com.au to see exactly what the lenders will be able to see. A borrowers credit history is an important factor that has a major impact on lender and loan options.




How much can I spend on a property?


Understanding your purchasing power and how buying a property could affect your financial situation is the first step towards buying a property. Getting the timing right from the ‘idea’ stage to getting the keys in your hands is the art of buying a property with as little hassle as possible.




Why should I consider refinancing my home loan?


One of the main purposes of refinancing is to lighten the financial burden, however, that doesn’t mean that it’s not going to cost you. There are many fees involved when changing lenders, which may include discharge and application fees, legal fees, a valuation fee, land registration fee, and mortgage insurance. Understanding what costs are involved for your situation is crucial when working out the viability of a refinance. Put simply, you have to ensure that the costs involved are not higher than the savings, to make the process worthwhile. Re-negotiating with your existing lender or replacing your current loan with a different lender can often yield significant savings but this is not always the case. Credit policy amongst lenders is complex and ensuring a new lender will approve the refinance is the important first step when exploring opportunities for a better deal.




What if I want to buy a new home or renovate my existing property?


Building a home or undertaking extensive renovations usually requires a different kind of mortgage. Construction loans are designed to be drawn down over time in line with the scheduled Progress Payments in your building contract. Most lenders insist on controlling the release of funds to the builder so it is important to understand the various factors that define these types of loans.




What is an owner occupied property?


An owner occupied property is defined as being your principal place of residence – your home. Lenders will generally consider financing up to 95% of the value of an owner occupied property. Owner occupied purpose home loans generally have lower interest rates compared to investment purpose loans.




What is an investment property?


An investment property is defined as being a property retained for investment purposes such as letting to a permanent tenant. It could also be used for short term stay rentals such as AirBnB. Lenders will generally consider financing up to 90% of the value of an investment property. Investment purpose loans generally attract a higher interest rate compared to owner occupied home loans.




What is a pre-approval of finance?


A pre-approval, also know as an approval in principal or conditional approval is important to obtain before negotiating the purchase of a property or entering into a building contract. Be aware that there are many ‘Online Pre-Approval’ offers that are worth little more than the paper they are not written on! Ensuring your credentials have been properly verified and assessed are the steps required to ensure you have a Conditional Approval that can be relied on. Pre-approvals can be arranged through your mortgage broker and are issued by your chosen lender.




What is a formal approval of finance?


A formal approval of finance can be obtained when the lender has finalised all of their checks and measures. A lender will have specific documentation requirements and will usually need to complete a valuation on the property. Lender criteria for approving loans is complex and it is important that borrowers obtain professional advice before entering into a legally binding contract. Also note that that just because a lender issues a pre-approval, it does not mean they have to issue the formal approval. Lender criteria can change.




Should I sell before I buy?


Selling your home BEFORE buying your next home is considered to be the most prudent way to change properties. It avoids the need for bridging finance and provides certainty in knowing how much money you have to work with.




What is bridging finance?


Bridging finance is where a lender provides a loan for the money required to settle on a purchase BEFORE the proceeds of sale have been received. Bridging finance allows a borrower to consider buying a property before they have sold their existing one. Not all lenders offer bridging finance, borrowings are usually capped at a 70-80% LVR and criteria for approval is complex.




What should I consider when looking at loan repayment terms?


The loan term is the period of time given to repay the loan. Loan terms are usually capped at 30 years. The lower the loan term, the higher the repayment. Choosing the right loan term and loan type can facilitate high flexibility when it comes to minimum repayments. It is also important to make sure the loan amount is not too high as this is the most obvious factor that can lead to repayment stress. Getting the right advice is important. Having knowledge about the various implications of loan amounts and loan repayment terms can help you to make educated decisions.




What is a variable rate home loan?


Variable rate home loans offer the maximum flexibility such as the ability to make extra repayments or use an offset account. The trade off is interest rate volatility – this is great when rates go down but rate increases can have a significant impact on your lifestyle.




What is a fixed rate home loan?


Fixed rate loans offer peace of mind by locking in your repayments for a set period of time. The trade off is flexibility as fixed rate loans have extra repayment restrictions and can’t be used with offset accounts or redraw features. Fixed interest rates are effectvely an "insurance policy" against rising interest rates. Significant penalties can apply to early repayment of fixed rate loans.




What is a split loan?


A split loan is where the total loan amount is split between variable and fixed interest rates. For example, a $400,000 loan could be split between $200,000 on a variable interest rate and the other $200,000 on a fixed interest rate. A balance between fixed rate repayment certainty and variable rate flexibility can be an ideal way to structure borrowings. Getting the right advice on these options is important when making educated decisions about split loan packages.




What is Lenders Mortgage Insurance?


Lenders Mortgage Insurance, or LMI, is an insurance policy that a lender takes out to protect itself against the risk of lending over 80% of a properties value. The LMI premium (charge) is paid for by the borrower. LMI does NOT protect a borrower in any way.




What fees do Melbourne Mortgage Advice charge?


We don't charge our clients fees. We are paid by the lender that wins your business and fully disclose our remuneration arrangements.




Why should I go with Melbourne Mortgage Advice?


Melbourne Mortgage Advice understand that your money is precious and adopt a conservative approach to ensure your best interests are at the forefront of everything that we do. With over 20 years experience working as a mortgage broker in the Melbourne property market, we understand how it works and help our clients bridge the gap between home ownership dreams and bringing them to reality. We take care of you every step of the way – from the planning stage right through to keys in your hand. Unlike many mortgage brokers, we hold current accreditations with and regularly use multiple lenders and have access to many more on our panel who offer a range of loan types to assist in a variety of situations.




Where will interest rates go in the future?


Predicting the future of interest rate movements is a risky path to take and is all but impossible to do with accuracy. Even the Government, the Reserve Bank and Lenders themselves take a gamble when it comes to predicting the future of interest rates.




Will a fixed rate loan save me money?


As variable interest rates change over time, you won’t know the answer to that question until the fixed rate term expires and you can look back and do the sums. Our advice? Don’t take a fixed rate loan to save money as that outcome is not guaranteed. Fixed rate loans are an insurance policy against rising interest rates. They might save you money but they might not!




Why would I want Principal & Interest repayments?


Principal and Interest repayments are an ideal way to ensure your debt reduces over time. Reducing the debt reduces your interest bill and locking this repayment method into your loan is generally seen as a prudent and sensible option. Most lenders offer better interest rates for Principal & Interest loans too.




What's the point of Interest Only loan repayments?


Interest Only repayments can help cashflow by reducing the minimum repayment during the interest only period. However, this causes the minimum principal and interest repayment to spike after the interest only term finishes. Interest Only repayments are often chosen by investors depending on the taxation advice they receive.




Should I make fortnightly home loan repayments?


Fortnightly home loan repayments can save interest by reducing the amount owing every 14 days as opposed to monthly. Saving interest can reduce the time it takes you to pay off the loan. Without an offset account or making extra repayments, fortnightly repayments are a good way to save interest and reduce the loan term. Lenders work on different definitions of fortnightly repayments. They either divide the monthly repayment by 2, or, they multiply the monthly repayment by 12 and then divide it by 26. There is a dramatic difference between both methods of calculation so make sure you understand this before making a decision. We recommend that you obtain professional advice before making repayment decisions.




What is an offset account?


An offset facility creates a structure that allows your daily day-to-day bank account balance to offset against the loan balance. As interest on a mortgage is usually calculated daily, having money in an offset account can be a good way to save interest. Getting the right information from your mortgage adviser will best equip you to make an informed decision about this option.




What is a home loan redraw facility?


A redraw facility allows you to take back additional repayments that you have made into your loan provided that lender conditions have been met. Most lenders reserve the right to authorise or deny the redraw of additional repayments at their discretion.




What information will I need to share with Melbourne Mortgage Advice?


The more information you share with us the more equipped we will be to provide quality advice. Face to face discussions are beneficial for both the borrower and the mortgage adviser and lead to high quality outcomes. As a general rule, you will need to provide details and documents relating to your income, living expenses, existing repayments, assets and liabilities.




Do I need a pre-approval of finance?


You do not have to have a pre-approval when buying a property but there advantages of having one in place. A pre-approval can be obtained by having a lender assess your financial circumstances and determining that you qualify for a loan at the time of applying. This is a great to obtain confidence in knowing that the amount you want to borrow is feasible. Pre-approvals do not attract a fee from the lender and Melbourne Mortgage Advice don't charge a fee for arranging them (although some brokers might so always check). Pre-approvals are generally valid for three months.





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