Frequently Asked Questions | City Wide Loans

There are many different lending companies out there – and banks are among them. Typically, banks sell only their own products. Brokers, on the other hand, are agents who work with multiple lending organisations and can offer products from an array of different lenders.

There are many advantages to using a mortgage broker. You work with someone with the expertise to help you sort through the numerous products out there and choose the loan that is suited for your needs. A mortgage broker also has the knowledge, tools, and software to guide you through all the aspects of the loan approval process. Because brokers act as an intermediary between the lender and borrower, they are not beholden to any one company and act in the borrower’s best interests at all times.

Getting pre-approval gives you the green light to borrow a set amount for a set time, thereby giving you a clear idea of what you can spend and everything you need to make an offer on a property. Because you never know when that dream property will appear, having a pre-approval in advance ensures you have the best chance of being able to be the successful bidder should the opportunity arise.

This is something that lenders are legally required to show customers, along with a product’s

interest rate. The comparison rate is expressed as an annual percentage rate and includes the

loan’s interest rate as well as most upfront and ongoing fees and charges. It is designed to

represent a closer estimate of the total cost of the loan per year.

With a fixed rate loan, your interest rate and repayments stay the same during the agreed fixed term, no matter what. The benefit is no surprises. The downside is that you are limited to how many extra repayments you can make during the fixed term. This amount can vary from lender to lender

With a variable rate loan, the interest rate can change multiple times over the life of the loan. This can give you flexibility, but also leave you vulnerable to interest rate hikes. A key benefit to variable rate loans is their flexibility (compared to fixed-rate loans), plus they offer features like unlimited additional repayments, redraw and offset accounts.

A line of credit is drawn from the equity in your property or an amount approved by your lender. You can use the entire amount or just a portion of what you borrow, so the interest is paid only on the amount that you actually withdraw or use.

This is when a lender takes over the mortgage on your existing property as well as lending you funds to purchase a new one. During the bridging period, in many cases the bank just charges interest only and may be capitalised onto the loan until the existing home is sold. The bank usually gives you a set period of time to sell your current home and reduce the loan balance.

When lenders calculate your borrowing capacity, they use an assessment rate to examine your application. Each bank or lending institution has its own assessment rate, which is based on the lender’s individual risk tolerance and can vary from one lender to another. Thus why your borrowing capacity could vary.

We highly recommend that you use one. Because conveyancers specialise solely in property, they can focus on your property purchase to ensure a smooth process. The conveyancer performs all the necessary property checks, prepares the paperwork and property transfer, and handles the actual settlement for you.

Lenders’ Mortgage Insurance is designed to protect the lender in case you falter on your repayments. It’s usually taken out by home buyers who haven’t quite saved up a 20% deposit. However, the insurance does not offer the borrower any protection and is a one-time charge that can be added to the loan amount in certain circumstances. The premium price depends on the loan to value ratio of the property purchased.

A family member can act as a guarantor to help someone avoid the cost of LMI by offering a portion of their home equity to reduce lender risk. Generally, this is where your loan does not exceed 80% of the property value. Your deposit is combined with the equity in the guarantor’s home or investment property. Anyone considering this option is advised to seek legal advice first to understand fully their rights and responsibilities as a guarantor.

Pre-approval (or conditional approval) means your loan has been assessed and improved in principle, but the lender needs more information (usually a contract of sale for the property you are purchasing) before being able to grant formal or “unconditional” approval, which is the desired end point for home buyers.

Unconditional approval means that a lender has formally assessed all your paperwork, and has agreed to offer you a home loan for the property you wish to buy.

Construction loans work similarly to ordinary home loans. To apply for one, you will need to show the bank or lender your building plans and contract. Once the construction starts, the builder will issue an invoice at each stage (usually 5 stages), the bank makes the progress payment and you make repayments based on the loan that has been drawn.

Genuine savings are regular savings that have been in your bank account for at least three months. When approving someone for a loan, lenders generally want to see at least a 5% of “genuine savings” to assess a potential borrower’s credit worthiness.

An offset account is a savings account that is linked to a home loan. An offset account reduces

your interest payable because the interest is charged only on the net balance of your mortgage

minus your savings account. A redraw facility is an account that lets you access additional

payments that you have previously made on a loan.

Your credit score can certainly affect your ability to get a home loan. Other factors, such as

income, occupation, and age are also taken into consideration, and can affect your ability to

secure a loan. The better your credit score, the better your options.