There are hundreds types of mortgage in the market, which one is the best? There is no single correct answer for the new mortgage borrower. It is difficult to choose the most suitable mortgage product that match with your personal financial structure and needs.
There are three steps for you to follow through in the process of selecting mortgage:
Outline below
A. Clear out your needs
B. List out mortgage product rates & fees
C. Mortgage product functions comparison
A. Clear out your needs
1. Basic Variable Loan
2. Introductory loan
3. Fixed rate loan
4. Variable rate loan
B. List out mortgage product rates & fees
1. Financial cost
i. Loan establishment fee
ii. Valuation fee
iii. Lender mortgage insurance
iv. Income protection insurance
v. Security guarantee fee
vi. Rate lock fee
vii. Bank legal fees
viii. Bank cheque fee
2. Property cost
i. Building and pest inspection/strata report inspection
ii. Upfront legal costs
iii. The deposit
iv. Stamp duty
v. Rate
vi. Home building insurance
vii. Moving cost
C. Mortgage product functions comparison
1. Additional repayment
2. Redraw
Details below
1. Basic Variable Loan
Lower interest rate, monthly repayment is lower accordingly, function is simple. The product is flexible.
2. Introductory loan
Lower interest for the first 12 months, after that 12-month period it will transfer to flouting interest rate.
3. Fixed rate loan
Fixed rate within the chosen period of time, but penalty fee applies if you cancel the contract before the period expires.
4. Variable rate loan
Most of the variable rate loans are variable according to the market interest rates of RBA – Reserve Bank of Australia. In another words, when RBA announce market interest rate decreases, variable rate loan customers can enjoy the benefits of lower interest rate.
i. Loan establishment fee
Application fee btw $600 - $1000
ii. Valuation fee
$200 - $250
iii. Lender mortgage insurance
If you borrow more than 80%, most of the lenders will request you to pay for LMI.
It is about 1 – 3 % of the total mortgage loan.
For example, Property value $400,000, i.e. mortgage amount: $360,000; LMI = $5,040.
iv. Income protection insurance
Protect you from losing income because of sickness, it pays about $500 depends on your income.
v. Security guarantee fee
If you have guarantor to guarantee your mortgage, you have to pay guarantee fee, it is about $400
vi. Rate lock fee
It targets on the customer of fixed rate loan. It is about $200-$300.
vii. Bank legal fees
Bank pays to solicitors for legal documentation, it is about $100 to $300.
viii. Bank cheque fee
It is about $10 to 15 per bank cheque
i. Building and pest inspection/strata report inspection
It is for inspecting the building structure and maintenance, it is crucial, about $350 to $700.
ii. Upfront legal costs
It is about $800 to $1500
iii. The deposit
When you exchange legal document, you will be charged 5-10% of total house purchase price.
iv. Stamp duty
The first time homebuyer will be requested to pay this duty if the property purchase price is lower than $500,000
v. Rate
Council management rate and water fees
vi. Home building insurance
On the date of exchange buyer and seller agreement, bank will request buyer to pay for building insurance, each bank has this service, and you can compare a couple of their fees for reference.
vii. Moving cost
It depends on the moving company you found.
You need a mortgage product that can help you to pay off the loan as soon as possible and can save your fees in the long term process.
1. Additional repayment
Repay more often, can save you more interests. For example, the mortgage loan is $300,000, for 30 years. If you can pay $50 more each month, you can shorten 2 years of the mortgage loan period; it saves about $23,291 interest payments.
2. Redraw
Withdraw more out of the repayment you made to the mortgage loan provider. It is 100% setoff. It is like an ordinary bank account, same to your mortgage account: the deposit interests set off the mortgage loan interest, so as to save your fees.
If you need further details of mortgage lending, you may contact me by email to realjane8@gmail.com
