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FAQs
Who, What, When and How?
You have questions,
we have answers.
01How much can I borrow?
This is not a simple question to answer! Your unique financial circumstances and personal situation will determine the amount you can borrow, and this amount will differ from one lender to another. Speak with a Clarity Mortgage Broker today to find out exactly what your borrowing capacity is.
02How do I choose which home loan is best for me?
Let’s face it, Canberra’s pretty awesome! Fresh air in the city. Lots of work opportunities. Cheaper than Sydney or Melbourne.
And now you’re ready to buy a home, or invest, in the capital. But the choices for ACT home Loans are staggering.
With the advent of NeoBanks, online loans and non bank lending disruptors entering the home loan market the choice of which provider to apply for your home loan through has never been more confusing and daunting. Adding to this proliferation of lender options is the fact that there are now literally thousands of home loan products available to borrowers in the Canberra market. So it’s no wonder that most people find the home loan process pretty overwhelming.
Not to mention that the home loan market is highly dynamic; it changes all the time.
The Clarity team of mortgage brokers are here to help. We make the complex world of home financing, simple – and even fun! An individual assessment of your needs by a Clarity Mortgage Broker will determine what specific options and home loan features are best suited to both your short- and long-term objectives. Once this assessment has been made, the next step is our brokers search our vast range of lenders and home loan products for a solution that is tailored to match your unique requirements.
03What is the minimum deposit that I will require?
For most lenders, if you are buying a home to live in you will require between 5 – 10% of the purchase price in way of a cash deposit. If you are buying an investment property, it will in most cases be at least 10% of the purchase price although there are still a limited number of lenders that will provide loans up to 95% of the purchase price essentially reducing your input down to 5% plus costs. Like everything in lending, there will be exceptions and variations to these minimums, depending on the type of loan, borrower profile, property location, property type and the lender that is selected.
For those without an adequate deposit, it may be useful to consider using a Guarantor to assist when buying to alleviate or reduce the amount needed to buy. (see next question).
04What is a Guarantor?
Many lenders will allow a related third party to provide additional security to help a family member buy their own home when they have limited or zero deposit.
A guarantor is linked to a loan by a guarantee taken over a property that the guarantor already owns. This guarantee, and their property, can be released and the guarantor’s responsibility stopped without the loan having to be repaid in full. Conditions do apply, please speak to one of our Mortgage Brokers to obtain full details.
05What are the costs?
As a rough guide, it is recommended that you budget 3% – 4% of the purchase price, on top of your deposit, to cover fees and charges associated with the property purchase. These fees and charges may include items such as building/pest inspections and/or strata reports; conveyancing fees; stamp duty; council rates; body corporate adjustments etc, however the amount may be reduced with the assistance of government grants or exemptions assuming the grant is applicable in the state you are purchasing in. If you are also eligible for a Stamp Duty waiver, concession or discount, the funds you will need to cover costs can be reduced down to only a few thousand dollars in most cases.
Please see the next question below for further details.
06Am I eligible for any grants or exemptions?
If you have never owned a home before and you meet the eligibility criteria you may qualify for the Government’s First Home Owners Grant (FHOG) scheme and receive a one-off Grant to assist with the purchaser of a home to live. The FHOG is not means tested but in most states there is a upper price threshold that the property needs to fall under to maintain eligibility.
The FHOG has changed over the last few years where the amounts on offer vary from state to state. In the ACT, for any purchases or Contracts for Sale exchanged after the 1st of July 2019, the grant was unfortunately abolished to make way for Stamp Duty exemptions. The new Stamp Duty exemptions are now available for ALL first time buyers (or those who have not owned a property for the last 2 years) on any property type they are buying, either a newly built or established home.
As with the FHOG, the Stamp Duty discounts, concessions or waivers available to First Time Buyers vary from state to state as well as the eligibility criteria. As a quick guide, you can use the Stamp Duty Calculator available on this website to gauge the potential benefits that may be available to you. Of course we also strongly recommend and encourage you to speak to one of our our local Canberra Mortgage Brokers to discuss in detail what benefits you may be eligible for.
07What is pre approval and how do I get it?
Pre-approval is a lender’s assessment of your creditworthiness and eligibility for a loan, obtained before a formal loan application has been lodged. It is important to understand that some pre-approvals do not properly investigate your ability to obtain a loan, and should not be used as a guarantee of your ability to obtain finance.
08What is mortgage insurance, do I need it?
If you are borrowing more than 80% of the lender’s valuation of the property, it is likely that you will require Lenders Mortgage Insurance (LMI). Some lenders will allow the LMI premium to be added to the home loan amount, others will require the premium to be paid up front. It’s important to know that LMI is not insurance protecting the borrower – it protects the lender from incurring any losses if the borrower defaults on their loan repayments.
09What are deposit bonds?
A deposit bond allows you to purchase a property using the bond as a substitute for a cash deposit. The bond acts as a guarantee that you will instead pay the full purchase price at settlement. Both short and long term guarantees are offered to suit any settlement terms.
Short term guarantees can be used for settlement periods of up to 6 months, whilst long term bonds can be used where settlement will not occur for between 6 to 48 months.
01What is negative & positive gearing?
Negative gearing occurs when the expenses associated with owning a property are higher than the income it produces. If the rent you get for an investment property is less than the interest repayments, strata fees, depreciation, maintenance and other costs, your investment is negatively geared, or making a loss. This loss can be offset against your income, reducing your income tax bill.
Conversely positive gearing occurs when the income received is greater than the total amount of the expenses and therefore results in a profit, which provides positive cash flow to you but also increases your taxable income.
02Can I use equity in my home as a deposit for an investment property?
Many lenders will accept equity in your home as additional collateral against which they are prepared to lend. Depending on your circumstances, this may allow you to borrow the full purchase price of an investment property, as well as costs, without having to contribute any cash. The risk involved is that if for some reason you can’t meet the mortgage repayments for the investment property, both the investment property and your home are at risk.
03What are deposit bonds?
A deposit bond allows you to purchase a property using the bond as a substitute for a cash deposit. The bond acts as a guarantee that you will instead pay the full purchase price at settlement. Both short and long term guarantees are offered to suit any settlement terms.
Short term guarantees can be used for settlement periods of up to 6 months, whilst long term bonds can be used where settlement will not occur for between 6 to 48 months.
01Is refinancing the best option for me?
Before discussing your refinancing options, you should consider the benefits and drawbacks of your current mortgage product, and also all fees associated with transferring to a new lender. Depending on your current financial situation, you may also need to pay Lenders Mortgage Insurance (LMI) on the new loan.
As well as the option of obtaining a new loan from a different lender, it may also be feasible to refinance with your current lender. Speak to a Clarity Mortgage Broker today to clarify which option is best for you.
02What costs are involved?
Whilst refinancing your home loan may save you money via a better product or lower interest rate, there may also be some costs associated that you need to be aware of and budget for. These may include:
– Exit fees
– Establishment /application fees
– Loan approval fees
– Settlement and handling fees
– Additional mortgage stamp duty (if you increase your current home loan)
– Mortgage registration & discharge
03What is the process?
Just as when you applied for the original loan, when you apply to refinance you will be required to provide a range of documentation to support your application. As well as documents to verify your income, you will also need to provide details regarding the current mortgage and all other loans/debts such as the amount owing on the loan/s, the original loan amount/s, how much your repayments are, evidence of the last 6 months of repayment history etc.
04How long until the new loan is established and the process is complete?
Whilst most approvals will occur within a few days, there is a wide variation in time frames between lenders and we do recommend that you allow for the possibility of the entire process taking at least a month, and up to 6 weeks.
05Can I consolidate credit card or other debts into a home loan?
This is one of the reasons many people refinance. The advantage is that you pay a much lower interest rate on a mortgage than for most other forms of debt – e.g. credit cards, overdraft facilities, personal loans etc. Providing you have sufficient equity in your property, you may be able to consolidate all your debt on a home loan. If you take this option though it is important to make sure you maintain your repayments at their current level or you could end up paying more over a longer period of time. Speak to a Clarity Mortgage Broker to discuss your personal needs.
06What are deposit bonds?
A deposit bond allows you to purchase a property using the bond as a substitute for a cash deposit. The bond acts as a guarantee that you will instead pay the full purchase price at settlement. Both short and long term guarantees are offered to suit any settlement terms.
Short term guarantees can be used for settlement periods of up to 6 months, whilst long term bonds can be used where settlement will not occur for between 6 to 48 months.
01What happens first - selling or buying?
There are important considerations around both options. Selling first may bring pressure to buy a property within a specific time frame and force you into a property that is not 100% ideal for you. Buying first may require a relocation loan and therefore the possibility of having to meet the interest costs associated with two mortgages if the required sale does not go through in the necessary time frame. It is also necessary to consider whether the housing market is currently geared towards buying or selling. As a general rule however, the least stressful option will always be to sell first, and then buy.
02What is a relocation (bridging) loan?
Previously known as bridging loans, a relocation loan is a short term loan used to finance the purchase of a new property before the sale of a current property goes through, even if the proceeds of this sale are required for the new purchase. Most relocation loans allow 6 months for the sale of the existing property to go through.
In the past, these types of loans had a reputation for being very expensive, however this is no longer necessarily the case and often the interest rate associated with a relocation loan is no higher than that of an average home loan. Your Clarity Mortgage Broker can help you explore whether this option is right for you.
03What is the process?
When you take out a relocation loan, the lender usually takes over the mortgage on your existing property as well as financing the purchase of the new property. The total amount borrowed is called the Peak Debt. When you sell your first property, the net proceeds of the sale are used to reduce the Peak Debt, and the remaining debt plus any capitalised interest becomes the End Debt. This End Debt is then paid as per a regular mortgage product.
04How can I work out if it's cheaper to sell my property first and rent, or buy somewhere new first and take out bridging finance?
This decision will be influenced by many factors, such as the rental market and availability at the time of your decision; as well as the balance of your mortgage and the level of interest you are paying compared with the type of property you might be looking to rent and the subsequent rental payments on this.
These are complex calculations, and your experienced Clarity Mortgage Broker will be able to run through the different scenarios available to you and enable you to estimate the costs associated with both options.
05What are deposit bonds?
A deposit bond allows you to purchase a property using the bond as a substitute for a cash deposit. The bond acts as a guarantee that you will instead pay the full purchase price at settlement. Both short and long term guarantees are offered to suit any settlement terms.
Short term guarantees can be used for settlement periods of up to 6 months, whilst long term bonds can be used where settlement will not occur for between 6 to 48 months.
Need more detail?
For more information on home loans, mortgages and the like, take a glance at our fact sheets.
