When it comes to your first home loan, it’s common for there to be a fear of questions. Have I asked the right questions? Am I making a fool of myself if I ask a silly question? Am I asking enough questions? Brokers or lenders can’t answer some questions, and need your own grey matter to figure out. So here are some of the critical questions you should ask before signing up for a home loan.
What amount can I borrow (without feeling mortgage stress?)
According to Roy Morgan research, 18.4 per cent of homeowners experience mortgage stress in Australia. This means they borrow more than they can afford and experience financial hardship. Of course, brokers and lenders will not approve excessive loans. However if you do bite off more than you can chew, it will make things difficult. Looking at your financial situation, you should look at a mortgage repayment calculator to figure out a baseline of what you can afford each month, with a buffer in case of sudden interest rate rises.
“A look at a home loan calculator can avoid many headaches both for you and your broker,” says Savvy CEO Bill Tsouvalas. “It’s worth doing the maths first and getting a good estimate.”
What is Lenders Mortgage Insurance?
Lender’s Mortgage Insurance or LMI is a policy you must pay for if you do not have a 20 per cent deposit or more. The actual amount will fluctuate depending on your lender and your circumstances. LMI doesn’t protect you; it protects the bank against any possible default.
How much will fees cost me?
Fees at the bank start at a loan application or establishment fee, which can cost about $500-600. Then there are solicitor’s fees ($300), stamp duty (varies from state to state) and pre-purchase inspections ($300-1000.) These are baselines; be prepared to ask more questions about fees at every stage.
Do I need conditional approval?
Conditional approval is an in-principle agreement by a lender to lend money for a house up to a certain amount. This helps you move quickly on houses on the market, instead of hoping for the best if your “dream property” suddenly comes available.
“Sometimes patience isn’t a virtue, and getting conditional approval will not only make the buying process easier, but will give you a definite price ceiling, too,” Tsouvalas says.
Other add-ons and products such as offset accounts, redraw facilities, online-only services, fixed rates or repayment flexibility are often desirable in mortgages, Tsouvalas says.
“You should discuss add-ons like offset accounts and redraw facilities with your broker or lender to see if they are right for you. They could save you money now and into the future.”
Bill Tsouvalas is founder and managing director at Savvy. He has a been working in the mortgage, vehicle & asset finance business for over a decade. He also writes articles on mortgage, finance, insurance and consumer protection related topics.