Banks and lenders pay mortgage brokers to do their work for them. As such they pay us commissions rather than paying their own lending staff.
Most borrowers understand at some level that the banks are all so different and the value proposition of a mortgage broker who understands all the banks offerings is clearly advantageous. In addition, the experience we have working directly in the banks means we have an insider’s view. All the advice that goes with home loans is where we excel; we’ll ensure you get the structure right and avoid any errors.
Please note that most mortgage brokers do in fact have some fees associated with their service, like “Early Repayment” fees and “Not proceeding” fees.
At iChoice, we back ourselves to knock your socks off and are proudly completely 100% free.
Banks generally offer a ‘packaged’ type product, which normally provide cheaper interest rates for both variable and fixed rate loans. There is generally an annual fee associated with packaged products, but generally provides a free offset account/s and a credit card with the annual fee of the credit card being waived. This means your financial life can be neatly managed.
Basic products offered by the banks can be a better option if:
- You already have an offset account against your home loan
- Your home is unlikely to ever become an investment property
- Your loan is small (so the $395 per annum is a greater percentage)
The Comparison Rate is something lenders are required by law to include. It is a confusing number that iChoice are lobbying to ASIC to have removed. It is a notional rate that incorporates ongoing fees to arrive at an all-inclusive rate. However, the CR assumes a loan size of $150,000 and a 25-year term. It can misguide you, as a $395 package fee on a $150,000 loan is a big chunk, but would represent a lot less on a $800,000 loan.
The CR also doesn’t take into account other benefits the $395 annual fee saves you, like waiving a $279 Platinum Credit Card fee, or the benefits an offset account provides (both financially and convenience).
iChoice software provides the best way to understand the cost of a loan to enable a meaningful comparison, by looking at set up costs, ongoing fees and the interest rate, and projecting the total costs over a period of time.
The principal & Interest Repayment is based on your loan amount and the current interest rate over a period of 30 years. An Interest only loan means that you just service the interest component of the loan and you are not required to reduce the principal. The amount of interest would change slightly every month, depending on the number of days in the month, so this calculator will provide the annual interest cost divided by 12.
Until recently, leaving investment debt at interest-only was what we recommended to those who also held (or would likely hold in the future) non-deductible debt.
That way, you could leave your deductible loan high, so you can concentrate on reducing your home loan (bad debt) which is of course serviced with your after-tax dollars.
Geez we even recommended to financially responsible borrowers to keep their home loans at Interest-Only, if there was a chance they could one day move into a new home and keep the previous home as an investment. Instead of paying down the loan over time, they could have built up their savings (repayments) in the offset account (sometimes a separate offset account for management). The effect would be the same as they’d still be reducing their effective debt (the bit they actually ‘owe’ and get charged interest on).
This way, the funds built up in offset could be yanked out to go in their new owner-occupied home loan (or offset) so the effective balance of the former home loan (now investment loan) would be high again, as good debt should be. The Tax Commissioner wouldn’t like it if the loan was paid down and then redrawn, as the purpose of the redraw would be for the new home, therefore not deductible.
Anyway, now with APRA leaning on the banks to discourage Interest-Only lending, things are different.
By the way, APRA have a point…some people have had interest-only home loans and automatically adjusted their lifestyle to the lower repayments for the first 10 years, unaware that at that point, their full balance will need to then be serviced over the remaining 20 years of their 30-year loan term.
Investors understand the after-tax benefit derived from reducing your bad debt faster by keeping your good debt at Interest-Only. However, due to the higher applicable interest rate, the benefit is normally completely over-powered by the effect of the higher rate the banks will apply for going Interest Only.
Extra Repayments can generally be made into variable rate loans, however for fixed rate loans the banks will restrict how much extra you can put into your loan. That’s why if you want to fix the bulk of your debt, you’d generally keep a split variable to give you scope to reduce your debt (as well as to maintain a functioning offset account).
Mortgage offset accounts act like a savings account, where your credit card can link to and is where you’d put your salary and any surplus cash. That’s because the interest charged by the bank is based on the loan amount less what’s sitting on offset (calculated daily and charged monthly). You need to understand how powerful offsets can be, especially if your home ever becomes an investment property. Many choose to have more than one offset account for a number of reasons.
Some banks don’t care, others do!
Some banks will not take into account any of the income that you’ll return to whilst others will consider 80%, and some 100%.
Most Yes, but the banks treat it differently.