Have a question about a Home Loan? We have the answers!
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Mortgage versus home loan - Do they mean the same thing?
Most people use the words ‘home loan’ and ‘mortgage’ interchangeably, but it might surprise you to learn that they actually refer to two entirely separate things.
What is a home loan?
A home loan is the sum of money a lender lends you to purchase your chosen property. You then pay this money back to the lender over a number of years, along with interest on the loan calculated at either a variable (fluctuates with the market) or fixed (1 to 10 years) interest rate.
What is a mortgage?
A mortgage is a security measure that’s put in place when you take out your home loan which protects the lender if you default on your loan repayments. If you don’t pay the money back to them, the mortgage gives the lender the legal right to sell your property to recoup their losses. The mortgage stays in force until you have paid off your home loan, after which the property becomes totally yours.
What's the actual difference?
A home loan is a means of buying a home when you don’t have the money yourself, while a mortgage is a means of guaranteeing a loan and protecting the lender from non-payment.
If you’re planning on buying a property, it’s always a good idea to know what terms like these mean. So be sure and talk to our expert team at Tiimely Home any time you aren’t clear on something you read.
How does a home loan repayment calculator work?
A home loan repayment calculator takes multiple variables into account before coming to a final estimated repayment dollar amount represented on a monthly basis.
The calculator will ask the user to enter information about their loan amount, their loan term, the intended property usage (live-in or investment), rate type (variable or fixed) and repayment type (principal and interest or interest only).
After calculating, the user will be able to see their estimated repayment amount as well as their total loan repayments and the total interest charged over the life of the loan.
What is Stamp Duty?
Stamp duty is a state government tax levied on home buyers and it varies depending on the state or territory you’re buying in.
It's generally 3-4% of the property’s value, but it’s best to use our Stamp Duty Calculator to get an estimate of what you could expect to pay. In the meantime, here’s a snapshot of stamp duty costs in each state and territory:
$80,001 to $300k = $1,290, plus $3.50 for every $100 over $80k
$300,001 to $1m = $8,990, plus $4.50 for every $100 over $300k.
If you're a first home buyer, you can choose between a lump sum stamp duty payment or an annual tax that is based on your property's land value. There are conditions and eligibility criteria, which you can find here.
$75k to $540k = $1,050, plus $3.50 for every $100 over $75k.
$540k to $1m = $17,325, plus $4.50 for every $100 over $540k.
$250k to $300k = $8,955, plus $4.75 for every $100 over $250k.
$300k to $500k = $11,330, plus $5 for every $100 over $300k.
$200k to $375k = $5,935, plus $4 for every $100 over $200k.
$375k to $725k = $12,935, plus $4.25 for every $100 over $375k.
$100,001 to $250k = $2,090, plus $3.80 for every $100 over $100k.
$250,001 to $500k = $7,790, plus $4.75 for every $100 over $250k.
$440,001 to $550k = $18,370, plus 6% of the dutiable value over $440k.
$550,001 to $960k = $28,070, plus 6% of the dutiable value over $550k.
NT & ACT
Stamp duty is determined by a formula in these territories, so you’ll need to use the calculators on the NT Government and ACT Revenue Office websites to determine approximate stamp duty.
Principal and interest or interest only?
Principal & interest is the most common type of home loan. This involves making repayments which pay down some of the principal balance plus the interest accrued.
However, some people opt for an interest only loan period. This involves making repayments for a set time (usually 1-10 years) which are lower than principal and interest repayments. as they only cover the interest being accrued and none of the principal.
You might choose an interest only loan period if you know your budget is going to be tight for a few years, or in the case of property investors, for taxation or equity building purposes.
If you go down this road though, you’ll need to make sure you budget for the end of the interest only period, as your loan will then switch back to the higher principal and interest repayments.
What is borrowing power?
Your borrowing power is an approximate measurement of your ability to borrow funds. Basically, it’s an indication of how much you can afford to borrow while still being able to meet your other financial obligations. Each lender will calculate it differently, but generally speaking, a borrowing power calculator takes into account things like your income, current loans and liabilities, credit cards and their limits, and your living expenses. You can use our borrowing power calculator to get an idea of what your borrowing power is. Learn more about what goes into calculating your borrowing power
Looking for the best home loan interest rate?
What's the difference between an owner occupied property and an investment property
As you’d expect from their names, the difference between an owner-occupied property and an investment property is whether or not you’re living in it. If you’re living in the property it’s considered an owner-occupied property, but if you’re intending to use your property as a source of income (through rental income or capital gains) and living in a different property it’s an investment property. The type of property you have will determine what type of home loan you need (either owner-occupied or investment). Owner-occupied home loan rates tend to be lower than investment home loan rates.
How do you calculate principal and interest repayments?
The same way we calculate the repayments for any type of home loan.
At a very basic level, we take your loan amount, add the total amount of interest we’ll charge over the life of the loan, and then divide that total up evenly into a weekly, fortnightly, or monthly amount (whichever suits you best) based on the length of your loan term.
How do I find the best home loan rates?
What is a variable rate home loan?
A variable rate home loan is one where the interest rate goes up and down with market fluctuations, which are influenced in part by the official cash rate set by the Reserve Bank of Australia (RBA).
The two main types of variable rate home loans are:
- Standard variable rate home loans – these often include features such as redraw facilities, a line of credit and an offset account, where you can use your savings to pay less interest on your loan.
- Basic variable rate home loans – these offer lower interest rates, but fewer if any of the features of a standard variable rate home loan.
Variable rate home loans are the most popular type of home loan, as they provide more features and flexibility than fixed rate home loans and usually give you the option to pay your loan off earlier.
Are owner occupied home loans cheaper?
What is equity?
Equity is the difference between your home's market value and the amount you still owe on your home loan.
You can borrow against this equity to buy an investment property, do renovations or for any other purpose.
Two popular ways to access your home’s equity are by refinancing or by taking out an equity loan.
This involves replacing your existing home loan with a new one, ideally with better terms and conditions and a lower interest rate. Because it involves just one loan with ongoing repayments, it can be easier to manage than an equity loan.
An equity loan is a separate loan you take out in addition to your home loan. It’s often a line of credit which gives you approval to borrow up to a certain amount. You can then choose how much of this you borrow and you only pay interest on what you use.
What is a roll-to rate?
A roll-to rate, also known as a revert rate, is a variable interest rate that fixed rates roll (or revert) to at the end of the fixed term period or an interest-only period. You can find Tiimely Own home loan current roll-to rates on our rates page.
Variable rates are by definition variable in nature and depend on the cost of funding at the relevant time. Depending on when your fixed period commenced, you may have a low (or high) roll-to rate.
What happens at the end of my fixed term period?
Depending on your lender, you may receive a reminder closer to the end of your fixed period notifying you of the roll-to rate and the applicable date.
There are a couple of options you may wish to pursue depending on your roll-to date:
If you're rolling to a variable interest rate that is lower than your current rate
Depending on your situation, you could let it roll to the roll-to rate. Variable rates are variable in nature and likely to move so it’s worth keeping an eye on your rate and shopping around, so you know what's on offer when the time comes to move on.
You're rolling to a higher variable interest rate
You could get a head start on negotiations with your current lender or start shopping around for a home loan to suit your needs, otherwise known as refinancing. There are pros and cons so make sure your new home loan meets your requirements.
Fixing again may be your preference if you're someone who likes to know exactly how much to budget for loan repayments, or fixed interest rates are low when you roll off so it makes sense to lock in again. Either way, fixing will help you secure your interest rate and give you certainty around your repayments.
You’ve come to the end of your fixed rate term and there are a couple of features and add-ons you feel could help make life a bit easier. Need an offset account or redraw facility this time around? Or want to consolidate some debt to free up cash flow? Maybe you just want to make sure you’ve got the hottest rate going? Start researching so you can get onto a better deal as soon as possible.
What is a home loan interest rate?
It’s the cost of borrowing money. There's a lot of information out there on interest rates, but it can be hard to understand. This article will help you understand the types of interest rates and how they are calculated.
Wondering about comparison rates? They exist as a way to more easily compare home loan products between lenders. Comparison rates consider the extra fees associated with the home loan over its lifetime and factor those costs into your interest rate.
How much can you borrow for an investment property?
This will depend on many different factors, like your income and your current living expenses. To get an estimate, check out our borrowing calculator and run the numbers.
How do I choose a home loan?
Home loans can be boiled down to two main types - principal & interest loans, where you pay off the loan amount plus interest (most common type) and interest only loans, where you only pay the interest (popular with investors).
To help you along the way here are some basic considerations;
Interest rate - try and get the lowest rate you can, as even a small difference can add up to thousands of dollars over the life of the loan.
Loan term – this impacts the size of your repayments and the interest you’ll pay (i.e. shorter term = higher repayments but less interest).
Fixed or variable interest rate – a fixed rate helps you budget because your repayments remain the same, but you won't benefit if interest rates fall. A variable rate usually offers more loan features, but your repayments will go up if interest rates rise.
Loan features – these include redraw or line of credit facilities and an offset account so you can put extra money into your loan to reduce the interest you pay. Most cost extra though, so choose a loan with features you will use.
Loan fees - these can include application fees, valuation fees, annual fees, and settlement fees.
Do you have to live in a house before renting it out?
Can I get an owner occupied loan for my investment property?
You can’t get an owner-occupied loan for an investment property. You’ll need to specify in your loan application if you’re planning to live in the property you’re taking a loan out against. If you’re not going to be living in the property, you’ll need to get an investment home loan. Likewise, if you plan to move into your investment property you can turn your investment home loan into an owner-occupied home loan.
What is Lenders Mortgage Insurance (LMI)?
Lenders' Mortgage Insurance is insurance you’ll need to pay if you borrow more than 80% of a property’s value (i.e. if you have less than a 20% deposit). A 70% LMI is required for high-density units when applying for the Tiimely Own Home Loan or with certain lenders. This means you will need a deposit of at least 30% of the property's value to avoid paying LMI.
It protects the lender from financial loss if you can’t afford to meet your repayments and default on the loan.
Factors that affect how much LMI will cost you include:
The size of the loan - the bigger your loan, the higher the cost of LMI.
Your deposit amount - the smaller the deposit, the higher the cost of LMI.
The purpose of the loan – investors can pay as much as 20% more for LMI than home buyers.
Your employment status – how much you earn and whether you work full time or casual can influence the cost of LMI.
The insurer used by your lender - premiums differ between insurers.
Ways to avoid paying LMI or reducing how much you pay can include
Growing your deposit to 20% or more
Having a family member go guarantor on your loan (While we don't offer guarantor loans for Tiimely Own Home Loans, we can assist you in finding a suitable guarantor loan through our in-house broker service).
Applying for the First Home Loan Deposit Scheme and
Comparing LMI quotes from a number of lenders.
LMI can cost you thousands of dollars, so if you want to avoid paying it, the best way is to save at least a 20% deposit before applying for a loan.
What happens when your fixed term expires?
With a Tiimely Own home loan, approximately 30 days before your fixed term ends, the bank (Adelaide and Bendigo Bank) will reach out with a couple of options:
- You can roll-to a variable rate (you can find your roll-to rate in your loan contract). Given the variable nature of the rate, your roll-to rate is subject to change. You can read about how interest rates are set here.
- You’ll have the option to refix your loan – the bank will communicate what rates and terms are available to you at the time.
What is an owner-occupied home loan?
What does owner occupied mean? An owner-occupied home loan (or live-in home loan), is a home loan you can get to purchase a property you want to live-in. This is different to an investment home loan which is a loan you get for a property you are using as an investment, and aren’t living in. With that being said, you can easily change your investment loan into a owner-occupied loan if your circumstances change.