Home Helper - Finance Basics

The first-timer

You're a contender for one of two loans — a "basic" style home loan or a "honeymoon" home loan. Restrictions often apply, but because these loans offer some of the cheapest rates, your repayments won't set you back too much in the early years. The interest rate on honeymoon loans is usually the lowest available, but once the honeymoon is over they generally revert to a higher rate. Basic loans are similar to standard variable rate loans, but because they're cheaper, they don't always offer bells and whistles. Some allow additional repayments, others don't. Some limit repayments to monthly only. Some basic loans offer a redraw facility, the ability to save on interest by making additional repayments and then withdrawing the money whenever you like. However, you can expect to pay a redraw fee of up to $50 a pop.

The mover

There's no doubt about it — you need a home loan that's flexible, at the very least one that offers portability. Portability allows you to transfer your home loan from one home to another. This can save you a considerable amount in time and set-up costs, although some lenders still charge a "portable" establishment fee. When it comes to flexibility you can't go past the standard variable rate or a professionally packaged home loan. These loans offer maximum flexibility and features, but be warned: depending on where you buy them, interest rates can range by as much as one percent per annum. According to the Infochoice Benchmark Variable Rate (IBVR), the average rate paid for standard variable rate loans is 7.41 percent per annum, not 8.07 percent per annum, the rate advertised by most majors. If you know you're going to sell up within the next few years, avoid loans with DEFs or exit fees.

The shopper

First up, you need to work out what rate you need before refinancing makes sense. You see, it costs money to swap loans. In most cases these fees will be minimal and, if you intend to stay in your home for more than a couple of years, you'll more than likely meet the break- even point when the savings outweigh the fees. Refinancing is usually easier, faster and cheaper if you stay with your existing lender. If you refinance with your existing lender, you can expect to pay a switching fee of about $300, an early repayment fee (if the loan is on a special one-year introductory rate), a deferred establishment fee, or a break- even cost, if the loan is fixed for two or more years. Refinancing with a new lender costs considerably more because establishment fees, exit fees, legal fees, mortgage registration fees, document handling fees, lending valuation fee and mortgage insurance (if you are borrowing more than 80 percent of the purchase price), can all be applicable.

The high-income earner

You've got a good job, a great income and you probably need a big mortgage to match. Your problem isn't so much about qualifying for a loan but rather finding a mortgage that makes the most efficient use of your money. You should have no problems qualifying for a professional package. Professional packages, or packaged loans, are offered by banks to people in a particular profession, or those borrowing more than a certain amount. Sometimes it's more than $150,000 but more commonly more than $250,000. As well as a discounted rate on the home loan, you receive benefits on a range of other financial products as well. Just make sure that any packaged fees, usually about $400 per annum, don't offset the benefits.