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Unit 5a Mortgages
This document discusses various aspects of taking out a mortgage, including: 1. The importance of getting pre-approval from a bank before making offers on properties and the process involved in getting pre-approval. 2. The types of lenders available, including major retail banks, smaller banks and lenders, and mortgage brokers. 3. How to calculate mortgage payments using online calculators or Excel functions. 4. That payments are made up of both interest and principal, with interest making up most of early payments.
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Unit 5a Mortgages
- 1. GENC3003Personal Financial PlanningAndrewHingstonandrew.hingston@unsw.edu.auUnit 5: Mortgages
- 2. 2Arrange pre-approvalYou dothis “before” making any offers!Decide on your bank and mortgage productApply for the maximum amount possibleProvide them with all paperwork / ID / payslips requiredcan take a few weeks to get everything togetherBank will give you “pre-approval”subject to them being happy with property you buyUsually given within a week of receiving paperworkRarely “reject” a loan after pre-approval given
- 3. 3Types of lendersMajorretails banksANZ, Westpac, CBA, NAB and St GeorgeGood service and good featuresConsistent, moderate interest ratesOther banks and lendersAdelaide bank, Bendigo bank, Bank of QueenslandA lot of smaller lenders exited the market in the GFCMortgage brokersAussie home loans, Mortgage choiceHelp you to find the cheapest home loanMany left the market in the GFC
- 4. 4Calculate mortgage paymentsMortgagepayment calculators at bank websitesorCalculate yourself in Excel using PMT() functionPMT(rate per period, number periods, loan amount, residual)Eg. If monthly payments, 20 years (240mths), 6% pa interest (0.5% per month), $200,000 loan. =PMT(0.005,240,200000,0) = $1432.86 per month
- 5. 5Each payment ispart interest and part principalAt the start of the loan, payments are mostly interestTowards end of the loan (after 20 yrs) payments are mostly principalPaying more than minimum payment makes a difference!Pay 1.5 x minimum = paid off in ~12 years (18 years early!)Pay 2 x minimum = paid off in ~8 years (22 years early!)
- 6. 6Repayment optionsPayments consistof both principal and interestThe normal situation (on previous slides)Loan is fully paid off at the end of the term (eg 25 years)Good for people who are not great saversBad if you want to build up other investments as wellInterest only paymentsOnly pay interest on principalUsually limited to the first 10 years … then principal + interestGood for savers who want other investmentsVery bad for people who are bad savers