Uploaded byAndrew Hingston
Unit 5b Mortgage features
This document provides an overview of various mortgage features including: - Interest rate options like variable rates that rise/fall with central bank policy and fixed rates that are calculated as expected future variable rates plus a buffer. It also discusses split rates that are part variable and part fixed. - Repayment terms discussing maximum 30 year terms but shorter terms meaning higher compulsory repayments and less interest paid overall. Longer terms mean lower compulsory repayments but more interest paid. - Other useful features like mortgage offset accounts that reduce interest costs and redraw facilities to access extra repayments. - New product features such as zero deposit loans using family guarantees and reverse mortgages allowing seniors to borrow against their home equity.
More Related Content
More from Andrew Hingston
Unit 5b Mortgage features
- 1. GENC3003Personal Financial PlanningAndrewHingstonandrew.hingston@unsw.edu.auUnit 5: Mortgage features
- 2. 2Interest rate optionsVariableinterest ratesIncrease or decrease with RBA monetary policyAs interest rate rises, so does your loan repaymentsExpect average variable rate < fixed rate over long-runGood for people who can easily meet increased repaymentsBad for people who have borrowed to the max!Fixed interest ratesCalculated as average of expected future variable ratesPlus a ‘buffer’ to the bank since they take risk!Split ratesPart variable and part fixed … hedge your bets!
- 3. 3Repayment termsPeriod overwhich loan must be repaidMaximum is usually 30 yearsShorter the termHigher the compulsory repaymentsThe lower the total interest in the long-runLess likely to be able to make voluntary extra repaymentsChoose if you need the bank to force you to make high paymentsLonger the termLower the compulsory repayments but higher interestChoose if you are a good saver and will make extra repayments
- 4. 4Other useful featuresMortgageoffset accountBalance of your savings account reduces principal outstandingIf average balance is $10,000 then …… bank calculates interest on loan outstanding - $10,000Allows you to pay off loan faster with same repaymentsVery good feature if it doesn’t cost you a higher interest rate!Redraw facilityAllows you to withdraw extra repayments at any timeBoth usually only available with variable rate loans
- 5. 5New product featuresZerodeposit with “Family Guarantee”Parents use their home as security for your home loanAllows you to borrow 100% of purchase price + stamp duty+ legal fees + bank feesSaves you paying mortgage insurance of $5000+(insures bank against you defaulting on loan payments)Reverse mortgagesAllows people aged 62+ to borrow against their home and make no repayments until house ceases to be main residenceGood for parents who need extra money for superannuation but bad for your inheritance!
- 6. 6Mortgage tipsBudget andtrack expenses!!!Continue living like a student for as long as possibleFortnightly repayments rather than monthlySave up a big deposit (eg. $80,000)… and buy a cheap property (eg. $250,000)Use “Family Guarantee” to save mortgage duty and borrow full amount.Put your deposit into your home loan as “redraw” amountYou can access this at any time for other investmentsIt also reduces your interest so that your home loan is paid off much sooner while making the same mortgage payments.
- 7. Stop and readNowread:Chapter 8Mortgages7