How to get a Home Loan in Australia as a Non-Resident (Foreign National)

How to get a Home Loan in Australia as a Non-Resident (Foreign National)

7-MINUTE READ

Share:

Australia is known for having some of the most liveable cities in the world – like Melbourne and Sydney – and given its diverse landscapes, friendly locals and a long list of amazing ‘bucket list’ experiences, it has been one of the ‘must-go’ places for travellers. 

Australian property is often lauded by investors for its ability to maintain steady rental yield while achieving positive capital growth so it is not surprising to see overseas investment in Australian residential property rise. 

If you are interested in investing in the Australian residential property market as a non-resident, there are a few things you need to know.

Without further ado, let’s get to the nuts and bolts of getting a home loan in Australia as a non-resident.

Who are the non-residents?

An offset account is linked to a home loan and works like any transaction account that you use to deposit and withdraw money on a day to day basis. 

Non-residents can be categorised into two groups. 

  • Temporary residents (TRs)

Temporary residents are those who visit the country on a temporary visa, allowing them to stay beyond 12 months. They can apply for a home mortgage with the approval of FIRB and adherence to specific requirements. 

  • Foreigners

Overseas foreign citizens are people who do not have an Australian citizenship and are considered foreign investors. These individuals usually have to go through the Foreign Investment Review Board (FIRB) for approval before investing in Australia.

What is a non-resident home loan?

According to the Foreign Investment Review Board (FIRB), if you are a foreigner or a non-resident in Australia, you can consider buying a real estate property in the country so long as you clearly understand the property market. You must also adhere to the rules set by the review board in its application process. 

A non-resident home loan in Australia is possible for the purchase of Australian properties. There are lenders, banks, financial institutions, and credit groups, among others, who may be able to provide you with loanable funds which you can use to acquire, albeit at a much stricter mortgage approval criteria compared to citizens and permanent residents.

Foreign Investment Review Board (FIRB) approval

Legally speaking, non-residents can be property owners in Australia if they seek and gain the approval of the FIRB. The first step should therefore be checking your eligibility to purchase an Australian property through the FIRB website. 

When your purchase offer progresses, and you have a specific property in mind, the FIRB must also be sought for another approval on that particular piece of land. There are fees involved in the evaluation, but FIRB will, most likely, grant your request, especially if your purchase will be in support of more significant economic growth in that precise location. 

Getting FIRB endorsement usually takes about fourteen days. The fees can change upon the estimation of the private property or land sought to be bought. If you belong to the groups listed below, you do not required FIRB endorsement 

  • The Australian residents
  • The perpetual Australian inhabitants
  • New Zealand (NZ) residents 
  • Other exempted categories 

Investing in Australian property for non-residents

If you are a non-resident and have been considering investing in real estate, you’d be happy to know that there are non-resident home loans in Australia which are readily available for you. Nothing stops you from buying properties in the country as long as you fulfill all the necessary requirements.  

As a non-resident, there is always the concern about being assessed differently from residents of Australia. It may come in the form of higher fees or increased interest rates in your loan. As such, you must be prepared to accept these realities and consider if it is something that you can bear, weighing the costs and the benefits of investing in Australian real estate.

Most lenders have home mortgage packages that are quite attractive and include a unique hybrid offering or tailored-fit deal to non-residents considering their exceptional circumstances, needs and preferences. It would be wise to scrutinise every feature of your loan to ensure you are getting the best offer available.  

Some costs that you must be prepared for are fees on the property inspection, foreign citizen stamp duty, FIRB approval, loan establishment and legal processing. It may accumulate as you progress with your purchase, so it is always good to draw up your budget.

How to choose between lenders

Home loan options may be limited for non-residents compared to Australian residents, so the best thing to do is speak to one of our non-resident mortgage experts to find the best solution for you. Some lenders specialise in lending to foreign investors, Australian expats, and new migrants.

  • Banks

Policies on lending differ from bank to bank. The bank can outrightly decline since the nature of the circumstances of non-residents poses a high risk to their institution. Some banks do not accommodate clients outside of Australia.

Banks may choose to lend to non-residents but with certain restrictions. It can be in the loanable amount or in the documentary requirements to support your application. 

  • Non-bank lenders

You can also choose to deal with other non-bank lenders licensed to provide loans to consumers.Like banks, these institutions will evaluate your application and guide you through the entire process until settlement. 

Non-bank lenders are a common solution for non-resident foreigners as they are usually targeting this particular niche of the market so you will know your eligibility pretty quickly.

The process is also made seamless and hassle-free and they make sure the loan package is truly tailored to fit your unique needs. As a non-bank niche lender, they can give you what banks and other financial institutions cannot.

Loanable and Deposit Amount

The amount of deposit required differs depending on the non-resident category you belong to and the products of the lenders. Typically, overseas foreign citizens can expect to borrow between 60% to 80% of the purchase price of the property.

Fees on the property inspection, foreign citizen stamp duty, FIRB approval, loan establishment and legal processing fees are usually not able to be lent against and further funds will need to be sought.

Interest Rates

Thanks to the ever-evolving credit market, interest rates offered via non-resident home loans in Australia have come closer to the ones given to residents, although there is still a slight premium for foreign nationals. Non-bank lenders do however have a number of “risk fees” or “application fees” to compensate them for the additional risk they take by lending to foreign nationals.

Final words

Although the current lending environment is harsh for non-resident foreign nationals, securing non-resident home loans in Australia can still be possible if you know where to look. Speak to an Odin Mortgage non-resident expert today to see what options are available to you.

Allow us to find you the perfect home loan.​

Apply online to get expert recommendations with real interest rates and repayments.

Use Equity to Your Advantage to Buy Property in Australia

Use Equity to Your Advantage to Buy Property in Australia

3-MINUTE READ

Share:

Accessing equity in your property is a great strategy for those of you who are intending to purchase a new property, make additional investments or need to tap into savings for other purposes. You get to convert the equity you have built up in your property into cash, allowing you to diversify your investments or reach other financial goals.

Sounds pretty good hey? 

But as with any other financial strategy, with great sounding deals come great responsibilities: when you choose to cash out equity, you are putting your property on the line. If the value of your property decreases, you could end up owing more than your property is worth. So before you rush into getting cashing out, take a closer look at what it is, when you may want to consider this financing option and whether it is a strategy that is best for you. 

Allow us to find you the perfect home loan.

Apply online to get expert recommendations with real interest rates and repayments.

What is home equity

Home equity is the difference between the current market value of your property and the amount you owe the bank. The amount fluctuates overtime as the value is tied to market forces. 

Equity in a house is initially acquired with the down payment you make during the initial purchase of the property. As you repay your mortgage, the outstanding loan balance will be reduced, hence increasing your level of home equity. Another way to build up equity is to increase the value of your property by maintaining and improving it. If your property happens to be in an ideal location, chances are your property is likely to achieve long-term capital growth. 

How cashing out works

Generally speaking, home equity loans have lower interest rates than other forms of borrowing. We can’t say which is better – it depends on your financial goals and preferences. 

Lenders assess your property’s current market value and the remaining mortgage balance to evaluate the loan amount. As the home equity loan is secured by the value of your property, the risk to the lenders is lowered. 

Another product closely related to a home equity loan is a reverse mortgage. It is mainly reserved for retirees and allows them to tap into the savings they have accumulated in their property. With a reverse mortgage, no regular repayments are needed (it is entirely up to you!) and you have guaranteed lifetime occupancy – the outstanding balance will be due either when the property is sold or when the borrower passes away. 

How much would I be able to borrow with a home equity loan

Generally speaking, the amount you can borrow can be calculated with this formula: 

(Property’s Value x 80%) – Mortgage Balance = Accessible Equity

For example, if your Property’s Value  is worth $600,000 and the remaining balance on your mortgage is $250,000, then the Accessible Equity is $230,000. 

Most lenders are happy to lend up to 80% of the property’s loan-to-value ratio (LVR), though policies differ between lenders. Some lenders can do higher than 80% LVR, however, as the risk for lenders increases, the lender would require the borrower to pay an extra fee (ie: lender’s mortgage insurance, or LMI) in case the borrower defaults.

Other lenders have strict cash out policies, reducing the amount of money you can borrow. They are cautious when lending money in the form of equity loan as some borrowers use their equity carelessly and provide quite little to no evidence of how they are spending the borrowed funds. 

 

Reasons to use your home equity

There are not many limits on how you can use your home equity but there are few ways to make the most out of it: 

Debt Consolidation

A home equity loan can be used to consolidate high-interest debt into a single amount at a lower interest rate. Some borrowers use it to pay off their personal debt (which is also fine!) The downside is that you might turn unsecured debts, such as a credit card debt, into a debt that is now backed by your home. 

Home Renovation and Improvement

Besides making a home more comfortable for you, by doing so, you could raise the property’s value and draw more interest from prospective buyers when you rent it out or sell it later on. However, before using home equity for home improvements, do research to see if the improvement will produce a good return on investment to avoid overcapitalisation.

Investments 

Investments come with risks (we all know that), because there is no guarantee that the stock market will perform well. Same goes with investing in real estate. You can’t be certain that the investment property won’t lose its value or fail to bring in the income needed to get a return on your investment over time. So before you proceed with investing, make sure that you look into all your options and see whether the investment is a wise one. 

Emergency Expenses

If you have an emergency and no other means to come up with the necessary cash, home equity loan may be a smart way to stay afloat (only if you have a backup plan or if you are pretty certain that this financial situation is temporary). However, the application process time associated with accessing home equity may not be ideal for a time-sensitive emergency.

How to prove the purpose of your home equity loan

Many lenders require you to provide the purpose of the loan as part of the application process. Requirements vary among major lenders, some may ask you to provide an accountant’s letter and a copy of a statement of advice. These documents are necessary if you will spend the borrowed money to buy shares. 

You will have to submit a letter from the conveyancer if you want to invest in a property. It will prove that you have found a property and you want to buy it. You can also use the loan for debt consolidation. It will require you to provide the latest statement to prove you are repaying all your debts on time. 

Pros and Cons

The advantages of a getting home equity loan

-Lower interest rates compared to other types of personal loans or home loans 

-Higher chance of approval compared to other kinds of home loans

-Higher flexibility as the funds can be used for any potential purpose

-Higher investment potential as borrowers can unlock the equity in their property to use for other investments

-Complete freedom to repay interest amount

The disadvantages of a getting home equity loan

Increased outstanding debts hence increasing monthly repayments and repayment duration

-Increased fees (eg: transaction costs, lender fees)

-Risk of reduced credit score

-Risk of foreclosure

Final Words

  1. Never resort to a home equity loan to fulfil your monthly needs. You won’t get anything valuable in return by investing in your living budget. You might end up consumed by debt.  
  2. It is also not a good idea to take home equity loan Australia to fund entertainment and leisure. This would worsen the debt issue because you are risking your property for extravagant vacations, entertainment and leisure.  
  3. Don’t borrow more than you need. Be financially disciplined and don’t put your house at risk of foreclosure for a frivolous purchase.
  4. There is a limit to how much you can borrow

The market is highly competitive and there is a vast range of products on offer from lenders, including home equity loans. Not sure whether releasing your home equity is the best thing for you? Not sure which lender to go with? 

Contact us to find the best solution for your circumstances! 

Start your home buying journey with Odin Mortgage.

Apply online to get expert recommendation.

Refinance your Home Loan: The Ultimate Guide for Aussie Expats

Refinance your Home Loan: The Ultimate Guide for Aussie Expats

6-MINUTE READ

Share:

Interest rates fluctuate from time to time – it can be quite an effort to stay on top of it all.If you have not reviewed your home loan in over a year, now would be a great time to do so and save some cash (let’s be real: the chance to set aside money that otherwise would have gone to payment of interest is too good to pass up!). The home loans market caters to many different buyers, so by switching lenders and refinancing you could potentially save thousands. 

Not sure what refinancing is? No worries, we’ve got you. 

Here is an ultimate guide on how you can give your home loan a health check without the massive headache. 

 

What is it all about?

Simply put, refinancing a home loan is when you take out a new home loan to replace your old loan. You could choose to stay with your current lender and make changes to your existing loan or change to a new lender who will take over your current mortgage. 

While it’s most common to refinance due to new market offerings, a small change in one’s financial or personal circumstances can also be the more important reason to make the change, such as needing cash for a new purchase or other investment related purposes.

It’s a reasonably straightforward process. As soon as you have considered all the options made available to you by our mortgage experts, you can make your decision on which to proceed with. 

Allow us to help you refinance your home loan.

Apply online to get expert recommendations with real interest rates and repayments.

Why should I refinance my loan?

Apart from saving money, there are other reasons why you must consider looking at some refinance home loan offers:

You may have prospective projects to which you need funding, and what better way to free up some equity than to refinance? If you have paid beyond 20% of your property’s value, this may translate to a line of credit that you can use for other personal ventures. 
If the value of your property has increased over time, you will have additional equity in the property. Refinancing replaces your existing mortgage with a new home loan for more than you currently owe on your property. The additional funds go to you and you can spend it on other financial needs. 
It may be an excellent idea for people who have several personal loans on hand to consolidate them in a home mortgage to pay them off at a lower interest rate and an extended maturity period. Home loan rates are generally lower than other types and have longer terms. There will be risks associated with consolidating debts, so you should speak to us to see whether this is the best option for you. 
Moving all your banking business to a single lender could allow you to access package deals or other perceived benefits.
As the financial market evolves, so do home loan offerings. When you opt to refinance, you can benefit from newly-developed features in home mortgages. Some examples of these are the flexibility to make extra payments, cash-back deals, access to redraw facilities, and offset accounts. 
With more competitive interest rates and unique elements of your refinancing that you can work to your advantage, your overall loan costs can be brought down significantly. You can even choose to make the same monthly payments despite the decreased rates, thereby paying off your mortgage faster. 
The thing is, at times, even the best loan deals in the market will crash and burn with lousy customer service. It’s not surprising for some people to switch lenders when they are unhappy with their current one in terms of management. So it is best to consider refinancing if you want lenders who will genuinely give you your money’s worth in terms of service.

Considering to refinance your home loan – how to do it?

Those who are mulling over their next step may be asking themselves, “How do I refinance my home loan?” Below is a walk-through to guide you through the process. 

  • Check your rates

The very first thing to do is to verify your current interest rate against those of refinancing home loan rates and see if yours fare better. If you think that you are paying too much for your existing mortgage, it is a clear signal to refinance, given that there are better alternatives. 

  • Negotiate with the current lender

The next step is to sit down and talk to your current lender to negotiate for a more competitive rate. It is likely they will give you a better option if the only other choice is to refinance with them or with another lender. 

  • Do pencil-pushing

Do some number crunching to make sure that you are truly going after a better deal. There are exit fees and break costs involved, so remember to use a refinancing home loan calculator to scrutinise all your expenses. 

Some institutions have offerings such as a refinance home loan cash-back when you decide to switch. These, among other things, will come into play in the calculations.

Other refinancing costs to bear in mind when you are thinking of refinancing are government fees, break costs, discharge fees, valuation fees and upfront fees on your new loan. With all the financial considerations, all the numbers need to be laid out before you make your final decision. 

  • Go for it! 

When you have made sure that you will be able to save a substantial amount of money should you refinance, you can start the application process and let your lender go through the necessary documents and procedures to execute it. It would be best if you discharge your current mortgage and pay all the fees so your new refinancing can push through without a hilt. 

Who has the best home loan?

Banking in Australia is dominated by four major banks: Commonwealth Bank of Australia (CBA), Australia and New Zealand Banking Group (ANZ), National Australia Bank (NAB) and Westpac Banking Corporation (Westpac). 

Most banks offer flexible loan features (eg: the freedom to choose between a fixed and a variable rate on your repayments). What is a fixed home loan you may ask? It is a loan that can give you the certainty that you need to pay your mortgage at a single interest rate. Despite the volatility of the market, your rate is set in stone. However, for some people, the freedom provided by a variable rate is more of what they are after.

Let’s look into the offerings of the Big Four banks and examine their distinct selling points to borrowers. (Current as at August, 2021)

  • Refinance home loan – CBA 

CommBank instantly gives you a A$2,000 cash-back when you apply for a home loan switch with them. In addition, being a local Australian institution, they have a dependable quick support system for all their clients. They have the technology in place that can make customer servicing seamless with a virtual banking assistant and an app for easy management of your loan anytime, anywhere. They also have leading experts in their workforce to service your every need whenever necessary. 

CommBank also has flexible loan features such as various free offsets and redraw to help you save money in your loan repayments and manage your funds the way you want. They also have a seamless refinance system, FASTRefi®, to help out eligible clients with their refinancing. 

  • Refinance home loan – ANZ

Like CommBank, ANZ also offers the flexibility you need to manage your loan, whether you plan to repay it faster or redraw on your available funds. They can provide you both the certainty of a fixed-rate loan or the flexibility of a variable loan, depending on your preference and needs. You can choose a split loan where you can enjoy what both loan types can offer.

Their Breakfree package can help you secure a line of credit with the bank and you can enjoy the absence of ongoing fees and competitive rates with their Simplicity PLUS home loan. You can go on their website and use the refinance home loan calculator to check how much you can borrow and what your repayments will look like.

  • Refinance home loan – NAB 

As a 150-year old Australian bank, NAB has a vast array of home loan offerings to borrowers tailored to their specific and varying needs. They take pride in developing various loan packages that will address the changing needs of their clients. They boast of a 95% LVR and LMI, which they can offer to their customers to help people become eligible for a refinance despite lacking the 20% down payment for their properties. 

They also have fixed and variable home loan packages, low upfront costs, split loans, line of credit, paying interest only, among many other features.

Though there are compelling reasons to take out a home loan or to refinance with the Big Four banks, there are also real advantages to going with other lenders – it all comes down to personal preference and needs. The right lender can help you save money in fees and interest over the life of a loan. It requires a lot of research, we know, and we are here to help you do the legwork needed to ensure you can secure the best rate (ps: oftentimes the lesser known lenders have more to offer). 

FAQs

1. Am I eligible to refinance if I originally have a home loan bundle package? 

Suppose your current home loan came as a package that includes various other features such as credit cards, term deposits, or transaction accounts. In that case, it is still possible to secure refinancing with another lender. Some even offer to take care of these things for you to help you in the switch. The necessary first step is to contact your lender of choice and talk to them about the transfer. 

2. Can I change jobs while I am applying for a home loan? 

The security of your employment is one of the most critical factors in your loan application. To be eligible, you must typically have held your current job for at least six months before you can apply. If your work situation changes in the middle of processing, you must inform your lender and check if you can work out a deal while you are in between jobs.

Final words

If you have been paying off your mortgage for several years, it may be a viable option for you to consider refinancing. The process will be easier than when you first applied for your home loan, and most of the procedures are quite similar, except you will be enjoying better rates and special mortgage features. 

You will also be addressing a need that you may have, such as debt consolidation or lower interest rates, which are the reasons why you contemplated the decision to refinance in the first place. 

Still confused, talk to us! We are always here to help- with so many options available, it makes sense that you talk to your broker.

What are you waiting for?

Refinance with Odin Mortgage today. (Or start off your home-buying journey with us!)

Variable or Fixed Home Loan

Variable or Fixed Home Loan

3-MINUTE READ

Share:

Are you looking to purchase or refinance your home and not sure which option is best for you?

Applying for a home loan has never been easier or more straightforward with advancements in technology. There are, however, endless options which can make selecting the right loan extremely confusing without expert assistance.  When obtaining finance, we tailor your home loan to your needs, so you can rest assured you have the best loan that works for you. With that said, it is important for you to know the types of interest rates available and understand the difference between the two.

What is the difference between fixed and variable home loan rates?

An interest rate is a percentage that defines how much you will pay your lender each month as a fee for borrowing money.  There are two types of rates you can choose:

Fixed Interest Rate

Just like the name suggests, the interest rate stays constant and you pay a fixed amount of money as instalments throughout the period you have chosen to fix. Fixed rate periods in Australia are generally between 1-5 years. Let’s say you have a 3-year fixed-rate loan with a 3.25% interest rate. No matter what is going on in the market, you’ll still be paying 3.25% interest until the fixed rate expires, you refinance your loan or you sell the property and close the loan. Fixed-rate loans offer a set payment each month, making budgeting easier and giving you peace of mind. It’s important to note that if interest rates decrease below your fixed rate, you will remain on the higher rate. Also, if you want to exit your fixed rate early you may be liable for break costs.

Variable Interest Rate

A variable interest rate employs a floating rate, and depending on how the market rate changes, your monthly payments can and will vary, at the lender’s discretion. Home loans with variable interest rates are bound to a base rate offered by different lenders along with a variable element. The interest rate changes from time to time, and changes in the base rate will influence it. However, fluctuations do not occur very often as it is dependent on the market trend. 

Which one should I go for? Fixed or variable interest rate?

Now that you know what fixed interest rates and variable interest rates are, it is time to decide on one that would work for you. Whilst variable interest rates have maintained popularity in recent years with record low interest rates, fixed rates have also been popular with people wanting to “lock in” the low rates in case rates start to increase again. We can’t say for sure which option is better – it is all about what you need and what works best for you. We often suggest for our clients to have a mix of both to enjoy the knowledge they have a portion of their loan on a set rate for a period of time, whilst also being able to enjoy benefits that are only available with a variable rate loan.

Here are some pros and cons of the two types of rates mentioned:

Pros

Cons

Fixed Interest Rate

  1. Constant, unaffected by the market
  2. Peace of mind for repayments
  3. Less variation between lenders
Variable Interest Rate

  1. Potential for minimum repayment to reduce if rates drop 
  2. Easier to refinance (without attracting break costs)
  3. Repayment flexibility
  4. Additional loan features available such as offset account
  5. No penalties for additional repayments
 

Fixed Interest Rate

  1. Often higher than variable interest rates
  2. You are required to pay the same interest rate even if rates reduce

Variable Interest Rate

  1. Less certainty for budgeting
  2. Repayments may increase when rates change

Final words

Don’t get lost in the special features

A home loan should be simple- you borrow money from a lender and repay the amount with interest over time. Some financial institutions might try to sell you on special features but don’t get caught up in thinking you need all of these, because ultimately it might not be of any use to you, and can sometimes end up costing you more.

Choose the rate that suits you best

Fixed-rate or variable rate- what you choose is up to you. It is all about understanding your options and then selecting what works best for your individual situation.

Talk to Odin Mortgage today so we can ensure you are making the right choice. 

Allow us to find you the perfect home loan.​

Apply online to get expert recommendations with real interest rates and repayments.

Offset Account: The Definitive Guide to Lower Your Interest Payment

Offset Account: The Definitive Guide to Lower Your Interest Payment

5-MINUTE READ
Share:

Whether you’re about to take on a new home loan or have an existing one, there are lots of clever ways to reduce the total amount you pay and decrease the lifespan of your loan. 

One strategic way to potentially bring down the balance of your loan and pay it off faster could be by switching your everyday bank account to an offset account.

Read on to learn more about offset accounts.

What Is An Offset Account?

An offset account is linked to a home loan and works like any transaction account that you use to deposit and withdraw money on a day to day basis. 

If you start an offset account while taking a home loan, you do not have to pay interest for the full loan amount. Interest will only be charged for the amount you get after subtracting the amount deposited in the offset account from the loan amount. The higher the balance in the offset and the longer the duration it sits in there, the less you will have to pay (ie: if you withdraw the amount you deposit in the offset account quickly, you cannot save much). 

In most cases, the offset feature is only available on variable rate mortgage loans, although there are some lenders that do offer an offset through a fixed loan. 

How Does An Offset Account Work?

Here’s an example to help break things down for you: 

Suppose you take a home loan of $300,000 from your bank and start an offset account with $10,000 deposited into it. 

If you do not have an offset account, interest would be charged for the full loan amount (i.e $300,000). However, in this case, interest will be charged on $290,000. 

The balance in the offset account is subtracted from the loan amount to obtain the sum of money for which interest will be charged. This will continue as long as the amount you deposited in the offset account stays in it. 

While you do not make money with offset accounts, your money is still working for you (your expense is reduced!). The idea of an offset account would be to reduce the amount of borrowed cash, which you are repaying interest to shorten the period of your loan.  

Should I get an offset account?

It really depends on your situation and the best thing to do would be to weigh the pros and cons of an offset account before you make the final call. 

Here are the advantages of having an offset account:

The balance in your offset account can be accessed any time you wish. Lenders tend not to penalise you for withdrawing money from the offset account. The accessibility ensures that an offset account is nothing short of a conventional savings account (Make sure you don’t have to pay a fee for withdrawing from the offset account).

The major purpose of an offset account is to reduce the interest on home loans. Keeping a considerable amount in your offset account for some time will help you save interest charged on your home loan.

A savings account is a good source of income if you have a high income to start off with. However, almost all the time, the amount you earn on a savings account will be much less when compared to the interest you can save on home loans. This explains why switching to an offset account is often more attractive than sticking with a regular savings account.  


Here are the disadvantages of having offset accounts:

If you deposit a sum into your offset account and withdraw it quickly, maintaining one will not be of much use to you. 

Opening and maintaining an offset account does not come without a cost. Lenders often charge an annual package fee or a monthly fee for the offset account and the amount of interest you are likely to save could be lower when compared to the fees (we would crunch the numbers for you). If you are unable to retain a certain amount of money in your account, you could hardly get any benefit out of it. 

*Note: Small changes in the balance will not matter much because interest is calculated daily. 

In some cases, the offset accounts are linked to home loans with higher interest rates, which means you will have to maintain a considerably higher balance in the offset account to compensate for the loss brought by the high-interest rate.

What Are The Different Types Of Offset?

There are two types of offset accounts:

– 100% offset 

When you start a 100% offset account, the interest you earn is equivalent to the interest you save. Most Aussie lenders offer 100% offset accounts. 

– Partial offset 

In the case of a partial offset account, only a portion of the balance in the offset account will be used to offset the interest charged on the home loan. (eg: Bankwest currently offers a 40% offset against the fixed rate.)

Offset Accounts VS Savings Account

Your cash works harder in an offset account in comparison to an everyday savings account as the interest rate on a home loan is higher than that of a savings account.

Another advantage is the interest you save yourself with an offset account will not be looked at as income (rather, expense reduced) – this means the saved amount could not be taxed. On the flip side, the interest you earn on a savings account will be considered as income, which means it is taxable.

Offset Account Vs Redraw Facility

Let us make a comparison between putting money in offset accounts and putting it in a redraw facility.

Simply put, a redraw facility is a feature attached to your home loan that allows you to access extra repayments that you have made on the loan while an offset account is a transaction account. 

A redraw facility may not be as flexible as an offset account and you would not be able to redraw money from the ATM or make transactions with your bank card. Some lenders also set minimum redraw amounts. 

There would also be different tax implications, whether you decide to rent out your home, live in the property or treat it as an investment. 

If you decide to rent out your home as an investment property, the interest charged on the loan may be tax deductible, but if you redraw from your redraw facility for non-investment purposes, that amount would not be deductible. 

However, if you are on an owner-occupied loan and decide to redraw for investment purposes, you would be able to claim mortgage interest expense on the amount that you have redrawn for investment purposes. 

On the other hand, withdrawing amounts from your offset account won’t affect the tax deductibility of interest charged on your loan.

If there is a possibility that your first home could one day become an investment property, we suggest you talk to us for advice on the best way to reduce interest on your loan by using a redraw or offset account. (You might even be better off with both!) 

What Is The Best Way To Use an Offset Account?

Some individuals have their salary transferred directly into their offset accounts and use it as an everyday transaction account while others use their offset as a checking account for things such as vacations, refurbishments, or for less fascinating purposes like saving cash for tax bills.

Here are some things you can do to make the most out of your offset account.

  1. Deposit your savings into the offset account
  2. Deposit your salary in the offset account
  3. Consider combining your offset with your credit card payments (you could use a credit card to take care of your expenses during the interest-free payment period but once it is due, pay the full balance because your credit card interest will be much higher when compared to your home loan interest)

Final words

As good as some features sound, don’t expect all offset accounts to be the same. Check every detail before you start an offset account so that you can maximise your savings. 

Need help deciding whether you are better off with an offset? 

Our expert team is here to help you navigate the maze of options. With access to a multitude of products, we are able to choose the best to suit your needs.

Allow us to find you the perfect home loan.​

Apply online to get expert recommendations with real interest rates and repayments.

Australian Expat Home Loans

How to get a property loan in Australia

8-MINUTE READ

Share:

Buying a property is on everyone’s bucket list – it provides you shelter in a storm, warmth in the cold winter nights, light in darkness, and most importantly, a sense of freedom and security. While we all want to own a house and transform it into a snug and cosy home, many tend to be held back by the brutal housing market. But what if we tell you that there is a hassle-free method to invest in a suitable property?

Let us tell you the right way to choose the best property loan in Australia. 

Allow us to find you the perfect home loan.

Apply online to get expert recommendations with real interest rates and repayments.

A little more info for you

Most Aussies, foreign nationals and temporary residents wish to invest in a property that is worth their every penny. It is always wise to ask for opinion from professionals as we can help you buy your property of choice at the best price. 

Generally speaking, you could apply for loans when you have an LVR of 80% or less as the property itself serves as security. 

Property investors in Australia can claim 100% of their mortgage interest expense as a tax deduction and negatively gear their investment property. The property gives long-term returns when the property’s value increases over time. You can rent it out and receive rental income (essentially more money). 

As compared to an investment in the share market, investment in a property gives you full control. It is your property, and no one can tell you otherwise, so you can make investment decisions to maximise the value of your property and make the most out of it. You can also do certain things to repay the home loan quicker (we’ll get to that in a bit). 

Current lending market conditions

Different home loan options in Australia nowadays can confuse a lot of beginners which might put them off of getting one. If you are new to the real estate sector in Australia, you should reach out and have a discussion with us (it’s free). 

You must be fully informed and be aware of the minimum deposit Australian lenders accept and the amount you can borrow. Lenders will consider your financial situation and other factors to decide on how much they can lend you devoid of over-stretching your financial capacity.    

  • Mortgage interest rates are at the lowest point in history.
  • The Reserve Bank of Australia (RBA) has stated we will be in a low interest rate environment until 2024. Inflation rate is to be between 2-3% and job growth to return to pre-COVID levels before rates start to increase again.
  • You’re able to get a 30-year loan tenure regardless of age.
  • You’re able to do Interest-Only repayments with a slight premium, although the majority of clients are opting for Principal & Interest.

How Do You Get A Loan To Invest In Property?

Comparing the cheapest home loan interest rates in Australia is something we will help you do. You can talk to one of our mortgage experts so we can provide you with options that cater to your needs. 

Next up is to complete our quick online assessment, you will then receive a comprehensive assessment with your maximum borrowing capacity and lender options, with rates and fees.

Once you have decided to proceed with the home loan application, you will be guided through our quick and easy document collection process for application submission. We strive to provide you with the most stress-free experience.

Buyers would only be required to provide basic documents, such as passports, driving license copies, income certification letters and the first page of the house purchase contract. Up to 80% of loans are approved. The interest rate and product functions are precisely the same as those of local Australian customers.

Australia’s developed financial industry has made Aussie expats even more powerful, and some support is not even available for local buyers. If the buyer is allowed to only pay interest in the first five years, the principal can be put on hold temporarily, so the buyer can easily “provide a house with a house”; if the house appreciates, there will be no need to sell the house and do a reassessment. It is very convenient to cash out the value-added part, turning “dead money” into “living money” and realise a rolling investment.

Most Australian financial institutions provide 80% of housing loans with some financial institutions lending more than 80%, and 50-60% of the purchase price for commercial properties. But for loans higher than 80%, you must pay a certain percentage of mortgage insurance which may be quite hefty. This one-time fee goes towards the lenders for covering them when the borrowers do not make the repayments. 

Unlike many countries, the Australian housing loan interest rate can be divided into two types: Owner-occupied Housing Loans and Investment Housing Loans, depending on the purpose of the buyer’s purchase. The interest rate for investment housing loans tends to be slightly higher than owner-occupied housing loans. Generally, as an Australian expat, you will be buying for investment as you are not currently residing in Australia to live in the property. 

Everyone knows that housing loans’ interest rate is a susceptible number, but few people have studied how much difference this number will have.

According to statistics, the gap between the highest mortgage interest rate and the lowest mortgage interest rate offered by central Australian banks and lending institutions has reached 1.7% (30-year loan interest difference is as high as A$370,000!). This comparison is based on a quota of 1.024 million, close to the median house price in Sydney.
By choosing this loan method, the lender can repay the interest only for each repayment within five years. The amount is relatively low and it will be completed at maturity. This kind of repayment method is suitable for buyers who are purchasing for investment purposes. Investors expect that real estate will increase rapidly. In three to five years, the value of houses will skyrocket. 

Once the investment expectations have been reached, they will be resold for profit. Throughout the investment period, investors only need to pay a small amount of interest to complete the investment.

Home Loan Rates Australia

More than 70 banks and financial institutions in Australia are giving loans, and nearly 80% of customers are choosing the four central banks. 

This is despite the four central banks in Australia having a higher average housing loan interest rate. You can check the current interest rates for the big four banks here.

Relatively smaller banks and small lenders often offer relatively lower mortgage interest rates, as is required to compete with the large network effect and online banking capabilities of their larger competitors. Oftentimes, these smaller lenders offer a better cost-saving alternative and should not be ignored. 

The Australian Competition & Consumer Commission (ACCC) released an interim survey report on the lending rates of Australia’s four central banks and Macquarie Bank (Macquarie) and found that the mortgage information released by significant banks to mortgage customers was “not transparent”, hence before you make a quick decision to go with the big banks, do come to us and see whether you would benefit more by borrowing from lesser known lenders

Cheapest Home Loan Interest Rates in Australia

On November 3, 2020, the Reserve Bank of Australia (RBA) announced the lowering of the official cash rate from 0.25% to 0.1%, a record low. The purpose of the interest rate cut is mainly to stimulate the economy out of the technical recession caused by COVID-19 epidemic. 

Traditionally, Australian housing loans are mainly floating rate (variable) loans, which can be linked to offset transaction accounts. Variable loans can also be refinanced at any time, as opposed to fixed loans which have “locked-in” terms with break-cost penalties.

Since the November 2020 rate cut, all four major Australian banks, Commonwealth Bank (CommBank), Westpac Banking Corporation (Westpac), the Australian and New Zealand Banking Group (ANZ) and the National Australia Bank (NAB) have reduced interest rates substantially on their fixed-rate and variable-rate mortgage products.

Smart and successful lenders in Australia have their own metrics and qualifications for assessing the loan applicants. They focus on so many important aspects of the home loan applicants and follow different terms and conditions. There is no specific formula or rule on how much the home loan applicant will be approved for. 

Some of the important factors Australian lenders consider while deciding whether the applicant is qualified for the loan are the borrowing capability of the applicants, purpose of the loan, property prices, credit history, and other things. Our articles on how to maximise your borrowing capacity as an overseas resident earning foreign income is a must-read.

Home Loan Calculator

Use different calculators to help you calculate your ability to borrow, the cost of house decoration, monthly payment and stamp tax. 

Our online home loan calculators can provide you with a complete guide and will provide suggestions on how to make an informed decision to qualify for a home loan. You will get a basic idea on home loan which would help clarify some doubts you might have.

Try our:

Mortgage Repayment Calculator

Borrowing Power Calculator

Investment Property Calculator

Stamp Duty Calculator  

Guidelines for qualifying home loan in Australia these days catch the attention of everyone and increase their overall interests to directly submit an application for a home loan. There are several things you should pay attention to: your credit history, commission as income, mortgage brokers, proven savings, affording repayments and credit card transactions. We will save you the hassle and have a thorough inspection of all your documents while appraising your application and help you decide on which home loan to go for. 

Can Foreign Nationals Get Property Loan In Australia?

The Australian government has always been supporting the real estate industry as it is one of the primary pillar industries in the Australian economy. One of the most important policies is encouraging people overseas to buy Australian real estate as part of their investment portfolio.

When you buy a house in Australia, you can enjoy the same policies as Australian residents, that is, national treatment. As long as the buyer is not a person that the Australian government considers harmful to the national interest and the property purchased is not a historic property that is prohibited from being sold on the Australian historical and cultural heritage list, your application is usually approved within two weeks. From this point of view, the requirements for overseas buyers are very lenient. They can choose where to buy, what to buy, and how many sets to buy.

Note that Australia restricts the types of properties that foreign buyers can hold. For example, foreigners can only buy off-plan and first-hand new houses; international students can buy homes, but they can only live by themselves and not rent out if there is no identity or stay after the visa expires. If you start working, you must sell the property.

The only real difficulty is from a financing perspective. While the Australian government is largely fine with foreign nationals buying properties, the banks and lenders have to follow stricter guidelines on who they can lend money to – for this reason, it has become tougher for those without Australian passports to get loans. Most foreign nationals should prepare for an LVR of 60-70% with slightly higher interest rates or fees. 

 

Final Words

The process of applying for a loan and buying real estate in Australia while being away from home can be quite confusing and daunting, but don’t you worry. We are here for you and will  guide you through the process. We will work out which lender can offer you the best interest rates and terms and conditions and advise you of your prospects of obtaining finance so, we got your back.

Start your home buying journey with Odin Mortgage.

Apply online to get expert recommendation.

A Complete Guide to Purchasing an Investment Property in Australia

A Complete Guide to Purchasing an Investment Property in Australia

4-MINUTE READ

Share:

Australia, a developed tourism country, is rated as one of the most livable countries globally and is known for its high standard of living. In 2021, Adelaide, Perth, Melbourne and Brisbane all featured in the top ten most livable cities in the world list.

Beautiful beaches, dense tropical rainforests, undulating hills, more than 3000 hours of sunshine throughout the year, significant sports and cultural activities, national parks and wild animals. These precious natural and human environmental resources in Australia are features that attract investors from all over the world. 

Property investment is one of the best ways to build wealth. However, it is a long-term commitment, so it’s important that you’ve done your research before dipping your feet in the real estate waters.

If you’re thinking of purchasing an investment property in Australia, read on and learn about the ins and outs! 

Reasons To Invest In Australian Property

Here are some reasons why you should invest in Australian property:

  • Population growth

When it comes to real estate investment, one of the main factors you need to look into is the population of the place. In Australia, the population is on the rise in major cities like Sydney, Melbourne and Brisbane. 

The vacancy rate in Australia is meagre now, with less than 2% vacancy rate. With low-interest rates and rapid population growth over recent years, the demand for housing is way more than the supply. As long as the property rental price is reasonable, it will be more popular, ensuring both rental and capital growth for investors.

  • Steady growth in property market

Investors are drawn to invest in Australian property because of rental growth. For years, Australia has enjoyed steady rental growth while achieving capital growth. 

Sydney’s current average rental output rate is 5% (annual rental income as a percentage of house prices) (data source RP-DATA Rismark). The rental income can be roughly the same as the cost of holding the property, and some even have pure cash flow income.

According to statistics provided by Australia in the past 120 years, Australia’s real estate market is of lower risk compared to real estate markets of other countries. Property prices have been appreciating at an average annual compound growth rate of 6.8%. 

  • Consistency

Australia’s real estate market is one of the most consistent property markets in the world. It has an average ROI of 7% per annum. Not just that, it also has fewer years of decline in comparison to other property markets worldwide. For over 100 years, Australian properties have enjoyed a consistent rise in the capital. 

  • Easy to invest

Another good reason is that it is easy to invest in properties in Australia. Unlike other countries, Australia does not have strict foreign investment laws, making it easier for investors to invest in the Australian property market. 

Here are some things you should be aware of:

  • Australia has effective and strong consumer protection legislation through the National Consumer Credit Protection Act 2009 (NCCP Act)
  • The legal system in Australia is similar to the UK system
  • It is expected that the immigration trend in Australia will rise in the coming 50 years. 
  • Tax deduction policy: Although the seller must pay VAT after the property is sold, Australia’s tax law has a very generous deduction policy. Most of the expenses incurred during the purchase period can be offset by the income tax.
  • Loan policy: Many Australian banks provide financial products that help overseas investment and lending, including loans that only pay off loans with interest.

Australia has witnessed economic growth in the last 8 to 10 years. Many of the foreign property markets such as the United States market and the Hong Kong market have suffered major losses in the past, with some volatile economies witnessing a price drop of up to 70% in the housing industry. The Australian market, on the flip side, remained undefeated. 

The Australian property market provides investors the confidence they need to invest. For long-term investment commitment, the Australian property market could be the best option for you. The low volatility of real estate in Australia makes it a desirable choice over other property markets and even stock markets around the world. No matter which country you are from, you are welcome to invest freely in the Australian property market.

Investment Property Tips Beginners

Evaluate your finances and budget

Ask your bank to receive a statement of your credit card, and make sure you clear your outstanding debts. If your credit is not in a good place, now may not be the best time for you to buy a house or investment property. Lowering your credit card limit will help you obtain a larger financing limit.

  • Think about the total cost 

Deposit: You typically need to take out a 10-20% deposit to guarantee the mortgage. To avoid paying the lender’s mortgage insurance (LMI), a 20% deposit is required. Low deposit mortgages exist, but your mortgage insurance will be much higher.

Stamp Duty: The amount of stamp duty you pay depends on the state your property is in and the property’s purchase price. You can use the stamp duty calculator to get a specific quote.

Legal and Transfer Fees: Depending on the amount of legal work required for property transfer and other standard inspections, you should set aside AUD$2,000-A$5,000.

Financial and Insurance Expenses: If your loan exceeds 80% of the purchase price, you will need to pay for Lenders Mortgage Insurance.  

A mortgage loan application may cost anywhere between A$200 and A$600, depending on the lender. If you get a loan as part of a package this will often be waived. 

  • Be mindful when choosing the location and property type

Consider making a list of all non-negotiable, “must-have” requirements. The following is a sample list of those who want to become a homeowner.

  1. Location – close to work, school, family, and friends
  2. Public transportation, services, and shops
  3. Does the area have a mature infrastructure or development plan?
  4. Suburban features – is there a good atmosphere and friendly community?

When buying an investment property, the factors to consider are a little different from buying a house. Determine whether you want to fix it up, turn it over, hold the property or rent it out.

When choosing the type of property to invest in, a different set of criteria is required. Look for the following categories of properties while investing:

  • Look at housing prices in areas with higher rental yields
  • Research recent sales prices to understand prices
  • Is the rental demand strong? See if the vacancy rate is tight
  • Are there upcoming developments or zoning changes? What impact will they have?
  • Is it close to schools, shops, hospitals, or public transportation?
  • What will the maintenance cost be?
  • How many bedrooms, bathrooms and parking spaces are there?
  • Property inspection is important!

Ask a qualified inspector to conduct an assessment of the property. They will look for structural defects, pests, faulty wires, plumbing and drainage problems, asbestos, lead paint, etc.

Additional Incentives

Compared with some countries’ cumbersome investment policies, the entire approval process for investing in Australian property is relatively simple. 

Most real estate and land in Australia are generally sold and transferred in the form of ownership (ie: buyers have indefinite ownership of the land or house). Owners have the right to live, rent, sell, transfer the ownership or leave it vacant.

First Homeownership Grant

Are you eligible for the first home owners grant? If you and your partner have never purchased a property before, you will likely qualify for a “First Home Buyer Grant” (FHOG). 

FHOG is a nationwide program, but each state has its funding and the amount varies from state to state.

The government will determine whether you can get the subsidy based on whether you have previously purchased a house or investment property and whether your spouse or partner has also purchased a home or investment property. 

FAQs

What are the characteristics of the Australian Real Estate Market? 

Answer: Social stability, sound policies, the proper legal system, mature market, stable appreciation, active rental market, low vacancy rate and a chronic shortage of housing supply. 

Can foreigners buy Australian houses with loans?  

Answer: Yes.The Australian government encourages foreigners to invest in their real estate. Overseas investors can mortgage the properties they want to buy with Australian banks. 

After an investor purchases an Australian property, would the property lease’s rental income by subject to relevant taxes? 

 Answer: Yes. According to local laws in Australia, any income earned in Australia must be taxed. However, this income is the net income after renting. Therefore, it is recommended that investors take a loan from an Australian bank when buying Australian real estate to deduct the rental income to the greatest extent. At the same time, Australian accountants will use the various expenses of the property. With tax deductions, investors can maximise investment income.

Start your mortgage journey now.

Apply online to get expert recommendations with real interest rates and repayments.

The basics of the Loan to Value Ratio (LVR) in Australia

The basics of the Loan to Value Ratio (LVR) in Australia

8-MINUTE READ

Share:

Your Loan to Value ratio (LVR) is simple to calculate. You divide the mortgage amount by the appraised property value and express the answer as a percentage. Easy. Getting a favourable ratio matters a great deal as it plays a substantial role in deciding whether your home loan gets approved, what rates are available, and whether or not Lenders Mortgage Insurance (LMI) is payable. Sounds somewhat complicated, but don’t worry – we are here to help you understand all these things so you can confidently move forward with your mortgage journey.

What is an LVR?

The LVR is a common term in the mortgage industry. It is a calculation which determines the deposit required for a purchase or how much equity you currently hold in your property.

The LVR expresses the ratio of a loan amount to the actual purchase price or valuation of your property as a percentage. Essentially, the lower your LVR, the larger your deposit has to be or the lower your LVR, the greater the equity you have in your property.

Lenders in Australia place a heavy emphasis on the LVR when assessing your loan application. Borrowers with an LVR of 80% or below will have a higher chance of getting an approval and will likely get a better interest rate. 

Borrowers with LVRs of 80% or above are considered higher risk to the lender, and Lenders’ Mortgage Insurance (LMI) may need to be paid to protect lenders from a potential default, which increases the cost of the mortgage. With that being said, LVRs as high as 95% are available given the loan will be mortgage insured. We explain more about Lenders Mortgage Insurance here (LINK TO LMI BLOG)

It is also possible for a borrower to have an LVR of 100% or above (no deposit required). If you do not have enough savings, this is an option as long as you have a security guarantor who is a parent or close relative (subject to lender) who is able to offer you a property to use as security.

In general, low LVR loans carry with them lower rates for borrowers as they are in the low-risk category. A higher LVR loan will typically attract slightly higher rates. It’s also important to point out that despite this, lenders are still happy to consider higher-risk borrowers such as those with:

  • Low credit scores
  • High debt-to-income ratios
  • Previous late payments in mortgage history
  • High loan amounts or cash-out requirements
  • Insufficient savings
  • No income

LVR calculator

Let’s say, your property costs $600,000 and you would like to borrow $480,000. Your LVR would be: ($480,000 ÷ $600,000) × 100% = 80%.

As mentioned previously, the lower the LVR, the higher the chance that the loan will be approved from a lower risk standpoint. The interest rate is likely to be lower also. 

Here’s another example. 

Your property costs $600,000 but now, you only intend to borrow $300,000. Your LVR would be ($300,000 ÷ $600,000) × 100% = 50%, significantly lower than 80%. By increasing the amount of money you put in, the LVR could effectively be lowered. 

Basic LVR Formula

The main factors that impact LVR ratios are the amount of the deposit you put in, purchase price, and the appraised value of a property. 

PRO TIP: 

A property value is typically determined by an appraiser or valuer, or the unconditional arms-length transaction between the vendor and purchaser.

In general, banks use the lesser of the appraised value and purchase price when the property is purchased.

Which One to Choose: Purchase Price Or Valuation Price

You may wonder how the LVR is calculated when the purchase price and valuation price is different. Here are a few notes that might address the questions you have in mind and clear things up for you:

  • Australian Lenders and Mortgage Insurers

Lenders and insurers use either the purchase price or the valuation price, whichever is lower, when determining the LVR. This situation is common in off the plan purchases as the value of the property may have changed from the date of which the contract was signed. It is also common in a hot market when competition is fierce and pushes the sale price higher.

Some lenders consider the valuation price rather than the purchase price to calculate the LVR when the contract of sale to purchase the property was signed more than 3 months before the date of application of your loan. 

For example, if you bought a unit off-the-plan for $500,000. When you are close to settlement and some time has passed since initial signing, the valuation becomes $600,000. The LVR would then likely be calculated using the latter price.

What’s good about a higher valuation is that you will not be required to pay as high LMI premium (if LMI was payable in the first place), or you might not even need to pay for any at all, which is why having a valuation done close to settlement could help you maximise your borrowing power and get a better deal.

  • What if I am buying a property from my family?

You generally still have to pay stamp duty on the market value of your property and potentially capital gains tax (CGT) as well. It is important to know the proper way to transfer property within your family and to avoid being charged hefty fees when thinking about any kind of property transfer (we can help you with that!) 

  • How do lenders calculate the LVR if I am refinancing my property?

The lenders’ valuation of your property will be used to calculate the LVR. Your actual purchase price may become irrelevant as you have likely purchased your property some time ago and possibly even renovated or added value to the property. The purchase price may also become irrelevant if there are house price fluctuations.

  • Is my property always valued by lenders?

Not always. For properties being purchased that meet particular criteria, property valuation may not be required. A physical valuation is always more expensive and time-consuming than the ones that are automated.

The method of valuation ultimately comes down to your LVR and the overall risk of your application. Refer to the section below regarding the criteria.

When will a Valuation be Required?

Some Australian lenders do not need a property to be valued when it meets certain criteria. They may adopt the actual price for calculating the LVR instead in the following situations:

  • LVR is equal to or less than 80%
  • Loan is under $800,000
  • Property is being purchased 
  • Property located in a major regional centre or capital city 
  • Property purchased via a certified real estate agent 
  • Property is not a new dwelling (off the plan or new building)
  • Vendor not related to potential borrower 

Allow us to find you the perfect home loan.​

Apply online to get expert recommendations with real interest rates and repayments.

What is the Maximum LVR that I can Go For?

The maximum LVR that the Australian banks let you borrow depends on:

  • Home loan amount required
  • Property location
  • Credit history
  • Loan type applied for

Most lenders require borrowers with high LVRs (>80%) to be Australian citizens, which means that the maximum LVR for foreign nationals is 60% – 80%. 

PRO TIP:
Non-residents who wish to buy property in Australia must apply to the Foreign Investment Review Board (FIRB) for approval and are only allowed to buy certain types of housing. 

Lenders tend to implement stricter regulations on non-residents. Loans for foreigners also typically have substantially higher interest rates than regular loans.

Can I borrow 100% LVR?

There are three ways you could borrow 100% LVR (or somewhere close to 100%). 

Method 1 – Family Guarantor home loan

This method doesn’t require you to have any existing properties. You will have to find a guarantor to support your loan application. 

The guarantor can be a family member or a close relative (depending on the lender’s policy) with sufficient equity in their property. The guarantor does not help you repay your loans but uses a portion of their property to secure a portion of the home loan being applied for.

The guarantor’s security doesn’t cover the entire loan amount, just a portion of it. This is usually the amount needed to reduce your LVR to 80%. In this case, you will not have to pay Lenders Mortgage Insurance.

Note that a guarantor may not be required (and removed) when you make additional repayments or when the value of the property increases. The LVR would then be low enough for the banks to accept it devoid of guarantors security requirements.

Method 2 – Releasing Equity (Top-up/cash out) from an existing property

If you have an existing Australian property, you can offer that property as additional security and the bank will allow you to borrow against that property up to 80% of its value.   

Example:

  1. You have an existing property worth $500,000 with a current loan balance of $150,000.
  2. The bank will allow you to borrow up to 80% of the value so a maximum potential loan of $400,000.
  3. You top up your loan from $150,000 to $400,000 which is a $250,000 cash out or equity which you then take and pay for the remainder of the first purchase 

 Method 3 – Lender’s Mortgage Insurance (LMI)

You can borrow up to 95% of the property’s value by paying LMI to the bank. If you borrow 80% or lower, there is typically no LMI fee payable.

If you borrow 90%, the LMI fee would be approximately 2 – 3% of the property value and gets added on top of the loan amount. 

In the case of the $1,000,000 purchase, you could borrow $900,000 by adding a $20,000 – 30,000 LMI fee on top of your loan. So your total loan amount would be $920,000 – 930,000.

Paying LMI is only something we’d recommend if you can’t do the first two methods, you don’t have sufficient savings/deposit, and you want to enter the property market sooner rather than later.

What is LMI? When is it Relevant?

Lenders Mortgage Insurance (LMI) is a lump sum, one-off payment you pay to the lender in case you default on your mortgage and the property sells for an amount that’s less than the value of the mortgage. 

Although the property itself serves as security for the loan, after taking all the additional costs into account, the amount that the property sells for may not be sufficient to cover the debt. In this case, lenders would recover the shortfall (ie:  the difference between the property price and the size of the mortgage).

We can’t tell you how much you will have to pay for the insurance as different lenders have different policies, but as a rule of thumb, the higher the percentage of the loan you take out (as compared to the value of the property), the more you will have to pay. Most lenders require you to pay LMI when they lend more than 80% of the value of the property. 

There are a couple ways you could get a loan with a reduced LMI:

  • get a guarantor 
  • capitalise the cost of LMI (ie: add the cost of LMI onto the principal of the loan) 
  • save a bigger deposit 

As always, talk to us at Odin Mortgage so we can help you save the most money! 

Is my LVR considered “high-risk”?

Australian lenders consider any loan with an LVR of over 80% high risk. LMI is required for minimising the loan-related risk so that the lender can approve the loan without the risk of losing money. 

You can use an LMI calculator to estimate the premium you will have to pay when you are taking out a loan of more than 80% LVR.

Why is my LVR Restricted by the Bank?

Australian banks use the LVR to manage the risk of the loan applications received from potential borrowers. They put a cap on the maximum LVR when the borrower is a high-risk one in order to reduce the risk of the home loan. 

Even if you have obtained pre-approval for a loan of a certain LVR, you may only be approved with a substantially lower LVR if the property is:

  • Difficult to sell – likely to take six months+
  • Remote location
  • Relatively unique
  • With restrictions, e.g. serviced apartments, display homes and heritage-listed properties

Use different tools online!

Most beginners to home loans are not aware of all the upfront fees and costs associated with property investment. If you have not taken these costs into account, then you may have less money left for deposit. You can access our savings calculator, home loan deposit calculator, and repayments calculator below to ensure you are well prepared in your home loan journey.

The savings calculator is designed to help you find out how long it will take to save for your home. 

The home loan deposit calculator helps you work out how much deposit you will have after deducting the upfront costs. 

The stamp duty calculator helps you calculate the amount of tax charged by the Australian State and Territory Governments.

Ready to purchase a property in Australia but not sure where to start? 

Fear not! 

Contact us for a free consultation on all mortgage matters. Just tell us about yourself, your plans and your finances, and we’ll give you real numbers and interest rates – not just our best guess. We are here to help you buy a home.

Find out who can witness your Australian Mortgage Documents while overseas as a foreign resident.

Find out who can witness your Australian Mortgage Documents while overseas as a foreign resident.

5-MINUTE READ
Share:

Who Can Witness Your Australian Mortgage Document Overseas?

Your loan contract from the lender will often come with several other documents, most of which require your signature.

Collectively these may be referred to as your Mortgage documents. There is, however, one set of government mortgage documents that require specific witnessing, and depending on your location at the time of signing; requirements may be tricky and sometimes impossible to meet.

Horror stories exist where foreign residents are left unable to settle their mortgage due to improper certification of documents while overseas.

​Read on so you and your lender will be ready when it comes time to drawdown.

What is a Mortgage Document?

It is often the case that you may not have sufficient funds to purchase (real estate) properties. You may borrow funds from a bank or a lender (i.e. apply for a mortgage with the bank) to fund your purchase.

Mortgage documents are therefore required to be entered into between you and your lender to reflect the mortgage arrangement.

Mortgage documents generally contain the following information:

  • details of you and your lender;
  • description or address of the property;
  • details of your mortgage arrangement between you and your lender;
  • details of an independent witness who witnesses the execution of the documents.

Mortgage documents must be prepared and signed in an approved form under the Transfer of Land Act (VIC), Land Title Act 1994 (Qld), Real Property Act 1900, or any equivalent legislation depending on the location of your property.

Your lender’s solicitors will usually prepare all mortgage documents within a week of your loan is formally approved.

Who can witness your mortgage documents?

Mortgage documents must be signed and witnessed by a ‘qualified witness’. Generally, an ‘Australian lawyer’, ‘Notary Public’, or ‘Consular officer’ are approved and qualified witnesses under the relevant laws and legislations.

Other than sign and witness your mortgage documents, your Australian lawyer will also need to verify your identity – therefore, remember to bring your identity documents (e.g. passport and another form of identification with a photo) when seeing your lawyer.

If you happen to be in Australia at the time of signing your mortgage documents, the restrictions are a lot more lenient. See below table on general requirements as a guideline.

Witnessing requirements if residing in Australia:
State Requirement (if residing in Australia)
New South Wales Anyone over the age of 18 that is not a party to the loan.
Victoria Anyone over the age of 18 that is not a party to the loan.
Queensland An Australian lawyer, Notary public, or Consular officer.
Western Australia Anyone over the age of 18 that is not a party to the loan.
South Australia Anyone over the age of 18 that is not a party to the loan.
Tasmania Anyone over the age of 18 that is not a party to the loan.
Norther Territory An Australian lawyer, Notary public, or Consular officer.
Australian Capital Territory Anyone over the age of 18 that is not a party to the loan.

Witnessing requirements if residing in Overseas:

State Requirement (if Overseas)
New South Wales An Australian lawyer, Notary public, or Consular officer. Depending on the lender, anyone over the age of 18 that is not a party to the loan.
Victoria An Australian lawyer, Notary public, or Consular officer. Depending on the lender, anyone over the age of 18 that is not a party to the loan.
Queensland An Australian lawyer, Notary public, or Consular officer.
Western Australia Consular officer only
South Australia An Australian lawyer, Notary public, or Consular officer. Depending on the lender, anyone over the age of 18 that is not a party to the loan.
Tasmania An Australian lawyer, Notary public, or Consular officer. Depending on the lender, anyone over the age of 18 that is not a party to the loan.
Norther Territory An Australian lawyer, Notary public, or Consular officer.
Australian Capital Territory An Australian lawyer, Notary public, or Consular officer. Depending on the lender, anyone over the age of 18 that is not a party to the loan.

Mortgage Witnessing FAQs

Generally, the answer is ‘No’. The witness must be ‘qualified’ as prescribed by the relevant laws as prescribed by the state in which the property is located.


Always check with your broker or lawyer to ensure your mortgage documents are signed and witnessed correctly!

Unless your lender expressly advises you not to date the document, you may date the mortgage document the time that you signed it.

A simple question with a complex answer. Each individual will be different, and we go into detail with examples on how much you can borrow, how to increase your borrowing power and more in this article ‘How Much Can You Borrow?’.

Yes, there are no issues with that. Just remember the witness must be a ‘qualified’ witness as prescribed under the relevant laws.

Yes, you must sign in the presence of your witness. In other words, do not sign the document at home before you see your witness. This is to ensure the documents are valid.

Yes, most banks ultimately require original documents. However, it is always good practice to first scan and email the signed documents to your broker or bank’s legal team before providing the originals to them to ensure it’s signed correctly.

The last thing you want is to post the documents only to find out 1-2 weeks later that they were done incorrectly and need to re-do causing a delay in settlement and potential penalties.

How to correctly witness a signature.

Before signing any government mortgage documents, the qualified witness must ensure they have ‘taken reasonable steps to ensure that the individual is the person entitled to sign the instrument’ as prescribed under Section 87A of the Transfer of Land Act 1958 (Vic), Section 56C of the NSW Real Property Act, Part 2-2005 of the Land Title Practice Manual (Queensland) or any other equivalent legislation.

In light of the above requirement, the qualified witness will undertake a ‘verification of identity’ on you.

Typically, this includes:

  1. A face-to-face in-person interview;

  2. You must bear a “reasonable likeness” to the person depicted in photographs in the identification documents; and

  3. The identification documents must be originals and be produced by you.

Lawyers will also ensure there are no discrepancies in your identity documents.

For example, your passport name is ‘Thomas’, but your driver licence only shows ‘Tom’. In this case, you would need to sign a statutory declaration noting your name difference. A statutory declaration must be correctly signed and witnessed by an Australian lawyer.

Tips for witnessing a mortgage application from overseas

Remember to bring two (2) forms of identity documents that bear your photograph.

​For example, if you reside in Hong Kong, this usually includes your passport and your Hong Kong Identity Card (or your current Australian driver license).

​If you have previously changed your name, please also bring your proof of a change of name.

Where to find a qualified witnessing officer?

The first port of call is to see if you have any friends that fit the bill. Their signature in exchange for a nice lunch on you? This will likely be the best value.

​Failing that, seek out your local Australian Embassy to engage their Notarial service for a cost. Check your relevant Australian embassy website for a listing of their fees.

​For the Hong Kong Australian Embassy, the fee as of 1st July 2020 is HK$389 (exchange rate of AUD/HKD 5.328) for certifying a copy of a document or witnessing a signature.

​Keep in mind that for a single property mortgage transaction, there are usually:

  • Two (2) sets of signatures that need to be witnessed
  • One (1) certification form that needs to be completed by the witness
  • Two (2) copies of identification certified by the witness
  • For a total of five services x HK$389 = HK$1945 per person

The downside of using a Consular officer (besides the costs) is the potentially long booking times, up to 2 weeks during peak season.

​Lastly, you have Notary Publics or Australian Lawyers, these guys offer quick turnaround, flexibility, and convenience but at a steep price. It’s standard practice to see fees charged 2-5x that of the consular officer.

​Luckily, if you are residing in Hong Kong, Odin Mortgage has partnered with Lee & Poon Associates – Australian Lawyers to offer competitive notarial services at rates below that of the Australian Embassy. Just contact them directly and tell them we sent you!

Summary

The property you buy is probably one of your most valuable assets, so be sure to take the time at settlement to ensure that all legal documents related to your mortgage are accurate, most importantly the witnessing requirement.

​When signing your mortgage documents, be sure to pay attention to answering all the required questions and especially signature fields. Where possible, sign the documents with your mortgage broker or banker to ensure correctness.

​If you still have questions about your mortgage, be sure to speak with a mortgage expert today.

Allow us to find you the perfect home loan.​

Apply online to get expert recommendations with real interest rates and repayments.

Should You Pay Off Your Mortgage Early Or Invest? Here’s The Math On What’s Best

Should You Pay Off Your Mortgage Early Or Invest? Here's The Math On What's Best

4-MINUTE READ

Share:
Paying off your mortgage quick can help save you thousands of dollars in interest. But before you start chucking money in that direction, you’ll need to consider a few things before deciding whether it’s a smart idea.

We’ll crunch some numbers and discuss whether it makes sense to use your extra cash to pay off your mortgage early or to invest instead.

How To Pay Off Your Mortgage (in 10 Years or less)

Is this realistic, and is it possible given the standard mortgage term is 30 years?

Sure it is.

First, let’s come up with your typical Australian family: two adults and a kid.

You have a $500,000 mortgage on your home with an interest rate of 3% on a 30-year loan term.

  • You earn $100,000

  • Your spouse earns $60,000

  • Together you pay a combined tax of $36,784 and are left with $123,216 in disposable income, which is $10,268 per month.

Based on your level of income, we can expect total family expenses to be around $5000 per month, not including the mortgage repayments. (We got our numbers from the Australian Bureau of Statistics on Household income and expenditure.)

From our mortgage calculator, you’ll be able to work out the monthly repayment to be $2,108.

Now let’s crunch the numbers.

Cash flow $
Net income after tax $10,268
Less: Monthly living expenses ($5,000)
Less: Mortgage repayment ($2,108)
Money leftover for 'extra' repayments $3,160
Transfer the entire $3,160 into your mortgage Redraw or Offset account every month (as Extra repayments), and you’re on your way to paying off your mortgage in 9 years 1 month, saving over $180,000 interest in the process!
monthly extra repayments

There’s nothing crazy about this.

You could pay off your mortgage even quicker by sticking to a budget plan. Reducing your monthly expenses from $5000 to $4000 and increasing your extra repayments by an additional $1000 will help pay off the loan in 7 and a half years.

Paying off your mortgage is something we recommend especially if it’s your primary place of residence because you receive no tax deductions from the interest you pay on your owner-occupier mortgage.

Why you shouldn’t pay off your Mortgage

Pay off your loan quickly! Don’t pay off your loan! Which is it?

While it’s advisable to be paying off your Owner occupied home loan as fast as possible, the case isn’t quite as clear cut for Investment property loans.

With investment assets, the Australian Tax Office (ATO) will allow you to claim all related expenses as a tax deduction, this includes investment properties, and it’s mortgage interest expense.

So if you paid $15,000 in investment interest this year, you’ll be able to claim the full amount against any taxable income you may have such as your Rental income, Capital gains or your salary if working in Australia.

Right, so how does all this look like with real numbers?

Using the example above, $500,000 mortgage at 3% interest rate and rental income of $500/week.

annual cash flow summary
You would be making a rental income of $25,480 p.a. and some may think that income tax would be payable. However, the ATO allows you to claim all related expenses as a tax deduction, thereby reducing your taxable income to $1,951 (before tax depreciation).
annual tax position salary

After accounting for all the tax incentives (depreciation and write-offs), you end up in a negatively geared position, i.e. you pay no tax and instead, start accumulating ‘tax credits’.

Want your personalized cash flow and tax position analysis? We created the ultimate investment property analysis tool, go check it out.

The last point as to why you shouldn’t rush to pay off your investment mortgage is so you’ll have more cash in the piggy and the flexibility that comes with it.

If your investment interest rate is 3.5% and your Australian marginal income tax rate is at 32.5%, then we can calculate your effective rate of savings from you paying down your investment home loan.

By putting $10,000 into your investment mortgage, you may think you are saving 3.5% per year or $350 in interest, but on paper, you are only saving ((1 – 0.325) * 3.5%) = 2.36%, after you account for the loss of tax deduction.

So it’s a question of opportunity cost/trade-off.

If you believe you can make more than 2.36% (after-tax) with your money elsewhere, then you should reconsider paying down your investment mortgage.

One popular strategy is to still opt for Principal and Interest repayments (because P&I rates are about 0.20% lower than I/O rates) while using your Offset account as a place to hold your cash until a better investment opportunity arises.

An important note to make is that paying down the loan (investment or otherwise) carries almost no risk. Whereas if you intend to buy stocks with the expectation of 10-20% return, there’s most certainly risk involved. It’s a good idea to speak to your financial planner to discuss if it’s sensible before making any big decisions.

Summary

Paying off your mortgage early can save you a great deal of money in the long run for relatively little risk. Even a small monthly contribution can allow you to own your property sooner.

However, it may not always be the best option if the mortgage relates to an Investment purpose, and further thought is required.

Regardless, it’s prudent to have an emergency fund before you put your money toward your home loan. Also, pay down your high-interest debts first (e.g. credit cards, personal loans) before you focus on your mortgage.

Making extra payments, refinancing, or switching your repayment schedule are all strategies that you can use to pay off your mortgage early if that is your goal.

Get approved to refinance.

Apply online to get expert recommendations with real interest rates and repayments.