The Reserve Bank of Australia’s March decision to keep the official Australian interest rate steady until its next meeting gives borrowers another month of breathing space from incorporating new mortgage repayments into their budgets.
This year’s second cash rate decision results in Australia’s official interest rate remaining at 6.25 percent, its highest point since August 2000 but still a historically low rate. Modest economy growth and subdued consumer spending are some key reasons for the decision.
The Mortgage Choice franchise national manager corporate affairs, Warren O’Rourke said Australian borrowers with variable rate loans will welcome the breather.
“The RBA’s latest rate decision gives Australians making debt repayments a chance to continue concentrating on paying off their debts as quickly as possible,” he said.
“With the current housing and mortgage affordability issue, people who are considering entering the property market should be aware there are a number of not so traditional ways to make the saving and home loan application process easier so they can be accepted for a property loan”.
Thanks to the financial services franchise, following are some home loan types that may interest home and investment property purchasers as well as those who are struggling to save the traditional five percent deposit.
Monetary gift from family
One method increasing in popularity is for parents (or other family members) to support their children monetarily when it comes to a home loan. It is sometimes the difference between an application being approved or declined and is a great way to enter today’s housing market. If family members can afford it, they can put forward at least five percent of the property purchase price as a gift towards the home loan. Applicants must prove the gift is not repayable and in most cases signing a statutory declaration is all that their chosen lender will require.
Family equity
Another way family members can help is to allow their own home to be used as security for the home loan. This is typically set up as a limited guarantee for 20 percent of the purchase price, which means there is no need for the loan applicant to pay lenders mortgage insurance - a potential saving of thousands of dollars. All parties should consult a financial advisor before making the decision and consider the financial ramifications should the borrower default on the loan for some reason.
No deposit loan
Some lenders offer ‘100 percent’ or ‘no deposit’ home loans, where borrowers with good ‘serviceability’ - the ability to make loan repayments - only have to put forward a small part of the loan amount, mainly covering costs such as stamp duty and legal fees. There is even what’s called a ‘105 percent’ loan, which covers the property’s purchase price plus all other costs. However, the applicant must be aware that these low and no deposit loans sometimes have higher interest rates so it is worth thoroughly researching which type of loan will work best.
Remember that the main concern for the applicant and their chosen lender is whether or not they can afford to repay the loan over the long term.
Mortgage Choice has access to these types of loans and many more through its extensive panel of leading lenders. Their nationwide loan consultant network can easily help all kinds of borrowers wade through the mortgage maze.
14-Mar-2007