Want to know the difference between a Principal and Interest (P&I) loan and Interest Only (IO)? Want to figure out how much to save for a deposit? Anything you’d like to know before making a home loan application?
Check out our most commonly asked questions below.
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The Loan to Value Ratio is a calculation that financial lending institutions use to assess the risk of approving a loan to a borrower. The Loan to Value Ratio is expressed as a percentage of the value of your house. It is calculated by dividing your loan amount/s by the value of the security property/ies. For example, a loan amount of $500,000 against a property worth $700, 000 would have an LVR of 71%.
Lenders Mortgage Insurance (LMI) is insurance that protects the lender in the event the borrower defaults and the security property is sold and the funds from the proceeds of the sale are not enough to discharge the loan. The LMI then pays the Lender the shortfall. The rights to recover the shortfall from all of the parties on the loan (borrowers) are then transferred across to the LMI who will pursue the shortfall. The cost of LMI insurance is a one off payment at the start of the loan and should not be confused with Building Insurance or Income Protection Insurance. It can be added to the loan amount.
Principal and Interest loan repayments are calculated so that you pay back all of the money you borrowed (principal) and all of the interest that will be charged over the term of your loan. When the term ends (usually 30 years), you will end up with a nil balance on your loan.
An Interest Only loan allows you to pay only the interest on the loan, rather than paying back both principal and interest. At the end of the interest only period (usually five years), you will still owe the full amount you originally borrowed if you haven’t made voluntary repayments. The advantage with the interest only feature is that the loan repayments are lower during this period, however unless you have made voluntary repayments of principal, you will have higher repayments for the remaining term of the loan to ensure that you will end up with a nil balance at the end of your loan.
A comparison rate is a calculation required by to give consumers an idea of the actual cost of the loan, as it includes the interest rate and the standard fees applicable to that loan. It aims to avoid consumers being misled by lenders advertising a lower interest rate, but charging high fees to compensate for the low rate. The comparison rate will not however take into account all fees which may be applicable to a loan but is intended to provides a basis for comparison of the overall cost of a loan and not just the interest rate.
A redraw facility is a facility where you can withdraw money from your loan account if you have made extra repayments to your home loan. The benefit of having a redraw facility is that the additional repayments can reduce the interest you pay, but you can withdraw them easily when you need them.
If approved, our Homestar loans generally allow you to borrow up to 80% of the value of your property. This applies to both Owner Occupied and Investment loans but subject to other lending criteria being met by the borrower. Some products may have different LVR limits, please refer to specific product pages for more details.
You should make sure you have enough saved to cover the stamp duty, registration, insurance and legal costs that are associated with any loan that you take out, irrespective of the lender. As a guide you will generally need to have at least 10% of the value of the property available to cover these costs. If you need to borrow more than 80% of the value of your property, you may also need to save more to pay for Lenders Mortgage Insurance.
Your repayments take into account the annual interest rate, loan term, repayment frequency, loan amount and whether you wish to pay all of the principal back (Principal and Interest) or just the interest (Interest Only).
Interest is calculated on the daily outstanding balance of your loan and charged to your loan account monthly. You can reduce the interest you will pay on your loan by making extra repayments or if you have an offset account, by depositing additional funds into your offset account to reduce your daily balance. You may be able to withdraw these funds when you need them depending how you have set up your Homestar home loan.
Yes, you can make extra repayments either by increasing your direct debit repayment, your salary credit amount or one-off amounts, via internet. We do not charge you for making extra payments on a variable rate account. Fixed rate, however, has a maximum repayment amount of $20,000 per year and if you exceed this we may charge break fees.
All you need to begin your application online are details of your income, current credit obligations (like personal loans and car loans), available credit limits (from credit cards, store cards and interest fee accounts) and the amount you are looking to borrow.
Our fees are specific to each product and can be found on the applicable fact sheet. There are some costs that will apply to all our products like government fees and legal disbursements.
In general, we do not offer face-to-face appointments because this would significantly add to the cost of providing you with your loan. We would need to pass this cost on to you in the form of higher interest rates or fees – which we really do not want to do! Our Lending Specialists use great loan processing technology so that we can do all the things that you would typically expect in a face-to-face loan application process by phone- and we can do it in a fraction of the time that a face-to- face meeting would take.
A property valuation is a professional assessment of how much a property is worth. Similar to all lenders, Homestar requires a valuation of any property that is being offered as security for a Homestar loan as part of our lending process.
You should get conditional approval if all the information you have provided to us is correct and verified, and the relevant lending criteria has been met. This includes checking your credit history, financial obligations and whether your income is enough to service this loan Conditional approval does not allow you to borrow immediately so please do not rely on this to exchange contracts on the purchase of property or enter into any legal agreements.
We hire an external valuer who will inspect the property. They will consider all the factors that affect the value to produce a professional property report and valuation for Homestar.
Depending on your circumstances and where your property is located, you may have to pay stamp duty on your property purchase. Stamp duty payments are based on the value of the property you purchase. Check your state government’s revenue office website to work out how much you may have to pay in stamp duty.
If you have found a property, it is a good idea to ask a lawyer or conveyancer to look over the proposed ‘Contract of Sale’ before you sign it. You will also need a lawyer or conveyancer to assist you with the settlement process and the exchange of title documents if you are purchasing a property.