There are many differences between home-buying loans in Australia and China, where thousands of Australian dollars may be paid each year to pay interest on loans that are unsuitable if they do not know. The most frequently asked questions include whether interest should not be repaid, what is the use of a hedge account, and whether a bank loan can get a better interest rate than a loan broker.
1, choose floating rate (variable rate) or fixed rate (fixed rate)?
In addition to knowing how much your loan interest rate is, you need to know whether you choose a floating rate or a fixed rate? This paper briefly introduces the difference between the two interest rates, and suggests consulting professionals on the basis of their own situation and the current interest rate plan before making a choice.
Fixed rate means that interest rate does not change with the change of central bank interest rate or market interest rate for a certain period of time, if choosing lower fixed rate can help lenders lock their target interest rate for a period of time. At the same time, you can know the amount of repayment to be paid each month. However, the following points need to be noted:
- Fixed interest rates are fixed-term, usually up to five years, when the term ends, a new interest rate needs to be re-signed;
- The fixed interest rate on the contract at the time of signing a contract with the bank is not necessarily the final loan rate. The actual interest rate is based on the rate at which the loan was issued on the day the house was delivered to (settlement);
- Prepayment is limited and may be fined a certain amount. And they can't enjoy the benefits of falling interest rates.
Floating rates have the advantage of being flexible, prepayment without fines, or applying for a hedge account to offset loans and speed up repayment. The disadvantage is that interest rates are uncertain, and if interest rates are raised, they will increase the amount of money repaid.
2, the two ways of repayment of loans, one is only interest (Interest only), one is even with interest (principle interest), which is the best choice?
From the tax point of view, because Australia has negative tax (Negative Gearing), when the income of investment housing is less than the investment cost, the loss can be offset by the current year of income, to achieve the purpose of reducing taxes. Therefore, for investment housing, the high tax population is suitable to choose only the way to pay back interest. For self-housing, because the interest on non-investment housing loans cannot be deducted income tax, so if the easy-to-use option is suitable for the option of repayment with interest and principal can also be considered. According to the author's point of view, it is best to identify only the method of interest repayment.
3. What are the benefits of setting up a hedge account, (Offset Account)?
After investors choose a floating rate, you can choose to set up a hedge account. The money in a hedge account offsets the interest on the loan by offsetting the amount owed in the loan account. There are three main benefits:
- Maximum interest savings: hedge accounts pay interest on a daily basis, allowing investors to put income such as wages, rents and so on into a hedge account and start offsetting interest on loans on the same day the money is paid in;
- Free access to and exit of funds: funds in hedge accounts can be freely accessed at any time, if there is excess funds that can be deposited to offset interest at any time, can be withdrawn at any time when money is needed, usually the bank is free of charge within a certain number of times;
- There may be some tax benefits: the Australian tax code states that the difference between interest (interest is loan interest) and income from arrears in an investment house loan account can be used to deduct taxes. For investment houses, if there is a hedge account, not only can the funds be taken out at any time, the out part will be calculated from the same day interest, as one of the basis for negative tax deduction calculation.
4. What are the main factors affecting interest rates on loans?
The bank usually determines the interest rate of the loan in two aspects, first is the loan quota, usually on the basis of the down payment, the higher the loan amount, the lower the loan rate is. In addition, according to the credit rating, the higher the bank credit rating to the lender, the lower the interest rate on the loan. Commercial loans typically reach up to 70% of property valuations and residential loans typically up to 80% of home valuations. If want to ask for loan more proportion need to buy extra loan insurance, insurance premium is very expensive at present, the author does not recommend to increase insurance premium expenditure in order to borrow more.
5, what files do you usually need?
The material requested by the bank is to understand the financial position of the lender in order to avoid risks and to guarantee the bank's earnings, mainly by requiring the following materials and information:
- Identity certificate: passport, Australian or domestic driver's license, Australian visa category;
- Bank deposit slip or bank statement: proof that there is a sufficient amount to pay down payment (fixed-term, current);
- Personal assets and liabilities: assets such as real estate cars or other loans;
- Income proof: the overseas revenue materials requested by different banks are also different. It is suggested that professional accountants should be consulted before providing the relevant materials. Here, they can be divided into the following two aspects:.
- For a company employee, (PAYG), the bank usually asks for an employer's letter to (Employment Letter) and a nearly three-month paycheck, (Payslips).
- Self-employed (Self Employed) needs to provide one to two years' tax returns for the company;
If you have an investment house in Australia, you will need to provide rental income-related materials, or a rental price assessment report issued by an intermediary. Foreign investors need to find local Australian embassies for signature or notarization of some documents.
6. How long will the loan trial take?
It typically takes four to six weeks to complete the entire loan process, including the time required to evaluate the property and review the contract. So if you are ready to buy a house, you should first let the broker or the bank do a "Pre-approve" based on your creditworthiness, so you can know in advance how much money is being lent and how long it will be available.
7. What is the cost of the loan?
Applying for a loan will result in a series of fees. At present, major banks generally waive the application fee for housing loans, but for commercial loans, banks often charge some fees, such as the loan application fee (Establishment fee),. Fixed mortgage management fee (Ongoing Fees), wants to purchase real estate evaluation fee (Valuation Fee), property transfer fee (Settlement fee), so when applying for commercial loans to understand these costs in advance.
8, the current mortgage interest rate is too high how to do?
If you feel that the current mortgage interest rate is not ideal, then you can consider refinancing (Refinance), which is to re-loan from other financial institutions to repay your original loan, thereby enjoying a better interest rate.?
As the Australian government tightens its grip on overseas home ownership, most banks are already favouring less than 70% of their assessed loans.
As a result of long-standing free-market competition among banks, the financial markets have formed the (Broker) class of loan brokers, like those in the real estate market, where developers or banks are trying to save on the cost of wages and expenses. In order to attract the cooperation of intermediary agencies, it is impossible to offer retail customers a lower price in exchange for the loss of their relationship with the intermediary and affect their reputation.
According to Australian law, loan brokers or brokers, (Broker), do not allow additional differences or commissions on marketed products, so whether it is financial loans or property prices, there is basically a uniform price. Direct deal with big banks or developers can not get special concessions, and brokerage and intermediary services may be more thoughtful and meticulous. Some investors who lack knowledge of Australian financial and property markets mistakenly believe that direct deals with developers or banks can lead to lower prices, depriving themselves of intermediary services and possibly increasing costs.
The intermediary class is the most cost-saving market mechanism for the three parties, including consumers, in which the free market economy develops. Investors can make use of the professional services of intermediary institutions to save time and effort in their investment process.
