HOME LOAN PRODUCTS AND FEATURES INFORMATION 

TYPES OF INTEREST RATES 

The two biggest components of your home loan repayments are typically the principal component and the  interest component. You may be able to take out a home loan with both principal and interest repayments, or  interest-only home loans that include a period where you only pay the interest.

Depending on your situation, one of these types of loans may be more suitable than the other.

What is Principal and what is Interest? 

The principal of your home loan is the amount of money you borrow from your bank or lender.

The interest is the cost charged by the bank or lender to you to borrow this money. The interest rate on your  home loan, the loan term and the amount of your repayments will determine how much you end up paying  back over the life of the loan.

Principal and Interest 

A home loan with repayments of both principal and interest is one in which you pay interest and also repay  part of the amount borrowed (principal) at the same time.

Your home loan will come with a specified term in which it is to be repaid – typically no longer than 30 years.  The lender will usually work out the minimum principal and interest repayments needed to repay the loan  within the selected term.

If you make principal and interest repayments for the term of the loan and normally your loan will be repaid by  the end of the loan term. The amount you owe will reduce slowly at the start, but as the amount you owe  reduces, the interest charges reduce and so you pay off faster. Principal and interest repayments may be  important to you if you:

  • want to minimise interest incurred over the loan term
  • want to build equity in the asset used as security
  • repay your loan in full by the end of the loan term

Interest Only 

As the name suggests, you only have to pay the interest on this type of loan during the interest-only period.  This means your payments over this time will be less than if you were also repaying the principal. However,  the principal amount will remain the same – that is, your outstanding balance won’t be reduced – unless you  choose to make extra repayments.

It also means that your repayments will be higher when the interest-only period ends and may be more  expensive over the life of the loan.

Interest only repayments mean that you make smaller repayments while the loan is interest only meaning you  may have more cash available for other purchases or manage cash flow. Interest only home loans are  commonly used for investment purpose lending e.g. purchasing a rental property. The borrower may wish to  pay interest only as this may be more advantageous for tax deductibility. You may have received tax advice  that interest only repayments may benefit you (note that we are not providing advice in this respect).

Risks associated with interest only loans include:

  • Potentially higher interest rates
  • Your loan balance will not reduce
  • You may pay more interest over the life of the loan
  • At the end of the interest only period, principal and interest repayments will be higher than they would  have been if you had made principal and interest repayments from the start of the loan accumulation  of less equity in the security property.

Interest in Advance 

This is also used for investment lending purposes where a borrower may wish to pay up to 12 months interest  in advance for the following tax year to enable them to claim the interest in the current tax year. These  payments can only be made in June each year, for the following tax year and claimable in year of payment.  The rate is fixed for the next twelve month period and is usually a discounted rate.

Variable Rate 

As the name implies this product caters for the clients wanting a loan that has a variable interest rate. This  means that the interest rate fluctuates with changing market conditions. This is determined by the economic  climate and is administered by the individual lenders. This product’s rate may move when the Reserve Bank  of Australia (RBA) makes interest rate adjustments. Although this change in official cash rates may happen,  any changes are at the lenders discretion.

When taking out a standard variable rate loan, the borrower takes on the risk that the rates may increase or to  their benefit, may fall. Most lenders will offer discounts off the standard variable rate if the customer opts for a  packaged home loan.

Basic Variable Rate 

As the name implies, this type of loan has most of the characteristics of the standard variable rate loan, but is  offered by some lenders as a budget or economy style loan. This loan is often referred to as a ‘no frills’ or  basic loan. In some cases, there is no ongoing fee per month. There are fewer features than those applicable  to the packaged home loan. The main selling feature of the basic home loan is its simplicity and it usually has  no add on features such as an offset account or credit card.

Introductory/honeymoon Rate 

Lenders often offer teaser rates to encourage borrowers to use their funds. These loans operate the same as  the standard variable loans but they have a period in the beginning of the loan where the interest rate is lower  than the standard rate and then reverts back to a high standard variable rate.

Fixed Rate 

As the name implies these loans have the interest rate fixed for a certain term and therefore the repayments  remain constant. This loan is available for the borrower who wants certainty in their interest rate and  repayments for a certain period of time, thus protecting themselves from any increase in rate. These loans can  usually be fixed for somewhere between one and five years.

At the end of this fixed period, you can renegotiate another fixed period at the current lending rates or you can  convert the loan to a variable rate.

Key Benefits

  • Protects borrowers in a rising interest rate environment.
  • Enables borrowers to budget for the future with confidence.
  • Principal reductions may be made up to an allowable limit (before break costs apply). • Interest in Advance option available for investment loans only.

If your rate is fixed:

  • you will not benefit from interest rate reductions
  • the advertised rate may change between now and when your loan is advanced (unless you have locked  the rate in by paying the fixed rate lock fee)
  • you may be subject to break costs if you make additional repayments on your loan, switch to another  product, sell the property or repay your loan, increase your loan.

What are break costs?

When a bank lends you money at a fixed rate for a set term, the risk associated with movements in interest  rates is accepted by the bank. The bank then manages this risk based on the understanding that all the  required repayments due over the whole of the fixed rate period will be made in full and on time.

The banks obtain funding on this basis through transactions at wholesale interest rates. If you make a  prepayment (that is, you repay ahead of the due date or you pay an extra or higher amount) or change to  another interest rate or product or another repayment type, that will change their funding position. If wholesale  market interest rates have dropped, this causes a loss to the bank. The estimated amount of this loss is  passed on to you as a break cost (subject to the prepayment threshold)

When are break costs payable?

Subject to the banks terms and conditions, break costs are payable on your fixed rate loan when:

  • you prepay the total amount owing on your loan; or
  • you make prepayments in excess of the prepayment threshold; or
  • the total amount owing on your loan becomes immediately due for payment because you are in default; or
  • you change to another interest rate option (fixed or variable); or
  • you change the repayment type.

Fixed Rate Lock Explanation 

Rate Lock guarantees the customer the fixed or guaranteed interest rate of their choice for 90 days  (depending on the bank) and it can be applied anytime during the home loan application.

Benefits

  • Rate Lock gives customers certainty that their rate will be the same as when they first applied. • Customers can enjoy the assurance of knowing exactly what their repayments will be based off the  interest rate they locked in.
  • Fixed rates allow customers to budget accurately and plan their finances before their loan even funds. • Locks in repayments for investors who have no intentions on selling the property within a 2 or 3 year  period and could risk rate rises

This info also varies with each bank: If the fixed rate further reduces during the Rate Lock period the customer  can request the Rate Lock to be broken prior to settlement for the reduced rate to apply. However, if the  customer wishes to take out a new rate lock guarantee to lock in the reduced rate, an additional rate lock fee  is applicable. If the fixed rate goes down before settlement, then some banks honour the reduced fixed rate.

Fixed & Variable Split Loan 

In many cases borrowers, because of interest rate fluctuations, choose to operate split facilities (part of the  loan amount fixed rate and/or, part of the loan amount variable rate) to reduce the impact should this type of  situation occur with increased interest rates. For the ease of understanding: you split your loan and a portion  is subject to a variable rate, and another portion is subject to a fixed rate.

The features above will apply to the fixed and variable portions accordingly. You will:

  • Still have some risks in relation to interest rate increases
  • Not be able to change the ratio of the amount that is fixed and the amount that is variable without our  consent and break costs may apply
  • You will make separate repayments for each portion.
  • A split loan may be important to you if you:
  • Wish to limit your risk in relation to interest rate increases, but also benefit if rates decrease in the  future
  • Have some flexibility in relation to making additional repayments and varying your loan • Want budgeting to be easier than if your loan was subject only to a variable rate

Line of credit 

A limit is set (this is determined by the value of the property and the ability for the borrower to repay) and the  borrower may then deposit and withdraw from this account staying within the limit. The interest is calculated  on the daily outstanding balance and is debited monthly to the account. The minimum repayment on the  account must therefore be the interest charged.

Allows you to draw up to an approved limit with no obligation to make repayments unless the limit is  exceeded. The loan may be recalled at any time. Line of credit loans provide much flexibility. A line of credit  loan may be important to you if you:

  • Have received advice from a tax agent to that effect (note that we are not providing advice in this  respect)
  • Have variable cash flows
  • Require access to funds quickly
  • Require a limit allowing you to make multiple purchases over time.

Risks associated with line of credit loans include:

  • The lender may reduce or cancel your limit at any time and may require repayment at any time (you  therefore need a plan to repay)
  • Potentially higher interest rates
  • Your loan balance may not reduce
  • You may pay more interest over the life of the loan
  • Financial discipline is needed as there is no formal structure to repay
  • At the end of the interest only period, principal and interest repayments will be higher than they would  have been if you had made principal and interest repayments from the start of the loan accumulation  of less equity in the security property.

Construction loans 

Most lenders will finance properties under construction for owner occupied or investment purposes.  Construction loans may be a little more complex than the standard residential purchase as they require  funding progressively. The lender will make payments to the builder at various stages of construction.

Once the clients have found a house they wish to build, in addition to the normal loan application  requirements, you must also supply the following:

  • Registered Builders Certificate
  • Fixed Price Building Contract
  • Council Approved Plans
  • Specifications and schedule of progress payments.

The valuer would normally make two inspections—one at about mid construction stage and one on  completion. The final progress payment is not usually made until after the final inspection.

The general stages of payment may differ, dependent upon the state and may also be referred to differently  as follows:

  • Pad (slab) down or foundation stage
  • Walls constructed – plate high, frame stage
  • Roof
  • Lock up stage
  • On completion

Guarantor Loan or Family Pledge/equity 

Guarantor Loan or Family pledge allows borrowers to access finance for the full property purchase price, plus  a further 10% of the costs involved. To enable this, an immediate family member provides a limited personal  guarantee for the pledged amount, supported by equity in their existing property.

This type of loan is suited to first home buyers with limited deposit, who have a parent that is willing and able  to offer security support. Its purpose is for purchase or construction of a residential owner occupied or  investment property.

In an environment of increasing home prices and declining affordability, it is difficult for borrowers to save the  required deposit to purchase a home. The family pledge product allows borrowers to own their own home  sooner by allowing them to borrow the full purchase price plus an additional 10% to cover costs.

Home Loan Increase or Top Up 

A home loan increase or top up is a way to borrow extra money against your current home. If you have equity  in your home and the ability to make extra repayments, your lender may increase your existing home loan limit  to allow you to pay for a worth while purpose.

Refinance 

How can I benefit from refinancing? Depending on your goals, the benefits of refinancing can include:

  • Getting a better interest rate to reduce the size of your mortgage.
  • Reducing your monthly repayments.
  • Consolidating debt such as credit cards, car loans, or tax debt into one monthly repayment. • Getting competitive interest rate by refinancing to a major lender after fixing past credit issues. • Accessing equity to renovate your existing property, to build something, to buy an investment  property, to go on a holiday, or just to have some cash in the bank.

Even if the interest rate for the new loan is lower, if the term is longer, you may end up paying more interest  over the term of the loan.

Debt Consolidation 

A debt consolidation home loan allows you to combine some or all of your existing debts into your mortgage.  Many people opt to roll multiple forms of unsecured debt into their mortgage, particularly if their mortgage  interest rate is lower than the rates on their other loans. Your home then becomes security for the loan and  you’ll make one monthly repayment to cover your consolidated debt. If you have multiple loans and you’re  having trouble keeping track of what bills are due or when they’re due, it can help to consolidate your debts  into one loan. Generally, the debts you could consolidate into your home loan are high-interest rate unsecured  debts such as: Credit cards, Personal loans, Car loans, ATO tax debts.

Split Loan Facilities 

This is not a type of loan, but more the different combination of loans. Split facilities, as the name implies,  allow borrowers to have a portion of their loan as one type of loan e.g. Standard variable, whilst the other  portion can be another type e.g. Fixed.

The reasons for using this type of facility are many. Perhaps the client wants to fix a portion of their loan to  safeguard themselves in the event of a rise in interest rates. They may wish to also have the flexibility of  variable portion. This gives the borrower comfort in knowing that if rates rise it will only affect a portion of their  loan.

Professional packages 

These are usually packages put together by individual lenders to cater for specific high net worth clients. They  include combinations of loan types, loan peripherals such as credit cards and accounts at favourable rates  and offers of other bank services. Eligible applicants may be categorised by profession, income levels, and  increasingly the level of borrowings. These packages vary from lender to lender

These packages usually have discounted rates and annual fees. Often a compulsory favourable Credit Card  may also form part of this package. Other features include fee free banking and an offset account linked to the  loan.

Mortgage Offset 

Links a credit account to your loan account. This reduces the interest you pay. You will only pay interest on  the difference between the amount owing under your linked loan account, and the amount in your offset  account. An offset account may be important to you if you:

  • Wish to pay your loan off sooner
  • Require access to savings
  • Have received advice from a tax agent to that effect (note that we are not providing advice in this  respect).

Risks associated with offset accounts include:

  • Fees may apply
  • A higher rate of interest may apply.

The Mortgage Offset account is an option available to certain types of loans.

A quick diagram guide to 100% Mortgage Offset:

  • Links your home loan to a transaction/savings offset account
  • For the purpose of calculating interest, the balance of your mortgage account is reduced by 100% of the  balance of your linked transaction account.
  • The more funds you keep in your transaction account the less interest you pay on your mortgage. • The key to success with the transaction offset account is to grow your savings and leave these funds in  the account as long as possible.
  • You still have access to these funds whenever you need them

Interest only

calculated on

$440,000

Home Loan $450,000 

Offset transaction/savings Account balance $10,000 

  • In the above example, the $10,000 in the transaction/savings account reduces the loan amount to 40,000.  • You only pay interest on the balance of $440,000 rather than $450,000 for that particular day (interest  calculated daily).
  • At the same time the $10,000 in the transaction/savings account is always available to you.

Redraw facility 

Some loan types allow you to pay extra funds into the loan to reduce the loan balance and then should the  need arise; you are able to redraw the extra funds that you have paid. The lender may stipulate a minimum  amount able to be redrawn and charge a fee for the service.

Bridging finance 

This is short-term finance provided usually when a client is transferring from one home to another and the new  home is settling prior to the settlement of the current home. The contract is usually written as a standard  variable loan and is reviewed after 12 months. The repayments are usually interest only and are capitalised  (added to the loan balance). Calculating the loan amount and interest component of these loans is quite  different to standard loans.

Lo-doc loans 

This is the term to describe loan facilities where the lending institutions require minimal documentation to  verify income for loan applicants, who are self-employed. There are usually LVR limitations on these loans but  the main issue is that in most cases the client self-certifies their income levels or the level of loan repayment  they believe they can afford for the loan they wish to borrow. In most cases they sign a statement (or obtain  one from their accountant) that they earn a certain level of income or that they can maintain repayments at a  certain level and supply BAS statements to support their loan application.

The reason for these types of loans can be many and varied such as the client’s financials may not be  prepared yet or they may have only been in business for a short period of time so there are no financials  available. The lenders are taking a commercial risk that the clients understand their commitment and will meet  their repayments. They mitigate the risks by limiting the LVR or relying on the client’s previous good  repayment history and the value of the security property. In the case of non-conforming lenders they also  usually charge a higher interest rate to mitigate risk.

Loan to value ratio (LVR) 

A lender will only lend up to a certain percentage of the value of the property that is described as an LVR – Loan to Value Ratio. This is expressed as a percentage. It calculates the borrower’s equity in the property.

Lenders Mortgage Insurance (LMI) 

If you are buying a property and have less than a 20 per cent deposit, you may be required to pay Lender’s  Mortgage Insurance. Lenders Mortgage Insurance insures your lender against non-payment or default on your  residential property loan. It protects the lender against loss if you stop making your mortgage payments and it  does not protect the borrower. Remember that LMI doesn’t provide you with any protection even though you  pay for it – it’s there for your lender’s protection.

How it works

When you take out a loan, you pay a once-off fee to the lender. Fees vary according to the amount borrowed  and the size of your deposit. You can pay the fee up-front or add it to the total loan amount. Lenders require it  if you are borrowing more than 80 per cent of the property’s value. One way to avoid the insurance costs is to  save more for your deposit or have a guarantor home loan.

Costs and benefits

While Lender’s Mortgage Insurance protects the lender in the event you default on your loan, there are plenty  of benefits to home buyers. First time buyers benefit because it allows them to buy a home sooner with a  smaller deposit, therefore making it possible for purchasers to buy a home with as little as a 5 per cent  deposit. In times of rising property prices, Lender’s Mortgage Insurance allows buyers with smaller deposits to  gain a foothold in the market and thereby increase their equity through capital growth.

Credit cards 

Most banks offer credit cards as a part of their total lending packages. There are a number of home loan  products that will include fee free credit cards in the package. Most credit cards will have an interest free  period for up to 40 or 55 days.

The calculation of these interest free periods begins from the first day of the billing cycle. For instance, if a  billing cycle on the credit card begins on the seventh day of the month, then anything purchased on that card  on that day will give clients the full benefit of the interest free period.Cash advances incur interest charges  immediately.

Equifax and Credit Challenges 

When a lender receives a (privacy signed) loan application, they will need to assess the application and check  the history of the prospective borrower to ensure the likelihood of the funds being paid back in a reasonable  manner. To this end, the lender will check the credit history of the borrower via a company named ‘Equifax’  https://www.equifax.com

Equifax has information on file about the applications made for credit (whether or not the loan was approved  and/or proceeded with) and all current and previous defaults (whether repaid or not), bankruptcy information,  judgements and Directorship information. Equifax will hold information for a period of five to seven years  depending on the form of information. At the end of the specific period, the default or listing is removed.

When a broker discusses the loan application with the prospective borrower, they must advise them that the  lender will conduct an Equifax check. The client will need to sign a consent form to enable the lender to obtain  this information. The client is able to access their own file at any stage and may challenge any entry that they  feel is incorrect.

Within the application form is a Privacy Form that the lender requires to be completed. This form will give them  the permission to check any details regarding the borrower. Equifax maintains a file on each borrower that has  any credit history lodged with them by the individual lenders.

Each time a lender enquires about a particular borrower, the enquiry is noted on the borrower’s file. To ensure  that Equifax list these notations on the correct file, they ask for the following information:

  • Name
  • Date of birth
  • Drivers licence number
  • Current address
  • Previous address

From the report given to the lender from Equifax, they can validate the following information:

  • Correct name
  • Date of birth
  • Address and length of time at that address
  • Employer and approximate length of time there
  • Are they involved in any other business?
  • Current credit providers
  • Any defaults listed, paid or unpaid
  • Any other enquiries for finance applications recently applied for.

Credit Reporting Agencies that issue reports are also covered under the rules and regulations of the Privacy  Act 1988. This Act applies a specific meaning to the term Credit Report. It is information from a credit reporting agency (e.g. Equifax), which has some bearing on an individual’s credit worthiness, i.e. eligibility,  history or capacity. Credit reports are divided into two categories, consumer and commercial.

Consumer credit reports will contain information on consumer credit provided for domestic, household or  personal purposes. Commercial reports contain credit information about an individual’s commercial activity.

The Act governs consumer credit reports only. Access to commercial and corporate files is largely  unrestricted. However, the provision of commercial credit often requires access to consumer credit reports for  information on the personal credit worthiness of sole traders, partners, directors, guarantors and so on. In  these cases, the commercial lender must be aware of the Act as it affects consumer file use.

TYPES OF LENDERS 

An overview of the different types of lenders in the market in which the Finance/Mortgage Brokers operate. Banks 

Banks fund most of our residential mortgage loans in Australia. Individual banks determine their own fee  structures and policy guidelines for their many different products. The state of the economy and market  conditions determines the interest rates although the banks can load their own margins at their discretion.

With competition high, most banks have the same interest rates or there is very little difference between them.  Banks gain their funds from depositors and shareholders.

Credit Unions 

Credit Unions are one of a number of non-bank lenders. Credit Unions tend to target specific employment  groups as specified by their names e.g. Police and Nurses Credit Union. They are not restricted to these  groups in most cases. To gain a loan with a credit union you must become a member of that Credit Union by  paying a nominal shareholding. When the account is closed the shareholding is repurchased for the amount  paid.

Credit Unions are supervised by the Australian Financial Institutions Commission (AFIC). Their lending criteria  tend to be similar to that of a bank although their policies in some circumstances may lead to more flexible  lending conditions than those of the banks.

Credit Unions gain their funds from depositors and shareholders. Interest on the members’ deposits is the  largest income producing area for the Credit Unions. The Credit Unions return much of the extra income  generated, after expenses are paid, to members by way of added benefits such as lower interest rates on  lending products, higher interest rates on deposit products and one of the biggest single attractions of Credit  Unions is that most offer fee free banking to members.

Building Societies 

Like the Credit Unions, Building Societies are also supervised by the Australian Financial Institutions  Commission (AFIC). Building Societies were first introduced into the market mainly to lend funds for housing.  Building Societies, like Credit Unions, raise their funds predominantly on individual deposits and investments  from their customers. Their lending criteria are also similar to that of Credit Unions.

With the deregulation of banking, a number of the Building Societies became banks hence diminishing the  number of Building Societies in existence.

Securitised Lenders 

In the early 1980’s the process of securitisation was developed in the United States. Australia adopted the  technique a few years later.

Securitisation is the process of packaging similar assets and selling Securities (Bonds) against them. The  selling of these bonds raises more funds, which are then lent out by way of mortgages and the cash flow  gained from this are then repackaged and then sold as bonds again. The cycle repeats itself over and over  again.

Mortgages are the most popular area of securitisation however; any asset that generates an income stream  can be securitised such as car loans and credit card receivables. A special purpose vehicle, either a trust or a

corporate structure often appears on the mortgage documentation associated with a securitised home loan as  the mortgagor rather than the name of the ‘originator’ from whom the product was purchased. Special note of  this should be made and borrowers informed.

Securitised lenders, as distinct from banks, do not have to have 10% capital requirement lodged with the  Reserve Bank. However, because of this they have stronger auditing requirements. All securitised loans must  be approved by and have Lender’s Mortgage Insurance. Most securitised lenders will not charge the borrower  this premium until the borrowing exceeds a loan to value ratio (LVR) of 80%.

Non-Conforming Lenders 

Non-conforming lenders raise their funds mainly by securitisation and as their name suggests, they lend  money to people who do not qualify for loans from the traditional lending sources or do not conform to the  usual lending criteria. There is usually a higher interest rate charged to reflect the perceived risk in this type of  lending. The interest rate is usually determined by the LVR.

As a rule non-conforming lenders had only accepted loans from people who did not qualify for loans through  traditional sources because of things such credit impairment, savings history, financials not completed, recent  employment history, debt consolidation, etc.

The reason for this was that under the former UCCC it may have been considered unconscionable conduct to  place someone into a loan with a higher interest rate than they may have qualified for at a traditional bank.

However with the introduction of the National Consumer Credit Protection Act (2009) (NCCP) the onus fits  squarely on the shoulders of the Authorised Credit Representative, the Credit Licence Holder to ensure the  loan offered is not unsuitable for the clients. Non-conforming loans are generally not covered by Lender’s  Mortgage Insurance.

Private Mortgage Lenders 

Private mortgage companies are not used as much as they were prior to the introduction of a number of new  non-bank lenders and onerous legislation introduced in most states to control the industry.

Private mortgages are non-regulated loans. Most of these loans are arranged by accountants and solicitors  and specialised finance companies.

The funds raised for Private Mortgage Lending are gained from individual investors making the funds available  and a registered first mortgage is taken by this investor over residential properties.

The interest rate charged for these types of loans is generally quite high—approximately 2%–3% higher than  the standard variable rate.

OTHER INFORMATION 

Fees 

With all loan types there are going to be fees attached. The following are some of the fees related to loans. Ongoing fees 

Fees can be charged on a monthly or annual basis i.e. added to the loan balance. It is advisable to take this  into consideration when comparing product costs over a particular term of the loan. These fees can change  throughout the life of the loan. Some bank products opt for an annual fee which at first seems expensive but

they are often offset by other features such as no transaction fees or lower discounted rates. These are mainly  evident in a packaged home loan.

Establishment Fees 

These once off fees are charged at the inception of the loan. Some lenders will discount or waive the  establishment fee to entice potential customers.

Valuation Fees 

This is a once off fee that is often included in the lender’s establishment fee. If more than one property is  required to be valued, a further fee is usually required. Each lender’s fee may differ and therefore must be  verified.

Property Purchase Stamp Duty 

This is a once off fee paid to the government and depending on the state that the transaction is in, can be  calculated on the purchase price or the market value of the property, whichever is greater.

Mortgage Stamp Duty 

This is a once off government fee charged as a percentage of the loan amount and can vary from state to  state.

Solicitor/Settlement Agent Fee 

This is a fee charged by the conveyancing solicitor or settlement agent to prepare documents, attend and  finalise settlement on your behalf. The fees can vary significantly from agent to agent and state to state.

Registration of Mortgage Fee 

This is a fee to register the mortgage with the land titles office.

Discharge of Mortgage Fee 

This is a once off payment required to register the discharge of mortgage to the land titles office. Register of Transfer of Title 

This is a once off payment required to be paid to register the transfer of ownership to the land titles office. Title Search 

This is a once off payment required to be paid for the search of title to the land titles office.

Mortgage Protection Insurance 

Life Insurance 

Term life insurance – This is the simplest form of life insurance. It gives your dependents a lump sum when  you die. Like house or car insurance a premium is paid each year for annual protection. The policy has no  savings value and unless the premium is paid each year there is no further cover, and the policy will lapse.

The amount of insurance required will vary for each household depending on the size of mortgage, other  debts, provisions for children and future income needs.

Having decided the amount of insurance required it is necessary to check whether life insurance is provided  as a part of your superannuation fund. If there have been no nominated beneficiaries, the insurer will pay the  agreed insured amount to your estate.

Total and Permanent Disablement Insurance 

In addition to Life Insurance you may also apply for Total Permanent Disablement (TPD) insurance. This  optional benefit is available for an additional premium. If you obtain TPD Insurance in the event of you  becoming totally and permanently disabled, the Insurer will pay you the agreed insured amount as a lump  sum. It depends on whether you take cover for you own occupation or any occupation and what the insurer  considers relevant to their policy when assessing a claim.

Income Protection Insurance 

This gives you financial protection if you are disabled through injury or sickness and are unable to work. If this  happens, the insurance company pays you a portion of your monthly income, normally 75% of your annual  gross income, which is calculated to a monthly amount. The longer the term of cover and the shorter the  waiting period the higher the premium costs. Your occupation and smoking or non-smoking habits along with  any other known illnesses are taken into account when assessing your application and the premium. This type  of cover is also sometimes referred to as Salary Continuance Insurance. Taxation benefits are available for  this type of cover and you should consult your accountant in regards to these.

Trauma Insurance 

In addition to Life or Life and TPD insurance you may apply for Trauma insurance. The optional benefit is  available for an additional premium. This benefit eases the financial burden of the costs associated with  recovering from a medical crisis. The insurer will provide a lump sum payment to you if you are diagnosed  with a range of listed trauma events under their policy.

Mortgage Broker Duty of Care 

Under the Duty of Care a mortgage broker has an obligation to make the borrower aware of mortgage  protection insurance to protect your lifestyle and your assets against unforeseen events. The courts in  Australia deem a broker to be a professional. By not raising the need for financial protection, a broker can be  judged negligent under the Duty of Care.

Mortgage protection insurance can be an effective way of minimising any potential financial hardship on you,  your family, your lifestyle, your assets and your business.

Financial hardship may result from a death, disability, trauma, personal injury or loss of employment.  Examples of insurance to protect your lifestyle: Life insurance, total permanent disablement insurance, trauma  insurance and income protection insurance.

Consider the following if you do not have adequate mortgage protection insurance in place:

  • You may not be able to meet the repayments on your home loan should an unexpected or  unforeseen event arise; or
  • Your savings may not be sufficient to meet your financial obligations; or
  • Temporarily unable to earn an income, for example through sickness / illness; or • Permanently unable to earn income, for example through death / permanent disability • Loss of employment to earn an income

it is the borrower’s responsibility to take action to have mortgage protection in place from the day that your home loan becomes active.

The borrower must understand that you are not forced to apply for mortgage protection insurance as a  condition of your home loan and that it is your responsibility to arrange mortgage protection insurance with any insurer of your choice.

Disclaimer 

The material provided is for information purposes only and is not to be considered as financial advice. The information  offered has been given in good faith and is to be used as a guide only. If in doubt, it is recommended that you consult your  financial adviser, accountant or solicitor before acting on any information.

Every effort has been made to ensure the accuracy of this information, however, as the Australian finance sector is  continually evolving, no guarantees are given that the information contained within this document is currently correct and  therefore we shall bear no liability to any person or entity with respect to any inaccuracy, misleading information, loss or  damage caused directly or indirectly by the information contained herein.