First home buyers' FAQ

What's the process of applying for a mortgage?

What is Pre-Approval?

This is simply an indication of your ability to borrow. You may choose to seek a pre-approval at any time to understand your borrowing capacity, but it is not a guarantee of funding or a mortgage offer. Podenas Bank (Hong Kong) two minutes obligation-free indication for your borrowing power tool can help you understand your ability to borrow.

What is the length of a mortgage?

A mortgage length can be any period up to 30 years. Generally, the shorter your loan period, the higher the loan repayments.

What's the difference between a fixed rate and a variable rate?

A variable rate can change anytime and will affect your regular repayments.

A fixed rate has been set at a certain rate, so it stays the same for the entire fixed rate period. This means that your repayments also stay the same for the same 'fixed' period. As the borrower you can generally choose a fixed period between 1 to 5 years. Your lender may charge you fees to break your loan from the fixed term.

With a variable rate loan the borrower has the ability to repay extra but this isn't necessarily the case with a fixed loan.

How is interest calculated?

The calculation of interest is determined by lender and loan contract. Generally the interest cost of your loan is calculated daily on the outstanding balance of your loan. An example of how daily interest is calculated on a $300,000 loan with a standard variable rate of 7% p.a. is as follows:

($300,000 x 7% ) / 365 = $57.53

Some loan types will allow you to reduce your interest payments through depositing extra money directly into your loan or your offset account. Interest is calculated daily but it is charged to your loan in a lump sum as agreed in your loan conditions. Often the lump sum is charged monthly.

In addition, most loan types require the actual loan amount to also be paid back (Principal). This amount will be added on top of the interest payment. To determine the repayments on your loan, see the mortgage repayment calculator.

What's the difference between principal & interest and interest only repayments?

Principal and interest are when you pay a portion of the loan balance in addition to the interest charged over an agreed period. This is to ensure the loan is paid back over the term of the mortgage. Loan repayments will include part of the loan and part of the interest on the loan.

Interest only is when you're paying the interest of the balance with no principal over an agreed period.

What is redraw?

If your mortgage type allows, you may be able to make additional payments to your mortgage, over and above the amount that you need to pay and have already paid into your mortgage. This means that there may be additional money that you can redraw from your mortgage. Depending on the terms of your loan, your lender may allow you to withdraw the extra funds paid into the account. With most lenders you can access your account to check your balance, make extra repayments, redraw funds and review transactions through Internet or phone banking.

What is an offset account?

An offset account is a transaction account linked to your mortgage, where cash in your transaction (offset) account reduces the amount of interest payable in your mortgage account. This helps you pay off your home loan quicker.

What is the difference between offset and redraw?

Redraw is when you make additional payments above the minimum amount into your mortgage in order to reduce the interest calculated. If the lender allows, these extra payments can be accessed, or drawn on at any time. However this will impact the balance of your mortgage and interest payable. Offset is when you hold these additional payments in a separate transaction account - you aren't reducing the balance of the loan but you're still getting interest reductions through the offset.

What is an interest in advance loan?

A fixed rate interest only mortgage where you pay 12 months of interest in advance each year.

What is a line of credit loan?

It is a flexible loan allowing you to draw down and repay smaller and larger sums at any time up to the approved limit. These loans have an agreed term and repayments are interest only based on the amount you have drawn down at the time.

What is lenders mortgage insurance?

If you're borrowing 80% or more of the value of your property you're usually required to have Lenders Mortgage Insurance. It's the insurance the lender takes out for the mortgage to protect itself. It also allows the borrower to get into the market with a deposit of less than 20%. The more of a deposit that you have the, the less the Lender's Mortgage Insurance will cost you. Depending on the loan type and amount some lenders will allow you to add the cost of this insurance onto the loan so that you do not have to find the money upfront to pay for it.

Am I eligible for the first home owners' grant?

To be eligible for the first home owners' grant you and your spouse should not have previously owned a home or claimed the grant. For more details please visit www.firsthome.gov.au.

Can I get the first home owners' grant if I'm buying a joint property?

If you're buying a property with someone else you can still get the First Home Owners Grant providing all the co-purchasers are eligible to receive it.

What is the difference between a solicitor and conveyancer and do I need one?

You should have a solicitor or conveyancer. When you've found a property get the agent to send the Contract of Sale to your solicitor or conveyancer for review. They will also help with the settlement process and exchange of title documents.

What is conveyancing?

Conveyancing is the process where a property is legally transferred from one party to another. It's usually done either by a solicitor, a conveyancer, or by buying a do-it-yourself conveyancing kit.

How long does settlement usually take?

The time between exchanging contracts and settlement varies. Four to eight weeks is normal. Settlement time is negotiated between buyer/seller and can be affected by the lender and buyers ability to complete requirements prior to settlement.

What does a strata report provide?

A strata report applies when buying a unit, town house or when there's common property managed by a strata scheme. It usually gives you the following information:

What is a contract of sale?

The contract of sale is a legal contract involving the sale of a property from seller (vendor) to buyer (purchaser) for an agreed sum.

The contract of sale often includes: a sewage diagram, a copy of the certificate of title for the property, a zoning certificate from local council, and copies of documents relating to any other registered interests over the property.