Chicken or the egg? Property or the finance?

It’s easy to get carried away with the fun part of buying a property – looking at houses – but delaying the less compelling task of arranging finance will weaken your negotiating position on both the property and the loan.

Looking for a property to purchase is an exciting time. Choices regarding location, size, number of rooms and local amenities often see house hunters carried away in a deluge of daydreams and anticipation.

But, before you get carried away, it’s important to check off the essentials first. Although organising your finances may seem drab in comparison to perusing sales listings, gaining pre-approval with a lender will give you confidence about how much you can afford to borrow.

First and foremost you need to determine if you’re eligible to borrow money from a lender. Apart from showing you have the ability to repay the loan, lenders will also assess a range of other hurdles for you to overcome like credit scoring. You don’t what to find out after you’ve made an offer that your credit history or deposit is not up to scratch.

Arranging finance before finding the perfect property will put you in a good position when it comes time to make an offer. When you do find the house you have always wanted, you can present to the seller and estate agent as a prepared applicant who is serious and reliable.

Sellers are most interested in completing their sale fuss-free and with steadfast funding, and showing that you are capable of both will help put you at the top of a potentially competitive list of applicants. This is especially important in the off-the-plan market.

In the instance that you find and secure purchase of a home without having your loan pre-approved by a lender, there are a few pitfalls that you risk running into. Should you not be able to secure finance for the property, you may have to forfeit your initial 10 per cent non-refundable deposit.

Arranging your home loan at the last minute also leaves less time to find the most suitable loan and have it approved ahead of settlement. Any lender that has a special rate or product on offer will most likely have a longer turn around time than their competitors and as such you may not be able to obtain these products.

Unlike the Chicken Vs Egg debate, this one is simple. Finance pre-approval certainly comes before the Property.

How your interest rate affects your mortgage

The rate of interest you’ll pay on your mortgage depends on a combination of three key factors. These are the Reserve Bank of Australia’s (RBA) cash rate, your lender and the type of loan you have.

Reserve Bank of Australia (RBA)

The RBA meets monthly and they have the ability to adjust the cash rate in order to keep the Australian economy in a healthy state. Think of the cash rate as a ‘wholesale’ price for debt that Australian banks can access. After the GFC, we saw the RBA drastically reduce the cash rate to ensure mortgage holders disposable income would rise. As a result of this and other budget measures at the time, we were one of very few economies to avoid a recession. So put simply, the RBA can react to key indicators in the Australian economy by moving interest rates as they see fit. The interesting part of this story is once a change is made by the RBA, how much of the adjustment will each lender pass onto their clients.

The type of rate

Borrowers can choose to fix their home loan rate – or ‘lock in’ a rate for a set period of time. Currently, fixed interest rates for 1-2 years with all major banks are lower than their standard variable rate. This is an indication that they believe there will be further interest rate cuts in the next 18 months.

Some customers like the surety of fixed repayments as they are able to plan their monthly outgoings in advance. If you decide to move from a fixed-rate to a variable rate loan before the end of your fixed-rate term, you will be liable for break costs which can add up into the thousands.

Alternatively, a split loan can give you the best of both a fixed-rate and variable-rate loan. This means that if rates rise, a proportion of your loan will be protected – minimising the impact of higher monthly repayments. If on the other hand rates fall your fixed-rate will remain higher and the variable part of the loan will fall.

The type of loan

Different loan types tend to come with different interest rates. So if your loan has a range of features, such as re-draw, offsets or early repayment facilities, you’ll usually pay a little more in interest. Alternatively, while a basic loan doesn’t have all the bells and whistles of other products the interest rate is typically lower.

For example, if you’re looking to drive your mortgage down quickly or would like flexibility in your repayments, it may be worth paying for the features needed to do this most effectively. If your monthly pay fluctuates due to commissions, an offset account would be a good feature to have. If you are a first home buyer and your mortgage is your only major financial product, then a simplistic loan would probably suit.

3 Tips to reduce the impact of a rate rise

1. Factor in possible rate increases

Leave room for a number of interest rate rises when you assess your borrowing capabilities. This is essential, particularly as rates are likely to rise at some stage during the life of your loan. Having extra cash stored for this purpose in an offset account is a great strategy.

2. Changing your repayments to interest only

If you have a loan and you’re really struggling to keep up with rate hikes, you can consider changing to an interest-only loan. While not an effective long-term strategy for owner-occupiers, it might be an option while you deal with the here and now.

3. Refinance

Your situation may have changed from when you first took out your mortgage – for example, you’ve now only got one person in the household earning a salary. Rates between lenders are also changing dramatically as competition amongst lenders increases so reviewing your rate will no doubt result in finding a cheaper option.

Refinance to get a better deal

There has never been a better time to review your current debts. Interest rates for new customers are at an all time low as banks fight hard to obtain your business.

On average, my clients refinance their home loan every 3-4 years to make sure they are getting the best loan possible. There are now more alternatives to mainstream bank products available that may better suit your needs and personal situation. If you feel that your loan is no longer right for you, today’s competitive lending market presents a great opportunity to do something about it.

Here are some key reasons to prompt a review of your mortgage:

Lower Rate

On average, our clients have saved $2,000+ per year in interest. We will model your options to ensure your home loan is structured for your goals and objectives and find you a competitive rate to suit your lending needs.

Greater Flexibility

Refinancing is a great way to achieve increased flexibility with your monthly commitments and improve your cash flow position. Reviewing your overall debt position can enable you to reduce your monthly outgoings.


Using the equity in your home will most likely be the cheapest way of funding any major outlays such as car purchases, renovations and family holidays. Avoid adding debt to high interest credit cards by releasing funds through your home loan.

Home Equity

Over recent years in the property market houses have appreciated at a significant rate. Refinancing your mortgage can release equity that can help you fund your next investment or lifestyle need.

Household Cash Flow

Some people find that their mortgage and other financial commitments put a strain on their household cash flow. If you’re under financial stress, consolidating and refinancing your loans can reduce your overall commitments and make your finances more manageable.

5 tips to manage your mortgage

Unless you win lotto, there’s no way of getting out of your mortgage. Here are 5 ways to make paying off your loan easier.


Work out your expenses (fortnightly or monthly) and factor in your mortgage repayments. You might need to cut back on spending in certain areas to make sure your mortgage is a priority. Keep a diary of your spending and stick to your budget.


Reduce the number of credit cards you have (ideally down to one) as well as their credit limits, and only use them sparingly. Having a mortgage means taking control of your spending.


Making fortnightly repayments can have a big impact, minimising interest over the long term. Through this strategy you will essentially make 13 monthly repayments over the course of a year, rather than 12.

This extra month’s repayment helps reduce your principal, which can potentially save thousands in interest repayments over the life of your loan.

When extra funds come your way, like tax refunds, put them straight into your home loan as well – it can really make a difference in the long term.


Arrange for your mortgage repayments to be direct debited from your pay, so you always make them on time. Making payments on time ensures you wont pay more interest than you need to.


If you’re struggling to meet your repayments, speak to your mortgage broker. It may be possible to restructure your repayments or consolidate other debts into your home loan under certain circumstances.

The importance of getting pre-approval

Competition for a property can be fierce. Put yourself ahead of the pack with a pre-approved loan.

Sometimes referred to as an approval-inprinciple, pre-approval is a general indication of how much you’re able to borrow based on the information you provide to your lender.

Although subject to terms and conditions, a pre-approval basically gives you the green light on your home loan even if you’ve not yet decided on a particular property. The amount of the pre-approval is usually determined by your ability to meet the loan repayments. Most pre-approvals are valid for up to three months. Just remember even with your pre-approval, your purchase must still meet all of your lender’s requirements prior to obtaining final approval (including valuations, if applicable).

How do you get pre-approval?

To kick start the pre-approval process you’ll need to give your mortgage broker some key documents. These should include proof of your income – such as a letter from your employer or copies of your pay slips – proof of identity, and details of any assets you own.

Other paperwork might include details of any existing loan commitments and limits on credit cards. Once your documents and financial status have been given the tick of approval by the lender, you’ll receive a pre-approval notification that will see you on your way to home ownership.

Why obtain pre-approval?


A pre-approval gives you the confidence of knowing how much you can borrow when buying a property.


Your home loan pre-approved enables you to seize the opportunity and act quickly when you find the property you want.


A pre-approval can sometimes help you negotiate a better price with the seller, especially if there are fewer stringent conditions upon the sale.


Under the conditions of a cash contract, a pre-approval allows you to bid at auction for the property of your choice. However, you will be responsible to meet the rest of your obligations under the contract if unconditional approval is not obtained. You should seek advice on the contract before bidding at an auction.

Home loan options

There are so many different home loan structures available, so how do you know which one is right for you?

Making yourself familiar with a few of the popular products available will give you a strong head start when discussing your loan options. Here are just a few of the product types you’re sure to come across.

Basic home loans

Basic home loans or ‘no frills’ loans offer borrowers a loan with a low interest rate.

This interest and principal repayment loan is a popular choice among first home buyers. A basic home loan’s interest rate can be half to one per cent below the standard variable rate, which is sometimes combined with minimal ongoing fees. Potential drawbacks can include limited features, less flexibility, and additional charges if you decide to switch loans or pay the loan off sooner.


Interest rates are often half to one per cent below the standard variable rate.


Limited features, less flexibility and possible penalty fees for early loan repayment.

Fixed-rate home loans

Worried about rising interest rates? A fixed-rate home loan will allow you to fix your interest rate for a specific period, usually from one to five years. It can be a sound option when interest rates are on the rise, or in times of economic uncertainty. Should interest rates plummet, however, you’ll still have to pay off your mortgage at the fixed-rate until the end of the agreed fixed-rate period. Additionally, keep in mind that you may be charged a fee commonly called a break cost or economic cost, should you decide to break your fixed term or switch to another product. You may also be limited in making extra repayments.


Fix your interest rate for a specific period, giving certainty to regular repayment amounts.


Should interest rates fall you’ll still need to repay your mortgage at the agreed fixed-rate. There are potentially also high loan break costs payable of you, if you wish to end the fixed-rate term early. Ending the fixed-rate term early includes repaying the loan early and if you switch from one loan to another before the fixed-rate term expires. Fixed-rate loans may also limit additional repayments that can be made during the fixed-rate term.

Standard variable-rate home loans

A popular mainstream choice, standard variable-rate interest and principal home loans allow you to borrow money for a set period of time, during which you make regular repayments. The interest rate can vary depending on fluctuations in the official cash rate, so it is likely to go up or down depending on the market cycle.


Make regular repayments based on the current interest rate. Effective if rates do not rise.


Should interest rates increase, your regular mortgage repayments will rise.

Split-rate home loans

Want the best of both worlds? A split-rate home loan offers both flexibility and security. A good product for both first time and existing borrowers, split loans allow you to customise your loan’s interest rate as you see fit: fixing a portion of your interest rate to give certainty to your monthly repayments during the fixed-rate term should rates increase, but also flexibility through taking out a variable-rate portion.


Fix a portion of your interest rate to give certainty to monthly repayments while also benefit from a variable-rate portion should rates drop.


If interest rates do drop you’ll be left paying a higher rate for your fixed-rate portion. If you break the fixed-rate period early you may be subject to break costs and you may be limited to extra repayments on the loan.

Interest-only home loans

Interest-only loans offer borrowers lower repayment options, while maintaining many of a traditional loan’s features. This type of loan allows you to pay only the interest component on a mortgage; it does not reduce the principal component. They are a popular choice for investors seeking good capital appreciation on their investments.


Pay only the interest component on your mortgage for a set term. An ideal option for borrowers with an investment property.


Repayments do not reduce the principal component of your mortgage.

Low-doc home loans

If you’re self-employed, a contractor or a seasonal worker and do not have a regular income, a low-doc loan may be a solution.


Can help you enter the property market if you’re a self-employed, contract or seasonal worker without regular income or proof of income.


Typically have higher interest rates. You may also have to pay Lenders Mortgage Insurance (LMI).

Utilising your equity

The equity in your home could be the missing ingredient in purchasing your first investment property.

The idea of property investment is one that appeals to many Australians but is sadly often overlooked because of the misconception that it is only within the reach of the wealthy.

The reality is that with the right finance, planning and strategy, an investment property may be easier to achieve than you think.

Ease the deposit burden

One of the key challenges to breaking into property investment is raising a deposit, but there are solutions. Property buyers are typically required to contribute 20% of the property’s value, and for some this can be a stumbling block. But existing home owners may be able to unlock equity – or the increased value – that’s built up in their own home to cover some or even all of the down payment on an investment property.

The following scenario illustrates how.


Dan and Jessica bought their four bedroom family home in Doncaster in 2003 for $247,000 putting down a $49,400 deposit and taking out a loan for $197,600. The couple recently decided that they’d look at breaking into the investment market so they contacted us for help.

We suggested they get a valuation of their home, and they discovered that it was now estimated at $580,000.

Over the years Dan and Jessica had paid $48,000 off their original loan leaving $149,600 owing on the property. Today’s valuation of the property, less the outstanding loan, left them with $430,400 worth of equity.

Dan and Jessica didn’t want to sell down their managed funds to raise the deposit for the investment property, so we suggested they consider refinancing their own home to free up some equity. Once successful at auction, Dan and Jessica put down a 20 per cent deposit on a $350,000 two bedroom apartment and take out an 80 per cent loan.

The deposit came to $70,000 leaving a further $20,400 to cover stamp duty and other expenses while a $280,000 loan covered the rest of the purchase price. Now that Dan and Jessica had a bigger loan on their home their repayments had gone up, but they were pleased to discover that the repayments on their investment property were almost covered by the $385 weekly rental the investment property was generating.

And because the couple managed their investment themselves they reduced the overheads against the gross rent. By taking out an interest-only loan they also minimised their monthly outgoings and improved their cash flow.

Why should you use a mortgage broker?

Purchasing a property will be one of your biggest financial decisions. Engage a Broker to ensure you get it right the first time.

With more than a thousand different home loans on the market, this overwhelming choice has led a strong increase in the popularity of using a Mortgage Broker. Within Australia, around 53% of residential home loans are put in place with the assistance of a Broker.

To help understand why there has been a huge increase in the number of people utilising this service, below you will find my top 5 advantages of using a Mortgage Broker.

Top 5 advantages of using a Mortgage Broker


Going direct to a lender means you will only have access to their products. This means that you will not necessarily get the best loan structure or interest rate. Brokers are accredited with multiple lenders, which ensures the right product is found for your borrowing needs.

Save Money

Having access to multiple lenders allows Brokers to find competitive rates for you. Brokers actually have access to specialised products that can only be obtained by using their services. Additionally, Brokers are able to ‘sell’ your story to the lenders in return for a interest rate discount.

Get it Right the First Time

Taking the time to ensure the product suits your needs prevents unexpected costs being incurred during the life of your loan.

A lot of products have significant break fees. Without using a Broker, you may sign yourself up for a product that doesn’t meet your needs. Refinancing that loan into something more suitable may incur fees and charges.

A good Mortgage Broker will carefully assess your situation, then work hard to find the right mortgage for you.

Save Time

Don’t stress yourself over what one bank does compared to the next or what fancy terminology is used to explain complicated fees and charges. Brokers will do all the research, comparisons and explain in understandable language how your loan will work for you.

Brokers will also do all the paperwork for you. No need to fill in bank forms or complicated financial statements. Just a couple of signatures are all that’s needed.

Long-term Support

Once you have found a great mortgage Broker, you’ll stick with them. Your Broker will become your touch point for all lending enquiries over the life of your loan. Additionally, your Broker will stay in contact with you to ensure you have the right mortgage from the right lender at the right price.

What does a mortgage broker do?


Take the leg work out of financing your property by engaging a mortgage broker.

If you’re buying your first home or investment property – or looking to move to a bigger and better one – speaking to a mortgage broker is the first step. A broker will sit down with you, usually in your own home or another location convenient for you, and show you the range of loans available from different lenders. They will then help you narrow them down to a loan that might suit your needs.

The role of mortgage brokers has evolved. As well as identifying the most appropriate mortgage they’re becoming a key partner in helping borrowers secure other finance – such as personal loans, or leasing – as well as insurance and property-related services.

Assessing your needs

A mortgage broker will take the time to understand your needs, discuss your financial circumstances, and identify your loan requirements. As a first step, they’ll discuss your property goals, factoring in your loan requirements in light of your lifestyle, job, family and other aspects. They’ll also discuss the type of documents needed to assist you to make a loan application – such as pay slips, tax returns, and personal bank statements.

Once they have a clear understanding of your financial situation and goals, your broker will be able to advise you on your home loan options.

Comparing loans

As part of their service, your mortgage broker will recommend one or more home loans that fit your borrowing needs. They can compare hundreds of loans to find the one that suits you and discuss the product’s details and features with you. Brokers can give you a broad view of your lending options, but will also provide an analysis on important specifics of the loan that have been identified as meeting your needs. You can then make the decision on the product you’d like to select.

Managing the loan process – from start to finish

Once you’ve chosen the loan you’re comfortable with, your broker can help fill out the necessary paperwork to get the loan process underway. This might include submitting your home loan application on your behalf, communicating with all the relevant parties and managing the entire process until your home loan is approved. If you decide you want to switch home loans or refinance at a later stage, your mortgage broker can also help you source new loans that will suit your financial needs and help you through the process every step of the way.

Your mortgage broker can also refer you to a specialist to assist with your other financial needs – such as arranging home and contents insurance, income protection insurance or personal loans.