What is a Mortgage?
Welcome to the learning centre. A mortgage is simply a loan that is secured on immovable property, normally your home – ‘home loan’. The mortgage is lent to you in a lump sum to pay for the property and is legally bound to the property by the solicitors who register your mortgage (title deed). You then have to pay back this mortgage over a given length of time and penalties may apply if you do not comply to the agreement (contract).
This time period is usually 30 years, but it can vary between 5 and 30 years depending on circumstances and client choice.
‘Secured’ means that if you do not make payments as you agreed, the lender has the right to sell your property in order to recover their money. This is rare but it is important to understand from the outset that if you do not keep up repayments on your mortgage, you are at risk of losing your home and have bad credit because of that.
How much can I borrow for a mortgage?
One of the first questions everyone asks when they are thinking of buying a property is ‘how much can I borrow?’ This is not an exact science and all banks have methods to calculate affordability. Since the introduction of the NCCP, this has become even more complicated. The most accurate method of establishing how much you are eligible to borrow is to contact one of our Time Mortgage Experts to assist you in this regard.
A mortgage lender will lend you money based upon what they think you can afford to repay on a monthly basis. The calculation they use will establish your debt servicing ratio and most lenders will apply different assessment rates giving an indication as to what they will allow you to borrow.
Through the NCCP regulation lenders as well as brokers have to act reasonable and ensure that you have not been over committed and that a suitable product has been chosen. The assessment rate the lenders apply act as a buffer to ensure that you can still meet your obligations should the interest rate increase over your loan period. Lenders will look at your statement of assets and liabilities to establish your appetite for debt. They will also look at your capacity to save money as well as your conduct on current loans.
Conversely, if you’re ‘maxed out’ with credit cards and personal loans, you may not get finance as you would not prove to be in control of your finances. This would prove reckless of a funder to assist you with more finance if you do not have the capacity to borrow more or do not show the capacity to honour current debts and control your level of debt.
Lenders also have the ability to tweak their systems to lend to certain type of clients compared to others. For example, a certain funder could have a preference for applicants with a bigger deposit or suitable equity to allow a smaller loan.
For a quick check to see how much you are eligible for please go to our Time Mortgage Calculators.
Lenders will take into account other income that you may have such as rental income, investment and dividends etc. Again, lenders do vary in how they view secondary income streams. Therefore you should always speak to your Time Home Loans Mortgage Adviser to assess your full range of options.
As a rule of thumb lenders will take into account 80% of your rental income on a rental property. It is up to you as the borrower to prove this income. You must be able to show money going into your bank account and rental statements.
Lenders will also look at family allowance (children’s ages) do affect what can be used in this regard), defence force pensions and some other income streams. Only certain lenders will use Maintenance income for servicing and rules apply in what you are allowed to use to qualify as a suitable income. Lenders will also allow a certain amount of income if you can prove that you have a fully supplied company vehicle.
If you are a commission earner the banks will take this into account. The best way to prove this to the bank is to provide six months payslips and calculate the average commission.
Annual bonuses and overtime
These can also be taken into account but you will have to prove that it is mandatory and part of your employment agreement.
It is harder for banks to lend to self-employed individuals because it is often harder to prove their income. The better you manage your accounts (and the more accurately) the easier it is for the banks to lend to you. Proof of your income will have to be provided in the form of two years financials and two years tax returns.
Please discuss your individual situation with our Mortgage Advisers as they are well equipped to access your situation and your application with the correct funders.
Partners / Spouse’s income
If you are purchasing with a partner or spouse then lenders will take their income into account.
Remember: banks want to lend money. That is how they make money. The banks have come under considerable pressure since the introduction of the NCCP not to ‘lend recklessly’. Make it easy for a lender to grant you a loan by managing and recording your finances carefully.
Do I need a deposit to buy a house?
Whenever you sign an offer to purchase a property, you will be asked to put down a deposit. The act of ‘putting down’ a deposit is purely an act of goodwill and is a show of commitment. The real estate agent will usually indicate to you a minimum deposit needed.
When and to whom is the deposit paid?
The deposit is usually paid within a time period stipulated in the offer to purchase. This would be when the contract is signed by all parties. The deposit will be kept in a trust account, till settlement takes place. The interest on these trust accounts is not a benefit to the real estate company, the size of deposit does not always matter to them.
If you do not put the whole deposit down on the sign of the contract, you will need to make the necessary arrangements to have the rest of the deposit in your solicitor’s trust account before settlement occurs.
Please be aware that all lenders are now requesting deposits on all mortgages regardless whether you are a first time homebuyer or not.
Does size matter?
Generally the larger the mortgage deposit (as a percentage of the value of your house) that you put down, the better the interest rate you can negotiate with the bank. This is because the lenders know that if you default on your loan and they repossess the property, there is more chance of them getting their money back on the sale of the property – less ‘risk’ to the lender. It also shows to the bank that you investing your own hard earned cash into the property.
Therefore the larger the mortgage deposit you put down, the lower the rate of interest you are likely to get. A larger deposit also reduces the risk of you going into “negative equity”. This is the situation when the value of your house falls to below that of your mortgage. This makes it difficult to sell your house because the proceeds won’t cover the debt you owe and you would need to find additional funds from elsewhere.
If you do not have 20 % deposit of the cost of a property, Lenders Mortgage Insurance will apply on your loan. This is an insurance that has been established to protect the lenders should you default on your loan.
Note: this insurance is purely there to protect the lender, not you the client.
What other costs are there associated with Mortgages?
An important factor to take into consideration when doing your calculations is the other costs of purchasing a property. It’s not just a case of finding the deposit and knowing how much your mortgage payments will be each month. The moment you have found the home of your dreams and have had your offer accepted, you will find that there are other expenses that crop up along the way.
The main additional expenses are stamp duty, conveyancing fees, mortgage registration fees, building and pest fees, rates adjustment etc.
You will find that every Time Home Loans Mortgage Adviser will do and ‘Estimate of Outlays’ sheet.
Mortgage broker’s fees
We are paid a commission by the different funders. We disclose these commissions to you in order to be transparent in what we say and do.
If we do deal with a funder that does not pay commission, we will discuss with you what brokerage fee will be applicable, but again only to ensure we cover our associated administration costs. Should you for some reason decide not to take up the mortgage offer, we have the right to charge a brokerage fee to cover administration. We are not there to make ‘administration money’ out of you and therefore do not charge a fee if you do proceed.
How do I repay my mortgage?
The initial amount you can borrow is called the capital, and there are two main ways of repaying this. These are covered below. You also need to pay interest on the capital you borrow — and there are more options you can choose here but we’ll cover these further on. Firstly, it is important to understand how the lenders structure your repayment of a mortgage.
How do the Lenders structure a mortgage
The lenders take the loan required (this is known as the principal sum) and then work out the interest you will owe them over the full term of the mortgage. This is in effect an additional sum you now owe the lender.
In reality you have now borrowed two loans from the lender. The first is the principal sum. The second is the interest. The interest part of the loan is variable as this all depends on how quickly you pay the loan back. The quicker you pay it the less interest will be applicable.
Mortgage interest rates
The interest rate charged on your home loan is crucial. It will determine how much you can afford to borrow and therefore how much you can afford to spend on a house.
Your Time Home Loans Mortgage Adviser will be the best informed to advise you on your likely interest rate. The rate will depend on a number of factors such as the loan to value ratio (the size of your mortgage compared to the price of the house you are buying or own), your repayment to income (the cost of your monthly mortgage repayment to your gross monthly income), the size of your home loan and your credit profile.
How is the interest charged on mortgages?
Interest is charged daily and accrued monthly on your mortgage. You have the capacity to make repayments weekly, fortnightly, or monthly. It is in your best interest to make payments weekly if possible as this will allow you to pay less interest. Your frequency of your repayment will not matter if you have an offset account attached.
Which type of mortgage is best?
There is no simple answer to this question. Most people will obviously want the cheapest deal they can get on their mortgage. But you may need to compromise a little on cost in order to get something that is a little more flexible and work for your situation.
If you’re on a tight budget and you like certainty then a fixed rate mortgage may be a good option for you. If you have a little more flexibility on your monthly outgoings, a variable interest rate might suit you better. You can even look at splitting your loan to hedge your bets – best of both worlds some times.
For a more in depth analysis of the various mortgage products please go to our mortgage products section or complete our submission page and one of our Time Mortgage Advisers will call you to discuss options in detail.
How do I get a mortgage?
Applying through a Time mortgage Advisor
In most cases people need a loan to allow them to purchase a property, except if you are very wealthy or have won the lotto(!).
You can apply straight through a bank, but this means a lot of legwork to compare different lenders and different products. This is where we come in – Time Home Loans.
We are there every step of the way to make your process hassle free. For us this is not a transaction, but a relationship, a relationship with you the client and one that will be ongoing.
Let us look after your best interest – apply today and experience a service second to none from the Time Home Loans Team.
Can I still get a mortgage if I have a bad credit rating?
This does complicate the process and your chances of getting a loan. Funders look in a different light to bad credit as this could mean that you do not have the ability to meet your obligations.
Time Home Loans does not judge anyone with bad credit, but we do spend the time to see if you are in a position to meet your obligations. We look at reasons for why this happened and whether a plausible excuse is applicable.
We will help you if we feel there is an opportunity to mitigate the reason.