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  • Loan Features

    There is a lot to consider when you are buying a home and the right type of loan with the right features will support you and your family’s lifestyle in the long term. Aspects to consider include:

    Loan Features

    • Principal & Interest
    • Interest Only
    • Annual Packages
    • 100% Offset
    • Redraw
    • Pre-Approval

    Principal and Interest Home Loan
    Principal is the actual money you have borrowed and interest is the fee lenders charge you whilst you owe this money. A Principal and Interest home loan (P&I) is simply one which includes an allocation for repayment of the principal together with the interest charge in your regular minimum repayment.

    Your loan is repaid with each instalment which reduces interest costs and increases the equity in your property. Minimum repayments are higher as they include the interest charge together with an allocation for principal.

    Interest-Only Home Loan
    Repayment of the principal is deferred for an agreed period (usually 1-5 years or up to 15 years with some lenders) and during this time you only pay the interest charges which results in a lower minimum payment as there is no allocation for principal.

    At the end of the interest only period you must start making Principal and Interest Repayments over the remaining term of the loan, although some lenders will also allow you to extend the interest only period for a further term.

    This option is often used as part of a negative gearing strategy for investment property as it preserves the original amount borrowed, thus maximizing the interest charges and resultant interest deduction to offset the income generated from the property, however you should seek independent financial advice as to whether this option suits your individual situation & investment strategy.

    An offset account is usually paired in this instance – please see explanation of ‘100% offset account’ for more details.

    Annual Packages
    Packages refer the bundling of multiple loan & consumer lending products under the one umbrella and are offered on home loan amounts usually greater than $100,000. The interest rate discounts are based on the standard variable rate and the higher the loan amount, the greater the discount offered.   With many Lenders, a more generous than published discount may be available, however most insist that a packaged feature is taken up.
    A package will usually comprise of a home loan, credit card product and savings or offset account all of which are covered by the payment of an annual fee.

    100% Offset Account
    A 100% offset account is a savings account linked to a loan account and operates in the same manner as an everyday transaction account (ATM, Eftpos, etc). No interest is earned on the credit balance, rather the balance of the offset account is deducted from your loan account before the interest on your home loan is calculated. Therefore less interest is charged to your loan.

    Savings interest is taxable, but because your offset account balance is used instead to reduce your loan interest, no tax is payable, so it can be tax effective. An offset account can also help preserve the original balance of an investment loan as funds can be paid into the offset account rather than the investment loan account to avoid principle reduction and maximise interest deductibles.

    The interest rate on your offset account is effectively the same as that applied to your loan account, which in most cases is much higher than you could earn on most at-call savings accounts, so a very popular feature if you typically have surplus savings funds on daily basis sitting in a savings account. Whilst every dollar counts, the real benefit is seen if the constant balance is at least $5000 to ensure the benefit of the offset covers any additional administration fee that the Lender may charge for this feature (fees vary amongst lenders)

    Redraw facility
    Allows borrowers to access extra payments that have been made. Some lenders have a minimum redraw amount and may also charge a fee per redraw, but most lenders now allow this to be done online for a minimal or nil charge.

    Redraw is a common feature for almost all variable rate loans however more & more Lenders are allowing extra repayments and redraw for fixed rate loans these days as a competitive product offering.

    Pre-Approval
    If you’re looking at purchasing a property at auction, it’s strongly recommended that you allow Cube Finance Group to obtain an Approval in Principle, also known as a Pre-Approval in order that you have some certainty with being able to obtain finance before committing to a purchase.

    Once we have discussed your financial objectives and requirements, Cube Finance Group will request certain proof documents and complete a finance submission for assessment by the selected lender, who in turn will complete a preliminary assessment, confirm all information provided, undertake a credit check and in some cases, seek an indicative approval from a mortgage insurance provider where required.

    A pre-approval is by no means a guarantee of finance approval and should not be relied upon – its more an indication that you meet the lending criteria of the given lender however Cube Finance Group can assist in this area by obtaining a more meaningful response from the Lender that can be relied upon in order to take that next step in obtaining a property.

    A pre-approval generally lasts for between 60-90 days from date of issue and will be normally be subject to a satisfactory security being offered, a satisfactory valuation and fully signed contract of sale. These and any other requirements will be clearly discussed with you before you commit to a purchase on auction day.

    Loan Process Considerations

    Complimentary Property Reports

    Knowing what your property is worth is sometimes hard and when purchasing a property you may like to get an idea of sales history for the area.

    At Cube Finance Group, we will provide you with a free property report that gives you information on the property in question including estimated price guide, recent sales in the area and local facilities. When you approach your sale or purchase you will have greater confidence in your decisions and next steps for a successful transaction.

    Identification Requirements

    Cube representatives are skilled in helping its clients meet bank identification requirements (i.e. the 100 point checks). The simplest documentation for most of our clients to provide is their current drivers licence and valid passport. In addition, we may request copies of your Medicare card, birth certificate or marriage certificate. We support you with information on certification requirements and contacts for Justices of the Peace or authorised witnesses if you require them.

    Income Documentation Tips

    Most importantly, when applying for a loan, you will be required to show the lender documentation to prove your income and demonstrate your ability to cover repayments.

    Documentation requirements change depending on whether you are an employee (also known as a PAYG applicant) or self employed. At Cube Financial Group, with permission, we will contact your accountant to get all relevant information. In doing so we work with them to maximise any possible taxation or other benefits for your situation giving you security that your lending will be working for you over the long term.

    Accounting and Documentation Support

    As an individual, self-employed business owner or larger developer, you will be asked for a range of financial documentation regarding your income, expenses, assets and liabilities.

    To lighten the load for you, Cube Financial Group will guide you on what is needed and, should you be in need of a new accountant, has a strong relationship with a reputable firm to which we will refer you.

    CFG receives no financial incentives to refer to our professional contacts.

    Conveyancing and Legal Advice

    It is very important if you are purchasing a property to have a reliable solicitor or conveyancer to assist in the settlement process. Cube Finance Group has a solicitor we highly recommend to all our clients to provide them with peace of mind that their transaction is in good hands, if you require one.

    CFG receives no financial incentives as a result of this relationship.

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    FAQs.

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    Cube Finance Group has developed alliances with other professionals in many areas and would be happy to refer you to people we believe will suit your particular needs.

    Cube Finance Group is positioned to help everyone from First Home Buyers to investors to property developers to business owners (whether start up or established).

    If you require equipment finance, we have working relationships with specialists who assist new and existing Cube clients in this area.

    A mortgage broker will help you to achieve the best lending outcome for you by understanding your needs. This will cover your budget requirements as well as structuring the lending in the most effective way.

    Cube Finance Group is able to access a panel of lenders to find the best deal for you and save you time in researching all the products available in the market. Our team members seek to find you the most appropriate finance arrangement that will suit your needs now and in the future.

    In general, some helpful general information to collate is:

    • For employees – income details as shown on your last two payslips and your most recent group certificate
    • For self employed applicants – your income details as shown by your most recent two years of  tax returns and financials – members of the Cube Finance Group will liaise directly with your accountant if you prefer
    • Your two most recent rental statements for investment properties, if applicable
    • Your most recent six months of home loan statements, if applicable
    • For First Home Buyers – your savings statements
    • Recent statement on other commitments
    • 100 points of identification
    • Purchase contract, if applicable
    • Copy of rates notice for any properties owned
    • A copy of your Trust deed if applicable

    A member of the Cube Finance Group will advise specifically what supporting information would be required to assist with a finance application depending on your circumstances.

    We encourage clients to call the broker that assists them or our skilled Cube Finance Group support staff.

    More questions?
    Ask our experts now.

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