Finance and Mortgages

MEMBERS FIRST knows how important it is to secure the loan that suits your situation. After all, buying a property is one of the biggest financial commitments you will make in a lifetime. Whether you are a first or second homebuyer, an investor, someone looking to refinance, or simply wanting to access the equity built up in your home, let one of our mortgage advisers help you select the loan that is right for you and your situation.

Basic Loans

As the name implies, a Basic Home Loan is a "No Frills" product and does not have many features. Because it does not have many features, the interest rate is usually lower than the mainstream standard variable rate. The Basic Home Loan is suitable for Owner Occupied or Investment Loans. Nonetheless a Basic Home Loan offers a borrower a low interest rate product without the expense of paying for any features.

Bridging Loans

Bridging Loans, sometimes referred to as Relocation Loans, is a short-term loan often used to cover a finance gap between the purchase of a new property and the sale of an old property. Higher interest rates may be charged for this form of finance.

Fixed Rate Loans

Fixed-rate mortgages have a fixed interest rate that applies to a loan for a set term. Both the interest rate and loan repayments are fixed for the agreed term, regardless of any interest rate variations in the home loan market.

Fixed rates appeal to borrowers who prefer the security of a set repayment, without the worry of a variable interest rate. Fixed Rate Home Loans often offer lower levels of flexibility as a trade off for the stability of a guaranteed rate.

Honeymoon Rates

“Honeymoon” or introductory rates are offered to entice borrowers with a low advertised rate that may be as much as 2% below the standard home loan rate and therefore look very attractive. The rate can be fixed, capped or variable for the first six to 12 months of the loan. Then they automatically revert to the standard variable rate offered by that lender. The advantage of an Introductory Rate is that it offers borrowers a chance to reduce the principal quickly by making extra repayments. The main disadvantage is that in the long term the savings may be minimal and somelenders charge penalties if you discharge these types of mortgages within in first 3-4 years after settlement.

Lines of Credit

A flexible loan arrangement with a specified ceiling to be used at a customer's discretion. Lines of Credit are suited to borrowers who want flexibility and control over their home loan. These borrowers use the flexibility as part of their Wealth Creation Plan.

Low Doc Loans

Low doc or low documentation loans are structured for the self-employed who do not have the documentation required to get traditional home loans, such as financial statements or tax returns. The interest rate is higher than the standard variable rate. To be eligible for this product borrowers usually need a clear credit history and sufficient equity or savings to complete the purchase. Mortgage Insurance may also be required by the Lender, increasing the costs of borrowing.

No Deposit Home Loans

A No Deposit Loan allows borrowers to borrow up to 100% of the purchase price. These products generally attract a higher rate of interest due to the increased risk from the lenders perspective. No Deposit loans have strict qualifying requirements and applicants must have a clear credit history with a stable income.

Offset Mortgages

A savings account linked to your mortgage in such a way that the interest earned on your savings is applied to reduce the interest on your mortgage. Offset Mortgages can help reduce your tax bill by offsetting taxable income from deposit accounts against interest paid in after tax dollars on mortgage repayments. However, not all offset accounts are equal, with some not paying the same interest as you are charged on your mortgage. The most efficient offset products allow 100% of your savings to be used to offset the balance of your home loan.

Home Loans with an Offset account are best suited to borrowers who have excess funds available to them but also require the flexibility to use them at any given time. Offset accounts is sometimes used by borrowers in the same way as a Line of Credit. Offset Mortgages are sometimes priced with a slightly higher interest rate than a Standard Variable Home Loan.

Professional Packages

Most banks offer Home Loan Packages aimed at those who fall into a high income bracket or for members of professional associations. There are generally some qualifiers in place such as; minimum household income, minimum loan amount or alternatively membership of a professional body. Professional Home Loan Packages also offer attractive discounts to the Standard Variable Interest Rate as well as access to Gold Credit Cards, reduced insurance premiums and other benefits such as discounted application fees.

Standard Variable Rate

The Standard Variable Rate is the rate which lenders apply to their "premium" home loan product.

This type of loan is traditionally the most flexible and may include optional features such as the ability to make extra repayments, to redraw funds or to split your loan.

Reverse Mortgages

Reverse mortgages allow you to borrow cash against the value of your home. You usually don't have to make regular repayments until you leave and move into care, sell your home or die. When the loan ends you, or your estate, must repay what's owing, usually out of the proceeds of the sale of your home. Each year the fees and interest you would ordinarily pay are added to the loan balance. Over time, you're charged interest on the interest (or compound interest) and that builds up the total amount you owe.

Equity Finance Mortgages (EFM)

Equity Finance Mortgages (EFM) are also know as Shared Appreciation Mortgages and are a relatively new type of home loan that effectively boosts your potential borrowing capacity by anything up to 20%. An EFM works in conjunction with a traditional home loan. Together, they let you move some of the expense of a traditional home loan to later when you eventually sell your property. Here's how:

• An EFM allows you to borrow up to 20% of a property's value;
• There is no annual percentage rate applicable to an EFM loan, unless you are in default;
• You are not required to make any regular monthly interest repayments throughout the EFM loan, which you can hold for 25 years.

Instead, when you sell the property or repay the EFM for some other reason, you repay the EFM amount you originally borrowed plus up to a 40% share of any increase in the value of the property (assuming you take out a 20% EFM).

If you take out a smaller, say, 15% EFM, then the lender will only be entitled to 30% of the growth, leaving you with 70% of the upside on your home.

And while nobody likes to talk about property values decreasing, if this does happen when you have an EFM and you are selling your property, you may not have to repay the full EFM loan amount - a feature unique to an EFM.

Specifically, if the value of your home falls, and you realise a capital loss when you sell your property, the EFM lender will share up to 20% of the realised losses on your property (assuming you take out a 20% EFM)! The share of the losses borne by the lender will depend on how much you borrow in the first place and how much your property has decreased in value. The lender will not share in any losses if they are not fully realised by you when you repay the EFM.