Please see my responses to one of my first home buyers today. Let me know if you have any questions and I will add them to part 2.

Q. Because almost everything goes to auction in Melbourne, do we need to (and can we) get unconditional approval, rather than pre-approval? 

A. No,  unconditional approval requires a contract and a valuation saying the property is acceptable to the bank.  Pre-approval is when “you” are approved but the property is unknown.  So the property then needs to be “approved” as an acceptable security by the bank. 

Q.If you have unconditional approval, what happens if you don’t find a property? Can you just simply not follow through with the application? 

A. Pre-approvals last 90 days typically and can be extended if required by showing new payslips and bank statements.  Correct,  you don’t have to follow through with it.  

Q. If we were to opt for a solely variable home loan, are you able to move to a fixed loan (or 50/50 split) at any stage? 

A. Its better to set up the 2 splits first,  especially if there is no cost to this option.  You can do it but after,  but depending on the lender it can be almost a full application. So it is best to consider your needs now and progress from there.

Q. Is it quite easy and straightforward to exit/pay out a mortgage early after selling your property? Does having a fixed-rate mortgage impact this in any way as opposed to variable? 

A. Paying out a variable loan is a simple process. This effectively happens when people refinance as well as sell a house.   Fixed loans can and usually do have break fees (which vary) so it is best not  to take a fixed loan for any longer than your selling/moving/refinancing plan. Take the time to think about your goals and plans for the next 2-5 years and then you can work towards them. Without making a potentially costly mistake.

Q. With a 50/50 variable + fixed-rate split mortgage, which half do people tend to pay off first?

A. Usually the one with the higher interest rate.  If that is the fixed loan then you may be capped at how much extra you can pay off per annum.  So the remainder of the extra payments would be directed to either your offset account or directly into the variable loan.   

Feel free to use our mortgage calculators to help you look at mortgage interest rates and stamp duty costs here. As always please feel free to use the chat box or contact us if you have further questions. We are always happy to help.

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