Mortgage expert answers your silly home loan questions (Part 2)

Confused about how a home loan works? You’re not alone. Google is full of silly and awkwardly worded questions about mortgages and the property market, so let’s have another look at some of the funniest – and get some serious expert answers.

Yes, home loans require a down payment. This is also called a home loan deposit. A deposit usually covers 10% to 20% of the final purchase price: the rest is covered by a mortgage.

Your deposit is important for several reasons.

• It establishes your loan-to-value ratio (LVR). This number is how much of your property is paid for by you and how much is paid by your home loan. If you pay a 20% deposit, your home loan covers the remaining 80%, giving you 80% LVR.
• It gives you home equity. Home equity is the value of your financial interest in your home. If you pay a down payment worth $50,000, you have $50,000 in equity. 
• It can qualify you for lower interest rates. Different LVR tiers offer different interest rates. Often, the lower your LVR, the lower your interest rate. 

Saving up for a deposit is one of the most important home loan costs to consider. 

Fun fact! Home loans that covered the entire property price (called 100% home loans) used to be a thing, but they’re quite financially risky and not a good idea. (Negative equity is a thing). 

Most lenders require at least a 5% deposit and make you pay Lenders Mortgage Insurance (LMI) for any deposit size smaller than 20%. 

Having a home loan can absolutely affect your credit score. Because mortgages are a form of debt, how consistent you are with your repayments tells credit bodies how reliable you are as an investment.

If you make your mortgage repayments on time, it can boost your credit score. On the other hand, missing a mortgage repayment or defaulting on your loan can negatively impact your credit score, so if you’re under mortgage stress, it’s important to get help. 

Divorcing your partner can be a rough process, and who gets the property can be a significant cause of tension and legal headaches. Whether you have a mortgage or own the property outright, navigating the process with help and negotiating with your ex-partner is important. 

There are four basic options for dividing property in a divorce:

• Sell the property, split the profits, and move out.
• One partner buys the other’s share in the property.
• Continue paying off the mortgage together, with each partner paying an agreed share.
• Transfer the mortgage to your partner (without paying).

The right option for you will depend on your financial situation and your relationship with your ex-partner. Continuing the mortgage might be worth considering if you’re on good terms with them and want to keep your home equity. If you need the money to handle legal fees, selling the property together could work better – just beware of capital gains tax. 

Discuss these options with your solicitor and ex-partner.

Property managers are real estate professionals who act on behalf of the landlord to handle any requests and relations with the tenant of their rental property. 

For example, a property manager can:

• Inspect the rental property.
• Request fixes on behalf of the tenant and arrange tradespeople.
• Arrange a way for the tenant to pay rent.
• Make condition reports. 
• Advertise the rental property.

If you want to become a property investor, finding a property manager is a key part of the process.

If a cupboard is locked and the tenant can’t get in, then yes: the property manager can open that cupboard for them. 

During a rental inspection, however, property managers are not allowed to look into your cupboards. Even though the cupboards themselves belong to the landlord, the possessions inside them belong to you. Your cupboards are, therefore, your private business. 

Whether your property manager is physically capable of opening a cupboard, however, is another matter entirely. 

Depends on what you look for in a career. According to Indeed, Australian property managers salaries range between $70,000 and $100,000 a year. The job can be a mix of field, office, and client relationship management. 

There are some credential requirements to consider, however. If you want to manage, sell, or lease property on behalf of landlords, you’ll need a real estate license. 

You may also need to have higher learning qualifications, such as a tertiary diploma or university degree, to apply for most property management jobs, as well as relevant real estate experience and Australian financial services licenses.

A mortgage broker is an intermediary who can help research, advise upon, and arrange home loans for individuals or businesses. They can be a great asset during the home-buying process since they do a lot of the legwork for you. 

However, a bad mortgage broker – or a scam artist masquerading as one – can absolutely rip you off. Some warning signs to avoid include:

• Not having valid Australian financial services licenses. 
• Hiding fees from you, including broker, mortgage, and loan application fees. 
• ‘Steering’ you towards loans that put you in unnecessary, unserviceable debt. 
• Persuading you to refinance multiple times – thus, generating more broker fees for them. 
• Not telling you about hidden terms and conditions.

Some mortgage brokers can also be paid by the lender to guide you towards certain loans: the more expensive the loan they sell, the more they earn in commission. Therefore, the best home loan for you might not be the best loan for the mortgage broker. 

However, if your mortgage broker is professional, honest, and has valid qualifications, they can be useful when comparing home loans.

What happens to your mortgage when you die is important to consider. 

Mortgage protection insurance is a kind of policy designed to protect the borrower’s family financially when they can no longer make mortgage payments due to injury, illness, or death. (“I don’t feel like it anymore” isn’t an eligible reason, unfortunately). 

Benefits can be paid out in multiple ways. If you miss a few months of work, the benefits could pay you up to a certain amount per month. Alternatively, your family receives a lump sum when you die. This way, the policy can help make any otherwise missed repayments or fully pay off the mortgage. 

Life insurance can also fill a similar function, so it’s worth comparing insurance quotes if you’re considering options for your family.

“RBA want you to stop spending”.

The Reserve Bank of Australia (RBA) is in charge of monetary policy: essentially, making sure the economy grows without crashing or exploding. 

The main problems economies can face are inflation and recession. Inflation means spending is too high; recession, too low. Since interest rates can affect people’s spending behaviour, the RBA changes the official cash rate – a number used by banks to set rates for their home loans and savings accounts – to influence the economy indirectly.

The RBA cuts the cash rate to boost spending during recessions because mortgage rates suddenly become cheaper and savings accounts less attractive.

The opposite is true during inflation: the RBA raises interest rates to keep spending down because home loans suddenly get more expensive and savings accounts become more attractive.

At the moment, home loan interest rates are high because the Reserve Bank of Australia is trying to stop runaway inflation. Inflation is projected to slow down between 2024 and 2025, so mortgage rates will come down in that time period as well. 

Fixed home loans may experience cuts sooner, however. These types of loans are predictive instead of reactive, so if banks think interest rates will come down soon, they’ll lower fixed rates. 

Probably. Much like how recessions are an inevitable part of the business cycle, housing markets will often crash. Crashes are sometimes even called ‘corrections’ because they can lower prices from outrageous highs and balance the market. 

The timing can be hard to predict, however. The key warning signs of an impending housing market crash include:

• A tsunami of mortgage defaults.
• Forced or distressed home sales because homeowners can no longer afford their loans.
• Plummeting property values.

A housing market crash can either be a symptom or cause of an economic recession, and one often follows the other (though not always). Employment is an important metric to watch for a housing crash, too, since having an income makes it much easier to afford repayments and keep your home.

Astonishingly, you can absolutely advertise or list your home for sale on Facebook Marketplace. Keep in mind your audience will be limited to Facebook users, however, and you may receive a lot of spam or scam messages about the property.

Its own thing, usually. The property market is constantly evolving, so whether you’re buying or selling, it’s vital to keep a finger on the pulse. You can stay updated with the latest in our home loan news hub. 

Compare home loans in the table below.