The term “first mortgage” refers to the original loan you use to buy a house. It is the primary loan on a property and has priority over any other claim on the property’s title in the event of a default.

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Meanwhile the term “second mortgage” is a general concept used to describe what banks and lenders usually call a home equity loan.

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Refinancing involves taking out a new mortgage to repay an existing loan. The new borrowing can be with the same lender for your existing loan, or with a different lender, depending on your needs and purpose to refinance.

The main benefits include access to lower rates, aggregation of debts and improved liquidity.

 

The processing times vary depending on the source of funding. It normally takes 4-8 weeks for major banks from starting with application materials to getting the loan settled on your account, however some non-bank lenders may be able to settle within a week.

 

Asset-based loans refers to a loan agreement that is secured by collateral. If the loan is not repaid, the collateral asset will be repossessed. Conversely, standard loans are ‘cash-flow loans’, meaning that funds are borrowed based on future projected revenue – your credit capacity.

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In a practical sense, asset-backed loans allow you to borrow funds even if you lack a stable flow of income. Money can be borrowed as long as you have an asset, e.g. a house, that can be used as collateral. They also often have lower rates due to assets offered as security.
 

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Debt financing and equity financing are the two alternatives to raising funds.
Debt financing guarantees lenders a fixed interest rate as a return. if the project breaks down, lenders have priorities on claiming their funds, providing increased security against an adverse scenario.

On the other hand, equity financing gives shares to investors and investors receive dividends as return when profit is made. The advantage of equity financing is the potential high return if the project is performing well.

 

1. Personal Identification

   • Passport/Driver license

2. Income Details

   • For employees: A copy of your two most recent payslips

   • For self-employed: Personal and Business tax returns

   • For rental income owner: A formal signed lease, and your most recent rental statement

3. Home Loan situation

   • Various document required depends on your home loan situation

4. Asset & Liabilities

   • Bank account details with proof of your savings

   • Details of any existing loans

 

An offset account is a savings account related to your home loan. It ‘offsets’ the principal of your loan so that the interest payable on the loan is reduced. For example, if the balance on your home loan is $250,000 and at the same time you have $10,000 on your offset account. Assuming an interest rate of 6%, then you would only need to pay interest of (250,000-10,000) *6% = $14,400. In other words, you only pay interest for the $240,000 borrowed.

 

You need to understand your borrowing power from your lender, and consider the amount of weekly, fortnightly, or monthly repayments you are comfortable with given your monthly commitments and lifestyle. Moreover, up-front costs such as home and contents insurance, legal fees, land/water rates and stamp duty should be also taken into consideration.