How to make finance calculators work for you

How to make finance calculators work for you

Getting a clue as to how your finances work doesn’t have to be complicated, and thanks to finance calculators found online, you can make sense of your money with the right calculator.

The internet has given us some amazing things: cat videos, memes aplenty, and an endless supply of adorable babies. But did you know it can deliver a calculated approach to calculating your finances?

That’s the point of a finance calculator, a tool seen on various websites that can answer the question of how much money you might need for something, and how much you stand to gain. Important questions, obviously, and ones you might not have been able to answer yourself.

So where do you start, and how can you make a finance calculator work for your life?

Learn your borrowing power

If you’re thinking of diving into the housing market this year, it’s a good time to brush up on the lingo. Whether it’s your first home or something you plan to use for investment purposes, learning how much you can spend is a big part of being able to buy that house in the first place.

How much you can take out is also known as “borrowing power”, and depends on how much you make, how much of a deposit you have, what your credit history is like, loans you’re paying off, and other aspects significant to your life.

Everyone’s borrowing power is different, though it can and will affect how much you have to work with when buying a home.

You might think that borrowing power can only be told to you by a broker, but that’s just simply not true. While a broker will give you the best chance of learning your true borrowing power, a borrowing power calculator can get you a realistic answer on how much money you should be able to use.

RateCity’s home loan borrowing calculator can provide that answer, offering an estimation on how much you have to work with based on your current finances.

How much extra will you need for home buying?

Working out how much money you have to play with is just one part of calculating home loan requirements, because you also need to work out how much actual money you’d need to spend.

Buying a home isn’t just the overall purchase price, after all. There are other things to consider, such as a building inspection, possible renovations, and then the obligatory things we wish we didn’t have to factor in, but will anyway.

For instance, if you don’t have 20 percent of the loan or over, or you don’t have a guarantor for your home loan, you’ll very likely have to pay Lender’s Mortgage Insurance. Also called “LMI”, it’s a type of insurance that insures the bank or lender, but not you, and basically accounts for their risk to lend to you.

If you haven’t managed to hit that 20 percent amount, LMI is tacked on with the loan, and is something extra you’ll have to pay. Lender’s Mortgage Insurance is different on a property-by-property basis, but you can find a calculator to help work out the cost of LMI on RateCity.

You might get out of paying LMI if you have a big deposit or a guarantor, but you probably won’t get out of stamp duty. A fairly standard side of home buying in Australia, stamp duty is charged on properties at different rates, though depending on if you’re a first home buyer, you could be given a reprieve or even a discount.

However, you also may not, so calculating your stamp duty is a handy idea if you’re considering buying a home. Fortunately, RateCity offers a stamp duty calculator, making it just that little bit easier to work out how much you’d potentially need to hand over at the time of purchase.

Make your savings account work for you

You work hard for the money, but that doesn’t mean the money works hard for you. Depending on the type of account you have your money in, it might be possible to get more out over a long period of time.

By “long period”, we mean it. To get the most out of savings accounts and term deposit accounts, you need to leave your money in for a term, taking advantage of interest rates and time to increase the money you can earn.

However you don’t need to do it on a punt, because calculators can help make that decision a little easier, finding out whether a certain bank account is better for your money than something else.

A savings account calculator will help you understand how much money you can earn and still use, and if you find it’s not enough, there’s always a selection of savings accounts to consider switching to.

Term deposits work a little differently, and ask you to invest a potentially larger portion of money for a period of time. The longer the time and the higher the interest rate, the more you can potentially make, with a term deposit calculator able to help you work out how much money you stand to make.

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Learn more about home loans

How much money can I borrow for a home loan?

Tip: You can use RateCity how much can I borrow calculator to get a quick answer.

How much money you can borrow for a home loan will depend on a number of factors including your employment status, your income (and your partner’s income if you are taking out a joint loan), the size of your deposit, your living expenses and any other debt you might hold, including credit cards. 

A good place to start is to work out how much you can afford to make in monthly repayments, factoring in a buffer of at least 2 – 3 per cent to allow for interest rate rises along the way. You’ll also need to factor in additional costs that come with purchasing a property such as stamp duty, legal fees, building inspections, strata or council fees.

If you are planning on renting the property, you can factor in the expected rental income to help offset the mortgage, but again it’s prudent to add a significant buffer to allow for rental management fees, maintenance costs and short periods of no rental income when tenants move out. It’s also wise to factor in changes in personal circumstances – the typical home loan lasts for around 30 years and a lot can happen between now and then.

Savings over

Select a number of years to see how much money you can save with different home loans over time.

e.g. To see how much you could save in two years by switching mortgages,  set the slider to 2.

What are the pros and cons of no-deposit home loans?

It’s no longer possible to get a no-deposit home loan in Australia. In some circumstances, you might be able to take out a mortgage with a 5 per cent deposit – but before you do so, it’s important to weigh up the pros and cons.

The big advantage of borrowing 95 per cent (also known as a 95 per cent home loan) is that you get to buy your property sooner. That may be particularly important if you plan to purchase in a rising market, where prices are increasing faster than you can accumulate savings.

But 95 per cent home loans also have disadvantages. First, the 95 per cent home loan market is relatively small, so you’ll have fewer options to choose from. Second, you’ll probably have to pay LMI (lender’s mortgage insurance). Third, you’ll probably be charged a higher interest rate. Fourth, the more you borrow, the more you’ll ultimately have to pay in interest. Fifth, if your property declines in value, your mortgage might end up being worth more than your home.

How can I calculate interest on my home loan?

You can calculate the total interest you will pay over the life of your loan by using a mortgage calculator. The calculator will estimate your repayments based on the amount you want to borrow, the interest rate, the length of your loan, whether you are an owner-occupier or an investor and whether you plan to pay ‘principal and interest’ or ‘interest-only’.

If you are buying a new home, the calculator will also help you work out how much you’ll need to pay in stamp duty and other related costs.

What if I can't pay off my guaranteed home loan?

If you can’t pay off your guaranteed home loan, your lender might chase your guarantor for the money.

A guaranteed home loan is a legally binding agreement in which the guarantor assumes overall responsibility for the mortgage. So if the borrower falls behind on their mortgage, the lender might insist that the guarantor cover the repayments. If the guarantor fails to do so, the lender might seize the guarantor’s security (which is often the family home) so it can recoup its money.

What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

Mortgage Calculator, Loan Amount

How much you intend to borrow. 

How will Real Time Ratings help me find a new home loan?

The home loan market is complex. With almost 4,000 different loans on offer, it’s becoming increasingly difficult to work out which loans work for you.

That’s where Real Time RatingsTM can help. Our system automatically filters out loans that don’t fit your requirements and ranks the remaining loans based on your individual loan requirements and preferences.

Best of all, the ratings are calculated in real time so you know you’re getting the most current information.

How do guaranteed home loans work?

A guaranteed home loan involves a guarantor (often a parent) promising to pay off a mortgage if the principal borrower (often the child) fails to do so. The guarantor will also have to provide security, which is often the family home.

The principal borrower will usually be someone struggling to find the money to enter the property market. By partnering with a guarantor, the borrower increases their financial power and becomes less of a risk in the eyes of lenders. As a result, the borrower may:

  • Qualify for a mortgage that they would have otherwise been denied
  • Not be required to pay lender’s mortgage insurance (LMI)
  • Be charged a lower interest rate
  • Be charged less in fees

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.

Do mortgage brokers need a consumer credit license?

In Australia, mortgage brokers are defined by law as being credit service or assistance providers, meaning that they help borrowers connect with lenders. Mortgage brokers may not always need a consumer credit license however if they’re operating solo they will need an Australian Credit License (ACL). Further, they may also need to comply with requirements asking them to mention their license number in full.

Some mortgage brokers can be “credit representatives”, or franchisees of a mortgage aggregator. In this case, if the aggregator has a license, the mortgage broker need not have one. The reasoning for this is that the franchise agreement usually requires mortgage brokers to comply with the laws applicable to the aggregator. If you’re speaking to a mortgage broker, you can ask them if they receive commissions from lenders, which is a good indicator that they need to be licensed. Consider requesting their license details if they don’t give you the details beforehand. 

You should remember that such a license protects you if you’re given incorrect or misleading advice that results in a home loan application rejection or any financial loss. Brokers are regulated by the Australian Securities & Investment Commission (ASIC), as per the National Consumer Credit Protection (NCCP) Act. 

What are the responsibilities of a mortgage broker?

Mortgage brokers act as the go-between for borrowers looking for a home loan and the lenders offering the loan. They offer personalised advice to help borrowers choose the right home loan for their needs.

In Australia, mortgage brokers are required by law to carry an Australian Credit License (ACL) if they offer credit assistance services. Which is the legal term for guidance regarding the different kinds of credit offered by lenders, including home loan mortgages. They may not need this license if they are working for an aggregator, for instance, as a franchisee. In both these situations, they need to comply with the regulations laid down by the Australian Securities and Investments Commission (ASIC).

These regulations, which are stipulated by Australian legislation, require mortgage brokers to comply with what are called “responsible lending” and “best interest” obligations. Responsible lending obligations mean brokers have to suggest “suitable” home loans. This means loans that you can easily qualify for,  actually meet your needs, and don’t prove unnecessarily challenging for you.

Starting 1 January 2021, mortgage brokers must comply with best interest obligations in addition to responsible lending obligations. These require mortgage brokers to act in the best interest of their customers and also requires them to prioritise their customers’ interests over their own. For instance, a mortgage broker may not recommend a lender who gives them a commission if that lender’s home loan offer does not benefit that particular customer.

How to break up with your mortgage broker

If you find a mortgage broker giving you generic advice or trying to sell you a competitive offer from an unsuitable lender, you might be better off  breaking up with the mortgage broker and consulting someone else. Breaking up with a mortgage broker can be done over the phone, or via email. You can also raise a complaint, either with the broker’s aggregator or with the Australian Financial Complaints Authority as necessary.

As licensed industry professionals, mortgage brokers have the responsibility of giving you accurate advice so that you know what to expect when you apply for a home loan. You may have approached the mortgage broker, for instance, because you have questions about the terms of a home loan a lender offered you. 

You should remember that mortgage brokers are obliged by law to act in your best interests and as part of complying with The Australian Securities and Investments Commission’s (ASIC) regulations. If you feel you didn’t get the right advice from the mortgage broker, or that you lost money as a result of accepting the broker’s suggestions regarding a lender or home loan offer, you can file a complaint with the ASIC and seek compensation. 

When you first speak to a mortgage broker, consider asking them about their Lender Panel, which is the list of lenders they usually recommend and who may pay them a commission. This information can help you decide if the advice they give you has anything to do with the remuneration they may receive from one or more lenders.

How do I take out a low-deposit home loan?

If you want to take out a low-deposit home loan, it might be a good idea to consult a mortgage broker who can give you professional financial advice and organise the mortgage for you.

Another way to take out a low-deposit home loan is to do your own research with a comparison website like RateCity. Once you’ve identified your preferred mortgage, you can apply through RateCity or go direct to the lender.