The Reserve Bank’s loan-to-value ratio restrictions mean borrowers must generally have a deposit of at least 20 per cent of the value of the home they want to buy. There are some exceptions.
See our guide on lending restrictions here.
Early repayment charges
Banks are likely to impose an early repayment charge if you borrow money at a fixed interest rate for a fixed length of time, but repay it (or a significant portion of it) early. Such a charge sometimes comes as a surprise to customers. If you take out a fixed-term loan, be sure to ask the bank as many questions as you want so you fully understand the implications of, say, selling your home before the term of the loan expires. (This will involve the repayment of the loan, even if you borrow again from the bank for another home.)
See our guide on early repayment charges here.
Freeing up capital
If you have several mortgaged properties and sell one to free up capital, you won’t necessarily receive all the proceeds from the sale. The bank may want some of the money to cover other loans.
See our guide on freeing up capital here.
Guaranteeing someone’s debt
Banks will sometimes lend you money only if someone else guarantees to repay the loan if you fail to make repayments. If you need someone to act as a guarantor to get a home loan, think carefully because this person will be assuming many legal obligations. Equally, don’t lightly agree to act as a guarantor for someone's debt. Always get independent legal advice first.
See our guide on guaranteeing someone’s debt here.
Early repayment charges
Customers who borrow money at a fixed interest rate for a fixed term enjoy the benefit of knowing exactly what their repayments will be over the period of the loan. They are not affected by any rise or fall in interest rates during that time. In return, banks get a pre-determined return on their money.
But if customers repay their loan early (or make a significant lump sum payment before the end …
Guaranteeing someone's debt
Banks will sometimes lend a customer money only if someone else provides a guarantee. If you agree to be a guarantor for a borrower, the bank can require you to pay the borrower’s debts if he or she defaults on repayments.
Note: The following is intended as a guide only. Seek independent legal advice if you are considering becoming a guarantor. If you are already a guarantor and have any concerns…
Loan-to-value-ratio restrictions on banks' home loan lending are a Reserve Bank measure to slow rising house prices. For banks, it means no more than 20 per cent of their total new home loan lending can be for loans that exceed 80 per cent of a property’s value.
For borrowers, it means they must have a deposit equal to at least 20 per cent of the value of the property they wish to buy. If, for ex…
Updated July 2021