Genuine savings is a requirement from most lenders for borrowers who want to lend money over 85% or 90%, dependant on lender, of the value of the property.

Genuine savings requirement means that a lender wants to see that the borrower has the ability to save funds over a period of time. It is sort of like the lender wants to see the character of a borrower and wants to see if the borrower ahs the ability to save some funds and get into the habit of putting money aside to repay their mortgage.

Gone are the days of the 100% loans and 105% lenders

The maximum some lenders will borrow is 95% plus capitalize the lender mortgage insurance on top of that.

Genuine savings must be evidenced over 3 months in the following way:

1. Money held in a bank account over 3 months.
   There must be evidence of periodic savings deposited into the account. Most lenders will not accept a lump sum deposit and nothing else over the next few months.
2. Gift – this must have been held in an account for a minimum period of 3 months
3. Term Deposit – this must have been held for a minimum period of 3 months
4. Cash -acceptable only if placed in account for a minimum period of 3 months
5. Shares – these must have been held for a minimum period of 3 months
6. Equity in an existing property

Some lenders are less stringent than others and only require 3% genuine savings.

Bookmark It

What is securitisation?

Securitisation is the process of converting a pool of cash flows into tradeable securities known as asset backed securities (ABS) or Mortgage backed securities (MBS).

What is the process involved?

An originator of cash flows (e.g. loans) sells a portfolio of loans to a special-purpose vehicle (SPV). The SPV raises funds to purchase the loans by issuing debt securities to investors.
The interest and principal payments on the underlying loans are used to make the interest and principal payments on the securities.

What are the three key elements involved in securitisation?

1. Cash flow
2. credit and structural support
3. held in a special purpose vehicle (SPV) for the benefit of investors

What are the main benefits of securitisation?

• Asset liability matching
• Cheaper funding for lower rated entities
• Funding diversity
• Regulatory capital relief (for regulated entities)
• Off balance sheet treatment
• Accelerates cash flow
• Risk transfer

What types of assets have been securitised in Australia?

• Residential mortgage loans
• Vehicle and equipment loans and leases
• Credit and charge card receivables
• Trade receivables
• Collateralised loan obligations
• Net interest margins (income streams)
• Commercial mortgage loans and leases

Who typically is involved in the Australian securitisation market?

There are a diverse range of participants including:

• accounting firms
• financial intermediaries
• insurers
• investors
• issuers
• legal firms
• mortgage issuers
• rating agencies
• services providers
• trustees

Bookmark It

Break costs are a penalty incurred for early repayment of a fixed rate home. They are imposed by the lender as a way to recover interest they may lose if you break a fixed rate contract to move to a cheaper loan.

The size of your break costs will be determined by the term you fix for (number of years), the rate you’ve fixed at and the margin between that fixed rate and prevailing interest rates at the time you break the contract.

Break costs can also apply on some fixed rate home loans even if you simply want to sell your current home and upgrade. Read the fine print with all your loan contracts as not all fixed loans have a portability clause which says you can continue your home loan if you change properties.

Depending on lender and term and conditions of loan contract, break costs can be extremely expensive.

Bookmark It