Am I over capitalising if I do renovations to my property?
Spending too much on renovation carries the risk that you’ll never recoup these costs when you decide it is time to sell. One way to avoid over-capitalising is by calculating your costs backwards. First research what sale price you think you could achieve by looking at the sale prices of other similar sized renovated homes in your area. Then work out the maximum you can spend to ensure you do not over capitalise. It is quite often important to ensure you get the experts involved as well if you want to ensure you get it right by at least enlisting some help from maybe a local Real Estate agent or even paying for a formal valuation up front to get an expert opinion on the value the works will add to your property.
From a lending point of view we need to ensure that you will retain enough equity in the property that is an acceptable lending level to a lender. For a simple example if you already owed $100,000 against your property valued at $150,000 and you wanted to borrow an additional $100,000 to complete works that only increased you property value to $200,000 we would end up in an unacceptable situation of owing as much as you house is worth.
My clients sometimes ask me why they should not go directly to a bank. My normal response is along the lines of that as a mortgage broker we can do a lot more than just process a transaction. We provide advice, financial guidance and valuable assistance with negotiating you through the mortgage process. We also take the time to listen to your needs and understand your future financial goals. There are so many lenders, products and features to choose from that it helps to have an expert on your side to explain the benefits and drawbacks of each one. Using a mortgage broker can also make the difference between having your finance approved or declined. This is because we have so much knowledge of all the different lenders loan criteria, policy, borrowing capacities and application systems so that we can steer you towards a lender that matches your situation. I have lost count of the number of happy and satisfied clients that I have who had been declined by their own bank in the first instance. Then somebody has recommended my service and after sitting down and looking at the situation I have been able to get the loan approved elsewhere. My role is to understand what is important to my clients and then do everything I can to ensure we meet those needs and exceed them.
How do I avoid mortgage insurance?
Ideally, if you could put down a deposit of 20% or more so that you can avoid paying what’s known as ‘Lender’s Mortgage Insurance’ (LMI) this would be preferable when borrowing money to purchase your home. This is an insurance policy taken out by the lender against you not paying your mortgage. Although you pay the initial premium, it only covers the lender not you so that premium that can run into thousands of dollars and by coming up with 20% you can avoid this additional cost.
Also, you have the added bonus given the more you can put down as a deposit, the less you’ll have to borrow and therefore the less interest you’ll pay over the lifetime of the loan and you will also only need to satisfy the bank's policy and not the mortgage insurance companies making it easier to obtain an approval.
What happens if the interest rates go up or down?
If you have a variable rate loan and interest rates go up or down, your repayment will be recalculated to provide a new minimum loan repayment based on the new rate. Normally the lender will write to you advising of this new minimum repayment. If on the other hand, you have a fixed-rate loan, your rate and repayments will not change during the period of the fixed-rate agreement and your rate will remain the same. If you are unsure of what you have and wish to review this then please contact your mortgage broker to have a discussion as they are best suited to provide advice on your mortgage.
Can I fix my current home loan?
Almost all lenders that I am aware of will offer a fixed rate loan product within their suite of products. They also will allow you to switch from a variable rate to a fixed however different lenders have varying degrees of difficulty and cost in order to do this. Some lenders only require a phone call whilst other lenders require paperwork to be completed again. Almost all lenders will charge a fee in order to have it done. So to answer your question, if you just touch base with your mortgage broker and enquire on the costs of switching to a fixed rate it should very well be possible. The best option is to examine your personal situation individually with your current lender or mortgage broker to make the best decision for your own circumstances however currently the banks have some very good fixed rates available. It would probably be advisable to sit down with your mortgage broker and complete a new and current needs analysis to discuss options that would be suit your circumstances.
Can I make extra repayments if I choose?
Can I obtain a car loan if I am self-employed?
Yes, absolutely. In fact one of the perks when running your own business is that you may be able to claim part of your car’s costs including loan interest, as a tax deduction. This can make your choice of car finance, surprisingly affordable and you should chat with your accountant surrounding your eligibility and the taxation benefits.
Lenders generally look for income tax returns and accounting records to determine your income however being self-employed for more than 2 years on occasion we may not even require those as long as you have a clean credit rating and you are a property owner.
We have a number of options available by way of Chattel Mortgage and Leasing so it will depend on your current circumstances to work out what best suits your needs.
Partnering with a reputable broker with access to a generous panel of lenders doesn’t just streamline the process of securing finance for your vehicle. It also means you don’t have to do any legwork in hunting down the right loan.
Your broker does it all for you and has access to a number of different lenders, therefore not only being able to service your needs at the cheapest rates but also having the flexibility to a range of different products.
This varies from no monthly administration fees to no early payment penalties and also the flexibility of low fixed interest rates and options to make payments weekly/fortnightly/monthly.
It is also interesting to point out that this type of finance does not only exist for cars.
Being self-employed we can often help with all sorts of chattels, plant and equipment for business. In the past I have lent money against a tractor so a farmer could upgrade to handle large round bails to a new custom built refrigeration set of doors for a service station.
So is cash flow is an issue or even a consideration then it could be worth talking to a broker to see what options are available.
Can I obtain a car loan if I am self-employed?
Yes, absolutely. In fact, one of the perks when running your own business is that you may be able to claim part of your car’s costs including loan interest, as a tax deduction. This can make your choice of car finance, surprisingly affordable and you should chat with your accountant surrounding your eligibility and the taxation benefits.
Lenders generally look for income tax returns and accounting records to determine your income however being self-employed for more than 2 years on occasion we may not even require those as long as you have a clean credit rating and you are a property owner.
We have a number of options available by way of Chattel Mortgage and Leasing so it will depend on your current circumstances to work out what best suits your needs.
Partnering with a reputable broker with access to a generous panel of lenders doesn’t just streamline the process of securing finance for your vehicle. It also means you don’t have to do any legwork in hunting down the right loan.
Your broker does it all for you and has access to a number of different lenders, therefore not only being able to service your needs at the cheapest rates but also having the flexibility to a range of different products.
This varies from no monthly administration fees to no early payment penalties and also the flexibility of low fixed interest rates and options to make payments weekly/fortnightly/monthly.
It is also interesting to point out that this type of finance does not only exist for cars.
Being self-employed we can often help with all sorts of chattels, plant and equipment for business. In the past, I have lent money against a tractor so a farmer could upgrade to handle large round bails to a new custom-built refrigeration set of doors for a service station.
So if cash flow is an issue or even a consideration then it could be worth talking to a broker to see what options are available.
Can I still get a loan with a credit default?
This will depend entirely on what the default is, how much it is for and how long ago it was lodged against your name. Generally defaults only last on your credit file for 5 years. Banks are very reluctant to lend to anybody with any adverse credit history. They may consider some circumstances however are currently looking at applications with poor credit history harshly at the present time. I have some other non-bank lenders that will certainly consider the application on a case-by-case basis however you would normally need to have at least 20% of the property’s value to contribute as savings. So the short answer is “yes” however it is going to depend on each individual’s circumstances at the time. It would be best to sit down and look at your situation so I could assess what options would be available.
Can I top up my home loan and borrow additional funds?
A lot of home loan customers occasionally top up their existing loan for many different purposes. Some people wish to consolidate credit card debt, others wish to purchase a new vehicle and some clients have even used the funds to go on a holiday. The ability to top up your existing loan will depend on how much equity you currently have in your property and your current ability to make the repayments.
In most cases, the bank will still need to fully assess your capacity to make repayments on the new loan amount and this will include having to provide new pay slips. It is almost a new loan application and with some lenders, you actually need to apply for a new loan! The lender will also take into consideration your current conduct on their existing loan, credit rating and valuation on the property.
A top-up on your home loan is normally cheaper than refinancing the entire loan to another lender however if you actually require more funds it is probably an opportune time to sit down with your mortgage broker and look at what options are available to you as you may be able to save thousands and reduce the term of the loan with another lenders product.
Can I transfer my loan if I purchase another property?
A lot of lenders actually allow this to happen and it is called portability. You will need to check that your loan has a feature that will allow portability, if it does then I will explain how this works. Basically, portability allows you to swap one property with another as security for the loan. This only works if you do not need to borrow any further money to fund the transaction. As an example, if the property you sold was for $410K and purchased one for $350K and had a $200K loan then the additional $60K could be used towards the stamp duty and real estate agents' commissions on the sale of your property and theoretically the loan amount would not need to change so the lender could just switch the properties being held as security. If the figures are in the reverse and you sold for $350K and purchased for $410K then a new loan will need to be established as you require more funds to complete the transaction and the loan amount will need to increase and portability cannot be used. The upside of portability is that it is generally cheaper than applying for a new loan and you do not need to provide a whole lot of documentation to verify your income or apply for a new loan and your existing arrangements can stay in place.
Can you help me with a business loan?
Absolutely, I have many commercial lenders on my panel that can assist with a business loan. It is important when applying for a business loan, to prepare a detailed business plan and fully inform the lender about your proposed venture. This information will help the lender assess the application and more importantly show that you have also spent time and researched the proposal.
This principle also applies if you are purchasing an existing business however we will be able to look at the business financials and have historical figures on how it has been operating.
There are a number of things to consider before we approach a lender; how much do you need to borrow; what type of loan will you need; how long will you need it for; can the business afford to repay the loan, interest and any one-off or ongoing fees that come with the loan; what security can you offer the lender and how this affects the interest rate offered.
You also need to be able to assess the level of cash flow or business risk in your specific circumstances. A projection of the cash requirements of the business is most important to a lender, as it is the actual cash left after expenses that will repay the loan, not income. It also shows you are an effective manager.
As a general rule, lenders look for the level and nature of your security (what you’re offering to give them if you can’t repay the loan). They also look at your ability to make regular loan repayments (cash flow risk) and your ability to ultimately repay the debt (business risk), including any other debts you might already have.
Commercial lending can be complex so it often helps to have somebody like myself package and explain what the loan requirements are to the lender so that we have the best chance of an approval.
Do I need to read my loan documents?
If I have one word of advice it is that you should always read anything before you sign it, more importantly, you also need to understand it. Always read the fine print when you receive your “Loan Offer Documents” from any lender. Make sure you’re getting what you applied for, especially when it comes to fees and charges. Some Lenders may charge a “Fixed Rate Break Fee” just ensure your lender or mortgage broker has explained these in full and upfront. As a general rule personally I would prefer to sign terms and conditions with my own clients so that we can go through the documentation together, any questions as they arise can then be explained. You are also well within your rights to obtain legal advice and take the documents to your solicitor in order to have them looked at before signing. Whichever option you choose I encourage you to be comfortable and that you understand exactly what you are signing.
Do you have a loan with a low initial interest rate?
Among the many home loan options available, some lenders are now offering home loans with a low introductory interest rate. These have become known as honeymoon rate home loans.
Many borrowers find the idea attractive, as the honeymoon rate home loan offers a substantially lower interest rate for a set introductory period of around six to twelve months. We currently have a loan available with a 3-year honeymoon period and after this initial term is completed, the interest rate generally reverts to the standard variable rate offered by that lender.
In all circumstances, it is wise to look at all the options available and the effect that will have over the term of the loan via a comparison rate. It is good to sit down and go over your requirements as to what you want from your loan by way of features to ensure this will be suitable.
The length of the introductory rate, the introductory interest rate itself and the interest rate you pay once the initial period ends will depend on your chosen lender. It’s worth shopping around, as different lenders offer substantially different honeymoon rate products or of course you can have your mortgage broker do this work for you.
How do I avoid getting into too much debt again this Christmas?
I covered this last year and have had a few people ask if I could cover it again as it seems to be a problem for a lot of Australians in spending too much money this time of year and have the consequences early in the new year.
Everybody agrees that Christmas is about giving however this does not mean that you have to spend all of your money on gifts or by spending money you do not even have on credit cards.
With a little planning and more importantly “restraint” you should still be able to have a wonderful Christmas whilst remaining debt free.
Following are some suggestions on how you can try to stay in the black this year and also how a little planning makes things even easier for next year hopefully this advice is not too late this year!!
Budget….this year why don’t you work out a budget for your Christmas gifts by making a list of all the people you intend on buying for and then allocating an allowance per person? You can take this further by also allowing for decorations, and food and do not forget the batteries. Do not let essential bills take a backseat to the pressures of your Christmas spending, prioritize paying these first before you turn to the added financial demands of the season.
Try not to be tempted by ‘buy now, pay later’ offers unless you know you will definitely have the money later. If you can afford to pay for goods immediately it is usually advisable to do so and also be prudent, and bear in mind that offers that appear too good to be true invariably are.
Finally, in the New Year, consider setting aside some money each month to save up for next Christmas and start buying presents early to spread the cost. I know of some clients and friends that use services that allow for exactly that by setting up payment plans to help ease the burden that Christmas can bring.
Thank you for the opportunity to once again provide some insight into the mortgage industry yet again this year to the readers, I would like to wish your families a safe holiday season and a prosperous new year.
How do I find the right loan?
By researching your mortgage before you start looking for a house, you will be in a better position to know how much you can borrow. A good, experienced mortgage broker who has your best interest in mind can save you a lot of time and effort by doing the hard work on your behalf.
By researching the type of loans that would suit your lifestyle and financial position, we can provide you with the details necessary for you to make an informed decision. We can also discuss getting pre-approval for your borrowing capacity.
There are a lot of different lenders in the market and helping you research which loan suits your circumstances at the best price is a difficult task that we can help you with to ensure you are getting the best deal for your circumstances.
How do I find the right Mortgage Broker?
Knowing what to look for in a mortgage broker is an essential part of securing the right loan for your finance needs and you need to make sure they are fully accredited experts in finance and lending.
Unfortunately like any profession you can have a good or bad experience so it is important to do your homework up front in selecting the mortgage broker who will be working for you.
A mortgage broker is engaged to save you time and money and often have a large panel of lenders to choose from comparing fees, charges and loan feature to best suit your lifestyle and circumstances.
Your mortgage broker will act as your very own loan expert; making sure you understand the loan repayments, loan features, fees and charges of your home loan and will independently help you select a lender and loan product. They are also aware of what specials are currently available with a wide variety of lenders and will conduct the research to ensure they match the right loan product with your needs.
A good solid relationship with a good mortgage broker can be essential in ensuring you are receiving the best deal possible for your circumstances, the good brokers will be able to negotiate a better deal for your circumstances and find the right fit with policy.
They also deal directly with the lender and often can package the loan and present the facts in a more experienced fashion in order to obtain an approval I have provided a checklist to help you choose a good broker.
Mortgage Broker Checklist:
- Have they come recommended with a high level of integrity? Often word of mouth, reputation and length of employment are amongst the most important attributes to look for.
- What accreditations do they have?
- Does the mortgage broker belong to a reputable industry association such as the MFAA?
- Does your mortgage broker work locally and are they easily accessible?
- How many lenders does the broker have on their panel?
- Has the broker disclosed all fees and commissions before signing up the loan documents?
- Is the mortgage broker owned by a bank or real estate agent and have they disclosed this?
- Is the mortgage broker paying a referral fee for your business to the person that actually referred you and was this disclosed up front from both parties?
- Does the broker take the time to understand your situation?
- How quickly did the mortgage broker respond to your initial enquiry or contact?
- How do they compare loans that fit your situation?
- Is the mortgage broker able to provide customer testimonials?
How do I free up extra cash out of my home loan?
The only way this can happen is if you have equity in your current home. Equity is the difference between the value of your property and the loan amount that you owe. Banks as a basic rule normally lend approximately 80% of your property's value and can lend up to 95% under some circumstances. Therefore if your property is worth $250,000 and you owe $150,000 you may be able to borrow an additional $50,000 or even up to $87,500. I have many clients who have done this to purchase assets such as cars, boats or even more property. I also have had many clients that have used this form of borrowing to clear and consolidate many other debts they may have such as credit cards or personal loans. Remember this is the ideal time to also assess if you currently have the best housing loan for your circumstances and a chat with your broker would be ideal.
How do I get out of my debt?
This might come in handy if you have been overindulging on Christmas presents this year and is often an opportune time to sit down in the New Year and look at your situation.
Initially, you should take a serious look at how much you and your family earn and how much it spends on a monthly basis. You need to do this honestly and you could begin by tracking all of your expenses and all of your income for one month. Ensure that you include all of your income such as your wages and government assistance and remember that it is very important to include all of your expenses such as your mortgage, credit card payments, insurances and groceries, etc.
See how much if anything is left over at the end of the month. If you have a positive balance, which is fantastic you can then apply the surplus towards paying off your debts every month and start sticking to that strict budget. This will ensure that you keep those credit cards and personal loans heading in the right direction. If you have a negative balance at the end of the month this result shows that you are living beyond your means and should seriously rethink your monthly spending. It would be wise to cut out any unnecessary expenses. Your goal is to make sure that you have some money left over at the end of each month for either savings or debt reduction and the only way to do this is either by spending less or earning more.
Saving money is one of those tasks that are so much easier said than done. To try and save money is a lot harder than actually spending money and to achieve a result you must learn how to set realistic goals, keep your spending within your limits and get the most for the money that you actually have. Hopefully, the steps below give you a starting point to be able to save for the item that you really want, be it a house, car or skateboard.
Step 1 – Set savings goals, short term goals are easy to achieve however if you want to raise a deposit for a house you may need to take a long-term view. The secret is sticking to goals and making sure they are achievable. Set time frames as well, that way you know when you will achieve your goals. Again make them realistic.
Step 2 – Budget, a budget can really help show you where you are exactly spending your money. It will also help demonstrate how much of a surplus you have on a weekly basis to help set those savings goals.
Step 3 – Get rid of Debt, those pesky credit cards and personal loans really eat into your ability to save money. If you cannot get rid of this first then at least look at consolidating the debt into a lower interest rate to save on high interest.
Step 4 – Trim your current expenses, have a good look at the budget and decide where you can save some money. As an example, can you move to cheaper accommodation? Can you find a less expensive insurance company? Can you cut back on going out, cigarettes or alcohol?
Step 5 – Open a separate savings account, most banks offer better interest rates for separate savings accounts outside of your transaction account. They may pay bonus interest for example if you make a deposit during the month without a withdrawal.
Step 6 – Think outside the square, you may have a shed full of stuff that you never use and choose to hold a garage sale or list items on Bairnsdale Buy Swap and Sell. You may decide to take up a second job on a Friday evening, ask your parents to match your savings dollar for dollar or even form a club of like-minded people that meet once a week to discuss how your savings goals are going and share ideas on how to save money together.
How long do I keep an investment property for?
This is a question for your accountant in relation to your own personal situation however to answer generally when buying an investment property this involves substantial upfront costs like stamp duty and legal fees, which can amount to thousands of dollars. When you sell the property, you’ll also face other costs like the real estate agent’s selling commission, capital gains tax and Conveyancing costs. You should usually budget for around 5% of the property selling price as additional expenses.
In order for you to make a profit on the sale, the value of your investment property needs to grow by more than the value of these costs and the after-tax costs associated with holding onto the property. This is why you should probably regard property investment as a long-term strategy and be prepared to hold onto it for at least five to ten years. Obviously, during periods of rapid market growth, you may be able to make a faster profit however this is not always the case.
A sensible approach is to treat your investment property as part of your overall investment portfolio for the long-term creation of your wealth and do have a discussion with your financial advisor and or accountant in relation to your personal situation.
How long will it take to get my home loan approved and how much of a deposit do I need?
It varies as different loans have different criteria and assessment times. I have some lenders that will take only 1 day after I have submitted the application and others that can take over a week. In all cases, we ensure that you are covered by your finance clause in the contract of sale and keep up regular communication with our client, the client's solicitor and the agent involved in the transaction and set realistic expectations around the approval timelines. In relation to your question around the deposit, it is a good idea to work on roughly 10% of the property value, this can be less if you are a first home buyer and constructing as the government will kick in $10,000 towards this however a good rule of thumb is a minimum of 10%. So if you wanted to purchase a property for $210,000 then a good starting point will be $21,000 of which 5% ($10,500) is required to be genuinely saved.
Many of my clients before I have even had the opportunity to sit down and discuss their situation head straight for one of the many calculators available online which comes up with a figure that is unrealistic and often far above what they actually need to borrow.
Sure, you may be able to borrow $600,000, but do you need this much money and can you really afford it?
The reality is that these calculators are only looking at the cold hard figures and do not take into account your personal circumstances, how much of a deposit you have or what your goals are.
To get a true picture of how much you can borrow, you need to sit down with somebody like myself and spend some time going through all the issues and factors involved.
This is particularly important for first home buyers, who need to be certain that they are taking on a debt that they will be able to service.
Even if the figures show that you cannot afford to take out a loan right at this point in time, do not get upset. You now know what you need and can start looking at ways of working towards your dream of owning a home. I have had many clients that I have put on the right track that have purchased their home 12 months later once they have satisfied all of the requirements and more importantly can actually afford it.
I am starting to lose sleep over my housing loan repayments….what should I do?
Make an appointment to see me! You should review your home loan immediately with somebody given that a mortgage broker can look at all of the options available to you from a large cross-section of the market we are a great place to start. A mortgage broker will basically do the shopping for you and find the best deal suitable to your circumstances and arrange the switch on your behalf. Then you can get back to sleeping soundly over your mortgage however the price of fuel may soon replace some sleepless nights.
I want to build a home on the block of land I own. What do I need for a loan?
The requirements for construction finance are similar to purchasing an established home with a few additional documents required. We would need details of your income, employment, identification, savings history, assets and liabilities. On top of this we would need a copy of your title for your block of land and your latest rates notice. We would also require plans, quotes and specifications for the construction portion of your loan so that the lender can work out how much they can lend you. The lender will then progressively draw down your loan paying your builder directly as per the building contract in stages. The bank will also require a copy of the builder's risk insurance and the council's approval as well before handing over the funds. Construction loans can be more complex however my only advice would be to ensure you are dealing with a mortgage broker who is experienced in such matters to save on frustration and an upset builder when it comes time to arrange a progressive payment.
If I apply for a loan will it affect my credit rating?
Yes, each time you apply for credit with any lending institution you will sign a privacy disclosure that allows them to check your current credit history and this enquiry will also leave a footprint showing that you made an application for credit. When the lender makes a decision they will take into consideration how many enquiries you have previously made and to whom, they may even come back and ask you why you have just applied with 3 different banks for the same loan if that was the case and ask why it did not proceed with them. More importantly, lenders are looking for any defaults, judgments or bankruptcies (Bad credit enquiries) that you have not paid in the past. Although I often hear many imaginative reasons as to why people have not paid their bills or credit cards unfortunately most lenders look very harshly at this. I do however have lenders that may make exceptions depending on the circumstances so it is always worth coming in for a chat. You can obtain your own copy of your credit file at www.mycreditfile.com.au.
Is a 0% Credit Card Balance Transfer a good thing?
Essentially a good way to manage your existing credit card debt is by finding a suitable credit card that offers a 0% interest rate or at least a low interest rate on a balance transfer. The best option of course is to not have debt on your credit card in the first place however if you have found yourself in that situation then by shifting your outstanding balance from one existing credit card to a new credit card can be beneficial.
This works by minimizing the interest that you pay however I must stress that you read and understand the terms and conditions and the fine print of the balance transfer from the new lender. What you need to consider and look out for include some lenders will take care of closing your previous card while others will not which could result in unpaid interest or even a default if you are not careful. Ensure and double check that the existing card has closed
Other points to consider include the balance transfer may be limited to the new credit card limit and also at the end of the term it may revert back to a “Cash Advance” percentage rate which is significantly higher.
Keeping the calculations simple however basically if you transferred $5000, closed your current card and was paying 0% on the new card you could save up to $500 in 6 months.
I jumped online to research how many lenders had offerings of 0% balance transfers and found plenty of deals so it would be worth shopping around and finding a card and balance transfer that could work for you.
Alternatively if you have found yourself in a little bit of trouble, have an existing home loan and feel that you may need to consolidate your debt to free up some cash flow make an appointment to discuss your options available.
Is my loan portable if I purchase another property?
A lot of lenders actually allow this to happen and it is called portability. You will need to check that your loan has a feature that will allow portability, if it does then I will explain how this works. Basically, portability allows you to swap one property with another as security for the loan. This only works if you do not need to borrow any further money to fund the transaction. As an example, if the property you sold was for $410K and purchased one for $350K and had a $200K loan then the additional $60K could be used towards the stamp duty and real estate agents' commissions on the sale of your property and theoretically the loan amount would not need to change so the lender could just switch the properties being held as security. If the figures are in the reverse and you sold for $350K and purchased for $410K then a new loan will need to be established as you require more funds to complete the transaction and the loan amount will need to increase and portability cannot be used. The upside of portability is that it is generally cheaper than applying for a new loan and you do not need to provide a whole lot of documentation to verify your income or apply for a new loan and your existing arrangements can stay in place.
Mum & Dad have given me a deposit on my house, can I get a loan?
In some cases, absolutely however it would depend on how much your parents are willing to give and if it is needed to be paid back to them at all. This is known as a gift and is very common in this day and age when rent and property prices are very high. In some cases, it is the only way for a young couple or first home buyer to enter the market. This coupled with the first home buyers grant can go a long way towards your deposit however the lender will carefully consider if you can afford the new loan repayments as well. In addition to the loan application your parents may need to sign a Statutory Declaration or at the very least a letter stating that they have provided a non-refundable gift and we also require evidence of these funds being available. Another common form of a deposit is also using your parent’s home as the additional security required for the deposit. Basically, your parents would be guaranteeing the loan by way of their house or one of their investment properties with what is known as a third-party guarantee. The banks have recently tightened up on this practice of lending however it is still available in many instances and your parents must also seek legal advice to fully understand exactly what they are signing up for.
My Investment loan was declined and the bank blamed APRA, what is happening?
You may have been told recently by your bank or broker that we have had some fairly significant changes to the landscape when it comes to Investment Lending and is somewhat confused as to why.
The Australian Prudential Regulation Authority (APRA) is the prudential regulator of banks, insurance companies, superannuation funds, credit unions, building societies and friendly societies.
APRA is the government regulatory body that has recommended changes to reduce the amount of investment lending by making it more difficult to obtain in an attempt to slow down the number of investors entering the property market.
Given Interest rates are so low at the moment they have deemed the risk too high for both borrowers and the lending institutions and are trying to take the heat out of the market by making it more difficult to borrow funds.
This has resulted in many and varied changes across all of the lenders dependent on how highly geared their loan book was towards investment.
As an example one lender no longer will lend for investment property purposes, basically has withdrawn from investment lending and they have increased their existing loan holder rate by .47%.
Other lenders have also increased rates on investment lending, and reduce maximum lending values and most of them have basically made it harder to “service” the commitment which will result in more loans being declined.
As I write this article the changes keep coming on a daily basis and it may be some time before the dust settles, it would be an opportune time in the next 6 months to catch up with your mortgage broker to chat about what options are available. If you are in the market for an
investment property then you may more than ever require their service to not only find the best investment loan for your situation but also to help find a lender that will actually accommodate the request.
My partner already owned a house so am I eligible for the First Home Buyers Grant?
If two people are applying for a home loan together, and one partner already has a property, claiming the first home owner’s grant may not be possible, even if your finances are kept separate.
If one partner has had or presently has a property that they have lived in then that disqualifies you from eligibility for the grant irrespective of the structure of the loan or the nature of the tenancy of the intended property.
If your relationship has been for less than 2 years then there may be the ability to qualify for the grant as long as your partner is not a joint owner however that would need to be assessed by the State Revenue Office on a case-by-case basis.
For further confirmation, contact the State Revenue Office which administers the First Home Buyers Grant scheme.
The best advice I can give in this situation is always that if you really want to purchase a particular property because it is right for you and you are able to afford it then still consider purchasing the property. If you wouldn’t consider buying the property other than just to take advantage of the First Home Owners Grant then that just doesn’t make sense.
My son wants me to lend him some money to start a business and I would like your opinion please?
I fully appreciate and understand the fact that you wish to help out your family however I would like to point out some possible pitfalls so that you enter into the transaction with your eyes fully open before you lend your family any money. The main issue to be careful about is that you both need to have a clear understanding of the transaction. Nothing will tear a family apart quicker than issues over money and this is the first consideration.
I have witnessed people losing their homes after putting them up for a failed family business venture and unfortunately it is a common scenario that can occur when you lend your family money as unfortunately, a new business venture may not always work.
You need to sit down and go over their current financial situation and see how they have budgeted for your interest repayments in the business plan and that you agree that this is a realistic plan for the future and that they have allowed for everything.
If you decide there is no other option then I would like to offer these tips to help protect yourself.
You should explore all other avenues before agreeing to lend the money.
Do not lend what you cannot afford to lose and ask yourself if you would be comfortable giving the money away as a gift. If the answer is no then you are probably not in a position to loan it
Be fully aware of the risks and ensure you enter the loan transaction with your eyes open.
Be aware of what the consequences could be further down the track with the worst-case scenario being that you may never see the money again or if you have used your home as security for a loan in your son’s name you could lose it.
Importantly ensure you put everything in writing, seek independent legal advice and sign loan documentation that clearly states the term of the finance including a repayment plan.
You should also talk to your financial planner, Centrelink and the Australian Tax Office to see what effect if any this could have on your future tax obligations, income and pension.
Should I buy a new home and rent out my existing house?
Buying a second home to live in whilst retaining your existing home requires consideration from a number of different angles.
Firstly you will need to discuss the taxation effectiveness with your accountant and in broad general terms, this should include negative gearing and capital gains tax. I cannot stress enough that you need to seek your own qualified accounting and taxation advice that applies to your circumstances and the statements following are general in nature.
If you rent out your existing home, Capital Gains Tax (CGT) may apply for the period rented proportionally to the period owned. It may be wise to get a valuation on the property at the commencement of renting it out as this may come in handy when you need to work out your capital gain or loss with your accountant later down the track.
Interest and other costs on your existing home loan may be offset against rental income for tax purposes however the interest on your loan for the new home will not be whilst you live in the property. It is likely that you have paid off or reduced the debt on your existing property but may have to borrow for your new property hence the proposal may not be as taxation effective as buying the new property for investment.
So basically it may be more tax effective to purchase a new property as an investment instead of your new home to reside however this is not always in line with the reason why people want a second home. So if you wish to upgrade your home and have an investment property your accountant may even suggest selling the home first, purchasing your new home and then acquiring an investment property to maximize your tax effectiveness.
The Bank declined my loan can you help?
In short yes because when you have a mortgage against a property the lender (Bank in this case) requires that property to be insured to protect the value of the property and their interest in that property. You would have also been asked to ensure that the lender was noted on the insurance policy as having an interest. This seems all OK to me as long as they did not insist or demand you take it with that particular bank as you should have been given the opportunity to shop around for the best policy that suited your circumstances and budget.
I always recommend taking out a policy as soon as you hold an unconditional contract over a property as you hold an interest in that property even though it has not been settled yet.
The bank made me take house insurance when I got my loan, is this right?
It is certainly worth coming in for a chat to see what options we may have available, I will not know if I can obtain an approval until I complete a needs analysis and gather information however recently within the last month we have helped six clients with this exact scenario and it is nice for everybody involved to be able to come up with some options, look at the application and obtain that approval.
I have covered this before and a mortgage broker does a lot more than just process a transaction; we provide advice, service, financial guidance and valuable assistance with negotiating you through the mortgage process and can often save you money by negotiating a better rate with the lender.
We also take the time to listen to your needs and understand your future financial goals. There are so many lenders, products and features to choose from that it helps to have an expert on your side to explain the benefits and drawbacks of each one and an expert that has a large number of different lenders on their panel and does not actually work for the once financial institution.
Using a mortgage broker can also be the difference between having your finance approved or declined due to the broker having so much knowledge of the many different lenders, loan criteria, policy, borrowing capacities and application systems. This enables us to guide you towards a lender and product that matches your situation. I have so many happy and satisfied clients who had originally been declined by their own bank in the first instance then luckily someone has recommended my service and after sitting down and looking at their situation I have been able to get the loan approved elsewhere.
Our role is to understand what is important to the clients and then do everything we can to ensure we meet those needs and exceed them. It is often the most significant financial decision that a person will make in their life and you want to ensure that you have somebody with the expertise helping you through that.
Thinking about upgrading or buying your second home?
Well, you are not alone with recent data showing that the established – or next time – buyers are currently fuelling sales in the property market. The latest BankWest/Mortgage and Finance Association Home Finance Index shows that three-quarters of next-time buyers believe it is a good time to buy an investment property which is a dramatic increase from the 14.5 per cent recorded during the midst of the credit crisis. Next-time buyers are replacing first-time buyers, who initially flooded the market when house prices slipped during the economic downturn. Established homeowners now see it as a good time to buy again due to a strong economy and confidence in the job market. Many economists now predict interest rates will remain on hold now until towards the end of 2010 which has been taken on board. Buying a second time around has its advantages. The wisdom of experience and the ability to use the equity in your existing property however also has its challenges and this is where your mortgage broker comes into play. Not only can we advise you of your loan options but we can also help you shop around to find the best loan for your circumstance.
Tips on helping to obtain a mortgage
Consult a mortgage broker as they can answer any questions that you may have about mortgages and can help you to find the best deal to suit your needs. They are comparing a lot of different lenders and you are paying them to look after your best interests and to help find the best deal for your circumstances.
Get good advice, and ensure that your mortgage broker is experienced, qualified and knows what they are doing. Integrity and Reputation are everything when it comes to somebody giving advice, no matter what service you are using or purchasing.
Save as much as you can these days as it is advisable to have a sizeable deposit before you buy. A good idea would be to set up a separate savings account and place money every fortnight from your salary into this account, making sure it pays good interest as well.
Find the right property at the right price and look for a home that suits your bank balance. Remember you might need to make some sacrifices however a home close to schools, transport and shops is usually a good investment in the long term.
Check your credit rating, before you make an appointment to see your mortgage broker make sure there are no factors that could damage your chances of getting a mortgage. The best way to go about this is by checking your credit rating with one of the credit reference agencies such as www.mycreditfile.com.au to get a copy of your credit report.
Work out what you think you can afford, the lenders and the broker will have servicing calculators that will need to be completed however it would help if you did your own math and worked out what you thought was a comfortable home loan repayment based on your own spending.
Read the small print and remember if something looks too good to be true, it probably is. You will need to go through the details with a fine tooth comb and make sure you are aware of the terms and conditions.
Think about the future, if you are going into debt for the next 25 years it is a good time to consider options in case something were to happen to you. Life insurance, loan protection and income protection are some products that you may need to protect your family and home if you can no longer make the repayments.
What are the Australian Privacy Principles and the new Privacy Amendment Act?
According to the website,
www.oaic.gov.au the Privacy Amendment Act includes a set of new, harmonised, privacy principles that will regulate the handling of personal information by both Australian government agencies and businesses. These new principles are called the Australian Privacy Principles (APPs) and will replace the existing Information Privacy Principles (IPPs) that currently apply to Australian Government agencies and the National Privacy Principles (NPPs) that currently apply to businesses.
The Australian Information Commissioner (the Information Commissioner) will also have enhanced powers, which will generally be exercised by the Privacy Commissioner, including the ability to:
- accept enforceable undertakings
- seek civil penalties in the case of serious or repeated breaches of privacy
- conduct assessments of privacy performance for both Australian government agencies and businesses.
Changes to credit reporting laws include:
- the introduction of more comprehensive credit reporting, which will allow the reporting of information about an individual’s current credit commitments and their repayment history information over the previous two years
- a simplified and enhanced correction and complaints process
- a prohibition on the reporting of credit-related information about children
- a prohibition on the reporting of defaults of less than $150
- the introduction of specific rules to deal with pre-screening of credit offers
- the introduction of specific provisions that allow an individual to freeze access to their credit-related personal information in cases of suspected identity theft or fraud
- the introduction of civil penalties for breaches of certain credit reporting provisions
- a requirement for credit providers to be a member of an EDR scheme, recognised under the Privacy Act, to be able to participate in the credit reporting system.
From my point of view, this could change the way lenders credit score their loans as they will not only now have information at hand in relation to if you have bad credit history by way of Bankruptcy, Default or Judgments they will be able to have a micro view of your credit history down to if you pay your bills on time to your repayment history with other loans. Time will tell how this will affect borrowers and my recommendation is that you always pay your bills on time this should not be an issue however that is not always as easy as it sounds and I hope the banks and mortgage insurers show some consideration to this.
What are the Banks' cost of funds and how are they funded?
Given how angry we as Australians get when the banks do not pass on the official drop in interest rates while posting absolutely ludicrous profit results I thought I would try and give a little insight into how the banks are funded and at least try and explain where they are coming from when you hear them talking about their cost of funds and how expensive it is to operate.
Currently, we have the strongest banking sector in the world which is not a bad position to be in given the governments having to bail out banks in many established parts of the world. This creates much uncertainty, and panic and is a burden on the taxpayer short-term and long-term.
Banks are funded in three main components of which the first is Short-term wholesale funding. This is the gap between the Bank Bill Rate and the Overnight Index Swap Rate which admittedly has increased significantly since June 2007 and in some cases was as high as almost .9% more than before the global crisis.
The Medium to long-term wholesale funding provides banks with certainly to access funding for the next 3-5 years and has seen a significant increase due to increased investor risk aversion and a world decline in the availability of funds. In some cases, this got almost 2% higher and is still significantly more expensive as those factors/fears have not disappeared although they have improved.
Customer deposits are the third and final source of funding for the banks and each bank has a different amount of available funds however a lot of their funding actually comes from this source. In particular, term deposit rates have increased significantly relative to the bank swap rates due to banks having more competition to attract these funds as they are still a cheaper source of funding when you compare it to the other options available to the banks however it has still increased by almost 1%.
So to be absolutely clear I am not here to defend the banks as I mostly also do not agree with a lot of their decisions that affect so many hard-working Australians. You only have to listen to Wayne Swan get stuck into them as we all find it a hard pill to swallow when the rates are not reduced in line with the Reserve Bank on occasion whilst pleading they are doing it tough and then announcing record Billion dollar profits. They are doing the right thing by one section of the community with these profits and that is the many Australians who are actually shareholders I certainly would prefer to be in a situation with my bank making profits instead of looking at shutting their doors unless the government bails them out.
In either case, if you would like to explore what options are available other than the big 4 banks then I would suggest a chat with me or your current mortgage broker.
What can I claim as a rental expense on my tax return?
Well unfortunately or fortunately whichever way you wish to look at it I am not an accountant and therefore would not be able to answer this question for you. However, I liked the question and instead looked up the Australian Taxation Office website www.ato.gov.au which has compiled a list of common mistakes identified in the income tax returns of rental property owners. I thought I could share some of the common mistakes some people make however point out this is not advice and you really need to talk to a good accountant or the ATO. These include claiming the cost of the land component as part of the cost of constructing the rental property which is not allowed. Construction costs as a decline in value of depreciating assets deduction instead of capital works deduction. Some initial repairs or capital improvements as immediate deductions against the property. The one I liked the most would be deductions for the cost of travel to inspect a property when the main purpose of the trip is to have a holiday. So please just make sure that you are only claiming what you are entitled to and contact either your accountant or the ATO for guidance as to what you can and cannot claim.
What does “Interest Only” mean when it comes to loan repayments?
The term “Interest Only” refers to only making payments to the lender which meets the interest portion of the loan without paying any principle (loan amount borrowed) back to the lender. This can be common for investment properties on their accountant’s advice in certain situations, where the client is able to make a taxable deduction against the interest paid against the property to reduce their tax. If a client borrowed $200,000 @ 7.5% over 5 years on an interest-only loan the repayments would be $1250pm. The same loan over a 20-year period with Principle and Interest repayments would incur $1612pm repayments. Investors may then wish to utilize the additional $362pm difference towards another investment. However, it should be noted that you will still owe the $200,000 after 5 years having paid nothing off the principle if you opt for the interest-only loan product. Maximum terms are normally between 1-10 years at which point the bank will then expect principle and interest payments for the remaining term.
What does a flat market mean?
Currently, you may hear in the media the terminology “Flat Market” when referring to the Australian market conditions. Basically, this refers to a market that has little to no growth in the housing sector and there is slightly more supply than demand. Buyers tend to be a little cautious and vendors tend to hold onto unrealistic price expectations. I would suggest that buyers looking to purchase in a flat market not be scared away and that in fact, these conditions can be favourable, as you can negotiate on the price even if some sellers may still hold onto an unrealistic expectation of their home's value. Other sellers in the market do not and may be prepared to negotiate which will work in your favour. If you are looking at selling your home then I can only suggest keeping your price realistic in the current market and concentrating on the presentation and making your home stand out against similar homes in your area.
What does the National Consumer Credit Protection Act mean for me as a borrower?
The National Consumer Credit Protection Act or NCCP for short is legislation designed to protect consumers & ensure ethical & professional standards in the finance industry through the National Credit Code (NCC).
The act is regulated & enforced by ASIC. A major part of the act is that all lenders & mortgage brokers are required to hold a credit license or be registered as an authorised credit representative.
Regulation has resulted in a lot more paperwork ensuring everything is recorded correctly and due diligence in making sure the finance is not unsuitable for my clients and is recorded as part of the interview process and client’s needs analysis.
I always took the time to ensure any loan or product I was offering my clients suited their circumstances so I have not had a lot of change personally as I always kept comprehensive diary notes outlining how I had come to conclusions and recommendations made.
Self-employed clients who had been in a position to self-certify their income have been affected as this is no longer possible under the legislation as we must determine that the client can afford the repayments and have supporting documentation verifying this to be covered by the new code.
Clients also can no longer take a loan over 30 years if they will be over 65-70 before the term ends assuming they do not have a clear exit strategy in place. That strategy must clear the housing loan by the time they retire and this may involve paying the loan off from the proceeds of superannuation or the sale of an investment property or shares.
The changes that the government has made help protect the clients ensuring they are not put in a situation of having a loan they cannot afford when they retire or by inflating their income in order to have the loan approved.
What is a construction loan?
Construction loans allow borrowers to borrow the final estimated cost of the property and pay interest-only loan repayments for the initial construction period.
Using a quote or building contract from the builder, along with council approvals, your lender will calculate the final building costs and agree on a loan amount. The money is drawn in progressive stages according to your building contract.
The loan is interest only during the construction phase, and you only pay interest on the amount of funds you have drawn, rather than the whole loan amount. Once the house is built and you have your certificate of occupancy the loan reverts to a principle and interest loan with full repayments. A construction loan can offer many benefits to borrowers wishing to design and build their own home, as it offers an affordable way of borrowing the funds necessary for the task and allows for additional expenses whilst constructing such as rent at the same time.
Currently, the First Home Buyer Grant only accommodates people wishing to construct their first home in Victoria and is $10,000 if eligible they are not also paying anything for an established property in Victoria currently however are offering a reduction in the stamp duty.
The smart and easy alternative to a cash deposit is a deposit bond which provides an easy and cost-effective deposit solution for purchasers of residential property. There are a few alternatives including from your bank however I have used Deposit Power regularly over the past 10 years and have always found them great to deal with. The Guarantee acts as a substitute for a cash deposit of up to 10% on a residential property providing a safe cash deposit alternative to vendors. They are ideal for investors, first home buyers, purchasers of vacant land and house and land packages where cash is not readily available. Fees and conditions apply to deposit bonds so if you think you may benefit or wish to discuss further then please do not hesitate to make an appointment.
What is a mortgage health check?
I have always offered my clients an annual review of their loans as part of the service provided which I suppose you could call a mortgage health check. Mortgage health checks are free of charge and normally involve minimal time on your behalf. It would involve undertaking a comprehensive analysis of your current loan by comparing it across a range of mortgage products that are available. We would then share with you any potential ways we have uncovered for you to save money and time. A health check doesn’t mean you will have to refinance your loan; it can be as simple as restructuring with the same lender. Banks and lenders are constantly enhancing and fine-tuning their product range, which means there is often a cheaper or more efficient product provided by the same lender. In situations where refinancing is the better option, we can help minimise the effort, time and expense that is often involved in moving from one lender to another. As part of this process, we will help you weigh up any fees and other costs associated with switching your loan and take it all into consideration. A mortgage broker will be able to offer a wider perspective as they can compare your loan with many lenders.
What is a pre-approval and how do I get one?
A pre-approval is available from the majority of lenders and it involves placing an application with the lender prior to finding a property. It is very helpful in a number of instances such as attending an auction where you are required to pay the 10% deposit upfront then sign an unconditional contract or ensuring you know how much you are able to spend on a house prior to talking to a real estate agent.
I spoke with Mark Ashley from Elders Real Estate and he agrees that if he is able to know how much a client is can spend on a property he can ensure the houses are within that price range to show a client and save everybody time and heartache. “There is nothing worse than having a young couple get their heart set on a property worth $220,000 and having them then find out that the most a bank will lend them is $200,000. It is disappointing for everybody Vendor included”.
Pre-approvals though do not come with some risk as the lenders have many disclaimers that ensure they need to be happy with the property, the final checking of your employment details and sometimes even your credit history. I will always explain fully what those risks are to my clients and ensure we manage these effectively and that a pre-approval is necessary instead of a finance clause.
What is a Professional Package?
People employed in certain professions (engineers, medical practitioners, solicitors, etc) or those earning over $50,000 per year may wish to consider a professional package.
These packages offer interest rate discounts that are lower than the standard variable loan rate on offer for the life of the loan. Professional packs also combine all the fees into one annual payment which includes any application fees and ongoing costs associated with the loan
Other components of a professional pack can include fee-free transactions on credit card accounts, discounted insurance products and free accounts.
Lenders do this to consolidate a borrower’s range of products with one institution.
What is an Offset Account on your mortgage?
By choosing a home loan with a linked offset account you can save money on your mortgage and years on your home loan simply by making a few small changes to your financial habits. Your offset account literally offsets the amount of interest that you pay on your mortgage and the less interest there is to repay, the sooner you will own your home…..Simple, the interest charges on your home loan make up the primary portion of your minimum monthly repayment, and over the life of a 30-year loan, you can be paying hundreds of thousands of dollars in interest, on top of repaying the hundreds of thousands of dollars you borrowed initially to buy your home. This is why it is so important for you to ensure you have the best loan and features that suit your current circumstances. The best part is, that we can give you the tools you need in an offset account, all you need to know is how to get the most from their benefits. The offset feature works by 100% offsetting the balance of the loan with your savings account on a daily basis, this way as soon as you are paid you will be benefiting from the additional money in your account before you start spending it on the monthly bills. Offset is a great feature and I often find can suit clients within a professional package as they can be quite an expensive product without receiving a discount on the standard rate.
What is debt consolidation?
Australian household debt is at record levels and many people are paying more interest than they need to on their debt.
If you have debts and especially those with very high-interest rates such as credit cards or personal loans you may be able to consolidate them into one loan at a lower overall interest rate.
This can save you money and make it easier to track (and control) how much you owe.
When it comes to consolidating your debts there is a range of options available. Which one is the most appropriate for you depends on your individual circumstances which include how much equity you have in your current home, the nature and number of your debts and your overall financial situation?
Working through all the options and taking everything into account can be reasonably complex however very rewarding for both of us as I love to save my clients money and put them back on the right track.
This is where my knowledge and experience with helping hundreds of other clients in similar situations come in handy when assessing your options and quite often we can end up with one loan and one manageable repayment.
Equity is the difference between the value of your property and the loan amount that you owe. Banks as a basic rule normally lend approximately 80% of your property's value and can lend up to 95% under some circumstances. Therefore if your property is worth $250,000 and you owe $150,000 you may be able to borrow an additional $50,000 or even up to $87,500. I have clients who have used this option to purchase assets such as cars, boats or even more property. Clients also use this option to clear and consolidate many other debts they may have such as credit cards or personal loans. Remember this is the ideal time to also assess if you currently have the best housing loan for your circumstances and a chat with your broker would be ideal to see if any better loan options are available.
Lenders are looking for approximately 5% genuine savings to be contributed towards the purchase regardless if you are a First Home buyer or not. Some lenders require this over a 3-month period and others are 6 months and basically, they will look over your statements for this period to satisfy that either you have held the 5% for the period of time or built it up over the time frame. As an example, if you purchase a house for $250,000 then 5% is equal to $12,500 they will want to see that you have had that amount in your account for the 6 months or that let’s say you started with a bank balance of $8,000 however over the past 6 months your income that has been saved has increased this bank balance to $12,500. They are not happy with lump sums just turning up from the sale of assets or gifts unless it happened over 6 months ago before they have started to look.
What is my credit history?
Your credit history is a record of all the loans and other credit you have taken out over the past seven years. It will include any overdue payments, loan defaults, judgments, bankruptcy proceedings and other personal details so that a lender can make an informed decision on your ability to make repayments on any future loans with them based on your past history.
Your credit history and the information that they take from that credit report will be looked at differently by each separate lender. For example, some credit providers may be more lenient than others. When it comes to applying for a home loan, however, most lenders will want to see a good credit history before approving any home loan application and this has gotten even tougher since the global financial crisis.
You can obtain a copy of your credit report from www.mycreditfile.com.au if you wish to view it.
What is the best interest rate I can get?
This is a loaded question as with housing loan rates sometimes all is not always as it would appear. A lender may have a fantastic special rate of 6% for the first 12 months however dependant on your circumstances this may not be the best overall deal available. This is normally due to the rate then increasing after that initial 12 months to a much higher rate and it may also have other fees associated with the product. The best and only way is to calculate the “true” rate (known as a comparison rate) which takes all fee’s into consideration and will give you a rate on your loan for the term. I have the software available to calculate the comparison rate for any loan and then compare that loan to others. Then I am able to demonstrate that in actual dollar savings over the term of the loan and in some instances this can be many thousands of dollars. So the lesson here is also the need to read the fine print as in the previous question and ensure you are aware of all of the additional costs and features.
What is the terminology LVR?
LVR stands for “Loan to Value Ratio” and it is calculated by dividing the loan amount by the value of the property. The value of the property is determined by the lender's valuation process and will be the lower amount of either the purchase price or the valuation conducted by the bank.
The ratios are used to calculate risk and although most lenders will have limits to what their LVR is, many lenders will lend owner-occupiers up to 90% LVR and a few will even lend up to 95% LVR. LVRs are assessed as part of the determination of a lender's own credit rating. In order to lend above lending policy, LVR’s lenders will often insure their risk with a Lenders Mortgage Insurance Policy. To avoid Mortgage Insurance you normally have to have an 80% LVR or less.
To work out the LVR, divide the amount you are borrowing by the value of the property e.g.$200,000 (Loan Amount) $250,000 (Property Value) = 80% LVR
To a lender, a higher LVR is a riskier proposition than a lower LVR and they will look at loans when approving them accordingly.
What types of land titles are there?
Torrens title, strata title, old system title and company title just to name a few. I understand this can get very confusing and it certainly matters to a lender what type of title you have as it reflects in the type of security the bank will be taking and how it can enforce the mortgage.
The title, or “freehold”, defines what property you own. Anything that affects the quality of that title is recorded in the certificate of title which is the document that will bear your name when the property is legally yours.
This includes financial “encumbrances” such as mortgages and caveats and also any easements, rights of way or covenants that either benefit or disadvantage the property.
Procedures for the conveyancing of Torrens and strata titles are often uncomplicated. Company title and the small percentage of the remaining original form of title, the old system title, can often be more difficult.
The most common types of titles include Torrens titles which overcame most of the problems of “Old system titles” with the issue of a single, guaranteed certificate of title. Generally, only items including names, mortgage details and easements registered on the certificate of title have legal standing.
Strata titles are a system of ownership of property based on the horizontal and vertical subdivision of air space of a building into lots with separate titles where rights of transfer, lease or mortgage are unrestricted and are usually associated with the purchase of a unit.
I suggest talking to your conveyancer at the time of purchase to make sure you fully understand what type of title you will have and what that could mean in the future.
When should I start saving for a house?
Why not today? I believe it is important for everybody to try and put some money away on a weekly basis into a separate account. This does not have to be for a house deposit, it may be for a holiday or even a new dishwasher. The point of the exercise is to have some forced savings put aside for a rainy day and like anything once something becomes a habit you never even miss the money you put aside. The sooner you start saving the sooner you will start to get together a deposit to place down on your home. Just remember to make sure it is put into a bank account on a regular basis that is in your name (Not under the bed) as this will show a prospective lender your ability to make a commitment of genuine savings. So as mentioned previously make sure that the money is saved in some form of account in the purchaser’s name. Lenders are looking for a minimum of 5% genuine savings however we do have other options available if this is not possible. In an ideal world if you are paying $200,000 for a property you would have $10,000 saved in an account for the purchase. The lender will want to see the past 6 months worth of bank statements to show that the money has been going in on a regular basis or that you have held the money for at least 6 months in that account.
Different lenders have varying requirements so what I suggest is coming in so I can look at your individual circumstances and then I will be able to discuss in even more detail if you are currently eligible to purchase a house with your current savings history.
Who sets Loan Interest Rates?
Interest rates are based on decisions made by the Reserve Bank of Australia (RBA) on behalf of the Federal Government. The RBA meets every month to decide whether interest rates should be changed. Lenders then use these decisions as a basis for setting the interest rates for their individual loan products and will usually alter interest rates a day or two after any RBA announcement as we have seen plenty of late.
Generally, when the economy is in a trough (that’s when unemployment is high and consumer spending is low) the RBA reduces interest rates to stimulate economic activity. The reverse is the case in a ‘boom’ situation and rates are increased to curb inflation which we are currently facing.
The biggest surprise of late to consumers and to the disappointment of the new government we have seen banks raise variable interest rates outside of the RBA announcements which caused much frustration and a financial burden to many home loan customers. The lenders have placed this down to the cost of money globally increasing due to the US credit crunch.
Why would I use a mortgage broker?
A mortgage broker does a lot more than just process a transaction; we provide advice, service, financial guidance and valuable assistance with negotiating you through the mortgage process and can often save you money by negotiating a better rate with the lender.
We also take the time to listen to your needs and understand your future financial goals. There are so many lenders, products and features to choose from that it helps to have an expert on your side to explain the benefits and drawbacks of each one and an expert that has a large amount of different lenders on their panel and does not actually work for the once financial institution.
Using a mortgage broker can also be the difference between having your finance approved or declined due to the broker having so much knowledge of the many different lenders, loan criteria, policy, borrowing capacities and application systems. This enables us to guide you towards a lender and product that matches your situation. I have so many happy and satisfied clients who had originally been declined by their own bank in the first instance then luckily someone has recommended my service and after sitting down and looking at their situation I have been able to get the loan approved elsewhere.
My role is to understand what is important to my clients and then do everything I can to ensure we meet those needs and exceed them. It is often the most significant financial decision that a person will make in their life and you want to ensure that you have somebody with the expertise helping you through that.
I have relocated interstate can I still use you as my mortgage broker?I use a mortgage broker?
Absolutely, I currently look after clients all over Australia and in fact, have clients in each State and Territory of Australia. I am required to have met you and preferably had a face-to-face meeting however as long as somebody who knows you that I trust can vouch for you I would be happy to conduct a Skype interview as some lenders allow this as long as I disclose it. I am extremely careful about who I do business with as my reputation is very important and often I receive phone calls or applications from the internet from people that have found me online. In these cases, I thank them for the opportunity and offer for them to travel to see me and if they are unable then I politely decline their business until they are prepared to travel for an interview. In this day and age, it may seem strange to do this as we have a global presence however I have a legal obligation to conduct a face-to-face interview and the ability to ask questions has helped me in the past unravel attempted fraudulent activity. So basically happy to help any of my clients anywhere in Australia (I also have a few overseas as well) as long as I can verify who they are and with email these days I think that being able to deal with someone you trust such as myself is very important with such an important transaction. Being in a position and knowing you will get the best advice and service is extremely important and we should not let distance get in the way of this service.
Will I have a fee to pay off my loan early?
This will depend entirely on the type of loan and the lender as the fees and charges can vary substantially. It is very important that you take the time when applying for a loan to understand exactly what the restrictions are for either paying off the loan early or switching to another lender. Your mortgage broker will go over these fees with you in detail however as an example a lender may charge what is called a Deferred Establishment Fee. As a general rule, these may apply only for the first 4 to 6 years and can either a set fee of approximately $700 or a percentage of the loan amount. We have seen some of these fees reduced recently however it is still a significant cost to bear. In both cases, you should know exactly where you stand up front so it should come as no surprise if you discuss all fees and charges when signing the loan documentation. The Economic Break Cost fee is a little harder to work out upfront and is only applicable if you have a fixed-rate loan. The banks have a calculation and this will vary almost on a daily basis and will fluctuate with the current market rates. Really the only way to work this out to ensure it is done correctly is to have your bank calculate this cost for you as an indicative figure to give you a break cost before you make the decision to pay the loan off early.
Will my housing loan interest rate go up?
If I had a crystal ball or even a dollar every time somebody asked me that question I would be very wealthy. The reality is that nobody can tell for certain exactly what is going to happen. Not many predicted the Global Financial Crisis, the technology stock crash or even Spain winning the world cup unless you were that annoying octopus. What I can do however is give you a brief summary of the Reserve Banks August meeting which I have taken from the CBA Global Markets Research Economics Update to give an indication of what is currently happening and what they see happening in the economy. They indicate a solid Asian growth whilst advanced economies to have a weak recovery with a firm global demand outlook for energies and raw material from Australia. They are uncertain on the outlook for Credit markets and feel they may actually still be somewhat volatile. The housing market is to soften but still retain firm job growth with a higher household savings rate. They are expecting maybe another rate rise by the end of the year and if the growth continues maybe more rate increases next year however I may point out that there are a number of world events which could change that outlook in a heartbeat and the Australian economy can be very much affected by these events when they happen as we have all experienced from time to time.
Will my housing loan interest rate go up?
Before the Global Financial Crisis, we had lenders offering 100% finance and no deposit home loans which was mostly aimed at the First Home Buyers market who may have been employed and renting but had not managed to save up a deposit. Banks consider this high risk lending and the QBE Lenders Mortgage Insurance chief executive
Ian Graham has said that despite increased discussion of the potential comeback of 100% lending in the near future he does not expect it to eventuate mostly due to the new National Consumer Credit Protection (NCCP) regulations that make lenders more measured when they provide credit.
We have recently seen a lending increase from 90% back up to 95% however in my experience it has to be a very strong deal in order to obtain approval at 95%, however, is still very possible.
Overall, Graham said he expects the NCCP would have a positive impact on lending standards. “Misinformation and predatory lending are the primary targets of the NCCP. I’m confident we will see better quality business over the next decade than we saw in the last,” he said.
I personally do not expect to see 100% loans back in the market any time soon and if they do it more than likely will restrict the post codes and it will be interesting to see if they would actually be available in our area.
