Home Loan & Investment Property Guide
Contents How To Find The Best Mortgage Broker For You. ............................................................................................ 4 What Is A Mortgage Broker? .................................................................................................................................................... 5 Should I Use A Broker Or Deal Directly With A Lender? ............................................................................................... 5 How To Avoid Mortgage Scams. ............................................................................................................................................ 5 What A Mortgage Broker Can Do For You. ........................................................................................................................ 6 How To Find A Trustworthy Mortgage Broker. ................................................................................................................ 6 How To Select The Best Mortgage Broker For You?...................................................................................................... 7 How I Can Help You? ....................................................................................................................................................................8 How To Choose The Right Home Loan Product. ............................................................................................... 9 “Structuring Your Loan Correctly Is The Most Important Point That Should Consume Most Of Your Focus.” ............................................................................................................................................................................................... 10 What Features To Look For?................................................................................................................................................... 10 Find The Right Lending Institution For You ...................................................................................................................... 11 Understand Your Loan Inside And Out ............................................................................................................................... 11 Seek Expertise From A Mortgage Broker ........................................................................................................................... 11 Six Steps To Fast-Track The Purchase Of Your First Home.......................................................................... 12 Step One: Create A Budget And Set Your Savings Goal. .......................................................................................... 13 Step Two: Look For Helping Hands; I.E. Parents, Grandparents, The Government (FHOG & Stamp Duty Concessions) ....................................................................................................................................................................... 14 Step Three: Become An Expert In The Area You’d Like To Buy. ............................................................................. 15 Step Four: Choose The Right Loan For You Based On The Repayments You Can Afford. ........................ 15 Step Five: Get A Pre-Approval. .............................................................................................................................................. 17 Step Six: Enjoy The Journey As A First Home Buyer.................................................................................................... 17 Thinking Of Refinancing? ..................................................................................................................................... 18 How Does Refinancing Work? ................................................................................................................................................ 19
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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The First Important Point. ........................................................................................................................................................ 19 Why Move To An Alternative Lender? .............................................................................................................................. 20 The Need To Consolidate Debt. ........................................................................................................................................... 20 When It May Not Be Considered Sensible To Refinance. .......................................................................................... 21 How To Make A Decision To Refinance. ........................................................................................................................... 21 Ensuring That Your Financial Health Remains Sound. .............................................................................................. 22 Ready To Invest In Property? .............................................................................................................................. 23 Alternative Number One - A Conventional Bank Mortgage .................................................................................. 24 Alternative Number Two - A Line Of Credit Or Short Term Finance .................................................................. 24 Alternative Number Three - Using The Equity In Your Home ................................................................................ 25 Determining Your Investment Budget .............................................................................................................................. 25 Cost-Effective Mortgages On Investment Properties ............................................................................................... 25 Investment Property Cash Flow Analysis ........................................................................................................................ 26 Appropriate Insurance For Your Investment Property ............................................................................................... 26 Summary: ....................................................................................................................................................................................... 27
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
How to find the best mortgage broker for you.
You will find there are multiple mortgage brokers within a few kilometres of your current location. But are they trustworthy?
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ccasionally, you will hear stories in the media of banks, lenders and mortgage brokers taking advantage of homebuyers, but don’t be too concerned. Following the advice outlined in this guide will give you the tools to find an exceptional mortgage broker who is truly focused on your needs, and has a genuine passion for finding the perfect loan for your situation.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
What is a mortgage broker? Home loans can be accessed through a variety of avenues; banks, non-bank lenders, mortgage lenders, and mortgage brokers. A mortgage broker acts in the best interests of their customer through their interaction with multiple banks and lenders to secure the best mortgage outcome. A mortgage broker is very different to a bank employee. A bank employee solely acts as the conduit between the bank and the borrower. A mortgage broker, by contrast, interacts with multiple lenders, and can interact with multiple institutions at any one time. Collaborating with a mortgage broker inherits multiple advantages. A mortgage broker has an in-depth understanding of the credit policies across all major lenders, allowing the broker to analyse your situation and advise the lenders who will view your application favourably. This can be a considerable time saving process for you by avoiding multiple discussions and applications with different lenders in a bid to access the most competitive rate for your situation. If you decide to meet with a mortgage broker, they will be able to access your credit score ahead of your loan application. This will give you clarity on how the lender will view your loan application and avoid the chance of a declined application.
Should I use a broker or deal directly with a lender? At times, a mortgage broker can negotiate an interest-rate that is more competitive than the advertised rate. This is because a loan application submitted by a mortgage broker is far more cost effective for the bank in comparison to a loan offered through their retail premises. A good mortgage broker will take advantage of this, and act in the best interests of the borrower by securing a better rate than the lenders advertised retail rate.
How to avoid mortgage scams. Often Lenders promote a highly competitive interest rate as they believe the interest rate is the most powerful drawcard when a borrower is choosing a home loan product. A lender will charge the borrower excessive fees to ensure their profits are not compromised. You can avoid this by using the comparison rate to compare each home loan product, rather than the advertised interest rate. The comparison rate considers the advertised interest rate plus any fees and charges payable. Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
In some cases, lenders may advertise highly competitive interest rates, but only applicable to loan products that are very difficult to access. The credit criteria a borrower must meet these products is very difficult, meaning only a small percentage of the population can qualify.
What a mortgage broker can do for you. The best mortgage brokers can turn the task of finding the correct home loan for you into a pleasurable experience. They will have the ability to see the world through your eyes, ask questions about your future goals, and will update you every step of the way throughout your home loan journey. Like any business, mortgage brokers can range from being highly experienced, having access to a large number of lenders, as well as having great client interaction skills, to the opposite of all three. It is best to engage a mortgage broker that you feel comfortable with, and feel has the capacity to understand your situation and the goals that you’re wishing to achieve.
How to find a trustworthy mortgage broker. If you were to listen to multiple telephone conversations between a prospecting broker and a borrower, you will find the most common questions a borrower will ask are:
◉ Will I get approved? ◉ How long is the application process and what’s involved? ◉ What will the repayments be per week and per month? These are the critical questions you should ask your broker, in addition to a very important question: how do I know I can trust you? To determine whether your trust has been well placed, look for legitimate referrals and testimonials for the broker you are engaging. Does the broker have a strong online presence? Do they have their own website? Do they have their own Facebook page? Do they actively update their Facebook page? If they tick the boxes, it is highly likely the broker is very active and focused on regular communications.
There is nothing more challenging for a borrower than dealing with a broker who has poor communication throughout the application process. A good broker will manage Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
your expectations by outlining their communication policy, and how frequently you will receive updates regarding your application. A mortgage broker with skill and experience will be able to give you an indication of the application outcome ahead of its submission. This can be achieved by engaging you to complete a small fact find questionnaire, outlining income, assets and liabilities.
How to select the best mortgage broker for you? While on the hunt for a suitable mortgage broker, you will realise mortgage brokers specialize in different areas. Some may specialize in securing finance for a commercial property, some for investment properties, and others who specialise in working with borrowers who have a poor credit history. It’s a good idea to ask the broker what areas they specialize in prior to engaging with them. Other questions you may ask include:
◉ How many lenders do you have access to? ◉ Are you part of a professional organisation that requires certification? ◉ Can you anticipate the length of time involved in approving my application? ◉ Can you articulate the loan fees associated with my application? If a mortgage broker is acting independently, they are required to become accredited for each lender they represent. This is a key differentiator between mortgage brokers, as not all brokers have access to the same lender panel. If a broker has chosen not to become accredited with a particular lender, this restricts the brokers access to their products. There should be no compromise on the service you receive from your broker. At minimum, you should expect the following from the broker you select:
◉ The ability to find the right loan for your situation. ◉ The ability to calculate the exact repayments associated with the loan. ◉ The ability to articulate the fees and charges associated with the loan. ◉ A willingness to advise you of the insurance options available to you. ◉ Discuss strategies to pay your loan quicker. ◉ The ability to answer your questions.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
Remember, making a rushed decision when you’re looking for a home loan can undermine your overall goal: getting the right loan to suit your needs. If you don’t feel comfortable with your mortgage broker, it is important to seek advice from another.
How I can help you? Working with a quality mortgage broker allows you to compare the best home loans across multiple lenders. I am accredited with multiple lenders, and understand their credit policies in detail. With this understanding, I am able to analyse your financial situation and provide a solution to fulfil your goals very quickly. I am easy to contact via email, telephone, Skype or Facebook. I am highly committed to first-class customer service, and understand this cannot be achieved without a high level of accessibility and communication. Please bear in mind that not all mortgage brokers are the same. Some are great communicators, some prefer to speak about the product and process, and some prefer to take a more holistic view; considering the goals of you, your family, and your lifestyle.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
How to choose the right home loan product.
As new and innovative lenders continue to join the highly competitive lending market, it has made choosing a home loan a very challenging task for the borrower.
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ome loan options can be presented in a number ways. Lenders may promote an introductory variable and fixed rate, offer an interest only or principal and interest repayment option, an offset account and redraw facility option, with each product attracting a different fee or fee structure. This results in a significantly high number of variations for a borrower to consider.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
One of the most important rules to follow is to consider all the options offered within a given product, rather than to focus on one attribute in isolation. For example, you may find a home loan product with a very low interest-rate, however it is accompanied by quite a high fee structure.
“Structuring your loan correctly is the most important point that should consume most of your focus.” Structuring your loan correctly is generally more important than the lender you choose, or the interest rate that is applied to your loan. Your financial situation, lifestyle choices and future goals will determine the way your loan is structured. Whether you’re buying your first home, refinancing, or looking to purchase an investment property, the features of a home loan product need to accommodate your individual circumstances. As home loan products have many different features available, it is important you don’t judge the worthiness of one particular home loan based solely on its interest-rate and upfront establishment fees. One of the most important structural points to consider is the size of your deposit. Most lenders will only lend up to a certain threshold, generally 80%. If you exceed this threshold, you are required to purchase lenders mortgage insurance, which may cost several thousand dollars. Lenders who exceed 80% without the need for lenders mortgage insurance will generally apply a much higher interest-rate and fee structure.
What features to look for? Every feature within a home loan product will not be suitable to your needs. Identifying a home loan product with a greater degree of flexibility can accommodate the changes in your lifestyle should your circumstances change. Keep an eye out for the ability to make extra repayments during times when you have surplus cash. Make sure you’re able to make extra repayments without attracting any extra fees.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
Find the right lending institution for you It’s important to do your research, or seek advice from a Mortgage Broker who will do the research on your behalf. If you favour a particular lender, a Broker will give you insight into the lenders loan application processing timeframes, whether they have an excellent customer service history, and how easy it is to access their customer service department if you have a question regarding your home loan.
Understand your loan inside and out Often borrowers are confused and overwhelmed by the diverse range of mortgage products available. They can be left so confused that making an informed judgement as to which home loan to proceed with can be stifling. To overcome this, your Broker will articulate the costs and benefits associated with a particular loan product prior to your decision to proceed. In most circumstances, lenders are required to provide a product disclosure statement to explain the fees and charges associated with the loan product, including the interest rate. As you begin to understand the value of refinancing your loan every 2 to 5 years, its advantageous to be aware of the costs associated with exiting your home loan. You should enquire about discharge fees, break costs and settlement fees that may occur as a result of refinancing in the future. There are lenders in the marketplace who offer competitive interest rates, low fees and extraordinary flexibility. In this instance, make sure you ask whether there are any hidden fees such as settlement valuation fees, annual fees or legal fees.
Seek expertise from a Mortgage broker If you are concerned that finding the best deal without advice will be significantly time-consuming, you should consider accessing the help of a qualified Mortgage Broker. There are several Mortgage Brokers around the country who will make their services accessible to you, and are happy to answer any questions regardless of whether you are ready to proceed or not. Accessing a Mortgage Brokers expertise will save you countless hours researching the thousands of loan products available in the market, at no cost to you. Ensure the Mortgage Broker is correctly licensed and registered with a highly reputable industry organisation.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
Six Steps to fast-track the purchase of your first home.
Buying your first home is an exciting journey, but it can be hard to know where to start! After all, there are so many things to think about; the area you want to live, how much you can borrow, First Home Owner Grant eligibility, whether you have enough money saved as a deposit. As it happens, you’ve downloaded the right guide to fast-track the purchase of your first home.
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he media don’t help, do they! Splashed across the front page of the paper or in the 5pm bulletin, you can almost guarantee there will be a piece on the daily struggle First Home Buyers face to get their foot in the property market. And don’t you know it. You’re so sick of paying rent, after all; that’s extra money you could be saving. And every dollar you’re currently saving doesn’t seem to bring you any closer to purchasing your dream house because the prices just keep escalating. Don’t worry, I understand. And I can help you work through these challenges. Let’s run through six easy steps to fast track the purchase of your first home. Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
As a Mortgage Broker, nothing gives me greater satisfaction than seeing one of my customers place a sold sticker on their first home. The excitement beams from their eyes, and I can’t help but be excited for them! Often when I meet people who are considering purchasing their first home, they are confused, and have questions about how to buy, how much they can borrow, and whether they will get approved. Three overwhelming thoughts indeed. Well, I’m happy to tell you that there is rarely a situation where I meet with a first home buyer and they cannot begin to take steps towards securing their dream home. My promise to you is this; if you follow the steps in this guide, you will buy your first home whether it be tomorrow, in three months, or sometime in the future. I promise to point you in the right direction. My name is <your first name> and I am a Mortgage Broker who specialises in working with first home buyers. I am very fortunate to be a Mortgage Broker as every day I help my client’s dreams come true. My work gives me a great sense of satisfaction, especially when I can help my clients get a result they never thought possible.
Step one: Create a budget and set your savings goal. No matter what type of home you want to buy, you will need to save a deposit. Start by putting together a budget to see how much you can realistically allocate to your savings account each month. There are several free online resources you can use. The first which comes to mind is the MoneySmart Online Budget Planner. Developing a budget will force you to analyse your current spending to see where your money is going, and what costs are unnecessary. To keep you motivated and accountable, acknowledge and celebrate when you achieve each saving milestone. Opening a separate savings account will help get you there by removing the temptation to spend your savings. The size of your deposit is a really important factor in your first home buyer journey. A larger purchase deposit may mean a lower interest rate, as you become less risky to the lender. It may also mean you avoid Lenders Mortgage Insurance (LMI) which protects the lender – not you – if you cannot afford your mortgage. So, it would be a significant benefit if you could avoid this cost, and would mean additional money in your back pocket.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
Step Two: Look for helping hands; i.e. parents, grandparents, the government (FHOG & Stamp Duty Concessions) As a Mortgage Broker, I frequently speak with the parents and grandparents of First Home Buyers. They are eager to help their children take the first step in the property market provided they are in a position to do so and there is minimal risk involved.. Your parents or grand-parents could help you in three ways; valuable advice, a monetary gift, or a family guarantee. Valuable advice is self-explanatory. They have been there, done that; sharing their key learning along the way. They may gift you a sum of money to boost your deposit, securing the home of your dreams… Or, they may help you through a family guarantee, which actually involves no physical cash. A family guarantee means a family member will act as a guarantor, and offer their home or investment property as a form of deposit. In some cases, this could mean you’re able to buy a home even if you do not have a significant deposit. The family member is required to register a mortgage against the title of their home. Their name will not be on the loan, and you will remain responsible for the home loan and the repayments. You may be sitting there thinking “but I want to do this on my own” and I get that. However, once you consider the minimal impact versus the massive savings that a family guarantee can offer, you may see this as a viable option to accelerate the purchase of your first home. If you’re stuck with how to approach your parents or grand-parents, why not say something simple like: “Would you be prepared to help me buy my first home without having to give me any money?” Another resource available to you to help purchase your home sooner is the Australian Government via the First Home Owners Grant (FHOG) or the Stamp Duty concessions. The FHOG and Stamp Duty concession terms and conditions vary between each state, but as a Mortgage Broker, I am completely across the fine print for every state! I can share these with you, and help you apply for any grant or concession you may be eligible for.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
Step Three: Become an expert in the area you’d like to buy. When you purchase your first home to occupy, it’s likely you’ll be living there for a few years. With this in mind, it’s important you do your research to ensure it meets your immediate and future needs in terms of location, the type of home, and also the repayment amount. The key to achieve this is through thorough research prior to attending any home inspections. When considering various locations, think of its proximity in terms of your workplace, schools, transport, local shopping centres and amenities. Do you want a house or an apartment? Or perhaps a townhouse? How will this impact your future goals. As a Mortgage Broker, I have access to every suburb’s market trends and statistics. If you require assistance to arm yourself with the right information regarding comparative sales of properties in similar areas, I am more than happy to help. I can send you a property report that will cover the location, the type of home that you are looking for, and the exact home you have your eyes on. In fact, at no cost I will send you a five-page report on any property that you are considering buying. The report will include helpful information such as the estimated property value, the last sale price, and other comparable all property sales. One tip I always tell my clients is to attend local property auctions in the area you have in mind. This will give you a very clear idea around what the reasonable market price is for the properties you like, and will also teach you how to manage an auction without bidding too high.
Step Four: Choose the right loan for you based on the repayments you can afford. In a market with so many lenders, and hundreds of home loan products on offer, it can be a very time-consuming and overwhelming task to compare each home loan, and decide which product is best suited to your circumstances. To make an informed decision, you will need to have an understanding of the features and structures on offer. Before you choose which lender to approach, first things first. Fixed or variable. A variable interest rate is the most popular of the two. A variable interest rate will move in-line with how the market reacts to interest rates. If you choose a variable interest rate structure, you can expect your interest rate to go up and down throughout the course of your loan.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
A fixed interest rate is an interest rate set for the period you select; usually between 1-5 years. Many Australians choose this option as it makes it easier to budget for the repayments. And while it is important to compare the interest rate, I strongly urge my client to look beyond the interest rate and focus on the important features which could save you money over time. The top key features I’d suggest keeping an eye out for include:
◉ Redraw Facility
There will be times throughout your home loan journey where you may want to make additional repayments, and likewise, you may want to withdraw additional funds. Having a redraw facility available is highly beneficial as it will reduce your interest repayments and will also provide you with a ready reserve of funds for the “just in case” moments.
◉ Flexible Repayments
Most people are either paid weekly, fortnightly or monthly, and it makes sense from a budgeting perspective to pay your mortgage in line with your pay cycle. Having this ability will give you greater control of your finances.
◉ Online Access
The ability to keep an eye on your home loan – i.e. check your balance and make changes when you need to will save you a lot of time and hassle. It will also keep you motivated watching your home loan balance reduce over time. Deciding on which features are important to you will speed up your first home purchase as you will not have to worry about researching and comparing. You will be in a position to align all your focus and confidence to the purchase of your dream home. As a Mortgage Broker, I have access to hundreds of home loan products. I awill do all the heavy lifting by comparing each home loan, and recommending which would be best suited to your circumstances. I have a very good relationship with every lender I deal with, so I am in the best possible position to negotiate the most competitive rate on the market!
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
Step Five: Get a pre-approval. Purchasing a property can be a bit of a balancing act, so you need to act fast when you stumble across your dream property. And a pre-approval will do just that. A pre-approval is a tick from the lender that you’re eligible to apply for a home loan up to a certain limit. The lender will look at your income and your expenses, and decide whether you can afford the loan amount and its repayments. The lender will also consider your savings deposit versus the amount you’re requesting the bank to lend to you. Keep in mind a pre-approval is not a formal approval. This means you do not have an obligation to proceed with the loan, nor does the lender have an obligation to provide you with the finance. What the pre-approval will do, is show the sellers you’re serious about purchasing the property, show them that you can afford the requested amount which will ultimately fast-track the home loan application process. As a Mortgage Broker, I help my clients look their financial best in the eyes of the Lender when submitting a pre-approval. I will act as your strongest advocate. I will present your story to the lender, demonstrating your income, savings history, finances, along with your goals and dreams, and explain to the lender why they should lend you the money. Having a pre-approved loan in place will give you confidence about how much you can borrow, the lending limitations, and how much you can spend on a purchase.
Step Six: Enjoy the journey as a First Home Buyer. This is an exciting time, and a great achievement. You’re about to achieve an incredible dream, and take the first step into the property market. This is a journey filled with ups and downs. Aligning yourself with a like-minded Mortgage Broker like me will ensure you become a property expert in no time, guiding you through every step of your home loan journey. I want to share in your dream, and provide you with the encouragement and enthusiasm to pursue it. My name is <your name> and I am a First Home Buyer Specialist. Let me help you turn your property dream into a reality. Reach out by calling me on <phone number> or sending me an email to <email address>.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
Thinking of Refinancing?
Whether you’re looking to reduce your home loan interest rate, or you’d like to withdraw the equity in your property, refinancing your home loan may be the solution to achieve the outcome you desire.
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s you may be aware, the home loan industry is continually evolving. This is also the case with your home loan. While your home loan may have been perfect for you a few years ago, it’s highly likely that it would be out of sync in today’s mortgage climate. So, if your mortgage no longer suits your lifestyle, you should think about seeking a mortgage that does. Home loan interest rates are at historical lows. At the same time, you also have the opportunity to look at the features and attributes other lenders are able to offer that may be better suited to your lifestyle. As your lifestyle changes, it is the perfect launch pad to take a few short moments to evaluate your mortgage. Let me make special note that refinancing in a small number of cases doesn’t always make sense for every borrower.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
How does refinancing work? Refinancing allows borrowers to rewrite their current mortgage with another lender, with the general objective to secure a lower interest rate, access equity in the home, or to take advantage various loan features and mortgage structures offered by other lenders. As the Borrower, you have a choice to refinance with your existing lender, or choose an alternative lender. If you’ve made the decision to choose an alternative lender, your new lender will pay out your existing home loan, and you will commence making repayments to your new lender.
The first important point. Prior to considering a refinance, it is important to evaluate your current financial situation and the goals you wish to achieve over the next few years. Refinancing may be advantageous to you by not only reducing your repayments via accessing lower rates in the short term, but also by ensuring you’re comfortable that the fixed-rate you’ve chosen will remain competitive for the term that you have selected. It’s important seek the advice of an experienced mortgage broker to ensure that your decisions are sound. When you refinance, it helps to consider the things that are important to you within a home loan. Ask yourself;
◉ Is the interest rate competitive? ◉ Is the fee structure competitive? ◉ Is the home loan relatively flexibility? ◉ What is the backend support and service I will receive? ◉ Have I considered rate rises in the future? Once you understand what is important to you, you’re ready to take the next step; approach your existing lender to see if they can optimise your current deal. Being proactive and making a phone call to your existing lender may be in your best interest as you’ll rarely receive a notification when a better rate becomes available within their product suite. Brokers tend to have an advantageous ability to negotiate a better rate with the lender due to their relationship with lenders and contacts within the industry.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Be prepared that a lender may have a policy where they refuse to renegotiate the rate given you’re considering a different lender. In either situation, it’s best that you approach a lender in the best financial position as you can by ensuring debt repayments are made on time with no over-limit instances.
Why move to an alternative lender? A lower rate is not the only reason a person is prompted to refinance their mortgage. Often dissatisfaction with a particular lender, the need to consolidate debts, or access to flexible options are among the top reasons to prompt a refinance. A major factor which often influences or discourages a borrower to refinance is the uncertainty associated with their employment. What needs to be kept in mind is that changes to a borrower’s employment scenario can affect their borrowing capacity, making it harder for their refinancing loan to be approved. In general, it’s better to act ahead of an employment move. Home renovation is often top of mind for many home owners. Replacing the kitchen and bathroom, or perhaps the need to add another bedroom are often popular triggers to refinance. Also popular are the desires to purchase an investment property, to upsize one’s home, or exit a fixed rate mortgage to take advantage of record low interest rates.
The need to consolidate debt. These days, it is quite easy to get tempted into various forms of consumer debt. Whether it be via credit card, or retailers promoting a ‘buy now pay later’ program, sometimes – with the benefit of hindsight – these choices are not in the borrower’s best interest and lead to excessive repayment levels. If you are considering debt consolidation, there is certainly a correct way and a wrong way to go about it. The best option is to seek the direction of your trusted mortgage Broker who will discuss the option to reduce the interest rate payable on your consumer debt through refinancing your home loan. A mortgage Broker will be able to demonstrate the savings through calculated simulation, so you will know where you will stand if you choose to proceed.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Refinancing will not work in your favour if you continue to make the minimum repayments and spend the excess funds. By allocating the excess funds to your new loan, you’re able to reduce the overall outstanding balance and pay off your home loan sooner.
When it may not be considered sensible to refinance. In some circumstances, there is no value in refinancing. Generally, if you have only had your home loan for a short period of time, or your home loan balance is under $100,000, refinancing may not make financial sense. While interest rates are historically low, it’s important to remember that rates are likely to rise at some stage. A good rule of thumb is to add at least 2% to the refinanced interest-rate. This will assist you in determining whether you can comfortably afford the repayments relative to your chosen interest rate.
How to make a decision to refinance. The decision to refinance your home loan should ultimately come down to its value and the cost effective nature of doing so. While I tell my clients that they should review their mortgage every 2 to 3 years, it’s possible you may not need to refinance at all. There are costs associated with refinancing which can be quite significant. Fees may include break costs, discharge fees and establishment fees. It’s important to consider whether your LVR has increased to a point where lenders mortgage insurance may be required. An effective way to review your mortgage holistically is to think about what your circumstances were when you first took out your mortgage. Think about what has changed in your life, how your personal financial circumstances have perhaps changed, and how the results rest with the state of our current economy. If there has been considerable change during this time, it is time to review how effective your home loan is for you. While there are costs associated in refinancing, the golden rule is to consider whether or not you can recoup the costs within a 12month period. Depending on the size of your mortgage and your chosen lender, securing a 0.25% to 1.5% interest rate reduction could be worth your while.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
You should consider staying away from refinancing options if the costs outweigh the benefits in the short to medium term. This outcome is especially common when exiting from fixed rate loans as there are often very high exit fees payable.
Ensuring that your financial health remains sound. ◉ If you choose to refinance to another lender, it is important you continue to review your mortgage every 2 to 3 years to make sure it is working hard for you.
◉ If your refinance is for the purposes of consolidating your consumer debt, remember to use surplus cash to drive down your outstanding home loan balance.
◉ If you’re able to obtain a substantially lower interest rate as a result of refinancing, it will be advantageous longer term to continue paying your original mortgage repayment at the higher rate.
◉ If you have an investment property, it is important to consider monitoring the capital growth of the property and the remaining balance of your mortgage after refinancing.
If the capital growth in your investment property begins to appreciate in value, you may consider accessing that equity in the property to purchase another investment property. Speak to your mortgage Broker about how this can be achieved through refinancing or increasing the value of your current mortgage. I welcome you to contact me at any time for a free 15 minute Skype, messenger, telephone call, or face-to-face appointment to help determine what refinancing options and their outcomes are specifically available to you.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
Ready to invest in property?
Owning an investment property with rental income coming in each month is a clever way to create a consistent, yet passive, income flow.
W
hile this concept is no secret, the details in relation to this investment option can be confusing. Some lenders require you to have a certain amount of cash available to contribute towards the purchase, while others accept a deposit in the form of equity accumulated in another property. Investment property loans are available in several different structures. Despite the many investment property mortgage options that exist, choosing the wrong loan type can be just as detrimental as choosing the wrong investment property.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
A great mortgage Broker will guide you through every option available to you before you approach a lender, making it easier for you to make the right choice. An important point to make is that if you are using your own home as a deposit for your investment property purchase, you must understand the risks associated.
Alternative number one - a conventional bank mortgage If you have previously purchased a property and it is your primary residence, it’s likely you are already familiar with the conventional home loan process. With a traditional mortgage, the expectation for a deposit can vary between 5% - 30% of the property value. This variation is determined by a particular lenders credit policy. This deposit may come from personal savings, or perhaps they are gifted funds. Either way, most lenders require a form of documentation to prove the origin. With a traditional mortgage, the lender uses multiple forms of information to determine whether they will grant an approval or not. This includes your credit rating, credit score and your credit history. Lenders will also require evidence of your income, your expenses, and your assets to demonstrate your capacity to service the mortgage. This is also the case with an investment property loan, however, in addition, your lender will seek to determine the rent that you will be charging to establish whether the debt to income calculations fit within their credit policy. Many lenders will also expect the borrower to have additional funds set aside to cover the first 3 months of repayments
Alternative number two - a line of credit or short term finance It is not uncommon for a property investor to implement a strategy to only hold their investment property for a short period. An example of this may be when an investor purchases a property, spends 3 to 6 months renovating the property, and puts it back on the market. In this case, an investor can secure a line of credit against their existing property provided the property meets the lender’s guidelines, and the property has sufficient equity available.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
Alternative number three - using the equity in your home If you intend to purchase an investment property as a long-term rental, using the equity you have accumulated in your home is a popular way to achieve this. In many cases, lenders allow borrowings of between 70% - 80% of the investment property value. Depending on the economic climate and a lenders credit policy, you have multiple options available in terms of how you structure your loan. For example, you may select an interest only repayment period, or prefer paying off the principal and interest. The option between having a fixed rate loan, a variable rate loan, or a floating rate loan are also popular considerations. Investors may choose to structure their loan as an interest only loan. This will mean the repayments are very low. An investor may choose this strategy with the view that if there has been capital growth, the investor can sell it at a profit while only ever absorbing with borrowing costs, for example home loan interest repayments.
Determining your investment budget Prior to making the decision to invest in residential real estate, it’s important to review your budget to determine what level of debt you’re able to comfortably manage. This will also give you the opportunity to determine whether you can afford the repayments during period where rental income is not received. Investing in residential real estate is generally viewed as a long-term commitment. By considering any anticipated income or lifestyle changes that may be on the horizon, you can avoid any scenario that could trigger a premature sale of your investment property due to cash flow issues. You will find many valuable online resources including online calculators featured on most Bank and lender websites.
Cost-effective mortgages on investment properties As the value of your property and the rental income you receive increases, the nature of your borrowings become more cost-effective. The growth in the value of the property is referred to as capital growth. In the immediate short-term, you may see considerable value in the investment property of your choice, but this does not negate the need to establish a correctly structured mortgage loan to suits your needs.
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
As economic conditions and interest rates can change quickly, and at times, personal circumstances fall out of your control, many people prefer to lock in a fixed rate loan to reduce the risk.
Investment property cash flow analysis When it comes to potential real estate investment, it is a sound and prudent step to conduct a cash flow analysis on your potential investment choice. You should look at the costs involved in purchasing the property, the anticipated loan repayments, the costs of ongoing maintenance in comparison to the rental income you expect to receive. Once considered, you will be able to determine how much money you need to outlay each week, or by contrast, the profit you will receive as a result of positive cash flow. Your weekly cash flow is determined by subtracting your total weekly ongoing costs from your gross rental income. Remember, it’s important to consider periods of time where you may not receive any rental income. This may occur when the property is between tenants, or while you’re completing renovations. You’ll also need to take into consideration any legal fees payable, real estate fees payable, and the costs associated with building inspections.
Appropriate insurance for your investment property Insuring an investment property is one of the most important purchases a property investor can make. Protecting you in a similar way to your own home, investment property insurance will provide you with peace of mind by reducing the risks associated with owning an investment property. You will need to include the cost of investment property insurance into your final budgets analysis. Whilst each insurer has a unique policy offering, Investment property insurance, otherwise known as landlord insurance, generally covers the cost of any damage that may occur to your property as a result of an unforeseen accidents such as fire, theft and storm. The policy is likely to include a component relating to your tenants. This may include cover if tenants deliberately damaging your property, default on their rental payments, or theft by your tenant. Mortgage protection insurance is a form of insurance which can cover you in the event you’re unable to make your home loan repayments. Mortgage protection insurance may cover your home loan repayments in the event of death, terminal illness or loss of employment. If you claim on an insured event, the funds may be paid directly to your home loan, or paid to you personally. Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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Home Loan & Investment Property Guide
Lenders mortgage insurance is an insurance policy to cover the lender in the event you default on your home loan. Lenders mortgage insurance will not cover you in this instance. It is often a mandatory requirement that is enforced by the lender if you’re unable to provide a large enough deposit in comparison to the value of your investment property purchase. Important note - Prior to arranging any insurance cover, it is important to ensure sure you read the fine print to confirm you’re confident and comfortable with the level of cover provided by the insurance policy.
Summary: Historically, property growth is far less volatile and certainly more predictable than many other investments options. For many, the purchase of an investment property has meant an additional income stream, often continuing well into retirement. Buying the right property in the right area can usually influence the success of this investment strategy. I specialise in helping clients secure the best available investment property loan that is suitable for their circumstances. If you would like to receive detailed information that is suitable to your circumstances, please don’t hesitate to contact me either by phone, email or skype
T: F:
1300 422 506 1300 448 639
M: 0433 181 544 E: chris@newvisionfinancial.com.au W: www.newvisionfinancial.com.au
Please be aware the information provided in this guide is general in nature, and does not form part of any advice given to you. Please consider your circumstances before you make any decisions.
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