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Applying for a loan? Don't just pay off the credit cards

Applying for a loan? Don't just pay off the credit cards

It seems like a no brainer, right? You are buying a home, so you’ll pay off your credit cards to reduce your debt, but keep them active so you can buy some furniture or deal with emergencies even when you have a mortgage to pay. Wrong.

It’s obvious that a lender will consider your credit card debts and the monthly repayments on those when you apply for a mortgage. But what many people do not realise is that credit cards that don’t have any balance owing can also impact a lender’s assessment of what you can afford to borrow.

If you have a high credit limit, you also have a high debt risk in the eyes of your lender. As the logic goes, there is no stopping you from racking up debt on your credit card the day after your loan is approved. Say, on lovely furniture to fill that new house.

“We have to take account of three per cent of the total credit card limit, regardless of what the applicant owes,” says the finance broker.

“If they had a $10,000 limit but they only owe $1000, we still have to assess $300 a month and that comes directly out of their liability. It does make quite a difference” , says the broker.

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First meeting with a broker

First meeting with a broker

If you’re looking for a home loan but are inexperienced with finance brokers, attending your first appointment with a broker can be a nervous experience. Getting a home loan, after all, can be quite complex for a first-timer. There are lots of brokers around and there is a lot to learn so it pays off to be prepared.

A good starting point is to familiarise yourself with the expectations of the first appointment between brokers and yourself. Your broker is very likely to ask you about your medium and long-term financial goals, the amount you want to borrow, comparisons of your home loan options and your understanding of the fees, costs and conditions attached to home loans. Knowing the direction the appointment will likely take lets you participate more actively in the conversation. This means you can better articulate your needs to your broker.

It’s also recommended that you give some consideration before the meeting to the types of questions you wish to ask your broker. Questions that can be of use include such things as loan types (such as term, repayment options and interest rate types), the types of ongoing fees attached to various loans (such as early exit, late payment, break and redraw fees) and the typical timeframe for a loan settlement.

These questions might pop into your head spontaneously during the meeting but preparing them in advance is a good way to refine them. By doing so, you are in a position to get more specific information from your broker.

It is common practice, too, for your broker to conduct a needs assessment prior to your face-to-face appointment – so you may be asked some pre-appointment questions.  To assist in answering these, you’ll need to supply information about your employment history, assets and expenses.

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Buying a tenanted investment property

Buying a tenanted investment property

There are plenty of upsides to buying an investment property that already has a tenant, as well as a raft of risks. Here’s how to minimise them.

Steps you can take to minimise your risk:

Make sure the bond has been lodged properly. Your agent will arrange for the bond guarantee to be transferred into your name on settlement.Check the property condition report, making sure that it is a complete and accurate record of the property as you inspected it.Ensure there are no rental arrears. If there are, or if a landlord has agreed that rental arrears can be taken out of a bond payment, stipulate that this amount is deducted from the purchase settlement amount.Ask the leasing agent about the tenants and their payment record. You cannot demand that you meet the tenants, but attending the open house will give you a sense of how they live in the property. If possible, sight the tenants’ original application for the property and rental ledger.Look at the yield for rental properties in the area and compare them to yours. You won’t be able to increase the rent until the end of the lease.Be aware of any concessions or conditions that are either in the lease or have been agreed with the landlord or property manager, because these will become your responsibility. For example, does rent include electricity or other utilities? Has the landlord agreed to install a new oven or paint a room?

Of course, if you love a property but have doubts about the tenants, the lease or the managing agent, all is not lost. You can easily change the managing agent when you settle. You can also make vacant possession of the property a condition of settlement. You may need to wait until the lease expires to settle, but you aren’t taking on the previous owners’ problems and responsibilities.

If your only problem with a tenanted property is the rental yield, keep in mind that increasing rent on a good, long-term tenant may well drive them away anyway, so do your sums. Work out whether the amount you’d like to increase the rent by equates to more over the year than the lease fee plus any rent lost if your property is vacant for a few weeks.

Speak to CBM Mortgages today and they can help you finance your investment. <This email address is being protected from spambots. You need JavaScript enabled to view it.>

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How to maximise returns on an investment property

How to maximise returns on an investment property

When purchasing an investment property, there are a number of factors that could increase or reduce your potential return on investment. In this case it's not just location, location, location.

When considering a property for investment purposes, the most important question to ask is 'will it be attractive to tenants?'.  But how do you know what will appeal to someone you've never met? Settling on a handful of locations is a good start. “Young families and couples are the ones that drive capital growth and so a location that is within a reasonable distance to schools, entertainment, transport, and an employment hub is one to look out for,” says the finance broker. Other ideal factors are a low vacancy rate and relatively high rental yield.

Although location plays a major role, it's by no means the only defining factor. “There is a mistruth a lot of people subscribe to when selling investment properties, which is to disregard the quality because you don’t have to live in it,” advises the finance broker. “You have to buy a homeowner quality property, because someone has to live in it,” he says. “And when buying an investment property, you have to have an exit strategy, which will generally involve selling to homeowners as well as investors.”

To get the most value, you need to think about the demographic of renters who are likely to be living in the area. “You have to match the property with the area,” says the finance broker. “If you put a good quality, decent sized, one bedroom apartment in the inner city, it would be a great investment, however if you put it 30km out, it wouldn't garner as much interest.”

When investing in any kind of property, be wary of any danger signs. One of the biggest mistakes Australians make is not knowing what their cash flow is. “Bad cash flow is worse than paying too much for the property,” advises the finance broker. “It is vital to know how much your chosen property is going to cost after tax, every week after you settle. There’s no point in buying a top quality property if it’s going to send you broke.”

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Expert advice can lead to serious savings

Expert advice can lead to serious savings

 

Having a mortgage expert on your side can be the key to getting your finance over the line, and may save you thousands in interest and fees.

When Philip was offered the opportunity to purchase his mother’s property in Tasmania at a favourable price – just $180,000 for a house worth $350,000 – he wanted to take the opportunity to consolidate other debts. Using the equity available in his own property, he applied to refinance to cover both the debts and the favourable purchase, expecting to have all the loose ends tied up relatively quickly.

This was not the case. When Philip tired of waiting for the bank to sort out the valuation on the Tasmanian property and decide whether it would approve the loan, he visited an MFAA Approved Finance Broker.

“He said it was taking forever, so he came to see me,” says Philip’s finance broker.”

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Buying a house with HECS or HELP debt

Buying a house with HECS or HELP debt

 

Paying off your education is no reason to put off buying property.

You can remember it now: sitting in a chair at the back of the lecture theatre, chatting to your friends and ignoring the debt that each day at university was plunging you into.

But now you’re older and wiser, and reality has set in. You want to buy a property, but you’re unsure how your student HECS/HELP debt could impact your ability to take out a loan.

When you apply for a home loan, you’ll need to reveal information about your liabilities, poor credit ratings and any other debts you have. This is where your student debt can affect things.

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What's the best time of year to buy a house?

What's the best time of year to buy a house?

While spring is renowned as the time that sellers dust off their properties and place them on the market, this doesn’t mean it is necessarily the best time for buyers to go shopping.

One of the biggest issues with househunting in spring is the flood of other buyers looking to snag their dream homes, which increases competition and housing prices.

“There is typically a seasonal uplift in buyer numbers over the last quarter of the year, which means the benefits of a higher number of options to choose from are offset by a higher number of prospective buyers,” explains CoreLogic RP Data’s John Wright. 

“Buyers may be better off when there are fewer buyers around in the winter months, at least from the perspective of being able to negotiate hard on price.”

Although there is a lot more to look at during spring, there isn’t necessarily more to choose from, depending on your individual circumstances and finances.

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When was your last home loan health check?

When was your last home loan health check?

Circumstances can change, leaving your home loan less suitable than it was originally. A home loan health check can reveal if you’re paying too much or if there is a product better suited to your requirements.

What’s involved?

Your finance broker can do a full home loan health check for you either in person or over the phone. They will check if your loan is still competitive and still suited to your individual needs.

Having an expert do this for you can also take the stress out of the process for you. It is advisable to get this check done at least once a year, or whenever your circumstances change.

Questions to ask

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How to avoid paying Lender's Mortgage Insurance ("LMI")

How to avoid paying Lender's Mortgage Insurance ("LMI")

Lender’s mortgage insurance (LMI) is required in many instances when a loan is worth more than 80 per cent of a property’s purchase price, as well as in some other circumstances. In very basic terms, when a lender considers a loan to carry a high risk, LMI is likely payable. Here’s how you can avoid paying the costly premium.

Save for a higher deposit

The purpose of LMI is to protect lenders in case the borrower fails to make repayments and, when the loan-to-valuation ratio (LVR) exceeds 80 per cent, so the loan amount is more than 80 per cent of the value of the property being mortgaged, the risk of a lender not recouping their costs should the borrower default is increased. A higher deposit means a smaller loan amount, so will decrease the LVR and the perceived risk, and may be the key to avoiding paying LMI.

Get a guarantor

If you don’t have the financial capacity to meet a 20 per cent deposit but still want to avoid LMI, you do have the option of getting a guarantor on your loan. Normally a close relative, such as a parent, guarantors can use the equity in their property to help you secure yours. In some instances, having a guarantor on your loan may mean that you won’t need a deposit at all.

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10 Tips for increasing your borrowing capacity

10 Tips for increasing your borrowing capacity

Maximising the amount a lender will hand over to you isn’t about trying to take on unmanageable levels of debt. It’s a matter of taking a few simple but smart steps that could mean the difference between toiling in that ‘fixer-upper’ or owning your dream home.

Shop around for lenders

Different lenders define income in so many different ways that it pays to use a mortgage adviser who knows their way around what’s included and what’s not. One lender may allow share dividends as income, while another lender may not.

Shop around for the right mortgage

A good mortgage adviser will help you choose the most appropriate mortgage. Even with one lender, your borrowing capacity can vary due to the loan type that you choose. If you add features such as a line of credit this can reduce the amount you can borrow.

Update your financial records

Try to have your PAYG income tax return as up-to-date as possible. This gives a better historical view of your income than just the two most recent payslips.

Check your credit rating

Check your credit rating before applying for a mortgage. Due to changes to the Privacy Act from 12 March 2014, your rating may not be as healthy as you thought. The national credit reporting agencies are Veda, Dun &Bradstreet and Experian. Find out more here http://www.oaic.gov.au/privacy/privacy-topics/credit-and-finance/how-do-i-get-a-copy-of-my-credit-report

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5 Simple ways to increase loan repayments

5 Simple ways to increase loan repayments

Paying off a mortgage can seem relentless – every payment counts of course, but it can seem to be taking forever to make a dent. Here are some simple ways you can increase the amount you pay off and own your home sooner.

Reducing the principle on your mortgage as quickly as you can means paying less interest, so your future payments are going even further towards reducing that principle.

To find the ideal balance between the extra repayments you can afford to make and the time this will shave off your mortgage term, use a mortgage calculator <http://www.mortgageandfinancehelp.com.au/category/calculators>.

For example, on a $350,000 loan at six per cent interest, a monthly repayment of $2100 will see a total term of 30 years and a total cost of just over $750,000, while paying just $500 per month on top of that will bring the loan term down to just under 19 years and the total cost to just over $580,000.

Boosting these monthly payments by a further $400 to $3000 will see the loan paid off in less than 15 years – halving its term.

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Things to consider before Renovating

Things to consider before Renovating

The decision to renovate is a common sticking point for homeowners, who can spend hours weighing up the cost benefits. 

Whether your motivation is to add value to your property or to add a touch of your personality to the home, renovations are expensive and debt often follows.

By working with a mortgage broker you will be able to find solutions that benefit your long-term goal, rather than hindering future plans.

While CBM Mortgages can’t assist you with forecasts on future property values, we can help you reassess your current financial position, run through your plans and future payments, and decide if you can afford to take on more debt.

Laying the foundations

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How lenders assess applications

How lenders assess applications

Brokers can help connect you to the lender best suited to your mortgage needs by shopping around on your behalf.

In order to decide whether or not to provide you with a loan, lenders will generally assess you against five qualities.

Your ability to repay the loan. To establish your capacity the lender will look at your employment history and salary to evaluate whether you have enough cash coming in reliably to pay the loan over time.How much cash you have up front. Assessing your ability to put down a percentage of the value of the property being purchase up front is standard. The percentages vary though, while some specialist lenders may approve a five per cent deposit.The property appraisal price. Since the property is used as collateral if you are unable to repay the loan, the lender will value the property. Based on the report, the lender will decide whether the property is worth the loan being approved.Your financial history. Your credit rating, expenses and debts will help the lender assess your character as a borrower and whether you are worth the risk.Market conditions. Economic circumstances in the market can influence what interest rate you have access to and whether you need to provide extra security. They can also influence the repayment schedule.

 The Finance Broker Advantage

While loan officers work solely for a lending institution and can only offer that institutions products, an MFAA Approved Finance Broker is able to shop around for you.

Finance Brokers are paid commissions by lenders to match borrowers to the right products, and can negotiate the lowest rate on your behalf, which is why half of borrowers today turn to finance brokers when it comes to finding a home loan.

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Why it is important to have access to many banks

Why it is important to have access to many banks

 

When experienced property investor Mark Baker agreed to buy a block of land, he didn’t expect the land’s mining-town location to make it difficult to secure finance. After failing to find a lender who could help him, he visited a finance broker who found just the right mortgage for his needs.

Mark Baker, an experienced property investor and engineer who works in mining, agreed to buy a block of land in a mining town with conditional approval for finance directly with a lender. However, when it came time to settle 18 months later, the pre-approval had expired and the lender had changed its policy for mortgages in mining towns, leaving Mark with a looming settlement date and no finance.

Mark applied directly to a wide range of other lenders, but kept facing the same problem. In a bind, he visited an MFAA Approved finance broker just 10 days before settlement.

“The rental return is crazy in the area, around 15 to 20 per cent. But the risk is higher,” Mark’s credit adviser says. “So most lenders have restrictions in mining towns and cap mortgages at a 60, 70 or 80 per cent loan-to-value ratio (LVR). No one was willing to finance 90 per cent of the property value, which is what he needed. By the time he came to me, he had a very ugly looking credit file and not many options left.”

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How to save a deposit: house-sitting

How to save a deposit: house-sitting

One of the toughest parts of realising the dream of owning a home is saving for a deposit. The options seem pretty dismal – subsisting on a diet of beans on toast, never socialising, moving back in with the parents – and are almost enough to prompt a commitment to a life of renting. Of course, you may not have all the comforts of home, but house-sitting can even mean seeing a bit of the world while saving a deposit.

To help the savings grow without resorting to these options, many people house-sit while squirrelling away funds.

David and Ellen, a couple in their mid-20s, have saved almost $25,000 they would have used on bills and rent by house-sitting. It was an especially good financial decision when they were living on a single wage, with David working at the local bike shop as Ellen finished her final year at university.

Before they started house-sitting, David and Ellen were renting a small apartment in Mosman, NSW, and they estimate they have saved $22,000 in rent and approximately $2000 in bills by house-sitting.

Of course, it is much easier if you have flexibility in where you live and for how long, but the real key is an ambition to save.

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Refinancing traps you need to avoid

Refinancing traps you need to avoid

Whether you’re after lower repayments or want to tap into the equity sitting in your home, refinancing can offer a world of benefits. Here are some things to be aware of so that you don’t find yourself hooked into a bad deal.

Honeymoon rates are just thatDon’t be lured by offers with discounted introductory rates unless you’ve calculated the savings over the life of the loan. While a loan with a discounted interest rate seems a tempting offer, it’s only temporary. Once the introductory period is over, the interest will revert to a higher standard variable for the rest of the loan term. It may be more beneficial financially to negotiate a lower interest rate without an introductory discount.

Don’t be fooled by the interest rateFinding a lower interest rate doesn’t necessarily mean you’ve scored yourself a better deal. In fact, a product with more features may cost you a bit more in fees or interest, but could save you more in the long run. Including features such as an offset account will prove valuable as it will allow you to make larger repayments or put any extra cash against the loan. Products without this feature may charge a fee for early repayments.

Be aware of the feesOne of the main purposes of refinancing is to lighten the financial burden, however, that doesn’t mean that it’s not going to cost you. There are many fees involved, which may include discharge and application fees, a valuation fee, land registration fee, and mortgage insurance. You may also be subject to stamp duty depending on what state your property is located in. While these cannot be avoided, you have to ensure that the costs involved are not higher than the savings, to make the process worthwhile.

While there are traps to avoid, a little expertise can take the stress out of refinancing to save you thousands, fund that renovation, or simply find a loan that suits your life a little better. Contact us!

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Exit costs when refinancing

Exit costs when refinancing

Refinancing either a home or business can be a great way to save money if you believe you are paying too much for your loan, but there is more to it than just finding a loan with a lower interest rate and making the change. Before making the switch, ensure the savings you could make outweigh the fees involved.

Here are the different exit costs to consider:

Establishment feeAlso known as ‘application’, ‘up-front’ or ‘set-up’ fees, these cover the lender’s cost of preparing the necessary documents for your new home loan. They are payable on most new loans, and the alternative to not paying this particular fee is being charged higher ongoing fees for the life of the loan.

Mortgage discharge feeCovering your early legal release from all mortgage obligations, this fee is not to be confused with an exit fee. Also known as a ‘settlement’ or ‘termination’ fee, its purpose is to compensate your lender for the revenue it may lose due to the contract break.

Exit feeAlthough loans taken out after 1 July 2011 are not subject to deferred establishment, or exit, fees, those taken out prior may still be. Also known as ‘early termination’ or ‘early discharge’ fees, they can sometimes be paid by your new lender but are normally applied to an early contract exit.

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How to negotiate with your property price

How to negotiate with your property price

Negotiating the best property price isn't a matter of swindling a seller. It’s about doing your homework, knowing what you want, knowing the market and making sensible offers.

When you are buying property, getting the best price can mean the difference between being able to afford it and having to settle for second best. And, of course, a purchaser is often negotiating with a seasoned professional, so any time spent brushing up on negotiating skills is well spent.

But we’re getting ahead of ourselves. For a first-class property price negotiation, the homework starts well before you even let the agent know you are interested.

The first thing to do is get a good understanding of your requirements and circumstances. Aside from the location and type of house you are looking for, this understanding involves finance, of course. 

Aside from meaning that when you do eventually make an offer it will be taken seriously by the seller or their agent, having finance sorted out means that you can be sure of what your stamp duty and associated costs are, and exactly what price range you can consider.

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Explainer: fixed-rate loans

Explainer: fixed-rate loans

When purchasing a property, borrowers can decide between fixed-interest loans that maintain the same interest rate over a specific period of time, or variable-rate loans that charge interest according to market rate fluctuations.

Fixed-rate loans usually come with a few provisos: borrowers may be restricted to maximum payments during the fixed term and can face hefty break fees for paying off the loan early.

 With interest rates at an all-time low, taking the option of locking in an interest rate on your home loan to guard against possible future fluctuation may be attractive. However, it pays to know the ins and outs of fixed-rate loans before committing to one.

However, locking in the interest rate on your home loan can offer stability.

“For those conscious of a budget and who want to take a medium-to-long term position on a fixed rate, they can protect themselves from the volatility of potential rate movement,” the finance broker says.

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Can your profession save you on your home loan?

Can your profession save you on your home loan?

When it comes to saving on your mortgage, some of you may not have to look further than your job. If yours is a profession that classifies you as a ‘low risk’ borrower in the eyes of lenders, then you may be entitled to special discounts.

Doctors take the cakeLenders have their own target lists of professions, but doctors are the big winners. “They'll get waived LMI, lower interest rates and, in many cases, banks will even go outside of their normal policy to get their loans approved,” says the finance broker. “However, not all medical professionals, such as psychiatrists, chiropractors, vets and pharmacists, are accepted by all lenders so it’s always advisable to confirm.”

The lucky onesAccountants, lawyers and teachers are commonly eligible for home loan discounts, or particular loan types without fees, based on their professions. “The benefits differ depending on specific professions,” finance broker explains. “It depends on what industry the lenders decide to target as it’s a constantly changing situation, so what’s here today may not be around tomorrow.”

How the perks work

Simply being in a certain profession won’t automatically save you on your home loan. To qualify you must apply with a lender that offers your profession a special discount and meet that lender’s criteria. You’ll often need to provide evidence of membership of a certain industry.

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