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How to find the right lender for you

How to find the right lender for you

Every client has different requirements and circumstances - a mortgage broker can help you find the perfect match 

When Craig from CBM Mortgages met with husband and wife duo, Amanda and Mark, he was told that their vendor had requested them to waive their right to a cooling-off period.

“While Amanda and Mark had pre-approval with one of the major banks, they didn’t have formal approval, and this could only be effected after contracts were exchanged,” Craig explains. Unfortunately, their lender wouldn’t issue formal approval without conducting a property valuation first, and to do this, the lender required an exchanged contract of sale. It was a catch-22 situation.

While Amanda and Mark still had the traditional six-week settlement period to organise formal approval, they didn’t want to exchange contracts. If the bank decided at the 11th hour not to approve their loan, Melissa and Andrew ran the risk of losing their 10 per cent deposit.

They explained their situation to their lender, but the bank did not want to budge on its policy.

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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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Stamp Duty explained

Stamp Duty explained

Stamp duty is a charge which is applied by state governments in Australia  on transactions relating to the transfer of land or property. It is paid upfront and needs to be budgeted for in addition to your loan deposit.

The amount of stamp duty you are required to pay differs in each state, however there are three factors, along with the value of the property, that determine how much stamp duty you will pay. Contributing factors include:

whether or not the property is a primary residence or investment property;whether or not you are a first home buyer; andif you are purchasing an established home, a new home or vacant land.

There are a number of stamp duty calculators available online (including one here on cbmmortgages.com) that take the guesswork out of budgeting for a property. Factoring in this additional cost cannot be overlooked when you are considering your capacity to repay a loan.

However, in a bid by state governments to stimulate home ownership and growth, there are a range of tax concessions available to reduce stamp duty.

Again exact amounts differ across each state, but those who benefit the most are first home buyers and those opting to buy a new home.

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SMSF Loans

SMSF Loans

Sabrina was quite financially savvy. She managed her own super fund, and had approached her bank for a loan to purchase a property through it. Thinking the finance was sorted out, she made an offer.

The bank, which didn’t specialise in SMSF lending, had approved the loan in Sabrina’s personal name. Unfortunately, the property was being purchased by the super fund and the borrowing entity needed to correspond with that – not be under her own name.

After 12 months working towards a loan and to iron out the details, and six weeks before the property purchase was ready for completion and settlement, Sabrina was told that the bank couldn’t actually assist with SMSF loans as this was not a type of finance they offered.

Sabrina’s settlement agent recommended that she consult a finance broker who specialised in SMSF lending. At their first meeting, the MFAA accredited broker presented her with a handful of lenders who were able to assist with SMSF loans.

“I was upfront from the beginning, outlining the various fees, costs, pros and cons of each lender, and their available SMSF product,” the broker explained. “Having enrolled in the MFAA SMSF Specialist Course and having SMSF loan experience of more than four years, I was able to help my client with this very specialised loan transaction.”

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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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Vacant Land Loans

Vacant Land Loans

Whether you are buying land for an immediate build, as an investment or for a ‘one day I will build and live here’ dream, a vacant-land purchase can be financed by a range of mortgages.

If you are planning to build immediately, or at least fairly soon, a construction loan might be the best option. Most lenders demand that building on a construction loan must start within a specified time, usually between one and three years, depending on which lender you use and whether the property will be owner-occupied or investment.

This mortgage type allows you to draw down segments of the loan amount in stages as they are needed – for the land purchase and then for the stages of construction – which saves you paying interest on the entire loan amount when you don’t need to be.

If you don’t plan to build immediately, and you want the loan for the land without any time pressures, a vacant land loan may be the best option.

While regular mortgage types can be used for the purchase of vacant land, most lenders also offer vacant land loans. Most will go up to a 30-year loan term and finance up to 90 per cent of the land’s value, and some go as high as 97 per cent loan-to-valuation ratio (LVR). Lenders’ mortgage insurance (LMI) would still most likely be payable on any LVR higher than 80 or 85 per cent, depending on the lender.

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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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Comparison rates explained

Comparison rates explained

Comparing apples with oranges doesn’t make sense. To make finding the right loan easier, and to make advertised rates as transparent as possible, we have comparison rates.

You’re looking for the best mortgage deal and you see an ad. It shouts ‘3.6% INTEREST!’ and, underneath that seemingly too-good-to-be-true rate, ‘7.8% comparison rate’. What does this mean?

“Because a comparison rate includes all of the fees and charges that can be applied to a home loan, it helps to show customers what the true cost of a loan is. In some instances, lenders offering the lowest rate may not actually boast the cheapest loan, which is what a comparison rate shows,” explains Mortgage Choice Head of Corporate Affairs, Jessica Darnbrough.

“In 2003, an amendment was made to the Uniform Consumer Credit Code (UCCC) that required comparison rates to be included in advertising. This change was made so that customers were not easily misled when it came to home loan interest rates.” The UCCC has since been replaced by the National Credit Code and the comparison rate requirement remains.

This allows consumers to compare apples with apples, to an extent. It does make it much simpler to hold two loan products side by side and, regardless of whether one has a slightly higher interest rate and no fees while the other is a super-low interest rate with high fees, see at a glance which one is the better deal financially.

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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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What counts as genuine savings in a loan application?

What counts as genuine savings in a loan application?

If you apply for a home loan, particularly if the loan is for more than 80 per cent of a property’s value, you’ll more than likely have to prove to lenders that you have a satisfactory amount of savings. This is to demonstrate your ability to funnel a portion of your income into repayments.

Although it can differ, in most cases lenders generally look for consistent additions to savings over a period of at least three months and preferably a year or more. This means that the following are not considered genuine savings:● a cash gift● an inheritance● casino/other gambling winnings● proceeds of the sale of a non-investment asset ● government grants and other finance offered as incentives

Can I still get a loan without genuine savings?For those who don’t have any genuine savings but still want to obtain finance, there are options, these include:● Guarantor loans - Having a guarantor on your loan may mean that no deposit is required, with the equity or asset the guarantor stakes standing in for a deposit.● Other significant assets such as shares, managed funds and/or equity in residential property - Depending on your chosen lender, cash isn’t the only thing accepted as genuine savings. There are even situations where the sale of a vehicle can be considered as genuine savings if proved that it was owned for three months or more.● A strong rental record may see a lender allow you to forgo the genuine savings route - Some lenders will waive the requirements if a letter can be produced from a licensed real estate agent confirming that rent has been paid on time and in full for the preceding 12 months, as it highlights your ability to make repayments on time and on an ongoing basis.

“I regularly write loans for customers who do not have genuine savings using the aforementioned policy exceptions,” said the finance broker. “It’s just a matter of looking at their full situation and knowing which lender is going to have the policies to suit what you’re trying to achieve. This knowledge can only be achieved through experience and keeping in constant communication with lenders to know what their policy niches are.”Contact us today!

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Small business finance without the bank

Small business finance without the bank

It can be difficult to make a case to a bank when looking for finance to start a new business or invest in the growth of an existing one. The good news is that applying for commercial finance through a bank is far from the only option.

Personal loans

A relatively young enterprise that doesn’t have a track record of success may not be looked upon favourably by banks, which make lending decisions based on risk. A lack of documented history doesn’t aid a business loan application, so for those who still want to go through the bank they use for transaction accounts, a personal loan could be the way to go.

The downside may be slightly higher interest rates and lower loan amounts, but a personal loan can provide a good buffer for start-ups and application is relatively easy.

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Bridging loan or deposit bond?

Bridging loan or deposit bond?

When selling one property and purchasing another, the funds from the sale may not be available in time to use for the purchase deposit. There are typically two options in this scenario: a bridging loan and a deposit bond.

Bridging loan

A bridging loan is a shortterm home loan designed to allow you to initiate the purchase of a property before you have sold your previous one.

Loan terms are often between six and 12 months and bridging loans generally have a higher interest rate than traditional home loans.

This can be a great option but carries some risk. It’s important to know that you will be able to make the repayments even in a worst case scenario where your old house doesn’t sell as quickly as you’d hoped or where property values may change unexpectedly.

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Why property investors need savings

Why property investors need savings

Urgent maintenance is an unavoidable aspect of being a landlord, so having a cash buffer set aside will help you deal with any unexpected problems.

When renting out an investment property, having access to extra cash is vital for two reasons: ● to cover the costs of maintaining the property, giving it the best chance of remaining tenanted; and● to cover the cost of the mortgage should you lose your employment or rental income

“A buffer ensures that you are not stretched to your financial limits, but rather comfortable while on your investment journey,” advises a finance broker.

Ideally, your buffer would sit in an offset account against your mortgage, so that you have immediate access to the money while at the same time reducing the principal, and therefore the total interest payable on, your loan.

“Before calculating a buffer, I ensure my clients have a budget and savings plan in place that identifies their accurate living expenses and ability to save,” the broker says. “I would personally recommend a buffer of three to six months’ worth of loan repayments and living expenses.”

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Top ways to increase your savings and cut your expenses

Top ways to increase your savings and cut your expenses

Is the key to saving a home deposit as simple as giving up smashed avo toast for breakfast? Well not quite, but spending less does make a difference.

On top of a budget, a savings plan and strategies such as a high-interest savings account, an effective way to save is to reduce or eliminate expenses.

Start by understanding your spend

It can be easy to lose track of how you’re spending money, especially due to cashless payments and credit cards.

Find savings in the essentials

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