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Is a family guarantee right for you?

Is a family guarantee right for you?

Entering the property market is no easy feat for a first homebuyer, but even parents who aren’t prepared to hand over cash for a deposit may help by being a guarantor on a loan. Before taking the plunge however, it’s crucial to be aware of the implications involved. Here are three questions to ask yourself to see if a family guarantee is right for you:

1. Am I financially fit to be a guarantor?

The very first thing you should be certain of is whether or not you are in a financially capable position to pay off the loan if the borrower finds that they can no longer do so. There can be many disruptions to an income, such as loss of employment or a serious accident, and some types of guarantor loans hold the guarantor legally accountable to ensure the mortgage is paid off.

“You need to be in a strong financial position and have enough equity in your property to be a guarantor,” says a finance broker. “Some banks even want to make sure that the guarantor can service the full debt as well, so it’s always advisable to get independent legal or financial advice if you’re considering it.”

 2. Do the benefits outweigh the risks?

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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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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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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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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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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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Do You Need a Financial Planner or a Finance Broker ?

Do You Need a Financial Planner or a Finance Broker ?

When taking the plunge into the world of home loans and property investment, the challenge often lies in knowing which expert to approach for help. Brokers and financial planners, although similar in their professional outlook, cater to different financial endeavours.

Brokers that deal in home loans must be qualified and licensed loan advisers with in-depth knowledge of home loans and options suitable for a range of different financial situations. They negotiate with lenders to arrange loans and help manage the process through to settlement.

 “When it comes to talking about a client’s debt structure or interest rates, or the best way to set up a loan, it’s really something that needs to be done by a mortgage broker who is qualified to give credit advice,” says the finance broker.

In contrast, financial planners assist with anticipating and managing longstanding financial outlook. They help sort through and select options for investment and insurance, with attention paid to retirement planning, estate planning and investment analysis.

“Financial planners take care of more of the long-term, wealth-creation strategy, as well as super and life insurance, and other sorts of wealth protection insurances,” the broker says.

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How to Keep your Loan Application on Track?

How to Keep your Loan Application on Track?

Other than the obvious documentation that needs to accompany an application, satisfactory identification and evidence of income by way of pay slips, many lenders will expect to see a reference from your employer, group certificates or tax returns, and records of any investments or shares that you might have.

For the best possible chance of getting the loan that suits your circumstances, you need to tick all the boxes. If an application is not completed correctly, you risk delays in approval, or even being declined by potential lenders.

If you are self-employed, you will need to organise alternative documentation to prove income, such as financial statements relating to the profit and loss of your business going back two years.

Lenders will also want to see bank statements going back a few months in order to track your spending and savings history. Most importantly, you will need to provide the details of your debts.

You must include documents that outline debts, personal loans, credit card liabilities and any expenses relating to dependants. If you don’t disclose this information, your loan will very likely be declined.

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Who are the different parties involved in purchasing property?

Who are the different parties involved in purchasing property?

Purchasing a property is a thrilling yet nerve-wracking experience, which is why it can be handy to surround yourself with a network of support and expertise. Here are the different parties who may be involved in your home-buying process and how you can use this valuable knowledge base to answer your questions.

Real estate agentUnless you’re working with a private vendor, meeting a real estate agent is inevitable when it comes to purchasing a property. Hired by the vendor, or seller, their role is to market and communicate about the property, advise on preparing it for sale and negotiate with potential buyers.

Insurance companiesRisk management is vital in such a high-value purchase and long-term financial commitment. Insurance, including mortgage protection and property insurance, will help you avoid being hit with a major financial burden should anything not go according to plan. Many finance brokers can deal with insurance as well or will recommend an insurance broker who can. Finance brokerBrokers act as a liaison between you and the lender. They will find out about your finances and your property goals, and search for and negotiate a loan product that matches your needs. Not only will they do the legwork and ensure your loan is processed as smoothly as possible, but they are there to guide you throughout the entire process. LendersIf you need money to make your purchase, you will need a lender, whether it’s a major bank, a second-tier or non-major, or a specialist lender for more difficult funding proposals.

ConveyancerThe legal aspect of a property purchase is taken care by a licensed and qualified conveyancer. If they are a solicitor, they can also provide legal advice. Their role is to prepare the documents to ensure that transfer of ownership of the property has met the legal requirements in your state or territory.

ValuerKnowing the value of a property is a vital factor in a loan application, so a valuer can play a huge role in the home-buying process. A lender will often engage an impartial valuer to ensure that the buyer and the lender will know what loan amount may be warranted. The value is based on the property and location, as well as the current market.

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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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Case study: How to avoid settlement penalties

Case study: How to avoid settlement penalties

Connie Wilson was well on her way to becoming a first-home owner when issues cropped up prior to settlement that threatened to cost him her deposit.

Having found the house she wanted to buy and exchanged contracts for sale, Connie found herself considering a costly settlement extension due to unexpected problems with her deposit.

While she had thought that having a deposit sitting on her account would make the process simple, Connie had not realised that she needed to have the funds in her account for a minimum of three months before a lender would consider them genuine savings.

Her deposit, a gift from her parents, was due to reach the three-month milestone only nine days before settlement. Certain that she would need to apply for an extension, Connie spoke to an accredited finance broker to see how she should go about it.“She had wanted to request a two-week extension on settlement, but I told him not to get the extension,” broker says, “it would have involved substantial penalty interest”.

Rather than having Connie foot a $400 per day bill for an extension, the broker jumped into organising a loan, using the strong relationships and knowledge gained over a decade in the industry to hurry the processes along.“What I did was look at the different panels and the different policies, I called the BDMs and sent detailed scenarios to three lenders so that there were a few options in case one didn’t work out,” the broker explains.

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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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Explainer: interest-only loans

Explainer: interest-only loans

Borrowing to buy a property and repaying only the interest for a set period can be a great choice for some, beause interest-only loans can offer the right candidate financial flexibility while they invest. There are, however, some very important risks to take into consideration.

With interest rates at historical lows, interest-only loans may sound more appealing than ever because they offer the opportunity to enter the property market with lower repayments. In saying that, care must be taken, because interest-only loan repayments do not pay down the actual purchase price of the property or reflect a realistic repayment on a standard mortgage.

 “If you’re only repaying the interest on a loan, you’re not building up the equity on your home during that period.”

For an interest-only loan to be part of an effective property investment plan, borrowers must be comfortable that a property’s value will increase substantially. If the value doesn’t increase by more than the interest paid, they may end up losing out on the equity front.

Eventually, interest rates will rise again as the market ebbs and flows and, once a loan reverts to principal-and-interest repayments, borrowers who are unprepared may find themselves in a financial struggle.

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How a guarantor can help you secure finance

How a guarantor can help you secure finance

When you’re desperately trying to save up a deposit for a home and just see the prices of property climbing and climbing, it’s difficult to remain patient. But there is another way: a guarantor can help.

If you don’t have a substantial deposit for a home loan, there are still a number of ways to obtain credit. These are known as family pledges and there are two types available to borrowers: service guarantees and security guarantees.

"Service guarantees are less common that security guarantees" explains finance broker. They involve a family member guaranteeing all of the repayments on a loan, as well as being named on the property title.

A drawback of this approach is that it usually means first home buyers are not entitled to any government grants. A more popular option is a security guarantee. Borrowers who have a limited deposit often use this approach. In this situation, a relative or friend (usually a borrower’s parent or parents) is prepared to use the equity in his or her own home to guarantee the deposit of the borrower.

For example, for a total loan amount of $600,000, in a security guarantor situation the borrower/s would take on the debt of 80 per cent of the value of their loan, which would be $480,000, in their own name/s.

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Explainer: income protection insurance

Explainer: income protection insurance

How would you pay your mortgage if you were unable to work?

Insurance for something you can’t see or touch, such as your income, may seem strange. When considering insurance, it’s common for people to pass it off as a pesky added fee involved in owning a car, running a business or protecting a house against damage. Income insurance, on first glance, can seem like another costly precaution that’s unlikely to prove useful.

But when you think about how your income facilitates your lifestyle, it’s often at the top of the list in regards to things that you can’t afford to lose. Cars and houses can be replaced, but losing an income, perhaps for life, could see both lost.

Income protection insurance covers salary loss due to injury or sickness. Unlike workers compensation, it applies to injury or sickness at any place or time. And, unlike government allowances, it pays in accordance to your earning capacity.

“If someone is injured under worker’s compensation, for the first few weeks they receive a higher rate, but then it drops. Therefore, people’s standard way of living is sacrificed if they depend on this form of protection,” says the finance broker.

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Small business finance without the bank

Small business finance without the bank

It can still 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 loansA 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.

Private funding Private funding is when individuals lend generally through a trust account. While it can be a little more costly than the average business loan, it carries the advantage of flexibility.

“If it’s a ridiculously difficult deal to put together, with no banks wanting to touch it due to not having the appropriate documentation or being outside LVRs” says the finance broker. “In saying that, however, I would strongly recommend speaking with a broker who has experience in private lending because, as a consumer, you’re kind of flying blind and you need to know that they’re going to be trustworthy.”

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How to refinance to renovate?

How to refinance to renovate?

Refinancing your assets to renovate a property is a significant decision that will hopefully improve your standard of living or add substantial value to your property. It isn’t as straightforward as you might expect. The type of renovation proposed goes a long way to dictating the loan required. If the wrong loan is chosen, you could be left with a pile of unexpected debt.

Know your budget

Before considering refinancing, you need to have a clear idea of your budget.

If you underestimate your budget, you run the risk of getting knocked back from your lender, according to finance broker.

“I know a lot of homeowners who have estimated a budget of say $100,000 to do renovations, only to discover it will cost a lot more,” the broker says

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How to pay off your home loan faster and save big bucks

How to pay off your home loan faster and save big bucks

Reducing the life of your loan isn’t difficult; there are many simple things you can do to cut years off your mortgage. Here are some tips that will help you be mortgage-free sooner than planned.

Make sure you have the right type of loan

Ensuring your loan allows extra repayments without penalty will let you to make the most of bonuses or funnel small extra payments to reduce the loan principle more quickly, saving on interest immediately, while an offset account will use your savings or living expenses to reduce your principle, while still allowing you to access these funds from a transaction account.

Small extra repayments

One of the most obvious ways to pay off your home loan quicker is to make extra repayments. Depositing lump sums, such as a tax return or work bonus, will always be beneficial, however it doesn’t always take large amounts or windfalls to make a substantial difference – planning for regular, small cash injections can have a great impact over the life of a loan.

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How to choose the right business loan

How to choose the right business loan

From time to time, a business needs a cash injection. With so many lenders offering a dizzying array of products, it can be difficult to know what to choose.

There are plenty of different types of business finance, but before diving in and applying, it’s important to understand your requirements first, so that a loan can be matched to your needs, and so that you can potentially avoid the problem in the future.

“Do your homework first, because if you don’t, you’re going to buy the wrong product,” says the finance broker. “There are hundreds of ways of getting the money, but you’ve got to match those with the purpose.”

The consequences of choosing the wrong finance product include paying too much for finance, or ending up with a loan that simply isn’t fit for the purpose – in this case it may make a problem worse, rather than solving it.

“It comes down to finding out what your real issue is,” says the finance broker. Work out how long it will take to repay the amount you need to borrow, whether the repayments will impact the business, what has caused the shortfall and whether you need to take any other action.

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How to speed up your home loan approval

How to speed up your home loan approval

Asking how long it takes to get a loan approved is like asking how long a piece of string is. Every application is unique, so the time between your first contact with your bank or broker and approval can never be predetermined. There are, however, some things you can do to help hurry your application along.

Although very rare, same-day loan approvals are possible depending on the lender’s criteria, the complexity of the deal and turnaround time. “In my experience, this has been possible when the client’s lending position is fairly straightforward in terms of employment, asset and liability position,” says finance broker. “Also, if a valuation wasn’t required due to a low LVR and both parties were happy with the contract price.”

If you’re not prepared, it could take up to a month. The most common reason for a delay is a lender’s turnaround time to assessment, especially when some lenders have competitive offerings and experience larger application volumes, but a lack of preparation can cause this delay to snowball. “When there are such delays and then a lender must organise a valuation or request further information, this can lead to a lengthy process time,” the broker says.

A good finance broker will help you take all the necessary steps to ensure fast home loan approval, but there are simple ways you can help hurry the process along before your first meeting with your broker.

Disclose all informationTo avoid back and forth requests, which can delay your application, ensure your lender has a thorough understanding of you as an applicant including appropriate identification of all borrowers. Provide all the supporting and necessary documents upfront to your broker, and convey as much detail as possible in relation to your requirements and objectives and have good, current information on your financial position. The broker will need to not only have your full financial details but will also need to take reasonable steps to verify it.Skip the valuation queue

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