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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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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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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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Rentvesting - enter the property market without sacrificing your current lifestyle

Rentvesting - enter the property market without sacrificing your current lifestyle

Rentvesting’ is the term coined for when you purchase a property for investment purposes in an affordable location and continue to live and rent in the area of your choice. An example of how the market is evolving, it is a wealth creation strategy that is popular among the younger generation due to the flexibility it offers in comparison to being an owner-occupier.

For this strategy to work, you’ve got to be a good saver and there needs to be a focus on delayed gratification, advises the broker. “It’s all about living within your means. Don’t spend big at the start while you’re building it up. Step away from the mentality of negative gearing and tax minimisation and buy neutrally, or ideally, a positively geared property as this provides higher rental yields.”

As property prices continue to rise, purchasing in a centrally-located or sought-after area is out of reach for the average working millennial. Instead, many are opting to rent rather than buy as it means not having to compromise their inner city or beachside lifestyle. But for those who are still eager to enter the market, there is a way to get the best of both worlds.

“Millennials aren’t interested in purchasing a property in the outer suburbs and then having to commute into the CBD,” says finance broker. “Rentvesting allows your rental income to cover the mortgage expenses, so you can keep living the lifestyle you want without it costing you any money.”

A recent Mortgage Choice survey highlighted an increase in ‘rentvesting’ from 21 per cent of investors to 37 per cent over the past twelve months alone. But while this strategy may appear ideal to many, it’s not suited to everybody.

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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 cost of the mortgage should you lose your employment or rental income; and

●          to cover the costs of maintaining the property, giving it the best chance of remaining tenanted

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.

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How to select a business loan

How to select a business loan

There are different types of business loans to suit different stages of a business lifecycle and different business needs, and selecting the right one can speed up the application process and minimise costs.

Finance for a start-upFor a start-up company with no trading business or cash flow, it can be quite difficult to secure a business loan. An alternative is to take out an investment loan against the equity of your home or property.

“A lot of the banks don’t have much of an appetite for start-ups, so an investment loan would be a good alternative for anyone wanting to fund a new venture,” advises the finance broker. “It provides flexibility and you’re more likely to secure approval.”

Finance for quick cash flow Similar to a line of credit, a business overdraft can be drawn down to a certain limit, but is specifically a commercial loan that is priced accordingly - and more favourably for the business. A great option for those unspecified cash flow requirements that go with owning a business, it provides the flexibility of accessing funds without much prescription.

“There are a lot of unknowns that arise in business that even the best business plans can’t cater for,” says the finance broker. “This type of financing takes care of those unforeseen things.”

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How to pay off your mortgage faster

How to pay off your mortgage faster

When was the last time you looked closely at your loan, the progress you are making on paying it off and how it compares to others in the market? Analysing your mortgage could mean savings for you, as well as the opportunity to pay it off more quickly, invest in other assets or reach financial freedom sooner.

Make smaller payments, more oftenTo cut the size of your payments, make more of them. This could even see you pay off your loan faster, and therefore pay less interest overall. If you pay your mortgage monthly, consider changing to fortnightly repayments. For example, if your mortgage equates to $2400 a month, cut this in half and pay $1200 each fortnight. As well as having more manageable payments to make, by the end of the year you will have paid off $31,200 rather than $28,800.

Pay just a little bit extraA minimum repayment is just that – for most loans there is no reason you can’t pay more, whether here and there or regularly. By rounding up to a full number or contributing an extra $100 or even $10, you’ll significantly reduce your mortgage. It may also be worth considering putting all bonuses, tax returns and gifts into your mortgage.

Don't decrease repayments when interest rates fallEven if your repayments are lowered when fees and interest rates decrease, it doesn’t mean that’s all you have to pay and, by keeping your repayments at the same level when interest rates are lower, you will pay down more of the principle with each payment and make speedy progress on your loan.

Offset itIf you can, use an offset account. A mortgage offset account is linked to your loan and the interest payable on the loan from month to month is calculated by deducting what is in your offset account from your current loan. For example, if your mortgage is $500,000 and your offset account has $10,000 in it, you will only pay interest on the remaining $490,000. An offset account will save interest while still giving you access to your savings. It also means investors can preserve the tax deductibility of the mortgage.

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When Would I Refinance My Mortgage?

When Would I Refinance My Mortgage?

Whenever it makes financial sense to do so.

Heard about mortgage refinancing? In the past, most people who took out a mortgage doggedly continued with it until they had paid it off. These days, people refinance their mortgage much more frequently. The average duration of a home loan in Australia now is just 4-5 years. Here we look at some of the reasons people in Australia refinance their home loan.

Mortgage refinancing reasons: lower rate

The most common reason for people to refinance their mortgage is to get a better deal. But be careful you don’t become interest rate-fixated. When you refinance your home loan, you need to consider fees and charges as well as the interest rate. You often have to pay charges for exiting your current home loan, plus charges for taking out the new mortgage. You need to be sure that in refinancing your home loan that you’ll be better off in the long run after taking into account all costs.

Mortgage refinancing reasons: more flexibility

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Financing a Very Small Property

Financing a Very Small Property

Marie Owens, having purchased a 36 square metre apartment seven years ago, was recently ready to upgrade and visited her finance broker. To pay the deposit and related expenses on the new, larger property, she needed to release equity in her current apartment.

“She wanted to keep the one-bedroom unit as an investment property for tax purposes, to reduce the marginal tax she pays,” says her finance broker. “We needed to release some equity in the current unit, which will be used as a deposit to purchase her next home.”

When Marie initially bought the unit, she could borrow up to 80 per cent of the value of a 36 square metre property. But her lender changed its policy, and will now only finance up to 60 per cent of the value of any property that is under 40 square metres.

“Since the things have got a lot tighter,” explains her finance broker. After extensive research, he could find only one lender who would finance a property of that size at an 80 per cent loan to valuation ratio (LVR).

“I used an accredited mortgage finance broker group to ask my peers, and I found one lender who would work with 80 per cent LVR on the small property. I usually like to put forward three lenders and products, but there was only one this time,” says Marie’s finance broker. “The application’s been lodged and it’s all underway, so we’re going to release the equity from her unit now.”

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An expert solution to credit debt

An expert solution to credit debt

Diana and Paul put everything they had on the line to start a family, including their credit and home loan. With the expert advice of a finance broker they were able to start fresh for their baby girl.

Diana and Paul had professional careers and a new home, but needed help from a fertility clinic to make their family complete. The expensive treatments delivered a beautiful baby to the couple, but their credit was suffering as a result.

They were living off credit cards, nearly $70,000 in debt and spiralling as they took out new cards to bring others into the black. Paul had been to nearly all the local banks and none were able to offer a viable solution.

It was then Paul met with their expert Finance Broker, who rolled up his sleeves to see what he could do.

“We worked out that Diana and Paul were paying above and beyond what was necessary on their home loan, and so we decided to switch the repayments to interest-only while they focused on getting their credit card debt in line,” the finance broker explains.

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Steps to Buying an Investment Property

Steps to Buying an Investment Property

Step 1: Speak to an expert Finance Broker

When considering an investment property, your first port of call should be your finance broker.  An expert finance broker can help you achieve your investment property goals.  They will review your assets and liabilities to determine how much you can borrow, which will, in turn, give you a general idea of your target price range, so you can narrow your property search within your purchase budget.

Step 2: Budgeting

Just like buying your first home, when purchasing an investment property, it’s essential to budget.  If you’re unsure of the best way to budget for an investment property, speak with your mortgage finance broker, they can help you to get on the right path. Step 3: Important conversations

Your mortgage finance broker will discuss your plans and your circumstances with you to determine what you can afford.  Your broker will also provide statutory documentation to initiate the lending process and work out for you what loan products will be appropriate in your circumstances.

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Property can be a challenge

Property can be a challenge

A home is the biggest purchase most people will make, so it’s never simple. Throw in renovations and investment properties, and you’re certainly in need of expert advice.

If you have a really great credit adviser, he or she will be prepared to work with you over the long term to find the right property and lock in finance for the purchase.

Justin Myers, recalls working with one client over three years, from obtaining initial pre-approval for a loan and helping the client successfully bid on a property, to arranging a construction loan for renovations and then helping unlock equity for property investment.

In cases such as these, a bank branch’s loan officer just might not cut it.

“When the client contacted me, he was dissatisfied with the experience he had had dealing directly with banks, who were focused on selling him a loan at the lowest rate, rather than setting up a loan that really met his needs,” says Justin.

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Three things you need to ask your partner before you apply for a home loan together

Three things you need to ask your partner before you apply for a home loan together

Before you apply for a home loan with your partner, there are a few discussions that you need to have that go a little beyond what you may know already.

You’ve found someone you want to spend your life with (or a significant chunk of it, at least) – the hard part is over, right? Wrong. You know each other well enough to know whether or not you each blow the budget every month, but you probably don’t know each other’s complete credit history. So, before you buy a property together, there are plenty of discussions you need to have. Here are three of them.

Have they defaulted on any payments?

He or she might be relatively debt free now, but has this always been the case? One bad mark on a credit file, such as a late car payment or a default on a credit card, will change the approach you need to take when applying for finance.It doesn’t mean you can’t secure finance, but it may mean you need to apply to a specialist lender for an alt-doc loan. Your Mortgage Finance Broker can help you find the right lender and craft an application to avoid the heartbreak of continual rejection.

That savings balance, where has it come from?

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What to look for at an open house

What to look for at an open house

There’s an old saying that you should never judge a book by its cover, and this is true for houses – after all, who would buy one having never seen more than the front door? Open inspections are opportunities to really flick through the pages, and here’s how to take full advantage.

Use your sensesSniff, peer, listen and feel as much as you can. Your nose might pick up a mouldy or musty smell that may mean damp. You might spy small or hidden cracks that could mean structural issues. That clattering sound when water is running? That can be a sign of serious plumbing problems.

Don’t be distracted by the beautiful blingAnyone can invest money in pretty cushions and lamps to set off the house. Or bake some cookies just as the open inspection starts so the house smells cosy and homey. But when buying property, you’re buying the sausage not the sizzle, so look past the perfectly presented and lit lounge room to the size, shape and placement in the floorplan of the actual room, and imagine how you will use it.

Look upThat means checking the roof on the way in and looking at the ceilings in the rooms. Damp and leakage issues are costly and notoriously hard to fix. And once the rot sets in, it’s there to stay.

That kitchen and bathroom advice It’s true what they say. If these two rooms aren’t how you would like them to be, are you prepared to live with it or spend the money required to transform them? Bathroom renovations will be upwards of $10,000, and probably a lot more.

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Buying a property with friends

Buying a property with friends

There are many considerations when buying property jointly, so speak to an expert early to make sure you’re doing it the right way.

If you’re looking for a creative way to overcome being locked out of the property market by rising prices, buying a house with a group of friends may be a solution. It can also be a minefield though, so here’s how to avoid a blast.While the excitement of banding together in such a life-changing moment can put everyone on a bit of a high, you need to plan for situations in which things might go wrong.

It’s essential you have all been completely upfront from the start about what you want to achieve by purchasing property together, as well as your personal expectations about timelines for purchasing the property, paying it off and selling it. And all of this must be documented in a co-ownership agreement.

Your mortgage finance broker can refer you to a solicitor of conveyancer with experience in working on co-ownership agreements, who can advise and create yours and make sure it is suitable, providing the necessary legal protection for everyone involved.The big question will be what structure your ownership takes. There are two options: joint tenants and tenants in common. Joint tenancy is the most common ownership structure in Australia, as it is how most family homes would be owned. However, because friends are less likely to share assets and long-term debts than a couple, and less likely to will their assets to each other, the ‘tenants in common’ model would usually be more suitable for this situation.

Under this model, each person owns a specified share of the property’s value. These shares may be equal, but need not be. So, if you are willing to contribute $500,000 to the price of a property, but your two friends are not quite at that stage and only comfortable contributing $250,000 each, you could own a 50% stake while they each own a 25% stake. Keep in mind, each stake is in the property’s value, not control of the property. Legally, under this model, each owner has the right to full access to the entire property.The co-ownership agreement created in collaboration with your conveyancer should set out how the costs of maintenance and insurances are divided, as well as how sale proceeds will be divided.

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Six ways to fund a renovation

Six ways to fund a renovation

Any renovation project, large or small, can be all-consuming in terms of your energy, time and money. Here are six loan types that can help you.

Considering transforming your home but lack the funds to support your major makeover? Never fear, we’ve rounded up a few different home renovation loans to help you turn your dream into a reality. Whether you want to make a few finishing touches to your home with the help of a paint job or completely turn your home into something magical, there’s an option to suit your needs.

1. Home equity loanThis is probably the most common way people borrow money when they want to renovate. It involves borrowing against the current value of your home, before any value-adding renovations. You won’t be able to borrow the full value of your home but, without mortgage insurance, you can usually borrow up to 80 per cent of its value if you own it outright. One potential problem is that the cost of your renovations may actually be higher than the equity you have available.

2. Construction loanThis is similar to a home equity loan, except the lender will take into account the final value of your home after the renovation. You won’t be given the full loan amount upfront, but in staggered amounts over a period of time.

3. Line of creditThis may be ideal for ongoing or long-term renovations. When you apply, you can establish a revolving credit line that you can access whenever you want up to your approved limit. You only pay interest on the funds you use and, as you pay off your balance, you can re-borrow the unused funds without reapplying. However, care must be taken not to get in over your head in terms of serviceability – make sure you can make repayments on the line of credit that will reduce the principle.

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What should I ask my Mortgage Broker?

What should I ask my Mortgage Broker?
Start with 'Are you a member of the MFAA or FBAA?'

A good accredited mortgage broker can help guide you through the mortgage market to find the home loan appropriate to your situation. But, before you start working with a residential mortgage broker, there are a few questions you should ask.

Are you a member of the MFAA?

The Mortgage & Finance Association of Australia (MFAA) is the peak industry body in Australia and the one the majority of mortgage brokers are accredited with, representing more than 12,500 mortgage & finance professionals across the country. To be accredited by MFAA, credit advisers must satisfy rigorous criteria on education, experience and ethics. So if you want to work with an accredited residential mortgage broker in Sydney – someone you can trust – the first question you should ask is, “Are you a member of the MFAA?”.

Mortgage Brokers: education & experience

To help you negotiate the complex mortgage market, you need someone with knowledge and experience. So ask your mortgage broker about their credentials.

What fee is your mortgage broker charging?

Since most mortgage brokers receive a commission from the lender, they generally offer their service free of charge to the borrower. But don't assume this. Ask your mortgage broker if they charge a fee, and if so, how much.

What commission is your mortgage broker being paid?

Don't be afraid to ask a credit adviser what they are being paid for their home loan recommendations. The MFAA's Code of Practice requires its credit advisers to reveal the commissions they are being paid by a lender on a particular home loan product or any other products they may offer. To borrow with confidence, only deal with an MFAA or FBAA accredited mortgage broker. Talk to CBM Mortgages today. Find out how we can help you buy that first or next property.

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How Parents can help you buy your first home?

How Parents can help you buy your first home?

 

Be nice to your parents.

If you can't save a deposit to get a mortgage or home loan by yourself, maybe your parents, a relative or friend can help with a gift, loan, or home loan guarantee. This could also save you money in lenders mortgage insurance premiums.

Financial help with home loans – parental gifts

Obviously, the best kind of loan is one you don't have to pay back. If someone is willing to give you money to help you buy a home – and doesn't expect it to be repaid – you're very fortunate. But make sure you get it documented. Otherwise your lender will consider it a loan that has to be repaid and therefore you will have a liability to repay that loan back as well and this will impact on your borrowing capacity.

Financial help with home loans – parental loans

Your parents might be able to help you with a deposit for a home loan – but they probably want it repaid. Bad luck. Still, this could be a big help, particularly if they are offering the money at a favourable interest rate. Again, you should have the parental loan documented because your lender will want to know the details in order to calaculate your borrowing capacity.

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Fixed v's Variable

Fixed v's Variable

This is a question that is asked by friends and clients on a regular basis. Before choosing one or the other, first of all it is important to understand the difference and the mechanics of both of them and what impact they can mean to you and your mortgage. Another important factor is the RBA cash rate and the banks standard variable rate.

The Reserve Bank of Australia and the bank standard variable rate

It is important to know with all rates not just variable, that although the RBA may reduce rates (most commonly in increments of 0.25%) the lender you are with may not pass on that full cut. This is a topic that has been in the media quite a lot in recent times as none of the major lenders have passed on the full RBA cut in the December decrease and this has been quite a common theme in the majority of the other three cash rate decreases in 2012 (The cash rate dropped a total of 1.25% in 2012). The banks normally make their decision within 2-3 days of the RBA decision and pass on their decision a couple of weeks later. At present the only major bank that reviews their rates independently is the ANZ, which announce their reviews on a monthly basis. Media reports state that the other major banks will follow suit in this approach. 

Currently the cash rate is at it lowest in over 3 years with  NAB forecasting three more cuts in 2013 NAB Economist tipping three more cuts in 2013. The last increase was in 2009 which had kept the cash rate at 3% for 3 months until its October increase.

At present the gap between the RBA cash rate and the banks standard variable rate is the greatest it has been in 19 years with the banks blaming the cost of off shore funding for this. 

Variable rate mortgage

A variable rate mortgage will move up and down with the Reserve Bank of Australia (RBA) decision on their cash rate and therefore is also commonly known as a floating rate. The variable rate is the most common type of mortgage in Australia and the one most potential borrowers look at when searching for finance. The variable rate loan normally has many features linked to it such as an offset account, redraw and the ability to pay off additional funds with no extra charge. You normally have the ability to pay out your mortgage without a large fee. The Australian government has recently imposed new laws so lenders can not charge high exit fees, although these have stopped the lenders still impose a fee of approximately $250-$350 as a "legal" or "administration" fee.

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