Confused about the ins and outs of mortgage refinancing? There are two key considerations when you’re looking at taking the step – why and how. Here, we examine both.
A home loan is generally a long-term proposition, but in some situations it can be suitable to refinance your mortgage. Refinancing involves taking out a new mortgage and using those funds to pay off your existing mortgage. Doing it right could deliver significant financial gains over time.
The two key things you need to know and understand before you go ahead are your reasons for doing it and how to go about it.
Good reasons to consider refinancing
1. You want a lower interest rate
The loans market is highly competitive and interest rates can vary significantly between lenders, so one of the most common reasons for refinancing is to get a lower rate. This could help you pay off your home loan sooner and save you thousands of dollars over time.
Even if interest rates haven’t fallen since you first took out your loan, you can sometimes access a better rate if your financial situation has improved. This is where a broker can be invaluable; they can help find a better interest rate and advise you of lending facilities that may suit your lifestyle. Rather than moving banks, this could mean renegotiating a better deal with your existing lender.
Keep in mind, however, that not all mortgage products are the same. A mortgage with a lower interest rate may not have all the benefits of your existing loan, so be sure to carefully consider all rates, fees and features.
2. You want to change your loan type
You may want to switch from a variable loan to a fixed loan to lock in a low interest rate with either your existing lender or a new one. Depending on the type of mortgage you have, this may require refinancing into a different product. You might also have to refinance if you want to change to a split loan, which has part variable and part fixed rates.
3. You’d like to access the equity in your home for other uses
As you pay down your mortgage and property values increase, the equity you have in your property builds up and becomes a valuable asset. By refinancing, you can access that equity to generate funds to use in wide variety of situations – to renovate or extend your home, for a deposit on another investment property, or even to invest in shares.
4. Your circumstances have changed
Things change. Perhaps you’ve had a significant rise (or fall) in your income. Refinancing can help to manage your new situation. By taking out a new mortgage (or increasing your limit on the existing one) you may be able to consolidate other debts such as personal loans and credit cards, into one facility, lowering your monthly repayments and saving you interest. If your finances have improved, on the other hand, you may want a different kind of loan product with alternative features, such as a mortgage offset or extra repayment facility to allow you to pay off your mortgage sooner.
Starting the refinancing process
Once you’ve determined your needs and done your research, including speaking to a broker, beginning to refinance will be straightforward
1. The application
Your broker will evaluate your circumstances and help you submit your application. You’ll need to provide identification documentation, proof of income (such as pay slips) and list your assets and liabilities. If you’re staying with your existing lender, you may not need to provide as much information.
2. Getting a valuation
Lenders will often require a valuation on your home to determine how much you can borrow. This bank valuation generally requires an inspection of the property by a licensed valuer. Remember to prepare for the valuation, ensuring your property is presented in its best light to gain an accurate valuation price. Tidy the garden, reduce clutter in the house and finish those small maintenance jobs you’ve been putting off.
3. Receiving approval
Once your lender is completely satisfied, full loan approval is granted. In many cases you’ll receive an approval letter with a copy of the loan contract to review, sign and return to the lender. Your funds will usually be cleared once all signed documentation is reviewed. Your lender will then arrange settlement of your existing loan and establishment of your new one.
While refinancing can save you money, it may not be the right move for everyone. Take care and get advice on whether it’s the best route for you. Before taking any action, talk to your broker, as they can help you select a suitable loan product for your needs and circumstances.
Finding the right real estate agent to sell your property can be daunting. These tips can help make the experience and that final decision a whole lot easier.
Selling a home is a pretty big event, so you’ll want to do everything possible to get it right. Finding and selecting the best real estate agent for your particular property is a crucial step in the process. Here are some simple tips for making the right choice.
Unlocking the right research
The first step to finding the best real estate agent is to do your research. Make a list of agents in your area, then investigate which ones match with what you’re looking for. Do they sell more houses or apartments? Do they specialise in auctions or private sales? Are they a boutique agency or part of a national chain?
There are websites such as Local Agent Finder and Open Agent that property sellers can use to research agents. These sites give you information about each agent, including properties they’ve sold in the past and reviews from previous clients. This can be a very useful way of determining which agent is right for you.
Reputation, reputation, reputation
Checking if an agent is reputable is very important and these days it’s been made much easier thanks to the internet. Social media is a great way to get an idea of their reputation and standing in the marketplace, as well as how they compare to their competitors.
What do their previous customers say about them? Have they won any awards? What’s their auction clearance rate compared to the national average? What’s their average percentage increase on estimated sale price versus the final sold price? Get Googling as well as asking the agents themselves – if they’re ambitious and professional sales agents they’ll have the answers to these questions.
See the agent in action
Before you decide on an agent, visit one of their open house inspections to see how they treat you as a potential buyer. How do they communicate and interact with people? Do they follow up with you after the inspection? Chances are, how they sell someone else’s property is how they will sell yours.
A good agent will find out what a buyer’s really looking for and match them to the perfect property. A not-so-good agent might just give a brochure spiel without really listening to a buyer’s needs.
If you engage a good agent, you’ll be able to trust they’re working hard to find buyers who really want your property and are prepared to pay top dollar for it.
Look for local knowledge
If you’re selling your family home, it’s more than likely you’ll know the area inside out: the good schools, the best places to shop, which cafe brews the tastiest coffee. Your agent needs to know this stuff too, so they can talk up your neighbourhood to potential buyers. Put a few questions to the agent about where they like to shop, go for coffee or send their kids to school and see how it compares to your own local knowledge. Their answers could be revealing. The greater understanding and passion they show for the area the property is in, the more likely they’ll connect with the buyers, selling the lifestyle on offer as well as the bricks and mortar.
The hard number
Once you’re close to settling on an agent, you may want to consider having the three best contenders come in to pitch for your business. Sit down and consider their benchmarks – how will they position your house in the market? What kind of marketing and advertising do they propose? How will they handle negotiations with potential buyers? What’s their commission? Will they put furniture in your house or perhaps provide some styling expertise?
Afterwards, don’t just set and forget. Creating and using benchmarks will enable you to monitor the agent’s performance and put you in a good position to discuss anything you’re not happy with. Send a friend or family member to the open house inspections to get feedback on the agent’s performance.
Choosing a real estate agent shouldn’t be a lottery. By doing your homework and following a few simple steps, you can make sure you have the best agent working for you.
Just like you, banks are in business – and they don’t succeed by making bad deals. When they consider your loan application, they’re calculating the financial risk of entering into an arrangement with you.
Let’s break it down.
What the bank considers
For the bank, financial risk comes down to whether you can repay your commercial loan and the interest in the agreed time.
According to the Australian Bureau of Statistics, as of June 2016, the exit rate across all Australian businesses was 12.3% (percentage of businesses that ceased trading). To protect itself, the bank is looking for evidence that your business won’t fall among these statistics and fail to repay the principal amount.
When assessing financial risk, one of the main factors the bank looks at is you, the business owner. What skills and experience do you have? Do you understand your business and have a clear and realistic plan for developing it? Importantly, they’ll also be looking at your credit history, and any debt you may have.
Banks also consider:
· Security: The bank will evaluate what you’re offering as security against your loan – this might be a family home or other assets such as stocks and shares.
· Industry: Lenders view some industries as riskier than others, because of conditions such as competition, profitability and the economic climate. If your industry is seasonal, such as tourism or agriculture, they’ll want to know how you’ll manage repayments in the off season.
· Cash flow: ASIC reports inadequate cash flow among the top reasons why companies become unable to repay debt. The bank will want to see what revenue you have coming in, and be assured you can pay wages, keep the business ticking and make your loan payments on time – even if something unexpected happens.
Show the bank you’re managing risk
Having higher risk doesn’t mean you won’t get a loan. But you need to show the bank you’re aware of the risks and are taking the necessary steps to manage them.
Start by making a risk management plan that documents your business’s specific (financial and other) risks and identifies the steps needed to reduce or manage them. See business.gov.au for useful tips on risk management and tools to plan for it.
Regularly review and act on your plan. No matter the size of your business, that’s an essential part of good business management.
Next, when preparing your loan application, think about what will convince the bank you’re on top of your business risks. Here are some ways to do just that:
· Provide all the documentation the bank asks for.
· Use a business plan to succinctly explain what your goals, objectives and target markets are with any forecasts that might help.
· Supply solid evidence of your personal experience and credentials.
· Make sure your financial records and forecasts are in good order (poor financial control and lack of financial records also rate highly among ASIC’s top reasons for company insolvencies.
Convincing the bank that you’re on top of risk management doesn’t involve smoke and mirrors. It’s about understanding your business, having robust practices, planning for the future and demonstrating you’re on top of any present or potential risk.
Ready to buy a property? You’ll need to show the seller you have enough money. For most people, this will mean getting a loan, and the first step to getting one is obtaining pre-approval for it.
Pre-approval – also known as conditional approval or approval in principle – is an indication from a lender as to how much you can borrow. If you have pre-approval, vendors and agents know you’re serious about buying. Here are the steps you need to follow.
1.Gather your financial information
To get an idea of how much you can borrow, and therefore what you can afford to buy, you need to give the lender a comprehensive picture of your finances. This includes your income and assets, and your financial obligations such as existing debts and living expenses (including ongoing bills, entertainment, food and car expenses, etc).
You’ll need evidence of everything:
2.Meet a lender or broker
Make an appointment to speak to a lender or mortgage broker. Most will provide a list of what you need to bring with you, such as the evidence explained above and the required forms of ID.
At the appointment, the lender or broker will use your information to calculate an approximate borrowing figure. If you want to proceed, you can fill in a pre-approval application form.
3.Undergo a credit check
The lender will arrange for an independent credit bureau to perform a credit check on you. This may affect whether or not you can borrow money, and how much.
4.Receive conditional approval
Assuming your credit rating allows you to borrow, you’ll then receive a conditional approval certificate from the lender. The certificate is usually valid for 90 days. This is an indication, not a guarantee, of the amount you can borrow.
Use this figure to work out how much you can spend on a property, taking into account the size of your deposit. Factor in expenses such as conveyancing fees, stamp duty and so on. Also consider that you may not be able to borrow as much as the conditional approval certificate indicates.
Securing pre-approval will allow you to househunt with confidence.
What happens next
Once you’ve put in an offer on a house – whether at auction or a private sale – you’ll need to get full approval on a loan. Contact your lender or mortgage broker with details of the property, and they’ll work through the home loan application process with you.
Obtaining pre-approval for your loan is an important part of the home-buying process. Contact your mortgage broker today for help with finding out how much you can borrow.
Wondering how to pay off your home loan sooner? We look at some things you could do.
Australian home loan interest rates remain at historic lows, and the opportunities for paying off a mortgage early are better than ever. Used in conjunction with low rates, here are some extra steps that can speed up loan repayments and reduce your loan balance.
Make higher repayments
One of the easiest ways to quickly reduce the balance of your mortgage is to make larger loan repayments. The minimum repayments required on a loan are calculated on the amount owing and the prevailing home loan interest rate. Repaying more than the minimum can cut the overall term of the loan and save you thousands of dollars in interest. A mortgage repayments calculator will quickly show what savings can be achieved.
Some lenders may charge you an early payment cost for paying your loan in advance. This is particularly the case with fixed-interest loans, so it’s always best to check up-front. These costs can be large.
Make more frequent repayments
Home loans are often structured so that you make monthly repayments. But making fortnightly repayments instead can reduce the term of a loan and save interest. By making fortnightly repayments, you are paying the equivalent of half of your monthly repayment every two weeks. This allows you to make the equivalent of one extra monthly repayment per year. Extra repayments will ensure the loan balance is lower at the time of the month the interest is calculated.
Use an interest offset account
Most lenders allow you to package a mortgage with an interest offset account. An offset account allows you to reduce the amount of interest paid on your loan by offsetting the amount in the (offset) account against your loan balance. Wages and other income can be deposited into your offset account. Note that you don’t earn interest on the funds in the offset account, and that offset is usually only available on variable rate loans.
Seek out lower rates
Although obvious, many borrowers take out a mortgage and then stop following the home loan market. With interest rates constantly changing, it pays to monitor the latest rates. If rates go down, contact your lender or broker and ask if they can reduce the rate on your loan.
Don’t take the rate cut
When a lender reduces the interest rate on its home loans, usually in line with a cut in official interest rates, your first thought may be to reduce your loan repayments accordingly. However, by maintaining your loan repayments, you effectively repay more than the minimum loan repayment. If it’s possible to do so, this will help you cut the term of the loan and save on interest.
Pay both principal and interest
While you can make lower repayments by choosing an interest-only loan, doing so means the principal component of the loan will not be repaid while you are only paying interest.
Pay fees upfront
When initially taking out a mortgage, lenders will often roll the establishment costs and charges into the loan. While this may help the short-term budget, it’s worth paying these costs separately to lower the overall balance of the loan from the start.
Use your home equity
As home prices rise, you build more equity in your property. Redrawing funds from a home loan to pay for renovations and other costs can be a much cheaper source of funds than others.
Set up a split loan
A split loan, sometimes referred to as a combination loan, enables borrowers to divide their mortgage into both variable and fixed components. By doing this, you can not only make extra payments on the variable component, but also lock in a lower fixed rate. Extra payments can often be made on the fixed loan too, up to a limit specified by the lender.
Get a financial package
You can often lock in a discounted loan rate with a financial package and also find special rates on other products and services. Putting those savings into your mortgage is a great way to get the best of both worlds.
With just a few easy steps, borrowers can significantly reduce the length of their mortgage and save thousands of dollars in the process. A mortgage broker can assist you in setting everything up.
For more information on how you can pay off your home loan sooner, contact Nathanial today.
It’s important to look after the tenants in your investment property – it encourages them to stay long term and take care of your property. So how can you keep your tenants happy? By treating your property like a business and your tenants like valued customers.
The tenant as customer
The rental market in most Australian cities is tight, with plenty of renters looking for accommodation. But that doesn’t mean you have your tenants over a barrel. They pay good money to rent a property and in return they expect a clean, safe and well-maintained place to live.
If you can keep your property in good order and your current tenants satisfied, you’ll save yourself the time and money it takes to find new tenants. Many businesses run on the idea that it costs far more to acquire a new customer than it does to retain an existing one and if you’re one to agree with this, the same principle should be applied to your tenants.
Word of mouth is important in business. These days, business reviews – both good and bad – are shared widely on the internet and social media. There are even websites dedicated to reviews of dodgy landlords, and you don’t want to appear on them – that’s the kind of online exposure no business wants.
Know the law – and respect it
Residential tenants have legal rights. These differ from state to state, but it’s vital for you as a business operator (landlord) to know and respect the law if you want to maintain good relations with your customers (tenants). Make sure to seek professional legal advice if you need more information.
Residential tenancy laws in Australia cover many aspects of tenancy including:
Customer service 101
Because your tenants are your customers, the regular principles of customer service apply:
When you approach your tenants as customers and treat them with respect, there’s a good chance they’ll respond in kind. This can lead to longer tenancies and a reduced vacancy rate – which means more money in your pocket.
In Australia, there are a number of ways to structure your home loan repayments. Finding the best option may save you time and money on your mortgage. Here is some information to help you choose the repayment structure that works best for you.
Variable rate loans
Variable interest rate loans are all about flexibility. Essentially, with a variable rate loan, the interest rate moves up or down as the market moves. This means your loan repayments may also change month-to-month.
If the interest rate drops, then your repayments may drop as well. However, in the event of an interest rate rise, your repayments could also increase.
Many variable rate loans come with additional features, which can reduce the amount of interest paid over the life of the loan. For example, a variable rate loan with a 100% offset arrangement links your loan account to your savings account. Any funds held in your savings account are offset against the borrowed amount, reducing the interest you have to pay.
Many variable rate loans offer flexibility in terms of increased payments, allowing you to pay off your loan faster if you have additional funds available.
Fixed rate loans
A fixed rate loan is one where the interest rate is fixed for a limited period, and immune from any movements in the market. The most popular choices are three and five-year fixed interest loans, although options ranging from one to ten years are available.
Fixed rate loans allow you to make steady, regular repayments. They’re great for borrowers on strict budgets, or if you’re entering into a mortgage at a time when interest rates are likely to rise.
In the event of a drop in interest rates, being locked into a fixed rate may mean your repayments are higher than they otherwise would be. It’s also worth noting that breaking a fixed rate loan can potentially cost thousands of dollars in fees.
Additionally, many banks will charge you a fee for making extra payments towards the loan during the period it has been fixed.
Split rate loans – a foot in each camp
A split rate loan is when you break your mortgage into two loans – one with a fixed rate and one with a variable rate.
It’s something of an ‘each-way bet’. A split loan offers borrowers protection from rate rises (with the fixed portion of the loan) alongside the advantage of rate drops (with the variable portion of the loan).
Most banks will allow you to split your loans from the outset, without having to pay for two separate loan applications.
Choosing the right kind of loan depends on your personal situation, earning capacity and long-term goals for your property. Speaking with a mortgage broker can help you to figure out the best way forward, and could help you save money along the way.
It’s all too easy to rack up debt – credit cards, HECS, car loans – and may seem all too hard to pay it off. Debt can also have a big impact on how much money you can borrow for a home loan, so reducing your debt is essential when you set out to buy your first home.
Here are seven steps you can take towards minimising your debt and moving into the property market.
1. Work out how much you’re spending
Create a spreadsheet and track your expenses for a month – record everything so you can see where your money is going. You may be spending much more than you think on some things – more than you can really afford.
2. Decide where you can cut back
With a clear idea of how much you spend each month, you can figure out how much you really need to spend, and where you can cut back. That second coffee every day could be costing you $20 a week – that’s $1,000 a year. Buying your lunch rather than bringing it could cost you $2,500 a year. Buying one less bottle of wine a week could save you another $1,200 a year. With a bit of commitment, you can rein in your spending and have more money to repay debt.
3. Make a budget
The only way to get on top of your credit cards is to stop using them. Make a budget for the money you need to spend each week or fortnight, based on how much money is coming in and what your necessary expenses are, and stick to it.
Calculate how much is left over after you’ve paid for the necessities, then figure out how much you want for discretionary spending and how much you can put towards repaying debt. Also, put money into a contingency fund to cover unexpected expenses such as car repairs that could bust your budget and cause you to reach for the credit card.
4. Prioritise your debt
Work out how much money you actually owe on credit cards and loans – you may not realise how much it is. When you know how much debt you’re in, you can think more realistically about repaying it.
You need to pay at least the minimum amount due on all credit cards each month to avoid going backwards and in some cases being charged fees and penalties. But by paying only the minimum, you may never get the cards paid off; you need to pay more to make progress.
5. Make a repayment plan
Armed with your budget and having worked out your debt priorities, you can plan which debts you will pay off over what period of time. Having a plan will increase your sense of control over your debt; sticking to it will increase your sense of achievement.
6. Set goals and celebrate them
The thought of paying off all your debt may seem daunting, so breaking it down into milestones will help you see the way ahead. Set goals such as paying off 10%, then paying off 25% and so on.
Remember to celebrate each time you reach a milestone – buy yourself lunch or go to a movie as a small reward for your achievement.
7. Stick to the plan – and ride out the setbacks
Keep going with your repayment plan. If you miss a payment because of an unforeseen expense, stay positive. Avoid feeling demoralised or derailed by looking forward to the next debt milestone – you can get there.
So, you’re thinking of buying your first residential investment property? There are a few things to consider before making the move. Here are our top 10 tips for avoiding potential difficulties and ensuring success.
1. Know your goal
Understanding your financial objectives is key to finding the right investment property. The actual property itself is rarely the end goal when it comes to investing – the financial elements should be your key focus. First, decide what your investment goal is and then create a plan to achieve it within a realistic time frame.
Are you looking for a plan for retirement? An income-generator to fund your children’s education? Or building equity to gain a regular income? Define a plan and review it regularly as your situation and the market changes.
2. Research, research, research
Understanding which property is going to work best for your situation is key. It needs to be one that will be of high demand from renters and, possibly, owner-occupiers down the track. Be sure to research which types of properties are in demand and rents quickly in particular areas, and those that don’t. Is this an area popular with families who want three- or four-bedroom homes, or with singles looking for studio apartments? Speak with property managers and check ads to find out what renters are currently looking for, and how their needs may change in the future. What developments are planned nearby? Get to know the neighbourhood you’re planning to invest in.
3. Old or new?
It’s the age-old debate: should you buy a renovator’s delight or something you can rent straight away? It’s great if it can be rented out as is, but potential to renovate should also be considered. The ability to easily and economically add value to a property is a plus, as it could increase rental returns. Don’t immediately write off a property just because it needs a paint job or the kitchen cabinets need replacing, but at the same time avoid overcapitalising if it’s not going to deliver returns. It’s a balancing act, so consider your skill levels, the extent of makeover required, and your access to funds to pay for renovations.
4. Location, location, location
Location is critical to performance. Some of the things to consider include:
5. Do your sums
Always check your finances before deciding to purchase a property. Get pre-approval and make sure you can cover repayments as well as extra upfront costs such as conveyancing, inspections and taxes. There are also ongoing costs to consider including landlord insurance, strata and property management fees, property maintenance, council rates and utilities.
You need to set yourself a realistic picture of a property’s cash flow, rather than vague idea of whether rent will cover expenses, so use a spreadsheet to calculate all foreseeable expenses. If cash flow is negative, can you afford to maintain the property? What happens if it’s vacant for a couple of months? Do your sums carefully and always ensure you factor in a financial buffer to avoid mortgage stress.
6. Choose the right setup
When it comes to investing, it’s important to understand how to set up the purchase to receive the most benefit. The entity should be tax-effective and protect any existing assets. You can purchase in your name, through your super or through a trust, but always understand how the purchase will affect you and your family. Expert advice can assist in maximising your benefits.
7. Pick the right features
You want to appeal to the highest number of tenants, so look for properties that offer that little something extra, like a second bathroom or a lock-up garage. Also, look at properties that appeal to many segments. For example, a lift may appeal to both retirees and a young family, as both will be looking to avoid stairs. Just make sure the benefits outweigh any extra costs.
8. Check your emotions at the door
Remember, you won’t be living in this home, so there doesn’t need to be an emotional connection to the home or the area. Your decision should always be about which property will give you the best return, not which one is most suited to your own tastes and lifestyle.
9. Timing is key
It’s a great idea to keep on top of the market’s movements and its dynamics. While there are investment opportunities available most of the time, some market conditions are more favourable. Do plenty of research and, if you don’t fully understand it, ask for help.
10. Get expert advice
Your broker can put you in touch with experts when it comes to real estate and investment. This means accountants, real estate agents, lawyers and valuers. These people are immersed in the industry and will be able to guide you in your decision-making.
A white-label loan is essentially a home-branded loan, much like the home-branded products you see in the supermarket aisles. Like these products, white-label loans aim to deliver many of the same great features as bank-branded home loans, but for a lower cost to you the customer. A trend seen in supermarkets over recent years has been not only an increase in the range of white-label options on offer, but also an increase in the quality of those products. This trend has continued to the extent that white-label products are now frequently of equal, or near equal, quality as their branded counterparts.
In the same way, banks across Australia provide ‘unbranded’ mortgage products to brokers, which increases the range of options within the market and offers customers competitive rates to generate valuable savings. Ultimately, it’s still a high quality product and service, just re-branded with a different name.
Here are five reasons why should you consider a white-label loan
Talk to your broker today about white-label, and whether it is right for you.