General

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.

What’s involved?

We can do a full home loan health check for you either in person or over the phone. We 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 if your circumstances change.

Questions to ask

Be aware of what you want checked. Think about the following when you speak to your broker:

• Am I paying an unreasonably high interest rate?
• Am I paying high fees?
• Am I happy with the service I receive?
• Does my loan give me the features I need?
• Am I paying for features I don’t use?
• Have my financial circumstances changed?
• Benefits?

A home-loan health check will generally cost you nothing and could save you thousands. Your home loan features could be improved or you could find yourself with a lower interest rate. A better payment structure could also be introduced, making your repayments more manageable.

Checking the state of your current loan could uncover the possibility of taking out additional finance, which can consolidate any other debt you may have or help you purchase an investment property.

Contact us to organise your home loan health check.

What To Expect From Your First Meeting With Your Finance Broker?

The first step in buying a property, a business or commercial equipment is often securing the finance, and the ‘make or break’ nature of that can make the first meeting with a finance broker a daunting prospect.

Your first meeting with a finance broker is an opportunity to really get cracking on making your dreams a reality. He or she has the expertise to help you do this, but you will need to pitch in as well, of course. It’s important to do your homework before that first meeting.

“Know the questions you want to ask and have a clear picture of what you’re after,” says Mortgage Choice’s, Jessica Darnbrough. “Be that a home loan, refinancing a loan or setting up a self-managed super fund for the purposes of buying a property.”

Your finance broker will also expect you to have your documentation prepared as well as possible. This includes having two pay slips ready or, if you’re self-employed, having two tax returns at hand.

“You will also need evidence of any other income and assets such as shares, dividend income and other investments,” says Jessica. “If you go into that first meeting with all the information prepared, it makes it much easier for you and your finance broker.”

You should expect your finance broker to ask a range of questions about your current and future lifestyle and financial situation, so he or she can take into account factors such as whether you are planning to start a family.

“Your finance broker is trying to understand who you are and what you are looking to achieve, to help you meet your goals,” Jessica explains.

Working with a finance broker gives you the expertise you want as well as access to potentially hundreds of different financial products from scores of different financial institutions. This differs from approaching a bank, which will only be able to make recommendations about its own financial products.

“Finance Brokers” have a huge choice of financial products available to recommend, which means they are able to suggest the right product for a client’s individual needs.

Contact us and we will work with you to find out which loan and lender will best suit your needs.

Why Your Broker Asks So Many Questions?

Ever wondered why mortgage brokers have to ask you so many questions about your financial circumstances? It’s to ensure that fraudulent applications don’t slip through the cracks and that your loan suits your needs now and your plans for the future.

Brokers can face claims against them if they submit inaccurate documentation, regardless of whether falsities are the brokers’ intention, a mistake or the result of a client’s dishonesty.

It is your broker’s job to find out everything they can about your financial situation and your goals for the future. Not only does the process help to identify fraudulent application activity, it also ensures that they are serving your best interests.

You will definitely be asked to provide proof of identification as well as details about your income and spending habits. Your broker will want to discern how much you can afford to borrow. You will need to prove this by way of payslips or proof of income.

You will be asked to provide information regarding your dependants, any lawsuits you may be involved in and whether you have filed bankruptcy, and you might be asked twice, by your broker and by the lender.

Bransgroves Lawyers Partner Matthew Bransgrove explains that, while the process may seem onerous, there is good reason for extensive questioning.

“Right now the emphasis is on cross checking information by making independent inquiries and independent searches,” Bransgrove says. “In order to conduct these independent inquiries, or to verify aspects of what they have been told, lenders will often need to come back and ask for more information”, he adds.

While it may feel like your broker has mishandled your answers or that some of the questions are not relevant – ‘what was your previous address six years ago?’ – requestioning and cross checking is a normal procedure followed during loan applications.

“To checkmate fraudsters, the information that is verified is not always directly relevant to their assessment of the loan, sometimes it is simply to check that the earlier information provided was true,” Bransgrove adds.

Bransgrove confirms, “this is not because the lenders are being inefficient, but because they are performing due diligence

Brokers are required by law to provide potential lenders with applications that disclose all of this information to ensure fraud is ruled out, and lenders can make an informed and ethical decision regarding how much they will loan.

“These bottle necks in the lending process are a little bit like the security screen we all have to go through at the airport. It is tedious but we all understand it is necessary in order to ensure a safe flight,” says Bransgrove.

“The fraud that is prevented may very well be against yourself.”

What is stamp duty?

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; and
• if you are purchasing an established home, a new home or vacant land.

There are a number of stamp duty calculators available online 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.

How To Keep Your Loan Application On Track?

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.

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.

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.

“I commonly see the same type of document sent back from the lenders, often due to non-disclosure,” explains Anthony Wickremasinghe, BDM at lender Liberty Financial and a national finalist for BDM of the Year at the 2015 MFAA Excellence Awards.

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

In order for a lender to assess your capacity to service loan repayments, every financial detail must be taken into account.

Lenders want to see proof that you are capable of managing the responsibility of the loan, through steady employment, a good credit history and a debt-free approach to your financials.

“We like to help customers that are in trouble. But if they have bad habits, we can’t really help them before we know that they can commit to us in the future,” Wickremasinghe says.

By having all of your documents organised and a saving and repayment plan documented, as well as evidence that you can commit to the plan, you will increase your chances of receiving the loan you are after, even if your credit history is not perfect.

“We do look at customers who have had hardship issues,” explains Wickremasinghe.

“If we can see that they are trying to help themselves, and going forward we are putting them into a better situation or a better product, then we will proceed with that.”

How do Redraw And Offset Accounts work?

Offset accounts and redraw facilities work in similar ways; they both allow you to reduce the balance of your home loan, and therefore the interest charged, by applying extra money to your debt.

Redraw facilities allow you to deposit spare income into your home loan account, allowing you to redraw a sum equal to the extra repayment amounts in future.

In the meantime, the extra money paid will lower the amount of interest charged while still giving you access to your money.

However, there may be restrictions on how much money can be withdrawn and when.

“For redraw, it depends on whether the facility applies to a fixed-rate or variable loan,” Moses says. “Most institutions only allow redraw from a variable-rate loan, or fixed-rate loan but with limited access.”

It is important to find out how a loan’s redraw facility works before taking it on, as the fees and restriction attached might outweigh the benefits of interest savings.

Deciding between an offset account and a redraw facility on your home loan largely depends on how accessible you need your extra money to be.

Offset accounts are like savings accounts that function alongside your home loan. You earn interest on the money in the offset account and you often have a debit card attached for simple withdrawals.

“Let’s say that you are paying five per cent interest on your home loan and earning two per cent interest on your offset account,” explains Heritage Bank NSW State Manager Paul Moses.

“In a offset setup, the difference would be 3%, but would mean that the 2% interest that you earn is coming off the interest you are paying on your home loan.”

With 100 per cent offset accounts, you earn interest equal to the interest you are paying on your loan. Rather than earning savings account rates, you are earning home loan account interest rates on the money held within the offset account.

“Let’s say you have $10,000 in your 100 per cent offset account. Instead of paying interest on your $100,000 loan, you are only paying interest on $90,000,” Moses says. “That’s probably the best type to have, if you are looking at offset accounts.”

Offset accounts, like many savings accounts, often come with account fees, but the fee may be worth the interest savings and the added flexibility compared to redraw facilities.

“There are less restrictions attached to 100 per cent offset accounts, they’re very flexible. But really, it does just depends on each lender,” Moses says.

If I Need Help To Buy A Home, What Should I Do?

Be nice to your parents.

If you can’t save a deposit to get a mortgage or home loan, maybe your parents, a relative or friend can help with a gift, loan, or home loan guarantee.

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.

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.

Financial help with home loans – parental guarantees

Your parents mightn’t have any spare cash, but they might be able to help you by going guarantor on your loan. For example, most parents have equity built up in their own home that a lender would consider as security – if your parents were agreeable. However, your parents should be aware that going guarantor on your loan will affect their borrowing capacity, and possibly their retirement lifestyle.

How RBA Rate Changes Affect Your Interest Rate?

When the interest rate on your home loan fluctuates, it can feel as though you don’t have control of your debt. Despite being frustrating, interest rate changes are a part of every loan lifespan and warrant your consideration.

The interest rates that banks charge on their home loans are influenced by the Reserve Bank of Australia’s (RBA) cash rate, by competition and by a number of other factors including regulatory intervention. However, lenders can and do raise or lower their variable and fixed mortgage rates independently to the RBA’s cash rate changes.

The way the relationship between the cash rate and interest rates usually works is that the cash rate is reviewed by the RBA on a monthly basis in order to safeguard Australia’s economic stability. The cash rate is the rate charged on loans made between the RBA and your lender. This, in turn, can have a very strong impact on the interest rates your lender charges you.

“The RBA supports the banks with liquidity facility,” explains Advantedge General Manager Brett Halliwell. “The RBA is a bank to the banks. The cash rate is effectively the rate at which the RBA will lend to the banks, and what the banks effectively use as a reference rate for other things.”

When the cash rate is changed by the RBA, lenders decide whether or not to mirror the new rate in the interest they charge their mortgagors, that is, borrowers.

This is entirely up to the lender in question and depends on the market and how the lender is performing at the time of the cash rate change.

“If you look at the mortgage market, specifically by itself, it is very much a competitive market,” Halliwell says. “It is about the lender trying to get the right outcome on the deposit side of the balance sheet within the context of a very, very competitive marketplace, but recognising that a reference rate has changed and, therefore, looking at where they stand.”

Some lenders choose to keep their interest rates higher than the RBA’s cash rate and, in these instances, other lenders may be offering lower interest rates than the one you currently have.

Keeping track of how your lender manages cash rate changes and where that leaves you as the person paying the interest can be time consuming, and is made more difficult by fees, charges and the flexibility offered by different loan products, which all need to be weighed alongside the interest rate.

A simple way to regain control of your interest rate is to consider locking it in for a period, if you believe rates are not likely to fall further in that period. Fixed rate loans can incur substantial ‘break’ costs if you decide to sell or refinance. Fixed rates offer less flexibility, but more certainty.