FINANCE STREET 

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Mortgage Tips

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Mortgage broker commissions uncovered

Posted on 9 April, 2017 at 23:30

So you’ve decided to partner with a mortgage broker to smooth your first – or return – entry into the world of property, mortgages and loans.


But before you choose your mortgage broker, it’s worth understanding the value they bring to the lending equation, and also how their commission structure works. After all, if you’re not paying the broker for their service and advice, who is?


What can I expect from a mortgage broker?


A mortgage broker will work with you to understand your goals and objectives, as well as your borrowing capacity, and will help you secure a loan that meets your needs from a panel of lenders. This includes reviewing a range of loan products, negotiating with panel lenders on your behalf and seeing the loan application process right through to settlement.

In Australia, many mortgage brokers provide their services to customers free of charge. In nearly all cases, brokers rely on commissions paid by lenders on loans settled consequent to applications the brokers submit on their customers’ behalf.

Many home owners and property investors work with mortgage brokers because they provide expert knowledge and have a comprehensive understanding of the lending landscape.

Researching loan products can be time consuming, however mortgage brokers have the features of numerous lenders’ loan products at their fingertips, saving their customers a lot of legwork.


How do broker commissions work?


Lenders pay mortgage brokers a commission on the loans they arrange for customers. Generally, mortgage brokers receive two types of commission from lenders.

They may receive an upfront commission that is based on the amount of the loan settled and they may also receive what’s known as trail commission calculated on the outstanding balance of the loan.

In each instance, the mortgage broker should give you particulars of the commissions they will receive on your loan.


I'm not a first homebuyer - can a mortgage broker still assist me?


If you’ve bought property before, chances are you’ll have some understanding of the lending environment. However, loan products change frequently, as do lender terms and conditions, so working with a mortgage broker can help even the most seasoned property buyer secure a competitive and tailored loan product.


Mortgage brokers provide an expert and time-saving service to loan customers all over Australia.


To help you secure your home loan, contact Brad and Finance Street today.



Explainer: Income Protection Insurance

Posted on 9 April, 2017 at 23:20

Insurance for something you can’t see or touch, such as your income, may seem strange. But how would you pay your mortgage if you were unable to work?


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 Coverforce Executive General Manager Employee Benefits Matthew Crawford.


Income protection policies vary in regards to their terms and conditions, but they usually offer 75 per cent of gross wages for a maximum time period. It’s a form of insurance that is particularly important for people who have regular repayments to make against debts.


“The most important reason for income protection is when a person has a strong reliance on an income,” Crawford explains. “When you have someone with financial responsibilities, like a family or a mortgage, that’s an important time for income protection.”


Having a majority of your current income insured against the possibility of being away from work helps you avoid defaulting on mortgage payments, personal loans or credit cards.


It can be the difference between continuing along within your current lifestyle following illness or accident, or being forced to dramatically change your lifestyle due to an inability to repay your debts.


“Most people these days have enough stress already, with the economy and the price of housing going up. Income protection gives that little bit of extra peace of mind. It works when you can’t work,” Crawford says.


Considering how you will pay your mortgage if you were away from work for a period is essential, and Brad at Finance Street can work with you to help you find the right insurance to help ensure your investment in property is protected.


Please contact Brad Grant at Finance Street to discuss on 0477611232 or email [email protected]



What comes first: the property or the loan?

Posted on 9 April, 2017 at 23:15

It’s easy to get carried away with the fun part of buying a property – looking at houses – but delaying the less compelling task of arranging finance will weaken your negotiating position on both the property and the loan.


Looking for a property to purchase is an exciting time. Choices regarding location, size, number of rooms and local amenities often see house hunters carried away in a deluge of daydreams and anticipation.

But, before you get carried away, it’s important to check off the essentials first. Although organising your finances may seem drab in comparison to perusing sales listings, gaining pre-approval with a lender will give you confidence about how much you can afford to borrow.

“First and foremost you need to determine if you’re eligible to borrow money from a lender,” says ME Bank Head of Home Loans Patrick Nolan. “Your ability to repay the loan will need to be assessed – you don’t what to find out after you’ve [made an offer] that your credit history or deposit is not up to scratch.”

Arranging finance before finding the perfect property will put you in a good position when it comes time to make an offer. When you do find the house you have always wanted, you can present to the seller and estate agent as a prepared applicant who is serious and reliable.

“It shows you mean business, and gives them peace of mind that your financing will not fall through. Don’t be afraid to let the selling agent know you have conditional loan approval in place,” Nolan advises.

Sellers are most interested in completing their sale fuss-free and with steadfast funding, and showing that you are capable of both will help put you at the top of a potentially competitive list of applicants.

In the instance that you find and secure purchase of a home without having your loan pre-approved by a lender, there are a few pitfalls that you risk running into.

“If you don’t have financing to pay for your property, you run the risk of forfeiting your initial 10 per cent non-refundable deposit you need to put down to secure the property. This may differ depending on what state you live in, but the point is it always pays to be organised and have pre-approval in place,” Nolan says.

Saving home loan applications to the last minute also leaves less time to find the most suitable loan and have it approved ahead of settlement.

“Arranging financing as an afterthought also adds immense pressure to the process of shopping around for the right loan and gathering the paperwork to prove you can service the loan,” Nolan explains.“You don’t want to rush this process.”


The first step towards finding your new home is speaking to an MFAA Accredited Finance Broker to sort out the finances. Please contact Brad Grant at Finance Street to discuss on 0477611232 or email [email protected]



Mortgage Offset Accounts: Making your loan work for you

Posted on 9 April, 2017 at 23:05

Savvy borrowers have an endgame in sight before they even apply for a home loan, and with the right mortgage offset account, they could win that game even more quickly.


Home buyers usually focus on the here and now, not the distant future. Rather than the size of their loan balance in 10 or 20 years, they are more likely to think about how much they can borrow and the kind of house they can afford.


But smart borrowers know the future matters. The years roll around and it’s always better to pay off a mortgage before its term and pay less interest to the bank.


The good news is that if a mortgage offset account is right for a borrower, it can help them do just that. An offset account can make them a match for their mortgage.


What is a mortgage offset account?


A mortgage account with 100 per cent offset is a fully featured transaction account that sits alongside a home loan. In many ways it acts just like a regular bank account.


However, along with the usual facilities, like ATM access and direct debit, there’s another significant advantage: Any money sitting in the offset account reduces the amount that the bank calculates interest payments against.


That’s right. The loan principal is reduced for the purposes of interest calculation by the amount of money in the offset account, without increasing the repayment amount.


How does an offset account work?

An example may make it easier to understand how an offset account works. If a home buyer has a principal of $350,000 outstanding on their mortgage and also has $10,000 in a linked 100 per cent offset account, the bank will only charge them interest on $340,000.


The money they save in interest goes straight into paying down their loan principal, which has the effect of reducing the interest paid over the life of the loan, as well as the overall loan term. Less money paid off faster.


When borrowers realise that banks calculate interest on mortgages daily, offset accounts can be used proactively. For example, getting salary paid into an offset account means the loan principal is in effect reduced by that amount as soon as it is paid.


Savvy borrowers may even choose to use interest-free days on their credit cards to pay for goodsand services, so they can keep cash in their offset accounts working for them.


How can my mortgage broker help?


Mortgage brokers help borrowers apply for and secure appropriate home loans every day, and many will have an accompanying offset account. They will usually compare a range of competitive products, and look at loan features like offset accounts so borrowers can make informed decisions.


Anyone with a mortgage can choose to have a linked offset account, although it will depend on the loan type and institution. It’s always best to check the offset is 100 per cent.


It’s important to know that offset accounts are usually included as part of fully featured home loans, which might mean you pay more in fees or a higher interest rate. So discussing your financial circumstances with a broker could be a smart first step.


Game offest and match


Borrowers who are serious about winning the mortgage game need to be aware that having a mortgage offset account could offer them an edge in the long term.


In any sport, a match isn’t won instantly. Points are accumulated over time. With the points scored daily by an offset account, it can be game, offset and match.

For more information contact Brad at Finance Street today.



The Family Factor: Should you buy property with a loved one?

Posted on 9 February, 2017 at 21:20

The family factor: Should you buy property with a loved one?

Purchasing a property with a loved one can be a great way to enter to the property market, but taking on such a large financial responsibility with someone else does come with risks. These are some of the pros and cons to consider before you both sign your names on the contract.

 

PRO: Entering the property market earlier - or at all

 

Rising house prices, the need to save for a deposit and the risk of fluctuating interest rates can all make getting your foot in the home-ownership door very difficult. It may seem an impossible task at times, and it can take years before you’re in a serious position to purchase. Buying property with a friend or family member means the dream of home ownership can be realised much sooner.

 

PRO: Buying where you want versus where you can afford

 

Sharing loan repayments with another person can be easier in terms of servicing the loan and may allow you to borrow more. It might mean the difference between buying that inner-city place you’ve always wanted and settling for a suburb you’ve never heard of. By pooling purchasing power you can find your ideal home, which otherwise might have been beyond your budget.

 

PRO: A burden shared is a burden halved

 

Buying a property with a friend or family member not only means costs are shared upfront, but also across the life of the loan. The proportion of costs taken on by each person in the arrangement will vary depending on individual circumstances, but as an example, each person might pay half the deposit, half the legal fees, half the monthly repayments, half the rates, half the utilities, and half the insurance.

 

CON: All care and all responsibility

 

Although you’ll only need to pay an agreed percentage or amount of the monthly repayments while things are tracking as planned, the entire repayment may become your sole responsibility if your loved one suddenly can’t make their monthly contribution. You are both liable to ensure the full loan repayment amount is paid when it falls due, for the term of the loan.

 

It’s important to plan for the worst-case scenario: could you make the full monthly repayments if you had to? If your partner loses the ability to make their share of the repayments and you can’t cover the full monthly amount, you may need to discuss your repayment arrangements with your lender.

 

CON: Restricted capacity to invest in more property


You may only be paying your part of the repayments each month, but if you wanted to apply for another loan you could be seen by the lender to be carrying the full risk of your joint loan. So if you decide you want to expand your property portfolio or take out a loan for a car, you might find you can’t borrow as much as you thought.

 

CON: Life happens

 

While home ownership might be a great idea for you and your potential property partner right now, it’s important to talk about what your goals are, both personally and for the property.

 

Do you both plan to live in the property? What happens if your partner wants to move out and rent out their room? What happens if they want to sell before you do? Will you be in a position to buy them out, and could you afford the costs of refinancing and possibly paying sizable loan fees and/or government fees and charges all over again? These are important questions to ask of each other, and yourself, as you consider making a joint investment.

 

It’s wise to have things written down in a formal agreement before you actually buy a property; a property lawyer will be able to advise you on the best way to do this.

 

Buying a property with another person can reap great financial rewards, but it’s important to have your eyes wide open and be as thorough as you can to ensure you’re prepared for any scenario.

 

Speaking to an expert is crucial, as they will advise you of the conversations you need to have with your property partner before you take the plunge. Finance Street are looking forward to helping with any queries you may have.

 

 

Borrowing money for renovations: what you need to know.

Posted on 9 February, 2017 at 21:10

Borrowing money for renovations: What you need to know.

You’ve been dreaming of that new kitchen and dining room for as long as you can remember, and now the time has come to put your plans in motion. But do you really have the budget to afford the works? Here are a few things to think about before making the leap from Pinterest board to blueprints.

 

Work out your budget

 

Before you look at borrowing any money, you first need to work out how much your renovation will cost. Get Ask An Architect to send you their comprehensive guide to costing a renovation.

 

Before your finalise your plans, you can arrange for a building inspector to help identify any structural work that might be needed. Major work could significantly increase your budget, so it may be worthwhile to talk directly to a professional to get a more tailored understanding of how much you’re up for. Architects and master builders are usually happy to provide a quote, so think about getting more than one quote to give you an idea of the range.

 

In addition, add a percentage for contingencies: most experts recommend that you add another 10% to 20% to the overall budget to cover the inevitable delays and complications that arise throughout the renovation process.

 

Once you know what the costs may be, you can start to think about how to raise the cash. Of course, in an ideal world you’ll have saved up at least part of the amount beforehand, but renovations can run into the tens or even hundreds of thousands, so most people will need to borrow some money.

 

Unlock your equity

 

If you’ve been in your home for a while, chances are that you have considerable equity, both as a result of paying off your initial home loan and from rising property values.

 

Equity is the amount of your home that you own; that is, the value of your property, less the outstanding loan amount. For example, if your property is valued at $500,000 and you owe

$300,000 on your loan, your equity is $200,000 ($500,000 - $300,000 = $200,000).

 

As long as you can meet the repayments and the renovations are likely to add value to your property, most lenders should be willing to lend you a percentage of your equity for home renovations. Depending on your situation, this equity could be accessed through redrawing, increasing your existing loan or refinancing your loan entirely. A mortgage broker will be able to advise on the best option for you.

 

Building loans


Most home loan providers will offer a product called a building or construction loan, which acts as a line of credit that you can draw on as renovation costs become due. The advantage of these are that you aren’t making repayments on the full value of the loan at once, but only on the progressive loan balance, which will change over time. That means you can start to pay off the first invoice before the next ones come in, saving you money overall.

 

Your broker can assist in checking with your home loan provider whether the loan is 'interest only' for an initial period. If it is, this will also help to keep your costs down during the crucial building period. If the provider doesn’t have a specific building loan, they may let you have a general line of credit, which functions similarly. Once the renovations are finished, the loan or line of credit can even be rolled into your home loan.

 

Personal loans


Especially where a renovation is small – perhaps you just want to update your kitchen without any building works – you might consider a personal loan. As personal loans are generally not secured against your property, the interest rates are usually higher. However, as the term of the loan is much shorter, you should pay less interest over time.

 

Each option has advantages, so it's worth spending some time considering them carefully.

Remember, we can always help you with any questions you might have.

 

Things that could trip you up when applying for a loan

Posted on 9 February, 2017 at 21:00

Things that could trip you up when applying for a home loan

Buying your dream home is exciting, so the last thing you want is for your home loan application to be held up. While many factors are considered in assessing an application, showing stability and consistency is key for lenders to determine whether you will be able to repay the loan. But sometimes what’s happening in your life can trip you up. Here are some things to be aware of:

 

  • If you’re at the other end of your kid-wrangling years and looking at returning to work after an extended break, it may be best to wait until you’ve been back at work for a few months before applying for a loan. This will give you time to show stability and consistency in your employment record.

 

  • Having a consistent employment record doesn’t mean you need to have the same job for years, but if you’re planning on applying for a home loan, it might be best to hold off changing jobs. If you do have to, it’s worth knowing that with some lenders you’ll need to show at least two pay slips with the same employer.1 If you can show over 12 months in the same job that’s even better.

 

  • If you have a probationary period in your new role, it could also be difficult to have a loan approved until you’ve completed it and the role is made permanent.

 

  • For the self-employed, demonstrating a stable income can be particularly difficult, which is why it’s a good idea to have an accountant. They can help you put together financial statements, which you’ll need to include as part of your loan application. Generally you’ll need at least one year’s history to support your application.

 

  • If overtime or shift allowances are a significant part of your income, your broker will be able to provide advice on which lenders may take these into account for loan repayment ability, as not all do.

 

Three questions to ask before you refinance

Posted on 9 February, 2017 at 20:50

Three questions to ask before you refinance

The home loan market is constantly changing, with new and attractive deals coming up all the time. Refinancing can help you secure a more competitive interest rate, access the equity in your home, add features (such as an offset account) or consolidate your debts, but there are some important questions to consider before you get the ball rolling.

 

1. Has my financial situation changed since I first applied for a home loan?

 

A refinance is effectively a brand new loan application. All of the personal financial data you had to gather the first time around will need to be produced again. The stability of your income stream, your assets, and your credit card debts and other debts and expenses will all be reviewed, and may impact the result of your application.

 

It’s important to think about your ongoing ability to pay off your loan, particularly if you’re planning on making big changes that will affect your financial situation, such as starting a family or quitting your job to start your own business.

 

Of course, if you’ve just received a big pay rise or are now an empty-nester, this may also make a difference to your loan application.

 

2. Will the refinance really save me money?

 

Negotiating a lower interest rate or consolidating debts may seem like a financial no-brainer, but the fees associated with switching loans can be hefty, so you need to look at all the costs to work out whether you will really be saving money.

 

Fixed rate loans can be particularly expensive to exit, and leaving your home loan early will usually see you pay some combination of exit fees, application fees, stamp duty or even legal fees. If you’re borrowing more than 80% of the value of your property, lenders mortgage insurance (LMI) may also be required.

 

Unfortunately, these fees and costs are not usually transferable from one loan to another, so you may need to pay them again even if you paid them when you took out your original loan.

 

3. Am I planning on keeping the property for much longer?

 

If you plan to sell your property within the next few years, refinancing might be a rather big investment of time and energy for little benefit. Similarly, if you only have a small amount left to pay off your loan, you may want to consider whether it’s really worth going through the process of refinancing for the marginal cost savings you may receive.

 

Refinancing can help you save some money, but it’s worth considering your plans and options before you decide to go ahead with it. If you need some support working out what’s best for you, contact Brad at Finance Street on 0477 611 232.

 

Did you know... about non-bank lenders?

Posted on 9 February, 2017 at 20:40

Did you know .... about non-bank lenders?

 

Deciding where to go for your home loan is one of the most important decisions you’ll make. While many prospective property owners will choose to use a mainstream lender, non-bank lenders also have their advantages.

 

What are non-bank lenders?

 

Essentially, a non-bank lender is a lender that’s not a bank, credit union or building society. It has its own source of funds, which it lends out with a margin for profit. A non-bank lender may also be a company or individual who borrows money from a bank at wholesale rates and then lends the money with a profit margin added. Most mortgage brokers work with both banks and non-bank lenders.

 

Potential benefits of a non-bank lender

There are several benefits associated with taking out your home loan through a non-bank lender, including:

 

Lower overheads, generally meaning lower fees

Non-bank lenders usually have smaller overheads, because they have fewer offices and fewer expenses when it comes to marketing and labour. This should lead to lower fees and better rates.

 

Customer service

Non-bank lenders try to offer a more personalised service because they tend to have a smaller database. It’s likely that you’ll be given more attention right through your home loan process, even after you’ve signed on the dotted line. Also, while you sometimes might deal with multiple people at a bigger bank, with non-bank lenders it’s more likely that you’ll be dealing with one person from the beginning.

 

Approvals

Sometimes it can take a while to get a home loan approved by a big bank. With a smaller, non-bank lender, you may be approved more quickly because you’re potentially talking to the loan decision-maker.

 

Range of choice

Given the range of non-bank lenders out there, you have a decent chance of finding one that suits your particular needs and circumstances.

Go with what works for you

There are pros and cons for both big banks and non-bank lenders, so finding the right lender for you is what’s most important. You’ll be the one making the repayments, so you need to be happy with the rates, service and fees that are offered. Your mortgage broker is an ideal go-to person to discuss your situation and what might be right for you.

 

How to instil financial smarts in your kids

Posted on 27 December, 2016 at 21:30

Worried about your kids not mastering the skills to manage their finances as adults? These tips for parents will help children develop good financial sense from a young age.

 

Most parents want their children to achieve the Australian dream of home ownership. The good news is that parents can actually play a key role in making this happen by teaching their kids the basics of finance and instilling good behaviours that will last a lifetime.

 

Starting from a young age

 

Children are sponges when it comes to learning, which is why starting their financial tuition from a young age makes perfect sense. Even in their earliest years, taking them shopping and paying for items with cash can allow children to quickly learn the basics of commerce and money handling. When they’re at the right age, get them involved by counting the money together. It should be fun and educational.

 

Saving, budgeting and spending

 

As children get older, parents can explain to them the concepts of saving and budgeting. This will help them understand how to save for something they really want. Involve them in opening a savings account in their name, and making regular deposits with their pocket money. Most importantly, recommend they have a savings goal in mind and explain how their balance will grow over time.

 

It’s also a good idea to talk about budgeting, because invariably they will be spending money at some point. A good strategy is to take them on a ‘financial tour’ of your home, showing them what particular things cost, including invisible items such as electricity. Show them the bills you receive for each, and detail how you budget for them from your own income.

 

The miracle of compound interest

 

Depositing money into a savings account is one thing, but explaining how that money can earn interest on its interest is one of the most powerful financial tools children can learn. Using ASIC’s MoneySmart calculator, show them how much they can save using a long-term strategy.

 

Allowances and jobs

 

Part of the saving process for children typically starts with them receiving pocket money, but rather than just giving them money it’s better for parents to encourage their children to get a casual job once they’re of an appropriate age. This is one way of instilling a good work ethic that can be

carried forward into adulthood.

 

Financial transparency and investments

 

Older children, in their mid to late teens, can further improve their financial literacy by learning about more complex products and through practical experience. This can include teaching them about residential mortgages and how they work, and perhaps showing them data on how property prices have risen over time.

 

It’s also good to explain how financial markets operate, including how interest rates are set and why it’s important to shop around for the best deals. Their education may even involve following shares or investments in fixed interest products such as bonds. The more they learn, the more their confidence and experience will grow.

 

Being transparent and providing financial advice gained from your own experience will be invaluable to your children. Start from a young age, and continue the education process for as long as you can. Over time, involve them in what you do so they can build their own financial foundations for the future.

 

If you're considering helping your adult child buy a home, ask Brad at Finance Street about the options available to you.

 


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