Did you know… about non-bank lenders?

March 21, 2018 Sameer Shrestha

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.

More than meets the eye – white-label loans are more than a good price

March 3, 2018March 3, 2018 Sameer Shrestha

For those unfamiliar, a white-label loan is essentially a home-branded loan. Just like your favorite home-branded products you see in supermarket aisles there is more than meets the eye – the white-label loan is more than its competitive price tag. White-label products are high quality and are developed by leading lenders – they are just packaged differently and therefore available at a sharper rate.

White-label loans are exclusively available through mortgage brokers and have rapidly grown in popularity over the past few years. So much so that over 85% of brokers now have a white-label offering for their clients. And, as brokers and customers both demand more from white-label, the products have evolved to be about much more than price, to also focus on flexibility, service and quality.

Flexibility

There is a range of choice in white-label – you can get variable, fixed or combo rate loans. They are particularly suitable for home-buyers looking for a simple, straightforward product as through white-label you can have access to the loan features you need (like redraw, debit card access and a customer care facility) and you don’t have to pay for bells and whistles you won’t use.

Service

In addition, service is increasingly becoming a differentiator for white-label. Sourcing a home-loan can be the biggest financial decision a person ever makes and understandably then, customers demand support from their brokers and rely on them as trusted advisers to guide them through the process.

A common misconception is that because the loan’s rate is more competitive, it does not come with the same level of support. Through a white-label loan, brokers can still access dedicated support teams – and ultimately give their customers quick responses to their queries and every chance of first touch unconditional approval.

Quality

Essentially, white-label delivers many of the same great features as bank-branded home loans, but for a lower cost to the customer. The quality remains the same, and the growing popularity of white-label is evidence that consumers are tapping into the opportunity and high-value of this product.

If you’re not sure if white-label is right for you, your mortgage broker can help you with this important decision. Because brokers have access to a myriad of loans from a range of different lenders – you can receive independent, unbiased advice based on their expertise and experience in the industry.

What you can borrow or what you should borrow?

February 21, 2018February 21, 2018 Sameer Shrestha

The amount you can borrow and the amount you should borrow are sometimes two very different things. Before you apply for a home loan, it makes sense to realistically assess your financial situation. Here’s how to do it.

Understand your borrowing capacity
Generally speaking, your borrowing capacity – what you can borrow – depends on a number of factors, including:

your income
your monthly expenses
your existing debts
how much deposit you have saved
current interest rate
type of loan
whether it’s a principal, or principal and interest loan
the term of the loan
estimated repayments.

However, knowing the difference between what you can borrow and what you should borrow is very important. As a general rule, it’s not a good idea to allocate more than 30% of your monthly household income to repaying your home loan.

Build a budget
To fully understand what your realistic borrowing limit might be, first of all create a budget – and stick to it. Once you understand exactly what’s coming in and going out you can properly assess how much you can afford to repay – and therefore what you should borrow.

If you don’t feel comfortable drawing up the budget yourself, it’s wise to seek help. A financial planner can assist you in preparing a budget.

Expenses to include in your budget include, but are not limited to:

council rates
body corporate fees (if applicable)
insurance costs
maintenance costs
utility bills
estimated groceries
medical bills and health fund payments
school fees
phone and internet costs
petrol and transport payments
entertainment, travel and clothing
other loans or credit card debts.

Future-proof your figures
Remember to leave a bit of wiggle room in your budget in case circumstances change. People can lose their jobs or get sick, or interest rates can rise, which could impact your ability to honour your repayments.

It’s also important to think about some other things that may happen: Is your income likely to increase within the next few years? Are you likely to have children and lose an income? Do you plan to retire shortly? These are all questions that only you can answer, and they will all have an impact on how much you should borrow.

Remember, lenders tell you how much you can borrow, but you know your personal circumstances better than anyone else – it’s up to you to decide how much you should borrow. If you need support and advice, a mortgage broker may be helpful during the decision-making process.

Home loans 101

February 6, 2018 Sameer Shrestha

There are a range of home loans available in Australia, so it can be hard to understand their features and whether they are right for you. This guide explains all you need to know.

Variable loans

Variable loans are loans that are subject to interest rate fluctuations. Whenever your bank increases or decreases interest rates, you will end up either paying more or less for your loan, depending on what the bank has decided to do.

A typical owner-occupied mortgage is taken out over 25 or 30 years, although you can reduce the overall term by making higher or more frequent payments. Mortgages are either based on principal (the amount you borrowed from the bank) and interest (the amount you pay back for having borrowed that money) loan repayments, or interest-only repayments (generally available for 1-5 years for owner occupied loans and 1-10 years for investment loans) where none of the principal component of the loan is paid down.

Fixed-rate loans

Fixed loans allow you to lock in a specific interest rate over a set period of time, generally between one and five years. This loan is popular among borrowers who want to ensure their repayments don’t rise. The main risk is that if variable rates fall, you are locked in at a higher rate. The cost of breaking a fixed rate loan contract can be substantial, and there can be financial penalties for making additional payments.

Split-rate loans

You can take out a mortgage with one portion of the loan variable, and the other fixed. In many ways, this offers the best of both worlds and you have the flexibility to repay more on the variable loan and reduce risk through the fixed loan.

Low-doc loans

Mortgage lenders require you to provide evidence of your ability to meet loan repayments, but this can be a problem for non-salaried workers such as the self-employed. Low-doc loans require less proof-of-income paperwork, but the interest rate levied is often higher than the standard variable rate.

Professional or packaged loans

Some lenders offer mortgages that provide ‘lifetime’ discounted interest rates, fee waivers and linked savings accounts and credit cards. These options are generally offered on high loan amounts.

Non-genuine savings loans

Lenders prefer borrowers to show they have the ability to save funds over time to cover their repayments. If a deposit is accrued quickly due to an inheritance or from other sources, lenders may provide less funding and require lenders mortgage insurance. Lenders mortgage insurance is a one-off insurance payment that covers the bank in case you can’t make your repayments. It is usually required for home loans with a loan-to-value ratio (LVR) over 80%.

Construction loans

These loans allow amounts of finance to be drawn down progressively to cover the various stages of a construction project. Repayments (generally only on interest for the first 12 months, then principal and interest thereafter) are only made on the amount of the loan facility that has been drawn down. However, there are line fees on the undrawn amount, or in most cases on the total facility limit.

Line-of-credit facilities

This is a way of tapping into equity in an existing home and drawing down funds as required for different purposes, such as renovations. Similar to a credit card, repayments are only made on the amount drawn down. Line-of-credit loans are often interest-only for a significant period, but can revert to principal and interest repayments down the track. Most lenders charge extra for line of credit accounts, either through a facility fee, undrawn funds fees and/or a higher interest rate.

Bridging loans

Bridging loans are designed as short-term financing options for borrowers who need funding to buy a new residence before selling their existing home. The interest rates on these loans are higher than the standard variable interest rate.

SMSF loans

The rules around borrowing funds within a self-managed superannuation fund are complex. Borrowings with a SMSF must be undertaken through a limited recourse borrowing arrangement, which limits the recourse of the lender to a single asset.

With mortgage lenders offering so many different products, getting professional advice is a must. A mortgage broker will support you with recommendations about what’s best for your personal circumstances.

For more information on home loans, talk to a mortgage broker today.

Smart tips for paying off your home loan sooner

January 29, 2018 Sameer Shrestha

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 your mortgage broker.

Confused about home loan pre-approvals? Follow these four steps.

January 23, 2018 Sameer Shrestha

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:

Pay slips and tax returns for your income.
Title deeds for tangible assets (i.e. physical items such as buildings, machinery and inventory), and portfolio statements for intangible assets (non-physical items such as copyrights and patents).
Loan statements for existing loans.
Credit card statements showing your credit limit.If you already stick to a budget and have a regular savings history, you may want to provide bank statements to demonstrate this.

You can use all of this information to get an idea of how much you may be able to borrow. There are a number of free mortgage tools and calculators that can help.

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.

Fixed, variable, split – find the right fit for you

January 9, 2018 Sameer Shrestha

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.

What’s the answer if your mortgage repayment falls short?

January 5, 2018January 5, 2018 Sameer Shrestha

Whether you’re affected by fluctuating interest rates or or by a change in your personal circumstances, the pressure of maintaining regular mortgage loan repayments can be overwhelming at times. Here is some information to help you understand the available alternatives.

What to do before it gets worse
If you’re about to miss a mortgage payment or already have, rest assured there is help available. Taking a big breath and raising the issue with your lender is the best thing you can do – in fact, the earlier you do that, the more options your lender will have to assist you.

Failing to resolve the situation may force the lender into taking action against you. This can include:

Fees being applied.
A higher default interest rate on missed payments.
Taking recovery action on your home loan, forcing a property sale.
Enforcement charges, plus court and legal costs.

A two-way relationship

Your lender will want to help you maintain your mortgage. One option is to give your lender a hardship notice. It looks like this:

First, you contact your lender to explain the situation, which may require a person-to-person meeting at their office.
Before the meeting, consider what options are available and define a ‘plan of attack’. This will show the lender that you’re proactively searching for an answer. After all, people are more likely to want to help you if they can see you’re trying to help yourself.
Whatever plan you decide on, you can give your lender a hardship notice orally or in writing that you are unable to meet your obligations – your lender can guide you in this.
Your lender has 21 days from receiving your hardship notice to ask you for any further information it requires. If it does not require further information, it has 21 days from receiving your hardship notice to decide whether or not it will agree to change your loan.
Depending on your situation, the lender may come back with a scenario to ease payments for the short term, increasing them later. This may escalate your overall loan costs, but you will maintain your home and mortgage, and will be better off in the long run.
Your lender must give you a notice as to whether or not it agrees with to change your loan following a hardship notice. If the lender does not agree, it must give you reasons why.

Lenders do have an obligation to consider your request, so don’t think that it’s a lost cause. If the lender will not assist you, you may be able to make a complaint to an external dispute resolution scheme of which your lender is a member. Your lender can give you details of how to contact that scheme.

Helpful support

Believe it or not, you’re not on your own – every month there are mortgage holders having issues with making payments, and just as there are legal rights for home buyers, there are also legal services for mortgage holders.

Perhaps there are also other financial issues, or bills, that also need attention, in which case free advice is available from the Financial Counseling hotline on 1800 007 007.

Albeit a difficult and somewhat embarrassing issue, you can speak to your mortgage broker about your loan issues. They will explain your options, suggest a plan, and work with you to minimise worries and achieve a resolution.

Whether you’re a client or not, if you require more information or advice contact your local broker as soon as possible. They can help with sorting through what options are available to resolve your financial difficulties.

Visit Moneysmart.gov.au, another great resource for tips to help you keep up with your mortgage repayments.

How redraw works and why it’s a handy loan feature

January 2, 2018 Sameer Shrestha

It’s one of the less glamorous home loan features, but the redraw facility deserves a second look. Here’s why:

The redraw facility explained
A redraw facility lets you make additional repayments to reduce your variable rate home loan balance and save on interest. If you pay more than your minimum scheduled repayments, then you’ll have money available to redraw from your home loan.

The redraw facility is a common feature of many home loans. It’s not available, though, on construction loans and only some lenders allow it for fixed rate loans.

You can redraw funds if, and when, they are needed, or you can keep the funds in your home loan to pay off your principal faster. The amount available for redraw is the difference between what you have paid and how much you were required to pay, less one month’s scheduled repayment.

Accessing redraw
You can check your loan account online to view your available redraw amount at any time. Alternatively, you can call your home loan customer care team and ask them to check for you.

You can withdraw your funds from certain ATMs depending on your lending provider, but this may attract certain fees and come with restrictions on minimum amounts.

What happens after using redraw?
After you redraw money from your home loan, you continue to make your regular repayments as normal. However, be aware the interest component of the repayments you make will increase since you’re now paying interest on a higher loan principal amount.

What are the benefits?
Like an offset account, a redraw facility can help reduce the total interest paid on your loan and shorten the life of the loan. And, of course, when you need some cash it’s easily accessible.

Depending on your lender, additional payments can be made at no extra cost and redraw funds can be accessed at any time.

When comparing loans and choosing the option that best suits your financial needs, remember to consider the redraw facility.

Understanding which home loan features are right for you

December 27, 2017 Sameer Shrestha

Loans are by no means ‘one size fits all.’ Different loan types suit different age groups, different living situations and even different attitudes to money.

A common trap some home-owners fall into is to consider a mortgage ‘set and forget’. You did your research, shopped around, found the right option and now you’re reluctant to revisit the process – even if your personal circumstances have dramatically changed.

Before you start shopping around for a new loan, or an upgrade to your old loan, it’s worth knowing a little bit about the options available. The three most common differentiators are variable rates, fixed rates and combo rate loans:

A variable rate loan offers greater flexibility than a fixed rate loan and will appeal to you if you don’t want an interest rate to be locked in for a set term. Often with variable rate loans, you can also redraw or make additional payments electronically at no cost, so you can pay off your home loan sooner and get ahead.
A fixed rate loan is right for you if you need greater peace of mind, as you will have the certainty of knowing what your repayments will be during the fixed rate term. You can choose different terms on a fixed rate loan – often between 1 to 5 years, depending on what suits you.
Combo rate loans offer both the flexibility of a variable rate and the certainty of repayments offered by a fixed rate. Like with a variable rate loan, you will have the flexibility to make additional repayments electronically at no cost to the variable rate portion.

You could also consider purchasing a white-label loan. White-label loans are increasingly popular – but for those unfamiliar with the term it can be confusing. 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 the customer.

You can access different types of white-label loans – whether variable, fixed or combo. White-label products are known for being high quality, low-cost and flexible. They are particularly suitable for home-buyers looking for a simple, straightforward product as through white-label you can have access to the loan-features you need, (like redraw, debit card access and a customer care facility), and you don’t have to pay for bells and whistles you won’t use.

If you’re not sure which of these options sounds right for you, mortgage brokers can provide real value to customers who need a helping hand to make this important decision. Because brokers have access to a myriad of loans from a range of different lenders – you can receive independent, unbiased advice based on their expertise and experience in the industry.