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Helping You Navigate the World of Finance

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Guaranteeing your child’s loan

05 APR 2017

Rising house prices are making it increasingly difficult to enter the market. Parents who guarantee their children’s loans can help, but it is important to understand how this can impact the parents’ retirement or investment plans.

Being a guarantor generally means using the equity in your own property as security for your child’s home loan. It can help a first-home buyer to secure finance for a property they can afford but may not have a large enough deposit for, and to avoid the added cost of lenders mortgage insurance.


There are other advantages as well. “By guaranteeing a loan, you’re helping your child enter the property market sooner,” Mario Borg, Director and Mentor at Masters Broker Group explains. “Also, your child may be able to buy in a more desirable location and a home that better suits their needs. If they did it on their own, they may need to go further out of the city or perhaps settle for fewer bedrooms.”


The risks


You may want to help your child but it’s important you don’t go into the transaction blindly.


The main risk of guaranteeing the loan is that, depending on the structure of the guarantee, you could be liable should your child default on the payments, either by taking over the repayment schedule or handing over a full repayment.


If you can’t make the payments, the lender may sell the home used as security. If this is still not enough, the lender may also require you to sell assets to meet outstanding debt.

Another major risk is a bad credit rating if default occurs.


Plus, if you need to borrow money for another purpose, your property cannot be used. “If you want to buy an investment property, you can’t use the equity in your home because it’s already tied up in the child’s loan,” Borg says.


Minimising the risk


There are ways to minimise the risks. The most common is using a monetary gift or private loan. “This involves borrowing money against your property in your name, and then gifting it to your child,” Borg states. “You should have a legal agreement in place.”

Another way to avoid the risk is to buy the property jointly with your child. This means your name is on the title and you have a certain percentage entitlement.


When it comes to guaranteeing a loan, it’s always sensible to speak to a professional. You should also consider asking a legal professional to draw up a formal loan document outlining all conditions of the loan, interest rate and expected repayments.

Finally, outline an exit strategy. Financial situations change and, as the loan decreases with repayments, there may be an opportunity for you to withdraw your support to free up your assets without impacting your child’s loan.


Find out more about the different types of loan guarantees, by speaking with us today.

Applying for a loan? Don’t just pay off the credit cards

04 APR 2017

It seems like a no brainer, right? You are buying a home, so you’ll pay off your credit cards to reduce your debt, but keep them active so you can buy some furniture or deal with emergencies even when you have a mortgage to pay. Wrong.


It’s obvious that a lender will consider your credit card debts and the monthly repayments on those when you apply for a mortgage. But what many people do not realise is that credit cards that don’t have any balance owing can also impact a lender’s assessment of what you can afford to borrow.

If you have a high credit limit, you also have a high debt risk in the eyes of your lender. As the logic goes, there is no stopping you from racking up debt on your credit card the day after your loan is approved. Say, on lovely furniture to fill that new house.

“We have to take account of three per cent of the total credit card limit, regardless of what the applicant owes,” says the finance broker.

“If they had a $10,000 limit but they only owe $1000, we still have to assess $300 a month and that comes directly out of their liability. It does make quite a difference” , says the broker.

From this, it can be surmised that if you haven’t put a cent on your credit card for the past five years, a high credit limit will negatively affect your serviceability; $300 per month off a mortgage repayment means quite a bit over the life of a loan. In fact, being able to repay an extra $300 each month on a 30-year $500,000 loan at 5.5 per cent interest will mean paying it off 5 years faster, and saving approximately $100,000 on the total cost of the loan. Alternatively, it may mean that you are able to borrow an extra $50,000.

The best thing you can do is lower your credit limit or cancel your credit account..

“You need to pay out your credit cards and avoid having any other debt,” says the broker. “You need to be able to use your full amount of income.”

For those who have to pay off their credit account before dreaming of cancelling their liability, it is, of course, imperative to make those payments on time to avoid negatively impacting your credit history.

The first step towards finding your new home is to contact us discuss your goals and to sort out your finance requirements. Contact us today to find out more.

Who pays your ‘free’ finance broker?

03 APR 2017

There’s no such thing as a free lunch, but that doesn’t mean you will receive lower levels of service or expertise from a finance broker who doesn’t charge you. It just means that someone else is paying for it. Each business will have its own reasons for its revenue model, and each structure offers different advantages.


Approximately 90 per cent of the more than 10,000 MFAA accredited finance brokers don’t charge a fee for their advice, relying on lender commissions for their income. Others rate their intellectual property as a service worth paying for upfront.

As part of the majority, Mortgage Choice has never once charged a client an engagement fee in 23 years of business. Jessica Darnbrough, Head of Corporate Affairs, says that, while she can understand why some people have introduced a fee-for-service structure to cover costs even when a client takes their business elsewhere, recent survey results reveal that it’s not something Mortgage Choice’s borrowers would agree to take on at this stage.

“It’s a tricky thing to introduce, and those who do tend to be independent players,” she says.

“But the truth is, buyers do shop around these days and brokers can end up doing a lot of work and not getting paid for it, especially since the introduction of the National Consumer Credit Protection Act 2009 – that prompted a lot of brokers to start charging. So, we might very well see an increased level of brokers charging in the future.”

Robinson Sewell Partners (RSP) has done just that. After several years in business, agribusiness finance specialist RSP recently introduced a fee-for-service model that allowed it to help clients even when it would not make business sense to do so if the only income would be commission. It also allowed RSP to assign a clear value to its services and the experience in its team.

“It’s been a learning curve, but we realised that trying to engage clients without charging any fee, and just relying on the back end of success, really undermined how we evaluate our propositions,” says Director, Ian Robinson.

Clients have been increasingly committed to the process because they wanted to guarantee a return on their investment and, contrary to the Mortgage Choice experience, the company saw little debate about the new fee structure.

“We value our intellectual property very highly. We’ve been in the trenches with the banks for years and we understand the internal mechanics – this is very powerful information to have when we’re operating on the client’s side.”

A clear advantage of seeing a fee-for-service broker is having someone onside who isn’t worried about the volume of your business. They are paid to do a job for you, and they do that whether your loan is $200,000 or $2 million.

The main and very obvious advantage of seeing a finance broker who does not charge a fee is that it lowers the cost of procuring finance and, despite public debate, the different commission structures offered by the various lenders do not impact the finance broker’s recommendations.

Not only are MFAA accredited finance brokers bound by ethics agreements that demand they do not suggest loan products that are unsuitable for a client, an broker who prioritised commissions over their clients would see their business suffer as clients realised that they would get a better deal elsewhere.

Whether you choose an broker who charges fees or one who relies on commission like us at Blueskin Bay Finance, MFAA accredited finance brokers are bound by ethical standards requiring them to give you appropriate advice. Find out more about us here.

How to negotiate the best property price

02 APR 2017

Negotiating the best property price isn’t a matter of swindling a seller. It’s about doing your homework, knowing what you want, knowing the market and making sensible offers.


When you are buying property, getting the best price can mean the difference between being able to afford it and having to settle for second best. And, of course, a purchaser is often negotiating with a seasoned professional, so any time spent brushing up on negotiating skills is well spent.

But we’re getting ahead of ourselves. For a first-class property price negotiation, the homework starts well before you even let the agent know you are interested.

The first thing to do, says buyers’ agent Shelley Horton, is get a good understanding of your requirements and circumstances. Aside from the location and type of house you are looking for, this understanding involves finance, of course.

“One of the first things I would be wanting to find out is whether a purchaser will be borrowing to finance the property, and how much they are looking to borrow,” Horton explains. “If someone is relying on finance as part of the property purchase process, I would always recommend they go and get pre-approval, because if you don’t have pre-approval, it doesn’t really put you in a strong position against the rest of your competition.”

Aside from meaning that when you do eventually make an offer it will be taken seriously by the seller or their agent, having finance sorted out means that you can be sure of what your stamp duty and associated costs are, and exactly what price range you can consider.

“We can start to work out what an offer range might be, and then it’s just a matter of ascertaining the market,” Horton says.

“This means doing lots and lots of research – seeing the prices other similar properties are listed on the market, checking recent sell prices for other properties that fit the criteria, comparing as much as we can like for like, so then you know that you’re not paying too much.”

Horton initially looks at online resources such as realestate.com.au or Domain. She also uses RP Data reports, but notes that the general public doesn’t usually have access to these (agents, valuers and finance broker usually do).

“The reports give us a little more insight into properties that have sold, and background on the circumstances and situations leading up to a property coming on the market, how long they’ve been on the market and whether they have switched agents,” she says.

Above all, the best thing a buyer can do is get out and look at properties, and speak to the agents to build contacts.

“I inspect properties and go to auctions just to keep in touch with the area, to see what the market is doing,” Horton says. “If you go to an auction and there was a lot of hype around the property, but then you find that there was really only one person interested in bidding, it tells a different story.”

Once you have your finance sorted and you’ve found that special property, get the building and pest inspections done as soon as you can so that if you do make an offer, you are prepared to move quickly. This can give you the edge on your competitors.

“If you have your homework done – your due diligence reports, your finance – you know exactly the position you’re in and you’re ready to go, and letting the agent and vendor know that is actually a good thing,” says Horton. “An agent wants to look for all those signs to see who is the most serous buyer. So being able to make an offer, possibly with no cooling off, will put you ahead of anyone else, because the agent knows that you’re going to start talking about dollars and, once you agree, it’s a done deal.”

Finally, it’s time to talk dollars, and you are well armed by the time you reach this point. Most agents will make buying guides available at inspections, so you will have a good idea of the vendor’s expectations; you will have a certain budget in mind because your finance is locked in; and you will have a good idea of the value of the property from all the preparation you have done (if you are still unsure here, you can have a professional run a valuation or engage a buyers’ agent).

So what should you offer?

“I tend to not start too low because the agent won’t take you seriously,” Horton says. “You have to get that balance right. You might want to start five per cent below a realistic opinion of the value of the property, and go from there. It also depends on your budget. Certainly start below your maximum, and work up to that. Every dollar you get the property under your budget is a bonus for you.”

One exception to this is when a property has been on the market for a long time and there is not much interest in it. “That might be the case where you can get something at a heavily discounted price because the property is stale,” Horton says. The key to knowing whether this is the case, of course, is all that thorough research you’ve done.

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

01 APR 2017

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


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

Have they defaulted on any payments?

He or she might be relatively debt free now, but has this always been the case? One bad mark on a credit file, such as a late car payment or a default on a credit card, will change the approach you need to take when applying for finance.

It doesn’t mean you can’t secure finance, but it may mean you need to apply to a specialist lender for an alt-doc loan. Your MFAA Approved Finance Broker can help you find the right lender and craft an application to avoid the heartbreak of continual rejection.

That savings balance, where has it come from?

If your partner has savings towards a deposit, that’s fantastic. But the balance is only one part of the equation that lenders consider.

If he or she has managed to build up those savings over a good period of time, making regular contributions and managing their savings well, lenders will consider this a positive indication of an ability to make repayments regularly.

If, however, the savings are the result of a redundancy payout, a gift from family or backing a good horse, they are still helpful as a deposit, but don’t indicate that ability to make repayments.

Again, this is not the end of the world. You’ll be in a better position than you would without that balance, but may need expert help to put your application in the best light.

If we did get into trouble, how would you want to handle it?

You must plan for every eventuality, even one you think is not likely. Having said that, this discussion isn’t so much about having a solid plan in place for the worst, as seeing how your partner would deal with difficulty.

If one of you lost your job, or you had unexpected bills that seemed overwhelming, would they try to struggle through, not wanting to talk about it with you or with your finance broker, and potentially default on the loan? Or would they tackle it head on by visiting your finance broker or lender with you to make a plan to get through it without defaulting?

Before you start looking for a home to share with the love of your life, an appointment with an us can help you iron out the details and secure the finance that suits both of you. Call us today!

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What documents you need to apply for a loan?

01 APR 2017

Applying for a loan is a very big step, and it’s not always straightforward. To help make it simple, here is a handy list of the documents you are likely to need when you meet with your finance broker.


You are ready to buy a home, you just need a mortgage. Before you go rushing off to meet with your local finance broker, be sure that you have a few documents on hand to prove your identity, income, assets and liabilities.


Identity


You will need two of the following three:

  • passport;
  • driver’s licence; and
  • photo identification, such as a university identification card or proof of age card.

If you don’t have two of these, you can also provide one, plus a birth certificate, Medicare card, citizenship certificate or similar documentation.


Income


If you are employed on a full-time basis, this is a fairly easy part. You will need to prove your income by providing your most recent PAYG payslip, including YTD income of at least three months. If your payslips don’t list your YTD income, you will need to provide previous payslips, your employment contract, an ATO tax assessment, a PAYG summary or a professionally prepared tax return.


If you are self-employed, you’ll need to provide your individual tax return and ATO assessment notices for a year, as well as your business’s financial documents: one year’s tax return, profit and loss statement, and balance sheet. You may need BAS statements or other documents from your accountant, too.


Whether you are self-employed or not, any other income you receive will also need to be documented. For example, if you own an investment property, provide a current lease, tax return listing the rental income or a letter from the leasing agent; if you own shares, bring a statement, investment record or tax return; and if you receive any government benefits, bring a statement from Centrelink.


Assets


You will need to prove your savings with bank statements, as well as be able to provide details and values of any other assets, such as cars, stock, term deposits and property.


Liabilities


By the time you are applying, you should have paid down your debts and reduced the limits on credit cards to give you the best chance of approval and improve your borrowing capacity, as lenders assess your ability to make repayments on your credit limits, not just the amount you owe.


You will need current statements for your credit cards, store cards and loans.


Are you refinancing?


If you are refinancing a loan, you will need the past three months’ loan statements and the current payout figure including any exit fees.


Of course, depending on your personal circumstances and the requirements of your individual lender, the documentation you need will differ. Luckily, we can tell you exactly what to provide and take the confusion out of applying for a home loan. Call Kylie or Geoff today.

How a health check can broaden your property horizons

31 MAR 2017

A simple home loan health check led two police officers to refinance for a saving of $7600 a year in interest.


When police officers Ben Dixon and Sara Peters were looking for a home loan, they thought the choice was obvious. They secured finance through the same community-owned bank most of their colleagues used, bought a house and were happily paying it off.


A few years on, and knowing that their interest rate was a little higher than others they had seen advertised, Ben and Sara visited their local MFAA Approved Finance Broker for a home loan health check.


“Being members of a mutual bank they thought they were being looked after and thought they were on quite a good deal,” their finance broker recalls.


This wasn’t the case though. Although they had always received good service from the lender they had been with for nine years, they were on an unnecessarily high rate that was costing them both money and years on their loan.


“We were able to reduce their rate significantly, and we ended up saving them $7600 a year in interest. And the loan was only $450,000 – it wasn’t a big loan,” says their finance broker.


The couple had two options: they could either reduce their repayments and have an extra $7600 each year to play with or to save, or they could keep their repayments at the current level and pay down their loan more quickly.


“They had a family as well, so the money could certainly be used elsewhere, but the aim for them was to pay their loan off as soon as possible, so they continued to make the same repayments, and have been able to reduce their loan faster,” their broker explains.


Being able to reduce the debt significantly sooner than they originally planned means that the couple is now working towards purchasing an investment property.


“The plan is to reduce their debt first, and then be able to put funds aside for an investment purchase. They are absolutely on track to achieve that,” says Ben and Sara’s broker.


“They are a fairly typical family, and they thought they were on a reasonable deal. It wasn’t until they came to me for a home loan health check that we were able to show them that there were significant savings to be had by looking at an alternate lender.”


Call us today so we can help you find out if you are paying too much.


*Names have been changed to protect customer privacy.

No deposit? No worries

31 MAR 2017

If you have a stable income but don’t have the cash for a deposit, an expert can help find a way to turn your dreams into reality.


Robert and Brooke had a good, solid income but they didn’t have a sufficient deposit to be able to buy a property. They had been knocked back after visiting various lenders, but, when they went to see their local MFAA Approved finance broker for help, it turned out that they just hadn’t been given the best advice.


Their finance broker suggested that they take a different approach and use family equity in place of a deposit. This meant including the value of the parent’s home in the total property valuation for the loan to bring their loan to valuation ratio (LVR) up to the required 80 per cent.


As for the parent’s concerns, the finance broker was also able to explain the implications and the flexibilities they had in terms of selling their property or downsizing. He allowed them to understand that they could still help out without carrying a large financial burden or altering any plans they had.


Robert and Brooke’s application was approved, so they no longer had to delay and miss out on their purchase. They also avoided paying lenders’ mortgage insurance (LMI). Four years later, they have been able to refinance, eliminating the family property from their home loan arrangement and maintaining the loan on their own.


With the equity in their home, they are now working with their finance broker on a plan to purchase an investment property, which they would never have thought was possible four years ago when they had been told they couldn’t buy even one.


*Names have been changed to protect the client’s privacy


Give us a call today. As MFAA Approved finance brokers we can discuss all your options when it comes to deposits.


This case study was provided by John Sinclair of Mortgage Choice, Sydney.

5 things first-home buyers need to know

30 MAR 2017

Before you decide to purchase your first property there are a number of things to consider, including your current personal circumstances and financial status.


1 Think about why you want to buy a home

Do you want to live in it or will it be an investment property? This can help determine the kind of loan you apply for and home you buy, depending on your short and long-term plans.


2 Research potential properties and loans

Knowing the market is crucial, so do some research on the areas you are targeting, check out auction clearance rates and recent sales, as well as price trends in the area. Once you are aware of what you are looking for and the approximate price, the next step is saving a deposit.


While some lenders will offer loans if you have saved less than the usual 20 per cent deposit, being able to show a record of good saving habits will aid in getting your loan approved.


Then, when you talk to your local MFAA Approved Finance Broker about applying for pre-approval on the right type of loan, ask for their help to work out what you can afford in terms of repayments.


3 Factor in other costs involved

Depending on the property, there can be a number of additional costs, so ask your finance broker what other payments you will face. This can include, but isn’t limited to, stamp duty, loan establishment fees, legal and conveyance services, utilities, property insurance, maintenance and lenders mortgage insurance .


4 Think about your future

Just because your current situation allows you to get a home loan, that doesn’t automatically guarantee that you will still be able to service it in five years’ time. Is there a possibility your role at work will change? Are you considering going back to study and reducing your working hours?


5 Get professional help

With so many things to consider, getting professional help is highly recommended. There are many experts in the industry and it is in your best interest to use them for tasks such as property checks, pest checks and any other legal queries. Going it alone can prove costly. Avoid nasty surprises down the track by getting the right people to do the appropriate checks for you from the beginning.

Call us today. As MFAA Approved Finance Brokers we are able to provide you the best expert advice about buying your first home.

www.blueskinbayfinance.com

Five simple ways to increase loan repayments

30 MAR 2017

Paying off a mortgage can seem relentless – every payment counts of course, but it can seem to be taking forever to make a dent. Here are some simple ways you can increase the amount you pay off and own your home sooner.


Reducing the principle on your mortgage as quickly as you can means paying less interest, so your future payments are going even further towards reducing that principle.


To find the ideal balance between the extra repayments you can afford to make and the time this will shave off your mortgage term, use a mortgage calculator


For example, on a $350,000 loan at six per cent interest, a monthly repayment of $2100 will see a total term of 30 years and a total cost of just over $750,000, while paying just $500 per month on top of that will bring the loan term down to just under 19 years and the total cost to just over $580,000.


Boosting these monthly payments by a further $400 to $3000 will see the loan paid off in less than 15 years – halving its term.


So, here are five simple ways to increase those mortgage repayments.


Ignore the bank

Well, sort of. Don’t pay any attention to the amount that you are told is the minimum repayment, as long as you pay more. Work out the most you can afford to pay, think of this as your minimum repayment, budget for it and stick to it.


Treat yourself


Think of every step you take towards reaching your goal of owning your property outright as a way of treating yourself. Sure, an expensive bottle of wine is nice, but doesn’t taking a year off your loan taste pretty sweet, too?


Every single increase to your income, no matter how small, should be channelled into the debts that are incurring the highest interest. If this is your mortgage, send it there. Do the same with your tax returns, any bonuses at work and even cash gifts.


Track your spending


Download an app to track what you are spending your money on, and trim where necessary, channelling the savings into your mortgage payments.


Think of all those little things you don’t really notice yourself pulling out your wallet for. In one week, that extra coffee on Monday morning, a sandwich from the cafe instead of one you have made yourself, that round of shots you probably shouldn’t have shouted on Friday night and getting your nails done on Saturday add up to $150. Over a month, that’s $600. Increasing a monthly repayment from $3000 to $3600 could trim more than 10 years off the term of a $500,000 loan. Now how much do you really want that coffee?


Eyes on the prize


Watch the forecast term on your mortgage – seeing it go down will motivate you to work even harder.


Talk to an expert

Talking to your finance broker about refinancing options could reveal a way to pay down your debt sooner even without increasing repayments. A finance broker will be able to look into whether you may get a better interest rate or lower fees with another lender, or even with your own, and will be able to help minimise any refinancing costs.


This is especially important each time your goals or your financial circumstances change. If you are earning more than when you took out your loan, you have paid off a personal loan or a credit card since that time, or your property’s value has risen, your finance broker may be able to negotiate a far better deal than the one you are on.


For example, if your finance broker negotiated your interest rate down from seven to six per cent on a $500,000 loan, on which you are making $3500 monthly repayments, your loan term could drop from just over 25 years to 21 years.


An MFAA Approved finance broker is with you for life to make sure you’re always getting the best deal you can from your mortgage. We are MFAA approved and happy to assist you with annual health checks of your finances and with all your loan application needs. We are with you every step of the way.


www.blueskinbayfinance.com

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