Home loan health check

You may be losing thousands of dollars which can be used for a family holiday. I know you are surprised, as simple as an annual home loan review from a mortgage broker could help you save this money and it is completely free.

The reasons for losing thousands of dollars can vary and depends on the individual circumstances. A home loan health check can help you find these reasons as well as having various other benefits;

1. Find out whether you are paying too much on interest rate and how much you could save by switching to another Bank.
2. Maybe you have other debts like personal loan and balance transferred credit cards and you are struggling with home loan repayments. Your mortgage broker may be able to help you with debt consolidation into your home loan.
3. You may not be taking advantage of your home loan features, particularly if your own circumstance will or has as of late changed, for example, beginning a family, renovating your home or purchasing an investment property.
4. If you are planning to for example buy an investment property, a family holiday, purchasing new furniture, a Mortgage broker can help you to find out the property value and let you know whether you are in a position to access your equity or not.
5. Regardless of whether you began in a variable rate or a fixed rate, a home loan review can enable you to make an informed decision.
6. If you are paying higher interest rate because of low doc, bad credit or specialist home loan, a home loan health check can find out whether you are in a position to refinance with other lenders who provide a better interest rate.

Not an Aussem Mortgage Solutions Client? Don’t worry

We are still able to give you a free home loan health check. Contact us today on 0432 297 651 or PM me.

Hi, is this Aussem mortgage solutions? I am Matthew

Hi Mattew, yes it is, I am Suresh, how are you doing today?

Good thanks Suresh, how are you?

I am doing great! What can I do to help you today Matthew?

So, I just had a few questions about offset accounts, is that alright?

That’s perfectly fine, what would you like to know Matthew?

Well, first of all Suresh, I wanted to know what an Offset account really is.

That’s fine Matthew, so an Offset account is a bank account that is linked to your home loan which reduces the interest accumulation on your mortgage.
What this does is, instead of interest accumulating on your total home loan, money in the offset account is offset against your mortgage to reduce the payable interest.

So, for instance, if you have a mortgage of $500,000 and an offset account with $30,000, then you will only have interest on $470,000 and not the full $500,000. This way, in the long term you can reduce the total amount of interest you pay and the amount of time it would take to pay off the mortgage!

Oh I see how it works, so would I have to pay tax on the interest saved from the offset account?

Actually no, since there is no compound interest being earned from the offset account money, it does not get taxed. The saved interest instead adds to the equity in your property.

Wow that sounds great, can you still withdraw funds from the offset account?

Yes Matthew, you have the flexibility of depositing and withdrawing funds without any access fees as it is the same as a transaction account. As a result, you can also store a sum of money in the offset account to rely on during emergencies which is continually reducing interest paid on your mortgage.

That makes sense, just one more thing Suresh, what are the benefits of an offset account and who would it be suitable for?

Well, Off-set accounts work best when you can keep a large amount of money in the account over long periods of time. So, if you are a good saver, by saving money and depositing to the offset account, you can avoid paying taxes on interest while still making valuable gains in equity-like I mentioned before.

Also, instead of making extra repayments into your mortgage, you could deposit into an offset account as it provides a flexible alternative that lets you reduce your interest while still being able to access the money in case of an emergency situation.

Any additional money into the offset account will help reduce the long-term interest repaid, however only keeping a small amount in the offset account will not give you very significant savings. Just keep in mind that you should always be aware of any possible fees and conditions which come with the offset account as they may not be worth the savings in the long term.

Thanks a bunch, Suresh! That makes things a lot clearer.

Always happy to help, Matthew, if you have any other queries regarding home loans or refinancing, don’t hesitate to contact us again.

How to calculate your borrowing power

One of the most important factors in your home ownership journey is the amount of money you can – or should borrow. You want to borrow enough that you can purchase the right property for your needs, yet you don’t want to end up out of your depth in debt.

Most lenders rely on their own variation of a basic formula to calculate your borrowing power. They look at six elements of your financial situation – gross income, tax, existing commitments, new commitments, living expenses and buffer – to calculate your monthly surplus. This formula gives a good overview of your level of financial security, and tells lenders how much you are able to pay back each month. If you assess yourself based on a similar formula, you can have a realistic idea of how much you can borrow and whether you need to save and prepare a little more first.

So how do all these elements combine to assess your borrowing power?

Gross income

The lender will look at all your sources of income to calculate your gross income. Sources include your base income, overtime, a two-year history of any bonuses, commission (if you have been receiving a regular ongoing amount for at least one or two years), any regular payments from a family trust and any rent derived from investment properties. If you have children under the age of 11, the lender will also include any Family Tax Benefits A & B.

Tax and Medicare

Your tax and Medicare expenses will be calculated to assess how these costs reduce the amount of your gross income.

Negative gearing benefits

If you already have investment properties and incur benefits through negative gearing, the lender tend to increase the amount of the potential loan.

Your new mortgage

When calculating how much your new loan repayments will cost, the lender will slightly increase the interest rate by about 1% to 3% to create a buffer against future interest rate rises. If you are purchasing an investment property, they will sometimes calculate an even higher interest rate, depending on the current market.

Your current financial commitments

Your ability to pay off your loan will be affected by your other financial commitments, such as ongoing debts and living expenses. Lenders will look at your existing mortgages, credit cards and personal loans to determine your financial status. Credit cards will be assessed as if you owe the maximum limit, not on how much you currently owe. And the lender will also calculate on a slightly higher interest rate. If you are living rent-free with a family member, the lender will calculate in a hypothetical rental payment to allow for a change in your circumstances.

You can present your lender with your own estimate of your living expenses; your lender will compare this amount to their own calculation of the minimum expenses for a family of your size. They will use the higher figure to make their estimation.

The buffer

The lender will add a hypothetical expense as a buffer against any unexpected expenses that could affect your ability to repay the loan. The purpose of the buffer is to ensure that you are borrowing slightly less than you can currently comfortably afford.

Surplus or shortfall? 

Once the lender has calculated each expense, they will deduct these expenses from your gross income. If the expenses are greater than your gross income, the result will be a shortfall. If you are living within your income, the result will be a surplus – extra money that can be used to pay off a loan. A surplus is a good first step to securing a loan, although the lender will also take into account factors such as your employment history, your credit score, and your savings before making a decision.

You can use this method yourself to calculate your own surplus so you have a good idea how you can manage loan repayments once you purchase a property. This is an excellent exercise in getting a strong grasp on your budget and working out ways you can make your money work for you more effectively.

For assistance in calculating your borrowing power, contact us today.

Your home is perhaps the biggest investment of your life – particularly as it is not just a financial investment, you are also investing in your future lifestyle. Yet many people have a tendency to “fall in love” with a particular property, and they forget to remain logical in their thinking. As a result, they find themselves owning a property that does not suit their current lifestyle or their future financial plans.

So how do you choose the right property for you?

Find a property that fits your real-life needs, not your dream lifestyle

You might have fantasies of living by the beach or in a small inner-city unit within walking distance of all the pubs and cafes, but how will this choice fit your budget and your long-term lifestyle? Your first home should fall within your budget and it should be compatible with your work and family life. There is no point purchasing a dream property that requires a two-hour commute to work or takes up all your spare money reducing your quality of life.

Is it a good investment for you?

Investigate the economic possibilities of the location and the property itself to see how it will appreciate over time.  Also consider how the property will grow alongside your lifestyle choices – perhaps you want to “flip” the investment property by doing a few renovations and selling for a profit, or perhaps you want to live for a few years in a small house before extending the property to make room for a family. Whatever your plans, your property is an investment tool that you can use to provide for your future.

Is the property value accurate?

If you fall in love with a particular property, you may trick yourself into wanting to spend more than necessary just to “win” it. However, it is important to check that you are paying what the property is actually worth. Look at the purchase history of the property and neighbouring properties to see how their value has appreciated, and how much they are all perceived to be worth now. Consider what needs to be done to the property in terms of renovations or repairs in order to make it right for your purposes.

Will you need a home loan?

Before you commit to a property, look carefully into the financial aspect of the deal. Find out how much you will need to borrow in order to secure the property, and whether you can still maintain your quality of life while paying off the loan.

If you need assistance working out how to find the right property for your lifestyle and budget talk to us today…

Which is the right home loan for you?

There are a bewildering variety of home loans available, and it can be confusing to figure out which type of home loan is the best for your circumstances. However, when you know the pros and cons of each type of loan, you can make a decision that will fit best with your financial situation.

Fixed rate home loan

A fixed home loan offers an interest rate that is fixed for a set period of time – usually 1, 3 or 5 or 10 years. The key benefit is the ability to budget, knowing exactly how much your repayments will cost each time. However, a fixed loan doesn’t have the same flexibility as other loans – you will encounter restrictions if you want to make additional repayments, such as fees or capping to a low amount. You might also be disappointed if interest rates drop dramatically and you are still paying the same fixed rate.

This is a good option if you want to make steady regular payments and you intend to stay in your current home throughout the term of the loan. It is not such a good option for someone who wants to move to another property in the foreseeable future, or who wants to cut down on the term of their loan.

Variable rate home loan

A variable home loan is far more versatile, with the option of making extra payments at no extra cost, enabling you to pay the loan off sooner. Your loan might also offer unlimited redraws, so you can access money in an emergency. Another positive feature is the offset account, a transaction account linked to your mortgage account which reduces your interest payable.

This is a good option if you want to invest the maximum into your mortgage, with the freedom to redraw in an emergency. However, as the interest rates will vary from payment to payment, it is not such a good option if you struggle to budget for unpredictable changes in the loan repayments.

Split loan

The split loan offers the advantages of both fixed and variable loans. You can split your loan into any proportion you wish – 50/50 or 80/20. One of the benefits of the split loan is that payments will gradually decrease, as the steady fixed rate payments lower the amount of the loan, so that the variable payment is proportionally lower at times when interest rates rise.

Interest only loan

With an interest-only loan, you pay only the interest on the loan for the initial term, usually from one to five years. Your monthly repayments are considerably lower, although this is because you are not reducing the principal of the loan. At the end of the interest-only term, your repayments will rise as you must start paying both interest and principal.

This can end up being an extremely expensive option if you are not sure what you are doing. However, investors tend to choose interest-free loans, as they can take advantage of low repayments over a set period before they resell the investment property.

Low Doc

The low doc loan has lower requirements for proof of income and credit rating, yet they also require a higher deposit and charge higher interest rates.  For someone with an unstable credit history or employment background, the low doc loan will be difficult to pay off. While this option can be popular with self-employed people, who don’t have the same level of documentation to prove their income, the excessively high-interest rate generally makes it a bad long term choice. If this is your only option for a loan, your best alternative might be to wait until you can be approved for a different type of loan.

If you need help figuring out the best home loan option for your circumstances, contact us today.

Why the banks will decline your business loan application (and how you can best prepare yours)

Need to stabilise your cash flow? Keen to expand your capabilities? If the time has come for your business to engage in strategic borrowing there are some important steps you’ll need to take, to boost your chances of getting the business loan you need.

The challenge of bank finance

You’re probably aware that since the 2008 GFC, Australian banks are very risk-averse. Only a small percentage of loan applications from small businesses get approved – and the majority of those that do are for well-established SME’s with several years’ trading history, consistently high turnover and plenty of juicy assets to offer as collateral.

Unfortunately, banks tend to have numerous criteria that you’ll need to satisfy before qualifying for a business loan – fail to cross the line on any one, and the chances are your application will be rejected without a second glance.

Here are the top 3 reasons banks turn down business loan applications from SMEs:

1. No collateral

Above all else, banks want to know that if they lend you money, they’ll get it back – one way or another. Securing a loan against an asset, whether it be property, a vehicle or a marketable piece of equipment, gives them solid reassurance that if you fail to meet your obligations for any reason, they have nothing to lose.

Bear in mind that 60% of small business loans are for less than $100,000. For a major bank the amount they’ll make in fees and interest on a loan that size is barely significant – which means it simply isn’t worth the risk for them unless the loan is fully secured.

2. No track record

The last thing the bank wants is for you to default on your loan. Yes, their interests may be protected by the collateral, but they’d still have to go through a potentially lengthy and expensive process to recover their money – as well as missing out on all the interest.

Banks go to considerable lengths to check that the businesses they lend to are likely to survive, and to generate enough profit during the period of the loan to cover repayments, fees and interest. Unless you can show that your market is stable, your business is thriving, your management knows what it’s up to and your cash flow is steady, you may just look too risky.

Any of these scenarios are likely to raise red flags to a bank:

• You haven’t been around long enough to prove your business model is viable
• Your industry is weakening, or you occupy a weak position within your sector
• The majority of your revenue comes from just a few suppliers
• Your income is seasonal or inconsistent
• Your clients are slow at paying, leaving gaps in your cash flow

3. Weak credit rating

While it’s obvious that any black mark on your credit record can get your application rejected, you may be surprised to learn that other factors can have a serious negative impact. Believe it or not, having no credit history at all can count just as heavily against you, because to a bank it means you’re a big unknown. It’s far better to build a history of borrowing and repaying smaller amounts (e.g. by using a business credit card)  to show you know how to handle debt, than to remain debt free.

Too much activity on your credit record can also raise flags, so beware of contacting multiple institutions about potential financing – wait until you’ve narrowed down your options and identified the lender that’s the best match for your needs.

My business meets the criteria – how can I prepare?

None of these issues apply to you? Great! The key to securing bank finance with the minimum hassle is solid preparation – so before you apply, take these 5 important steps:

1. Prepare a thorough business case for the loan. This is for your own benefit as much as the bank’s – identify how much you need to borrow and for what period, how the money will be used to grow or stabilise your business, and how you intend to handle repayments.
2. Update your business plan. Give the bank a clear picture of your business position and capabilities by including SWOT analysis, performance analysis and details of your current business model and strategic plans.
3. Compile comprehensive financials. You’ll need 3 years’ P&L statements and balance sheets plus robust cash flow forecasts.
4. Take advice. The type of financing you select and way you structure your loan can have a big impact on the overall cost, so it’s wise to seek professional financial advice before you apply.
5. Choose your lender. Rates, terms and conditions – as well as appetites for lending to different types of business – vary between banks, so research your options before selecting a product to get the right package to suit your needs.

Not sure I’m right for a bank business loan – what’s the alternative?

If you think your business might not meet the big banks’ criteria, all is not lost. There are an ever-growing number of alternative finance providers in Australia who are willing to offer unsecured loans and other types of business finance to SME’s.

As the home loans market continue being more complicated, first home buyers are now looking for mortgage brokers to help finance their homes. It is the dream of every resident to secure a home one can call his/her own. Getting a mortgage is beneficial particularly to those who do not want to pay high upfront fees, even though the procedure involves extreme caution.

It is possible for you to apply for a personal loan from a financial institution or a bank to buy your dream home. Specifically, you request a home mortgage and pledge to honour the agreement if you fail to clear the payments. However, the significant issues are that you do not even know how or where to start. A mortgage broker can help you secure a loan with much ease. There are many middlemen in the market, but you will need to get the one who can comprehend your needs. The following are tips that you can employ in finding one:

Carry out some research

Going through a financial broker’s websites can give you an insight of the different kind of loans you can qualify. Make sure you contact a financial broker and let them share you their experience, and their accessibility regarding the kinds of loans they have processed. A suitable financial broker becomes a partner in your loan process. Meeting a mortgage broker or consultant in office, after going through the website is a good way of assessing and checking if he/she can meet your demands. Remember, financial brokers are always eager to visit you in at your convenient place or time, to make the process a rewarding one.

How many lenders options does a mortgage broker have?

Ensure your agent can access small institutions, credit unions, and big banks. Lenders are different and having a broker connected to different banks improves the chances of getting a loan that fits your situation. In addition, you can ask if there are special deals that you will gain from.

Learn about the service charge

Inquire if there are any upfront fees and get an explanation of what you will be paying for. Remember, some mortgage brokers will ask for fees if you change home loans within a specified period of time. A good agent can give you the total expenditures of the loan process and illustrate how and when each fee will apply.

Benefits of a mortgage broker

Using a mortgage broker for your home loan will offer you many advantages that you never thought of before. The following are some of the major benefits:

Convenient appointments

Brokers can meet you at any place or time that you are comfortable with, including weekends or after hours .This brings huge benefits particularly if you have family or work commitments to consider.

Legwork

Brokers will do the legwork for you and find the right home loan that will suit your needs. They will also support you through the application and settlement process including the sourcing approval, paperwork, help you apply any government incentives or grants that you are eligible and keep you updated on your application progress. This offers you free time to keep focused on other commitments.

Easy and quick loan comparisons

Visiting your bank gives you a slim range of potential loans and researching the options on your own will take a long time to complete. A broker will explore your goal objectives and circumstances and quickly identify the options that will suit you.

Expert advice

Car loans or home loans are more than interest rates. A broker can explain and illustrate the different subtitles of loan that can cause a big difference. Factors such as having a loan offset account or extra repayments are paramount in the selection process. It is valuable when you have someone who will guide you on pros and cons and the many different choices available to make sure you get a home loan.

The brokers also have a collection of real feedback from different clients on the various loans they have assisted, giving you additional insight on how different investments may perform in your case.

Pre-qualification

You need to know that your credit history is ruined anytime you get a refusal on a loan application. Mortgage brokers can help to avoid this since they can access your credit history with your consent and able to check the recent credit information on many lenders and match it with your goals and situation. It becomes clear what your borrowing power is, and helps in identifying the financial institution that will likely process your application and reduce chances of being turned down several times.

Home loan service charges

many mortgage brokers can give loan services free of charge even though not always. They do this when lenders agree to pay them a commission once the loan is settled. This implies that you can enjoy all the mortgage broking services at no cost. Talk with your agent and learn if you are eligible for a no fee service.

You May Save Some Fees

There are many different fees involved in working with a lender or taking a new mortgage. Application fees, appraisal fees, origination fees etc. are some of them. In most cases, mortgage brokers can make lenders waive all or some of them. This will make you save hundreds or even thousands of dollars.

Taking a mortgage to buy a home can be one of the best investments in your whole life. Not only will you become a home owner, but you can enjoy the security that at the end of the day you have a place to lay your head. Through mortgage, you can pay a definite amount of money for a period of time to have your dream home. However, the only sure way you can land a good deal is through mortgage brokers. Visit their websites and learn how they will be of help, otherwise owning a home will just remain a pipe dream.