Why see a Finance/ Mortgage Broker over a bank
Finance Brokers do far more for their clients than what lenders do.
1. Finance Brokers have a plethora of lenders that offer a wide variety of interest rates. We can price interest rates and get other lenders to match. I am not one to be rate driven, but having a reasonable rate is important, as money in your pocket is a better outcome than your funds adding to the lenders bottom line.
2. By knowing your financial circumstances, Finance Brokers can structure your loan so that you pay it off faster. Believe you me, when I know what resources you have; I am able to use this to the best of your advantage. Lenders make more money when you pay it off slowly as you are paying more in interest.
3. Finance Brokers offer a lot more service than lenders. We assist with research of a property and have the online tools available so that you buy it at the right price. We do the whole process including talking to the assessor on your behalf. We are more able to work with the lender to get you through. I’ve seen people declined on the simplest of things. I’ve submitted a loan with the same lender after they have been declined and have had it approved.
4. Finance Brokers think outside the box. We are often commercially minded so we can think of options you can take or things you can do. Remember it is our goal for you to pay off your home loan as fast as possible and to be able to invest to get to the life you want.
5. We set goals and to do lists to make sure you are conscious of your finances. Lenders do not do this; you are expected to know what to do yourself.
6. You have a lifetime resource. If you are our client, we are your first point of call when something goes awry. We maybe able to come up with strategies that can assist you or we talk to the bank on your behalf. In times of financial difficulty we can become your greatest ally.
7. If you get rejected from credit once or the lender is not giving you the terms you want, please apply for credit through a Finance Broker. It may have been that you don’t suit the lenders policy so a Finance Broker has the experience in choosing the right lenders for you. If you keep jumping from lender to lender, you will end up looking like what the industry deems as a “Credit Junkie” and the more times you apply and get rejected, not only does your credit score become poorer, but assessors don’t like accepting applicants that have been rejected by another lender.
8. Most importantly, we have our own proprietary system for you to build your wealth.
How do I know that I’m getting the best rate?
How do I know that I’m getting the best rate?
Whilst we negotiate the best possible rate for every single deal, we are not about rate. Sometimes you may not fit the policies of those who have the best rates. What we are about is structuring your home loan to get rid of it as fast as possible and having a structure that is going to be most financially beneficial to you.
How do I pay off my loan faster?
In refinancing and consolidating your debt with the right structure and better interest rate, here are some possible ways you can pay your loan off faster:
Have an offset account where extra funds offsets that amount of principal
Make fortnightly or weekly repayments instead of monthly.
Repay a greater amount than required. For example if you double your principal repayment, you should get rid of your mortgage in half of the time
Get an investment property. This is a whole other topic.
Rent out rooms at your home. A favourite of my younger clients.
Should I pay principal and interest or go interest only?
Everyone’s circumstances are different so I am generalising. If you are buying an owner occupier home and there is no tax benefit in deducting your interest payments from running a business from home, I would recommend paying principal and interest. If cash flow is tight and you are wanting to save for furniture then interest only maybe the way to go for a year or so, but be aware that if you are not paying down your principal, your principal and interest repayments will be higher once the interest only period is finished. This is because your P&I repayments are now over 29 years instead of 30 years.
The only other time you may consider going interest only is if you are wanting to use your new owner occupier as an investment property in the following year and you want to save up for the new owner occupier. People do this as stamp duty is higher on an investment property.
If you are an investor looking to build up your property portfolio, then interest only has been the traditional way. This is so you have more cash in the bank (you should always have a buffer) and make sure that you are positively cash flowing. This is up to you.
When finding investment properties, I will still try to make it so that you have positive cash flows, even going in with P&I repayments. In any case, you can refinance to P&I later when you are charging a higher rent for the property to be cash flow positive. With brand new property you may still be negatively geared due to depreciation, which allows you to claim more taxes back to add back to your home loan.
Should I fix my interest rate? What are the ramifications?
Fixed interest rates can allow better forward planning as you know what your repayments are going to be over the period. People fix rates when they believe interest rates are rising and want to keep the low repayments.
On the downside, if the interest rate falls, you still have to pay the fixed rate agreed upon. There are also break costs if you pay off the loan within the fixed rate period. There is a certain amount you can pay off without being penalised, but that depends on the lender.
What is the process in getting a loan?
The stages of getting a loan are the phone call, e-mail, appointment, research, loan application, loan approval, loan documentation, settlement, after sales care. These stages are explored in more detail below.
Phone Call:
Your goals
Qualification/ What you need to do
Email:
Credit Guide
Privacy Consent
Client Needs Analysis
Appointment:
ID verification
Document collection
Goal setting and planning
Research:
Product Comparison
Credit Proposal Disclosure
Signing of Application
Loan Application:
Lodgement of documents
Lender assessment
Negotiation
Loan Approval:
All criteria satisfied
Unconditional on purchases
Loan Documentation:
Loan offer
Disbursement authority
Direct debit request
Mortgage (Lawyer/JP maybe required)
Settlement:
Settlement Statement
Funds to contribute to lawyers trust account for purchases
Documents in order
Insurance with lender as mortgagee
Payment of govt fees
After sales care to do list:
Internet banking set up
Salaries and rent to offset account
Using your Pegasus folder
Budgeting
Loan structure guidance for taxation
How long does the loan process take?
Lenders prioritise purchases over refinances. It will depend on the lender and how much demand they are in.
How do I get onto the property ladder?
This is by far my largest request. It requires sacrifice, hard work and a plan to get on to the property market. “If you are willing to do only what's easy, life will be hard. But if you are willing to do what's hard, life will be easy” T. Harv Eker.
5% genuine savings, plus costs being stamp duty, mortgage transfer fees, registration of mortgage fees, lawyers fees as well as council and water rates. Genuine savings is defined as saving 5% into a bank account over a period of 3 months without drawing any funds out. Currently you will be paying Lenders Mortgage Insurance (LMI) or a risk fee. The Liberal Party announced prior to the 2019 election that First Home Buyers will be able to get their first property without paying LMI. I have yet to receive information as to how this will be achieved.
5% non-genuine savings + costs. This refers to gifts, other borrowings and/or rental receipts.
Parental guarantor. This is when your parents have a large amount of equity in their home that can be borrowed against. The guarantee should at the maximum be limited to 20% of the new property + costs. Please note that you are required to pay off this loan because if you don’t, the lender will seek recourse from your parents. If after a year the lender can not get their funds back, they will enter legal proceedings to take possession of the property.
Your parents gift you the funds.
If you are a first home buyer, you may be eligible for a government grant. Some developers are willing to chip in for you to buy a brand new property.
Buy a house with your parents, siblings or people you can tolerate in the long run. Have a contract regarding ownership, responsibilities and what happens under certain events. Please know each other’s financial situation. If one goes bankrupt, you don’t want to follow down the same path. If they are the type to take responsibility, you are onto the right person you should be investing with.
Rent a property where you want to live with other people, buy in a good area that is touted to go up in time and rent it out. Put your additional savings into an offset account against the property.
What is Lenders Mortgage Insurance?
In buying a property, you generally need 20% of the property value + costs (stamp duty transfer fees, mortgage transfer fees, registration fees, lawyer fees, council rates and water fees…)
But what if you don’t have this amount? One option is to pay a LMI premium either upfront or capitalise it into your loan, which is received by either Genworth, QBE or some lenders underwrite their own loans.
LMI does not help you, but rather the lender. Some lenders will go up to 95%LVR for an owner occupier and most go up to 90% LVR for an investment. Some lenders have an alternative called a risk fee. In any case, if you default over a long period or go bankrupt, the insurance carrier pays the lender back the loan. It only benefits the buyer by being able to get onto the property ladder sooner.
This is not to be confused with Mortgage Protection Insurance. This protects the buyer by covering the mortgage repayments or the whole loan in the event of death, total permanent disability, sickness or unemployment. Pegasus Wealth offers this product, but please speak to us first.
What documents do lenders require?
Not every lender is the same. It depends on what you want to do and your circumstances.
Lenders will look for evidence of the 5C’s of credit being character, capacity, capital, collateral and conditions. In the least, every lender will want your identification documents, such as a drivers licence and passport, and that you have been identified correctly through face to face meetings or ZipID.
Why are lenders asking for 30 days of my everyday bank account transactions?
Brokers and lenders need to verify your living expenses. Lenders will scour through your expenses with a fine-toothed comb. If your living expenses are far higher than the Household Expenditure Measure, then you need to let the broker know why and if there was no good reason for that month, then you need to review your spending habits and think about what your priorities are. For the Household Expenditure Survey, please click here.
I don’t know if I have a credit file?
Many lenders credit score and so having a credit file gives the lender a better idea of your character. To see what is on your credit file, please visit www.mycreditfile.com.au to find out what is on your record. To get your credit score there are various website such as www.getcreditscore.com.au
If you have been bankrupt, have missed payments, have any sort of blemish on your credit file or if you have put several other applications for credit through over the past year, please let your broker know. This will affect the most suitable lender chosen and we will need to explain to the assessor what and why you applied for credit.
There is a default on my credit report. What do I do?
If the default is below $500 I wouldn’t worry too much about it as you can still borrow from a conforming lender. If it is a major default, I would recommend talking to a credit default lawyer. I recommend Victoria Coster from Credit Fix Solutions on 1300 43 65 69 or (02) 8896 6256.
What is a fix rate lock?
A fixed rate lock is an option offered by lenders for a fee that enables you to keep the current fixed rate for a period of about 90 days.
This means that in a rising interest rate environment, you will be able to keep the lower advertised fixed rate regardless of whether they increase it. If the rates are falling, then a rate lock is not likely to be needed as you would want the new lower rate.
What are the benefits of property investment?
Income is more predicable than other investment markets. A roof over one’s head is a basic need in Maslow’s Hierarchy.
Rental income is paid regularly.
On average property doubles every 7.3 years thereby increasing your chances of wealth.
Depreciation can reduce your taxable income allowing you to receive some taxes back.
Expenses incurred in holding an investment property are tax deductible
If you are in negative gearing territory (please don’t buy an investment property to have negative gearing), you can do a PAYG withholding variation application with the ATO to boost your cash flow.
Solid planning can help you achieve a 6 figure passive income.
What are the pitfalls of owning an investment property?
Choosing a property in a wrong location may mean you have difficulty in refinancing or realising a capital loss where you still have debt to pay.
Letting the wrong tenant in that trashes the place and refuses to leave, which is why I recommend having an experienced property manager.
If you are negatively geared and self-employed, you may have to fork out extra cash every month and get your losses back in your tax return at the end of the year
If you are negatively geared and you lose your job, Centrelink will want you to divest out of your property especially if you have a lot of equity in there before they even contemplate giving you any assistance
It may take a long time to sell a dud property
Over capitalising on a property may not give you the rent you want
What tax deductions are there for having an investment property?
First of all, this is a general list and taxation is under the duties of your accountant. If you are undertaking any works on your investment property, please refer to them first.
There are a plethora of tax deductions that are available in owning an investment property and you will need to keep evidence of these.
These include:
Depreciation (existing property bought post 09/05/2017 can not claim Division 40 – Plant and Equipment)
Interest on investment loans
Product package fee
Lenders Mortgage Insurance (over a 5 year period)
Settlement fees
Council Rates
Water Rates (tenants should pay for water usage if you have a plumbers certificate)
Building and Landlord Insurance
Property Management Fees
Maintenance and Replacement items (as opposed to renovations and structural changes)
Smoke Alarm Testing
Pool Certificates
Stationary
Phone calls
Computer
Internet
Home office (Capital Gains Tax implications if you sell your home though)
Travel expenses are no longer tax deductible since 1 July 2017 unless you are carrying on a business of letting rental properties (like your property manager).
Other expenses such as Stamp Duty, renovations or major works are taken into account when the property is sold and included in capital gains or loss calculation.
Can you give us guidance along the way?
Whether you are purchasing an existing property or buying brand new we can help. After all we have been there and done that. We have been trained, experienced and learned our lessons in property and we can pass on our wisdom on what to do.
In buying a property, we can help with property research so you know how much you should offer. Once you have bought a property you have to make sure that you have it insured as the Certificate of Currency naming the lender as the mortgagee or interested party is required for settlement. You also need an experienced Property Manager that knows how to get you the best return for your property, assist in choosing you the best tenant (not a blacklisted tenant) and know how to evict a tenant if needs be. Then at tax time you have to know what is tax deductible. Or to do a tax variation, if you have a new property that is negatively geared and want less tax taken out now than given back as a lump sum after the taxes are done.
Please note that we will only have time to be a resource for new and existing clients. When we undertake to do peoples finances, we have the experience to gage what possibly can go wrong for a client and have a contingency plan in place for them. My publication has plenty of ideas that can help people out of situations.
