LIVE VIDEO FEED – Harry Bozin, Mortgage Coach Professional
LIVE VIDEO FEED – Harry Bozin, Mortgage Coach Professional
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As discussed in my recent article regarding Loan to Value Ratio (LVR), how much you can borrow is determined by two important factors: Your LVR and your Servicing Capacity. So this week I’m going to focus on the latter of these two. This is because when it comes to presenting a strong loan application it is not simply your income that your lender will consider. Instead it will be the all-important Servicing Capacity, or your actual ability to repay your loan, which will be key to your application’s success.
What is my Servicing Capacity?
Servicing Capacity
Your Servicing Capacity is the amount of money that you can borrow based on how much you can afford to pay after all your income is allowed for, minus all of your current expenses and financial commitments. This amount is calculated by each lender via their own internal Servicing Calculator. Which means that how much you can ultimately borrow will vary greatly from lender to lender, sometimes by as much as $100,000! This is because the various financial institutions approach income and expenses (in particular) differently and each lender has their own unique formula to arrive at the Servicing Capacity figure.
To calculate your Servicing Capacity your lender will consider the following:
- Your Total Income:
This can consist of salary, wages, rental income, royalties, regular interest, Centrelink Payments, Family Benefits A & B (depending on the age of the children) etc. This income must be regular and ongoing as well as being evidenced by the appropriate documentation such as pay slips and bank statements. Examples of unallowable income can be Family Benefits paid as lump sums, a boarder renting a room or one off bonuses etc.
Some lenders (but not all) may discount or downwardly adjust income such as commissions, overtime, shift and other allowances under certain circumstances, unless it can be demonstrated that this is consistent income earned over an extended period of time.
- Your Total Expenses:
Car & Personal Loans– Lenders will require documentation showing your regular repayments on these loans, the applicable interest rates and how long the loans have before completion.
Credit Cards- Lenders will assume that all of your credit cards are maxed out or drawn to their full capacity, because in theory you can spend up to the total credit limits at any time. Therefore as well as gaining details of your current balances, they will want to know what your total credit limits are. They will then assume a minimum monthly payment of around 3% of your total combined credit card limit as an ongoing expense.
Existing Property Loans- Your lender will also want information about any repayments on other properties you may own, as well as the interest rates and how long the loans have before completion. If you have made extra payments and have re-draw capacity on the mortgages, then the limit on your loans, not the balances, is what the lenders will use to assess your repayments.
Living Expenses – In general most lenders will have automatic living expenses calculations based upon your circumstances, whether you are applying as a single, a couple, a family with children or group etc. This figure will increase for each additional dependent in a family.
Other Financial Commitments– These include items such as HECS debts, Store Loans, Hire Purchase Agreements, Furniture Rentals and Certegy Loans etc. These and any other regular expense commitments will also be taken into account to arrive at your Servicing Capacity.
- A Note On Savings
Demonstrating that you are able to save money and have a disciplined approach to doing so, has important benefits. This is because most lenders will want to see genuine savings of at least 5% of the purchase price of your property. Genuine savings is defined as regular deposits made over a period of 3 months or longer into a savings account in the name of the borrower. This can also be lump sum payments that have been put into a savings account but they must be held in the account for 3 months or longer.
An example of lump sum payments may be where parents gift the deposit, an inheritance is received or the proceeds from the sale of an asset forms part or all of the deposit etc. As a general rule, if you have an LVR of less than 85%, then genuine savings may not need to be demonstrated. Also when you have a deposit which is not genuine savings, this may not be a problem as there are specialist non-genuine savings lenders available.
From this brief rundown of the Servicing Capacity assessment process, it’s easy to see why the banks place so much emphasis on this key factor, because you must be able to show your lender that you can repay your loan. So if you are considering a property purchase, feel free to give one of our Mortgage Coaches a call to discuss your specific circumstances and potential Servicing Capacity position.
Until next time, watch those expenses,
Harry
There is a lot happening in the market place at the moment. One hot topic is Fintech and artificial intelligence. Listen in to hear some things that are happening.
When you are going through a loan application process with your lender, you’ll notice that banks and other financial institutions like to use a variety of abbreviated terms to describe a range of important elements of the transaction. The LVR or Loan to Value Ratio on your application is definitely one of these as it is a basic fundamental on which all home loans are assessed. That’s why it is vital that you acquaint yourself with its meaning and get a clear understanding of how it impacts your overall loan transaction.
So what exactly is LVR?
LVR or Loan to Value Ratio
Quite simply, your LVR is the amount of money you wish to borrow from the bank represented as a percentage (%) of the total value of the property you wish to purchase.
For example, if the property you would like to purchase is valued at $500,000 and the loan amount sought is $400,000 then your LVR will be 80%. This can be calculated as follows: $400,000 (loan) divided by $500,000 (property value) = 80% loan with a corresponding deposit of 20%.
Now it’s important to note that this percentage is extremely important when it comes to how the bank will evaluate your loan application. Because the lower your LVR, the lower the exposure to risk there is for the bank and therefore the more likely it is for your application to be approved, depending upon your capacity to repay the loan.
Why is your LVR so critical?
- How Much You Can Borrow: There are two important factors which determine how much money you can borrow. Firstly, the bank will look at your servicing capacity or ability to repay your loan and secondly, your equity in the property you wish to purchase which is represented by your LVR. Interestingly, whichever of these two is the lesser, will be the amount you can borrow. That’s why your LVR is key in determining how much you can borrow.
- Maximum LVR: Depending upon your lender and the loan product, financial institutions have what is known as maximum LVR These may vary, however as a rule of thumb the maximum LVR is 95% with a 5% deposit for residential property purchases, either owner occupied or investment properties. With refinancing most lenders will usually only go to 90% LVR, and for Low Doc Loans and Commercial loans this can be as low as 60-70% LVR.
- Lenders Mortgage Insurance: All loans over the 80% LVR threshold will incur a Lenders Mortgage Insurance (LMI) fee. This fee is enforced by the banks as a form of security should you, as a low deposit loan applicant, end up defaulting on your loan repayments. The higher the LVR, the greater the exposure to risk for the bank, the more expensive the LMI will be. Your LMI is determined by a sliding scale and gets more expensive the higher the LVR. It’s important to realise that only the lender is covered by this insurance and even though you are paying for it, this offers no protection to you, the borrower.
- Lower Interest Rates: With a lower LVR you may also be offered a more favourable interest rate on your loan. This is because lenders are inclined to reward borrowers with lower LVRs, and the corresponding lower exposure to risk for the bank, with discounted interest rates. Depending on the lender these discounts can be quite substantial and provide you with significant savings across the life of your loan.
So, if you are considering a property purchase, feel free to give one of our Mortgage Coaches a call to discuss your specific circumstances and LVR position. You will be glad you did.
Until next time Champions,
Harry
Have you ever had one of those turning point days in life? You know, the type of day which stops you in your tracks, shakes you to your core and seemingly changes everything overnight. I know I have. In fact, I can still clearly remember the specific situations and experiences which made me truly question where I was at and more importantly where I would end up if I continued on my current path.
Now these momentous days can occur in regards to our health, finances, relationships, career, business, family, personal beliefs or any area of life. Interestingly, at the time they occur we may not welcome the insights they bring and may even try our best to avoid facing up to the choices they offer. However, ultimately these defining experiences can bring great gifts if we have the courage to learn and grow from them. Better still, they can be the catalyst to shift the course and trajectory of our lives forever.
Perhaps one of my all-time favourite examples of the day which turns your life around comes from the classic wisdom of the late, great speaker and author, Jim Rohn. He was a man who inspired millions around the globe and he also influenced many of today’s leaders in the personal development industry. Additionally, Jim was a wonderful story teller and often shared insights from his own life to teach the universal lessons of success he wished to share.
I hope you enjoy his simple yet powerful story, because sometimes it is the smallest of events in life which can have the greatest impact upon our future results.
The Day that Turned Around Jim’s Life
Born and raised on the family farm in Idaho, USA, Jim Rohn was the only son of the local minister and his wife. Growing up Jim learned the value of hard work and persistence, but not much about how to create the life he dreamed of. From these humble beginnings and after a year at college, he dropped out to get a job as a department store clerk. Reasoning that after a year of college he was, “…thoroughly educated.”
However, by the age of 25 with a wife and children to support he was going nowhere fast in his career. To make matters worse he was just scraping by on his meagre salary, in debt and with no savings or cash available. And even though he knew he should be doing better he felt stuck in a rut of his own making. Then one day a small incident changed his attitude forever.
It was a sunny spring Saturday morning and Jim was home alone as his wife and children were out. Hearing a knock at the door, he opened it to find a rosy cheeked young girl, immaculately dressed in her Girl Scout’s uniform holding a basket of the famous Girl Scout cookies. With a smile, the youngster enthusiastically launched into her simple sales pitch for selling the cookies and finished with a very polite question, “Would you like one box or two, Sir?”
Immediately Jim’s heart sank. He would have loved to purchase two boxes from the eager faced Girl Scout in front of him. The problem was, not only did he not have the $4.00 in his pocket to buy two boxes of cookies, he didn’t even have the $2.00 needed to buy one box. Feeling ashamed and embarrassed he quickly lied to the youngster that he didn’t like the Girl Scout cookies and hurriedly closed the door. But that was not before he saw the disappointment and defeat written across the little Girl Scout’s crest fallen face.
Jim was devastated. In fact, this seemingly simple encounter left him feeling so disgusted with himself and the circumstances in which he found himself that he resolved to do something about it. He vowed then and there that he would turn his life around. It was from that point onwards that Jim Rohn, a penniless, debt ridden young man began to change his life forever. He found himself a mentor coach, created a plan and began to alter his attitude and actions. Over time Jim went on to become a self-made multi-millionaire and one of the true legends of the personal development arena.
So if you are feeling you’d like to turn your home ownership dreams into a reality sooner rather than later, why not call one of our experienced and qualified Mortgage Coaches today. They can advise you on your options and help you plan for your property purchase.
Perhaps this could be the day that you begin to turn your financial life around?
To your success champions,
Harry
As you may know, at Mortgage Coach our coachess get an extra special kick out of helping First Home Buyers (FHB) get into their own homes. So we are always looking for ways to assist them with their goals and smooth the way forward with their home ownership dreams.
So this week, I’m sharing some cool insights from a fascinating and enlightening new research paper by the Reserve Bank of Australia (RBA). * Apparently the RBA have been looking at changes in activity and purchasing success within the First Home Buyer (FHB) sector in Australia over the last 10 to 15 years. Some of the interesting stats they discovered include:
- There was a downward trend across the sector with less FHB actually transitioning to home ownership in the years from 2008 to 2014 forward, as compared with during the previous years from 2001 to 2007
- The biggest fall in numbers within the FHB sector, amongst those who became home owners, was within the 25 to 34 year old age group. This group fell from just under 12% of all FHB to just under 9%, with them delaying purchasing and therefore effectively becoming part of generation rent.
- This delay in entering the housing market seems to be strongly related to increasing house prices within many of the capital cities across Australia, which has been making it more difficult to save for a deposit.
However, the points which stood out most clearly to me from this report were:
- Even though FHB numbers may have fallen during this time, it was noted that those who successfully made the transition to home ownership were likely to be more capable with handling their loan responsibilities. They were also more likely to pay down their loans sooner and reduce their debt more quickly over time.
- However, the FBH across all age groups, who had received financial assistance from their family and/or friends to create their home deposit, were much more likely to experience financial distress and hardship over the lifespan of their loan. They were also more likely to have to later rely upon family and friends to assist them with their mortgages and financial affairs.
Now, from these very salient insights into the current FHB market, I think there are a few important take home points on the benefits of developing the saving habit for FHB.
- Learning How to Save is the Key: At any stage in life, possessing the discipline of saving is a powerful habit to develop. However, when it comes to FHB it is an absolutely essential skill to possess. Not only does it demonstrate that you can live within your means and spend less than you earn, it also shows that you have the ability to manage your money and your financial affairs over time.
- Savings Builds Financial Resilience: Once you have mastered the skill of saving on a small income, this can later be applied to larger amounts as your income and expenditures grow. It also means that you will be more likely to be able to handle your affairs if you ever experience financial challenges because you have a proven track record that you can be responsible with your money.
- Demonstrating that you Have Genuine Savings: Perhaps most importantly for FHB, by having a solid savings history and a healthy self-generated deposit for your home, your lender will see that you are a good candidate for a mortgage. Because, as these stats show, if you can save first and manage your money well to create a home deposit, you are more likely to be able to do so into the future. In this way everyone wins as FHB are better money managers, more financially resilient and more likely to pay off the home loans, whilst the banks and other lenders gain clients who are deemed to be lower risk and good financial managers.
So if you are looking for ways to improve your saving habits in regards to your home deposit or have some questions on how you can get on the fast track to home ownership, feel free to contact us at Mortgage Coach.
Until next time, wishing you happy saving,
Harry
* Source report from the RBA
https://www.rba.gov.au/publications/rdp/2017/pdf/rdp2017-05.pdf
Our Mortgage Brokers are often asked by prospective home buyers, “Exactly how much will it cost us in additional fees and charges to purchase our property?” And, perhaps a little frustratingly for some, the brokers’ answer will always be, “Well that depends upon your specific circumstances.” This is because when it comes to identifying and calculating the costs associated with buying a home, there really is no one size fits all answer.
As fees and charges can differ widely depending upon a number of variables across your particular situation and property purchase. However, as I am a firm believer in keeping things simple, I am happy to say there are just a couple of basics to bear in mind regarding your property transaction costs.
Cost You Can Expect
The most important thing to understand is that there are only a few costs which you are pretty much guaranteed to encounter when buying your property. The costs in this category are usually limited to the specific fees and charges involved with the purchase of the property itself and the potential costs resulting from the set up and creation of your home loan. However, even with these fees, there can be exceptions to the rule, as outlined below.
Stamp Duty or Transfer Duty – A state government tax which is based upon the purchase price of your property. This can be calculated with an online stamp duty calculator and will vary depending upon where your property is located within Australia. However, this can be levied at a concessional rate or even avoided in some instances. For example, with First Home Buyers in WA purchasing a property under the value of $430,000, no stamp duty is payable. Your Mortgage Broker can assist you with determining this.
Transfer Fee – A small state government fee levied for the transfer of title of the property from one person to another.
Application or Establishment Fee – This charge can be made by your lender to cover the costs associated with the set-up and initial admin of your home loan. However, these too can vary from $0 to $600 depending upon your finance provider and in some cases can be waived when your deal is submitted via a mortgage professional. It is best to speak with your Mortgage Broker regarding this charge to find out if it is applicable to you.
Mortgage Registration – A small state government fee which applies if you have used a mortgage or home loan to fund the purchase of your property. This charge covers the registration of the mortgage deed with the state government. However, if you do not have a mortgage, this fee is not applicable.
Conveyancing or Settlement Agent Fees – In order to handle the legal requirements, documentation and settlement of your property transaction, either a conveyancer or a solicitor is an essential. These fees and charges again will vary but there are maximum fee levels set by law. For example, on average you could pay around $1000 to $2000 depending upon the value of your property.
Other Costs to Consider
With the balance of the other potential fees and charges associated with your property purchase, it’s very much a case of checking with your Mortgage Broker. Which means that some costs may not be applicable to your situation, others may be optional, some could be nominal and others are just part of the process. However, in all cases it is best to be aware of these ahead of time.
Ongoing Mortgage Account Fees – These cover the management and maintenance of your loan with your lender and will depend upon which finance provider you choose and also on the type of package you select. They can range from $0 to $395 per year and some with higher costs may come with offers of lower interest rates. So check this with your broker.
Property Valuation Fee – This covers the cost of having your lender arrange for a market valuation on the home you wish to buy. This fee can often be included in your establishment fee and may even be waived depending on your lender.
Mortgage Insurance – This is usually required by the lender if your loan amount is over 80% of the value of your property, meaning that you have less than a 20% deposit saved for the purchase of your home. So for many of you this will not apply.
Building and Pest Inspection Reports – It is always wise to have the property you intend to purchase checked for structural integrity and pest activity before you proceed to settlement. These reports may cost around $500 and are recommended.
Utility Connection – As part of the preparation for taking possession of your new home you will need to set up and pay for the connection of your utilities. These include items such as internet, power, gas and water.
Council and Water Rates – During the settlement process your share of the applicable Council and Water Rates for your property will be calculated and incorporated into the funds required by you at settlement.
Home Insurance – Lenders will generally require that you take out home insurance on your property to cover the building in case of unforeseen damage to your home. The cost of this will be determined by the type of home, its age, location and the value at which you insure your property. Strata Fees – These charges apply only if your property is part of a grouped or shared development such as units, villas or apartments. The strata fees usually cover the cost of maintenance and insurance of common areas within the development.
Removalists – When you are finally ready to move into your new home you may choose to have professional removalists do this job for you or perhaps ask your family and friends to assist you. The choice is up to you. As always, if you are planning to buy a property and would like to speak to a Mortgage Broking professional, feel free to contact us here at Mortgage Perth. We’d love to hear from you. Wishing you happy buying, Harry
We are told from a young age that the quality of loyalty is an important one to develop within ourselves. And in Australia, with the almost mythological status we place on the loyalty of mateship, it is also prized as the sign of a truly trustworthy and honourable character.
However, perhaps this old piece of wisdom is not always true or suitable in all situations? Especially when it comes to being loyal to our bank just because we feel it is the right thing to do. In fact, recent evidence has shown that for many Australians with loans, our loyalty could be costing us tens of thousands of dollars over the life of our relationship with our bank. Because even though we Aussies are very likely to shop around for the best interest rates at the time of taking out our loan, we are also equally likely to stick with our bank even if we can get a better rate elsewhere.
So the question has to be asked, “Is your loyalty to your bank costing you big time?”
For me, this is definitely the case when it comes to the interest rate on your home loan. Especially as a small difference in your interest rate can make a big difference to your total repayments. Therefore perhaps it is time to review your current home loan and look into refinancing with another lender?
This is where your qualified Mortgage Coach can easily help you with identifying refinancing options. And the process is not as difficult as you might think when you are in the hands of someone who knows how. Better still, by taking this one step alone you could literally save yourself tens of thousands of dollars, or more, in the long term.
For example, if we look at a few simple home loan scenarios, it’s easy to see how a simple switch to a lower rate of just 0.5% to 1% you could start saving thousands of your hard earned dollars straight away.
- On a home loan of $450,000 with an interest rate of 4.44%, over 30 years, your monthly repayments would be $2264 per month and your total repayments would be $815,065.
- On a home loan of $450,000 with an interest rate of 3.94%, over 30 years, your monthly repayments would be $2133 per month and your total repayments would be $767,820.
- On a home loan of $450,000 with an interest rate of 3.44%, over 30 years, your monthly repayments would be $2006 per month and your total repayments would be $722.037.
Now looking at these figures, if you can achieve as little as a 0.5% reduction in your interest rate, you could save yourself the tidy sum of $47,245. Which is a great result in my book.
However, it gets really interesting if you can gain a 1% reduction in your rates, because as you can see, this could equate to a whopping $93,028 saving across the life of your loan. And that is a fantastic result for anyone.
So my advice to you this week is to consider switching from an outmoded sense of loyalty to your bank, to a greater level of loyalty to yourself and your finances. Because with refinancing as a very real and viable option, you’ve really got nothing to lose and everything to gain.
As always, feel free to call us at Mortgage Coach to discuss your refinancing options.
Until next time champions, Stay loyal to yourselves.
Regards,
Harry
Are you looking to buy your first home?
New housing finance figures released by the Australian Bureau of Statistics (ABS) reveal first home buyers are returning to the market, according to the Real Estate Institute of Australia (REIA).
REIA President Malcolm Gunning said the proportion of first home buyers in the market (as part of the total owner-occupied housing finance commitments) had increased to 15 per cent in June, which was the highest it had been since February 2014.
“The number of first home buyer commitments increased by 1.6 per cent for the month, following a 28.9 per cent increase the previous month and is the highest since October 2014,” Mr Gunning said.
Investor housing commitments
The ABS data also revealed investor housing commitments had trended down in June.
“The value of investment housing commitments decreased by 0.9 per cent in June in trend terms following falls in the previous two months, and is well down from its 2015 peak,” Mr Gunning said.
“Overall the figures for June 2017 show the number of owner-occupied finance commitments decreased by 0.2 per cent. If refinancing is excluded, in trend terms, the number of owner-occupied finance commitments increased by 0.3 per cent and is the tenth consecutive month of increases.”
Established dwelling purchase commitments
The number of established dwellings purchase commitments decreased by 0.5 per cent in June, while new dwelling construction increased by 1.9 per cent and the purchase of new dwellings increased by 1.3 per cent.
“The June figures show that the market is adjusting with owner occupiers and first home buyers returning to the market as investor activity decreases in response to the actions of the regulators and banks to limit bank lending to dampen investor demand for property,” Mr Gunning concluded.
Good luck getting into the market with your first home. We are here to help.
Cheers, Harry
Source: https://reiwa.com.au/about-us/news/abs-data-reveals-first-home-buyers-returning-to-national-housing-market/