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“When I was in college, I wanted to be involved in things that would change the world.  Now I am.”  Elon Musk

I am a real fan of Spacex founder and CEO Elon Musk because this visionary entrepreneur dreams big. With his eyes fixed firmly upon the stars, his company is focussing on taking humanity to Mars. In fact he envisions a world where people may be born on Earth, yet live their lives on Mars as part of the first interplanetary human colony. Which is a pretty mind blowing goal.

However, to bring things back to Earth for a moment, you certainly don’t have to go to another planet to get a hot deal on your home loan. In fact there are just a 3 things to do to put yourself on track for securing the best possible home loan for your circumstances.

  1. Do Your Research – Get online, check out your real estate options, use our free mortgage calculator and look around for an experienced, professional mortgage broker. So you know what’s available in the market.
  2. Get in Contact – Pick up the phone or email your potential advisors. Ask questions and connect with professionals in the field. Your aim is to find someone you trust and with whom you feel most comfortable.
  3. Choose Your Team- Once you have found the right fit for your situation, choose your mortgage broker, and meet the team of experts which back them, to help you make your property dreams come true.

If you are looking for help with your home loan, refinancing or investing feel free to call us.  We are here to help.

Cheers, Harry

As the great physicist, Sir Isaac Newton said, “What goes up, must come down.” However, when it comes to interest rates, the reverse is also true. Because we all know that Australia’s historically low rates cannot stay that way forever, and must begin to rise in the not too distant future. And even though there are mixed opinions amongst the experts on when the rate rise will occur, most agree that is only a matter of time before this happens. Which means at least one rate rise, if not more, is predicted in 2018.

7 Things to Do Before a Rate Rise

  1. Contact Your Mortgage Broker – Having a conversation with your broker is vital to keeping yourself informed and up to date with what’s currently available in the marketplace. Because new, improved loan products are continually being released and your broker can recommend the best product for your specific situation.
  2. Check Your Position – Once you understand what’s available, you can go to work and check your current financial position. Use our handy online Mortgage Calculator to run different interest rates and repayment levels to see how a rate rise could affect you.
  3. Consider Your Options – Ask yourself, “What would be the best scenario for my circumstances and what do I want to achieve for the future?” By being clear on the various choices available to you, you will make better decisions for the long term.
  4. Refinancing – Are you able to refinance your current loan or perhaps you may wish to fix your interest rate at the current low level for a period of time? Each has their potential benefits, but you must choose the best option for your situation. Ask your broker how.
  5. Budget, Budget, Budget- Create a budget and stick to it. This means being mindful of your money, cutting costs, spending less and living within your means. By doing so you won’t be over extended and financially stressed when rates do go up.
  6. Pay Your Mortgage Down – By paying your loan down faster with extra payments or by depositing lump sums, you can save money now and have your mortgage paid off years sooner. Plus when rates do rise, you’ll already be ahead of the curve with less to pay off in the future.
  7. Pay at the Higher Rate – Try paying off your loan as if you already had the higher interest rate on your loan. This means you’ll be paying off more each month and will be comfortable with the new amount when the rate rise occurs…because it will.

Until next time, stay prepared!

Cheers, Harry

When it comes to financing the purchase of your property or refinancing your current loan… the simple truth is your numbers count. So it is very important that you get to know your numbers before applying for your loan. And the best place to start with this process is by using the humble Mortgage Calculator.

Why? Because to use one of these super handy little mathematical geniuses you’ll need to get very clear on your particular set of numbers. These include the following variables:

Total Transaction Amount- This is the total dollar amount required to cover your property purchase and includes the agreed price of your property, stamp duty (if applicable) and any other associated in costs.

Deposit Amount- This is the total amount of cash funds and savings you have available to put towards your purchase.

Loan Interest Rate- This is your estimated % interest rate for the loan. Your mortgage broker will help you get the best rate possible for your circumstances.

Term of the Loan- This is the period of time over which you will repay your loan. This can range from 5 to 30 years, depending upon your situation.

Payment Period- When do you intend to make your loan repayments? Do you prefer weekly, fortnightly or monthly repayment cycles?

Repayments- This is the dollar figure of your regular minimum repayment amount and will be determined by your other numbers. Call us to calculate this for you.

Feel free to call us at Mortgage Coach and speak to one of our professional mortgage brokers to help answer your questions.

Until next time, here’s to knowing your numbers.

Harry

You should always take into consideration your personal circumstances as mortgage calculators do not take into consideration fees and service charges and any changes that may happen during the period of the loan. They should only ever be used as a guide.

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

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

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.

  1. 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.
  2. 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.
  3. 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

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