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LVR is the loan to value ratio. Lenders use this to determine their risk exposure when deciding whether to lend. For example, if a property you wish to buy is $100,000 and the loan is $80,000, then the loan to value ratio is 80%. Generally, lenders prefer a lower LVR as it lowers their risk. However, lenders will go up to 99% LVR where lenders’ mortgage insurance is available, also known as LMI.
LMI stands for Lenders Mortgage Insurance, which is applied when loans exceed an LVR of 80% or more. This LMI charge is applied on top of the loan amount so it does not come out of your cash you have to put forward but it will increase the size of your loan by a relatively small amount. LMI is often seen as a negative thing however, it is an enabler. If it weren’t available, then many people today would not own their own home.
Reduce your credit card limit.
Lenders look at the likelihood that you might default on the repayments. They look at a number of factors including your credit history, job security and your credit card limits.
In the eyes of a lender, the higher your credit card limit, the more chance you have to get into financial difficulty. So, to increase your borrowing limit, get rid of any surplus cards, and reduce your credit card limit to the absolute minimum you need.
When your fixed rate term ends, your loan will usually revert automatically to the standard variable interest rate unless you have provided instructions to refix your loan.
As the end of your fixed rate term approaches, it’s important to plan ahead and talk to your mortgage broker about what your new, or roll-off, interest rate and repayments might be and what your options are.
Here are three questions to ask yourself to see if a family guarantee is right for you.
1. Am I financially fit to be a guarantor?
Are you in a financial position to pay off the loan if the borrower finds that they can no longer do so.
2. Do the benefits outweigh the risks?
3. Are there other ways I can help without being a guarantor?
If you’re looking to buy a house with a group of family or friends, here’s how to avoid a blast.
There are many more considerations when buying property jointly, so speak to an expert early on to make sure you’re doing it the right way.
Certain professions may be entitled to special discounts but it differs depending on the lender and the industry.
To qualify you must apply with a lender that offers your profession a special discount and meet that lender’s criteria.
Because lenders don’t publish these better interest rates, it’s best to have your broker by your side. Not only will they know which lenders to apply to, they will also assist you with pricing requests and negotiating the best possible interest rate.
CGT is a tax that you’re required to pay on any capital gain earned on the sale of an asset, such as a property.
CGT applies to any asset obtained after 19 August 1985.
A capital gain is made when a profit is made from the sale of an investment, so when the sale price exceeds the original purchase price.
Interest rate percentages are based on a number of factors – the Reserve Bank, the cost of money on overseas markets, and the general state of the economy.
Interest rates don’t appear to move by much when looked at as a simple number, but each basis point makes a significant difference to the total cost of a loan, and when you’re working to pay down your mortgage.
Your finance broker will be able to help you shop around to find the best deal for refinancing when the time is right for you.
The expert you need depends on your situation. For loans, see a finance broker; for investment advice, ask a financial planner.
Brokers that deal in home loans must be qualified and licensed loan advisers with in-depth knowledge of home loans and options suitable for a range of different financial situations.
Financial planners assist with anticipating and managing long-standing financial outlook. They help sort through and select options for investment and insurance, with attention paid to retirement planning, estate planning and investment analysis.
There are some situations where it would be best to include both types of financial professional.
Preparing a detailed business plan will inform the lender about your business proposal so that it can assess your application as favourably as possible.
1. Know your numbers
2. Estimate how much funding you need
3. Project your cash flow
4. Provide proof of loan security
5. Ask questions
1. Equity release/top up home loan
It involves borrowing against the current value of your home before any value-adding renovations and in most cases allows you to obtain the funds upfront.
2. Construction loan
You may be able to borrow up to 90% of the end value of your home and take advantage of mortgage interest rates, which tend to be lower than credit card and personal loan rates.
3. Line of credit
You only pay interest on the funds you use and, as you pay off your balance, you can re-borrow the unused funds without reapplying if necessary.
4. Personal loan
A personal loan may be a good option if you’re only making minor renovations.
5. Credit cards
The interest rates are usually much higher on credit cards than mortgages, usually only for extra small projects.
A fixed rate loan is one that maintains the same interest rate over a set period of time regardless of market fluctuations in interest rates.
The interest rate on a variable rate loan can change throughout the term of the loan in reaction to market fluctuations in interest rates but can offer more flexibility.
A split loan allows you to have some of your loan at a fixed rate and some at a variable rate.
Have all your documents organised and a savings and repayment plan documented.
Disclose all information
Provide all the supporting and necessary documents upfront to your broker.
Skip the valuation queue
Not all applications require a valuation, depending on the property and lending institution.
In order to decide whether or not to provide you with a loan, lenders will generally assess you against five qualities.
1. Your ability to repay the loan
2. How much cash you have up front
3. The property appraisal price
4. Your financial history
5. Market conditions
Redraw facilities allow you to deposit spare income into your home loan account, allowing you to redraw a sum equal to the extra repayment amounts in the future.
In the meantime, the extra money paid will lower the amount of interest charged, while still giving you access to your money.
Offset accounts are like savings accounts that function alongside your home loan. You earn interest on the money in the offset account and you often have a debit card attached for simple withdrawals.
Offset accounts, like many savings accounts, often come with account fees, but the fee may be worth the interest savings and the added flexibility compared to redraw facilities.
1. Set a benchmark
Compare nearby properties.
2. Keep in mind current market conditions
The property market is always changing.
3. Expand your search
Don’t limit yourself to a particular area or suburb.
4. Don’t exceed your financial capacity
Only ever commit to a loan that you can afford alongside your current income and real expenditure.
5. Bring in the extra support
Consider using the services of a buyer’s agent.
Many lenders offer low-documentation (lo-doc) loans for self-employed borrowers who don’t have traditional payslips and employment records. This means that, rather than the usual documentation you prove your ability to service a loan using bank statements, declarations from your accountant and financial records.
Of course, as with any mortgage application, you must still prove that your income outstrips your spending and you can service the loan.
Here are some tips to help:
Income protection insurance covers salary loss due to injury or sickness. Unlike workers compensation, it applies to injury or sickness at any place or time. And, unlike government allowances, it pays in accordance with your earning capacity.
Income protection policies vary regarding their terms and conditions, but usually offer 75 per cent of gross wages for a maximum period. It’s a form of insurance that is particularly important for people who have regular repayments to make against debts.
Location has a great deal to do with the success of your investment property. It’s important to consider what locations and niche markets have good rental returns.
You need to make sure that your property location matches up with market demand. Things to consider are travel time and expense, rent rates, local attractions and activities – particularly those available year-round, not just in peak times.
For example, busier coastal suburbs may offer more consistent rental returns than quieter peripheral suburbs that may be popular only in peak holiday seasons.
1. Do the numbers
Evaluate your budget, potential constraints and future financial and personal obligations.
2. Obtain professional advice
Discuss the investment with a licensed financial planner or investment adviser to check if residential real estate is appropriate in your current circumstances.
3. Talk to relatives and friends
This can help your awareness of stumbling blocks and potential issues that you might otherwise miss.
4. Collate your information and seek pre-approval
Have a fully assessed pre-approval before you start your search to know your financial limits.
5. Treat the purchase as a business decision and commit
You also need to make the commitment.
Rental yield is the rate of rental income returned against the costs of an investment property, and is a great indicator of a property’s investment potential.
There are two types of rental yields – gross and net.
Knowing a property’s gross rental yield is a quick way to make a rough comparison of how its rental returns fare with others in an area.
Net rental yield, offers a more detailed picture of a property’s rental return.
However, calculating rental yield should only be part of your assessment of a property’s investment potential.
Depending on your type of business and what you’re looking for, some financing options include:
Allows a business to borrow against the amounts due from customers. Businesses pay a percentage of the invoice amount to the lender as a fee for borrowing the money.
A secured business loan uses the business’ assets as security. An unsecured business loan is approved based on a business’ creditworthiness.
Unsecured line of credit
A loan that allows a business to access the funds as required for working capital or operational needs. It is not secured against any asset and is approved based on a business’ creditworthiness.
Call us today to talk about options for financing your small business today.
1. Speak to your broker
Ensure that your plans after selling are actually feasible.
2. Choose a quality agent
Word of mouth, past client reviews, specialised, and agent that you feel comfortable with.
3. Prepare the paperwork
Ensure all the paperwork is prepared in time to ensure it all runs smoothly.
4. Don’t take things personally
To ensure you come out with the best deal, remove all emotion and think of your house as a commodity.
5. Present your property well
Trust your agent’s strategy, engage in a thorough marketing campaign, and invest in presenting your property.
6. Surround yourself with a good team
So that issues that arise during the sale can be quickly and easily dealt with.
There are some very important factors to consider:
Firstly, there’s a lot of legislation in place to protect tenants and landlords. You also need to manage lease agreements, rental payment authority, bond lodgement forms and property inspection reports. In the case that something goes wrong, the correct implementation of these documents could be the difference between a win or loss at the relevant tenancy tribunal.
While self-managing is right for some, having a professional, trustworthy property manager available to handle inquiries, damage or a broken lease can pay off for other owners. It all comes down to whether you can commit the time and effort needed to ensure your investment needs are met, as well as the rights of your leasing tenant.
Conveyancers do not have to be legal professionals so are cheaper to hire. However, they can only provide information relating to property. They are suitable for a straightforward property purchase. Their main responsibilities include giving advice and information about the sale of property, preparing documentation and conducting any settlement processes.
Solicitors can provide you with a wide range of legal advice in addition to your conveyancing needs, and may be necessary if your property transaction isn’t straightforward. Solicitors are more expensive, but the investment may be worthwhile if you anticipate any legal issues.
Stamp duty, also referred to as ‘transfer duty’, is revenue levied by states on transactions relating to the transfer of land or property. It is paid upfront and needs to be budgeted for, in addition to your loan deposit.
The amount differs in each state, however there are three universal factors that determine how much stamp duty you will pay:
1. If the property is a primary residence or investment property.
2. If you’re a first home buyer.
3. If you are purchasing an established home, a new home or vacant land.
There are several stamp duty calculators available online and a range of tax concessions available to reduce stamp duty.
Home loan application fees include loan contracts, property title checks, credit checks, and attending a settlement.
Mortgage fees and costs include mortgage establishment fees, property valuation fee, mortgage registration, lenders mortgage insurance.
Property fees and costs include building, pest and electrical inspection fees, registration of transfer fee, legal fees, home and contents insurance, life and income protection insurance, utility costs, council rates, water rates, strata/body corporate fees, and maintenance costs.
1. Have they defaulted on any payments? 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.
2. That savings balance, where has it come from? Balance is only one part of the equation that lenders consider.
3. If we do 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.
1. Find a finance broker
2. Have a credit history and make it good
3. Actively show how risk will be minimised
4. Be prepared
5. Have a business plan
6. Provide more than one exit strategy
1. Never enter a negotiation empty-handed
Obtaining facts and figures will give you ammunition when requesting a price reduction.
2. Separate your emotions
Try to separate yourself from the outcome and present your side logically.
3. Remember this is someone else’s house
Negotiation is a two-way street, to come to an agreement, concessions will have to be made on both sides.
4. If you don’t ask, the answer is always going to be no
From wanting certain fixtures to extra inspection requests, you won’t know what the owners are happy to give if you don’t voice your desires. However, think about what is most important to you, as realistically the owners aren’t likely to budge on everything.
Arranging finance before finding the perfect property will put you in a good position when it comes time to make an offer. When you do find the house you’ve always wanted, you can present to the seller and estate agent as a prepared applicant who is serious and reliable.
In the instance that you find and secure purchase of a home without having your loan pre-approved by a lender, you run the risk of forfeiting your initial non-refundable deposit you need to put down to secure the property.
Refinancing involves reviewing your current mortgage, and potentially swapping your loan to another lender, who can better meet your current needs, wants and circumstances.
Refinancing can be a strategy to secure a lower interest rate, switch to a different type of loan and can also allow you to consolidate your debts or pay down your mortgage more quickly.
However, refinancing isn’t suitable for everyone. Speak to a professional.
A home loan health check will generally cost you nothing and could save you thousands. Your home loan features could be improved, or you could find yourself with a lower interest rate. A better payment structure could also be introduced, making your repayments more manageable.
Checking the state of your current loan could uncover the possibility of taking out additional finance, which can consolidate any other debt you may have, or help you purchase an investment property.
1. Finance broker – act as a liaison between you and the lender.
2. Real estate agent – advise the vendor on preparing the property and negotiate with potential buyers.
3. Insurance companies – help you avoid being hit with a major financial burden.
4. Conveyancer – prepare the documents to ensure that transfer of ownership of the property has met the legal requirements in your state or territory.
5. Property valuer – knowing the value of a property
6. Pest and building inspectors – ensure there is no additional expensive costs.
7. Lenders – if you need to borrow money to make your purchase.
Urgent maintenance is an unavoidable aspect of being a landlord, so having a cash buffer set aside will help you deal with any unexpected problems.
When renting out an investment property, having access to extra cash is vital to cover the costs of repairing and maintaining the property, giving it the best chance of remaining tenanted. Also, to cover the cost of the mortgage should you lose your employment or rental income.
The simple answer is that a finance broker is with you for life.
Building a long-term relationship with your finance broker is a good idea, as he or she will know the ins and outs of your circumstances and what you want for your future. Your finance broker will also stay on top of your account and, with expert industry knowledge, keep his or her ear to the ground for any new products or better interest rates that would benefit you.
Even the most seasoned of investors benefit from staying in touch with their broker, who can help them maximise returns later down the track. And if you decide to invest in property for the first time, your finance broker can help look for investment loan options to get you started.