Credit cards & home loans: why they AREN’T a match made in heaven

You’re all set to apply for a home loan but you still have a hefty credit card debt. So you figure you’ll pay it all off and just keep the card for emergencies. Surely the bank will be impressed with your debt-free status, right? Wrong.

The bank’s view on credit cards

Banks look at credit cards through a single lens – as debt. Having a huge credit card debt is definitely a no-no, but what matters more is your credit limit.

Why? Because from the bank’s perspective, a high credit limit means a high debt risk. After all, what’s stopping you from maxing out your credit card the day after your loan is approved? Maybe on new items for the new house you purchased!

How your credit card limit affects the amount you can borrow

Regardless of how much you owe on your credit card, the bank needs to account for 3% of your credit card limit when assessing your home loan application. As an example, if you have a $10,000 credit card limit, 3% (or $300) is what you have to pay each month at minimum.

Even if you never spend a cent on your card, a high credit card limit will negatively affect your loan serviceability (whether the bank thinks you can afford repayments after income and expenses are taken into account).

So not only do you need to pay off your credit card debt, but you should also reduce your credit card limit. Or better yet, cancel it altogether if you can.

Other ways to be improve your serviceability

Getting rid of your credit card is not the only way to up your serviceability status and chance of securing a home loan. We have a host of tools at our disposal we can use to sharpen your serviceability, including ways to help you assess your borrowing capacity. If you’d like some further assistance on this front, please feel free to call us.

Securing finance if you’re a contractor or casual employee doesn’t have to be hard

Not everyone has a 9-5 job. There’s many flavours of employees out there, with contractors and casual employees being just two. For people who fall these categories, getting finance for a new home can be tricky as it’s harder to prove they have a stable income.

But things are changing. Modern home loan lenders are beginning to understand that not everyone fits their traditional lending criteria, and they’re slowly putting in place policies to account for this.

All sorts of workers

In years gone by, it was primarily hospitality and performing arts employees that struggled to get the banks to say yes to a home loan. But today, there are many more people employed on a casual, part-time or contract basis. There’s also a large sector who heavily rely overtime income.

If you’re in any of these groups, it’s not likely you fit the bank’s standard rules of lending. They worry about you because they believe you have an unstable source of income. As such, they consider you a high risk borrower. This is even more so for casual employees, as lenders believe they would be the first to go if an employer needed to cut back on staff.

What the bank will want to know

All lenders have certain criteria you must meet to be considered for a loan. If you’re a casual or contract worker seeking a loan, there are some added variables. When applying for finance, the bank will want to know:

  • The number of hours you work & how consistent they are
  • Your likely loan-to-value (LVR) ratio
  • How long you’ve been in your current job (should be at least 3 months)
  • Whether you’ve been in the same industry for at least 1 year

Should you pass the lender’s criteria and can demonstrate you can repay the loan, you might still be able to borrow up to 95% loan-to-value ratio (LVR) in many cases.

Be realistic, be cautious

Even if a lender gives you loan approval, you should only go ahead if you believe your income is stable enough to enable you to confidently make repayments. If you’re aren’t sure if you’re in this boat, connect with us today. We work with many lenders who approve loans to casual and contract workers, and our strong network means we often successfully get loans approved where other brokers have failed.

5 ways refinancing can help you

There is no greater financial commitment than your home and its loan. That’s why it makes perfect sense to regularly check your home loan health and ensure it’s still working for your particular situation.

Here are five key reasons why you should consider refinancing your loan, not least of which the fact that it could save you thousands of dollars!

  1. You could score a lower interest rate

This is undoubtedly the most enticing reason to consider refinancing. After all, less interest means more money in your pocket and not the banks. That’s an outcome we’d all love, right?

With rates slowly starting to rise, now is the perfect time to see if you can lock in a better deal and save.

  1. You could take advantage of a switch between a variable & fixed rate

Another very popular reason to refinance is to switch between a variable and fixed rate. A fixed rate may give you peace of mind as you’ll know exactly how much your monthly repayments will be, without the possibility of it changing.

Or perhaps you’re in the opposite boat – on a fixed rate that is higher than the variable. Switching from one to the other may bring you some considerable savings.

  1. You might be eligible for a home loan with better features

Home loans change as much as you change your underwear – well, almost! It’s highly likely there are now a range of new features available that weren’t when you set up your home loan. They could save you some serious cash.

For instance:

  • Lump sum repayment without fees
  • Offset account to reduce your interest
  • Repayment holiday (a break from repayments)
  • Loan portability (take your home loan with you when you move without completely refinancing)
  1. You could consolidate your debt

Many of us have liabilities in addition to our home loan. It might be a car loan or credit card debt, and these loans often come with high interest rates. Refinancing might give you the opportunity to merge your loan debts via ‘debt consolidation’. You could potentially reduce the overall interest you’re paying and even reduce your monthly repayments.

  1. You could release equity in your current property

You might be at the stage where you want to buy an investment property, or perhaps renovate your current home. Maybe it’s time for a trip around Australia or overseas. You can do all of these things by drawing on your most valuable asset – your home.

In years gone by, you could only access the equity in your home by selling and then buying another property. However, things have changed significantly.

Loans today are much more flexible so you can release the equity in your home without having to sell. Reviewing your home loan will show you exactly how much equity is available to you, and refinancing can help you access it for other things.

Not sure you’re ready to refinance?

Refinancing has some amazing benefits but as with most things in life, it can be a little tricky and does have associated costs. In some instances, the costs may outweigh the potential benefits. This is precisely where a good mortgage broker comes in. They can help you weigh the pros against the cons to see if refinancing is right solution for your situation.

If you’d like some further help with your refinancing needs, please get in touch. We’d be happy to spend some time with you to present a host of options to suit your needs, hopefully saving you some cash in the process.

 

QBE Australian Housing Outlook 2018-2021

Australia reached a major milestone this year when our population reached 25 million. Natural population growth and international migration combined to achieve this milestone quicker than most forecasters predicted. And, of course, everybody needs somewhere to live.

Read more here.

Published by QBE

Managing your mortgage stress

Mortgage stress. So many Aussie homeowners are struggling under the weight of it. If you find yourself stressed out about your repayments, here are a few steps to get back in control.

Plan for the future

Most people experience mortgage stress because the future is unknown. Anything could be lurking around the corner – an unexpected illness, a retrenchment or a surprise baby!

While none of us have the benefit of a crystal ball, you can prepare for the unexpected in a few key ways such as:

  1. Getting income protection

If you find yourself in an unexpected situation that affects your ability to earn, this insurance will pay the mortgage for you.

 

  1. Meeting with a financial planner

These experts have many tools at their disposal to help you plan your financial future, often suggesting things you may not have ever considered.

Set a budget

Don’t spend time worrying about how much might be coming out of your pay packet each fortnight or month. Be proactive and actually ­know.

Write down all your incomings and outgoings over a certain period. This will help you to clearly see what you have left to play with. Knowing where your money is going at any given time will put you firmly back in the driver’s seat and help control your stress levels.

Cut back where you can

The oldest trick in the book to reduce your mortgage repayments is to reduce your spending, so why not take advantage of that?

After you’ve reviewed your income and expenses, work out where you can make some savings. A few small changes can make a big difference in the long term and our article ‘Top tips to help you manage your money’ might help on that front.

Rainy-day fund

After you’ve done your budget and made some savings, critically review the numbers. Figure out the absolute minimum amount of money you need to live on per month, factoring in all your commitments.

Then, from today, start putting a plan in place to save towards at least three times your minimum-monthly-living figure. This will be your emergency fund in case of an unexpected change in circumstances, be it job loss, new baby, illness or whatever else life throws at you!

While it sounds hard, cutting back for a few months now and building up your emergency fund will alleviate a huge amount of potential finance stress later.

We hope these tips will enable you to up your bank balance a little and in the process, help you feel more in control of your mortgage. If you’d like a few more great tips, get in touch. We have lots of nifty tools to assist with your mortgage repayments.

Buying and selling in the current climate

The stats are in – the Australian housing market is on the downturn. According to the Australian Bureau of Statistics, the first quarter of this year revealed a big drop in both Melbourne (the biggest decline in five and a half years) and Sydney (first annual drop for six years).

While this might sound like bad news, it does present some great opportunities for both buyers and sellers. You just need to know where to look. Here’s what you should know when buying or selling in today’s real estate climate.

Sellers

It’s likely you’re a little nervy in a slowing market but rest assured there is still demand. To capitalise on this, follow these steps:

  1. Up your presentation stakes

We can’t stress how important it is to ensure your property is looking its best at sale time. Think all repairs done, a fresh coat of paint, a touch of landscaping, spotlessly clean, properly furnished and styled. All these things can make a huge difference in attracting prospective buyers to inspect your home over someone else’s.

  1. Be realistic

As the market has clearly changed, do your due diligence research-wise. Check out similar properties on the market in your area as it will give you a good idea of what yours is really worth.

  1. Hook up with an expert

A slow market is the perfect time to draw on the reserves of an experienced real estate agent. Look for one with a strong track record who intimately understands your locale. Any agent can sell property during a boom, but a truly great one knows the right tricks of the trade to secure deals in a slow one too. A vendor advocate can be a great resource here and we can put you in touch with one.

  1. Consider bridging finance

Selling and buying at the same time can be hard, especially when things slow down. Bridging loans can give you some breathing room to sell your property if things don’t go to plan. These loans can be a great option, however they are more complex than a standard home loan. It’s a good idea to speak to an expert like us before to committing to this type of loan.

Buyers

Are you a first home buyer? If so, you’re in the driver’s seat right now so it’s time to put on your inspection shoes and launch into top gear! The same can be said for if you’re on the hunt for your next home, be it your second or third.

It’s worth noting that a slow market doesn’t necessarily mean bargains are easy to come by. There’s still plenty of competition out there so take advantage of this tips to ensure you’re a winner on the home-buying front:

  1. Make a plan

For those of you who have a current property, buying before you sell can place unnecessary pressure on you to accept a lower price than you want. Make a plan of what you’d like to do when it comes to buying and selling simultaneously … and stick to it.

If you need some further assistance in getting this right, arrange a time to workshop the various options and scenarios with us. We can then help you come up with the most appropriate strategy and plan.

  1. Ensure your finances are ready to go

Like a good boy or girl scout, be prepared! Arrange financial pre-approval so if a great opportunity pops up, you can make a quick offer.

  1. Do your research

Attend a few auctions in the areas you’re interested in. It’s a good way to gauge demand for properties and likely price points. When it comes to offer time, take your time reviewing the paperwork and ask questions or research anything you aren’t sure about.

  1. Be level-headed … but brave

Try to keep your emotions in check when making an offer. Bidding emotionally may see you paying more than you need to. Also, don’t be scared to offer below the asking price. It’s a great way to see how motivated the vendor is to sell, plus get a good idea of their expected sale price. You never know, you might even score yourself a deal!

At the end of the day, whether you’re buying or selling, the most important step is to have your finances fully in order before embarking on the process. Whether that’s pre-approval, a bridging loan or refinancing, putting this in place first will ensure the journey of buying and/or selling is as seamless as possible. Should you need help on that front, feel free to give us a call.

 

 

The right loan amount – how much should I borrow?

‘How much can I borrow?’

It’s the one question just about every client asks us! But it’s not the right question. A better one is ‘How much should I borrow?’ And this is where we can be of most help – to ensure our clients understand what the right loan amount is for their individual needs.

The risk in choosing the wrong loan amount

It’s a scenario that plays out all too often – people overextending on a purchase with a ‘buy now and worry about the consequences later’ mentality. It causes a great amount of financial pressure and stress; all of it unnecessary.

While banks have measures in place to avoid borrowers overextending, they’re still in the business of making money – by lending it to you!

Loaning up to your maximum borrowing power will always be a risk if you are not familiar with your cash flow. Furthermore, a suitable home loan is measured by the balance between:

  1. Being able to purchase a property, and
  2. Being able to comfortably meet the repayments

Steps to working out right loan amount

To help you work out the correct loan amount, pick a 6 to 12 month period and review your cash flow over that time. Then realistically ask yourself these questions:

  • How much do you need to maintain the lifestyle you want?
  • Do you have a safety net of savings (a store of a few months’ worth of loan repayments in case something happens and you can’t make one or two)?
  • Will there be any major life changes happening in the foreseeable future (ie starting a family, changing careers)?
  • Do you have to significantly change your lifestyle to take on the loan? If so, are you up for making those sacrifices?
  • What would happen if interest rates rose by 1 or 2%?

How a broker can help you fit together the pieces of the loan amount puzzle

As we’ve mentioned, over-borrowing causes immense stress. You end up spending more time wondering how you’re going to pay your mortgage each month, than enjoying the beautiful property you’ve work hard to purchase!

This is where a good mortgage broker comes in. They’re indispensable in helping you determine the right loan amount for you. If you’re struggling to make a choice, please contact us here at Professional Partners. We’re always happy to help.

You don’t always need to wait for the auction – here’s why

So you’ve found the house of your dreams. But there’s a catch – it’s going to auction so all you can do is wait and hope you’re the lucky bidder, right? Nope, there is another option. It’s one that could see you with the keys in your hand without ever having to hear the bang of the auctioneer’s gavel.

Putting in an offer before auction

In today’s competitive real estate arena, it’s common for interested buyers to put in an offer before a home goes under the hammer.

If you find yourself in this boat, there’s a few things you should understand and get in place to increase your chances of success.

  1. Get your finance sorted – make sure you have your loan pre-approval firmly in place before submitting an offer.

 

  1. Ensure it’s legal – get your conveyancer or lawyer to review the contract. While you may be in a hurry to snatch up the property, you should ensure there are no surprises in the contract ie property covenants (building restrictions) you need to be aware of.

 

  1. Consider the competition – the estate agent will present your offer to the vendor. But they will also notify any other interested parties and invite them to counter-offer. As the agent works for the vendor, it’s their job to act in their best interests to try to drive up the price. This may result in a ‘boardroom auction’ where you go back and forth until the highest offer is submitted. Be prepared for this and understand it may not go your way, or be the quiet purchase you envisaged.

If you have all these things in place, buying a property by submitting an offer before auction can be exhilarating. We wish you the best of luck and hope you end up with the keys in your hand at the end!

Using your super to buy your first home faster

If you’re a young Aussie trying to buy your first home, you know exactly how hard it is to get your foot in the door … of the bank that is, not the potential property! But the federal government recently announced a new superannuation scheme that might just make it that little bit easier.

The First Home Super Saver Scheme

As the name suggests, the First Home Super Saver Scheme targets first home buyers. As of 1 July 2018, those who qualify can take out any voluntary superannuation contributions made after 1 May 2017 to put towards a deposit on their first home. Voluntary contributions include personal as well as salary sacrificed ones.

How you benefit

By using this scheme, you’ll get a considerable tax break so you can save up for that all-important deposit much faster. It may be a better alternative than getting taxed at your marginal rate and then putting whatever you can afford to save into a savings account – especially when you consider super fund returns are generally better than bank interest rates!

Getting further help to secure your first home

Still not sure if this scheme is right for you? We can help by looking at your numbers and discussing the options available to you so you’re well on your way to getting that dream home , rather than later!

Please remember you will need to check with your own fund and a super expert about how this may work for you.

Home loan approvals – have the banks really changed that much?

If you think it’s tough to get into the housing market, the home loan approval process ain’t much better! The past twelve months have seen an enormous amount of change in lending parameters. This can come as a rude shock to those applying for loan. Here’s some information about what the banks are now looking for and how you can up your chances of approval.

New criteria

Banks are now stricter when it comes to lending. It’s no longer a simple process of assessing your income to ensure you can afford to make your repayments and then bang, there’s your loan. It’s quite different.

Apart from tightening their lending criteria, banks are now scrutinising your living expenses. To be eligible for a loan, you’ll be asked a whole bunch of in-depth questions about your spending habits.

Things like:

  1. How often do you eat out?
  2. Do you go to the gym?
  3. Do you have Foxtel or digital streaming services?
  4. What is your mobile phone plan like?

And so on.

Your best shot at approval

Apart from strict lending criteria and the vast amount of detail they require, each bank also has their own preferences. These can make all the difference between an approval and a decline. This is where an experienced broker can help.

At Professional Partners, we keep up-to-date with the ebbs and flows of what each bank requires. We understand the ‘ins and outs’ of different bank products, application details and what best matches your unique requirements to get your loan approved – fast. Contact us today to chat about how we can help you secure your loan approval and get you well on your way to your dream property.