APRA suggests banks relax key lending criteria

Here’s a bit of good news:  you may be able to borrow more to buy your dream home after new APRA guideline changes. 

 

Recently the Australian Prudential Regulation Authority (APRA)  sent a  letter to the major Australian Banks. This letter advised the Banks to remove their guidelines that propose borrowers be assessed by their  ability to make repayments using an interest rate of  7.25% p.a.  Instead, now the APRA is now encouraging Banks to use an interest rate buffer of 2.50%p.a. .

What do the new guidelines change?

CoreLogic researcher Cameron Kusher examines  the impact of the new changes . He  states  “If someone is looking to borrow at an interest rate 3.90%, the borrower would previously have been assessed  at a rate of  7.25%p.a.  Now they would be assessed on their ability to repay at a lower 6.40%p.a. (3.90% + 2.50% buffer)” He said.

Kusher added that the proposed APRA changes are further in response to declining interests rates.  “It has become  more difficult to get a mortgage, that is partly because of this assessment,” he said.

Why the rate change?

APRA chair Wayne Byres said the operating environment for  Australian Deposit taking Institutions (ADIs)  had evolved since 2014, prompting APRA to review the current guidance.

“APRA introduced these  guidelines  to reinforce sound residential lending standards at a time of heightened risk,” said Mr Byres.

However, Mr Byres said with  low interest  rates, the gap between the 7% floor and actual rates paid has become quite wide, sometimes , “unnecessarily so”.

What does this mean for you?

Mr Byres said the changes are likely to increase the maximum borrowing capacity for a given borrower.

However, he warned  that these changes  do not  signify any lessening importance the APRA places on  lending standards.

“These changes will provide ADIs with greater flexibility, while  maintaining  prudence through the application  process ” Mr Byres said.

What next?

A four-week consultation will close on  June 18th, ahead of APRA releasing a final version of the updated guidance.

CoreLogic’s Kusher said the changes will allow some borrowers who can’t quite access a mortgage currently to get one.  “Overall for the housing market, it will mean more people are able to get a mortgage” Kusher said.

 

If you’d like to find out  how these changes may help you,  give us a call.    We’d love to help !

 

Home loans: to lock in the rate or not?

With some of the major lenders recently lifting interest rates on variable home loans, we’ve had a number of enquiries this week as to whether now is a good time to lock in an interest rate.

As predicted, Westpac’s recent decision to increase variable home loan rates was soon followed by Commbank and ANZ.

NAB was the only Big 4 bank not to hike up rates, citing a need to “rebuild trust” with customers.

Yet with the bulk of the market moving variable rates up, many are asking: is now a good time to lock in an interest rate?

Well, like everything in life, the answer depends on your personal situation.

Fixing the rate

A fixed home loan has an interest rate that’s fixed at the time the loan was taken out and won’t change for a set period – usually one, three or five years.

Having a fixed home loan means that rate rises won’t affect you.

Selecting a fixed home loan can give you a sense of clarity and certainty, and as such, will help you budget and plan ahead.

So, while others are grumbling about rising interest rates, you can be content knowing you won’t be affected. That said, future interest rates rises are never a foregone conclusion.

You might prefer a fixed home loan rate if you:

– Believe interest rates will rise in the future

– Are comfortable with the interest rate you are committing to pay

– Prefer to be able to accurately plan your finances in the short and mid-term

– Are concerned that you would be unable to make your repayments if rates were to rise.

Variable home loan rate

A variable home loan has an interest rate that changes. Instead of staying at a certain fixed level, the rate will move according to market interest rates.

As a result, your repayments will either rise, fall, or fluctuate over the term of your loan. This means that sometimes you’ll pay more than a fixed loan, while other times you’ll pay less.

Variable loans can come with advantages linked to their flexibility.

For example, it can be cheaper and easier to switch loans if you find a better deal elsewhere than it would be if you had a fixed loan.

Often you’ll also be able to make extra repayments on your loan at no additional cost, which can help you pay off your loan more quickly.

You might prefer a variable home loan rate if you:

– Suspect interest rates will stay put or fall over time

– Are unsure about interest rate movements and would prefer to go with market rates

– Are confident you could manage a rate rise

– Don’t mind having some unpredictability in your financial planning.

Still on the fence?

Discussing your individual circumstances and financial goals can help you decide whether a fixed or variable loan is right for you.

With so much at stake it can be difficult to decide on the best option.  The solution?  Come and have a chat with us.

We’d love to help

 

 

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Get your ducks in a row: how to make a timely deposit

So you’ve finally found the property of your dreams and you can’t stand the thought of someone else moving in? Don’t let a payment oversight get in the way.

One of the most common questions we get asked is when and how to make the deposits on a new property.

And for good reason.

If it’s your first time, you’re probably nervous about locking down that property, so you don’t want a payment mishap getting in the way.

The process varies slightly from state-to-state and in private sales vs auctions, but below we’ll step you through the general process.

Payment one: a holding deposit

You’ve scrimped, you’ve scraped, and you’ve finally saved enough to buy a home. Great! Now you’ve got to work out to who, and when, the deposit is paid.

In private sales, once you’ve made a verbal offer on a property that’s been verbally accepted, the real estate agent may ask you to pay a holding deposit to show you’re committed to your word.

This figure can be between a few hundred dollars to around 1% of the purchase price. It is not an additional cost – it’s simply an advance.

Beware, however, that this holding deposit doesn’t lock down the home. It confirms your intent but another player can still come along and enter the game.

A holding deposit is also not compulsory. So if the seller asks, and you don’t feel inclined, you don’t have to cough up the dough.

If your offer is accepted and contracts are drawn up, the holding deposit is considered part of the full deposit that you’re required to pay.

Be sure to get a written receipt from the real estate agent which states they will refund the money to you if the seller decides to accept another offer – which can, and does, happen.

Private sale deposit

Now it’s time to move onto the full deposit.

In a private sale, once the contracts are signed and exchanged, you generally must pay the seller’s real estate agent a 10% deposit, unless the contract has specified a different amount (which can be around 5%).

The agent then generally keeps the deposit in a trust account until the settlement.

Now, these contracts can take a few days to exchange and sign off, which gives you time to organise how to pay the deposit with the seller’s real estate agent.

During this time, speak with them to arrange a payment method that best suits you both. Options generally include a personal cheque, counter cheque, electronic funds transfer or deposit bond.

Auction deposit

Boom. The hammer comes down and the property’s yours. Well, ok, not just yet.

If you’ve put your hand up for the winning bid, it’s usually expected that you pay a 10% deposit on the day of the auction (once again, it can be as low as 5%).

But hang on, banks are usually closed on the weekends. So how are you going to stump up the cash?

This is where it’s important to plan ahead, and where we can help make sure it all runs smoothly.

Options include writing a personal cheque on the auction day. Or getting a counter cheque from a branch before the weekend auction. Deposit bonds are also an option.

Regardless, it’s always important to check before the auction as to what options are available for paying the deposit.

But what about the deposit on my loan?

The deposit you pay the seller’s agent will count towards your finance application deposit.

For example, say you’ve told the lender you’ll be making a $50,000 home-loan deposit.

Then, when the contracts are exchanged, the seller’s agent only asks for a $25,000 deposit.

The good news is you’ve paid half. The bad news is the lender still requires the remaining $25,000 of the deposit.

Final word

So that’s the general timeline for when it comes to paying deposits on a home.

On a related note, it’s very important to ensure your finance has been pre-approved nice and early before the auction.

And as you know, that’s our bread and butter.

We can help you obtain a home loan with a great interest rate, with fees and features that best suit your personal circumstances and budget.

If you’d like to find out more, get in touch with us today.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

 

Location is crucial when buying investment property

The first thing most of us look at when selecting an investment property is its location. If the property itself isn’t quite right, you can always renovate, but it’s not as easy to move a house to a better location. That’s why you should consider the location carefully. Here are some of the most important things to look for.

Love thy neighbour

Before you buy, familiarise yourself with the local community. If possible, visit the neighbourhood during both day and night to get a feel for whether it’s a safe place to live. Are there kids playing outside or security bars on the windows? Are there trampolines in the front yards or the remnants of last night’s party? This will help you determine whether the location is suitable for the type of tenants you want. After all, if you’re looking in an area that attracts university students but you would prefer to rent to a quiet couple, then perhaps this location isn’t right for you.

Future plans

The neighbourhood might look suitable now, but things can change. It’s a good idea to investigate any future plans that could affect the value of your property. For example, the local council should be able to tell you if a freeway or large-scale construction is planned. Major works could increase or decrease your property’s value depending on where they’re situated.

Access to infrastructure

To increase your potential rental income, try to buy near desirable infrastructure and facilities. For example, families often pay a premium to live in the catchment area of a quality public school, so it’s worth checking the educational zoning.

Access to shops, public transport and the beach are also attractive features for both tenants and prospective future buyers. And while it’s handy to be near the airport, if you’re located right under the flight path it might impact the amount of rental income you receive.

Bargain pockets

Finding a bargain pocket in a good suburb could increase your capital growth potential. By looking at demographic data, such as that collected during the Census, you may be able to spot trends. Perhaps the neighbourhood has recently been gentrified by young professional couples who are increasing the average income of the area, which is likely to increase the value of the property over time. Bargain pockets may also be found in close proximity to high-growth areas that will benefit your investment in the long term.

By considering the location, not just the address, you can increase your chance of maximising your rental and capital growth potential.   Searching for an investment property can be a rewarding experience however if you really want to maximise your investment opportunity you should engage a Buyers Agent who are specialists.   At MortgageDirect we work closely with Buyers Agents and can recommend someone for your specific needs.

Finding a home loan when you’re self-employed

Finding a home loan when you’re self-employed

There are many perks to being self-employed, but when it comes to applying for a home loan, it seems being your own boss sends up a red flag to banks and other lenders.  Why? A salaried employee has a regular, steady income and is less likely to experience the cash flow volatility of a small business owner, contractor, entrepreneur, tradesperson or freelancer.

Yet by being proactive and accessing specialist advice, self-employed applicants can also enjoy a successful and hassle-free road to securing a home loan. Try these top tips for starters.

1. Seek expert advice

Trying to navigate the home loan landscape solo may not produce the outcome you desire.  A lending specialist is a good first port of call as they can provide valuable advice around the sort of documentation you will need to have ready before you submit your application.

2. Get your affairs in order

Many lenders will lend to self-employed borrowers who provide their full business financials. This generally includes your personal and business tax returns for the past two years. If you have these documents on hand – and they reveal a fairly consistent income – applying for a loan should be relatively straightforward.

However, the hectic schedule that comes with running your own business means many self-employed borrowers’ tax returns are not up to date. If you have time on your side, consider working with your accountant to lodge your outstanding returns.  If you want to take advantedge of an opportunity quickly, you may wish to explore the option of applying for a lite doc loan which requires less documentation than a traditional loan.

3. Do your homework

Checking your credit history is a good step for anyone applying for a home loan. If you’re self-employed, it’s definitely worth taking the time to make sure your credit history doesn’t include any defaults, errors or too many inquiries – these can hold up your loan application if they are not addressed in advance.

Taking the time to work out exactly how much you’d like to borrow is also a good idea. That way, you can hit the ground running when you meet with your mortgage lending specialist.

4. Think outside the square

While it’s a little more complicated for self-employed borrowers, getting a home loan can be easier than you’d imagined with the lending experts at Mortgage Direct in your corner.

Our success stories speak for themselves.

See Linda’s story:   We were able to provide financing for Linda to renovate her home and provide a separate unit downstairs which improved her property valuation and income.
And she did it so beautifully it was featured in House & Garden magazine.

Be like Linda.    Call us on 1300 360 999.

mortgagedirect client stories review

Want to help your kids buy property? Here’s how.

Want to help your kids buy property?    Here’s how.

The real estate market can be tough for young adults, but as a parent you may be able to lend a helping hand.    We tell you how.

1. Parent-to-child private loan

A parent-to-child loan is when a parent lends their child money to purchase a property.  This arrangement needs to be documented at the start of the loan period, both parties agree to terms including repayment amounts, a schedule and a process to manage defaults.

  • Benefits: You can set generous terms for your child.
  • Drawbacks: Opportunity for family dispute if arrangements are not adhered to.   There may legal implications for your child if the event of a future relationship breakdown. There are also tax considerations for both parties.

2. P2C loan 

A P2C loan is offered by a financial institution where the parents make an investment and the funds are on lent to the child as a first home loan.  The parents do not need to enter into any arrangement with the child and it protects their home and retirements savings.  All repayments etc are handled by the financial institution.

  • Benefits: You can set generous terms for your child and the arrangement is independantly arranged and managed.
  • Drawbacks:  Few,  child gets the home and parents investment is protected.  There may be legal implications for your child in the event of a future relationship break down.

3. Family guarantee

If your child doesn’t have enough savings for the deposit on a home, you could provide a family guarantee. This is where you use some of the equity in your own home as part of the security. For example, your equity might cover 20% of the security, and your child’s new property would be the other 80%.  This is know as a “Family Guarantee Loan”.

This can be a temporary arrangement until your child has paid down the loan.   Their property can be revalued and your home being used as security is released.

  • Benefits: You have the option of guaranteeing only a portion of the loan.
  • Drawbacks: If your child defaults, your assets can be at risk.

4. Becoming a Co borrower

You can help your child secure a loan if you become a joint applicant. This means you’re equally as responsible as your child for meeting repayments. The lender will consider your assets and income in its lending assessment.  You will both need to mortgagors (owners) on the property.

  • Benefits: Your child can obtain a loan to purchase a property but will not be able to claim the First Home Owner benefits.
  • Drawbacks: If your child stops making repayments, you’re responsible for making them.

5. Gift

When you give your child money but don’t expect it to be repaid, it’s considered a gift. You may need to sign a statement to say it’s a gift, not a loan.

  • Benefits: You can provide financial help, possibly without the legal, tax or financial implications of a formal arrangement.
  • Drawbacks: If your child has a spouse and their relationship breaks down, the former partner could make a claim for the property.

6. Assistance in kind

If you’re risk averse, consider providing assistance in kind; that is, covering some of the expenses that come along with buying a property. You could pay for services such as a property survey or conveyancing fees, or help with stamp duty.

  • Benefits: You can give practical financial assistance.
  • Drawbacks: The amount of money you provide may be more than what your child ends up spending. For example, you might want to contribute $20,000 but the services cost $15,000. In this case, the rest of the amount is subject to the terms of a gift or loan.

Make sure you’re well informed about your options when gifting or lending money so you can remain in the best position to help your child become a home owner.   We’re here to help you make the right decision for your family situation.  Just call us on  1300 360 999.

Save Thousands by Refinancing your Loan

Save thousands simply by refinancing your loan.

It’s often said that Australians are more likely to divorce their spouse than switch banks. But with plenty of competition in the home loan market, refinancing can be a great move.

There are a number of reasons why you might want to refinance: you can consolidate debt from high-interest credit cards into a home loan with a lower rate of interest; you can release cash from your home loan equity for renovations or other major purchases; or you might want to simply save on your repayments by moving to a loan with a lower interest rate and pay your home off sooner.

Whats my rate?

If you aren’t 100% sure exactly much you’re paying, how can you find a better deal?

Luckily, finding out your interest rate can be as simple as logging on to your bank’s online banking portal and checking the account information for your home loan.

What do I need?

Make a shopping list of the features you want in a new loan. These might include:

  • Consolidate your debts:  refinancing can help you to consolidate debts such as personal loans, car loans or credit card debts to make significant savings which can used to pay off your home loan sooner.
  • Unlock equity in your home: use the funds for renovations and improvements and increase the valuation of your home or use for investments to increase your wealth.
  • Features: your current home loan may not provide the features that you would like in a loan,  e.g. 100% offset account for savings, option for split loans, internet banking, BPAY and direct salary crediting.
  • Variable rate or fixed rate: a fixed rate gives you more certainty over the longer term; a variable rate can save you money when the market is down, but it fluctuates with the market.
  • Repayment flexibility: repaying a loan fortnightly rather than monthly can save thousands. There are 26 fortnights in a year, but only 12 (not 13) calendar months, so you pay the principal off quicker (and therefore pay less interest) when you make fortnightly repayments.
  • Ability to pay the loan out early with no penalty

Whats on offer?

Our home loan specialists will be able to help you choose the type of loan you want, how much you want to borrow and what extra features you need.

We’ll do all the legwork for you, providing you with solutions that cater to your particular financial needs.

Check out the costs of getting out  and getting in

If you took out your loan before 30 June 2011, the lender might be able to charge you an exit fee for terminating early.  And if you’re on a fixed rate mortgage, you might have to pay a break fee.

Some Lenders charge establishment fees and you may find yourself paying package or annual fees.  Some lenders also charge a fee each time you redraw on your loan.

Our Credit Advisers will  do the numbers and they’ll be able to advise you of any and all fees that are involved.

Do the maths

Use an online repayment calculator to work out what the repayments will be for different loan amounts at different interest rates.

Compare the fees and charges, too – these can add up, and may offset any interest rate savings over the life of the loan.

The Australian Security and Investment Commission’s MoneySmart website has a useful mortgage switching calculator that can help you assess the cost of switching your mortgage.

Speaking to MortgageDirect gives you a clear advantage

We have the experience and industry knowledge and will advise the best solution for you,  now and for the future.   Just call us on 1300 360 999

How Much Do I Need for a Home Loan Deposit?

How Much Do I Need for a Home Loan Deposit?

If you’re feeling overwhelmed at the thought of needing to save 10-20% for a home loan deposit, you’re not alone.   If you have had a stable employment history,  a good rental and savings record  you may only need as little as a 5% deposit, and here’s how…

Taking out Lenders Mortgage Insurance on your loan reduces the lenders risk and allows you to purchase your dream home or investment property sooner.  This can open up many possibilities for you as a new home buyer – better location, larger home, ability to do renovations -simply put,  LMI brings you that much closer to achieving your home ownership dreams.   Unlike traditional insurance products, there is a “one off” premium payable on settlement of your loan.  In some cases you can capitalise the LMI premium to the loan amount.

If you are a first home buyer, here’s a case study that’ll help you.

Case Study: Young Professional

Stephanie graduated from university five years ago and has been working for a law firm in the city. She currently lives at home with three younger siblings and would like to move out and start looking for a place of her own.    While living at home she has been able to save for a deposit and would like to buy rather than rent.

A friend of Stephanie’s recommended she call MortgageDirect who are home loan lending specialists.  She shared with them her ideal home and property aspirations.   They advised Stephanie that using Lenders Mortgage Insurance (LMI) would help her get into her home by allowing her to purchase her new home with a 5% deposit and funds for the LMI premium.  After speaking with MortgageDirect,  Stephanie is confident she can afford to service a loan of $520,500 – while factoring in a buffer against interest rate rises and uncertainties. This means that with her $42,000 savings,  she will be able to buy her first home, a one bedroom apartment for $550,000.

Crunching the numbers

My income is presently $95,000 p.a.
I’ve saved a deposit of $42,000*
I received FHOG of $10,000 and exemption for stamp duty
I used LMI to get a loan for $520,500**
To buy a dream home for $550,000
For a monthly repayment of $2,582  ($595pw)**
Including an LMI cost of  $98pm***

Benefits of LMI
·      Enabled Stephanie to buy her own home years sooner than would have otherwise been possible, entering into the property market with just a 5% deposit
·      Allowed Stephanie to start building her financial security and wealth

To find out how much you could borrow or what your income after tax is, use our calculators, it’s so quick and easy!

*includes 5% deposit and funds for LMI premium
**30-year term, assumed a rate of 4.29% p.a.
***monthly when capitalised to the loan