Is now a good time to refinance my mortgage?

Banks are continuing to fight hard for business amidst the current Covid-19 pandemic with many lenders offering the lowest interest rates in Australian history. Further to exceptionally low interest rates, some lenders are offering cashback offers of up to $4,000.00 when those refinance their investment loan or home loan. The Reserve Bank of Australia (RBA) final interest rate decision for 2020 has seen the cash-rate remain on hold at a record low of 0.10 per cent. Lenders pass on rate cuts in a variety of ways, however, the majority of lenders are currently dropping their rates on their fixed term products.

What does it actually mean to refinance?

Refinancing simply means to switch your home loan from one lender to another. This is commonly done when consumers look to secure a lower interest rate at a new bank or decide to restructure their loan. In Australia, the average term of a home loan at one lender is 4.5 years. Since the maximum typical home loan in total will last for 30 years, refinancing is more common that you may think. We see it as a savvy way to ensure that you have the lowest interest rate possible throughout the entire term of your loan.

What needs to be considered before I choose to refinance my home loan?

The process of refinancing is relatively straight forward however there are some important considerations that need to be understood before an application commences. Like all new finance applications, the lender will want to know if you can service (afford) your loan. Evidencing reliable and steady income is a very important aspect of applying for finance so if you are currently between jobs or unemployed then you may have wait until you can prove a consistent and steady income stream.

Refinancing almost always occurs when the loan to value ratio (LVR) is below 80%. LVR is a ratio between the amount owing on your loan to the value of your property. In the context of lending and refinancing, if the LVR is greater than 80% then you will be required to pay lenders mortgage insurance, and this is most often an immediate barrier to refinancing.

How much does it cost to Refinance?

When you are refinancing, it is important to weigh up the savings against any costs of making the move to a new lender. The likely fees to be incurred are:

  • Government registration of your new lender against your title – $250.00
  • Discharge Fee from your current lender – $250.00 – $350.00
  • New Annual Fee at the new lender – $250.00 – $370.00
  • Fixed-Rate break fee – This figure is a complex calculation that your current bank determines using the remaining loan balance, remaining fixed term and interest rate differential. This is a figure that is only obtained from the outgoing lender.

How Long does it take to Refinance my Loan?

From start to finish, refinancing a loan can take anywhere from 3-8 weeks. This is all dependent on the lender assessment time as well as the applicant’s efficiency in gathering the necessary documents.

Are there any downsides to refinancing?

Changing lenders means that you will need to go through a new credit assessment to ensure you are able to service (afford) the new debt. Due to the creation of new accounts with the new bank, you may need or want to notify any employers about the change of account details so you can receive your remuneration in that particular account. On a positive note, if your direct debits are coming out of an existing offset account, this account will remain active at your current bank (as a savings account) when you refinance. This means that you don’t have to worry about missing any direct debit payments while you get things set up at your new lender.

How do I know what lending options are out there?

Refinancing can be a serious financial decision with many variables to consider. If you would like to understand whether this is possible for you then be sure to get in contact with the team at 40 Forty Finance to undergo a home loan health check and gain the valuable information required to make the right decision.

 

Should you borrow as much as you can?

Applying for a home loan to purchase a property almost always comes with the question of how much should be borrowed. It is important to know that although a bank is willing to lend you an amount of money, it may not necessarily be within your best interest to take on that amount. In the eyes of a first-time buyer, borrowing a large amount of debt may be required to break into a competitive market but does that mean it’s the right approach. In recent years, we have witnessed a Banking Royal Commission, Federal Election and some of the lowest interest rates by the Reserve Bank of Australia (RBA).

To prevent mortgage stress is recommended that mortgage repayments are around 30% of total household income. Due to the rapid rise of housing prices and competition, many buyers have turned to borrowing more in order to break into the market. If you have very few other debts (credit cards, personal loan, car loan, HECS) then justifying going to 35% is possible, but much further than that and you place yourself at risk of not maintaining your repayments.

Don’t rush!

When deciding about purchasing a house, buyers shouldn’t jump at a perceived bargain or feel rushed. In a competitive market and social pressures on numerous fronts, buyers need to critically analyse their financial situation, goals and future outlook when taking on debt. A house secured from a high level of debt in a falling market can quickly turn sour, especially those that have leveraged themselves to a high point. On the other hand, borrowing high levels of debt when the value of a property is increasing and paying off the loan can strengthen your financial position. This is when borrowing big makes the most sense…. But how confident are you of picking the market?

Awareness and sound judgement of position

Buyers need to be aware of their budget and stick to a plan that works for their given situation. Taking into consideration all lifestyle variables, potential future changes and aspects that may affect your cash flow is important when thinking about how much debt to take on. For any debt you need to be absolutely certain that your loan repayments can be met in addition to all of your other expenses.

If you are looking to understand more about borrowing debt and the costs involved then contact the team at 40 Forty Finance to undergo an assessment.

Buying vs Renting: What is right for you?

Taking the plunge and entering the property market or choosing to rent is a decision many encounter throughout their lifetime. The age-long debate of whether it is better to buy or rent can be a confusing and complex decision for some. With recent housing affordability challenges, some believe that the great Australian Dream of owning your own house is a bridge too far. It is now that this debate couldn’t be more relevant as many ponder their options and future.

Ultimately the decision comes down to each and every individual situation and the first step is to work out whether renting or buying suits your own financial and personal situation.

Here are the pros and cons of each option as well as the main things to consider if you are considering to buy or continue to rent.

Renting

Pros:

  • Flexibility to live in different suburbs and properties
  • Allows for potentially greater savings and diversification of investments
  • Live in an area that you couldn’t necessarily afford if you were to buy
  • Cheaper monthly outgoings of rental payments as oppose to mortgage repayments
  • Avoid costly maintenance and rates that are to be covered by the landlord

Cons:

  • You never stop paying rent as opposed to those that pay off their mortgage in the long-run
  • Cost of renting steadily increases due to inflation
  • Restrictions to what you can and can’t customise within the rental property
  • Reduced stability and uncertainty with landlords having the right to put their property on the market at any time. This may impact your need to be living in certain school zones or close to transport links to work.

Buying

Pros:

  • Sense of stability and freedom to create a world around your home and make changes to the property to sure your particular needs
  • You can add value to the property and access equity within your home for other investment or lifestyle needs
  • Based on historical property prices, it is likely your property will increase in value over time

Cons:

  • Large financial outlay and utilisation of savings
  • Paying interest for the life of the loan
  • Restrictions on lifestyle costs as most of the money can be tied up in the loan repayments
  • Responsible for maintenance, council rates and any other costs associated with keeping the property in a liveable state

The truth is that what works for someone may not necessarily work for another. Understanding and deciding what works best for you is the fundamental question before you commit to either option. Additionally, it may be that for the next 5 years it is better for you to rent, then look to buy at a later date…. Or the other way around.

If you would like to understand fees and charges involved with purchasing property, or you wish to find out more about your capacity to apply for a loan, then contact the team at 40 Forty to arrange an appointment.

Why your mortgage broker is calling you

You’ve scored the home of your dreams and you’ve just popped the bubbly to celebrate.

When the bottle’s empty and you’ve settled in to your new home, you’ll notice your finance broker is still in your life, and you might wonder why – after all, they got you the loan and it has since settled so why would they still care about how you are going?

The simple answer is that we genuinely care about your finances in an ever-changing landscape and are motivated to ensure your lending continues to suit your needs. We know it’s a good idea to touch base at the 1, 6 and 12-month mark to ensure that everything is going according to plan. After that, annual reviews are really important to ensure the long term plan is stuck to.

A financially savvy individual will build a relationship with their finance broker, similarly with their accountant, to ensure they have and maintain a solid plan for the future. My goal with every client is to stay on top of their personal situation to ensure any new products or lending strategies can be capitalised upon.

Life changes may impact your mortgage such as welcoming a baby into your home, receiving a higher salary, deciding to get married, coming into significant inheritance or having your income temporarily reduced. All of these events can trigger a need to revisit your lending situation.

Other situations like refinancing to a better a deal, consolidating debts, accessing equity for renovations or removing a guarantor from a loan are all reasons for having a mortgage broker within your financial team.

Even the most seasoned of investors benefit from staying in touch with their broker, who can help them maximise returns later down the track.

I pride myself on creating a client for life mentality and endeavour to be proactive in meeting every client’s needs as they change during their lending lifetime.

5 tips to save for a home deposit

Saving a deposit remains the hardest part of any home purchase. Although Melbourne’s prices are in a slight decline, the average time it takes to save a 10% deposit for a First Home Buyer is still around 5 years.

Here we list some tips that can be adopted to super charge your savings and potentially land your first home quicker.

  1. Create a budget and stick to it

This sounds easier than reality however hundreds of dollars can be saved if non-essential items are avoided. Taking the time to analyse your current financial situation with focus spent on areas that you can improve is a great start. Print off a 3-month bank statement and understand where you tend to spend money that is not essential. This approach will identify areas that need to be held back or avoided entirely. Dining out, drinks with friends and clothing purchases are just some areas that really chew into savings that otherwise could be put towards a deposit.

Another simple way to reduce weekly expenditure is to take your lunch to work. If you tend to purchase your lunch at work with an average cost of $10 per day then you could be looking at a cost of $2,000pa. Taking your lunch can save you at least half of that cost.

  1. Deal with your existing debt

Dealing with existing debt should be one of the first areas to be addressed as you embark on your savings journey. Eliminating credit card debt will not only ensure you don’t incur high interest repayments, but it will also help your borrowing power when you apply for a home loan. If you tend to be an impulse buyer and use credit cards for most purchases then it may be worth considering removing that access entirely by cancelling your cards.

  1. Move back in with your parents

The largest outgoing for most First Home Buyers is rent. If you have the capacity to move back in with your parents then this approach will allow you to grow your savings. Although not the most exciting idea, it can be viewed as a short term solution to get you ahead quicker.

  1. Create a second income stream

Do you have any skills that are in demand by others? The gig economy has never made it easier to advertise yourself and find people that are willing to pay for the smallest of tasks. Not only will this provide extra funds towards your savings goal but may also reduce the opportunity to be out spending money entertaining yourself during your downtime. Working two jobs is not uncommon so a well-researched and time managed plan will ensure you can keep your life in balance while earning a few extra dollars.

  1. Look for bargains

Taking advantage of cheaper alternatives is a smart approach to getting your savings to the level needed to land that home deposit. Shopping smarter for groceries and purchasing second hand products is a good way to eliminate expensive purchases that chew into your hard-earned savings.

The challenges of reaching the deposit required to purchase your first home are not impossible to overcome, but do require a level of discipline and focus.

 

Renovate vs moving

It is one of the toughest decisions to make: Sell and upsize or renovate your existing home. Growing families who are weighing up their options must consider all factors before committing to a potentially stressful and expensive journey.

For some, moving into a new house may be a desirable approach without the pressures and disruptions of a renovation. For others, the challenge, freedom and sense of creativity is more appealing when choosing to renovate. Either way a well-researched plan detailing the financial outlay and lifestyle needs is fundamental to achieve a successful outcome. 

Renovating

Prior to committing to a renovation, you need to consider if the condition of your existing property is capable of the upgrade. Some houses are heritage listed which prevents certain areas of the property from being altered. This overlay is set and reviewed by the local council and therefore owners are restricted in what can and can’t be changed. The other obvious consideration when choosing to renovate are the disruptions and possible costs of moving temporarily to a rental property. This can not only add stress and inconvenience but also increase costs in leasing and the cost of multiple moves.

Another risk is the danger of ‘over-capitalising’ where you spend more money on renovations than what the property is actually worth. Avoiding this by researching similar properties within your area will provide you with the necessary framework to plan and avoid this situation.

Renovating can however be a cheaper option and exciting challenge. Avoiding the costs of selling and purchasing is a major drawcard so long as the house does possess the qualities to be improved and will sustain your family’s needs for the long term.

The key questions to ask if you choose to renovate;

  • Are you going to achieve an outcome that is financially worthwhile?
  • Functionally are you going to achieve an improvement on the existing situation?
  • What level of disruption may occur?
  • Does your house have the capacity to be renovated?

Being aware of what you can spend and what should be spent are two different questions. It can be very easy for a budget to be blown out when planning for a renovation so financial discipline must be applied and the opinion of different personnel.

Moving

Selling and moving does come with a huge financial outlay but for some the commitment may save the dramas involved with a renovation. If you were to sell a home for $700,000 and buy another for $1,000,000 then roughly it could cost you 10% of the newly purchased price. With an estimate of $90,000 – $100,000 of fees including stamp duty, legal fees, agent commission fees, loan fees and removalist fees then you need to consider if this outlay fits the current situation. The price of selling up, improving your current family needs and requirements and the style of property required are all fundamental questions should this route be taken.

Renovating or moving is a complex decision however a thorough plan outlining the risks vs benefits should be considered in depth. Aside from the numbers, the emotional attachment to stay in the existing location or move to a new area with different amenities may be the underlying question. Understanding all costs involved and exploring all options will dictate future property and family goals so ensure the decision taken meets your criteria.

Top 5 summer projects to add value to your home

The favourable weather and time off work during summer is the perfect opportunity to attend to some neglected areas of the house.  Below are areas that can be addressed in a relatively quick period of time but add good value to your home:

  1. Fix the basics

Leaky taps, rusty gutters, faulty doors and windows that have been left for several months should be amended first. These small and relatively quick alterations can add significant value to a buyer’s eye and the perception of price for the property. Buyers typically don’t turn a blind eye to the small things so paying attention to detail and the basics is essential in ensuring your property is ready to move in straight away. 

  1. Storage

Storage is a big drawcard for buyers always looking for extra space for their belongings. Adding or expanding storage areas is a great place to start when looking to add value and appeal to buyers. Whether renovations or alterations are required for indoor or outdoor areas, you can’t go wrong with assigning some time to increasing space that potential buyers will love.

  1. Splash of colour

Adding a fresh coat of paint can certainly distinguish your property from other tired houses within your street. Brightening up dark areas or creating a more open feel to a room can be a relatively quick way to transform the feel of your home. With longer days, warm weather and the ability to let your home breath, summer is the perfect time to be painting your home.

  1. Get your Green Thumb on

Taking the time to attend to the garden and clean up the exterior of the house is an excellent way to add value to your property’s street appeal. You don’t need to spend a fortune when maintaining or fixing up the garden. Designing or keeping a low-maintenance garden is a huge drawcard for many who may not have the time. Creating a designated outdoor dining area is a very attractive visual to potential buyers who will be able to picture themselves in the space. Mowing the lawn, removing unsightly weeds, plants and old clothes lines are all jobs to be completed if you’re looking to make you property the most appealing it can be.

  1. Address the flooring

Laying down new carpet or polishing weathered floorboards is a great way to add value to your house during the summer months. Attending to the flooring may be an area not commonly thought of however is an area that potential buys do get drawn to as their wondering eyes glance over the living spaces of the property. Altering the flooring can certainly make the property seem fresher and more spacious. Picking the right colour is essential to creating that balanced feel throughout your home.

The bank of Mum and Dad

With the challenges of high housing prices and strong competition, first-time buyers are looking towards financial assistance from their parents to get their foot on the property ladder. According to Digital Finance Analytics, an estimated 55% of first-time buyers are now receiving help from mum and dad or other family members in order to kick start their property journey.

With slow wage growth and records high property prices, saving for a deposit can take years to achieve. Many are now looking to bypass that struggle with parents now tapping into their own savings or assets to assist and provide security.

How are mum and dad helping?

Parents are assisting in three key ways:

  1. Offering funds toward their child’s deposit as a loan. In this case, the terms of the loaned funds need to be clearly set out in a loan agreement that is recommended to be drawn up via a lawyer
  2. Providing funds toward their child’s deposit as a gift. In this case, a statutory declaration needs to be signed by the parent stating that the funds are a ‘non refundable gift’
  3. Guarantor loans have increased 14% year on year for the last 3 years. This is where the parent offers up an existing property to act as security for their child’s purchase. This will ensure their child avoids having to pay Lenders Mortgage Insurance on their finance application 

The bank of mum and dad has been seen to be an increasing trend however it must be understood that is this action does come with risks that need to be managed.

Risks and arrangements to consider

Setting in motion a clear agreement is an important step to understand the terms of the contribution and expectations. Although the intention of the financial assistance is to ensure a smoother passage to home ownership, it can result in problems further down the track if the terms of the assistance is not clearly understood and agreed to.

Below are some questions that are commonly asked when a parent is considering to offer financial assistance to a loved one:

  • Is the financial assistance expected to be repaid?
  • What is the timeframe in which the assistance needs to be repaid?
  • Will there be interest charged?
  • Will there be a formal agreement?
  • What happens if there is a relationship break-up or unforeseen events?
  • What happens if the parents need their money back ahead of time?

Awareness is key

Despite contributions from mum and dad, many forget that lenders do require evidence of clear and consistent savings in order for a mortgage to be obtained. Validating the capacity to save so the applicants can prove they are ready for a mortgage is a key step when entering the property market. Nearly all lenders what to see savings statements to understand an individual’s financial capacity to acquire a home loan aside from any financial assistance.

Using parent’s money can provide opportunity and eliminate costs however there are risks and pitfalls that need to be acknowledged. Setting concise terms through a formal arrangement will provide the certainty and confidence should any expected events occur. Researching and finding alternatives are also encouraged with the recommendations of consulting with a professional to gain an opinion and insight.

What happens on auction day?

Most of us have seen an auction where a frenetic auctioneer waves their hands up and down and yells out numbers until you hear “SOLD”. But what actually occurs on the day of an auction and is there any structure to it?

Auctions can be a stressful event however confidence can be gained through the knowledge that an auction is the public sale of a house and it’s an indication of what people are willing to pay at a given point in time. Knowing what the competing offer at all times is a benefit when purchasing at auction as oppose to private sale or negotiations where you can’t read your opposition.

Bidding

Preparation is key and being aware of your upper limit, the reserve price and method in your bids are all important factors to ensure a successful outcome. Researching the market, speaking to several estate agents and acquiring independent information are all fundamental processes to prepare for the auction.

Opening bids will commence by which the auctioneer will then typically set incremental values such as $5000, $10,000 or even $1000 for bidders to follow. It is up to the auctioneer’s discretion to accept or not accept bids. Making false or misleading bids is referred to as ‘dummy bidding’ and is classified as an illegal action that can incur significant penalties.

Reserve Price

This is when the property is on the market and typically the lowest price that the vendors are willing to sell at. Once bidding starts and the reserve price has been met then it is the highest bid that wins the auction. Should the reserve price not be met then the house is not on the market and it is up to the bidding parties to negotiate a price that the vendor is happy with.

What happens if the property is passed in?

This occurs when the bidding doesn’t meet the reserve price and the auctioneer states that the property has been ‘passed in’ or ‘withdrawn from the auction’. A process of negotiating a price between the highest bidder with the seller will occur to find an agreeable sale price. Should the seller not agree to a price then the auctioneer may involve the second highest bidder to negotiate or turn down all offers and not agree to sell on the day.

Signing the contract of sale

If you have been successful at auction then you will be offered a ‘contract of sale’ which is a legally binding contract outlining what you have purchased. If you sign this contract then both you and the seller are agreeing to the formal offer made. Once this has been completed then a deposit is required and all relevant cheques and transfers.

Deposit

If you’re the winning bidder then an immediate deposit, typically 10% of the purchase price, is to be paid after the auction. This can typically occur through online transfer however a discussion with the real estate agent will be able to provide you with the necessary requirements and actions to be taken.

Auctions may be daunting however in-depth planning and preparation can ensure that you are fully aware of your purchasing position and expectations. If you don’t win at an auction then move on, go back to the drawing board and start planning for your next opportunity. Sometimes walking away from an auction is a better decision than continuing beyond your capacity.

Is pre-approval that important?

The term ‘pre-approval’ is a commonly used phrase that circulates the lending world but what does it actually mean?

Pre-Approval is a term used when an application has been made to a lender and a loan amount has been approved in principle. This approval provides you with the confidence and knowledge of your maximum available funds when you search for your ideal property.

Having a pre-approval is not a requirement to bid or negotiate on a property however without one it places you at risk of overcommitting on a purchase price that is unrealistic. Additionally, not having a Pre-Approval can leave your property search unfocused, as you don’t know your buying limit. Having a pre-approval makes you look more attractive during a property negotiation as the seller has confidence your offer will not fall over due to financing.

How do I get Pre-Approved by a lender?

Applying for a pre-approval is a deep dive process by the banks to assess if you are suitable to their credit policy. In order to do this, a full Asset and Liability position along with supporting documentation will be needed. Once the lender’s assessment team have gone through your application, they will issue a pre-approval stating any terms and conditions.

The pre-approval will always be subject to a full valuation of the property you purchase. Your pre-approval typically lasts anywhere from 3-6 months depending on lender.

Does having a Pre-Approval mean I am guaranteed a loan?

No. A Pre-Approval is not a full or final approval. Once you have successfully purchased a property, a valuation on the property plus a review of your financial position will be undertaken to ensure there have been no significant changes since the initial Pre-Approval application. For example changing jobs, taking out additional credit (Car Loans, Credit Cards) or the birth of a child will alter key information that was used to issue the initial pre-approval.

How do I choose a bank to get Pre-Approval with?

Selecting a bank for your pre approval is dependent on a range of financial factors. Anything from your deposit amount, income level, existing debts and account needs can change the selection process. Seeing a mortgage broker allows you to shift through what is going to be most important for you and ultimately put together the strongest application possible for your pre-approval.