Navigating your own lending path.
Recently I’ve seen a spike in the number of people choosing to forgo the services of a professional Mortgage Broker and navigate their own way in the space of applying for a loan.
Now you might be thinking this doesn’t seem like a big thing, and if you are experienced enough and understand the landscape of banks and lending then it probably isn’t a big deal.
However, if you are inexperienced, or don’t fully understand mortgages and how they work it could end up costing you in the long run.
What do I mean by this? Well, do you fully understand the fine print of your mortgage contract? Do you understand all the fees and charges applicable to your mortgage contract? This includes both upfront, ongoing and finalization fees that are relevant.
You see a Mortgage Broker undergoes certain qualifications and has to meet certain education and training stands each year. Just like a Lawyer, Accountant or Financial Adviser they are a trained professional in their field. Their job is to find you the best home loan that meets your needs taking into consideration your personal and financial needs, goals and objectives. A Mortgage Broker is also governed by strict regulatory compliance, but the biggest advantage of having a Mortgage Broker in my opinion is that if you run into trouble your Mortgage Broker can help you through the mess. This applies to the beginning of the loan process, during the home loan and at the end of the loan. After all, things are always smooth sailing until they are not. Some pure online lenders do not deal with Brokers, and whilst this is legal I strongly encourage you to be careful when entering into a contract without seeking professional advice.
Does it cost to see a Mortgage Broker?
The short answer is yes and no.
Now let me elaborate.
A Mortgage Broker is a service based business, just like any other service based business such as an Accountant, a Lawyer or a Doctor. When you see a Mortgage Broker you are mostly using their intellectual knowledge, something they have studied long and hard to acquire, and their expert experience within the industry.
A Mortgage Broker gets paid via a commission. That is when they settle a loan the lender they have selected, based on the clients goals, needs, and objectives, pays the Mortgage Broker a commission. This is called an upfront commission which is a %percentage of the loan amount settled, plus we also get a monthly ongoing trail commission for each month the loan is in place.
But what happens if a Mortgage Broker spends a heap of time with a client, and the client never takes out a loan with the Mortgage Broker? Well here is where it becomes tricky, because the answer is that it means that the Mortgage Broker has invested time with the client and will not be paid for it, essentially we have worked for free. So this is where we as Mortgage Broker’s may introduce the upfront fee conception. An upfront fee is charged to the client by a Mortgage Broker in lieu of services provided, or work done. Now remember, Accountants and Lawyers WILL NOT provide any services free of charge so it seems only fair that a Mortgage Broker be able to do the same. (Please note an upfront fee is separate from an upfront commission).
Then there becomes the challenge of commission clawbacks as well for a Mortgage Broker. If a client closes their loan or refinances their loan to another bank within a certain amount of time, anywhere between 0-24 months depending on the lender, the lender will take the upfront commission back off the Mortgage Broker. This ultimately means that the Mortgage Broker has worked for FREE. This is a very frustrating and depressing event to occur to a Mortgage Broker. It is a real kick in the guts!
So please, next time you engage with a Mortgage Broker please be respectful and considerate of their time, as we have families to feed too, and if there is a fee applicable please know it is because the Mortgage Broker is trying to cover their time and not work for nothing. After all if we as Mortgage Broker’s continue to give away free advice there we won’t be in business for very long.
Did you know that over 75% of home loans are written through a Mortgage Broker? So we play a very important part in the industry.
Lending options for over 60’s.
You may be under the impression that there are no borrowing options for a person who is over the age of 60.
Well I’m here to spell that myth, because there are actually a number of loan options available to persons aged 60 and above. Let’s take a look at those:
Home Loan. Did you know that you can still apply for a home loan if you are over the age of 60? Yes, you did read that correctly! Persons over the age of 60 can still apply for a home loan, there are just specific lender policies and criteria that they have to meet in order to obtain that finance.
Reverse Mortgage. Unlock the equity in your home and fund the lifestyle you want. A Reverse Mortgage is an interest only home loan facility that lets you borrow against the equity in your home. There is specific criteria you must meet to be eligible for a Reverse Mortgage, for example you need to own your own home, but this is a great option for people over the age of 60. The mortgage is repaid via your estate when you pass away.
Self Managed Superannuation Fund loans. Unlock the potential and use your superannuation to buy property. Again there are certain criteria you must meet and there is strict rules around this type of lending but it’s a great option for people with a self managed superannuation fund.
So there you have it, some options for the elderly should they wish to borrow money. Further information and the process and criteria can be found by contact Jackie for a chat.
Combating the cost of living crisis!
It’s no secret that cost of living pressure is increasing for people. To be specific household expenditure is going through the roof! The cost to live at the moment is high from electricity and gas bills to supermarket shops to insurance costs. Everything has gone up dramatically and this is broadly known as inflation.
So why is everything going up so much? Enter economics and basic supply and demand. Inflation is impacted by things such as trade agreements, interest rates, war and much much more. Economics is a complex beast, but the main thing to know is that when the government increases interest rates, which we are seeing at present, they don’t want you to spend money as they are trying to control inflation.
So what can you do in these times? The biggest tip I can give is to try and save as much money as you can. Now I know personally this is hard when everything is costing so much more than it used to. Here are some tips to consider to help you on your way:
Search around different providers. It’s time to stop being so loyal and shop around for a better offer. This includes your loans and the bills that you pay.
Try to separate your bank accounts and budget for your bills.
Setting a thorough budget and sticking to it!
Prioritize spending. Ask yourself if it really is a good time to take a holiday or buy a new car?
Asking for help. There are financial counselors and professionals you can turn to if things get tough.
It can be a scary time for people, especially with not knowing when interest rates will fall but it’s important to remain focused on the longer term and riding out any economic waves.
Application integrity and honesty
When applying for a home loan it is imperative to inform your mortgage broker of everything relating to your financial history.
Your mortgage broker cannot see certain things on your credit report, particularly if there are older than 10 years, so honesty is always the best policy.
In the event that you do not fully disclosure all past adverse credit history, and the lender identifies it during the application process, it will not be seen as favorable and your application may be declined. Integrity is everything when banks are lending money, so always be honest upfront.
Should you deliberately withhold information that you know will affect your home loan will only end badly for you the client, so always disclose as much as possible.
Home Loan Pre-approval
A question we are commonly asked is how long does a home loan pre-approval last for?
The answer is very simple. A home loan pre-approval can last between 3-6 months, depending on which lender you have applied with.
A home loan pre-approval is a great way to start preparing for buying a property, because it will be a strong guide to educating you on how much you can borrow from a bank.
When you apply for a pre-approval the bank will assess your personal and financial position. This means they will ask for a statement of position which is a detailed list of all of your income, living expenses, assets and liabilities.
From here the bank will complete an internal budget to determine where, based on your financial position, you are able to afford the new loan.
The bank will take into consideration any one of expenses you might have and factor these in. The bank will also assess your affordability on a higher interest rate than the current interest rate to allow for some potential future interest rate rises.
A pre-approval is strongly suggested prior to entering into a contract to purchase a property.
Home Loan Health Check
Now more than ever it has become more and more important to have your home loan checked on a regular basis.
But what do we mean by this?
Speaking with your trusted Mortgage Broker on a regular basis about your home loan can assist in many ways. Your Broker will complete a review and incorporate your short, medium and long term goals into any planning. By doing this we are able to build a home loan around your needs.
When completing a home loan review we also check certain things to do with your home loan. This include:
interest rate
fees and charges
loan term
Most borrowers are not even sure what their current interest rate is, and in a market where interest rates are rising on a regular basis this could be costing you more in repayments and interest.
It’s Christmas time!
It’s that time of the year again where it’s December and we’re heading towards another Christmas.
With interest rates, the cost of living and petrol all rising significantly, we unpack some tips to help you get through a cost effective and hopefully less stressful Christmas:
Set a budget. Determine what you are comfortable spending and stick to it. You don’t need to get caught up in previous Christmas traditions which will be to the detriment of yourself financially. The times have changed, things are now more expensive and it’s important to look after yourself financially.
Start early. If you can purchase your Christmas presents throughout the year this will help you. Take advantage of end of financial year sales and Black Friday sales to grab a bargain, you will notice the difference in price.
Say no. If you can’t afford to attend or host Christmas, don’t be afraid to speak up.
Go easy on yourself. Don’t put unnecessarily pressure on yourself just because i'’s Christmas time.
Of course we at FIMA are always available to chat if you are feeling financial strain or pressure. Don’t be afraid to reach out.
Refinancing!
There is often great debate about whether it’s a good time to refinance your loan or not?
Refinancing has many advantages, and most people look to refinance their loan due to their current interest rate going up, or a new need to borrow more money.
Refinancing is a great way to save money on your home loan, and many lenders are offering great low interest rates to attract new clients. Most often these interest rates are lower than what they offer their long term clients, so it’s always a good time to shop around. Lenders are also offering cash back for clients to refinance. This means that if you meet the lenders criteria you may receive cash back in your pocket to switch your loan to another bank.
Before refinancing it’s important to understand what rate you are currently on, what fees you are currently paying and match them against what the new lender is offering. A mortgage broker can help you with this and provide valuable insight into whether a refinance is really the best thing for you to do.
We often say that it’s good to check your home loan interest rate each year, and compare it to other lenders. But always remember to look beneath the surface, as a lower interest rate doesn’t always mean a better deal. Check the fine print and always make a decision on what’s best for your needs.
Saving for a house deposit!
Does the idea of coming up with a house deposit scare you out of trying?
Let’s explore some simple hints and tips to help you along your way.
The first thing to remember is that as the saying goes “if it was easy, then everybody would be doing it”. So set and manage your expectations from the start, it is a marathon not a sprint.
In order to reach your goal deposit, you need to have a plan. It’s as simple as working how much you need to save and dividing it be the number of years, you’d like to have it saved by, and then dividing again by either 12, 26 or 52 depending if you want to know the weekly, fortnightly or monthly amount.
Sacrifice and compromise are two words that are applicable when saving for a house deposit because if you want to achieve the deposit you are going to need to make sacrifices and compromises along the way. It is realistically not achievable to have everything and still save, not in this current environment. So, work out what’s important and what potentially you can compromise on.
Set up a separate bank account with no card access. This one is a no brainer!
Come up with a budget. I have heard many excuses about why people don’t believe in budgets but put simply – if you have one you have a plan and a clear visual on when your money is coming in and where it’s going.
Use technology to help you. More specifically use your internet banking app tracking system to help you manage your money. There are many great apps out there that can help you save.
When spending, weight up whether it’s a need or a want. If it’s simply a want – encourage yourself to go without.
Save, save, SAVE! It’s as simple as making a start and not giving into the temptation of spending.
If you are requiring further assistance, be sure to reach out to the FIMA team. Happy saving!
What is a Statement of Position?
You hear this term used a lot when applying for a loan. So what is it and what importance does it hold?
A statement of position is a detailed description of all assets and liabilities held in your name, as well as itemized details of your monthly living expenses.
The assets section will require you to list all of the assets held in your name (personal and or business name depending on the structure of your lending application). You must list the asset type and value of the asset. Assets are items such as:
· Properties, Bank accounts, Investments, Home contents, Vehicles, Personal items (jewellery, caravan, motorbike etc), Superannuation.
The liabilities section requires completion of any loans or debts held in your name (personal and or business name depending on the structure of your lending application). You will be required to list the liability (loan) amount owing, liability limit and the monthly repayment applicable. All liabilities will need to be disclosed, and some examples are:
· Home loans, Personal loans, Tax debts, Credit cards, Buy now pay later facilities (After-pay, Zip pay), Loans or debts to family members, Large outstanding bills, Any other amount of money that you owe someone.
The living expenses section needs to be a detailed account of all of your living expenses for the year, broken down into monthly amounts. Living expenses are things such as but not limited to:
· Food, Bills, Petrol, Insurance, Medical bills, Entertainment, Dining out, School fees, Childcare, Household rates and more.
Lenders do not take kindly to misrepresentation on a clients statement of position, so it’s critical that when completing one you ensure all of the information is accurate to the best of your knowledge. Being honest with your statement of position can also ensure that you won’t get into trouble down the track with any interest rate rises.
Invoice Financing
What is Invoice Financing and how can it help your business?
Invoice financing, also known as accounts receivable financing, is a form of asset-based financing where business owners can leverage their unpaid invoices in exchange for an advance of capital. Typically, when utilizing invoice financing, your business can receive an advance of up to 85% of the value of your invoices. You will then receive the remaining 15%, less any fees, when your invoices are paid.
Invoice financing is a great funding option for service-based businesses as it is often easier to qualify for than other types of small business loans, due to the invoices acting as collateral for the loan. It can help alleviate cash flow problems when your business experience’s unpaid or late payments from your customers on invoices.
Invoice Financing can also be known as Invoice Factoring and is a great way to manage cash flow in your business.
Fixed vs Variable interest rates!
There has never been a more important time to choose your home loan interest rate. Why? Because interest rates are on the move. And when we say on the move, we mean they are increasing.
It is no secret that most lenders have already increased their interest rates and many economists predict that this is just the start of more rate rises to follow.
So the important question then becomes, should I fix my interest rate or have it as variable?
The answer to this question varies vastly between each client, because as we say no two clients are ever the same. Here some things to consider with both options.
Fixed interest rate
Locked into a contract for the fixed rate period you choose.
If you break this contract you may be charged pre-payment fees and economic costs
You are limited in the additional repayments you can make during the fixed period
It its a great way to ensure security in your home loan repayments as they won’t change during your fixed term
When the fixed period expires, you generally go onto the lenders standard variable interest rate which could be higher than other variable interest rates
No redraw available
Some lenders offer 100% offset, but this is rare
Variable interest rate
Flexibility to make additional repayments freely with no limit or restriction
Redraw available
Can pay the loan out whenever you like with no penalty
If the interest rates increase or decrease your repayment will adjust accordingly
100% offset available
Greater flexibility to manager your home loan
A decision to choose an interest rate is always best made when consulting your trusted finance professional and it is good to consider your short, medium and long term goals before you enter into any home loan.
Credit scores
Let’s take a moment to talk about credit scores. What are they, what purpose to they have, how to influence your credit score and what benefits to having a good credit score have?
Firstly let’s tackle what is a credit score! A credit score is also known as a credit rating, or credit history. It is literally a score between 0 - 1200 that determines the ‘creditworthiness’ of an individual.
A credit score is influenced by the way that you conduct your ‘credit’ facilities. Anything that requires you ‘taking out credit’ will have an impact on your credit score. For example utility bills, rental agreements, loans and credit cards all have an impact on your credit score. If you pay all your bills and loans on time or early your credit score should be great, however if you haven’t paid your bills or loans on time in the past, then chances are your credit score that be impacted.
The easiest way to ensure your credit score remains strong, is to ensure you pay everything on time. It’s that simple! If you are unable to meet your commitments on time, then the best thing to do is contact the credit provider and seek to implement a payment plan, this will assist with maintaining your credit score is in tack.
The benefits of a strong credit score are beneficial to each individual, for example some lenders will only deal with people who have strong credit scores. This puts the individual in a greater position to bargain on interest rates and fees. Alternatively having a low credit score may mean that you are subjected to paying a higher interest rate or fees.
Anyone that is 18 years of age or older can check their credit score for free via one of the credit score websites such as canstar or clearscore.
Does HECS-HELP debt affect your home loan application?
Whenever you apply to borrow money, like a home loan, a prospective lender will evaluate your liabilities to see how much they can safely loan you.
Liabilities are any financial obligation you may have, such as regular payments and debts. This includes expenses such as:
Personal Loans
Car Loans
Credit Card debt
Dependent children
Higher education (student) debt
Tax debt.
The lender then will determine your serviceability by comparing your income against these debts. If they drain too much of your income, the lender will limit your borrowing capacity and restrict the size of your home loan.
In Australia, this means that your HECS-HELP debt will be taken into account whilst considering your home loan application.
Given that HECS repayments are tiered and based on income, this is most likely to affect young of low-income home buyers the most. Without surplus cash to offset your risk, banks aren’t likely to lend you as much as you want.
It’s something to be keep an eye out for when it’s time to apply for your home loan.
Personal Loans!
Personal loans are a great way to fund items that don’t have the provision to be offered as security against a loan.
Personal loans are a form of installment credit. Unlike a credit card however, a personal loan delivers a one-time payment of cash to the borrower. Then, the borrower repays that amount plus interest in regular installments (known as loan repayments) over the lifetime of the loan (known as the loan term).
A personal loan can have a fixed or variable interest rate, depending on the clients preference. A fixed interest rate will be locked in for the duration of the loan, creating stability in loan repayments, whereas a variable interest rate may fluctuate depending on what the banks variable interest rates are.
Usually the minimum amount for a personal loan is $5,000 and the maximum can be as high as $100,000. This can vary dependent on the lender, but as a guide these are the minimum and maximum loan amounts you can apply for.
A personal loan can be used to purchase an item such as, but not limited to:
Vehicle
Motorbike
Holiday
Caravan
Medical bills
Debt consolidation
Technology
Education costs
Renovations
Of course there are many other items that can be funded via a personal loan, and it’s worth noting that the loan term of a personal loan is much smaller than that of a home loan. It is usually between 5 - 10 years.
Personal loans are also a great way to start building your credit rating. To find out more about personal loans please contact FIMA Finance:
Phone: 0409 563 892
Email: Jackie@fimafinance.com
Be sure to follow FIMA on Facebook and Instagram for more finance information and great tips to manage your money!
A new year calls for new goals!
Yes it’s that time of the year again! The new year is upon us! And as we always say, it has come around fast again!
You’ve probably been asked a million times what your new years resolution is. Some people have them, and make them, and others don’t. It’s a personal thing!
Something that is highly encourage-able, is to make yourself some personal financial goals. Why? Because as the great Antoine De Saint-Exupery says “a goal without a plan is simply a wish.”
So what does a financial goal look like? Well here we delve into some that might help you on your way, but first ask yourself - what is it that YOU want to achieve with your finances? Some of the more common financial goals are as follows:
Buy your first home
Buy an investment property
Payoff your mortgage
Pay down your mortgage
Payoff your car loan
Save for your house deposit
Save for a car
Save for a holiday
Review your home loan interest rate
Review your current banking fees and charges
Once you have decided what your financial goal/s for this new year are going to be, the next step is to start planning. When setting a financial goal it’s important to consider the short, medium and long term steps to achieving the goal. Breakdown the end result into weekly or monthly actions, document these actions and then it’s time to get to work.
Remember progress with finances can take time, and this is OK, the main thing is that you have decided what you want to achieve and you are on your way to achieving them.
Good luck and may you achieve everything it is that you desire!
Mortgage serviceability buffer changes.
You may have heard recently some talk in the media about changes to the banks mortgage serviceability buffer. Let’s take a look at that for a moment. Now, don’t confuse this with lenders mortgage insurance - they are entirely different things.
The mortgage serviceability buffer is an interest rate that the banks apply to calculate a borrower’s affordability and serviceability on a new home loan. Currently the mortgage serviceability buffer interest rate is 2.50%, but this is now being increased to 3% as at the end of October 2021. This increase is in line with the Australian Prudential Regulation Authority’s (APRA) expectations.
You may be wondering why this is happening? The Australian mortgage market continues to experience significant housing growth in a low interest rate environment. APRA has noted that “housing credit growth is increasingly being driven by lending to more marginal and highly indebted borrowers’.
By increasing the buffer rate to at least 3%, APRA aims to ensure mortgage lending is conducted on a responsible and prudent basis.
Basically what this means is that lenders have increased the interest rate in which they calculate loan serviceability for a new home loan application. This does not necessarily mean your existing home loan interest rate will rise, this is only applicable to new home loan applications and does not reflect the actual home loan interest rate.
This can be a complex issue, so it’s best to reach out to the professionals to get advice if you need so.
How to save for a house deposit?
Do you dream of owning your own home? Have you made a start on your house deposit fund? Or maybe you haven’t started yet and are not sure where to begin? We’ve got you covered with our simple hints and tips, and before you know it you’ll be set up and on the way to buying your own home. Here we explore those tips:
Set a goal amount! You can’t save effectively if you aren’t sure how much you need to save! So let’s break it down. Firstly you’ll need to have a rough idea of how much you’d like to buy a house for. Once you’ve come up with a realistic house purchase price, the best place to start is with 5% of that figure. I.e. if you are buying a house for $200,000, multiple it by 5% and your goal figure is $10,000. Most first home buyers will require a MINIMUM of a 5% deposit, that’s why we’ve started here. Now the more deposit you have the better for you so set your sights high, but always start with a minimum amount.
Track your spending! Hold yourself accountable by using apps and spreadsheets to track your spending. You’ll be amazed at how much money you can spend when you start to account for every dollar. A budget is also a good way to see what you are spending on, and start to decide what compromises you are willing to make to get into your own home. And believe me, you will need to make some sacrifices in order to buy your own home. Use the needs vs wants rule. If you need it it is an acceptable expense, if it’s something you don’t need and just want - then perhaps it’s one to review whether you spend money on it.
Set a realistic budget! Again use the apps and tools that are available to help you with this. We say set a “realistic” budget because if it’s unrealistic you are less likely to execute it well. you don’t need to cut yourself off from enjoying life to save for a house deposit, but set a realistic time frame to save your goal deposit and this will help you stay on track.
Swap your credit card for a debit card! I’ve said it before, lenders severely dislike credit cards and they can inhibit your ability to borrow money. If you switch your credit card for a debit card you’ll very quickly realise what you can and cannot afford. A debit card is linked to your own money, where as a credit card is linked to a lenders line of credit.
Save, save SAVE! The final tip is to just start and do your best. For each day that you wait, it’s a day extra you’ll have to wait to buy your own home. We always say the younger you can start saving the better. Take advantage of living at home and having reduced living expenses to save as much money as you can.
If you would like to know more about saving for your own home, or to explore your lending options, be sure to reach out to Jackie. She’ll be more than willing to help!
0409 563 892
Jackie@fimafinance.com
Lenders Mortgage Insurance!
Have you heard the term Lenders Mortgage Insurance before?
Lenders Mortgage Insurance, or LMI, is a charge that is payable by the client in the event you borrow more than 80% of the market value of your property.
You may be wondering, why do I have to pay LMI if I borrow more than 80% of the market value of my property? Well, anytime you need to borrow more than 80% of the properties value, the lenders deems your transaction as a higher risk to them and as such LMI is applicable to assist the lender reduce or mitigate their risk.
So how does it work?
Well let’s say you need to borrow more than 80% of the market value of your property and LMI is applicable. In this instance you as the client will need to pay LMI, but the LMI policy will actually protect the bank in the event you default of your loan or cannot afford to pay it back.
Most lenders will only allow you to borrow up to 95% of the market value of the security as a maximum, but there are some lenders and some certain examples where you can lend up to 97% of the market value of the property.
Some professions such as Doctor’s and Vet’s for example, have special provisions with some lenders and are able to lend up to 90% with no LMI.
At the end of the day, I always say that LMI is a waste of your money and if possible it’s best to avoid it. Why do I say this? Well because you as the client pay it, but it does not benefit you in any way. It only benefits the lender. Of course some people are not in position to be able to avoid LMI, and this is fine as long as you are fully aware of the LMI cost upfront and have explored all options to try and avoid it.
If you would like to know more about LMI, or lending concepts in general, please contact FIMA Finance.