Comparing Mortgage Broker to Banks

Comparing Mortgage Broker to Banks

When you are looking for the best loan for your circumstances, do you approach a bank or do you contact a mortgage broker?

Comparing the service

A mortgage broker can provide information and guidance to help you through the process of securing a loan. A broker can guide you through a wide range of loan options from a panel of multiple lenders, helping you find the right loan for your circumstances. They can explain the various features and benefits of each loan, including their rates and fees.  Once you have chosen the loan package, you will need to liaise directly with the lender. 

Banks are limited to promoting their own products, which may not necessarily be tailored to your needs. Smaller banks are particularly limited in their options for a customer. While you can do your own research on various banks to identify the best loan for you, this process can be time consuming and complicated.

Individual guidance

When you choose to go through a bank, you generally deal with various lending specialists, while you work out which bank offers the best loan package for you. When you deal with a broker, the mortgage broker is your single point of contact, connecting you to countless lenders with numerous loan packages and helping you work out which features and benefits are most suited for your needs. Your broker can also explain the impact of various elements of the loan such as the difference between a fixed or variable rate

Independent expert intermediary

Even once you choose your loan, and start dealing directly with your loan provider, your mortgage broker can still act as an expert intermediary, helping you navigate the paperwork and the terms of the loan. The broker can also step in and negotiate on your behalf if you need the terms of a loan to be adjusted in relation to your individual circumstances. 

Administrative assistance

Banks and mortgage brokers have their own individual benefits. As your mortgage broker is regularly processing loans, they have the contacts and the tools to streamline the home loan process, so you are eligible for your mortgage sooner.

Posted in Residential Home Loans by Michael Naughtin. Comments Off on Comparing Mortgage Broker to Banks

 Will Your Job Stop You Getting A Home Loan?

 Will Your Job Stop You Getting A Home Loan?

When a lender is assessing your home loan application, they will pay particular attention to your employment history. Just earning good money isn’t enough – the lender wants to see a sense of security. Your job can even affect your credit score, as lenders may consider that your employment increases the overall risk of not repaying the loan.

You might consider your job to be secure, but a lender will assess the situation differently.   Here are some examples of work situations that could negatively impact your ability to secure a home loan.

New job

You’ve been head-hunted by another company, and now you are in a senior position, earning more money than ever before. Yet this is actually not a good time to rush out and apply for a home loan. The lender will see that you have only just started in this new job, which indicates a certain level of risk. Wait for at least six months to demonstrate a steady pattern of employment before applying for a loan.

Casual/ Contract/ Temp workers

If you work through an agency and do not answer directly to an employer, many banks and lenders will consider you high risk, particularly if you are borrowing more than 80% of the purchase price. However, as the workplace is changing and more people are taking on flexible working hours, some lenders are recognizing that contractors, casual staff and even temp workers can rely on a steady income. A mortgage broker can help you identify the lenders who would be most likely to offer you a loan. You can also boost your chances of securing a loan by building on your deposit.

Low base salary

If you rely on overtime, bonuses or commission, some lenders will only look at your base salary and decide that your income is too low for you to be considered for a loan. Others do not want to rely on unstable income to pay off the debt. However, other lenders will take your additional bonus income into account when assessing how you can manage loan repayments. Talk to a mortgage broker about a loan that enables you to make additional repayments when your salary is higher than usual. 

 Your industry

Sometimes it’s your workmates who let you down. Some industries are marked “high risk” due to the number of people in that industry who default on loans. A mortgage broker can help you find lenders who look more favourably upon your industry, so you can be approved for a loan. 

Get Expert Assistance

You don’t need to endure being consistently turned down for a loan, and you don’t need to give up on your property ambitions.  A mortgage broker has the inside knowledge to help you identify the lenders who are receptive to your employment circumstances. Talk to the mortgage broker about your financial history and the amount of your deposit in relation to the type of property you wish to buy, and they will be able to find a loan package that suits your circumstances from a lender who sees you as a good risk.

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The Pros and Cons of Multiple Lenders for Your Property Investments

The Pros and Cons of Multiple Lenders for Your Property Investments

When you are building your property portfolio, you will have to decide whether you want to stick with a single lender or branch out and expand your portfolio over multiple lenders. Your decision will have a lot to do with your temperament as an investor, and what you intend to achieve with your investment.

Consolidate your portfolio

If you prefer the convenience of keeping your portfolio in one “bundle”, then a sole lender is the right fit for you. All your equity will be in one place, and you have one financial statement, making it easier to assess at a glance how your portfolio is growing.

A single lender will cross-collateralise your properties, giving you greater access to equity, so you can acquire more investment properties sooner. Gathering your equity from multiple lenders in order to make an additional purchase could be more complicated and time consuming.

Boost your borrowing power

One of the benefits of multiple lenders is that you can improve your borrowing power. When your solo lender assesses your borrowing potential based on your entire portfolio, they will add buffers into the servicing calculation, to allow for changes in interest rates or your personal circumstances. When you approach an alternate lender, they will simply base their assessment on your repayment amount with your current lender. Without all the additional costs, your borrowing power is much stronger.

Manage your mortgage insurance

Many mortgage insurers have an upper limit for insurance, even though your lender will be prepared to lend you much more. If your entire property portfolio is consolidated with the same lender, you might find it more difficult to maintain adequate insurance. By splitting your portfolio among different lenders, you also have different insurers, so you are covered for your entire portfolio.

Expand your loan options

When you stay with one specific lender, you are limited to the loan options they provide. Opening the field to multiple lenders gives you a great deal more freedom to find the right loan for each investment property. 

Manage your equity

If your investment portfolio is spread across a range of different locations, some properties will increase in value while others drop. With one lender, your entire portfolio is seen as one investment with one overall value. This means you won’t necessarily benefit from the improved equity in the properties that have rapidly increased in value, as these will be balanced out by the properties that dropped in value. However, with multiple lenders, each property maintains its individual value, and you have access to the increased equity from the properties that are thriving. This additional equity enables you to invest in more real estate or boost your income, depending on your investment plan.

Risk management

By spreading your portfolio across multiple lenders, you are free to make independent investment decisions without being controlled by one lender’s restrictions. You also have the versatility to change a loan package if it is not the right fit for a specific property. As your portfolio expands, you could place a few properties with each lender, giving you access to benefits such as volume discounts, without compromising your individual control.

Communication

Some property investors prefer to stick with one lender to simplify communication. You’ve built up a rapport with your lender, and they know your goals and your strategy. However, the person at the front desk isn’t necessarily the same person who will be assessing and approving your latest loan.

If you value consistent communication and you are drawn to the benefits of multiple lenders, talk to a mortgage broker. Your mortgage broker has a wide panel of lenders to help find the right loan package for each property and they can help you manage all the administrative details for each loan.  

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Building your expert property investment team

Building your expert property investment team

If you are planning to make a profit through property investment, you need to invest both time and money – and you also need the expertise to achieve your investment goals. If you try managing every aspect of the property investment single-handedly, you might find that the profits you make do not balance out the time you need to spend on loan negotiations and property management. You could also miss out on profits, if your bank loan is not cost-effective or if you have chosen the wrong investment property. By hiring experts, you can streamline your system, saving time and making money.

So, what experts do you need on your property investment team?

Buyer’s agent

While a real estate agent represents the seller in a property transaction, a buyer’s agent represents you as the buyer. A buyer’s agent can take over the time-consuming task of sourcing and inspecting properties. They will also negotiate a fair price on your behalf. With expert knowledge of the property market, the buyer’s agent can provide valuable insight into the best locations for rental yields or capital growth.

Mortgage Broker

Your mortgage broker streamlines the process of acquiring a property loan for your investment. There are countless loan packages available, and it can be overwhelming to try identifying the right loan for your specific needs. But your mortgage broker has the expertise and the network of lenders to find the right loan for your purposes. The broker will also help you complete all the paperwork and liaise with the lender on your behalf to ensure the loan application is processed promptly and efficiently. With the right loan, you can boost your profits by saving on interest, particularly as mortgage brokers generally have access to special deals that are not available to the general public. Most mortgage brokers are paid by lenders through commission, so you do not have to pay for access to their expertise.

Property Manager

Managing an investment property can be extremely time-consuming, particularly if you have other commitments such as a career or family. A property manager can act as landlord on your behalf, by fulfilling tasks such as screening tenants, conducting regular property inspections, and promptly dealing with any repairs and maintenance as required. While you will have to pay your property manager a fee, these fees are tax deductible.

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Would a home equity loan work for you? 

Would a home equity loan work for you? 

If you have built up some equity in your home loan and wish to use these funds, you can apply for a home equity loan, also known as a secured loan. The loan is “secured” because your home acts as collateral.

How to qualify

Most lenders will expect you to have at least 20% equity in your home, although some lenders will expect you to have more equity in order to qualify. However, your eligibility will also be affected by your credit score, any other debts and any tax issues.

What can you use the loan for?

There are no restrictions on how you spend the funds from your equity loan. However, as this is drawn from the security of your property investment, it is best to channel the funds into improving your investment, particularly if you are drawing on a significant amount of the equity. Most borrowers use the funds for home renovations, or they consolidate their other debts by absorbing them into the home loan.

Benefits

A secured loan, or home equity loan, is easier to have approved than other loans, because you are using your own home as collateral. You have the flexibility to use the money for whatever you wish, along with the benefit of lower interest rates and more attractive repayment terms than the terms available for unsecured loans or credit cards.

Drawbacks

While the interest rates might be appealing, you have to keep in mind that the interest is now calculated on a higher principle debt, as you have reduced your equity. Your lender may also include a range of fees and charges, so ask about any additional expenses before signing up for the loan. You also need to carefully investigate any of the lender’s conditions of the loan, to ensure you can pay it off effectively.

The biggest drawback, of course, is that you have reduced the security in your own home, so if you cannot pay off the debt, you are at risk of losing your home. It is extremely important to calculate ahead to ensure you can manage the repayments based on your new mortgage.

Considerations

There are wide range of options available for secured loans or home equity loans, so you need to shop around to find the right deal for you. Your mortgage broker will be able to help you sort out all the options, so you can choose the right equity loan for your needs and financial situation.

Posted in Uncategorized by Michael Naughtin. Comments Off on Would a home equity loan work for you? 

The Danger of Too Many Home Loan Applications

The Danger of Too Many Home Loan Applications

When you are searching for the right home loan, it can be tempting to apply to several lenders in an effort to land the highest loan amount at the best interest rate.  However, multiple loan applications can actually affect your credit rating, and impact your ability to be approved for a loan at all.

Why does this happen and how can you protect yourself during the hunt for the perfect home loan?

“Hard” enquiries and your credit score

Whenever you apply for a loan, the lender will make a credit check, known as a “hard” enquiry. Lenders are looking for potential borrowers with high credit scores, as these scores are an indication that the borrower is a good risk and most likely to pay back the loan.

Yet ironically, these “hard” enquiries can negatively affect your credit score, especially if multiple enquiries are made within a short timeframe. Your credit report records your credit application history for up to the last five years. You might be turned down by one lender and then the next lender to do a credit check will see a rapidly reduced credit score, making them less likely to approve you for a loan.

Boost your score

If you are not sure why lenders are turning you down, acquire a copy of your credit score and see how you can improve. Other factors affecting your credit score are your overall debts and the amount you have saved for a deposit. Your credit score will look healthier if you consistently commit to paying your bills on time and if you save a little longer to increase your deposit. Minimise loan applications until you are confident your credit history is squeaky clean.

Maintain steady employment

If you are ready to apply for a loan, it’s not a good time to start job-hunting. You might be confident that you can step straight into another role, but your lender will only see that you have an unstable employment record. Hold onto your current job until after you have secured your loan, or postpone the loan application until you’ve moved into the next job and settled there for at least six months.

Research online

Rather than sending in multiple home applications and hoping for the best, thoroughly investigate potential lenders online to find the right fit for your circumstances. Even with significant savings and a strong history of paying your debts on time, there could still be some aspects of your financial profile that deter some lenders. If you work as a contractor or freelancer for example, some lenders will consider you a bad risk, as your earnings may fluctuate. Alternately, even if your credit history is good now, any past incident of defaulting on a debt could potentially overshadow your profile. Find a lender who welcomes someone with your history.

Talk to a mortgage broker

A mortgage broker can remove the stress of searching for the right loan, by identifying the right lender for you. With the assistance of a mortgage broker, you can minimise the number of loan applications and focus on a small pool of lenders who offer loans suited to your financial circumstances. This way, you are more assured of loan approval the first time, and you can be confident that the loan is tailored to your personal circumstances. Your mortgage broker will also assist you with all the paperwork while explaining the finer details of your loan.

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Tips to secure your investment property loan

Tips to secure your investment property loan

 Securing a loan for an investment property can be very different to acquiring a home loan. In order for the investment to be successful, you need to decide exactly what you want to achieve – is this a short-term or long-term investment – and you need to be sure that you have all the funds required to make the investment work for you. Here are some of the issues you need to consider when you decide to start your property investment portfolio.

Calculate your borrowing power

Your borrowing power is calculated by comparing your current income with your financial commitments. Basically, the lender wants to know that you are a good risk and you can comfortably pay back a loan. The amount of deposit you have saved will also have an impact on your borrowing power, along with any equity you have in your own home. To work out how much equity you have in your home, subtract the amount owing on the mortgage from the total value of the property. For example, if your home is worth $700,000 and your mortgage is $400,000 then you have $300,000 in equity.

Allow for other costs

When you are working out how much you need to borrow, keep in mind that investment property loans have higher interest rates than home loans. If you are borrowing more than 80% of the property value, you will need to take out lenders mortgage insurance (LMI) to protect the lender in case you are unable to meet your loan obligations. Stamp duty is another expense you need to consider, which will be higher in an investment property than a residential property. Other expenses include legal fees, government fees and charges, bank fees and establishment fees.

Calculate the investment value of the property

For the investment to be worthwhile, your investment property needs to draw in enough income to cover your loan repayments. Research the property carefully to ensure you can be confident it will generate enough rent to cover your costs, and that it has the potential to achieve your personal investment goals. Your lender will want to know how much rent you expect to receive, based on a market statement from a real estate agent. They will calculate for the property to be untenanted for some periods of time, so they will assess the potential rental income as somewhere around 50-75% less than what you would make if the property is tenanted all year round.

Choose the right loan

Depending on your investment goals, you will choose between a principal and interest loan or an interest only loan. The principal and interest loan is the best option if you wish to build equity in the property, while the interest only loan is a good option to minimize repayments if the property is providing long-term rental income.

A mortgage broker can help you decide on the right loan for your circumstances and investment goals.

Posted in Residential Home Loans by Michael Naughtin. Comments Off on Tips to secure your investment property loan

Choosing the right loan for your investment property 

Choosing the right loan for your investment property 

Your investment property is intended to generate income, so choosing the right loan is just as important as choosing the right property. With the right loan, you can maximise your income and achieve your investment goals.

So how do you choose the right loan?

Establish your property investment strategy

Your property investment strategy will have a deep impact on the type of loan you choose. The most popular strategies are the “buy and hold”, negative gearing and “flipping”. Buy and hold involves long-term ownership of the investment property, so the property appreciates in value while the rental income increases your equity, which you can use to increase your investments. With negative gearing, the annual expenses of a property investment exceed its rental income, making you eligible for tax deductions until the property value increases enough to offset the earlier losses. “Flipping” – a short-term strategy where you renovate a property to sell at a profit – involves more time, effort and money, and can be risky if you don’t have the expertise to keep your renovations efficient and cost-effective, so they boost the property value in a short time frame.

Pick the right repayment type

Once you’ve decided on your investment strategy, it is fairly straightforward to figure out whether you want a principal and interest loan, or an interest-only loan. An interest-only loan is a good fit if your investment is based on capital growth, while a principal and interest loan is the best option if your investment strategy is based on building equity.

Find the right interest rate

Naturally, you want your interest rate to be as low as possible, so you can channel your funds into further investment rather than paying off the lender. Consider whether you want a fixed or variable rate. Fixed rates give you a sense of stability as you know exactly how much you need to pay, and you are protected when rates rise, although you don’t reap the benefits when interest rates drop. You can try splitting your loan between fixed and variable if you want the best of both worlds.

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Interest only or Interest and Principal ?

Interest only or Interest and Principal ? 

Your home loan is made up of two components – the principal and the interest. The principal is the actual amount you have borrowed, while the interest is the cost charged by your lender to enable you to borrow the money. The interest is calculated by the size of your principal, so as you reduce the principal, your interest payments will also become lower. Your lender will set a specified term for you to repay the loan – this is normally around 30 years.

There are two options for paying off your home loan – you can pay off the interest only or you can pay both interest and principal. Both these options have their advantages and disadvantages, and it is important to assess these pros and cons based on your long-term investment strategy.

Interest only

With an interest-only home loan, you only need to pay the interest on the loan for a specified period of time, usually a maximum period of five years. This makes it a good option for buyers who have purchased the property as an investment and intend to sell within a few years. By only paying the interest, you have lower monthly repayments, minimising the amount of capital you need to invest in the property, plus you have the advantage of claiming the interest payments as a tax deduction. As your repayments are lower, you also have the option of investing other funds elsewhere

The interest-only loan may also be an option for the first home owner who wants to reduce monthly repayments for a preliminary period, to recover from all the costs of purchasing the home in the first place. However, this is not a good option, as you will ultimately pay more in interest over the term of your loan. And the smaller interest-only repayments are not good preparation for the shock of inevitable principal and interest payments.

Another disadvantage to the interest-only loan is that if your property depreciates, your debt could exceed the property value.

Interest and Principal

Your repayments will be bigger with an interest-and-principal loan, but you are also reducing the size of your loan, and thereby reducing interest repayments over the long term. You are building equity in the property, and your overall payment will be lower over the life of the loan. However, in the short term, these repayments can seem like a huge expense. Before purchasing a property, calculate the maximum you can comfortably pay each month, so you can build equity in your property without stressing too much about the size of your loan repayments.

While interest-only can be a good option for investors, it is not a cost-effective option for long-term home owners. Talk to your mortgage broker or financial adviser to work out how much you can afford to borrow to ensure your payments will be manageable, and you will get the best value from your property investment.

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 The Pros and Cons of a Redraw Feature

Pros and Cons of Redrawing on Your Mortgage

When you are focused on paying off your home loan, it’s a good plan to put any extra funds straight into your mortgage, reducing your interest rate and paying off the loan faster. However, this doesn’t leave you much flexibility for emergencies, changing circumstances or even little luxuries like a trip away.  One option is to set up your loan with a “redraw” or “borrow back” feature. You can overpay your mortgage, reducing the interest, and then withdraw the money when required.

What is a redraw facility?

With the redraw or borrow-back facility, you have the flexibility to make additional repayments on top of your regular loan repayments. Then you can redraw money from the account when you need extra funds.

Benefits

When you make additional repayments into your mortgage, you have already reduced the interest on your loan, even if you withdraw some of the funds later to cover other debts or a financial emergency. In the long term, this is more cost-effective than saving the additional funds in a term deposit or using a credit card for additional expenses. A term deposit would not give you as much value through interest payments, and the credit card would charge you a much higher interest rate.

There are several ways you can boost your investment value through the redraw facility. If you are planning to increase the value of your home through renovations, the funds can be stored in your mortgage account until needed, giving an additional boost to your long-term investment. Another strategy is to make extra repayments off your mortgage while the rate is high and then borrow back the funds when the rate has dropped.

The “borrow back” feature also gives you peace of mind, knowing that you have emergency funds at your disposal, and that you are taking the most cost-effective approach with your mortgage repayment.

Disadvantages

The redraw/ borrow back system works best with people who are self-disciplined with money and have a well-structured long-term plan. There is no benefit to this feature if you are not prepared to pay more than the standard monthly repayment. And the additional funds are not easily available. There can be restrictions, limits and withdrawal fees, which could make life complicated if you are not working to a specific budget. However, these limits can help you stick to your long-term plan, rather than being tempted to draw out the excess funds in your mortgage account!

Is the redraw feature right for you?

Rather than looking at the redraw facility as easy access to extra cash, think of it as part of your investment plan, helping your money work for you. Talk to your mortgage broker or financial adviser to work out how much you can afford to pay off your mortgage and whether you can manage to pay a little extra above the standard repayment. Consider your long-term goals – if you are in a comfortable position right now, but planning to renovate or change jobs or you just want some flexibility for a nice holiday some time over the next few years, the redraw facility could be a good option for you.

Posted in Residential Home Loans by Michael Naughtin. Comments Off on  The Pros and Cons of a Redraw Feature