FREQUENTLY ASKED FINANCE & MORTGAGE BROKING QUESTIONS

Refinancing is changing your home loan to suit your new circumstances, usually with lower interest, to pay off your old one. Done for a variety of reasons, refinancing can assist in keeping your home loan repayments low.

Doing an annual home loan checkup could potentially save you thousands of dollars over the life of your loan. Call us for more information.

There are several ways to increase your home loan borrowing capacity. Start by shopping around for different lenders and mortgages.

It can also be a good idea to update your financial records by keeping your PAYG and tax returns as up to date as possible. This will give lenders a more accurate view of your financial history.

Some lenders will allow you to roll other debts into a mortgage, which allows you to focus on one repayment. Or, if you're able, pay off and cancel things like credit cards before applying for loans.

A mortgage broker is able to review a wide variety of products from a range of lenders to present you with the best options for your situation - even if they're not from your current bank.

We're also with you every step of the way to break down the jargon and make the process as simple as possible. We'll deal with the banks and ensure getting your loan goes smoothly. Plus, our team reviews products annually and makes sure you always get the latest information

What do mortgage brokers do for their clients?

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Our home loan checklist includes:

Identification

• Driver's licence and Medicare card

Wages (Salary Earners):

• Payslips – 2 most recent with YTD figures
• Group certificates
• ATO tax assessment notices

Wages (Self employed):

• Last 2 years personal tax returns
• Last 2 years business tax returns
• Last 2 years financial statements including balance sheet and profit and loss

Rental Income for existing investment properties:

• Tenancy agreement – current

Other Documentation:

• Loan statements – 6 most recent or internet banking with name, BSB and account details up to today's date
• Credit card statements – 3 months
• Rates notices for all properties owned

LMI (or Lenders Mortgage Insurance) protects the bank or lender (not you!), should your home loan go into default, guaranteeing that the lender will get its money back if the property needs to be sold and there is a shortfall in repaying the loan.

While a 20% deposit provides a solid buffer against any drops in property value over the life of a loan, LMI can also provide the same protection, meaning borrowers can purchase property with a smaller deposit.

What's In It For You?

For you, it may seem LMI is just another expense to cover. But insurance can mean that you will be able to enter the property market with, for example, only a 5% deposit saved + fees In the example above, a $300,000 property, this brings the deposit down from $60,000 to just $15,000+ fees.

And, if the market is hot and prices are rising rapidly, paying LMI so that you can buy now could be cheaper than taking the time to save a bigger deposit. In the time it takes to save a higher deposit amount, property prices may well have surged by more than the cost of the insurance. So, for some properties and purchasers, it can make good financial sense to purchase earlier even with the added cost of LMI, especially when you consider the rent that you would pay while you’re busy saving.

What You Need To Know:

The insurance premium is generally a one-off payment, but this gets incorporated into the loan amount so that you are paying for it month-by-month along with your mortgage instead of upfront.

There can be a big difference between premiums paid if you have a 10% deposit saved compared with a 5% deposit.

1. Shop around for lenders Different lenders define income in so many different ways that it pays to review the different lender's policies on acceptable incomes. One lender may allow share dividends as income, while another lender may not.
2. Shop around for the right product Even within the one lender, your borrowing capacity can vary due to the home loan type that you choose. If you add features such as a line of credit, this can reduce the amount you can borrow.
3. Update your financial records Try to have your PAYG income tax return as up-to-date as possible. This gives a better historical view of your income than just the two most recent payslips.
4. Check your credit rating Check your credit rating before applying for a mortgage. You can get a free copy of your credit report from here:  www.mycreditfile.com.au
5. Roll your debts into your mortgage Unsecured debts such as personal loans and credit cards have expensive monthly repayments, and these monthly repayments cut into the amount you can repay on a mortgage.
6. Reduce debt and credit limits If you have unused credit cards with limits that are more than you need, then cancel those cards. Also, cancel any other cards – such as department store cards – that give you credit. Every $1000 on a credit limit – even if not spent – detracts from the amount you can borrow.
7. Investigate family pledges Guarantor or family pledges may let your parents or family take out a second mortgage on a percentage of their property to guarantee repayment to the bank if you fall behind.
8. Take a long loan While 25- 30year mortgages have been the norm, that’s changing to 40 years in some cases. A longer loan cuts your repayments but increases the total interest you will pay over the life of the loan.
9. Save more of the deposit Lenders look for consistent saving records, preferably for more than six months. Saving more can be as simple – or as hard – as doing without that extra coffee,or taking your lunch to work each day. It all adds up and reduces the amount you need to borrow.

A home loan pre-approval  (also known as a conditional approval or approval in principal) , gives you a formal indication from a lender  that you’re able to borrow money to purchase a property up to a certain value.

• Usually valid for 3 months.
• Can be renewed/extended if finding a property is taking longer than expected.
• Pre-approval is not a guarantee of finance. The pre-approval will be subject to you meeting the required terms and conditions and if your situation or environment changes, finance may be declined.

Not all pre-approvals are made equally.  To get a reliable pre-approval, you’ll need to submit a full loan application less the property/security.  Beware as applying for a home loan will likely lead to a credit inquiry  on your credit file, so be careful not to shop around and get multiple pre-approvals as this could potentially harm your credit file by adding multiple applications! Let a broker check for you instead!

1. You can harness your REAL budget Getting pre-approved and learning the max loan amount you can borrow gives you a budget to work within. Now you won't waste time and heartache looking at properties you might not have been able to afford in the first place.
2. Add strength to your offer If you're in a competitive market and you have made the same subject to finance  offer as another person, then all other things being equal, having a written pre-approval will put you in a stronger position. This may be the difference to you getting the nod from the seller.
3. Increase your negotiating power In addition to strengthening your offer when compared to buyers who haven’t taken this step, getting pre-approved may give you the upper hand when negotiating the price. If the seller is eager to sell, they may be more willing to accept a lower offer from someone who is financially capable of purchasing their home.
4. Save  time after offer acceptance Obtaining a home loan can be a lengthy process. Getting pre-approved ahead of time can shorten the full application process once an offer has been accepted. If the settlement timeframe is tight - this time saving can be crucial.
5. Get  taken more seriously Some real estate agents are time poor and may be reluctant to hold a private viewing. Having a pre-approval not only shows him or her you've got conditional approval to potentially purchase the property they're selling, it also signals you're organised and mean business. This will greatly increase your chances of getting through the door. 

Whether you’re after lower repayments or want to tap into the equity sitting in your home, refinancing can offer a world of benefits. Here are some things to be aware of so that you don’t find yourself hooked into a bad deal.

Don’t be fooled by the interest rate

Finding a lower interest rate doesn’t necessarily mean you’ve scored yourself a better deal. In fact, a product with more features may cost you a bit more in fees or interest, but could save you more in the long run. Including features such as an offset account will prove valuable as it will allow you to put any extra cash into the offset account and this money will offset the interest on your loan . Products without this feature may charge a fee for early

Don’t be lured by offers with discounted introductory rates unless you’ve calculated the savings over the life of the loan. While a loan with a discounted interest rate seems a tempting offer, it’s only temporary. Once the introductory period is over, the interest will revert to a higher standard variable for the rest of the loan term. It may be more beneficial financially to negotiate a lower interest rate without an introductory discount.

One of the main purposes of refinancing is to lighten the financial burden, however, that doesn’t mean that it’s not going to cost you. There are many fees involved, which may include discharge and application fees, a valuation fee, land registration fee, and mortgage insurance. You may also be subject to stamp duty depending on what state your property is located in. While these cannot be avoided, you have to ensure that the costs involved are not higher than the savings, to make the process worthwhile.

You don’t necessarily need to change lenders

As competition is fierce, threatening to take a competitors home loan offer may save you even more than leaving ever would. 

When you are working out what amount you can borrow to purchase a property, the size of deposit you need to save and whether you are eligible for a particular mortgage product, the LVR is one of the most important considerations.

LVR is the % of the property’s value, as assessed by the lender, that your loan equates to. So, if the property you want to purchase is valued at $500,000, and you need to borrow $400,000 to pay for it, the loan is 80% of the property's value, making your LVR 80%.

LVR is important because different lenders and their respective loan products have different maximum LVRs, and some lenders will only lend up to a certain LVR for small properties, or properties in certain areas.

Most lenders will finance 80% LVR  or higher with Lenders Mortgage Insurance while Low Documentation (Low Doc) loans may be limited to 60% LVR without LMI.

If you apply for a home loan, particularly if the loan is for more than 80 per cent of a property’s value, you’ll more than likely have to prove to lenders that you have a satisfactory amount of savings. This is to demonstrate your ability to funnel a portion of your income into repayments.

Although it can differ, in most cases lenders generally look for consistent additions to savings over a period of at least three months and preferably a year or more. This means that the following are not considered genuine savings:

• a cash gift
• an inheritance
• casino/other gambling winnings
• proceeds of the sale of a non-investment asset
• government grants and other finance offered as incentives

For those who don’t have any genuine savings but still want to obtain finance, there are options, These include:

Guarantor loans

Having a guarantor on your loan may mean that no deposit is required, with the equity or asset the guarantor stakes standing in for a deposit.

Other significant assets such as shares, managed funds and/or equity in residential property

Depending on your chosen lender, cash isn’t the only thing accepted as genuine savings. There are even situations where the sale of a vehicle can be considered as genuine savings if proved that it was owned for three months or more.

A strong rental record may see a lender allow you to forgo the genuine savings route

Some lenders will waive the requirements if a letter can be produced from a licensed real estate agent confirming that rent has been paid on time and in full for the preceding 12 months, as it highlights your ability to make repayments on time and on an ongoing basis.

“I regularly write loans for customers who do not have genuine savings using the aforementioned policy exceptions,” “It’s just a matter of looking at their full situation and knowing which lender is going to have the policies to suit what you’re trying to achieve. This knowledge can only be achieved through experience and keeping in constant communication with lenders to know what their policy niches are.”

Stamp duty is a charge which is applied by state governments in Australia on transactions relating to the transfer of land or property. It is paid upfront and needs to be budgeted for in addition to your loan deposit.

The amount of stamp duty you are required to pay differs in each state, however there are three factors, along with the value of the property, that determine how much stamp duty you will pay. Contributing factors include:

1. whether or not the property is a primary residence or investment property;

2. whether or not you are a first home buyer; and

3. if you are purchasing an established home, a new home or vacant land.

There are a number of stamp duty calculators available online that take the guesswork out of budgeting for a property. Factoring in this additional cost cannot be overlooked when you are considering your capacity to repay a loan.

However, in a bid by state governments to stimulate home ownership and growth, there are a range of tax concessions available to reduce stamp duty.

Again exact amounts differ across each state, but those who benefit the most are first home buyers and those opting to buy a new home.

Applying for a loan is a very big step, and it’s not always straightforward. To help make it simple, here is a handy list of the documents you are likely to need when you meet with your finance broker.

You are ready to buy a home, you just need a mortgage. Before you go rushing off to meet with your local finance broker, be sure that you have a few documents on hand to prove your identity, income, assets and liabilities.

Identity

You will need two of the following three:

• passport;
• driver’s licence; and
• photo identification, such as a university identification card or proof of age card.
• If you don’t have two of these, you can also provide one, plus a birth certificate, Medicare card, citizenship certificate or similar documentation.

Income

If you are employed on a full-time basis, this is a fairly easy part. You will need to prove your income by providing your most recent PAYG payslip, including YTD income of at least three months. If your payslips don’t list your YTD income, you will need to provide previous payslips, your employment contract, an ATO tax assessment, a PAYG summary or a professionally prepared tax return.

If you are self-employed, you’ll need to provide your individual tax return and ATO assessment notices for 2 years, as well as your business’s financial documents: 2 year’s tax returns, profit and loss statements, and balance sheet. You may need BAS statements or other documents from your accountant, too.

Whether you are self-employed or not, any other income you receive will also need to be documented. For example, if you own an investment property, provide a current lease, tax return listing the rental income or a letter from the leasing agent; if you own shares, bring a statement, investment record or tax return; and if you receive any government benefits, bring a statement from Centrelink.

Assets

You will need to prove your savings with bank statements, as well as be able to provide details and values of any other assets, such as cars, stock, term deposits and property.

Liabilities

By the time you are applying, you should have paid down your debts and reduced the limits on credit cards to give you the best chance of approval and improve your borrowing capacity, as lenders assess your ability to make repayments on your credit limits, not just the amount you owe.

You will need current statements for your credit cards, store cards and loans

Are you refinancing?

If you are refinancing a loan, you will need the past 6 months’ loan statements and the current payout figure including any exit fees.

Of course, depending on your personal circumstances and the requirements of your individual lender, the documentation you need will differ.