Understanding Your Borrowing Capacity

Being approved for a home loan is an exciting moment.  But it’s important to understand your borrowing capacity before you commit to a mortgage.  Just because you can borrow a certain amount, doesn’t mean you should.

Here’s how to assess your financial situation to understand how much you can borrow.

Consider your existing financial commitments

In principle, your borrowing capacity depends on a  number of factors, including:

  • your income
  • your monthly expenses
  • your existing debts
  • how much deposit you have saved
  • current interest rate
  • type of loan
  • whether it’s a principal, or principal and interest loan
  • the term of the loan
  • estimated repayments.

As a general rule, it’s not a good idea to allocate more than 30% of your monthly household income to re-paying your home loan.

Put together a budget

The best way to know what your borrowing limit might be is to create a budget – and stick to it.  Once you know what’s coming in and going out of your bank account, you’ll know how much you can afford to repay – and therefore how much you should borrow.

There are a number of different phone applications or websites that can help you put together a budget.  When setting your budget, make sure you consider factors such as:

  • council rates
  • body corporate fees (if applicable)
  • insurance costs
  • maintenance costs
  • utility bills
  • estimated groceries
  • medical bills and health fund payments
  • school fees
  • phone an internet costs
  • petrol and transport payments
  • entertainment, travel and clothing
  • other loans or credit card debts.

Think about the future

When putting together a budget, make sure you leave a bit of wiggle room in case things change.  It’s important to understand how a change in circumstances will impact your finances.  Anything form a hike in interest rates to an addition to your family will affect your ability to honour your financial commitment.

Talking to a mortgage broker can help you understand what you can and should commit to financially, but the final decision is yours to make.

Call Gail or Terry today to help you make an informed decision.

 

Understanding your Borrowing Capacity

 

Sure-Fire Steps for Finding a Mortgage Suited to You

Matching a suitable mortgage to your needs may save you thousands in interest payments over the life of your loan.

With so many loan products available you can be sure there’s at least one that matches your situation. In your hunt to track down a suitable mortgage, here are a few points to keep in mind.

What type of buyer are you?

Your personal situation will determine what mortgage suits your needs, as well as what type of products are actually available to you. Are you a first time buyer, for instance, or are you refinancing an existing debt? Perhaps you’re looking for solid capital growth in an investment property or the home you’ll spend the rest of your life in? It’s important to consider why you’re buying and finding a mortgage that complements that.

How much should I borrow?

Banks will determine how much they are willing to lend you based on a number of criteria; however, that doesn’t mean you should take the maximum amount they offer. Closely examine your finances to determine what you can afford to spend. Be honest and work out a realistic budget, factoring in all regular commitments, such as school fees, car payments, and food, as well as all those entertainment expenses. What’s left can be channeled into any mortgage repayments.

Do your homework

Speak with your mortgage broker – they’re in a great position to help you compare different loans and  lenders to see how they suit your circumstances. Decide what loan features you require to meet your needs, for example are you looking for flexibility to pay off your mortgage quickly? and then go in search for a suitable deal. For many borrowers, however, lending advice from a broker is the easiest and usually most effective option for avoiding confusion and finding an appropriate loan that suits you. Call Gail or Terry today.

 

 

How to save on your home loan for the price of a latte

            

 

 

Which Loan is best for you?

Your Home Loan Specialist can take you through a number of home loan options to find the one that best suits your lifestyle. This may be one of the following:

VARIABLE INTEREST LOANS

This type of loan is linked to a floating interest rate and provides high levels of convenience and flexibility to make additional lump sum payments. This effectively reduces the life of the loan, saving on interest payments and building up equity as a redraw facility to meet any unexpected future financial demands.

FIXED RATE LOAN

Fixed rate loans provide peace of mind if you are concerned interest rates may increase in the future. This type of loan is available on interest only, and principle and interest terms, to make budgeting easier by guaranteeing the repayments for a fixed term and providing protection from any future increases in interest rates for the term of the loan.

EQUITY MORTGAGE

This type of loan is a line of credit facility that has a pre-set limit which you can draw from at any time. Equity Mortgage is interest only for five years with principle and interest repayments for the remainder of the agreed term. You have total control of your finances and the effective management of your Equity Mortgage account can save you interest costs.

SPLIT LOAN

A split loan can be used in two ways-to separate your investment loan from your home loan, (but remember payments must be made on both loans) or to fix a portion of your home loan and leave the other part variable. It’s a bit like an each way bet in case interest rates rise.

 

 

Build right, build confident

It’s an unfortunate fact that building disasters do happen. But for those contemplating building or renovations, incorporating some key measures into your plans should ensure a much better result.

Whether you’re simply adding another bedroom or building your dream home, you can take comfort that there’s a trusted and respected organisation to help. Listing one of its core aims as “making Australian building standards and regulations more acceptable to the industry and responsive to end user’s needs,” it makes sense to have the Master Builders Australia as your first port of call when searching for a quality builder.

Through their website www.masterbuilders.com.au you can verify whether your prospective builder is a registered master builder. To secure membership, builders must show a genuine interest in the integrity of the industry and prove they have the required skills and expertise to meet quality standards. You can search for a builder in your local area via the website. Once you’ve confirmed credibility through registration with Master Builders Australia, your next, and perhaps most important planning step, is to shop around and ask lots of questions. There are a number of things that need to be considered when sourcing a builder; one key suggestion is to make sure you tell each builder that you are getting other quotes – this will keep them on their toes. Some other important tips include:

  • Cheaper isn’t necessarily better, so back up quotes by speaking with previous clients or through obtaining testimonials; any builder worth their salt will feel comfortable giving you access to past clients.
  • Listen to your gut instincts and let them contribute to your final decision: will your project be a priority and will you feel comfortable having the builder around your home when you’re not about?
  • Some builders will also be better at certain types of jobs than others. Determine each builder’s specialisation and match that to your project.

By using these practical measures in your planning, you’ll be taking a big step forward to achieving peace of mind once construction gets underway.

 

 

 

 

Switching for a Better deal

Your life never stands still; and neither should your mortgage.

If change is afoot, it might be time to search for a more suitable product

If your loan doesn’t suit your lifestyle or personal situation you could be wasting thousands of dollars a year on extra interest and fees. You may be able to refinance and find a loan that’s more  appropriate for your needs, with better features and a competitive interest rate to match. If you feel that your loan is no longer right for you speak with Gail or Terry.

Here are some key reasons to prompt a review of your mortgage:

PAY OFF YOUR MORTGAGE FASTER!

If you’re striving to be mortgage free, faster, there’s a good chance there may be a more appropriate product to meet your needs. Some mortgage products are designed to motivate borrowers to repay their mortgages quickly, so now is the perfect time to talk to your mortgage broker and consider whether a new loan will see you on the road to financial freedom – fast!

CONSOLIDATE YOUR DEBT

Consolidating your debts, such as credit cards or personal loans, into your home loan can save you thousands of dollars in interest charges. Rolling your debts into one monthly or fortnightly repayment can also help make juggling your finances a little easier, while improving your cash flow to boot.

UNLOCKING EQUITY

As you pay off your mortgage you’ll accumulate equity in your home. As long as you are capable of meeting your loan repayments, refinancing your mortgage can help you tap into the value that you’ve built up, using it for other purposes such as purchasing an investment property.

BETTER INTEREST RATES AND LOWER REPAYMENTS

Rates and mortgage deals are constantly on the move. To make the most of a competitive mortgage market, you might want to evaluate the loan product you currently have. For example, you may want to go for a lower variable-rate, or lock into a fixed-rate. Break costs can be expensive though, so you’ll need to check that you’ll come out ahead when all costs are considered.

AVOID MONTHLY FEES AND CHARGES

Some lenders charge a monthly service fee – further adding to your debt. Competition between lenders has increased and a number now waive  administration fees, so refinancing your home loan with another provider can be a smart move to help cut your mortgage costs.

 

 

 

Should you live in your house while you renovate?

It can be tempting to stay in your home when you’re renovating, rather than spending money on rent. But is it really a good idea? Consider the pros and cons before you make a decision.

Advantages of staying in your home

You’ll keep your creature comforts and sleep at the same address, but what are the real advantages of living in the middle of a renovation?

Save money

The expense of moving out of your home while you renovate can be significant. You may also need to rent another property or stay at a hotel. Living in your own house keeps more money in your bank account.

Monitor progress

Being in the middle of your renovation lets you keep a close eye on how it’s going. You can see where progress is being made and where it may be falling behind. This lets you address any issues with your contractor quickly.

Resolve problems

Unexpected issues can arise during a renovation. Perhaps the tiles you selected are no longer available or the painter wants you to double-check the shade for your walls. Being on hand makes it easier for decisions to be made without delays.

Disadvantages of staying in your home

While it’s handy to live in, there are also some disadvantages to staying home while you renovate.

Out goes the routine

It may be challenging to maintain a healthy diet when you can only cook in a microwave for a few months. Washing up in the bathtub may lose its novelty after a few weeks. Little interruptions and inconveniences can quickly add up to a big headache. And if you have a toddler who can’t maintain their usual sleep schedule through all the hammering, you’ll be wanting to check into a hotel before you know it.

Living in the danger zone

Building sites are dangerous, but it’s not always practical to wear a hard hat at home. You may need to take extra care to avoid exposed wires, dropped nails and any tools left lying around. If you have kids, they’ll probably need extra supervision.

The hazards for pets can also be quite serious. Most dogs are scared of loud noises, and may not cope when subjected to constant drilling. Cats on the other hand tend to hide or escape when they’re disturbed, which can make them impossible to find.

Stress and dust

Living in cramped quarters can challenge even the strongest relationships. Your life will be turned upside down, packed in boxes and hidden under a thick layer of dust. If your family is used to a lot of space, sharing a bathroom or bedroom may be stressful.

Adding to the stress is the lack of privacy. It can be difficult to keep calm when you’re constantly letting contractors in and out of your personal space.

Hidden costs

While you may save some money by living in your home, you could be hit with unexpected costs. Contractors sometimes charge a fee if their work schedule is changed. Bringing forward the bathroom reno for your convenience may be more expensive than you’d bargained for.

Renovating your home is exciting. However, whether you decide to live in or not, you may encounter unexpected problems.

 

 

Your guide to investment property loans

There are certain things to look out for when selecting and applying for a loan for your investment property. Here we look at the main differences, the most popular loan types, and how to get the best mortgage for your situation.

Interest-only, fixed, variable, offset – finding the investment home loan that’s right for you can seem like a minefield of financial jargon and conditions.

The key to finding the right loan is to have a clear investment strategy: are you going to renovate and sell, or stay on for the long term and ride the property wave?

Fixed interest rate loan

Arranging a mortgage with a fixed interest rate gives you certainty – you’ll know up-front what you need to repay annually. This means that once you know what you are going to receive in rent you can estimate whether there will be a cash surplus or deficit and manage your cash flow accordingly.

Some lenders allow you to prepay up to 12 months’ of interest on this type of loan potentially bringing any eligible tax benefit forward; speak to your tax advisor about claiming the payment as a tax deduction.

Bear in mind that many lenders will charge you a break fee if you repay more than the fixed rate allows for. Before making any extra payments, check with your bank. And if you plan to make additional payments during the life of your loan, make sure you enter into a loan that doesn’t charge these break fees.

Variable interest rate loan

Your payments will fluctuate with a variable interest rate mortgage, but the pay-off is flexibility – if the loan has a redraw option, you’ll be able to redraw funds from any extra payments you may have made.

You can also choose a split loan, with a mix of fixed and variable interest rates. Package home loans may feature split rates, along with credit cards, waived fees and other products.

Interest-only loan

As the name suggests, with interest-only loans, you won’t pay anything off the principal. If the value of your property increases, you’ll have that equity even though you’ve paid nothing off the principal. If the market flattens, however, you might not have any equity.

The sweetener for investors is that, unlike principal repayments, interest payments are tax deductible. Please check with your accountant or financial planner for tax implications.

You can also choose an interest-only loan for a period of time while you renovate. Your repayments are less than if you’re paying the principal plus interest, so you’ll have cash up your sleeve to pay for your renovations.

An interest-only mortgage can be arranged for up to 5 years.

Offset account

Products such as interest offset accounts allow you to use your mortgage as a kind of savings account, offering great flexibility and with interest calculated daily.

For example, you could have your salary paid into your offset account, which is linked to your home loan. The balance of your mortgage will be reduced by your offset balance, meaning that you’ll pay less interest over the long term, and you’ll still be able to withdraw your cash when you need it.

Most offset accounts are linked to variable rate loans rather than fixed rate loans.

Line of credit

Also known as a home equity loan, a line of credit home loan allows you to use the equity in your existing property to secure your investment loan. Rather than receiving a lump sum, you can access as much or as little of the loan as you need, meaning financial discipline is key. Canny borrowers can have their salary paid into their line of credit loan account, to offset the loan.

Whichever loan you choose, seek professional advice from Gail or Terry, they will be able to compare lender rates for you.

Investment loans have stricter eligibility restrictions, may require a larger deposit than other home loans, and often incur a slightly higher interest rate. You’ll also need to have funds to cover potential costs or loss of rental income if your property is untenanted for any length of time. The trade-off is that as a landlord you can claim associated expenses as tax deductions.

To discuss your home loan options, and to find an investment property loan that’s right for you, contact Gail or Terry.

 

 

Want to renovate the smart way? Avoid these four mistakes

Never renovated a property before? Here are four mistakes to avoid when it’s home improvement time.

Mistake 1: Not doing enough research

Don’t start work without knowing the details. You need to research building materials and tradespeople, and understand the legal and regulatory aspects of a renovation.

Find out how much materials and tradies cost. You can request several quotes to get a realistic price range. You can also find out if there are discounts on offer – for example, for bulk-buying or early payment – or opportunities to negotiate.

Before you start, ask your local council whether you need any permits. Fines for unlawful renovation can be hefty, as can the cost to repair or rebuild.

Mistake 2: Failing to plan properly

Poor planning can cause big problems. Your budget or schedule could blow out, the property might end up worse off, or you might not achieve what you really wanted to.

Planning should include these three elements:

  • Scope: What you want to do and the resources you need.
  • Schedule: When different aspects of the renovation should happen.
  • Budget: How much you plan to spend.

If you’re having trouble, consider hiring professionals. This may be an architect to provide drawings, or a construction manager to juggle the different elements.

Mistake 3: Underestimating costs

First-timers often make the mistake of setting a budget – “we’ll spend $50,000” – without knowing what it will buy. Don’t fall into that trap. If you research building materials, you’ll be more likely to buy the right quantities at the right price. If you make detailed plans, your trade quotes will be more accurate. Good research and planning will help you create a realistic budget.

Remember to build some contingency ¬into your budget in case things don’t go to plan. Adding 10 to 20 per cent to the final budget is a good rule of thumb.

Mistake 4: Hiring the wrong people

Labour is one area where you’ll want to cut costs, but quality should trump price.

  • Hire for the job: It’s tempting to hire a jack-of-all-trades, but try to hire specialists for important jobs. For example, hire a plumber, not a handyperson, to install a sink.
  • Make sure the tradesperson is licensed: The tradie is accountable for his/her work, plus the renovation comes with a warranty.
  • Check references: Word-of-mouth recommendations are often the best reference. Also look for genuine testimonials and signs of quality work, such as industry awards or positive media coverage.

Your house has a better chance of becoming your dream home when you avoid the most common renovation pitfalls. When it comes to financing your renovation, Gail or Terry can help.

This article is not intended to be comprehensive nor does it constitute legal advice.