How Can I Use Equity To Buy An Investment Property?

This is an email questions from Doug in Mount Lawley. I have a current home with plenty of equity, how can I use that equity to buy an investment property?

The first thing we will look at is, what is equity. Equity is the value of your property compared to the value of the mortgage that you owe on it. For example, if you have a property worth $500,000 and your home loan is $150,000, you have $350,000 in equity.

In Doug’s question, he has plenty of equity, as seen in the example above. He has a house worth $500,000 and a home loan of $150,000. He wants to buy an investment property in Melbourne, even though his home is in Perth. This is ok with most banks and lenders, as generally they will lend against any Australian property. He wants to buy a property for around $300,000 and also wants to borrow the associated fees, like transfer stamp duty and settlement agents fees, which will be around $17,000.

Doug has enough income to support the new loan, plus most banks and lenders will look at the proposed rental income to help support the new loan application.

As far as property value, Doug’s property was valued at $500,000 by a bank valuer. The new property purchase price was $300,000. The banks will look at the combined property value, which in this case is $500,000 plus $300,000, which equals $800,000. The banks will lend up to 80% of the combined property value without mortgage insurance. 80% of $800,000 is $640,000, so Doug can borrow up to $640,000 without mortgage insurance. Most banks and lenders will lend up to 95% of the property value for an investment property, but any loan to property value above 80% will be subject to Lenders Mortgage Insurance.

In the example above, Doug has a current mortgage of $150,000, plus wanted to borrow $317,000 to purchase the investment property (which includes borrowing the fees to purchase the property). Total loan value (in our example $467,000) against the property value ($800,000) was around 58%, so Doug wasn’t subject to mortgage insurance.

It is important to seek advice from an accountant or financial planner before you purchase an investment property. It important to get the correct structure when buying the new home, and most tax effective beneficial ways for your personal financial situation, before you purchase the property.

By structure I mean how you are going to buy the investment property. Some things to consider may include –

1/ Will you buy the investment property in joint names, with your partner, or is it more financially beneficial and tax effective to purchase the property in only one name, as one partner may not earn as much money, or maybe staying at home or working part time looking after children.

2/ You could buy the property in a trust name, non trading company name, or maybe even buy the property for your self managed super fund (some banks will lend against a property in a self managed super fund, but the interest rates are generally more expensive)

3/ Will you go interest only repayments on the investment home loan? Generally speaking, the interest on an investment home loan will become tax deductible, so your accountant may recommend interest only repayments.

It is important to get the structure correct before you purchase the investment property. Advice from your accountant or financial planner is highly recommended before you purchase the investment property, to maximize the financial benefits for your personal financial situation.

If you would like some more personal mortgage advice, to see what you can borrow, or to compare your current home loan, please contact me anytime. If you have any comments, please leave below.

What Does A Mortgage Broker Do?

This is an email question from Paul in Dianella. Why should I use you as my mortgage broker? What benefits can you give, rather than going to direct to a bank?

These are good questions, lets have a look at them. As your mortgage broker, I can offer you mortgage information from 25 different lenders. I can help you source your home loan that would be most beneficial to your personal financial needs and goals. If your current bank or lender has said no to you for a home loan, another bank may consider your proposal. All banks and lenders have different credit policies, so while one bank may not consider your home loan, another bank or lender might.

I also offer a personalised service, you deal with me directly, rather than a bank or lenders call centre. I work seven days a week, and after hours, so we can meet at a time and location that’s suitable to you (your home, work, café, my office, etc). I have had a long term relationship with most of my customers. They can call me 7 days a week, to discuss their mortgage needs, get a property report on a house they are considering, or a home loan scenario, if they are thinking of something. It is a really handy service, to have a relationship with a mortgage broker, as it would be with an accountant or financial planner, to discuss your needs as you move through life.

I also take all the worry out of applying for a home loan. I take care and collect of all the paperwork required from you, and will help with things like first home owner grant and REBA applications. I pride myself on my reputation, and try to exceed all my customers expectations, to help make the home loan process as stress free as possible.

Sounds like a big sales spill, and it is certainly your choice when your are thinking about who to use for your home loan, but a mortgage broker can add real value, and offers the same products and interest rates as the banks do.

If you have any comments, please leave below, or if you would to use my services as a mortgage broker, or more personal home loan information, please contact me anytime.

The Bank War Heats Up!

The bank war is getting hotter. In response to National Australia Banks marketing campaign, The Break Up, the Commonwealth Bank has entered the arena with cash incentives for customers who refinance their NAB/Homeside to a Commonwealth Bank home loan.

The Commonwealth will give existing NAB/Homeside mortgage customers a once off $1,200 cash incentive if they refinance their mortgage to the Commonwealth Bank. The CBA are also offering a $100 cash incentive if you switch your existing NAB credit card or savings account to the CBA. Conditions do apply, and these offers are available to Saturday 30 April 2011.

With other banks and lenders also offering fee discounts, interest rate discounts and some offering cash incentives, their has never been a better time to compare your current home loan. As your mortgage broker, these discounts and special offers still apply, if you refinance your home loan with me. My service is free (I am paid commission by the banks), and obligation free, so it will cost nothing more than a little bit of your time to compare your current home loan. You may be able to save yourself some hard earned money.

If you have any comments, please leave below. If you would like more personal mortgage information, or an obligation free home loan comparison, please contact me anytime. I work the whole Perth Metro area. If you live outside of Perth, I can refer to you to another quality mortgage broker.

Banks And Lenders Increase Discounts And Fee Waivers

More positive news yesterday with some more banks and lenders offering fee waivers and increased interest discounts to new mortgage customers. This is good news for mortgage holders, if you are thinking about refinancing your home loan, or anyone thinking about a home loan for the first time.

Some banks have increased their interest rate discounts, especially if your home loan value is less than 75% of the property value. Some banks and lenders are waiving application fees, some offering to compensate some exit fees from your current lender, if you are thinking about refinancing your home loan.

Another Bank too, has announced, lenders mortgage insurance fee waivers on home loans between 80% and 85% of the property value (conditions do apply). This could be a significant saving, if you qualify.

Competition between the banks and lenders is certainly heating up. It may be a good time to consider comparing your home loan, to see if you could save some money. My service as a mortgage broker is free (I am paid commission by the banks or lenders) and totally obligation free, if you choose not to proceed. These are the banks and lenders I deal with, so there are quite a few, including the big four banks. Comparing your home loan costs nothing, and can be done via email, and may save you thousands of dollars. Contact me anytime for an obligation free home loan health check.

If you have any comments, please leave below, if you would like more personal home loan information, or to use my service as a mortgage broker, please contact me anytime.

Will The Increased Bank Competition Save You Money?

This is an email question from Stuart in Nollamara, Will the offers that the banks are offering save me money if I refinance my mortgage?

This is a good question, considering all the news at the moment with both Westpac and National Australia Bank starting aggressive marketing campaigns to win more home loan business. Both banks are offering interest rate discounts, fee waivers and NAB even offering to reimburse some mortgage exit fees if you refinance your current mortgage to them (conditions do apply).

It is always a good idea to understand what your current mortgage is costing you. You may be able to save money or pay off your home loan sooner, by switching home loans, either with your current bank or refinancing to another lender. These offers may be of benefit to you, but you should know exactly what it will cost to close your current mortgage, and open a new mortgage, either with your current lender, or another bank or lender.

The type of fees that may be incurred to close your current mortgage may include –

1/ A deferred establishment fee (can range from nothing to $700 plus, depending on your current bank or lender)

2/ A settlement fee (Can range from nothing to more than $300)

3/ Government charges (things like a mortgage registration fee, title search fee, can be around $300)

4/ If you have a fixed rate home loan, there maybe an exit fee on a fixed rate home loan.

The fees to open a new mortgage account maybe –

1/ An application fee (Can range from nothing to $600 plus)

2/ Government charges (things like a mortgage registration fee, title search fee, can be around $300

3/ If you are applying for a fixed rate home loan, a rate lock fee may apply.

4/ If you borrow more than 80% of your property value, a lenders mortgage insurance fee may apply.

There are many things to consider, when considering refinancing your home loan. A good understanding of what it will cost to refinance your mortgage, will help you in your decision to whether it will save you money. All banks and lenders have different rules and fees, so this is where my services as a mortgage broker, may help you in your decision whether to refinance or not. I can give you a cost analysis, to see, taking the fees into consideration, the possible benefits of refinancing or restructuring your current mortgage.

Its good to see some competition in the banking sector, will it save you money? It just might, and it certainly doesn’t hurt to ask any questions.

If you have any comments, please leave below. If you would like a cost analysis, to see if you could save any money, or to use my services as a mortgage broker, please contact me anytime.

Can I Consolidate My Credit Card Debt Into My Home Loan?

This is an email question, which today will be anonymous for personal reasons. The questions asked, I have $65,000 worth of credit card debt, I having problems keeping up with the repayments, and cant seem to pay them down, can I consolidate this credit card debt into my home loan?

Getting into a bit of debt with credit cards these days is quite common. They can be really hard to pay off, as some interest rates on them can be more than 20%, depending on the credit card conditions. In a short answer to the question, Can credit card debt be consolidated into an existing home loan, the short answer is yes, if you have enough equity in your home.

Lets look at what I mean by equity. All banks or lenders lend money against the property value. Most banks and lenders will lend up to 95% of the property value. For example, of you have a property worth $400,000, most banks and lenders may lend up to 95% of this value. 95% of $400,000 is $380,000, so you may be able to borrow up to this amount. When you borrow more than 80% of the property value though, the home-loan will be subject to lenders mortgage insurance, which may be quite expensive if you choose to do this.

In the email question today, this customer has a property worth $395,000, and his current home loan limit was $235,000. He wanted to consolidate the credit card debt into his home loan, which was $65,000. The home loan would increase by $65,000, taking the new limit to $300,000. The customer had income to support the increase in his home loan to $300,000. The other good thing was that with the increase in the home loan to $300,000 and a current property value of $395,000, the loan wasn’t subject to lenders mortgage insurance, as the loan to property value (LVR) was less than 80%.

The paperwork we needed to apply for the home loan increase was 6 months of each credit cards statement, to see that the conduct with the credit card payments was satisfactory. If you are having problems with credit cards or other loans, there are some lenders that may not require these statements.

In this customers case the increase to his mortgage was approved, and we paid out all of those credit cards. The customer also closed all but one of those credit cards to ensure that he wouldn’t max those limits again. In this example, the customers monthly mortgage repayments went up from approx $1,578 a month, to $2,017 a month. The approx credit card repayments were approx $1,800 a month, so the customers monthly commitments were reduced significantly.

The customer is also committing to pay more off per month than the minimum repayment too, as the home loan term is 30 years, and if he was to pay the minimum repayments, the credit card debt consolidated may cost him more in the long term.

If you are thinking about consolidating your credit card or other personal debts into your mortgage, and would like some obligation free information, please contact me anytime, and I can give you your options, and the costs involved to consolidate your debts into your home loan.

If you have any comments, please leave below, or would like to use my services as a mortgage broker, please contact me anytime.

What Are Interest Only Home Loan Repayments?

Interest only home loan repayments are where you pay only the interest charge every month. For example, if you have a mortgage of $100,000 over a 30 year term, and went for interest only repayments for the first 3 years, you would pay just the interest charges for the first 3 years, and you would still owe $100,000 after those 3 years (assuming you didn’t make any extra repayments to your home loan). Then for the remainder on the home loan term, 27 years, the home loan would revert to principle and interest repayments, and your repayments would increase to pay the home loan down over that period. You may be able to re switch your home loan to interest only if it suits your needs.

You may be able to choose an interest only term, depending on your bank or lenders credit policy, from 1 to 15 years. Interest only repayments are available on both variable rate and fixed rate home loans. A line of credit generally requires just the interest payment every month.

There are many reasons why you may choose interest only repayments on your home loans. Some may include –

The home loan is for investment, and the interest charges are tax deductible.

You may, in the short-term want to decrease your repayments, so interest only repayments may help you monthly budget.

The home you are purchasing to live in, may become an investment property in the future, so you want to keep the debt as high as possible, to maximize your tax benefits when the property use does become investment.

There are many reasons why you may choose interest only repayments. You should speak to your accountant or financial advisor, to see if this option may suit your financial needs.

With some banks or lenders, you can still have an offset account with an interest only variable home loan. This will save you some interest charges, if it suits your needs.

If you have any comments, please leave below. If you would like more personal home loan information, or to use my services as a mortgage broker, please contact me anytime.

As A Mortgage Broker, Which Banks Do I Deal With?

This is a email question from Mark in Floreat, As a mortgage broker, which banks and lenders do you deal with? And is there a difference between the lenders?

This is a good question, and I will list the banks and lenders I am accredited to write home loans with. Firstly, lets look at the question, Are there differences between the banks and lenders. Well the answer is yes. While there are interest rate differences, between them, the main advantage to using a mortgage broker, is the credit policy differences between the banks and lenders.

The differences in credit policies, means that each bank or lender has different rules about what they accept when considering a home loan scenario. Lets look at some of credit policy differences between the banks and lenders, that may help influence your decision when thinking about a home loan –

-         Some lenders require genuine savings, some don’t.

-         Some lenders lend up to 95% of the property value, some don’t.

-         Some lenders allow large cash advances (if you have the equity in your home), and some don’t.

-         Some lenders will lend on your mortgage for business purposes, some don’t.

-         Some lenders have credit default tolerances, some don’t.

The list of credit policy differences between the lenders is endless. Each bank or lender have their own rules, about what is an acceptable mortgage credit purpose to them. This is where some information from an experienced mortgage broker can be useful, as the mortgage broker can research your personal financial requirements, and come up with different mortgage options for you. If your current bank has said no to an idea or request you have had, a call or email to a mortgage broker may be able to help you achieve your goals.

Here is a list of the banks and lenders, than I can help you with mortgage finance –

Banks –

Adelaide Bank.

AMP.

Bankwest.

Commonwealth Bank.

Citibank.

Homeside Lending.

Macquarie Bank.

National Australia Bank.

ING Bank.

St George Bank.

Suncorp.

Westpac.

Other Lenders-

Bluebay Finance.

Collins Securities.

First Mac.

Homeloans Ltd.

Keystart Home Loans.

La Trobe Home Loans.

Liberty Financial.

Hemisphere.

Paramount Mortgage Services.

Pepper Home Loans.

PFG Mortgage Managers.

The Base Loan.

Building Societies and Credit Unions-

Police and Nurses Credit Society.

The Rock.

I deal with all these banks, so I may be able to help you with your home loan. If you have any comments, please leave below. If you would like more personal mortgage information, or to use my services as a mortgage broker, please contact me anytime.

http://www.mortgagefacts.com.au/

What Is A Credit Default?

Today’s blog is based on questions I receive from time to time. They are, What is a credit default? Can I get a copy of my credit report? If I have a credit default, can I get it removed?

Lets look at what a credit default is first. A credit default may be come from non payment of a credit contract, bill (like phone bill) or other sources. If you are more than 60 days overdue on a payment of a credit obligation or contract, the credit provider may decide to lodge a default notice with Veda Advantage. If this happens, your credit file will be marked with non payment of a bill. If you pay it, or go in to a payment arrangement with the credit provider, they are required to update Veda Advantage of the updates, and that the bill has been paid.

Credit defaults may hinder future loan or credit applications, so its best to try and keep up to date with your credit commitments. If you are experiencing problems paying a bill, then it is best to talk to the credit provider, to try and make an arrangement to avoid the overdue payment being listed on your credit file. Have a read of the article; what to do if you cant pay your mortgage, if you are experiencing difficulties, for more information.

You can obtain a copy of your credit file from www.mycreditfile.com.au . There is a free version, which takes a couple weeks to be sent to you, or an express version, which will be emailed or faxed to you within a couple of hours. The express version currently costs around $37.00. The types of things that may be on your credit file are-

Credit enquiries,

Defaults, court judgements or bankruptcies (if applicable)

Directorships of a company (if applicable)

Listings are generally held on your credit file for 5 years, but can vary, for example a bankruptcy may be held for 7 years on your credit file.

There are some companies these days that offer credit default removal from your credit file. Some are actually quite successful in removing these defaults and listings, it would depend on what the default is for, whether it has been paid, etc. If you would like some more info on these types of companies, contact me, and I will give you their contact details.

Since the Global Financial Crises, banks and lenders have been harsh on credit defaults. It doesn’t mean you cant obtain a home loan, as some banks or lender have some tolerances for small credit defaults (like telco defaults). If you have bigger or many defaults, there are still some options with credit impaired home loans (these are generally quite expensive though)

If you have any comments, please leave below. If you would like more personal home loan information, or to use my services as a mortgage broker, please contact me anytime.

What To Expect When You See A Mortgage Broker.

Today’s email question is from Rick and Rachel in Wembley. Rick and Rachel wrote, We are first home buyers, and would like to know what type of things and questions to expect if we make an appointment to see you? We are not sure if we qualify for a home loan, and would like some advice.

These are good questions and concerns. Firstly we look at you concerns, the fact that you are not sure if you qualify for a home loan. My role as a mortgage broker is to look at your current financial situation, and give you the mortgage options that are available to you. If you are not quite ready for to apply for a home loan, then we can work out a plan, and let you know what you need to purchase your home. You may be ready to apply for a mortgage now, or it may be awhile before you are ready to purchase your home. The good thing about getting some information from a qualified mortgage broker, is that you can set a plan, know what’s needed, and work towards purchasing your home.

My service as a mortgage broker wont cost you money, as I am paid commission by the banks or lenders. Even if you are not ready to apply for a home loan, the information I give you costs nothing, and is obligation free. Of course I would like help you with your home loan when you are ready, but that will be your choice.

Information and research is everything, so if you are thinking about purchasing your first home, second home, etc, some good information will help you in your decision of what you would like to do. Using my services as a mortgage broker, I will take care of things like the first home owners grant, REBA grant, taking out the worry and using my experience to help you purchase your home.

In the mortgage interview I will ask many questions. Some questions will be to assess what you can borrow, some will be asking what your medium to longer term goals are. Lets look at some of the questions that I may ask you in your mortgage interview.

What You Can Borrow-

What is your current income (I will ask to look at your latest 2 payslips)

How long have you been in your current job for.

How much deposit do you have (you may not need a deposit if you are using a guarantor for your home loan)

What are your credit card limits?

Do have any other credit facilities (like a car loan), how much do you owe, what are your monthly repayments?

Other questions I will ask may have to do with your future goals. These questions are to look at a how to structure your home loan, to best suit your needs. You may prefer a variable rate home loan, fixed rate home loan, or a split home loan. I will also ask questions like, what are your longer-term plans with the property you are thinking of purchasing? Do you think it may become an investment property in the future? Do you want to pay your home loan off quicker? These types of questions will help deciding on what maybe the best home loan options for you.

My goal as your mortgage broker is to develop a long-term relationship, to help answer your finance needs, now and in the future. My customers find it very useful to have mortgage finance advice, when they need it. To run their scenarios by me, to see what they may be able to do. I work 7 days a week, and I aim to excel in customer service, to deliver the best experience I can for my customers.

If you have any comments or questions, please leave them below. If you would like more personal mortgage information, please contact me anytime.