The ability to obtain a mortgage in Australia to purchase a home, investment property or refinance an existing loan is rapidly changing. Up until recently all you had to do was fill out an application with your personal details, provide some documents that verified your income, 100% identification documents and some statements confirming the balances on any liabilities you had.
A lot of people have no idea exactly how mortgage loans function in today’s market, therefore applying for one these days can be a little bit complicated. If you want to understand everything you can about home mortgage loans, then you should check out the article content which comes next. Stay with me in to the subsequent paragraphs to discover a number of helpful ideas and items of wisdom which can help you choose a superior home loan.
They are now asking a lot more questions
Because of regulatory requirements lenders are now forced to check to see if you can really afford the loan amount you are applying for. Up until now when you applied for a mortgage you had to state what your monthly living expenses were. If the amount you stated was in line with The Henderson Poverty Index (HPI) nobody asked any questions even if you were driving a Ferrari and had 3 kids in private school on an $80,000 a year salary.
However, this has all changed and through regulatory pressures lenders are now obliged to take a lot closer look on whether you can afford the mortgage you are asking for.
How do lenders calculate your living expenses? There are two main methods that Australian lenders now use for calculating mortgage applicants living expenses: The Henderson Poverty Index (HPI) and the Household Expenditure Measure (HEM).
The HPI or Henderson Poverty Index
The HPI was the go to expense measurement for most lenders prior to the introduction of the National Consumer Credit Protection (NCCP) act. Nowadays though, it is seldom used. It was originally predicated on a survey of 1950’s families living in New York, however for Australian use it had some tweaks made to it to update it for the local market. Basically it’s an index calculated around the expenses of a family that has two adults and two kids, from that base they used fraction multipliers for various family structures to figure out what the expenses would be for different family scenarios.
The HPI and HEM are very much alike if applied to a couple with two kids under eighteen; nonetheless, the HEM isn’t as forgiving as the HPI when it comes to sole parent families and singles.
The HEM is now becoming the method of choice for nearly all lenders in Australia today, because it was created solely centered on Australian living expenditure information, and specifically because it analyses each family type separately.
The (HEM) or Household Expenditure Method
The HEM has now become the method of choice for most lenders when it comes to the two mechanisms and it has been established by using more than 600 regularly used household items from the Australian Bureau of Statistics (ABS) Household Expenditure Survey or (HES). The HEM calculates the median expenditures of the absolute basics that someone would spend their money on (food of course, power bills, personal transport, tv, phones internet, clothing for the family). Added to that is a 25th percentile of all expenses for your discretionary basics, this will include spending on things like eating out, alcohol and childcare. Then there are expenses that are non essential, like holidays overseas or nationally that are left out of the calculations. Mortgage payments and/or rental expenses are also left out of the HEM.
Nevertheless, lenders will insist that loan applicants reveal any expenses they have over and above the HEM’s index. In other words they will drill down to find out exactly what you’re spending your money on and whether or not you have enough money left over to make the mortgage payments you claim you can afford.
Some lenders will even go to the lengths of asking for your latest bank account transaction and credit card statements so they can analyse precisely what your spending habits are.
How to increase your borrowing capacity
Never take on fresh financial debt and also pay back your established financial obligations conscientiously whilst waiting for your home mortgage verdict. As soon as your personal debt is reduced, you’ll be eligible for a more significant home finance loan. Should your personal debt be substantial, the loan request could be turned down. In the event you are approved, your rates of interest will probably be quite high.
You should not spend extravagantly while you wait around for acceptance. An excessive amount of spending may well put up a warning sign to your mortgage provider should they do a further credit assessment a couple of days prior to your appointed getting together. If you have to carry out any significant transactions, hold back until you have signed the settlement documents.
The importance of job security
Your employment track record needs to be comprehensive in order to be eligible for a home loan. Many financiers demand a reliable 2 year employment record so that you can be approved. If you happen to change jobs excessively, you might not be in a position to get yourself a home loan. Never ever give up your employment whenever you make application for a mortgage
Should you get into difficulty making your moprtgage repayments on time continue to keep talking with the financial institution that carries your home loan in every situation. Ahead of any predicament reaching the foreclosure stage, the intelligent customer understands that it truly is worth trying to create alternative arrangements with the lender. Give them a call and consult with them concerning your problems, and find out exactly what they are able to do.
The cash you will need
Chances are your mortgage company will demand a deposit. A number of financial institutions would once say yes to mortgages with out a deposit in advance, but that’s incredibly uncommon nowadays. Prior to going forward with any application form, always ask what the deposit is likely to be.
Just before you make an attempt to find a new home loan, check to see if property values have gone down. Get a property valuation ahead of re-financing your home loan to make sure you have sufficient home equity to really make the procedure advisable.
One size does not fit all
Figure out which kind of mortgage loan you must have. There are many differing types of mortgage loans. There are various time frames, a variety of repayment plans and a varying range of loan rates. You should educate yourself on the advantages and disadvantages of each one. The ideal individual to check this out with this is your mortgage broker. The mortgage broker can easily show you all your possible choices across a full range of mortgage providers.
Lenders to avoid
Be vigilant for mortgage companies who aren’t dependable. Undesirable mortgage loan techniques can easily wind up costing you a ton of money.
Steer clear of slick talkers or loan merchants who choose to talk fairly quickly in order to try and trick you. Should the interest rates seem to be too high, be sure you do not sign-up to anything. Under no circumstances trust someone who claims your less-than-perfect credit just isn’t a problem. Last but not least, under no circumstances tell a lie on any credit application, and steer clear of any loan providers who try to advise you otherwise.
Don’t be blind to fees and charges
Make certtain that you find out what all of the mortgage loan service fees and other associated costs will be prior to you signing a home mortgage loan contract. You’ll certainly be expected to pay out settlement costs, possible commission costs along with other service fees.
Lending products with a variable rate of interest should be considered carefully. Because, as the economic climate adjusts, the interest rate of your mortgage can change at the same time and it could set you back a great deal more when it comes to interest charges. This may lead you to be unable to keep up your repayments.
When was the last time you looked at your credit report?
A favorable credit record is essential to obtaining a favourable home loan. Find out what your credit score is. Deal with any errors against your credit report, as well as do your very best to enhance your own credit score. Consolidate all of your personal debt into just one personal loan using the most competitive interest rate you are able to get, not to mention pay it religously on time each and every month.
If need be, clean up your credit history prior to looking for a new home loan. In order to get qualified to apply for any mortgage loan in today’s world you’ll require good credit. Loan providers have to know you’ll pay your debts. Therefore before you decide to submit an application, be sure that your credit rating is nice and clean.
Look beyond the rate of interest
The rate of interest you are able to get for a home loan is very important, however it is not the sole step to take into account. There are numerous additional service fees that could vary from lender to lender, also. Take into account the charges for settlement, the mortgage type being offered, and any points. You ought to get quotes from different financial institutions before you make any final decision.
As previously mentioned, lots of people have no idea of the very first thing in relation to obtaining a mortgage loan. It isn’t too difficult if you happen to grasp the procedure. Keep in mind these helpful hints so you can be geared up whenever you make an application for for a home mortgage.
How do you differentiate between
the various home
loans on offer?
The essential information
Although, there are a vast variety of home loans available in the market, but for the sake of this piece not turning into a War and Piece saga, we are going to discuss only three prime home loan options.
Purchase home loans: These loans are available to individuals for purchasing a new property either to live in or for investment purposes.
Refinance home loans: For the sake of getting a better deal and if you already own a house, then a home loan refinance can be the best option for saving money.
A home equity line of credit loans: are loans secured by your home equity so that you can have flexible credit and use it for just about anything you want.
So what should we look for when applying for any home loan? Well, it usually includes the amount you need to borrow, your credit history, whether or not you want an interest – only loan and various other questions akin that.
Mentioned below is the list of home loans available out there. However, it is always advisable to have an expert opinion on each kind before reaching for a decision.
• variable rate mortgages
• Fixed rate mortgages
• Split mortgages, part variable and part fixed
• Basic mortgage
• Professional package mortgage, includes offset account
• Line of credit
• Bridging loans
• Construction loans
• Intro mortgage
• Low Doc mortgage
• Self managed superannuation fund mortgage
When was the last time you checked your credit report?
One of the most significant features in getting a loan approval is the credit history. Lenders through your credit history can gauge your repayment behavior and on that basis decide the rate of interest and other terms and conditions of the loan offered. The better the credit history you bear, the better the chances of getting the best deal.
During the credit application process you firstly have to understand that the credit risk level and your prior credit history is going to set the credit risk level as assessed by the lender. If your previous credit record depicts a slow payment behavior, missed payments or over the limit purchases on a credit card, then you are going to be put in the high credit risk category by lenders.
Revolving Line of Credit Credit: Depending on the type of Line of Credit will determine if they think you are a risk. Generally though you usually only have to make interest only repayments until you reach the approved limit of the facility. Nonetheless in today’s credit market it pays to make some principal balance payments on a regular basis to prove that you’re not using the facility to prop yourself up financially.
Installment credit: Any payments more than 30 days past due will hurt your credit score
Housing debt: no payments are allowed to be past due. To prove your payment history, you can present the checks to the lenders.
However, what if you have bad credit?
Well, in that case, you will have to apply for a bad credit home loan. Before trying to get a bad credit loan, you should acquire a copy of your credit report so you know what your credit score is. You can get one from any trusted credit reporting agency. At present In Australia, there are three renowned credit rating agencies which are engaged in mortgage credit risk reporting. The credit score from these companies will be used by the lenders to evaluate your creditworthiness. After the evaluation assessment of your creditworthiness, the lending company decides which kind of bad credit loan product they will be prepared to offer you.
Be ready for a higher than usual interest rate quote though.
The popularity of mortgage brokers grows
Mortgage brokers now account for over 53% of all home loans in Australia. This is not by accident, as professional brokers in today’s market have to maintain high level educational and compliance standards.
Unless you have a very good reason for doing so, going directly to a lender is probably going to cost you more money in the long run than necessary. The lender is not going to tell you what their competitors are doing and in the main will try to sell you a product best suited to their bottom line.
Getting the best service
Whereas, brokers are in it for the long run and will nurture their relationship with you by finding out your real needs and wants, not only for the immediate, but also for your long term needs. From there they will drill down and look for the very best deal available to you.
Brokers know that this loan won’t necessarily be the last loan you will be looking for. As you go through life you will have other loan requirements.
When did your bank last call you?
By the way, when was the last time your bank called you and offered you a lower interest rate? In fact the opposite happens; many bank customers experience interest rate creep by stealth.
Call you broker next time you need a loan or call them now if you need a mortgage health check, you will never know how much money you could save if you don’t pick up the phoneBy Dave Fleming : 24 March, 2018
One of the most important financial decisions that you’re going to make today is that of getting a home. To get a house today, you’re going to have to work with a financial investment that takes on many years. It’s a decision not to take lightly. With the sheer number of applicants that want a mortgage, banks and other lenders are now starting to restrict the qualifications that someone has to have in order to get a home. This can be both helpful and a hindrance to those that are trying to get a home.
The change in the qualifications a person needs to get a home has been received with mixed reviews. As Australians seek to buy property, they are starting to realize that the property market can shift wildly depending on several factors, including their income and buying power. To fully understand this, and the changes, it’s imperative to consider a few notes in regard to the rules and regulations that seem to be calling for more experienced brokers overall.
Factors at Play
The first thing that you need to realize about purchasing a home is that there are a lot of different factors at play when you apply for a mortgage. Whenever a person seeks to get a loan, the broker has to consider a great deal of elements, including financial history, current employment records, affordability and other risk factors that aren’t always seen by individuals.
Purchasing a home should not be taken lightly, and therefore brokers are now putting in a lot more scrutiny to figure out just how qualified a person is before they give such a large sum to them for a home purchase. With the changes by the federal government causing a disruption in long term mortgage handling, individuals have to understand that there’s no “yes or no” scenario here, as a lot of elements have to weighed out.
Why Mortgage Brokers?
For consumers that aren’t certain that they want to deal with brokers, it’s imperative to realize that they are going to help smooth over the lending process. Mortgage brokers today help consumers figure out what loan type is best for their specific needs. It seems like this can be difficult at first, but you’ll find that brokers are trained to isolate risk factors and help people get the home they want, without breaking the proverbial bank.
A mortgage broker will sit down with a consumer, and they’ll discuss assets, price points, income, self-employment elements, and so much more. They’ll tailor a solution that meets the needs of the consumer, and not just approve a dollar amount. This is better than just asking for a set amount, and hoping for the best. The broker is trained to help meet the needs of the consumer, simple as that.
The Cost of a Broker
People assume that getting help in financial matters means that you’re going to have to pay someone a fee up front. That’s not the case in relationship to mortgage lending. In fact, you’ll find that there are plenty of free services that you can work with, especially if you want to get the advice of a mortgage broker about lending and more.
Mortgage brokers are in the business of connecting people with lending opportunities that they can afford, so that they can purchase the home of their dreams. They can help with focusing on mortgage rates, and price points that are not going to cripple the finances of any one individual. It’s a positive push forward.
First time homebuyers will delight in knowing that someone will help navigate the road of purchasing a home today. Purchasing a house is not a transaction that works the same like buying anything else. You’ll find that you’ll need to work through a variety of elements if you are to get the right home for your family. A broker can answer questions, and explore solutions that are going to help make this a bit easier to manage.
Dealing with Mortgage Brokers
For those that haven’t dealt with a broker or the new rules that are in place for mortgage lending, consider asking questions. Write down questions beforehand, and get ready to ask questions that you are not sure about. Do not feel that any question is off limits, or “dumb”. There are no dumb questions here, because you’re dealing with a loan amount that could take you decades to pay off. Do not resist asking questions, it’s that simple.
The mortgage broker that you use will not simply help you get your mortgage, mind you. They will help you understand any changes and updates that come through the marketplace after the fact. If there’s a change, problem, or new legislation, you’ll hear from the broker that helped you, so that you know what you’re dealing with. Buying a home is not something that is easy to get done on your own, and brokers know this, which is why they build a relationship with clients to help navigate the real estate market appropriately.
Your mortgage professional is in charge of staying abreast with all the latest news, views, and updates. They help navigate the real estate world, mortgages, financial matters, and any abrupt changes that the Reserve Bank of Australia may end up moving forward with.
At the end of the day, the best tip that you can take with you today is simple, be patient. That’s right, be patient with your mortgage lending and investigation. You may have found your dream home, but don’t assume that the transaction will be open and closed within a short span. Get a professional mortgage broker to help you gain access to the bigger picture, and you’ll end up with a positive push forward.
Home buying takes time, but so does the lending solution. If you rush things, or try to avoid using a broker, you may find yourself with a mortgage that is too hard to pay off, or rates that are not favorable for you at all. Take your time, ask questions, and get a good broker on your side.
Keeping Up With The Daily Mortgage News
Could Save You A Lot Of Money
Many people have to stop and think and even stumble when asked what their current mortgage rate is. That’s interesting, because even though today’s lifestyles are hectic just keeping up with everything, it means a lot of people are letting some serious money slip through their fingers.
One way to save a lot of money is to endeavour to keep up with the daily mortgage news. By making a habit of focusing on the housing industry and the mortgage market and it’s happenings you will have an up to date knowledge of what the market interest rates and trends are prior to walking into any lenders premises. Most Australians don’t have the foggiest about what current interest rates are available when they decide to visit their local bank or talk to a mortgage lender. The Amazing fact is, it occurs a multitude of times every day in Australia.
Most would say, “That’s why I’m going to see the lender, to find out what rates are available.” However, that’s kind of like walking into a used car sales yard and telling the salesman that you’ll leave it up to them to find you the right car at the right price.
Even if you previously refinanced your loan and at the time you did, you determined that they had given you the best rate available going at the time. Nonetheless, things do change over time. In recent years the major banks have become emboldened to the point they don’t think twice about increasing interest rates outside of the RBA cycle of increasing or lowering rates. Of course, they glibly come up with all kinds of excuses as to why that is. Nevertheless, their profits continue to go to record highs year after year.
The fact is, lenders will increase existing customer’s interest rates by stealth, but they won’t tell their existing borrowers what rates they have on offer to new borrowers. In fact they don’t even advertise them; they keep them tightly under wraps. They only offer these rates as a last resort if you’re looking like you are going to walk out the door. Kind of like the used car salesman that doesn’t want to lose the sale and says to you, “If I can get it for x price, would you be happy with that?”
We as humans continually strive to better our quality of life and a major contributor to this being able to happen is having ready access to surplus money. We work hard to impress our employers; we even study to increase our skill levels in order to increase our qualifications, all in an effort to bring home more money. But, we seldom take the effort to see if there are any leaks in our cash boat that we could immediately fix to give us that extra surplus cash.
Keep in mind if you would like to have that extra leverage over your chosen lender or mortgage broker make the effort to keep up with the latest news in the mortgage markets. Because, should you be in the process of purchasing or refinancing a property, whether it is an owner occupied or investment property, lenders will pick it up straight away if you are naive on interest rates as opposed to someone who is knowledgeable.
Per chance you are discussing the finer details of a loan you’re interested in with your lender or broker and you then call them out after they quote a too high rate, they are instantly going to be aware that you are well informed and a person who knows what you’re doing. Rather than have you walk out on them they will instantly sharpen their pencil and get down to giving you their best deal.
That said, they will know they’ve got you exactly where they want you when they quote you a 4.65% interest rate and you don’t flinch. The real facts are they can’t quote you a definitive rate until they know more about you in the way of what type of loan you want, is it an owner occupied or investment loan, what the loan amount will be, what the loan to value ratio is going to be and what your credit score is?
There is no shortage of lenders that will try this on in order to increase their profits. Keep in mind that many bank employees as well as mortgage brokers are now incentive based when it comes to their incomes. The ones to be most wary of are the bank employees who are more into short term gain as they frequently change job roles within the industry. Whereas, savvy mortgage brokers are smart enough to look at building long term relationships with their customers.
Saving 0.5% on a principal and interest $550,000 mortgage will reduce the monthly repayment on the loan by $163.00 a month. The time saved on a 30 year mortgage will be 3 years and 2 months. The interest saved will be a whopping $50,183.
It pays to keep up with the mortgage news. If you don’t have time to do it, make sure you mortgage broker is keeping you well informed. Make a better life for yourself and your family by not inadvertently giving your money away to the bank.
About About Dave Fleming
Dave is enthusiastic and fascinated by the digital and social media worlds. He is passionate and enjoys entrepreneurial pursuits, wealth creation financial strategies, health, fitness as well as cooking. Dave is the webmaster at www.mastermortgagebrokersydney.com.au, which is an information website pertaining to loans. He has a deep commitment towards writing about and helping people understand the basics of how the financial world works.By Dave Fleming : 24 March, 2018
How did we get into this Mess Anyway?
It’s been over eight years (how time flies) since the Global Financial Crisis made its presence felt. Initially Australia looked like it was going to be immune to its effects, or so a lot of people thought. However, we all now know that’s not the real world we live in. The real world we’re now living in here in Australia is a world that has been economically affected by the financial status of the countries we trade with.
In simplistic terms if people in America aren’t buying new houses then they’re also not buying all the furnishings that go with those houses, such as white goods etc. If they’re not buying those then manufacturers are not making them. I think you get the gist of what I’m trying to say.
If people in first world countries are not buying, then the economies of manufacturing countries like China, Japan and India go backwards. When they start going backwards they stop buying coal and other resources like iron ore.
Why Have the Banks Been Immune to all of this?
That’s why we had a two speed economy that everyone marveled at. Fast and average were the two speeds we had. What we have currently is average and slow. Now the mining boom is over for the time being our economy is going to continue to struggle until the global economy starts to hum again.
It seems the only industry that is not bemoaning its fate is the banking industry in Australia. They continue to make record profits off of the back of hard working Australians. The four major banks in Australia continue to make record profits year after year.
Even though the Government outlawed exit fees on home loans, lenders have come up with new and innovative ways to ensure that their profits continue to increase. These strategies include increasing interest rates out of sync. This means, when the Reserve Bank of Australia’s (RBA) rate increases, the banks have in some instances increased their rates even more and also have not been passing on all of the rate cuts when announced to maintaining ridiculously high credit card interest rates.
When does the Rip Off Stop?
Their ongoing justification for this outrageous profit plundering is that Australia needs a profitable banking system to maintain a strong balanced economy. Well, how much is enough? When does this flagrant profit gouging stop.
At the moment the Federal Government has been a running a ‘Show Tribunal’. They lined up the boss’s of the big four banks and then fired some tepid questions at them, which made a couple of them squirm uncomfortably a little bit in their seats. What’s going to come out of that, not much? We may see one or two minor concessions, but that won’t slow the banks profit increases down.
What can You do About it?
Unless we take personal responsibility for our own finances, we are always going to be stressed out with the banking system and trying to pay off our mortgages.
In the current market interest rates are at an all time low and some economists are predicting they could even go lower. Some say as soon as next month. In this financial environment it behooves anyone who wants to get ahead financially to start working their finances a lot smarter.
The principal and interest repayments on a 3.64% (yes you can get an owner occupied home loan (<80% LVR) with an offset account at 3.64%) $500,000 30 year owner occupied home loan are $2,284 a month. We all know that the majority of that repayment amount for the first 15 years is going to go to the bank in interest. Did you also know that over the last 30-40 years home loan interest rates have averaged around 7.5% to 8.5%? Many current older home owners will remember back to the late eighties and early nineties when home loan rates were 17.5 – 19.5%.
Which Would You Prefer – pay Yourself or Pay the Bank?
So, what I’m saying is home loan rates will inevitably raise again. However, when they get to 7.64% the majority of that payment will be going to the bank. If you allow that to happen, you will always be at the beck and call of the banks.
What we’re suggesting is that you tighten your mortgage belt, get the budget spreadsheet out and (I know, it’s a pain, but there is no other way) start figuring out how you can fit a 7.5% principal and interest mortgage repayment into your budget.
A 7.5% principal and interest mortgage repayment on a $500,000 home loan would amount to $3,578 a month. Yes that’s about $1,200 a month more than you’re paying now. The real decision is, do you pay yourself now or pay the bank later?
Because, inevitably interest rates will rise and when they do you will be forced to pay those amounts. Notwithstanding when it does most of the repayment will be going into the banks back pocket.
How Well Could You do?
The good news is, if you do activate this strategy you will pay your thirty year mortgage off in 15 years and two months. In other words you would lop off an enormous 14 years and two months off your 30 year mortgage and in the process save an astounding potential $170,986 in interest.
Imagine, if fifteen years from now you didn’t have a mortgage as opposed to being locked into the bank for the rest of your life. The choice is, you either pay now or you pay later.
There’s an old saying that says ‘You Should Never Look A Gift Horse In The Mouth’. What does that mean, I really don’t know. I think it has something to do with not being ungrateful when you’re handed a gift.
Nonetheless, the point is interest rates are at historic lows which provides an opportunity that may never been seen again. Or, if it does come again it will probably be a long time coming.
If you want information on more strategies that will help you pay your mortgage off faster or to create more wealth through mortgages and property, please get in contact.
If you don’t have a 3 in front of your owner occupied home loan interest rate these days, then you’re paying too much for your home loan.
About About Dave Fleming
Dave is enthusiastic and fascinated by the digital and social media worlds. He is passionate and enjoys entrepreneurial pursuits, wealth creation financial strategies, health, fitness as well as cooking. Dave is the webmaster at www.mastermortgagebrokersydney.com.au, which is an information website pertaining to loans. He has a deep commitment towards writing about and helping people understand the basics of how the financial world works.