Home loans for older borrowers

There is no such thing as “too old” to get a home loan, however older borrowers should know that they may be subject to more scrutiny and other restrictions.

If you’re in your 50s or thereabouts and thinking about taking out a mortgage you may have some questions.  A typical mortgage is 30 years, and unless you plan on work beyond 80 you will need a plan! Below are some things to take into account if you are an older borrower considering a loan.

1. The easiest approach, if you can afford it, is to shorten the loan term.  For instance, if you are 55 years old and planning on retiring at 70, taking out a 15 year loan term rather than a 30 year loan term will be seen favourably by most lenders. Having a shorter loan term will mean higher repayments, so you will need to show that you can manage higher repayments. 

2. If you have a strong asset position including superannuation this can help show the lender that you can manage the loan at retirement. If there are assets that can be sold at retirement to clear the loan, or income generating assets that can help you manage repayments post-retirement this will all be considered.

3. You might consider buying with a family member.  Dual occupancy homes are increasingly popular for this type of scenario, particularly where older borrowers live in the same property as their adult children. With combined incomes it can be easier to show the lender your ability to repay.

4. Ensure you have clearly thought through how you intend on manage exiting the loan at retirement, if your planned retirement age is prior to the loan term. If you can demonstrate a clear plan to the lender it will give them comfort that they won’t be left exposed as you approach your retirement age.

Remember also, the bigger the deposit the lower the risk from the lender point of view.

A good mortgage broker like Blackwattle Finance will help you to understand what is achievable, which lenders are best suited to your needs, and how to show the lender how you will manage retirement. Get in touch with us to learn more.

Refinance case study: one conversation could save you $141,759

You might be surprised at the potential savings from refinancing your home loan. Emily and Jack bought their first home in Rozelle six years ago and had not reviewed their home loan since then. However, with recent changes to the market, they were now ready to discuss refinancing.

We looked at their financial position and discussed their goals. They were looking for a lower interest rate, better online services, to pay down their loan sooner and consolidate debts. Comparing over 30 lenders we were able to select a loan tailored to their needs and objectives.

We selected a loan with a lower interest rate, minimal fees, an offset account and redraw facility.  The offset account works for Emily and Jack as they both earn an annual bonus, and putting the bonus income in the offset will allow them to pay off their loan sooner by reducing the interest payable.

When we refinanced the mortgage, Emily and Jack also took the opportunity to consolidate their debts. By borrowing an additional $25,000 they were able to clear and close their credit card and car loan. This had the benefit of reducing their overall monthly loan repayments, and an additional benefit of streamlining their finances as they only had to manage the one monthly repayment. The lender we selected has an excellent online banking portal - something that was very important to Emily and Jack.

We selected a low interest rate with a $4,000 cash back incentive to maximise savings. With their $1,200,000 mortgage this refinance will save them an incredible $8,725.36 in the first 12 months, and a total savings of $144,759,000 over the life of the 30 year loan*. This savings, achieved purely by refinancing, allows Jack and Emily to pay off their mortgage sooner, a primary financial objective when we first spoke.

We are up to date with the latest market information and are committed to finding you the best possible rate. If you want to chat about the refinance options available to you, contact Garreth today on 0414 444 683.

*Interest rates are not fixed and will vary in accordance with the market.

Expert advice from a broker committed to finding the best solutions for your needs

How will the federal budget affect property and lending?

October 2020 update from Blackwattle Finance

Economic news

The federal budget is the big news this month. The government has outlined their path away from recession, with tax cuts the lead story. There are three major property related measures highlighted: extension of the first home buyers deposit scheme for new homes (10,000 new places), more low-cost financing for affordable housing through NHFIC, and additional funds for the Indigenous Home Ownership Program.

There are also big plans for credit regulations which I will touch on further down.

At Citi’s 12th annual investment conference RBA Governor Philip Lowe hinted at another interest rate cut. Lowe said that “As the economy opens up… it is reasonable to expect that further monetary easing would get more traction than was the case earlier”. He also confirmed that an increase in the cash rate is as least two or three years away – something for mortgage holders to keep in mind when making decisions on loan options.

Property news

September saw a boost in the national housing market, with prices and new listings increasing in all capital cities except for Sydney and Melbourne. Given the size of the Sydney and Melbourne markets (more than half in terms of value) the overall average value came down ever so slightly. This has meant five straight months of decline overall, however the rate of decline has decreased.

Predictions are that October will continue to improve, with Victorian lockdowns easing and the seasonal spring activity driving more activity.  Experts are highlighting "clear optimism" generally.

Lending update

As touched on earlier, there is quite big news.  As part of the federal budget announcement Treasurer Frydenberg has flagged plans to simplify the regulations around lending with the aim to free up credit.  If Parliament agrees to the proposal, we will see the changes come into play in March 2021.  Ostensibly this will make getting a loan more straightforward, with the onus for accurate application information shifting back from the lender towards the borrower. 

My two cents?  Banks will be given a huge task to update processes and policies to fit the reforms.  The size of the task will mean it will take an eon to implement fully and properly, and won’t have the economic impact hoped for.  Still, simplification will be welcomed by many who have found the process of obtaining credit bordering on ridiculous in recent times.  

About half of the 500,000 home loans under deferral of repayments have now recommenced payments.  This is a welcome development which means that the finances of Australian homes are returning to normal.  People who have been unable to refinance into the low rates now available should soon be able to demonstrate repayments and allow them to switch.  Once again, let me know if this is you.

FIRST HOME BUYERS – NOW IS YOUR TIME.  Another 10,000 spots have opened for new dwellings in the federal government’s first home loan deposit scheme.  In short, borrowers who save a 5% deposit will have their loan guaranteed by the government which means no lenders mortgage insurance (LMI) payable.  Combined with stamp duty concessions this means big savings for those of you who have been trying to break into the market.  If you want to see if you’re eligible please let me know.

Why now could be a great time to review your mortgage

Reviewing your home loan regularly is sensible, and never more so than now where things are changing so fast.  We’ve recently seen the official cash rate slashed, and this has created a very competitive mortgage landscape.  There is plenty to consider before taking the step, and you should make sure you understand all the pros and cons.

One of the main benefits to refinancing is to take advantage of lower rates at a competitor, or sometimes even with your own lender.  Lenders will often put very competitive rates on the market to attract new customers, leaving existing customers paying more.  And the difference between one lender and the next could be thousands of dollars a year.

It could also be that your circumstances have changed since you initially took out your loan.  Perhaps you want to clear your credit cards and consolidate some debts, or want to access some equity to start that renovation you’ve been talking about.   

To make sure everything is factored into your decision, you will need to understand your existing rate, repayments, and fee schedule.  Will you have to pay LMI again?  Is there a break cost such as with a fixed loan?  There might also be other features such as offset accounts, or user-friendly internet banking for you to consider.

Your property value also comes into the equation, so we would look at some data to understand what the house or asset is worth.  

If you find an alternate option to your current loan that meets your needs and is going to save you money then it’s usually a simple decision to make.  

We can compare lots of different lenders and, if there is a better opportunity, we’re able to access it. We are always working to give you great advice that’s in your best interests.

Contact us today for a home loan health check.  You could save yourself some serious money.

Buying with a smaller deposit - lenders' mortgage insurance

When you consider that an inner Sydney apartment could set you back a million dollars, saving a 20% deposit to buy can seem an insurmountable task. That’s where insurance can help.

Lenders mortgage insurance (LMI) may be an added expense, but it offers buyers the opportunity to dive into the property market earlier, without saving up an entire 20 per cent of the property’s purchase price as a deposit.

What is it?

LMI protects the bank or lender should a 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 generally provides a good 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 the borrower, it may seem LMI is just another expense to cover. But insurance can mean that some buyers will be able to enter the property market with, for example, only a five per cent deposit saved. For a million-dollar property, this brings the deposit down from $200,000 to $50,000.

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 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 saving.

What you need to know

The insurance premium is generally a one-off payment, but you can usually capitalise it into the loan amount so that you are paying for it month-by-month along with your mortgage. 

There can be a big difference in premium amount paid.  If for example you have a 10 per cent deposit compared with a five per cent the LMI premium will be much cheaper.  It’s worth gathering all the extra funds you can muster, even if you despair of reaching the full 20 per cent.

Understanding Credit

Have you ever wondered what a lender looks at when assessing someone for a loan?
  
The fact of the matter is that there are innumerable variables that come in to consideration – way too many to cover off in a short blog post – but there are some basic tenants that are helpful for a borrower to understand when they are getting ready to apply for a loan. 
  
First and foremost, a lender will want to know about your credit history and will check your credit file.  Obviously if you have defaulted on a previous loan they will want to know about it, but there are more clues on a credit file than basic defaults or bankruptcy.  For instance, if there is a pattern of lots of enquiries for credit this may influence whether you are seen as credit worthy.  If you do have a default this doesn’t necessarily rule you out for a loan entirely. Sometimes, the lender can be influenced by mitigating circumstances, otherwise there are specialist lenders in the market who may still write you a loan with conditions (such as a higher interest rate).  There are also credit repair companies that can help with blemishes on your credit file.  If you are in a situation like this get in touch and we will see if Blackwattle can help you. 
  
Lenders will also want to see that you have stability in your personal circumstances. Factors such as how long you’ve been in your job and/or industry will be considered, and whether you have moved house frequently.  For self-employed and commercial loans, a lender will want to know that you have a good track record in business.  
  
The lender will also want to feel comfortable that you can repay the loan without experiencing undue hardship.  In short, they will not want to loan you more money than you can afford to pay back.  They will check how much money you have coming in versus how much you are spending on your living expenses.  Budgeting tools can help you stay on track of your outgoings, and you can estimate your borrowing power to see what is affordable for you.  
  
Your asset position will also come in to play.  What do you own?  Do you have property already, and if so, how much equity is there?  Do you have shares or other investments? Savings?  What other debts do you have?  And ultimately, what is the net position after your assets and liabilities are set off against each other.  This is pretty simple: the stronger your asset position the more comfortable a lender will be with giving you a loan. 
  
If you are looking for a secured loan (such as a home loan), the lender will want to know that the secured asset (the house) is worth more than the loan.  This gives the lender security that if something goes wrong that you will be able to cover the debt by the value of the asset.  Same rings true for any secured loan such as a car on a car loan, or business assets on a commercial loan – the lender will want to cover all or most of the debt with the value of the asset.  
  
Finally, broader macroeconomic factors will be taken in to consideration.  Things such as official interest rates, economic direction, and sometimes factors relating to your industry of business or employment will influence a lenders decision to give you money.  
  
A good broker will understand the factors considered by a lender and will be able to help you navigate the credit approval process and make the best case when applying for credit.  Get in touch with us now for help with your next loan.