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.

How to pay off your home loan faster

Paying off your mortgage early is the dream of everyone with a home loan.  Paying off early will saving you money, and the removal of one of the largest financial burdens we face will bring great relief to you and your family.  Here are some ways to get rid of your mortgage sooner.

1. Switching to fortnightly payments of half your monthly repayment will mean you make an extra repayment each year (as each year as 26 fortnights).

2. Linking an offset account can have a massive impact. An offset with a healthy balance can save thousands in interest which reduces the time to pay off.

3. Cutting back on expenses (if you can!) means you can direct more money to the mortgage.

4. Make extra payments. Tax returns, bonuses, flogging your unwanted garden tools on Marketplace... it all adds up.

5. Making higher repayments than the minimum repayment will all add up over time.

6. Switch to a loan with a lower interest rate, but keep your repayments at the higher amount.

If you would like to know more about how to optimise your finances to pay off your mortgage sooner please get in touch!

Living expenses

When a lender is determining how much they are willing to loan you on a home loan they will look at a number of factors. This short article covers off how your living expenses factor in to your borrowing power.

As part of the broader picture of your overall credit worthiness, the lender will want to verify your living expenses and will take your living expenses into account. Your living expenses, along with other factors including your overall income and types of income, will determine how much the lender is willing to lend you.  Under the NCCP responsible lending guidelines, a lender must satisfy themselves that you will be able to pay off the loan without falling into financial difficulty.

What are living expenses

Living expenses are what you spend in a typical week, month, or year in order to maintain a reasonable lifestyle.  They are usually categorised something like this:

• Groceries

• Utilities, rates, strata

• Entertainment

• Transport

• Health

• Insurances

• Personal care

• Clothing

A common misconception is that if you have some large but non-recurring expenses (such as an overseas holiday or purchasing a new bike) that they will be included in your living expenses and will impact your application.  This is not the case, and as part of your application we will explain any unusual or one-off expenses.

A lender will usually assess your living expenses using a self-assessment and declaration by you, or a review of your bank statements, or a combination of the two.  If your expenses are on the lower side, the lender may rely on the Household Expenditure Measure (HEM) which is a measurement tool used to estimate the average spending for households and is based on the income and location of a household.  

If you’re thinking of applying for a loan but are unsure about how your living expenses might impact your application, please get in touch with us and we will be happy to answer any questions you have.

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

Fixed versus variable - what's best for you?

A home loan is a big financial commitment – often the biggest one you will ever make – so getting the right loan is important.

If you want to make an informed choice, understanding the options available is a necessity.  One of the biggest choices to make is whether to go with a fixed rate or a variable rate.  There is no right and wrong when it comes to choosing fixed or variable rate; the choice is determined by your own preferences and personal circumstances.

Variable rate

A variable rate loan is one where the interest rate can fluctuate up or down at any time.  Rate changes can be driven by a complex mix of economic factors.  The Reserve Bank official cash rate is one main factor, but other things like wholesale funding and competitiveness of the home loan market will also have an impact.  Variable rate loans are historically more popular than fixed rate loans.

Fixed rate

A fixed rate loan is one where for a period of time (usually between 1-5 years) the interest rate is locked in.  During the fixed rate period you are at no risk of your repayments changing, regardless of what happens with the Reserve Bank cash rate or the broader economy.  At the end of the fixed rate period the loan will automatically revert to a variable rate one.

The pros and cons

Variable - The biggest advantage of variable rate loans is flexibility.  Variable rate loans will allow you to make unlimited extra payments, allow you to redraw any surplus payments, and will often have an offset facility.  And if rates come down you will reap the benefits of the lower rate.  On the flipside, if rates go up so will the amount that you pay.

Fixed - If rates start to rise while you’re in a fixed rate loan you won’t suffer from an increase in repayments.  It’s the confidence this brings that makes fixed rates attractive for borrowers.  Budgeting and managing cash flow is easy when you know that your repayments are fixed.  Fixed rate loans typically offer less flexibility that variable rate loans, with restrictions on being able to make extra payments being a big one.  If you wanted to refinance or sell your property during the fixed rate period there is usually a break cost fee.

Split loans

Splitting your borrowing into separate fixed and variable portions is a way to hedge your bets.  This way you can get the peace of mind that a fixed rate offers while still maintaining a degree of flexibility with the variable portion.  Split loans with an offset on the variable portion are a popular choice with borrowers.

When recommending an option we will take into account all of your circumstances.  We will explain everything in detail so you are making informed choices.  Everyone’s circumstances are unique and having quality broker like Blackwattle Finance in your corner will mean that you get the best option for you.

Why use a mortgage broker?

Currently 60% of all home loans are originated through mortgage brokers.  To some, this might seem surprising.  The role of a broker is sometimes misunderstood - particularly by those who haven’t used one before.  There are lots of good reasons why so many people use a broker to secure a home loan.

Probably the most important one that is that brokers work for you, not the banks. Brokers are an agent for you to make sure you get the best possible loan and at the best possible cost.  Brokers help you decide on the best approach, help you with choosing which option to take, and then manage the application process right through to settlement and beyond.

WHAT DOES A MORTGAGE BROKER DO?

A broker is an intermediary between you and lenders.  The broker’s role is to understand your needs and objectives, and then use their expertise of the mortgage market to find the best option for you.  A broker will have access to a range of lenders and hundreds of products and will be able to match you with the best loan product for your individual circumstances.  They will manage the application process on your behalf and liaise with the bank all the way through to settlement.  They will also negotiate on your behalf to get the best possible deal on your loan. 

For a lot of people, the process of applying for a loan can be overwhelming.  Others may be time poor and find it easier to allow a trusted advisor to manage the process.  Most like the comfort of knowing that a professional is in their corner when they are making such a big commitment.

HOW DO BROKERS GET PAID?

Most finance brokers do not charge you a fee for a standard mortgage loan.  Brokers receive a commission from the lender you choose for referring your business to them.  Banks and lenders across Australia pay very similar commission fees.  There is also usually an ongoing small fee that lender pays to the broker – this is for the broker to continue to assist and support you for the life of your loan. 

There is no premium or penalty for using a mortgage broker.  There are no additional fees, charges, or interest for taking a loan that was introduced to the lender via a broker. 

PROFESSIONAL CREDIT ASSISTANCE

The broking industry is regulated by ASIC and any consumer credit assistance under the National Consumer Credit Protection Act (NCCP).  Brokers are bound to act in the best interests of their customers under Best Interest Duties legislation.  They are required to either hold a credit licence or be a representative of a licensee.  Brokers must complete minimum education requirements, must be insured, and must be a member of one of the industry bodies to operate. 

BLACKWATTLE FINANCE – WHY CHOOSE US?

We pride ourselves on going above and beyond.  We will research all avenues to ensure you receive the best possible credit advice.  We make things as simple as we can and as easy for you as possible.  We’ll provide you with updates and advice and ensure you are aware of each step of the loan process so you are informed.

When you get your approval, or when you pick up the keys on your new place, we are just as excited as you.  We love to build lasting relationships and enjoy the process with our customers.  We hope you choose us to help with your next purchase!