Problems paying your mortgage

Most people at some point in their lives will have an event that interrupts their income and finances.  It could be that you are made redundant from a job, or are sick, or are impacted by a natural disaster.

Sometimes people take on too much debt, and find they are in a position where they can no longer afford all their financial commitments.

This article aims to give some advice on how to manage these situations if it happens to you.*

Contact your lender

This is the most obvious and sensible thing to do, however due to various reasons it is often difficult for people to reach out when in trouble.

Most lenders have a dedicated hardship assistance team who are well trained to understand your situation, and help you find a solution in an understanding and empathic way.  All consumer loans in Australia are regulated under the National Consumer Credit Protection Act (NCCP) which has hardship provisions to ensure you are treated fairly. 

Lenders are usually able to temporarily reduce or suspend repayments and can sometimes vary your loan to capitalise missed payments or extend the term to make repayments more manageable.  

Consider switching to interest only

If your loan is principal and interest payments, your lender might be okay with you switching to interest only for a period.  This will reduce your monthly commitment, freeing up some of your mortgage repayment so it can be used for other expenses.  There are pros and cons to this, and you should speak to your lender or broker to understand.

Consolidation of debts

If you have various credit cards and personal loans it may be worth considering consolidation into your home loan.  This will likely reduce your overall monthly repayments (often considerably), and most people find it easier to manage one loan repayment a month rather than multiple.  Speak to your lender or broker to find out if this is possible and the right option in your circumstances.

Sell or downsize

Obviously, this is a pretty drastic measure, however something to consider should your situation be that your ability to pay your debts is permanently reduced.  Particularly if you have an investment property, it might be wise and relatively easy to sell and clear your debts and re-enter the property market once your circumstances have improved.

Speak to a financial counsellor

If your situation is serious or more long term you may want to speak to a financial counsellor.  A counsellor can speak to your creditors on your behalf and can reduce some of the anxiety that comes with financial hardship.  Counsellors to do not charge for their services and there are bodies in each state of Australia.  A counsellor may also explore other options with you such as Part IX, Part X, and bankruptcy.

Seek additional support through Lifeline or another trusted crisis support service

Being unable to pay your mortgage can be incredibly stressful for both you and your family.  Organisations such as Lifeline (phone 13 11 14) can provide mental health support and emotional assistance

 * All the advice in this article is intended to be general.  The advice provided does not make consideration of your specific financial situation, your objectives, or your needs.  You must consider the appropriateness of the advice before taking any action.

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.

How to pay off your home loan faster

Reducing the life of your loan isn’t difficult; there are many simple things you can do to cut years off your mortgage. Here are some tips that will help you be mortgage-free sooner than planned.

 Small extra repayments

One of the most obvious ways to pay off your home loan quicker is to make extra repayments. Depositing lump sums, such as a tax return or work bonus, will always be beneficial, however it doesn’t always take large amounts or windfalls to make a substantial difference – planning for regular, small cash injections can have a great impact over the life of a loan.

 Let’s say we give an extra $50 a fortnight on a $500,000 loan, that saves you $32,000 of interest over the life of the loan which in turn will save you just over two years,

 Switch your payment intervals

If you find that you don’t have the discipline to make extra repayments, then simply switching your payment structure can also help save years off your mortgage, as well as simplifying your finances if you are paid fortnightly.

 Because there are 12 months in a year but 13 four-week cycles, by switching your payment intervals from monthly to fortnightly, you are essentially paying off an extra month per year.

 Make sure you have the right type of loan

Ensuring your loan allows extra repayments without penalty will let you to make the most of bonuses or funnel small extra payments to reduce the loan principle more quickly, saving on interest immediately, while an offset account will use your savings or living expenses to reduce your principle, while still allowing you to access these funds from a transaction account.

 Offset accounts are particularly useful. Because interest is calculated daily but charged monthly, any money sitting in the account will help reduce the loan.

 Although you may have to pay extra fees for the offset or redraw account, these may well be lower amounts than the interest saved. Talking to usis the easiest way to work out whether this option is financially sound.

 Paying off your home loan faster isn’t difficult, however it does require financial discipline and expertise in ensuring the right loan features are in place.

Guaranteeing your child's loan

Being a guarantor generally means using the equity in your own property as security for your child’s home loan. It can help a first-home buyer to secure finance for a property they can afford but may not have a large enough deposit for, and to avoid the added cost of lenders mortgage insurance.

There are other advantages as well. By guaranteeing a loan, you’re helping your child enter the property market sooner.  Also, your child may be able to buy in a more desirable location and a home that better suits their needs. If they did it on their own, they may need to go further out of the city or perhaps settle for fewer bedrooms.

You may want to help your child but it’s important you don’t go into the transaction blindly.

The main risk of guaranteeing the loan is that, depending on the structure of the guarantee, you could be liable should your child default on the payments, either by taking over the repayment schedule or handing over a full repayment.

If you can’t make the payments, the lender may sell the home used as security. If this is still not enough, the lender may also require you to sell assets to meet outstanding debt.

Another major risk is a bad credit rating if default occurs.

Plus, if you need to borrow money for another purpose, your property cannot be used. If for instance you want to buy an investment property, you can’t use the equity in your home because it’s already tied up in the child’s loan.   

There are ways to minimise the risks. The most common is using a monetary gift or private loan. This involves borrowing money against your property in your name, and then gifting it to your child.  It is wise to have a legal agreement in place.

Another way to avoid the risk is to buy the property jointly with your child. This means your name is on the title and you have a certain percentage entitlement.

Finally, outline an exit strategy. Financial situations change and, as the loan decreases with repayments, there may be an opportunity for you to withdraw your support to free up your assets without impacting your child’s loan.

Home loan pre-approval

Pre-approval is a lender’s assessment of your likelihood of being approved for an otherwise suitable loan. The appraisal is made on the basis of your ability to service a loan by looking into your living expenses and liabilities, your credit history, your employment circumstances and how often you have moved home or employment in the recent past.

As it is performed prior to a property being found and chosen, it does not take into account the particulars of a specific property and valuation, which is why uncertainties can arise.

Pre-approval is helpful for those who want to know how much they can borrow before attending open homes, and can be reassuring for new borrowers.  It gives some certainty in terms of knowing your price range, and comfort in knowing that a lender has looked at the application to make sure it meets policy.

Pre-approvals are usually valid for up to 90 days but, depending on the lender, may be renewed to allow more time to find a property.

It is very important to note that a pre-approval is not a guaranteed loan. It is your potential lender’s way of signalling how much they expect to lend you. This may change on your official application.  Before formalising the loan the lender will want to check that your circumstances haven’t changed (such as taking out another credit card or changing jobs).

Your pre-approval will also usually be conditional on a property valuation. If your lender does not deem the property a marketable asset, they may not approve a loan.

Speak to us about pre-approval before you lock in your Saturday open home schedule.

How to speed up your home loan approval

There's no straightforward answer to the question "how long will it take to get my loan approved".  Every application is unique, so the time between your first contact with your bank or broker and approval can never be predetermined. There are, however, some things you can do to help hurry your application along.

A best case scenario for loan approval is usually two or three days.  When the client’s lending position is fairly straightforward in terms of employment, asset and liability position, along with a lower LVR, it's more likely to be a quick assessment.  If there is some complexity in employment status, property type, or loan structure this will often cause time frames to increase.  Also, if the lender has a promotion or particularly good offers on the market this can mean they're busy and therefore slower.  We are also seeing lenders ask for additional information more frequently in recent times, and this creates a to and fro which can extend approval time.  

Disclose all information

To reduce the likelihood of back and forth requests, which can delay your application, ensure your lender has a thorough understanding of you as an applicant including appropriate identification of all borrowers. Provide all the supporting and necessary documents upfront to your broker, and convey as much detail as possible in relation to your requirements and objectives and have good, current information on your financial position. The broker will need to not only have your full financial details but will also need to take reasonable steps to verify it.

Skip the valuation queue

Not all applications require a valuation, depending on the property and lending institution, and forgoing this step can save a considerable amount of time. You can also save time by having a valuation completed prior to your application, as long as it’s accepted by your chosen lender – but check with us first.

To ensure your application avoids any unnecessary delays, speak to us. 

Case study - refinancing and debt consolidation

Kevin and Jane have a mortgage for $455k at an interest rate of 4.94%.  They also have a personal loan for $29k and a car loan for $19k.  Their combined monthly commitment across their debts is $3,700. 

Thanks to a rising property market their home value has risen considerably since purchasing in 2011 and is now valued at $650,000.

Kevin and Jane approached me to discuss options.  They wanted to find a more competitive interest rate, and wanted to explore finance for some some minor home improvements.

After an initial discussion to learn more about their financial position and goals, we looked at some options to use the equity they had built since buying their home to consolidate their debts and release some cash for their planned home improvements.

By consolidating their loans under a new mortgage at 3.99% we were able to:

·        Payout both the personal loan and the car loan, meaning they have only one loan to repay which has helped with their household budgeting

·        Reduce their overall monthly loan commitments from $3,700 to $2,445

·        Obtain cash out of $20k for home improvements

In addition to having the cash for home improvements they have improved their monthly cash position by $1,255.   This is a whopping $15,060 per annum.

Contact us at Blackwattle Finance to for a home loan health check.  You might be able to save thousands. 

Five things first-home buyers need to know

Before you decide to purchase your first property there are a number of things to consider, including your current personal circumstances and financial status.

1. Think about why you want to buy a home

Do you want to live in it or will it be an investment property? This can help determine the kind of loan you apply for and home you buy, depending on your short and long-term plans.  

2. Research potential properties and loans

Knowing the market is crucial, so do some research on the areas you are targeting.  Check out auction clearance rates and recent sales, as well as price trends in the area. Once you are aware of what you are looking for and the approximate price, the next step is saving a deposit.

While some lenders will offer loans if you have saved less than the usual 20 per cent deposit, being able to show a record of good saving habits will aid in getting your loan approved.

Then, when you talk to us about applying for pre-approval on the right type of loan, we can help to work out what you can afford in terms of repayments.

3. Factor in other costs involved

Depending on the property, there are usually a number of additional costs that you'll need to factor in. This can include, but isn’t limited to, stamp duty, loan establishment fees, legal and conveyance services, utilities, property insurance, maintenance and lenders mortgage insurance.  There are some first home owner grants and tax and duty concessions for first home buyers that you might be eligible for.  Speak to us about what other payments you will face and what concessions you might be able to get.

4. Think about your future

Just because your current situation allows you to get a home loan, that doesn’t automatically guarantee that you will still be able to service it in five years’ time. Is there a possibility your role at work will change? Are you considering going back to study and reducing your working hours?

5. Get professional help

With so many things to consider, getting professional help is highly recommended. We can help you to connect with the expert people for tasks such as property checks, pest checks and any legal queries. Going it alone can prove costly. Avoid nasty surprises down the track by getting the right people to do the appropriate checks for you from the beginning.

Get in touch with us at Blackwattle Finance for great advice about buying your first home.

How to get the best return on an investment property

When purchasing an investment property, there are several factors that could increase or reduce your potential return on investment. In this case it's not just location, location, location. 

When considering a property for investment purposes, the most important question to ask is 'will be attractive to tenants?'.  But how do you know what will appeal to someone you've never met? Settling on a handful of locations is a good start. Young families and couples are the ones that drive capital growth and so a location that is within a reasonable distance to schools, entertainment, transport, and an employment hub is one to look out for.  Other ideal factors are a low vacancy rate and relatively high rental yield.

Although location plays a major role, it's by no means the only defining factor. There is a mistruth a lot of people subscribe to when buying investment properties which is to disregard the quality because you don’t have to live in it.  You should buy a homeowner quality property, because someone has to live in it, and when buying an investment property, you must have an exit strategy, which will generally involve selling to homeowners as well as investors.

To get the most value, you need to think about the demographic of renters who are likely to be living in the area. You should match the property with the area.  If you buy a good quality, decent sized, one bedroom apartment in the inner city, it would be a great investment, however if you put it 40km out, it won’t garner as much interest.

When investing in any kind of property, be wary of any danger signs. One of the biggest mistakes Australians make is not knowing what their cash flow is.  Bad cash flow is worse than paying too much for the property.  It is vital to know how much your chosen property is going to cost after tax, every week after you settle. There’s no point in buying a top-quality property if it’s going to send you broke.

When looking to purchase an investment property, ensure the expert you are dealing with is actually an expert. Everyone has an opinion on property.  Blackwattle Finance can connect you with trusted professionals in our network.  As well as speaking to a real estate expert, speak to Blackwattle Finance for our insights on the market. 
 

Rules of Investment

When you’re trying to secure finance for an investment property, it’s important to keep a few simple rules in mind to make sure you get the best deal possible and will be able to afford the repayments, come what may.

If you’re thinking about purchasing an investment property, it’s important to manage the risks adequately. For example, you shouldn’t rely on rental returns as a guaranteed income to meet loan repayments, as there are times when a property may be vacant or hard to fill immediately and some months the rental return on a property may be diminished by maintenance costs. 

Blackwattle Finance can help you find the right product, and ensure you can afford the repayments.  We factor in things like rate rises to make sure you can still make repayments if, or when, mortgage rates go up.

Most investors will already have put some thought into where they would like to invest and will have an approximate price-range in mind. While a loan calculator is a great resource to start out with, a finance broker can use their expert knowledge to sense-check and flesh out your plans.

With access to property data and trend analyses like RP Data’s, Blackwattle Finance can pull property reports for you, detailing how the area has performed in the past as an investment, the average median house price or rate of return and how much the property values have increased over the past five or six years. These are details that investors generally can’t access.

Get in touch with us now to learn more.  Our market knowledge and experience can help you get an edge when choosing your next investment property. 

Property Investment on a Lower Income

While you may not need a six-figure salary to invest in property, those who earn a relatively low income will have to get a little more creative to start a portfolio. Here are some tips to help you get started.

Find an investor-friendly loan
The challenge for low-income earners is the time taken to save for a sufficient deposit. Some lenders require a higher deposit for an investor than is required for an owner-occupier, so seek out a lender and loan that is investor friendly, or consider living in the property for a period after the purchase before converting it into an investment property as your portfolio grows. 

In any case, having at least 10 per cent of the property’s purchase price as a deposit will not only increase the likelihood of loan approval, it will also increase your borrowing capacity and lower the risk that you will have to pay lenders’ mortgage insurance (LMI).

Prove your financial discipline
Your lower income on an application can be offset by proving yourself a low risk borrower. Having genuine savings will not only highlight to lenders your ability to consistently meet financial payments and live within your means, it is also an opportunity to increase your borrowing power. The same can be said for lowering any existing debts.

You should pay off any car loans or personal loans before applying for an investment loan if you can.  Also, keep your credit card limits as low as is practical as loan servicing is calculated on the limit rather than the balance.  

Choose the right property
When it comes to choosing the property, low-income earners will generally do well to steer clear of anything that’s negatively geared, as you are not trying to offset your high income with losses, and remember the importance of profit over property. 

Regional areas might be a good option as properties are generally cheaper to purchase and there are often better rental yields than in capital cities.  There has also been good capital growth in regional NSW in recent times.  

Seek out different strategies
Investing with a close friend or relative is another way to enter the market for those who earn a low income. As long as agreements are in place, including who is responsible for the mortgage and what happens if one owner defaults, how the property will be used, in what circumstances it may be sold, and how maintenance will be paid for, co-ownership is preferable not owning a property at all.

Find the right loan
There has been recent research suggesting that as many as 60 per cent of applicants who are rejected by the major banks would be eligible for a loan through a specialist lender. Specialist or non-conforming loans do carry higher interest as a rule, to account for the higher perceived risk the lender is taking, but this type of loan can be a stepping-stone to a prime loan, and it’s often possible to switch to a prime loan after a year or so.

Property investment may be slightly trickier for low-income earners, but in most cases is accessible provided the right properties and finance products are sought out. Contact us to find out more
 

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.