Things have changed significantly over the last few decades…

Cars are expensive items and many people may choose to apply for a car loan instead of buying with cash or from the equity in their home. These tips can assist with the application process, and help you find the right loan for your circumstances.

Home loans are unquestionably complex, but the two most common types to choose from are “principal and interest” and “interest-only”.

But what’s the difference? and what is the best choice for you?

Home buyers who choose a “principal and interest” (P&I) loan make regular payments to reduce the “principal” – the actual amount borrowed – and the interest – the cost charged by the lender to borrow the money – owed over the life of the loan.

With an “interest-only” loan, those borrowing pay off only the interest on the amount borrowed for an agreed period, usually up to five years. Then, the loan reverts to a “principal and interest” loan and they start repaying the principal too, as well as the interest.

Investors often use “Interest-only” (IO) repayments, as they limit the amount repaid during the interest only period and there may be tax benefits – the ability to leverage into more properties and guidance from their accountant or finanical adviser to do so.

Repayments considerations

Taking the IO route increases the total amount of interest paid over the life of the loan. This is because during the interest-only period, the principal is not being paid down, but it continues to accrue interest.

With a P&I home loan, those borrowing start with larger repayments BUT pay less over the life of the loan and they may also own the property outright sooner, because each repayment chips away at the principal, while also covering the interest. It also means when it comes time to sell, the outstanding balance to repay is likely to be less.

During the interest-only period, repayments are less on an IO loan, and higher during the principal and interest period.

For example, on a standard P&I loan of $400,000, on an interest rate of 3.99%, the total cost of the loan after 5 years is $114,420, – which includes interest of $76,152. With an “interest only” term of 5 years, the total cost comes in at $85,800.

Interest Rate considerations

Until a year or so ago this was not an issue; however of late the banks started pricing IO and P&I loans differently. The choice of opting for one or the other has been a bit more complex as IO loans can be up to 1% more expensive than P&I loans.. meaning that it is no longer a simple choice between paying some Principal Off or not; but if you opt for an IO loan the interest bill is actually more than it would be in the P&I component.

We have actually seen some P&I repayments at the same monthly $ value as the interest bill of the IO counterpart with some lenders

In this new day & age the choice between one and the other is no longer simple…

Contact us and we can work it thorugh with you and get to a decision that suits best your circumstances

New report finds Bank of Mum & Dad is nation’s fifth biggest lender, ahead of ING DIRECT and Suncorp

29% of Australians aged under 34 are reliant on their parents to provide a deposit for a mortgage, a new survey has revealed.

A further 26% of first home buyers said they were waiting on inheritance to help them buy.

Don’t let your financial structure hold you back from achieving your property goals

When seeking to build a sizeable portfolio, many investors only focus on the need to find properties that will grow in significant value.

This is paramount of course for property investing success; however, as an investor you also need to be aware of your financial structures because the wrong arrangements can severely constrain your borrowing capacity, and subsequently your ability to build a large property portfolio.

Here are 3 finance structures that you might want to avoid:

Cross Collateralisation

Cross collateralisation is when a lender uses two or more of your properties as security to issue you a loan. This effectively keeps you tied to the one lender and can reduce your ability to borrow – in some instances, your lender may stop lending to you altogether. It’s best to secure each loan with one property only to maximise your lending capacity.

Ownership structures

Accountants, financial planners & solicitors may suggest you buy property via a trust. While a trust ownership is a great way to embed your asset protection, this type of ownership structure can also limit your borrowing capacity.

Some lenders will not allow the negative gearing claims for loan serviceability where the property is owned in a trust. Before establishing a trust to buy an investment property, it’s best to engage check with a mortgage broker id this will impact your borrowing capacity and be counter productive.

Dont get me wrong trusts are a great vehcile for investmetn however if it stops you from borrowing ion the first place thenan alternate plan may need ot be considered. A professional & reputable mortgage broker should be happy to have conversations around this matter not only with you but with your team of advisors – be it your Accountant, financial planner and/or solicitor.

Joint and several liability loans

When borrowing jointly with another person, you are each individually responsible for the entire debt but only entitled to half the rental income. This can adversely affect your borrowing capacity outside of the joint purchase, particularly if you’re buying with someone other than your partner.

Thinking long term is crucial if you have in mind a strategy to purchase with ‘investment partners.. dont go into too lightly.

If you would like to have a chat about any of these topics and how they relate to you particular circumstances don’t hesitate to contact us or call 1300 855 244

Many parents get just as excited about their children’s first home purchase as the “kids” themselves.

They’re often involved in helping select the property and providing advice. A facility is available which enables parents to help with the purchase at no direct cost to themselves. A “Family Guarantee Loan” enables parents, or another family member, to use their own home as security for up to 20% of the new home.

This can be an invaluable aid to younger family members making the big step of buying a home.

In particular:

• The buyers may be able to afford a more appropriate property for their needs.
• It may enable them to purchase at a time when they don’t have a deposit available.
• It will avoid the need to pay costly mortgage insurance (usually required when borrowing greater than 80% of the purchase price).
• The liability of the parents (or other family relationship) is limited to 20% of the purchase price and this will be reduced as the mortgage is reduced.

This is an easy and cost-free way to assist your family into their first home.

We help many families with these types of loans, so please give us a call for more information on 1300 855 244

How you save your deposit can sometimes be part of the criteria a lender looks at when assessing your home loan application.

That’s why it’s important to understand what they consider as ‘savings’. To make it simple, here’s what Banks & Lenders accepts as savings.Different home loan products have different saving requirements. Let’s break it down and see what can be considered part of your deposit:Genuine Savings If the loan you are applying for has a Loan to Value Ratio (LVR) greater than 80% or 90% depending on the lender, then a deposit of 5% genuine savings is usually required Each lender has their own set of rules around genuine savings requirements however it is generally defined as one of the folowing:

• Cash amount = or > 5% of the property purhase price & that has been held in your account for at least 3 months
• Cash amount = or > 5% not held for 3 months but with a regular saving patterns over this period
• A perfect rental history for the last 6 or 12 months if you are renting through a Real Estate Agency
• If you already own a property then equity in this existing property is also condidered genuine savings
• Shares or Managed Funds held for a minimum of 3 months

NON Genuine SavingsIf you can’t demonstrate genuine savings the you have the following options in order to get a loan:– Work your way to meet the Genuine Savings Requirement – in some cases a little wait can do the trisk– Check if a Family Guarantee type loan is feasible for you– Opt for a non genuine loan option. Some lenders have non genuine option up to 90-95% LVR. There may be some restrictions like not being able to get this loan for constrution or paying a slightly higher rate however these are available. The following is classed as non gnuine savings and can from your deposit if you fall in this category:

• The First Home Owners Grant
• Money you’ve received from the sale of your car or other belongings
• A cash Lump sum deposited into your account – Usually any amount over $3,000 is considered a lump sum
• A Gift
• An Inheritance (held for at least 6 months)
• A tax refund from the ATO.
• A bonus received from your employer or accrued leave (annual or long service).

When it comes to demonstrating funds available for your deposit – whehter Genuine or Non Genuine – you will need to provide documentation – like a bank statement, which shows the money was held or saved in your name for at least 3 months – or if it is a gift from a family member, then a statutory declaration is required to confirm that this money is non-repayable.Lender’s have a responsibility and this is why they ask about the source of your funds and how you’ve saved the deposit because it helps them understand your ability to budget and meet home loan repayments each month.Whether your savings are considered genuine or non-genuine, at Go Mortgage we’ll always look at the bigger picture and figure out how we can get you to reach your goal of Home Ownership.. even if this takes a little time and some effort.If you really want to own your own home then get in touch

Home loan specialists say the decision whether or not to choose a fixed-rate mortgage depends greatly on personal circumstances.

Here are some general guidelines that can help…

FIRST HOME BUYERS

A low interest rate is likely to be more important than fixing. Some special low-rate offers may be fixed for a period, offering certainty to buyers on a tight budget. But beware of restrictions and break fees.

SINGLE INCOME FAMILY WITH YOUNG CHILDREN

Having one breadwinner in a family means guaranteed fixed mortgage repayments may be welcome, but balance this with the flexibility of variable rates. Part-fixing your mortgage — part variable, part fixed — may be a good option.

DUAL-INCOME FAMILY WITH CHILDREN AT SCHOOL

Having two incomes helps cover potential rate rises but also allows for extra repayments. A variable rate may be the most suitable to enable paying off that mortgage as fast as possible.

UPGRADERS

Trading up to a larger, more expensive home increases the size of the debt — and the risk if anything goes wrong — so consider at least part-fixing some of the mortgage.

EMPTY NESTER

If the children have flown and downsizing is on the cards, a fixed-rate mortgage makes little sense because you may have to pay big break costs if you terminate the loan before the fixed period ends.

NEARING RETIREMENT

The ideal situation is to retire without a mortgage, so anyone with less than $100,000 owing should steer clear of fixed rates and focus on paying down the debt. If you do retire with a home loan, the certainty of fixing or part-fixing may provide some peace of mind on sometimes a limited budget.

The results of a survey reveal changes on investment lending are having a knock-on effect on property plans of investors.

This finding does not come as a surprise when you look at the current environment we are in. Over the past couple of months, we have seen a raft of changes in relation to investment lending. Some lenders have changed their policy, making it harder for investors to qualify for a loan, while others have lifted their interest-only home loan rates.

Some investors are forced to look beyond their traditional lender in order to obtain finance, while others are choosing to reassess their intentions to buy a property and/or put their plans on hold indefinitely.

“Australia’s property & Finance market has become very complex in recent months. In my 16 years in the finance industry, I have never seen the mortgage market to be this complex and confusing. But while there are a lot of changes taking place, there are still plenty of opportunities for investors – Says Xavier Quenon, Director of Go Mortgage

“There are still a number of lenders in the market who are happy to write investment loans and are hungry for this type of business. It does mean however that alternate thinking might need to be adopted by investors -whether in terms of the type of property they buy, the lender they use or the strusture of the loan they pick.”