How to pay off your home loan faster and save big bucks
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 pay 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. That’s only $25 a week.
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 principal, while still allowing you to access these funds from a transaction account.
Let’s say you have set the mortgage on your investment property as interest-only but you make the principal and interest payment equivalent by putting surplus rental income into an offset account. 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 a finance broker is 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. Contact Us if you would like us to match you to your perfect loan.
04 Oct 2016
Hard on the heels of Grand Final Weekend, the Reserve Bank of Australia (RBA) met for its October meeting today and decided to keep the official cash rate on hold at 1.50 per cent.
Today’s RBA decision is the first for new RBA Governor Dr Philip Lowe, following the retirement of Glenn Stevens in September who served us as RBA Governor for 10 years. Most analysts correctly predicted that Dr Lowe’s first RBA meeting as Governor would result in a hold after comments he made to the press regarding the lack of effectiveness of further rate cuts in stimulating growth.
A 25 basis point rate cut in August saw the official cash rate fall to all-time lows, however it did not have the effect of reducing the level of the Australian dollar against other currencies that the RBA intended. Whilst economic data around inflation, employment and GDP growth has been positive of late, a lower Australian dollar would be much more beneficial in stimulating a more productive economy.
With the official cash rate at unprecedented lows and interest rates more competitive than ever, conditions are great for Australian property buyers right now. Notwithstanding the distraction of Grand Final Weekend, Spring property markets are strong and there is good supply of housing stock for buyers to choose from.
Call us now if you want to get pre-approval for your home loan. If you already have a loan, ask us if you want to find a better rate or switch to a different loan product. Some banks have recently improved their offer on a range of different products – so ask us about your current needs today.
05 Jul 2016
With plenty of market volatility surrounding Britain’s decision to exit the EU last month and the uncertainty surrounding our inconclusive Federal Election, the Reserve Bank of Australia (RBA) met today for its July meeting and decided to keep the official cash rate on hold at 1.75 per cent.
Market analysts widely predicted today’s decision, anticipating that our next rate cut is unlikely to arrive before August. Despite an Aussie dollar that’s strengthening against other currencies, and low inflation figures, the RBA is waiting to gauge the effect of their last rate cut in May this year before making further changes to the official cash rate.
Following the RBA’s decision to cut rates in May, lenders have been adjusting interest rates for residential, property investment and commercial borrowing purposes. Interest rates on home loans are particularly competitive and another rate cut in August could see more good news on the horizon for home buyers for the remainder of the year.
The winter property market is performing well, with plenty of housing stock available for those looking to make a purchase. If you’re in the market to buy a home, talk to us now about getting pre-approval on your home loan in plenty of time before the market heats up even further in spring.
If you’d like to check you’re still getting the most competitive rate on your existing home loan, or are considering switching to a fixed rate product, now is also a great time to talk with us. We’ll be happy to take a look at your current home loan product and see if we can help you get a better deal, so please give us a call today.
31 Mar 2016
What to consider before renovating
The decision to renovate is a common sticking point for homeowners, who can spend hours weighing up the cost benefits.
Whether your motivation is to add value to your property or to add a touch of your personality to the home, renovations are expensive and debt often follows.
By working with a mortgage broker you will be able to find solutions that benefit your long-term goal, rather than hindering future plans.
A survey by Finder.com.au found only 27 per cent of homeowners think refinancing their home loan to renovate is a feasible option to raise funds for the next big step.
In this survey, 93 per cent of homeowners who refinanced to renovate, said they had concerns over whether they would be able to afford the repayments, and whether the proposed renovation would add value to the property.
While your MFAA broker can’t assist you with forecasts on future property values, he or she can help you reassess your current financial position, run through your plans and future payments, and decide if you can afford to take on more debt.
Laying the foundations
With a broker in your corner, the next step is to investigate how much you need to borrow. Work out the specifics of your renovation, what the average cost to renovate is in your area and how much you are eligible to borrow. You should aim to spend no more than five per cent of your property’s value on renovation.
If renovations are likely to take over your living quarters you may need to also consider the additional cost of accommodation for the renovation period.. This is another cost to factor into your budget.
Get bang for your buck
Once you decide to renovate, if you are trying to add value to a house to resell, it is important to look at the rooms and areas that will add the most value. These are average renovation prices, however prices will fluctuate based on the city and suburb.
If you are a fan of the show The Block, you will know kitchens sell houses. According to realestate.com.au, the average renovation cost you should be spending on a kitchen is between $12,000 and $16,000.
The average bathroom space in Australia is six square metres. Look to spend around $9,000 – $12,000 as the bathroom is a highly trafficked space and needs to appeal to a wide variety of investors.
- Other areas
An extra bedroom or a deck outside both add appeal and improve the standard of living for the homeowners.
The final hurdle to look at is the council fee. The council can charge you up to $2,000 for an application fee, although prices can vary. After speaking to a broker and finalising the renovation, make sure you account for an extra 10 per cent in your funds, to cover any unexpected costs.
Deciding on the type of loan
If after the assessment and investigation you decide to renovate, there are three types of loans to consider to help refinance and renovate your house: a line of credit loan, a construction loan or increasing your existing home loan.
Contact your broker
In a 2015 Finder.com.au survey, 42 per cent of homeowners said they were worried that, by unlocking home equity, they would not be able to afford the larger repayments on their mortgage. However, every household and property is different, as are the funds needed to achieve a renovation.
To make sure you get a great outcome, speak to Glenavon Finance today.
10 Mar 2016
Stamp duty is a charge which is applied by state governments in Australia on transactions relating to the transfer of land or property. It is paid upfront and needs to be budgeted for in addition to your loan deposit.
The amount of stamp duty you are required to pay differs in each state, however there are three factors, along with the value of the property, that determine how much stamp duty you will pay. Contributing factors include:
- whether or not the property is a primary residence or investment property;
- whether or not you are a first home buyer; and
- if you are purchasing an established home, a new home or vacant land.
Factoring in this additional cost cannot be overlooked when you are considering your capacity to repay a loan.
However, in a bid by state governments to stimulate home ownership and growth, there are a range of tax concessions available to reduce stamp duty.
Again exact amounts differ across each state, but those who benefit the most are first home buyers and those opting to buy a new home.
In NSW, if a new home is valued under $550,000, it will be exempt from stamp duty and if the home is valued between $550,000 and $650,000, it will receive partial concessions.
To find out how much stamp duty you need to pay, and whether or not you are eligible for any concessions, contact us.
Jess and Louisa Davis* were the beneficiaries of a trust bestowed on them by their grandmother, which included 17 tenanted properties with a substantial amount of outstanding debt. When they encountered problems transferring that debt, and with the clock ticking, they were lucky to have found an appropriately experienced broker.
Jess and Louisa, having inherited 17 properties and several million dollars of debt, needed to find respective mortgagees before they could settle the debt transfers, and needed to do so before the end of financial year to avoid paying extra tax on rental incomes.
With the trust presenting a complicated loan scenario, Jess and Louisa decided to contact an MFAA Accredited Finance Broker.
“The trust had about $3 million worth of mortgages secured against the properties. I had to get separate mortgages for the two beneficiaries for their outstanding shares,” their finance broker explains.
“I was using one of the second-tier banks and was dealing with senior management there to get this deal through because, ultimately, it was millions of dollars worth of lending, plus, we were on a bit of a time limit with it needing to be done by the end of the financial year,” he added.
With the new loans organised and ready to go, Jess and Louisa became very stressed when their solicitor called to inform them that their bank wouldn’t settle due to a mistake made by the outgoing mortgagees.
“One of the banks turned up with a single discharge document covering all seven of the properties that they had mortgages on. The other bank turned up with nine individual discharge documents, one for each property,” the broker explains.
“The solicitor acting for the incoming mortgagee contacted my client’s solicitor to say that they were not prepared to take all of the discharges because the incoming mortgagee was not using every one of the 17 properties for security.”
Although only a documentation issue, the dilemma threatened to impede settlement. Jess and Louisa’s broker got straight on the phone to sort out the problem.
“I’ve been in this industry for 40 years. I know what I’m doing. I rang up the general manager of the bank that was the incoming mortgagee,” he says.
“I explained that one of the major banks turned up with a single discharge notice covering all properties. You can’t split that up. You can’t just cut the document into 17 pieces. It was very touch and go as it was a significant amount of money. ”
After their broker explained and negotiated the concern with the bank manager, Jess and Louisa’s solicitor was able to go ahead with the settlement, despite the documentation problem.
“The matter was finally able to be settled on the day that we needed it to be settled. I know what settlement is all about and how it works, so I was in a position of knowledge to be able to make that come about.”
Any loan has the potential to become complicated and, if it does, having an experienced Finance Broker on your side might make all the difference.
* Names have been changed to protect clients’ privacy.
Contact Us if you need an experienced Financed Broker on your side.
Do you need a finance broker or a financial planner?
When taking the plunge into the world of home loans and property investment, the challenge often lies in knowing which expert to approach for help. Brokers and financial planners, although similar in their professional outlook, cater to different financial endeavours.
Brokers that deal in home loans must be qualified and licensed loan advisers with in-depth knowledge of home loans and options suitable for a range of different financial situations. They negotiate with lenders to arrange loans and help manage the process through to settlement.
“When it comes to talking about a client’s debt structure or interest rates, or the best way to set up a loan, it’s really something that needs to be done by a mortgage broker who is qualified to give credit advice,” says Luke Mellar, a lending specialist at Shadforth Financial Group.
In contrast, financial planners assist with anticipating and managing longstanding financial outlook. They help sort through and select options for investment and insurance, with attention paid to retirement planning, estate planning and investment analysis.
“Planners take care of more of the long-term, wealth-creation strategy, as well as super and life insurance, and other sorts of wealth protection insurances,” Mellar says.
A financial planner’s work is wide-reaching and important to your long-term financial health and stability. Options relating to loans and refinancing can only be recommended by qualified brokers.
There are some situations where it would be best to include both types of financial professional. For instance, if your broker is helping you refinance your loans in order to undertake a financial investment, a financial planner can step in to help you to assess the best investment option for you.
“There is rarely a time when I am dealing with a client, just on the loan side of things, where I’m not thinking about how it fits with what the financial planner is talking about,” Mellar explains.
“In terms of whether the client’s choice is a viable investment strategy or whether it fits in with their long-term wealth goals, that’s something that we absolutely have to refer back to the planner to make sure that it fits in with their broader plan,” Mellar adds.
The answer? It depends on your situation – for loans, see a broker, for investment advice, a financial planner. Of course, your broker can always refer you to a planner if you need one.
Contact Glenavon Finance to find out how we can help you secure property or commercial finance, and ask us to recommend a financial planner we trust.
28 Jan 2016
Guaranteeing your child’s loan
Rising house prices are making it increasingly difficult to enter the market. Parents who guarantee their children’s loans can help, but it is important to understand how this can impact the parents’ retirement or investment plans.
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,” Mario Borg, Director and Mentor at Masters Broker Group explains. “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 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,” Borg says.
Minimising the risk
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,” Borg states. “You should 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.
When it comes to guaranteeing a loan, it’s always sensible to speak to a professional. You should also consider asking a legal professional to draw up a formal loan document outlining all conditions of the loan, interest rate and expected repayments.
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.
Find out more or obtain expert advice tailored to your needs, contact us at Glenavon Finance.
20 Jan 2016
When was your last home loan health check?
Circumstances can change, leaving your home loan less suitable than it was originally. A home loan health check can reveal if you’re paying too much.
Your finance broker can do a full home loan health check for you either in person or over the phone. They will check if your loan is still competitive and still suited to your individual needs.
Having an expert do this for you can also take the stress out of the process for you. It is advisable to get this check done at least once a year, or if your circumstances change.
Questions to ask
Be aware of what you want checked. Think about the following when you speak to your broker:
- Am I paying an unreasonably high interest rate?
- Am I paying high fees?
- Am I happy with the service I receive?
- Does my loan give me the features I need?
- Am I paying for features I don’t use?
- Have my financial circumstances changed?
A home-loan health check will generally cost you nothing and could save you thousands. Your home loan features could be improved or you could find yourself with a lower interest rate. A better payment structure could also be introduced, making your repayments more manageable.
Checking the state of your current loan could uncover the possibility of taking out additional finance, which can consolidate any other debt you may have or help you purchase an investment property.
Contact us at Glenavon Finance to organise your free no obligation home loan health check.
22 Oct 2015
Late payments and loan defaults leave marks on a credit history that can complicate any effort to refinance or secure a loan in the future. Default can also lead to a home being repossessed and sold by the lender, so it’s very important to act quickly to avoid it.
While late bill payments and a loan in arrears can impact your credit report and lead to difficulty securing finance in the future, the worst case scenario is repossession of a property.
In the past, lenders may have taken months to start the proceedings that lead to repossession. However, according to the Financial Rights Legal Centre (FRLC), this is not the case anymore.
“Lenders work to a timetable to begin court proceedings and this can be very difficult to stop once this process has started,” the FRLC explains in its Mortgage Stress Fact Sheet.
Once a mortgagee has defaulted on a loan by failing to make repayments as agreed, they can be sent a Default Notice, which gives them 30 days to catch up on the repayments that are in arrears, as well as continuing to make any repayments that are due in the 30-day period.
“This notice will include an acceleration clause,” the FRLC explains. “This means that if the arrears are still outstanding after the 30 days has lapsed, the entire loan becomes payable.”
Thirty days after the Default Notice, the lender can take vacant possession of a property that is not occupied, or seek a court order for possession of a property that is occupied.
The key to avoiding this substantial trouble is, of course, to keep making repayments. From time to time, circumstances such as unexpected job loss or illness will impact a mortgagee’s ability to make payments and, when this happens, the key is to act quickly, as there are more options before a Default Notice is served than there are after.
“Don’t be scared,” advises the FRLC. “Lenders make repayment arrangements all the time.”
Many lenders will negotiate short-term variations to repayment schedules as long as there is a plan to get back on track, and there are circumstances in which lenders are obligated to agree to such arrangements. It is important, however, not to agree to payment terms that cannot be met.
“Make sure you think through your plan as to when you will resume making payments. Do not promise something you are not certain you can achieve or is not realistic,” warns the FRLC. “If you don’t know when things will improve, ask for an initial arrangement to be reviewed at the end of the agreed repayment arrangement.”
One of the advantages of recognising a looming problem before you get behind in repayments is that a finance broker may be able to assist you to pinpoint the source of the problem, as well as identify savings that may be available by refinancing to a lower-rate or lower-fee loan. Once there are clear signs of financial distress, this will become much more difficult.
If you are struggling to make your mortgage repayments, we may be able to help you negotiate with your lender or find a more manageable loan. Contact us here.