10 May 2019
Published by MFAA
The Buy Now Pay Later sector is winning-over the youth demographic with the promise of instant gratification, but leading mortgage brokers are warning that with every sugar-high comes the risk of a corresponding low.
‘Buy Now Pay Later’ providers such as AfterPay and Zip Pay have experienced massive growth in popularity, with the number of users jumping from 400,000 to approximately 2 million between 2015 and 2018.
Driven by a simple proposition whereby the Buy Now Pay Later provider pays the merchant on behalf of the customer, allowing the customer to obtain the goods or receive a service immediately while subsequently paying off the debt generally through instalments, Buy Now Pay Later presents a tempting offering.
But as the sector’s breakneck growth continues, mortgage professionals are warning users, particularly in the younger demographic, to be cautious of overdoing it as this could risk effecting their chances of securing a home loan further down the track.
“It’s the layby of our day but in reverse. It’s your forward credit for an item, which I don’t agree with,” said one leading mortgage broker.
“In theory, it makes sense. You get the item or service and pay it off over instalments, so you’re actually putting forward your liability.
“This might be ok for someone that manages their money well, if they pay off the item on time and use their mortgage offset account correctly. This way they’re delaying expenses and offsetting more of their savings against their home loan.
“But there’s probably one per cent of people doing that and the rest of them are spending beyond their means,” the broker added.
As a result, according to this broker, there may also be a stigma associated with using Buy Now Pay Later schemes rather than paying up-front and in-full.
“Utilising this payment method may potentially send the wrong message to a bank.
“If a lender sees a ‘buy now pay later’ provider frequently on a client’s bank statements, that can trigger more questions about their spending behaviours and ultimately may mean they choose to decline the application.
“I would much prefer to see my clients save for the item and demonstrate those good habits.”
If you are concerned about your level of expenditure or your ability to secure a home loan, a conversation with your local mortgage broker could set you on the right path.
“It’s important to appropriately manage your expenses well in advance of applying for a home loan, that way you can show the bank that you can save and afford to service a mortgage when the time comes,” the broker said.
According to 2016 Deloitte research, prospective home buyers are using mortgage brokers to secure home loans because they expect brokers will save them money and assist them through the home loan application process.
If you decide a broker is for you, you’ll engage with them in a number of key stages throughout the application process and beyond.
Your broker will consult with you to establish your financial and lifestyle goals, responsibilities and commitments. You may have an idea in your mind of what you want, and the first meeting with a broker can help you refine this and develop an action plan to make your aspirations a reality.
After reviewing your financial circumstances, your broker can determine your borrowing capacity and they can outline repayment scenarios. They must make reasonable enquiries to check if proposed products are suitable for you. They can also put you in touch with a variety of other complementary service providers, such as financial planners, real estate agents, lawyers and property agents, who will also help you achieve your goals, as and when required.
In preparation for a loan application you will need to supply some supporting documents. Examples of these documentation you will typically provide include personal ID, evidence of your income, proof of savings and details of existing financial obligations. Your broker is required to maintain confidentiality of the information that you provide and only pass it on where necessary to secure your finance or where required by law.
Your broker can also consult with you to explain how features, fees and charges attached to your loan options compare and affect the overall amount you will repay on your loan.
Once you’ve consulted with your broker to determine your preferred loan, they will submit your application and documentation to the lender.
Before you seek full home loan application approval, it’s also common to apply for home loan pre-approval.
By signing a contract on a property prior to securing unconditional approval, you run the risk of forfeiting your purchase deposit if your subsequent loan application is declined. Pre-approval is less onerous than the full home loan application and gives you a good preliminary indication of your borrowing power. Your broker can assist you with applying for pre-approval as a step to help you determine which property price bracket may best suit you.
Your broker will let you know when your lender has issued an unconditional approval on your loan application.
Approval and settlement
After your home loan application is approved and settled, your broker will follow up with you to ensure you understand how to pay the loan and to answer any enquiries you might have.
It’s also common for your broker to contact you regularly, offering to check that your loan still suits your needs. It’s possible, for example, that you might be better off switching from a variable to a fixed interest rate loan, or switching products for a better deal. Your broker will help you with this decision by maintaining long-term contact.
The more aware you are of the support your finance broker has to offer in the home loan application process, the better positioned you are to navigate the process comfortably and successfully.
18 Apr 2018
Refinancing can be a great way to save money if you believe you are paying too much for your loan, but there is more to it than just finding a loan with a lower interest rate and making the change. Before making the switch, ensure the savings you could make outweigh the fees involved. Here are the different exit costs to consider:
Although loans taken out after 1 July 2011 are not subject to deferred establishment, or exit fees, those taken out prior may still be. Also known as ‘early termination’ or ‘early discharge’ fees, they can sometimes be paid by your new lender but are normally applied to an early contract exit.
Also known as ‘application’, ‘up-front’ or ‘set-up’ fees, these cover the lender’s cost of preparing the necessary documents for your new home loan. They are payable on most new loans, and the alternative to not paying this particular fee is being charged higher ongoing fees for the life of the loan.
Mortgage discharge fee
Covering your early legal release from all mortgage obligations, this fee is not to be confused with an exit fee. Also known as a ‘settlement’ or ‘termination’ fee, its purpose is to compensate your lender for the revenue it may lose due to the contract break.
Lender’s mortgage insurance (LMI)
The non-transferrable premium means that if you hold less than 20 per cent equity at the time of your refinance, you may have to pay LMI even if you paid it on the original loan. Extra care is also needed here because, whether or not you hold 20 per cent of the original valuation of the property, you may not if the property’s value has decreased and; while LMI may not have been a consideration at all in the original loan, it may be payable on the refinance.
If your purpose for making the switch is to increase your loan amount, for example to fund renovations, then stamp duty will apply only to the difference between the original loan amount and the refinanced loan amount. Different rules apply in different states, so it’s worth speaking to your broker to see if this charge applies.
Other government charges
Fees are applied for the registration and deregistration of a mortgage so that all claims on a property can be checked by any future buyers. Varying from state to state, these can potentially add up to $1000 or more.
If you were on a fixed rate loan, your lender is likely to charge you a fee for ‘breaking’ out of the loan term. This fee varies depending on the amount owed, the interest rate you were locked into, the current interest rate and the duration of your loan.
Although some of these fees can be negotiated by a broker, the total cost can be substantial. We can ensure that refinancing will help you achieve your goals while maintaining your capacity to service the debt. We can also ensure you are only paying the relevant fees for your unique circumstance. Get in Touch today if you would like more information.
As property prices continue to rise, purchasing in a centrally-located or sought-after area is out of reach for the average working millennial. Instead, many are opting to rent rather than buy as it means not having to compromise their inner city or beachside lifestyle. But for those who are still eager to enter the market, there is a way to get the best of both worlds.
‘Rentvesting’ is the term coined for when you purchase a property for investment purposes in an affordable location and continue to live and rent in the area of your choice. An example of how the market is evolving, it is a wealth creation strategy that is popular among the younger generation due to the flexibility it offers in comparison to being an owner-occupier.
“Millennials aren’t interested in purchasing a property in the outer suburbs and then having to commute into the CBD,” says an MFAA accredited finance broker. “Rentvesting allows your rental income to cover the mortgage expenses, so you can keep living the lifestyle you want without it costing you any money.”
For this strategy to work, you’ve got to be a good saver and there needs to be a focus on delayed gratification, advises the broker. “It’s all about living within your means. Don’t spend big at the start while you’re building it up. Step away from the mentality of negative gearing and tax minimisation and buy neutrally, or ideally, a positively geared property as this provides higher rental yields.”
A recent Mortgage Choice survey highlighted an increase in ‘rentvesting’ from 21 per cent of investors to 37 per cent over the past twelve months alone. But while this strategy may appear ideal to many, it’s not suited to everybody.
“It’s still a foreign way of thinking,” says the finance broker. “In the past, the great Australian dream was to buy a home on a quarter acre block and then do everything you can to pay that down as fast as possible in the hope of living debt-free. ‘Rentvesting’ is quite the opposite. It says we’re okay with good debt as long as we stick to our budget and keep using the money to invest further. You’ve got to have an open mind and be comfortable with debt.”
To ensure you have the means to make ‘rentvesting’ work for you, contact us for advice on good debt and other strategies that will allow you to maintain your current lifestyle.
Purchasing a property is a thrilling yet nerve-wracking experience, which is why it can be handy to surround yourself with a network of support and expertise. Here are the different parties who may be involved in your home-buying process and how you can use this valuable knowledge base to answer your questions.
Real estate agent
Unless you’re working with a private vendor, meeting a real estate agent is inevitable when it comes to purchasing a property. Hired by the vendor, or seller, their role is to market and communicate about the property, advise on preparing it for sale and negotiate with potential buyers.
Risk management is vital in such a high-value purchase and long-term financial commitment. Insurance, including mortgage protection and property insurance, will help you avoid being hit with a major financial burden should anything not go according to plan. Many finance brokers can deal with insurance as well or will recommend an insurance broker who can.
The legal aspect of a property purchase is taken care by a licensed and qualified conveyancer. If they are a solicitor, they can also provide legal advice. Their role is toprepare the documents to ensure that transfer of ownership of the property has met the legal requirements in your state or territory.
Knowing the value of a property is a vital factor in a loan application, so a valuer can play a huge role in the home-buying process. A lender will often engage an impartial valuer to ensure that the buyer and the lender will know what loan amount may be warranted. The value is based on the property and location, as well as the current market.
Pest and building inspectors
Without the services of pest and building inspectors, a homebuyer’s worst nightmare – finding out the property they have bought requires costly renovations or pest treatment – may come true. Organising a pre-purchase inspection is essential. If the property requires structural, wiring or repair work, these inspections can stop you from making a costly mistake or, if the property is still your dream home but just needs a little work, can provide a valuable bargaining chip.
If you need money to make your purchase, you will need a lender, whether it’s a major bank, a second-tier or non-major, or a specialist lender for more difficult funding proposals.
Brokers act as a liaison between you and the lender. They will find out about your finances and your property goals, and search for and negotiate a loan product that matches your needs. Not only will they do the legwork and ensure your loan is processed as smoothly as possible, but they are there to guide you throughout the entire process.
For quality service and support throughout your home-buying experience, ensure your professionals are accredited with peak national industry bodies such as the MFAA. MFAA accredited finance brokers are held to the highest industry qualification, experience and ethical standards. Contact us for more information.
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.