Making Money Go Further: Maximizing your Borrowing Capacity

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2013 presents a number of enticing opportunities for property investment – particularly if you plan on riding the upwards-trending wave that is presenting itself to home owners. If considering your first purchase (or secondary investment), it is important to ensure your borrowing capacity is optimum in order to allow you to make the best possible purchase. Post-GFC there has been increased legislation and caution from banking institutions in relation to lending capacity. These precautions are in place to protect the strength of own national economy, and to ensure we are borrowing responsibly. It is worth noting, however, that there are some institutions that will lend more or less to a potential mortgagee with identical credentials, which makes taking time to organize your finance with a broker the way to go. Today’s Chisholm & Gamon blog is a guide to optimizing your borrowing capacity and enhancing cash flow.

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PAPERWORK

Keeping your paperwork up to date and in order may be just the edge you need to have your loan application approved. It is necessary to have water-tight financial records to impress a lender, so get your tax returns completed on time and keep your financial records up to date. Should you be a sole trader or self-employed, your ability to demonstrate that you run an organized business will heighten the bank’s confidence in your ability to repay the loan.

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DEBTS

Cleaning up any credit card debt is very important when aiming to maximize your borrowing capacity. Banks will calculate your capacity to repay the loan based on you income, taking into account other mortgages and loans you will need to service. Credit cards (even ones with low balances) and personal loans are best kept to a minimum, as they can adversely affect your repayment capacity.

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SEARCH FOR THE RIGHT LOAN

Many banks offer a number of attractive added features with their loans. It is imperative to consider that for every credit card and line of credit offered, less ‘real’ money will be loaned. Be circumspect and look for the professional package that suits you and your lifestyle. Your main aim should be to secure the lowest interest rate possible, while also attempting to lower the rates on other mortgages to free extra cash flow. Your mortgage broker will advise you on the best offerings and ‘plan of attack’.

EXTEND THE LIFE OF YOUR LOAN

Many investors are now opting for 30 year loans instead of the former norm of 25. The longer a period of time you have to pay back your mortgage means lower repayments, freeing up more money for living or additional assets. You could also opt to make interest-only repayments on an investment property for a limited period of time. This approach can be useful for short-term mortgage holding or owner-builders looking to maximize their cash flow.

NEED ADVICE?

Contact Daniel Hustwaite at Aqua Financial Services for expert advice

dhustwaite@aquafs.com.au

0408 985 611

Keep On Keepin’ On: C&G on the Reserve Bank of Australia March Monetary Report

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The Reserve Bank of Australia has made its March monetary policy statement, opting to keep rates unchanged at 3.0 per cent. This current cash rate is a record Australian low, which explains why the RBA may be standoffish about further interest rate reductions. Our national cash rate has remained the same since our last 0.25 per cent reduction in December 2012. Influential factors to take into consideration include the global economy, public spending and growth trends locally. Many forecasters are predicting a rate to drop to 2.25 per cent by the year’s end. C&G reports on what this means for home owners and those wishing to acquire a property in the near future.

The RBA last week released their monthly statement, with Governor Glenn Stevens explaining that the financial climates in China, Europe and the USA have been a major focus for the board in March. The USA has shown positive signs of growth while Europe is also in a better position than at this time last year. Meanwhile, China is continuing to grow at a rapid rate.

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The report also identified that there has been moderate growth in the local economy with the housing market on the rise, paired together with an increase in employment opportunities. Public spending’s forecast is not so bright, with budgetary constraint likely to continue. Exports of resources have also strengthened throughout February, and the Australian dollar raised half a US cent to $101.81 the day prior the RBA’s monetary policy announcement. The board has reported that spending trends and inflation have remained consistent with predictions.

percentWhile some homeowners may be disappointed with the RBA’s decision, economists believe the banks may still implement a 0.25 per cent interest rate cut in an attempt to attract new mortgagees. Even if this is not the case in the immediate future, many pundits expect rates will fall to 2.25 per cent by the end of the year.

Confidence in the RBA’s monetary policy direction is high, with commentators praising the actions of the board in light of Australia’s relative economic health in the wake of the GFC. The population at large seems to be buoyed by the positive reports of 2013 – we’re enjoying unprecedented numbers through open for inspections – a sign that the property market is back and stronger than ever. Now is certainly the time to take stock and plan to purchase – or perhaps upgrade to a new residence – before the property market’s inexorable upwards climb begins again.

Getting a deposit together

clip_image002Building a deposit for a home takes discipline and hard work. Every little bit helps though, and with some short term sacrifices and effective lifestyle changes, building a deposit is achievable for most working Australians.

Tips for growing an adequate deposit include:

  • Existing Debt – before saving can begin, and to increase borrowing power, it’s important to minimise or completely do away with credit facilities like credit cards or personal loans. These kinds of debt can inhibit any serious savings plan
  • Goal – Set a budget goal. The size of a deposit required depends on the value of the price range of the property being sort. Being realistic at this initial stage is imperative.
  • Budget – working out a budget can start by looking at monthly bank statements, they show where the money is going and where spending could be pruned.
  • Bank Account – open a high interest savings account or term deposit (put a withdrawal restriction on that account in case of temptation)
  • Government Assistance – research eligibility for any grants and bonuses available.

The deposit is only one piece of the purchasing puzzle. Other costs to consider include inspection costs, solicitors/conveyance fees, stamp duty, government charges and bank fees. Saving a sufficient deposit can seem out of reach to many. However, with a realistic plan and some discipline it is not out of reach for most.

Mortgage Choice backs Senate recommendation on exit fees

Australia’s largest independently-owned mortgage broker, Mortgage Choice strongly supports today’s Senate economic references committee recommendation that the Federal Government reconsider its plan to abolish exit fees on new home loans.

Non-bank lenders, which are vital to the health of a competitive lender market, raise funds at a higher cost to their banking counterparts and lack the same economies of scale. As such, exit fees are brought in to recover their reasonable costs should a loan be discharged early.

ASIC recognises this and made clear in November 2010 what it regards as a reasonable exit fee and what it regards as unconscionable. Mortgage Choice continues to support the guidance paper issued by ASIC at the time (Regulatory Guide 220).

The national mortgage broker lobbied the government last year to cease moving ahead with a home loan exit fee ban. In doing so, CEO Michael Russell wrote to Treasurer Swan:

“A unilateral ban on exit fees will have the unintended consequence of actually reducing lender competition by damaging the competitive offering of non-bank lenders and some second tier banks. These lenders have up until now only been able to compete on price by deferring or back-ending certain establishment fees. If this option is removed, then by default they would need to increase their customer interest rates and/or ongoing fees. The major banks would then be sure to follow or perhaps wait until the non-banks suffocated.

Mortgage Choice supports the guidance paper issued by ASIC (RG220) endorsing exit fees that represent a reasonable recoupment of costs upon the early termination of a loan. Smaller lenders would then be able to continue to compete on upfront interest rates and fees. As previously mentioned, and as you are aware, greater competition will deliver improved product innovation, pricing and service.

Should the Gillard Government unilaterally ban exit fees, then it will unwittingly hand over on a plate the heads of the non-banks to the major banks. Why? They are reliant upon this fee to be able to remain competitive at the front end, where real competition counts for the consumer.

The decline in competition will hit mortgage holders hard where it counts most – interest rates and fees and most importantly future product innovation and customer service.”

A consumer champion that has written home loans for over 300,000 Australians, Mortgage Choice stands by these statements in calling for a reversal of the decision to abolish home loan exit fees.

Visit MortgageChoice.com.au or Twitter.com/MortgageChoice.

Tags: banks, economy, fees, finance, mortgage, proeprty, research

One small debt mistake can cost you a home loan

 

Home loan declinedFranchise owners for Australia’s largest independently-owned mortgage broker, Mortgage Choice, continue to meet people planning to buy property who have no idea their credit file may hold details that will see their home loan application declined.

Some are unaware certain aspects of their debt history, including bill defaults and applications for loans and credit cards, are on file and made available to lenders and other credit providers.

Mortgage Choice spokesperson, Kristy Sheppard said, “There is still a lack of knowledge about the existence of individual credit files and that one or two debt-related mistakes, such as a missed or late bill payment, are often enough reason for someone to be denied a home loan.”

“Younger borrowers are especially likely to be oblivious to the importance of keeping their credit file clean. Defaults and credit applications are usually displayed loud and clear to lenders researching a potential customer’s suitability for and ability to repay a home loan.

“Be aware that if you have been active in applying for credit within the last five years and/or have not met deadlines with bill or other debt payments in that time, you have a credit file. Some records are kept on file for seven years.

“The good news is defaults are preventable in many cases. If you are unable to meet repayments it is up to you to contact your lender or credit provider and make arrangements to pay the outstanding balance before a default is noted on your credit.”

Mortgage Choice suggests these top five tips for keeping your credit file clean:

1. Understand where your money is going and pay on time. Know your cashflow back to front and ensure responsible payment of your credit cards, bills and personal loans by contributing the funds required before the due date. Make time to monitor your accounts closely and look for any discrepancies. Once familiar, you will understand your spending habits better. Do you know the exact balance of your credit card and other loans, their interest rates and fees? Do you keep utility bills on the top of your ‘to do’ pile and file them after paying?

2. Make it automatic. Missed and late payments are one of the most common defaults on a credit file. Paying bills and minimum repayments before or on time will help prevent unwanted fees. A good way to ensure you don’t miss one is to set up auto transfers from your savings account.

3. Don’t go overboard. It is easy to go over your credit limit, miss paying bills or fall into the habit of thinking “another debt won’t hurt”. You can quickly lose track of spending and fall behind, which is when defaults appear on your credit file. Have a budget and stick to it. Lost motivation? Consider what life will be like if you can’t apply for a home loan or other credit in years to come.

4. Just say no. Credit providers may tempt you to increase your limit. Resist unless absolutely necessary; don’t increase spending simply because you can. If you are only just getting by you should think about reducing your limit until in the clear and perhaps cut up your credit card/s.

5. Pay more than the minimum. By repaying only the minimum required amount on your credit card or personal loan you end up paying a great deal in interest and may never pay it off. Paying debts off in full or making repayments above the minimum amount and restricting your spending will help ensure you pay your balance off and do not tarnish your credit file.

To order a copy of your credit report visit www.mycreditfile.com.au.

Call Mortgage Choice customer service on 13 MORTGAGE. Or, visit MortgageChoice.com.au, Facebook.com/MortgageChoice or Twitter.com/MortgageChoice.

Tags: finance, loans, mortgage, property, real estate

 

 

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