Avoid these Common Mortgage Mistakes:

For many homeowners, it’s easy to get caught up in all of the excitement, and stumble into one or more of these embarrassing mortgage mistakes. Unfortunately I see it very often.

Getting a Standard Variable Rate loan:

Banks love nothing more than putting customers into a Standard Variable Rate. They heavily promote the extra flexibility and offset facility. The reality is it is very rarely worthwhile for the average customer to pay the higher rate for the extra features.

Even if you have a large amount of money to put in an offset account, you could achieve much the same thing with a basic loan with a redraw facility and pay a much lower interest rate.

If you want a fully featured loan, compare the costs of these extra features to the lender’s cheaper products. Or better yet, push for a liefetime discount package on the standard loan and get the best of both worlds.

Honeymoon Rates:

There’s an old saying – ‘if it sounds too good to be true, it probably is’. This is the best way to describe ‘Introductory Rate’ home loans. Don’t get me wrong, there are some great offers out there, and a low rate in the first year or two can make all the difference to your weekly budget. But to avoid future pain, it’s best to base your comparison on the rate that you will pay when the honeymoon is over.

Rate Rises:

Part of the loan application process is to work out what you can afford to repay, based on current interest rates. But did you consider what would happen to your budget if interest rates were to increase? Many Australians have been caught out in the past, with disastrous consequences. The best way to avoid becoming one of these cautionary tales is to be mindful of both your purchase price, and the impact that future rate rises will make on your loan repayments.

Savings Fatigue:

It was a long and difficult journey to save that deposit. You might have taken on extra work, missed out on overseas travel, avoided fine dining or sacrificed your cable TV. But now is not the time to let your hair down – especially if you haven’t reached your settlement date. After you hand over the deposit, you’ll still need to ensure that you can cover stamp duties, conveyancing fees and moving costs. For the unlucky few, there could even be unexpected maintenance costs after you settle. (It’s funny how the hot water service always seems to hang in there until the worst possible moment). So try to keep your good money habits going a bit longer.

Don’t blow the budget:

Most of us take the time to think about how much we want to spend before we start making an offer on our next home, or gesturing wildly at an auction. But sometimes we get carried away and don’t want to risk missing out on our dream home. So who really wins in this scenario? The vendor and the real estate agents of course! Not the proud new home owner, who has just committed to a purchase price and mortgage that he can’t really afford.

Inflexible loans:

Just like electronics and furniture, when it comes to a mortgage you get what you pay for. There are some very cheap (and nasty) options available to borrowers. Some of these might seem appealing but it’s important to consider the features that you need in a loan – today and a few years down the track.

How to get a loan when it all seems hopeless?

Jason was 28 when he decided to start looking for his first home. A builder by trade – he had been working for the same employer for over 8 years and he had substantial savings – enough to pay a 10% deposit and cover stamp duties.

He usually paid the phone bills on time, and his credit card was barely ever used.

In spite of all this, Jason was unable to get a loan through traditional lenders. The reason – a mistake from the past.

Against the advice of his parents, he decided to help a previous girlfriend get car finance. She was only working a couple of days a week on a casual basis, and the finance company wouldn’t approve her loan.

Always the nice guy, Jason offered to put the car in his own name – and trusted his girlfriend to keep the repayments on track.

When the relationship broke down a couple of years later, he was shocked to learn that no repayments had been made on the car for several months. To make matters worse, the news came from a grumpy middle-aged man who arrived early one morning trying to repossess the car.

A few years on, Jason was growing increasingly frustrated in his search for a home loan. Finally, he found a Mortgage Broker who suggested a ‘Non-conforming’ loan. Although the interest rate wasn’t brilliant, Jason was finally able to get his foot in the door. The lender also offered to review the loan conditions after 12 months, if all of the repayments were made on schedule.

With the help of a non-conforming loan, Jason was able to realise his dream of home ownership, despite having a bad credit record.

Non-conforming loans are designed for people who don’t conform to the traditional criteria used by lenders to assess a loan. Some borrowers have a bad credit history, and others might be struggling to get approved because they just changed jobs. Sometimes, even people who have previously been declared bankrupt can still be approved for a non-conforming loan.

Importantly, there is a big difference between ‘Non-Conforming Loans’ and ‘Low-doc Loans’. While non-conforming loans are designed for people who have an imperfect credit history, low-doc loans are designed for the self-employed. Low-doc loans are often quite strict – borrowers usually need to have a 20% deposit, and a very healthy credit history to get approved.

Lenders usually charge a much higher interest rate for non-conforming loans. The good news is, many lenders will agree to review your rate after a set amount of time, providing that you meet all of your repayments.

Whilst it’s never a good idea to take out a home loan if you can’t afford to repay it, non-conforming loans can be very helpful when your financial position is good now – but your past credit mistakes continue to haunt you.

Reviewing your finances?

Here are some money-saving suggestions

Many people refinance their homes or investment properties to reduce their monthly home loan repayments. What other aspects of your finances can you review to help save money?

1. Review the frequency of your home loan repayments

If you are paid weekly or fortnightly, see if you can change the frequency of your home loan repayments to fit in (this may not be possible on all products). Because the interest on your home loan is calculated daily, making a payment two weeks earlier each month saves you money in the long term, and in the short term helps make ongoing budgeting easier.

2. Consolidate debt

If you’re paying high rates of interest for debt on credit and store cards – each of which will probably have an annual charge – think of consolidating debt in one place. You may very well be able to access a lower overall interest rate, reducing your monthly outgoings. You will avoid paying duplicate fees. Plus, a single monthly debt repayment is easier to manage than having to pay multiple credit card bills.

3. Cars

Cars are often the biggest family expense after home loan repayments. But as family needs change over time, and the price of petrol rises, we can find we have more expensive cars than we need. Could you downsize your car/s, not only reducing monthly repayments, but also potentially saving in maintenance, insurance and fuel costs? Have you thought about buying a scooter for short, local trips? Are you getting the best deal for the money you spend on your car insurance and repairs?

4. Insurance

There are three ways you may be able to save money on your insurance premiums. First, shop around when your renewals fall due rather than simply continue with your existing provider.

Also, you may be able to reduce monthly premiums raising the excess payable, or improving the security on your home.

Finally, some insurers provide discounted rates for bundling together policies such as home, contents, car, health or life insurance. Perhaps you could make an overall saving this way?

Organising your insurance through a Mortgage Australia broker could save you money. For example if you take out Home insurance you could be eligible for a 10% discount for the first year and a bonus 90 free day’s cover. Why not get a complimentary quote? What have you got to lose?

5. Clear out the shed!

Perhaps you have items of value gathering dust in your shed or garage? Whether you hold an old-fashioned garage-sale or go onto e-bay, perhaps now is a good time to get money for the belongings you’re never going to use.

All lenders ask for the pretty much the same information.

If you’re approaching a lender there are a few things you should be ready to give them to avoid unnecessary and frustrating delays.

Download my one page “Applying for a Loan” PDF guide for details – https://www.mortgageaustralia.com.au/email/files/applyingforaloan.pdf

A reverse mortgage definitely is not for everyone, and you certainly need to be aware of the risks.

But in the right circumstances, it can be a good way to boost your income in retirement.

A reverse mortgage is for people over 60 and allows you to borrow money using the equity in your home as security. The loan can be taken as a lump sum, a regular income stream, a line of credit or a combination of these options.

While no income is required to qualify, credit providers are required by law to lend you money responsibly so not everyone will be able to obtain this type of loan.

Interest is charged like any other loan, except you don’t have to make repayments while you live in your home – the interest compounds over time and is added to your loan balance. You remain the owner of your house and can stay in it for as long as you want.

You must repay the loan in full (including interest and fees) when you sell your home or die or, in most cases, if you move into aged care.

Some of the risks:

– Interest rates are generally higher than average home loans
– The debt can rise quickly as the interest compounds over the term of the loan – this is the effect of compound interest and is something you need to be aware of before making any decisions
– The loan may affect your pension eligibility
– You may not have enough money left for aged care or other future needs
– If you are the sole owner of the property and someone lives with you, that person may not be able to stay when you die (in some circumstances)
– If you fix your interest rate then the costs to break your agreement can be very high

On 18 September 2012, the Government introduced statutory ‘negative equity protection’ on all new reverse mortgage contracts. This means you cannot end up owing the lender more than your home is worth (the market value or equity).

To find out more, have a look at the this Government webpage which explains things in more detail:

https://www.moneysmart.gov.au/superannuation-and-retirement/income-sources-in-retirement/home-equity-release/reverse-mortgages

If things have changed recently – a Home Loan Update may be in order.

When I speak to clients I am often surprised at how much their lives have changed since we last spoke.

Some have married or unmarried, had children, changed jobs, bought a car, got carried away with their credit cards or even changed their financial goals all together!

Sometimes real life gets in the way of our best laid plans and juggling the family finances becomes a challenge.

If your life has changed, it is definitely worth spending a little time for a financial check up. It doesn’t cost anything for me to take a look at your situation and see if there is any way I can help you get set for the next set of changes in your life.

Don’t worry about wasting my time if you don’t need a new loan. My job is to give you ongoing guidance on the lending options which are right for you and your future.

We might not need to change anything at all. However, the banks change their loan offerings constantly and it can be hard to keep track of whether you are in the best loan or could be getting a better deal elsewhere.

Satisfy your curiosity and give yourself some peace of mind.

Give me a call today.

Or if you prefer, you could even just fill out this form and fax or email it to me and then I’ll get back to you with some ideas.

https://www.mortgageaustralia.com.au/email/files/lifeandfinanceupdate.pdf

Looking forward to catching up with you soon.

How to take advantage of a buyer’s market:

One of the keys to success in the property market is TIMING.

So how do you know when the time is right to step up on the property ladder?

For the answer, download our guide to “Taking Advantage of a Buyer’s Market”.

https://www.mortgageaustralia.com.au/email/files/takingadvantageofabuyersmarket.pdf

So, you’re thinking about upgrading your home.

Maybe your kids are getting older now and it’s time to find a place with a big backyard.

Most new home owners will make the decision to upgrade before long – but for many young families, a lack of planning can spell disaster when upsizing the family home. Before you start shopping around for a real estate agent, take a few minutes to ask yourself a few simple questions.

Why do you want to move?

Be clear about your reasons for upgrading. Buying an enormous home won’t necessarily mean greater capital growth in the future. Sometimes the greatest growth is in the lower end of the market. If you want to upgrade simply to grow your property portfolio, consider purchasing an investment property instead.

Where do you want to be?

If you’re upgrading to give everyone some space, consider the area that you want to live in. You might be able to afford a much bigger home by moving an extra 15 minutes from the city. It all depends what sort of lifestyle you want to maintain.

What are the real costs?

Investigate all of the costs associated with upsizing your home. That means, not just the additional mortgage payments, but increased utility bills, perhaps a longer commute to work, more furniture to fill the additional space etc. It’s important to know exactly how much the move will cost you – not just the initial purchase.

What about interest rates?

Could you afford to borrow an extra $150,000 if the interest rates were 2% higher? Make sure you take into account some interest rate rises when you work out what you can afford to borrow. Although a lender might offer you the funds, that doesn’t mean that they know everything about your lifestyle and budget.

Will I change my lender?

You might take the opportunity to shop around for a better deal on a loan before you purchase your new property. It’s important to keep in mind though, there could be charges associated with paying out your current mortgage, and there will probably be some establishment fees involved in taking out a new loan. These fees should be part of your decision-making process.

It’s also important to ask your mortgage broker about Lenders Mortgage Insurance. LMI is generally payable when you borrow more than 80% of the purchase price. Depending on your purchase amount, LMI could add up to several thousand.

Did you answer all of the above questions, and still want to upgrade your home? Great! There’s nothing wrong with wanting to move on to greener pastures. But to avoid putting yourself under financial strain, it’s always important to do your homework.