Refinancing your properties
As they commonly say, you cannot go wrong by investing in properties in the long run - there is a large number of people flocking to invest either in residential or commercial properties in Australia. In our experience, these are mostly individuals who have a little disposable income on the side that they wish to put to good use.
We encourage our clients to contemplate investing in such properties since they have many potential financial and lifestyle benefits:
The properties gain value over time, creating wealth
You are able to maximise your tax benefits via tax deductions
You can rest assured of the security in retirement
While our clients can envision the benefits of investment properties straight away, we are careful to tell them about the other aspects as well. Investments in real estate usually take a chunk out of your savings, and if you do not plan it right, it may cause a lot of stress in the early days.
We usually ask all our clients to have a chat with their accountant or financial adviser before undertaking such an investment. We will help you through the process, making sure there are no surprises.
The process of securing a loan for an investment property is pretty straight-forward, and not at all different from buying a home to live in - first time or for the umpteenth time. Refer to the process described in the previous section for this.
Negative Gearing and Positive Gearing
This is one of the big reasons for Australians to invest in real estate. With the current income tax structure, a negatively geared property can help the owners claim deductions in their income tax. Simply put, if the costs (such as loan interest and fees) related to the investment property are greater than the rental income, the owner may be able to offset the costs against her income tax.
A property is said to be positively geared if it generates an income that is greater than the loan costs. However, there may still be some tax benefits. We ask our clients to talk to their accountant or financial adviser on negative and positive gearing prior to purchasing an investment property.
There is no single investment strategy that works for everyone. In order to ascertain what works best for an individual, Lenders' Hut offers a confidential meeting with no strings attached. We will meet the client, and discuss the individual's situation at length and work out the best way forward.
Buying a house takes a much bigger sacrifice than forgoing smashed avo toast on Sundays.
At Lenders' Hut, we realise how big a deal it is, and so we work extra hard to make sure you get the best possible deal, with the least possible hassle.
Not all home loans are the same. That does not mean some are better than others. Depending on the circumstances of the borrower, one home loan product may be better suited than the others.
Generally speaking, there are 5 different types of home loans.
Basic Home Loan
This is a simple variable rate home loan that can either be ‘principle and interest’ or ‘interest only’. Most of these have the option of making extra repayments and accessing them through redraws. These usually have a simple ‘set and forget’ format with no constant need to reassess the repayments. A basic home loan usually comes with low or no ongoing fees.
We recommend such products for first home buyers who are getting used to making mortgage repayments. They are good for individuals who are looking for a loan with few fringe benefits and no extras.
Fixed Rate Loan
As the name suggest, this has a fixed interest rate for a specified period, typically up to 5 years. In many instances, these loans come with restrictions on making extra repayments. Moreover, there may also be additional costs involved if a client breaks a fixed contract. We suggest our clients to pay a rate lock fee if that is available - it allows the client to secure the fixed rate for a set period of time.
Such loans are great for people who are after a stable repayment, without the scare of a sudden rise in the interest rate. If a client is on a budget, this would definitely help them put their minds at ease.
Standard Variable Rate
A flexible loan which may vary according to the Reserve Bank cash rates. The standard variable rate is often used in conjunction with a professional package in order to get a more competitive interest rate. No penalties for extra repayments.
Standard Variable Rates are suitable for our clients who want to take advantage of different features and benefits such as offset accounts, repayment holidays, and construction facilities. People who can pay a lump sum.
Line of Credit or Equity Loan
Line of credit is an ongoing interest only facility with maximum approved limit. A line of credit often attracts a higher interest rate because the flexibility it offers. It is generally a part of a larger structure, such as a loan strategy next to a home loan, investment loan. Interest will only be charged on the amount that you draw down from the approved line of credit limit. This type of products are great for investors and clients who need a high-level debt consolidation strategies.
Split facility is the type of facility where you can have more than one type of loan under the same facility. Split facility can be part fixed and part variable and mostly linked with a package offering of a lender. Split facility offers peace of mind by having some of your repayments remaining stable whilst you can make unlimited extra repayments on your variable loan portion.
What is the difference between Principal & Interest vs Interest Only home loan repayments?
There are two types of repayment methods that you can set up for your loan: Principal and Interest and Interest Only repayments.
Principal and Interest repayments are when the bank has calculated the amount you borrow plus the interest over the total period of your loan term (normally 30 years) to pay that loan off in full by the end of the agreed term.
Interest Only indicates that the repayments you are required to make are based on the balance of your loan. Because you are only paying the interest, the repayments are usually lower. This may help with budgeting and cash flow but unless you make additional repayments, the loan balance will not reduce.
It needs to be known that an interest only loan may reduce your borrowing capacity due to the changes in the way banks assess this type of loan structure. An interest only loan can be a great structure but should not be used as a tool purely for affordability reasons.
Basic steps for obtaining a Loan
Step 1 : Secure a deposit
If you already own a property, it may be easier for you to arrange the funds. Depending on how much the value of your current portfolio has increased, or if you made extra repayments on your mortgage, there may be a significant amount of equity available for drawing on for a deposit. We can help you figure it out.
However, do not panic if this is your first property. You can definitely utilise your savings towards the deposit for your investment property. We will ascertain your situation and help you figure out whether you have enough to cover all costs towards your investment property.
Step 2 : Get a pre-approval
We always prefer our clients to get a pre-approval before they go house-hunting. This way, the client has a clear idea of how much she can borrow. The lending institution - be it a bank or otherwise - would look at the client's situation, and give her a conditional approval of an amount that they would be willing to lend her towards a property purchase.
Step 3 : Go house-hunting
Armed with the pre-approval, our clients typically go through hundreds of listings online, and attend a number of open homes. One cannot be too careful about such a purchase. We can provide you with pointers on what to look out for when inspecting properties.
Step 4 : Make an offer
Houses are sold through a number of different ways - from private treaty to auctions. While auctions may be exciting, we ask our clients to be extremely careful and not get carried away. It is always best to bid within your limits so as not to stretch your financials too thin.
Step 5 : Communicating with Lenders' Hut
Once you have committed to buying a property - the clients let us know as soon as possible. Lenders' Hut then works with the relevant stakeholders - banks or other lending organisations and the nominated solicitor to turn your dreams into a reality with the least amount of fuss.
Before delving into perhaps the biggest investment of your life, it is best to prepare yourself by doing a bit of homework. Not only will you be more knowledgeable about the process, the exercise will help you figure out what you are looking for. Our experience suggests that people have very different ideas on what they want their home to be like. While some want that barbecue in the backyard, there are others who want the convenience of apartment living.
We usually suggest our clients to get to know how much they have to spend, what kind of loan they want, and a little about the property market, before rushing into it. This gives them a boost of confidence they need to make a great informed decision. When you’re buying your first home, chances are you’ll be looking for a loan that’s simple, easy to manage and has a great interest rate.
We have jotted down the most common questions we are asked here, but please be sure to ask us directly if you have a specific query.
Q. How much can I borrow?
The simplest answer is, "borrow what you are comfortable borrowing.” You’ll be amazed at how varied your maximum borrowing capacity will be with different lenders. Each lender has different standards which will influence your borrowing power. Factors such as other ongoing debt will affect how much you can borrow. After consulting with us you will have a clear understanding of your maximum borrowing capacity. It is important to disclose all income and expenses so that an accurate borrowing capacity can be provided to you.
Q. Which Home Loan is the best one for me?
There is no shortcut to finding ONE BEST LOAN that would be great for everybody. The term “best” home loan thus is very relative - it changes from one individual to another. However, we guarantee that we can find a few that you would find compelling, and we can help you secure the one of your liking.
First Home Buyers
WE WORK FOR YOU
At Lenders' Hut, we work for YOU.
Since we work with a very large pool of vendors, you are never stuck between a rock and a hard place when dealing with us. We are confident that we can find you a financial product that is just right for your needs.
Loan refinancing or debt consolidation may be useful if:
Your current loan, or loans, are becoming difficult to manage
Your circumstances have changed
You would like to save more on fees from separate loans
You have too many credit cards
You have car and personal loans that have high interest rates
You’d like to negotiate a better interest rate
There are many ways to approach a refinance, and it is crucial that you are aware of all of these options prior to making the choice to refinance. It can be risky to consolidate debts if you are not careful, or not aware of all the necessary considerations.
It is important to have a very clear idea about the loan terms - interest rate, regular payment amounts, and early exit fees etc. It is Reviewing your loan terms with us would ensure that you have a solid understanding of your loan terms, your responsibilities, options, and rights.
When you are refinancing, your major objective should be to minimize the interest rate, including all the different fees and charges. That usually means going far beyond the stated rate and comparison rates. We can make sure you are taken care of by the banks.