Should you consider refinancing your current mortgage?

Refinancing a loan can take advantage of lower interest rates to bring down the overall cost of servicing a loan. But it’s not always the best, or the only, option.

There are many different factors borrowers need to consider when thinking about refinancing a loan.  The first step is to speak to us about your needs and whether you can afford to service a different loan structure.

At this point, we will need to find out about your existing loan, repayments and the structure of the facility.

The current value of the property is also taken into consideration, so we will look at current data to give us a good indication of what the asset is worth.

Then we will have a look at the various loan options and figure out whether it’s worth it for you to refinance. It’s not usually worth it if it’s only going to save a couple of hundred dollars a year, taking into consideration exit and application fees. But if it’s going to save upward of $1000 a year, refinancing might be a sensible approach.

You might be interested in a refinance to access some of the equity in your home for renovations or a large purchase, or maybe you want to consolidate some other debts.  We can help you work through your options and help you decide whether this is the right option for you.

Another key consideration is lenders’ mortgage insurance (LMI). If switching loans means you will need to pay LMI again, sometimes it’s not worth refinancing.

If you do decide to go down the refinancing path, working with us rather than going straight to a bank has advantages because we have access to loan options from scores of different lenders.

Blackwattle Finance can compare lots of different lenders and, if there is a better opportunity, we’re able to access it. We are always working to give you great advice that’s in your best interests.

Five things first-home buyers need to know

Before you decide to purchase your first property there are a number of things to consider, including your current personal circumstances and financial status.

1. Think about why you want to buy a home

Do you want to live in it or will it be an investment property? This can help determine the kind of loan you apply for and home you buy, depending on your short and long-term plans.  

2. Research potential properties and loans

Knowing the market is crucial, so do some research on the areas you are targeting.  Check out auction clearance rates and recent sales, as well as price trends in the area. Once you are aware of what you are looking for and the approximate price, the next step is saving a deposit.

While some lenders will offer loans if you have saved less than the usual 20 per cent deposit, being able to show a record of good saving habits will aid in getting your loan approved.

Then, when you talk to us about applying for pre-approval on the right type of loan, we can help to work out what you can afford in terms of repayments.

3. Factor in other costs involved

Depending on the property, there are usually a number of additional costs that you'll need to factor in. This can include, but isn’t limited to, stamp duty, loan establishment fees, legal and conveyance services, utilities, property insurance, maintenance and lenders mortgage insurance.  There are some first home owner grants and tax and duty concessions for first home buyers that you might be eligible for.  Speak to us about what other payments you will face and what concessions you might be able to get.

4. Think about your future

Just because your current situation allows you to get a home loan, that doesn’t automatically guarantee that you will still be able to service it in five years’ time. Is there a possibility your role at work will change? Are you considering going back to study and reducing your working hours?

5. Get professional help

With so many things to consider, getting professional help is highly recommended. We can help you to connect with the expert people for tasks such as property checks, pest checks and any legal queries. Going it alone can prove costly. Avoid nasty surprises down the track by getting the right people to do the appropriate checks for you from the beginning.

Get in touch with us at Blackwattle Finance for great advice about buying your first home.

How to get the best return on an investment property

When purchasing an investment property, there are several factors that could increase or reduce your potential return on investment. In this case it's not just location, location, location. 

When considering a property for investment purposes, the most important question to ask is 'will be attractive to tenants?'.  But how do you know what will appeal to someone you've never met? Settling on a handful of locations is a good start. Young families and couples are the ones that drive capital growth and so a location that is within a reasonable distance to schools, entertainment, transport, and an employment hub is one to look out for.  Other ideal factors are a low vacancy rate and relatively high rental yield.

Although location plays a major role, it's by no means the only defining factor. There is a mistruth a lot of people subscribe to when buying investment properties which is to disregard the quality because you don’t have to live in it.  You should buy a homeowner quality property, because someone has to live in it, and when buying an investment property, you must have an exit strategy, which will generally involve selling to homeowners as well as investors.

To get the most value, you need to think about the demographic of renters who are likely to be living in the area. You should match the property with the area.  If you buy a good quality, decent sized, one bedroom apartment in the inner city, it would be a great investment, however if you put it 40km out, it won’t garner as much interest.

When investing in any kind of property, be wary of any danger signs. One of the biggest mistakes Australians make is not knowing what their cash flow is.  Bad cash flow is worse than paying too much for the property.  It is vital to know how much your chosen property is going to cost after tax, every week after you settle. There’s no point in buying a top-quality property if it’s going to send you broke.

When looking to purchase an investment property, ensure the expert you are dealing with is actually an expert. Everyone has an opinion on property.  Blackwattle Finance can connect you with trusted professionals in our network.  As well as speaking to a real estate expert, speak to Blackwattle Finance for our insights on the market. 
 

Property Investment on a Lower Income

While you may not need a six-figure salary to invest in property, those who earn a relatively low income will have to get a little more creative to start a portfolio. Here are some tips to help you get started.

Find an investor-friendly loan
The challenge for low-income earners is the time taken to save for a sufficient deposit. Some lenders require a higher deposit for an investor than is required for an owner-occupier, so seek out a lender and loan that is investor friendly, or consider living in the property for a period after the purchase before converting it into an investment property as your portfolio grows. 

In any case, having at least 10 per cent of the property’s purchase price as a deposit will not only increase the likelihood of loan approval, it will also increase your borrowing capacity and lower the risk that you will have to pay lenders’ mortgage insurance (LMI).

Prove your financial discipline
Your lower income on an application can be offset by proving yourself a low risk borrower. Having genuine savings will not only highlight to lenders your ability to consistently meet financial payments and live within your means, it is also an opportunity to increase your borrowing power. The same can be said for lowering any existing debts.

You should pay off any car loans or personal loans before applying for an investment loan if you can.  Also, keep your credit card limits as low as is practical as loan servicing is calculated on the limit rather than the balance.  

Choose the right property
When it comes to choosing the property, low-income earners will generally do well to steer clear of anything that’s negatively geared, as you are not trying to offset your high income with losses, and remember the importance of profit over property. 

Regional areas might be a good option as properties are generally cheaper to purchase and there are often better rental yields than in capital cities.  There has also been good capital growth in regional NSW in recent times.  

Seek out different strategies
Investing with a close friend or relative is another way to enter the market for those who earn a low income. As long as agreements are in place, including who is responsible for the mortgage and what happens if one owner defaults, how the property will be used, in what circumstances it may be sold, and how maintenance will be paid for, co-ownership is preferable not owning a property at all.

Find the right loan
There has been recent research suggesting that as many as 60 per cent of applicants who are rejected by the major banks would be eligible for a loan through a specialist lender. Specialist or non-conforming loans do carry higher interest as a rule, to account for the higher perceived risk the lender is taking, but this type of loan can be a stepping-stone to a prime loan, and it’s often possible to switch to a prime loan after a year or so.

Property investment may be slightly trickier for low-income earners, but in most cases is accessible provided the right properties and finance products are sought out. Contact us to find out more
 

Understanding Credit

I have fielded several questions in recent times about the approval process and what a lender looks at when assessing someone for a loan. 
  
The fact of the matter is that there are innumerable variables that come in to consideration – way too many to cover off in a short blog post – but there are some basic tenants that are helpful for a borrower to understand when they are getting ready to apply for a loan. 
  
First and foremost, a lender will want to know about your credit history and will check your credit file.  Obviously if you have defaulted on a previous loan they will want to know about it, but there are more clues on a credit file than basic defaults or bankruptcy.  For instance, if there is a pattern of lots of enquiries for credit this may influence whether you are seen as credit worthy.  If you do have a default this doesn’t necessarily rule you out for a loan entirely. Sometimes, the lender can be influenced by mitigating circumstances, otherwise there are specialist lenders in the market who may still write you a loan with conditions (such as a higher interest rate).  There are also credit repair companies that can help with blemishes on your credit file.  If you are in a situation like this get in touch and we will see if Blackwattle can help you. 
  
Lenders will also want to see that you have stability in your personal circumstances. Factors such as how long you’ve been in your job and/or industry will be considered, and whether you have moved house frequently.  For self-employed and commercial loans, a lender will want to know that you have a good track record in business.  
  
The lender will also want to feel comfortable that you can repay the loan without experiencing undue hardship.  In short, they will not want to loan you more money than you can afford to pay back.  They will check how much money you have coming in versus how much you are spending on your living expenses.  Budgeting tools can help you stay on track of your outgoings, and you can estimate your borrowing power to see what is affordable for you.  You can check out our calculators to get an idea as to what you will be able to borrow. 
  
Your asset position will also come in to play.  What do you own?  Do you have property already, and if so, how much equity is there?  Do you have shares or other investments? Savings?  What other debts do you have?  And ultimately, what is the net position after your assets and liabilities are set off against each other.  This is pretty simple: the stronger your asset position the more comfortable a lender will be with giving you a loan. 
  
If you are looking for a secured loan (such as a home loan), the lender will want to know that the secured asset (the house) is worth more than the loan.  This gives the lender security that if something goes wrong that you will be able to cover the debt by the value of the asset.  Same rings true for any secured loan such as a car on a car loan, or business assets on a commercial loan – the lender will want to cover all or most of the debt with the value of the asset.  
  
Finally, broader macroeconomic factors will be taken in to consideration.  Things such as official interest rates, economic direction, and sometimes factors relating to your industry of business or employment will influence a lenders decision to give you money.  
  
A good broker will understand the factors considered by a lender and will be able to help you navigate the credit approval process and make the best case when applying for credit.  Get in touch with us now for help with your next loan.