The Able Blog
Here you will find all there is to know about home loans and insurance. This is about providing you, the customer, with valuable knowledge so you can make the right decision with your home loan or insurance needs.
By SHANE CROWLEY
2nd August, 2019
INSURANCE CLAIMS – WHAT IS REQUIRED FOR PROOF OF OWNERSHIP
We recently had a case whereby a client had been broken in to by thieves and had thousands of dollars’ worth of contents stolen. Although this in itself is a tough ordeal the client was unable to provide any proof of ownership which put a delay on the claims process. This bares the question, what can be done to ensure that when you need to make a claim, you can provide proof of ownership to ensure a smooth claim process? The below are a few hints and tips to ensure a smooth claims process;
*Retain Receipts of purchases for any substantial contents
*If you do not have receipts you can utilise manuals and/or warranties for any items as proof of ownership
*Maintain an Electronic Document Folder
Within this Document you want to store as much information on items you have as possible including;
*Scanned copy of receipts so they do not take up space in the old shoebox
*Catalogue of all major items in household – such as in a Microsoft Word Document. Include description of the item, date purchased and amount paid for/valued. This will save countless hours and could help note what items are taken during the claims process
*Pictures of every item in the house, including jewellery, as photos can be used by most insurers as proof of ownership where receipts are not available
*Ensure your Document folder is not just stored on your home computer, as if your computer is stolen you will lose all the information required. You can store this information in the “Cloud” which you can obtain through free or cheap options such as Dropbox, or you can purchase an External Hard Drive where you can store somewhere separate from your Residence.
Although this may take some time to setup initially, it will save you countless hours in the long run in time and stress. For further information and tips or to obtain a free, no obligation review of your General Insurance contact the team at Able today on email@example.com or 89819188.
By SHANE CROWLEY
4th July 2019
HOW TO AVOID LOAN DEFAULT
Late payments and loan defaults leave marks on a credit history that can complicate any effort to refinance or secure a loan in the future. Default can also lead to a home being repossessed and sold by the lender, so it’s very important to act quickly to avoid it. While late bill payments and a loan in arrears can impact your credit report and lead to difficulty securing finance in the future, the worst case scenario is repossession of a property.
In the past, lenders may have taken months to start the proceedings that lead to repossession. However, according to the Financial Rights Legal Centre (FRLC), this is not the case anymore. “Lenders work to a timetable to begin court proceedings and this can be very difficult to stop once this process has started,” the FRLC explains in its Mortgage Stress Fact Sheet.
Once a mortgagee has defaulted on a loan by failing to make repayments as agreed, they can be sent a Default Notice, which gives them 30 days to catch up on the repayments that are in arrears, as well as continuing to make any repayments that are due in the 30-day period.
“This notice will include an acceleration clause,” the FRLC explains. “This means that if the arrears are still outstanding after the 30 days has lapsed, the entire loan becomes payable.” Thirty days after the Default Notice, the lender can take vacant possession of a property that is not occupied, or seek a court order for possession of a property that is occupied.
The key to avoiding this substantial trouble is, of course, to keep making repayments. From time to time, circumstances such as unexpected job loss or illness will impact a mortgagee’s ability to make payments and, when this happens, the key is to act quickly, as there are more options before a Default Notice is served than there are after.
“Don’t be scared,” advises the FRLC. “Lenders make repayment arrangements all the time.” Many lenders will negotiate short-term variations to repayment schedules as long as there is a plan to get back on track, and there are circumstances in which lenders are obligated to agree to such arrangements. It is important, however, not to agree to payment terms that cannot be met. “Make sure you think through your plan as to when you will resume making payments. Do not promise something you are not certain you can achieve or is not realistic,” warns the FRLC. “If you don’t know when things will improve, ask for an initial arrangement to be reviewed at the end of the agreed repayment arrangement.”
One of the advantages of recognising a looming problem before you get behind in repayments is that a finance broker may be able to assist you to pinpoint the source of the problem, as well as identify savings that may be available by refinancing to a lower-rate or lower-fee loan. Once there are clear signs of financial distress, this will become much more difficult. If you are struggling to make your mortgage repayments, an MFAA Accredited Finance Broker may be able to help you negotiate with your lender or find a more manageable loan.
By SHANE CROWLEY
5th June 2019
GUARANTEEING YOUR CHILD’S LOAN
Rising house prices are making it increasingly difficult to enter the market. Parents who guarantee their children’s loans can help, but it is important to understand how this can impact the parents’ retirement or investment plans. Being a guarantor generally means using the equity in your own property as security for your child’s home loan. It can help a first-home buyer to secure finance for a property they can afford but may not have a large enough deposit for, and to avoid the added cost of lenders mortgage insurance. There are other advantages as well. “By guaranteeing a loan, you’re helping your child enter the property market sooner,” Mario Borg, Director and Mentor at Masters Broker Group explains. “Also, your child may be able to buy in a more desirable location and a home that better suits their needs. If they did it on their own, they may need to go further out of the city or perhaps settle for fewer bedrooms.”
You may want to help your child but it’s important you don’t go into the transaction blindly. The main risk of guaranteeing the loan is that, depending on the structure of the guarantee, you could be liable should your child default on the payments, either by taking over the repayment schedule or handing over a full repayment. If you can’t make the payments, the lender may sell the home used as security. If this is still not enough, the lender may also require you to sell assets to meet outstanding debt. Another major risk is a bad credit rating if default occurs. Plus, if you need to borrow money for another purpose, your property cannot be used. “If you want to buy an investment property, you can’t use the equity in your home because it’s already tied up in the child’s loan,” Borg says.
Minimising the risk
There are ways to minimise the risks. The most common is using a monetary gift or private loan. “This involves borrowing money against your property in your name, and then gifting it to your child,” Borg states. “You should have a legal agreement in place.” Another way to avoid the risk is to buy the property jointly with your child. This means your name is on the title and you have a certain percentage entitlement. When it comes to guaranteeing a loan, it’s always sensible to speak to a professional. You should also consider asking a legal professional to draw up a formal loan document outlining all conditions of the loan, interest rate and expected repayments.
Finally, outline an exit strategy. Financial situations change and, as the loan decreases with repayments, there may be an opportunity for you to withdraw your support to free up your assets without impacting your child’s loan. Find out more about the different types of loan guarantees, read a case study about a broker helping their clients with a family guarantee or, for expert advice tailored to your needs, speak to an MFAA Accredited Finance Broker.
By SHANE CROWLEY
8th May 2019
WHO PAYS YOUR ‘FREE’ MORTGAGE BROKER
There’s no such thing as a free lunch, but that doesn’t mean you will receive lower levels of service or expertise from a credit adviser who doesn’t charge you. It just means that someone else is paying for it. Each business will have its own reasons for its revenue model, and each structure offers different advantages. Approximately 90 per cent of the more than 10,000 MFAA accredited finance brokers don’t charge a fee for their advice, relying on lender commissions for their income.
Others rate their intellectual property as a service worth paying for upfront. As part of the majority, Mortgage Choice has never once charged a client an engagement fee in 23 years of business. Jessica Darnbrough, Head of Corporate Affairs, says that, while she can understand why some people have introduced a fee-for-service structure to cover costs even when a client takes their business elsewhere, recent survey results reveal that it’s not something Mortgage Choice’s borrowers would agree to take on at this stage.
“It’s a tricky thing to introduce, and those who do tend to be independent players,” she says. “But the truth is, buyers do shop around these days and brokers can end up doing a lot of work and not getting paid for it, especially since the introduction of the National Consumer Credit Protection Act 2009 – that prompted a lot of brokers to start charging. So, we might very well see an increased level of brokers charging in the future.”
Robinson Sewell Partners (RSP) has done just that. After several years in business, agribusiness finance specialist RSP recently introduced a fee-for-service model that allowed it to help clients even when it would not make business sense to do so if the only income would be commission. It alsoallowed RSP to assign a clear value to its services and the experience in its team.
“It’s been a learning curve, but we realised that trying to engage clients without charging any fee and just relying on the back end of success, really undermined how we evaluate our propositions,” says Director, Ian Robinson. Clients have been increasingly committed to the process because they wanted to guarantee a return on their investment and, contrary to the Mortgage Choice experience, the company saw little debateabout the new fee structure. “We value our intellectual property very highly. We’ve been in the trenches with the banks for years and we understand the internal mechanics – this is very powerful information to have when we’re operating on the client’s side.”
A clear advantage of seeing a fee-for-service adviser is having someone onside who isn’t worried about the volume of your business. They are paid to do a job for you, and they do that whether your loan is $200,000 or $2 million. The main and very obvious advantage of seeing a credit adviser who does not charge a fee is that it lowers the cost of procuring finance and, despite public debate, the different commission structures offered by the various lenders do not impact the credit adviser’s recommendations. Not only are MFAA accredited finance brokers bound by ethics agreements that demand they do not suggest loan products that are unsuitable for a client, an adviser who prioritised commissions over their clients would see their business suffer as clients realised that they would get a better deal elsewhere. Whether you choose an adviser who charges fees or one who relies on commission, MFAA accredited finance brokers are bound by ethical standards requiring them to give you appropriate advice. Find out more about your local credit advisers here.
By SHANE CROWLEY
9th April 2019
EXPLAINER – CONSTRUCTION LOANS
If you are thinking of building your own home, you will need to be familiar with the ins and outs of construction loans. Construction loans are just not as straightforward as simple home loans. There are additional decisions to be made about the structure of the loan, additional documentation is required and the funding is released in an entirely different way.
In addition to documentation about your finances, income and identity, your application for a construction loan needs to include contracts or tenders for the construction, as well as the plans so that a valuation can be performed. Further documentation will also be required before the first payment is made from the lender to the builder, including a schedule of the payments to be made (called drawdowns), the builders’ insurance details and the final plans that have been approved by the local council.
To avoid having to contribute your full deposit and being charged interest on the entire loan amount from the moment the land purchase settles, you can split your mortgage into a land loan and a construction loan. At settlement of the land purchase, you pay lender’s mortgage insurance (LMI) on the land loan, if LMI applies, and start being charged interest and making repayments on the balance of the land loan. The interest and repayments on the construction portion then kick in only as each drawdown is processed.
The drawdown schedule is very important, as you don’t start paying interest on each portion of the loan until it is paid to the builder – you, the lender and the builder need to be satisfied with the schedule. For the lender to make each payment to the builder, you will need to fill out a drawdown request form from your lender, and submit it to your builder. The builder can then send the lender your form with an invoice for that part of the payment and, after the lender is satisfied that the work has been completed and is up to the standard expected in the valuation, the drawdown can be completed with a payment to the builder. Any changes to the contract and plans can trigger a reassessment of the loan, so be as sure as you can be that the plans and contracts the lender sees are final, and it is also worth trying to pay for any small amendments from your own pocket, rather than changing the loan and risking a reassessment.
Problems can also arise when other work on the site that isn’t completed by the builder needs to be paid for, as some lenders only make the remaining funds of the mortgage available after the completion of construction. While some builders will include subcontractors as part of the main contract, meaning that they can be paid by the builder as stages of work are complete throughout the drawdown schedule, others will not do this. Again, this may make it necessary to pay from your own pocket.
Find an MFAA Approved Credit Adviser who has the expertise to find you the construction loan that best suits your needs.
By SHANE CROWLEY
9th April 2019
HOW TO NEGOTIATE THE BEST PROPERTY PRICE
Negotiating the best property price isn’t a matter of swindling a seller. It’s about doing your homework, knowing what you want, knowing the market and making sensible offers. When you are buying property, getting the best price can mean the difference between being able to afford it and having to settle for second best. And, of course, a purchaser is often negotiating with a seasoned professional, so any time spent brushing up on negotiating skills is well spent. But we’re getting ahead of ourselves. For a first-class property price negotiation, the homework starts well before you even let the agent know you are interested. The first thing to do, says buyers’ agent Shelley Horton, is get a good understanding of your requirements and circumstances. Aside from the location and type of house you are looking for, this understanding involves finance, of course. “One of the first things I would be wanting to find out is whether a purchaser will be borrowing to finance the property, and how much they are looking to borrow,” Horton explains. “If someone is relying on finance as part of the property purchase process, I would always recommend they go and get pre approval, because if you don’t have pre approval, it doesn’t really put you in a strong position against the rest of your competition.”
Aside from meaning that when you do eventually make an offer it will be taken seriously by the seller or their agent, having finance sorted out means that you can be sure of what your stamp duty and associated costs are, and exactly what price range you can consider. “We can start to work out what an offer range might be, and then it’s just a matter of ascertaining the market,” Horton says. “This means doing lots and lots of research – seeing the prices other similar properties are listed on the market, checking recent sell prices for other properties that fit the criteria, comparing as much aswe can like for like, so then you know that you’re not paying too much.” Horton initially looks at online resources such as realestate.com.au or Domain. She also uses RP Data reports, but notes that the general public doesn’t usually have access to these (agents, valuers and credit advisers usually do). “The reports give us a little more insight into properties that have sold, and background on the circumstances and situations leading up to a property coming on the market, how long they’ve been on the market and whether they have switched agents,” she says.
Above all, the best thing a buyer can do is get out and look at properties, and speak to the agents to build contacts. “I inspect properties and go to auctions just to keep in touch with the area, to see what the market is doing,” Horton says. “If you go to an auction and there was a lot of hype around the property, but then you find that there was really only one person interested in bidding, it tells a different story.” Once you have your finance sorted and you’ve found that special property, get the building and pest inspections done as soon as you can so that if you do make an offer, you are prepared to move quickly. This can give you the edge on your competitors. “If you have your homework done – your due diligence reports, your finance – you know exactly the position you’re in and you’re ready to go, and letting the agent and vendor know that is actually a good thing,” says Horton. “An agent wants to look for all those signs to see who is the most serous buyer. So being able to make an offer, possibly with no cooling off, will put you ahead of anyone else, because the agent knows that you’re going to start talking about dollars and, once you agree, it’s a done deal.”
Finally, it’s time to talk dollars, and you are well armed by the time you reach this point. Most agents will make buying guides available at inspections, so you will have a good idea of the vendor’s expectations; you will have a certain budget in mind because your finance is locked in; and you will have a good idea of the value of the property from all the preparation you have done (if you are still unsure here, you can have a professional run a valuation or engage a buyers’ agent). So what should you offer? “I tend to not start too low because the agent won’t take you seriously,” Horton says. “You have to get that balance right. You might want to start five per cent below a realistic opinion of the value of the property, and go from there. It also depends on your budget. Certainly start below your maximum, and work up to that. Every dollar you get the property under your budget is a bonus for you.”
One exception to this is when a property has been on the market for a long time and there is not much interest in it. “That might be the case where you can get something at a heavily discounted price because the property is stale,” Horton says. The key to knowing whether this is the case, of course, is all that thorough research you’ve done. Find an MFAA Approved Credit Adviser who can help get your finance sorted out so you are ready to make a deal.
By SHANE CROWLEY
11th March 2019
WHEN WAS YOUR LAST HOME LOAN HEALTH CHECK?
Circumstances can change, leaving your home loan less suitable than it was originally. A home loan health check can reveal if you’re paying too much.
Your MFAA Credit Adviser can do a full home loan health check for you either in person or over the phone. They will check if your loan is still competitive and still suited to your individual needs. Having an expert do this for you can also take the stress out of the process for you. It isadvisable to get this check done at least once a year, or if your circumstances change.
Questions to ask:
Be aware of what you want checked. Think about the following when you speak to your adviser:
*Am I paying an unreasonably high interest rate?
*Am I paying high fees?
*Am I happy with the service I receive?
*Does my loan give me the features I need?
*Am I paying for features I don’t use?
*Have my financial circumstances changed
A home-loan health check will generally cost you nothing and could save you thousands. Your home loan features could be improved or you could find yourself with a lower interest rate. A better payment structure could also be introduced, making your repayments more manageable. Checking the state of your current loan could uncover the possibility of taking out additional finance, which can consolidate any other debt you may have or help you purchase an investment property.
By SHANE CROWLEY
11th March 2019
LOANS FOR VACANT LAND
Whether you are buying land for an immediate build, as an investment or for a ‘one day I will build and live here’ dream, a vacant-land purchase can be financed by a range of mortgages. If you are planning to build immediately, or at least fairly soon, a construction loan might be the best option. Most lenders demand that building on a construction loan must start within a specified time, usually between one and three years, depending on which lender you use and whether the property will be owner-occupied or investment.
This mortgage type allows you to draw down segments of the loan amount in stages as they are needed – for the land purchase and then for the stages of construction – which saves you paying interest on the entire loan amount when you don’t need to be. If you don’t plan to build immediately, and you want the loan for the land without any time pressures, a vacant land loan may be the best option.
While regular mortgage types can be used for the purchase of vacant land, most lenders also offer vacant land loans. Most will go up to a 30-year loan term and finance up to 90 per cent of the land’s value, and some go as high as 97 per cent loan-to-valuation ratio (LVR). Lenders’ Mortgage Insurance (LMI) would still most likely be payable on any LVR higher than 80 or 85 percent, depending on the lender.
The vacant land purchase can be used to increase the equity in your existing home or investment property and, while redraw facilities are usually not available on construction loans, they generally are on land loans. If you have stumbled upon the perfect position for your dream home, future holiday getaway or retirement oasis, but aren’t ready to plan building it yet, the next step is to speak to an expert about the different types of loans that can finance the purchase.
By SHANE CROWLEY
15th February 2019
5 SIMPLE WAYS TO INCREASE LOAN REPAYMENTS
Paying off a mortgage can seem relentless – every payment counts of course, but it can seem to be taking forever to make a dent. Here are some simple ways you can increase the amount you pay off and own your home sooner. Reducing the principle on your mortgage as quickly as you can means paying less interest, so your future payments are going even further towards reducing that principle.
To find the ideal balance between the extra repayments you can afford to make and the time this will shave off your mortgage term, use a mortgage calculator. For example, on a $350,000 loan at six per cent interest, a monthly repayment of $2100 will see a total term of 30 years and a total cost of just over $750,000, while paying just $500 per month on top of that will bring the loan term down to just under 19 years and the total cost to just over $580,000. Boosting these monthly payments by a further $400 to $3000 will see the loan paid off in less than 15 years – halving its term. So, here are five simple ways to increase those mortgage repayments.
Ignore the bank
Well, sort of. Don’t pay any attention to the amount that you are told is the minimum repayment, as long as you pay more. Work out the most you can afford to pay, think of this as your minimum repayment, budget for it and stick to it.
Think of every step you take towards reaching your goal of owning your property outright as a way of treating yourself. Sure, an expensive bottle of wine is nice, but doesn’t taking a year off your loan taste pretty sweet, too?
Every single increase to your income, no matter how small, should be channelled into the debts that are incurring the highest interest. If this is your mortgage, send it there. Do the same with your tax returns, any bonuses at work and even cash gifts.
Track your spending
Download an app to track what you are spending your money on, and trim where necessary, channelling the savings into your mortgage payments. Think of all those little things you don’t really notice yourself pulling out your wallet for. In one week, that extra coffee on Monday morning, a sandwich from the cafe instead of one you have made yourself, that round of shots you probably shouldn’t have shouted on Friday night and getting your nails done on Saturday add up to $150. Over a month, that’s $600. Increasing a monthly repayment from $3000 to $3600 could trim more than 10 years off the term of a $500,000 loan. Now how much do you really want that coffee?
Eyes on the prize
Watch the forecast term on your mortgage – seeing it go down will motivate you to work even harder.
Talk to an expert
Talking to your credit adviser about refinancing options could reveal a way to pay down your debt sooner even without increasing repayments. A credit adviser will be able to look into whether you may get a better interest rate or lower fees with another lender, or even with your own, and will be able to help minimise any refinancing costs.This is especially important each time your goals or your financial circumstances change. If you are earning more than when you took out your loan, you have paid off a personal loan or a credit card since that time, or your property’s value has risen, your credit adviser may be able to negotiate a far better deal than the one you are on.
For example, if your credit adviser negotiated your interest rate down from seven to six per cent on a $500,000 loan, on which you are making $3500 monthly repayments, your loan term could drop from just over 25 years to 21 years. An MFAA Approved credit adviser is with you for life to make sure you’re always getting the best deal you can from your mortgage. Find a credit adviser who can help you own your home outright sooner.
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