Budget and Inflation have been dominating the headlines.

Dez Budget and Inflation dominate headlines.
Budget and Inflation have been dominating the headlines.

Budget and Inflation have been dominating the headlines.

 

The Budget and inflation have been dominating the headlines recently. Here are four other stories that are important to know:

  • Variable loans surge in popularity
  • Housing scheme milestone
  • ATO warns investors
  • Building costs explained

Read more below.

Variable-Rate Loans Scale New Heights of Popularity.

Back in March 2020, at the start of the pandemic, 13.38% of new borrowers were choosing fixed-rate loans and 86.62% were choosing variable. But in March 2024, a staggering low of only 1.40% of new loans were fixed, compared to 98.60% variable, according to the Australian Bureau of Statistics.  Best Mortgage Interest Rates
 
The reason so many borrowers are going variable right now is because of a widespread belief that interest rates are at or near their peak, which means variable borrowers would benefit from any future rate cuts. Conversely, in July 2021, when interest rates were at record-low levels, 46.02% loans were fixed, while only 53.98% were variable.
 

If you’re wondering whether fixed or variable is right for you, here are the main pros and cons of each option:

  • Back in March 2020, at the start of the pandemic, 13.38% of new borrowers were choosing fixed-rate loans and 86.62% were choosing variable. But in March 2024, a staggering low of only 1.40% of new loans were fixed, compared to 98.60% variable, according to the Australian Bureau of Statistics.
  • The reason so many borrowers are going variable right now is because of a widespread belief that interest rates are at or near their peak, which means variable borrowers would benefit from any future rate cuts. Conversely, in July 2021, when interest rates were at record-low levels, 46.02% loans were fixed, while only 53.98% were variable.
  • If you’re wondering whether fixed or variable is right for you, here are the main pros and cons of each option:

 

Are You A First Home Buyer Or Single Parent

Are you a first home buyer or single parent who wants help getting a property? If so, you’ll be interested to learn that the federal government’s Home Guarantee Scheme (HGS) has now supported more than 150,000 buyers since its inception in January 2020.

first time home buyerEligibility is limited. There are property price caps, which vary from state to state. Income caps also apply – $125,000 for individuals and a combined $200,000 for joint applicants.

The HGS consists of three programs:

  • First Home Guarantee – eligible first home buyers can purchase a property with just a 5% deposit, without having to pay lender’s mortgage insurance (LMI). There are 35,000 places available this financial year.
  • Regional First Home Buyer Guarantee – the same as above, but for regional first home buyers only, with 10,000 places this financial year.
  • Family Home Guarantee – eligible single parents and single legal guardians can purchase a property with just a 2% deposit without paying LMI. There are 5,000 places this financial year.

 

Statistics From Housing Australia (HGS)

Of the 150,000 buyers who have used the Housing Australia (HGS), 51% have been women and 55% have been under the age of 30, according to Housing Australia, which administers the scheme.

 

Contact me if you’re thinking about accessing the HGS. I’ll let you know if you’re able to qualify for the scheme and manage your loan application if you are.

Australian Taxation Office (ATO) Has Warned Property Investors.

The Australian Taxation Office (ATO) has warned property investors it will pay close attention to their reported income and deductions this tax time, with official data showing that about 90% of investors get their tax returns wrong.

 

ATO assistant commissioner Rob Thomson said general repairs and maintenance on your rental property can be claimed as an immediate deduction – but expenses that are capital in nature (like immediate repairs on a property you just bought or improvements some time after purchase) are not deductible as repairs or maintenance.

 

“We often see landlords making mistakes when it comes to repairs and maintenance deductions on rental properties, so we’re keeping a close eye on this. This year, we’re particularly focused on claims that may have been inflated to offset increases in rental income to get a greater tax benefit,” he said.

 

“You can claim an immediate deduction for general repairs like replacing damaged carpet or a broken window. But if you rip out an old kitchen and put in a new and improved one, this is a capital improvement and is only deductible over time as capital works.”

 

High Residential Construction Costs Contributing To Housing Shortage.

Since late 2019, homebuilding costs have increased by nearly 40%, according to a speech by Reserve Bank assistant governor Sarah Hunter, while general inflation (referred to as headline CPI in the graph) has been less than 20%. So why have residential construction costs grown twice as fast?

 

Ms Hunter said one reason is that building materials and labour have “risen sharply” since the pandemic. Another reason is that higher interest rates have made it more expensive for developers to fund their projects.

 

High building costs have partly contributed to “an imbalance between new supply of housing and growth in demand,” according to Ms Hunter. She said there were several ways in which these imbalances may be resolved, including a slowdown in the growth in building costs and an increase in average household size.

 

“But it will not be a quick fix. Demand pressure, and so upward pressure on rents and prices, will remain until new supply comes online,” she said.

Construction loans

Here Are Three Things To Consider If You’re Thinking About Building A Home In 2024:

Here are three things to consider if you’re thinking about building a home in 2024:

  • Begin by speaking to me, so I can calculate your borrowing capacity. This can vary significantly from lender to lender, especially as some lenders are more builder-friendly than others.
  • Do you homework when searching for a builder – ask friends for recommendations, check online reviews and ask builders for the contact details of their most recent clients.
  • Be conservative with your planning – projects often run overtime and over budget.

Want a Construction Loan? Lets Talk.

Understanding Lenders Mortgage Insurance (LMI)

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Understanding Lenders Mortgage Insurance (LMI)

Understanding Lenders Mortgage Insurance (LMI)

Mortgage Insurance, BictonLenders Mortgage Insurance (LMI)is a financial product often required by lenders when a borrower applies for a mortgage with a relatively small down payment. This insurance protects the lender in case the borrower defaults on the loan. While it doesn’t directly benefit the borrower, LMI enables borrowers to secure a mortgage with a lower down payment, often as low as 5-20% of the property’s purchase price, making homeownership more accessible.

The Purpose of Lenders Mortgage Insurance

The primary function of LMI is risk mitigation for lenders. When a borrower defaults on their mortgage, the lender risks financial loss, especially if the loan-to-value ratio (LVR) is high. The LVR is a percentage that reflects the loan amount relative to the property’s appraised value. A higher LVR indicates higher risk, as the borrower has less equity in the property. By requiring LMI for high LVR loans, lenders transfer some of this risk to an insurance company.

How LMI Works

When a borrower takes out a high LVR mortgage, the lender typically arranges the LMI policy. The cost of LMI, known as the premium, can be a significant upfront expense or can be added to the loan amount, spreading the cost over the loan term. The premium is calculated based on several factors, including the LVR, the loan size, and the borrower’s credit profile. Once the premium is paid, the insurance policy is active for the life of the loan, covering the lender for any potential losses due to borrower default.

Benefits of LMI for Borrowers

  1. Lower Down Payment: One of the most significant advantages of LMI for borrowers is the ability to purchase a home with a smaller down payment. Without LMI, many lenders would require a down payment of at least 20% to offset their risk, Mortgage Insurance products allow people to enter the market that would not be able to with out this feature.
  2. Faster Access to Homeownership: For individuals with steady income but lack substantial savings, LMI allows them to enter the property market sooner without saving for a sizeable down payment over several years.
  3. Potential for Property Appreciation: Entering the housing market earlier can allow borrowers to benefit from potential property value increases over time. This can be especially advantageous in rapidly appreciating markets. In a rising market, paying LMI premiums can be wiser than trying to save for a larger deposit, as a growing market may offer more benefits than delaying your purchase to save more.

Drawbacks of LMI for Borrowers

    1. Cost: The primary downside of LMI is the cost. Premiums can be expensive, adding thousands of dollars to the total home purchase cost. This cost doesn’t benefit the borrower directly, as it protects the lender.
    2. No Coverage for Borrower: LMI protects the lender, not the borrower. In default, the borrower remains responsible for the outstanding debt, and their credit rating can be adversely affected.
    3. Increased Debt: If the LMI premium is added to the mortgage, the borrower ends up borrowing more, which means paying more in interest over the life of the loan.

    LMI vs. Private Mortgage Insurance (PMI)

In some regions, such as the United States, a product similar to LMI is private mortgage insurance (PMI). While both serve the same purpose of protecting the lender, there are differences in their implementation:

Best Mortgage Advisor, Winthrop

 

  • Payment Structure: PMI premiums are often paid monthly as part of the mortgage payment, whereas LMI premiums can be paid upfront or capitalized into the loan.
  • Termination: PMI can often be canceled once the borrower’s equity reaches a certain threshold (usually 20%), while LMI typically remains in place for the life of the loan.
  • Regulation: The regulation of PMI can be more stringent in some areas, providing more standardized protections for borrowers.

 Regulatory Aspects and Market Variations

The requirements and specifics of LMI vary by country and region. For example, in Australia, LMI is a common feature of the mortgage market and is regulated by the Australian Prudential Regulation Authority (APRA). In contrast, in countries like Canada, mortgage default insurance (the equivalent of LMI) is mandatory for down payments between 5% and 19.99% and is regulated by the Canada Mortgage and Housing Corporation (CMHC) alongside private insurers.

Alternatives to LMI

For borrowers who wish to avoid LMI, there are a few potential alternatives:

  1. Larger Down Payment: By saving up to meet the 20% down payment threshold, borrowers can avoid needing LMI.
  2. Guarantor Loans: Some lenders offer loans where a family member can act as a guarantor, providing additional security and potentially eliminating the need for LMI.
  3. Shared Equity Schemes: Some government programs offer shared equity schemes, where the government or a non-profit organization helps cover part of the purchase price in exchange for a stake in the property. This expanded on further down.

Waived Mortgage Insurance

There are some cases where clients can waive mortgage insurance. Certain professions, such as Medical, Lawyers, and Accountants, can have the LMI waived with as little as a 10% deposit. Initially,  this was referred to as the medical package, but recently, lenders have included other professions in this feature, and this list seems to be evolving.
There are a small number of lenders that offer other initiatives around mortgage insurance. A couple of lenders offer 85% loans without LMI. There are also lenders like Keystart that the Government backs. They offer 98% loans with no mortgage Insurance. Usually, the interest rate is higher than the traditional home loan lender’s to cover the risk, and the lending policies are stricter.
Additionally, there are State Government Schemes such as shared equity, where the Government provides a percentage of the deposit for shared ownership in the property or Low Deposit Schemes where the Government guarantees mortgage insurance to the lender to help the consumer, reducing the deposit requirement to just 5%. While there are strict policies to adhere to, these schemes offer a secure and reassuring path to homeownership.

It’s important to note that not all lenders provide the aforementioned features, and they are not always well advertised. This underscores the necessity of seeking advice from a professional Mortgage Broker, who can guide and support you in navigating these complex options.

Conclusion

Lenders Mortgage Insurance plays a crucial role in the mortgage industry by facilitating higher-risk loans, enabling more individuals to achieve homeownership. While it adds cost for borrowers, the benefits of entering the property market sooner can outweigh the disadvantages for many. Understanding the specifics of LMI, including its costs, benefits, and alternatives, is essential for prospective homeowners to make informed decisions about their mortgage options.

 

Contact us now to learn more about Lenders Mortgage Insurance.

 

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9 Things To Look For In A Good Mortgage Broker

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9 Things To Look For In A Good Mortgage Broker

9 Crucial Qualities to Seek in Your Ideal Mortgage Broker.

Best Mortgage BrokerGetting a mortgage is delicate and tricky, not just because it is usually the most important and biggest investment a lot of people will make but also because of the challenge associated with finding the right deals.

 

And, while many people understand that they require the assistance of a mortgage broker, they are unsure how to make the best decision. The right mortgage broker can make the difference between getting a perfect deal and having a negative experience that makes you apprehensive about house ownership.

 

Whether you’re looking to refinance an existing mortgage or considering taking out a mortgage for a new home, this article will help you choose the right mortgage broker for your real estate financing goals.

What are the qualities of an Ideal Mortgage Broker?

There are mortgage brokers everywhere, but sadly, they don’t offer the same value. Here are some of the most important qualities you should look out for when trying to choose a mortgage broker.

1.   A Good Broker Has Expertise and Specialisation

Seemingly, one of the most obvious qualities you need to look out for in a potential mortgage broker is their expertise and proven specialisation in the field. This is an important quality for a broker, as it opens up your choices about the different mortgage options available to you. You can thus get access to conventional loan options and government-backed options that may be ideal for your needs. This knowledge will be invaluable in providing a custom-fit mortgage solution for you.

2.    Access to a Broad Network of Lenders

Another quality you should look out for is the broker’s access to a broad network of lenders. Working with a broker without a broad network is as good as working alone, as there’s very little knowledge of the latest options available. On the other hand, a broker with access to banks, credit unions, and other alternative institutions ensures you have a diverse range of mortgage products to choose from.

3.    Communication and Responsiveness

There’s a common saying that goes, “Communication is key.” This is also applicable here, as all the expertise and skills in this world are of little use to you if the broker isn’t responsive or does not effectively communicate with you. Effective communication means you’re informed and aware of the significance of every stage of the mortgage process. Similarly, your broker should be readily accessible and responsive to any question you might have concerning the mortgage process.

4.    Reputation and Reviews

Before you open communications with a broker, take some time to find out what kind of reputation they have. One of the best ways to do this is by speaking to previous clients about their experience with the broker. Check out testimonials and their referrals to get an overview of general client satisfaction. A broker that has a stellar reputation and positive reviews is more likely to deliver exceptional services compared to one with a questionable reputation.

5.    Mortgage Brokers has Negotiation Skills

Negotiation is one of the primary reasons for working with a broker. Sometimes, you think a deal is good, but in reality, it could be better. However, by collaborating with a qualified broker, you can make sure you get the best possible mortgage offer. Some of the key areas where the broker’s negotiation skills will make a difference include the interest rate and closing costs. By investing in a proper mortgage broker, you can end up with significant savings throughout your mortgage.

6.    Client-Focused Approach

A big red flag you should watch out for is when a broker uses a “one size fits all” approach. Your needs and goals should always be the most important thing, and in most cases, they’re different from the next person. Working with a broker who takes the time to understand your financial condition and aspirations is the only way to obtain a mortgage package tailored just for you. This way, you’re sure to get a mortgage solution that aligns with your financial capacity and strategy.

7.    Transparency and Honesty

There’s nothing more important than working with a transparent and honest mortgage broker. Apart from the terms and conditions that most people know to ask about, everything from the fees to challenges is something that you as a client should understand clearly. A transparent and honest broker aims to build a working relationship with the client based on trust. When you work with a broker who exhibits this trait, you can be rest assured and confident that no one is running circles around you.

8.    Problem-Solving Skills

Best Home Loan Broker

No matter how skilled and experienced a mortgage broker may be, there can always be difficult and unexpected situations in the mortgage process. One such challenge is an unexpected change in financial position. But by working with someone adept at problem-solving, when such challenges arise, your broker knows what to do to ensure the mortgage process does not fall apart. This ability is important to ensure a smooth and efficient mortgage process.

9.    Credentials and Licencing

Before you throw in your lots with a mortgage broker, ensure that such a broker has all the necessary credentials and is licenced by the appropriate bodies. There are unfortunate stories of people who have fallen victim to alleged professionals and regretted their decisions because of this singular oversight. Ask for certifications and confirm memberships with the required regulatory bodies to show the broker’s evidence of proper training and commitment to ethical practises.

Conclusion

Real estate financing can be a tricky business, but by looking out for these qualities, you’re giving yourself the best shot at having a smooth experience.

If you want a broker that not only simplifies the mortgage process but also ensures you get a custom-fit mortgage deal, by keeping these qualities in mind, you’ve already put yourself in a good position!

 

Is it better to rent or buy.

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Is it better to rent or buy.

best home loan rates

 Renting vs. Buying: Deciphering the Dilemma

Introduction:

The age-old debate of whether it’s better to rent or buy a home is one that stirs the minds of many prospective homeowners. Both options come with their own set of advantages and drawbacks, making the decision a complex and highly personal one. In this article, we will delve into the factors that should influence this choice, helping individuals navigate the intricate decision-making process.

Financial Considerations:

  1. Upfront Costs:

    • Renting: Generally involves lower initial costs, requiring a security deposit and sometimes the first month’s rent.
    • Buying: Requires a substantial upfront investment, including a down payment, closing costs, and potential additional expenses.

  2. Monthly Expenses:

    • Renting: Stable monthly payments, with the landlord typically responsible for maintenance and repairs.
    • Buying: Mortgage payments may fluctuate, and homeowners are responsible for maintenance, property taxes, and insurance.

  3. Building Equity:

    • Renting: Payments contribute to the landlord’s equity, offering no return on investment for the tenant.
    • Buying: Builds equity over time, providing potential financial gains when selling.

Lifestyle and Flexibility:

  1. Mobility:

    • Renting: Offers flexibility, allowing for easier relocation without the burden of selling property.
    • Buying: Ties homeowners down to a specific location, potentially limiting career or lifestyle changes.

  2. Customization:

    • Renting: Limited ability to customize or renovate the living space, as it remains the landlord’s property.
    • Buying: Provides the freedom to personalize the home, making it uniquely yours.

  3. Stability:

    • Renting: Offers a sense of short-term stability with the option to move as needed.
    • Buying: Implies a long-term commitment, offering stability and a sense of belonging.

Investment Perspective:

  1. Appreciation:

    • Renting: Misses out on potential property appreciation as any increase benefits the landlord.
    • Buying: Allows homeowners to benefit from property appreciation, potentially yielding financial gains.

  2. Real Estate Market:

    • Renting: Shields individuals from market fluctuations, as they are not directly impacted by property value changes.
    • Buying: Involves exposure to market shifts, with potential for both gains and losses.

  3. Return on Investment:

    • Yes, sometimes renting while investing is a much better financial arrangement than owning your own home. Don’t rush off and start leasing your house by any means- there are many reasons why you might AND might not use this strategy. Talk to us first!

Emotional Factors:

  1. Sense of Ownership:

    • Renting: Lacks the emotional satisfaction of homeownership, as the property is not truly yours.
    • Buying: Offers a sense of pride and ownership, fostering a stronger connection to the property.

  2. Responsibility:

    • Renting: Requires less responsibility for maintenance and repairs.
    • Buying: Involves the responsibility of home maintenance, which can be both rewarding and challenging

What are some other factros for Renting v Buying

So, when is it better to rent than to be a homeowner? Well, it can be:

1. When you regularly change work locations

With the enormous costs of selling and relocating, stamp duty, and other expenses associated with selling a home every time you move, renting while investing is usually a great option. It allows you to jump into the property market for the longer term and gives you time to gain capital and rental growth instead of losing money every time you sell.

You can also accumulate several investment properties over a shorter timeframe, adding to your financial stability. When you purchase your home, you will have a few properties to either pay for it or help fund it.

This type of investing requires a particular finance structure, so please avoid going directly to your lender for this approach; speak to us First.

 

2. When you are young and single

With career changes more acceptable for younger Australians, there is no guarantee they will be in the same job, industry, or state or country in their first 10 to 15 years of employment. So why bother with the ins and outs of homeownership?

Please take advantage of those high tax breaks and get an investment property as the one constant in your life. While our career progresses, so does your net worth and potential financial security. You won’t be the one still working when you 70!

3. When you are old and single, you know what I mean.

Life has crept up on you quickly, and you think it’s too late? You would be surprised how little creative thinking and finance structure can get you into the property market and catch up on lost time. It is harder now since the Royal Commission and Responsible Lending have made it challenging to get a mortgage after age 50; however, there are some workarounds.

There are some ways we help our mature clients transition into the property market at a later stage of life.

Many lenders now look at an aging workforce and accommodate these needs with particular investment lending strategies. Lenders will now add specific requirements for shorter loan terms or provisions to review or repay if employment ceases. Be sure to ask us when you call.

4. When you recently separated. 

There is nothing more challenging than starting again. Yet many of our property investors are single parents who work with us to determine the best way forward financially. If your kids are getting older and going to leave home in a few years, it sometimes makes sense to rent that larger family home and purchase an apartment or townhouse now as your future home. One benefit may be that buying the right property will also decrease your taxable income.

5. When you are approaching retirement and want to purchase your future downsized property Now. 

Like old and single, many of our investors are in the 55+ age group when they purchase their first investment property. We can do a lot for you with double the income, inheritance, and super.

6. If you either can’t afford or can’t find your dream home

Delay gratification is not something our young ones are accustomed to or could even contemplate. But for switched-on singles and couples, renting now, investing now, and buying your dream home later back be key to that mansion you dreamed of. Once again, the change of rules and responsible lending has some impact on this, but there can be workarounds.

7. How do we know this? We’ve done this for our clients.

Only a few (because most don’t realize they can), but our now higher net worth clients have created their wealth through renting while young, investing early, then selling some, and keeping some investment properties later. This has allowed them to purchase a dream home valued at double what they could have imagined. Purely a dream for 92% of the population and a reality for a few. Which one do you want to be?

Conclusion: apply for a home loan

Ultimately, the decision to rent or buy hinges on a multitude of factors, each carrying different weights for different individuals. Financial stability, lifestyle preferences, and long-term goals all play crucial roles in making this significant decision. Prospective homeowners must carefully evaluate their own circumstances and priorities to determine whether renting or buying aligns better with their current and future needs. The key lies in finding the balance that not only fits one’s financial situation but also complements their desired lifestyle and long-term aspirations.

 

 

The First Home Loan Deposit Scheme (FHLDS)

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The First Home Guarantee Scheme: Unlocking Ownership.

Have you heard about the First Home Guranatee Scheme andmortgage brokers perth wondering how you can get a piece of that action? Or perhaps you’re struggling with information overload for first time home buyers and you just want a couple of straight answers about if you are eligible to apply.

In this guide you’ll only get straight answers about the Guarantee Scheme and written in plain English. You can thank us later!

First Home Guarantee Scheme in a competitive Market

The rising market pressures have presented a considerable challenge for First Homeowners as properties’ escalating values surpass their saving capacity. For those entering the housing market for the first time, having a pre-approved First Home Guarantee Scheme can enhance their competitiveness when vying for the property they aspire to purchase.

Under normal circumstances, Purchasing your first home, you would need to have a 20% deposit, or you would have to pay them Lenders Mortgage Insurance (LMI), which can be thousands of dollars. The First Home Guarantee Scheme, originally called the First Home Loan Deposit Scheme, allows just 5% without the Mortgage Insurance. The Guarantee allows First homeowners to enter the market early and have a better chance of purchasing a home. The grant enables the applicant to find a property in a competitive market.

Lenders started offering the Grant to First Home Owners as of April 4th, 2020; it has now been renamed First Home Guarantee. :

We can contact your bank on your behalf and see if they offer the extension should finding a property be challenging and the pre-approval run out of time.

Note: some banks may not approve the extension if you are only a few days away from the expiration day of their pre-approval offer. Get in touch today to make sure you get all the deadlines.

 The Australian Government introduced the First Home Loan Deposit Scheme to help people enter the property market more efficiently. It’s not a grant. The Government won’t give you money to help you save up your initial deposit. They will cover the mortgage insurance to the lenders. An approved loan under this scheme is treated as if the applicant has a 20% deposit.

Instead, the Guarantee helps you save thousands of dollars and start your home loan application with a deposit of as little as 5%.

It all comes down to bypassing the Lender’s Mortgage Insurance, which is charged for any loan with a deposit of less than 20%.

With the FHLDS, the Government is now guaranteeing 35,000 low-deposit loans each year from January 1st, 2020. Participating banks and lending institutions guarantee that they won’t charge LMI or increase their home loan interest rates for applicants.

 Am I Eligible for The First Home Guarantee Scheme?

This scheme is mainly for low to middle income earners who are Australian citizens.

To be eligible for the FHLDS you must meet these criteria:

  • Australian citizen or a permanent resident
  • At least 18 years of age
  • Income test for singles and couples, single applicants income up to $125,000 per year and total income for a couple is $200,000.
  • MUST be a first home buyer
  • You intend to live in the property (it can’t be for investment)
  • If applying as a couple you must be married or de-facto
  • You have 5% deposit saved

 

Eligibility Checklist for Singles: https://www.nhfic.gov.au/single/
Eligibility Checklist for Couples: https://www.nhfic.gov.au/couple/

 

How to Apply for the FHLDS

At Morgan Finance WA, we can help you with every step of the application. We can also help you see if you’re eligible and also to choose which lender is the best to go with. We know how hard it can be to decide which lender is the right one for you!

On the other hand, you can also apply directly at a bank or lending institution for the grant participating lender. There are currently 32 lenders which offer guarantees under the Scheme (including a guarantee that they won’t charge higher interest rates for FHLDS home buyers).Cheapest Home loans Kardinya

 

 

First Home Gurantee Scheme Banks & Lenders

Major Bank Lenders

  • Commonwealth Bank of Australia
  • National Australia Bank
  • Westpac bank

Smaller Lenders

  • Australian Military Bank
  • Auswide Bank
  • Bank Australia
  • Bank First
  • Bank of us
  • Bendigo Bank
  • Beyond Bank Australia
  • Community First Credit Union
  • CUA
  • Defence Bank
  • Gateway Bank
  • G&C Mutual Bank
  • Indigenous Business Australia
  • Mortgageport
  • MyState Bank
  • People’s Choice Credit Union
  • Police Bank (including the Border Bank and Bank of Heritage Isle)
  • QBANK
  • Queensland Country Credit Union
  • Regional Australia Bank
  • Sydney Mutual Bank and Endeavour Mutual Bank (divisions of Australian Mutual Bank Ltd)
  • Teachers Mutual Bank Limited (including Firefighters Mutual Bank, Health Professionals Bank, Teachers Mutual Bank and UniBank)
  • The Mutual Bank
  • WAW Credit Union

Start your First Home Guarantee Scheme application today, Lenders still have available positions.

Morgage Kardinya

Get in touch with our experienced team at Morgan Finance WA to start your FHLDS application today!

 

The Banking Royal Commission & Mortgage Brokers

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The Banking Royal Commission and Mortgage Brokers

The result of the Banking Royal Commission

New Business Loans MurdochThe findings of the Banking Royal Commission, conducted by Commissioner Hayne, were made public on 4th February 2019. The report contains 76 recommendations, 5 of which are directly in relation to mortgage broking.

In particular, the Commission recommended that “trailing” commissions paid to Mortgage Brokers by Banks (and other lenders) should first be prohibited, and after 2 to 3 years all commissions should be prohibited (including Upfront commissions). Further it was recommended that commissions be replaced with “fees for service” paid by borrowers.

The Commission argued that the practice of commissions being paid by Banks and lenders to Mortgage Brokers creates a conflict of interest as brokers are incentivized to write as many loans as possible, rather than to act in the best interest of the Borrower. The Commission argued that a focus on volume leads to dishonest (“cowboy”) conduct.

Mortgage Brokers in Australia

The great majority of Mortgage Brokers are small businesses or contractors who earn all their income from commissions paid by lenders. A small number of Mortgage Brokers are owned by Banks or lenders – Aussie Home Loans was owned by the CBA for example. There are some 16,000 brokers in Australia who collectively employ over 27,000 people.

How commissions work for mortgage brokers

There are 2 types of commission paid by lenders to Mortgage Brokers – Upfront and Trail. Commission arrangements vary between lenders, and there may be individual arrangements (such as bonuses) with specific lenders or brokers however this is now very rare.

Upfront commission

An Upfront commission is a one-time fee, paid a month after a loan is settled by the lender.

Upfront commissions are calculated taking into account various factors such as the loan amount and the net amount from funds in an offset account. Some lenders did once offer a volume based commission however those arrangements are no longer available, commission can be affected by the overall quality of loans submitted  by the Mortgage Broker the commission paid can be affected by the level of arrears and defaults by the clients.

Upfront commission is usually in the range of 0.65% to 0.7% (+GST) multiplied by the loan amount.

For example, the Upfront commission on a home loan for $250,000 at a commission rate of 0.65% is $1,625.

Trail commission

Trail commission is a fee paid monthly for the life of the loan (once settled).

The Trail commission is usually in the range of 0.15% to 0.275% (+GST) per annum multiplied by the outstanding loan amount.

For example, the monthly Trail commission on a home loan for $250,000 at a commission rate of 0.15% per annum is $31.25 per month.

Factors affecting commissions

Several factors affect the ongoing payment of commissions;

  • If a loan is fully repaid early (ie before the contracted loan term) the Trail commission is no longer paid.
    In addition, if early repayment occurs within 12 months of settlement, the Upfront commission is “clawed back” by the lender (ie it is repaid by the broker to the lender), how much work the broker has done to get that customer the loan or despite the conduct of the lender to upset the client, the broker will get the commission clawback. This has been in the industry prior to the royal commission. Some lenders even clawback if the branch network changes the loan structure despite the broker introducing that client to the lender.
  • If repayment occurs between 12 and 24 months, 50% of the Upfront commission is clawed back, generally for most lenders, this may vary on exemption.
    In some cases a further 25% may be clawed back in the third year.
  • If a loan goes into arrears or default the Trail commission is no longer paid and the Upfront commission will be clawed back as described above.
  • The Trail commission falls with the loan principal.
  • As a resul of the Royal Commission, a net offset was included against the remuneration of broker commission. If a loan has been written and the client happens to put a lump sum in their offset account, the broker will only get paid on the net amount. If a client takes out a $200,000 loan and put $200,000 into their offset account, the broker wont get paid for the work they have done. The lenders are supposed to reverse this once the clients draws on the loan.

Also note that on average home loans are repaid or refinanced in 7 years, so the Trail commission on a loan will cease on average in 7 years.

Do borrowers pay any fees or commissions?

Generally Borrowers don’t pay any fees or commissions to Mortgage Brokers. In some instances however a fee may be charged, for example;

  • Complex situations (which require additional time and effort)
  • Small value loans, typically under $300,000 (where commissions are very low)
  • Commercial or business loans (which require additional time and effort)
  • Loans that repaid or refinanced within 2 years, but the broker must issue a quote stating they are charging the fee before the loan has been applied for.

Why are commissions paid to Mortgage Brokers?

Upfront commissions compensate Mortgage Brokers for the work required to establish a home loan by;

  • Understanding and assessing the Borrower’s personal circumstances
  • Reviewing the available alternatives – there are literally hundreds of home loans types and variations available from numerous lenders
  • Preparing application documentation and collating supporting materials
  • Answering lender questions and requests for further information

Trail commissions recognise that a Mortgage Broker will monitor the loan for its ongoing suitability and whether better alternatives may have arisen. Many brokers will conduct an annual financial health check at no cost to the borrower.

Mortgage Brokers also incur substantial indirect costs service such as administration and loan processing costs, licensing, compliance costs, professional insurance, ongoing education and office costs.

Are Mortgage Brokers conflicted?

Best Mortgage Broker near meThere are many existing safeguards in place to protect Borrowers from inappropriate or unethical behavior.

Mortgage Brokers must hold an Australian Credit Licence (ACL) and adhere to the protections set out in the National Consumer Credit Protection Act 2001 (NCCP Act). In particular, a broker must not recommend a product that is unsuitable based on reasonable inquiries of the Borrower’s financial situation. In July 2020, a new legislation will be introduced which will require the mortgage broker to prove they have focused on what is best for their clients. Majority of mortgage brokers already practice this but this legislation will embed this into the finance framework and the ensure clients interest are above the broker and the lender. January 2021, the Best Interest Duty was introduced as further compliance.

Additionally, the structure of commissions is such that there is no incentive to promote unsustainable or unaffordable loans as both Upfront and Trail commissions are discontinued in the event of loan arrears or default.

What is the Best Interest Duty

The Best Interest Duty has been introduced for Brokers to act in their clients best interest. This is to ensure that the clients interest are priority over the Mortgage Brokers. Items that are assessed as Best Interest is the cost, Interest Rates, fees and charges and repayment size.

Cost is not the only consideration, there is non cost to be considered. The Mortgage Broker needs to make sure the loan features offer the consumer value and benefit.

 

Studies confirm that increase commissions don’t result in volumes

Studies by the Banks have demonstrated that increased commissions do not result in increased loan volumes. Rather the drivers of higher volumes are competitive interest rates, loan product features and borrower service.

Mortgage Brokers promote strong competition between lenders and provide a valuable, transparent service to borrowers – any lessening of that competition will likely have the effect of increasing loan rates and lessening services provided to borrowers – the opposite outcome to that intended by the banking Royal Commission.

Read more about Home loans here!

Morgage Kardinya

 

Quick Guide to Refinancing your Home and Investment Loan.

Dez Refinancing
Quick Guide to Refinancing your Home and Investment Loan.

Quick Guide to Refinancing your Home and Investment Loan

Refinancing Home Loan - Winthrop

As interest rates are nearing the end of their upward trend, and a potential rate cut is on the horizon, the prospect of refinancing your home and investment loans becomes more favorable. Considering home loan refinancing in the coming year, you must acquaint yourself with the entire process. Our concise guide provides valuable information to help you understand the critical aspects of refinancing your home and investment loans.

5 Steps to Take when Refinancing your Home Loan

When considering refinance as an option, there are certain steps that you need to take. They include:

  1. Determine the features you want in your Home loan. 

You have to think of the reasons as to why you want to refinance. The main reasons for refinance include:

  • To access equity
  • To get a lower interest rate
  • To switch to a different product presently not provided by your current lender
  • To consolidate a number of loans to one lender

Depending on your reason for refinancing, you have to think of the features that you want with your new loan. Determine whether you want to offset, split, redraws, etc in order to make more value out of your mortgage. Do you want a variable rate instead of a fixed one? Do you want to lengthen or shorten the loan term? All of these are the things to consider beforehand.

  1. Choose The Best Refinance Option: Your Guide To Ideal Choices

There are two types of loan refinance options to choose from. The first one is the internal finance option, which involves switching your loan to a new one while staying with the same lender. The second one is an external refinance option, which consists in switching your loan from an existing lender to another lender.

If your current lender can offer the features you’re looking for, then internal refinancing might be an ideal option. If your current lender doesn’t provide the product you’re interested in or can’t allow consolidation of all your loans, then seeking external refinancing may be in order.

 

  1. Find the best deal on interest rates and cost. 

The whole point of refinancing is finding a better deal than you already have. So, you must compare the current home loan with other home loans. Once you find a home loan that seems like a good deal, proceed with the following vital step.

  1. Do the math. is the new loan beneficial to you? 

The interest rate is critical for comparing the old and the new loans. You may opt to refinance to get a lower interest rate. In this regard, there’s one piece of the puzzle that you must solve. You have to determine the effect the lower interest rate (promised by the new lender) has on the total cost of your new home loan. Remember, there are government fees and charges to refinance to another lender.

A lower interest rate may translate to lower monthly payments, but it doesn’t necessarily mean the new loan is cheaper. Therefore, checking whether the lower interest rate comes with a longer loan term is essential. This will prevent you from choosing a new loan that increases the total cost of your home loan.

If the total cost of your new home loan is lower than that of the current loan, you can consider yourself to have found a better deal. You can also compare your newfound discount with other arrangements to ensure that it’s indeed the best on the market.

 

  1. Explore The Loan Costs Involved, What Are The Fees And Charges?

Following the 2011 eradication of mortgage exit fees, borrowers are no longer obligated to pay penalties such as deferred establishment fees when refinancing. Nevertheless, there are other costs that you must explore beforehand. Depending on the new lender’s policy, specific fees may be applicable. Therefore, you must determine what upfront costs you must pay to establish the latest home loan.

Conclusion

The decision to refinance your home and investment loan should come after establishing that the benefits of the new loan far outweigh both the benefits of the existing loan and the costs of the new loan. Hiring a mortgage broker can be wise to ensure you choose the most ideal refinancing option.

Call a trusted and experience Mortgage Broker now

Morgage Kardinya

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