I was reading an article about Charlotte Caslick, Gold medalist in Rugby 7’s at the Rio Olympics. Charlotte joined the Australian womens Rugby 7’s program with a dream. To win a Gold medal at the Rio Olympics.
This got me thinking about the people who’s dreams have shaped the world we live in; Nelson Mandela, Martin Luther King, Steve Jobs, Fred Hollows, Ita Buttrose and Evonne Goolagong Cawley and the list can go on. Some have had multiple dreams, Bill Gates for many years wanted to “put a computer on every desk”, is now pursuing the eradication of polio from the world.
Our own dreams may not have the impact on the world of Martin Luther King’s but that does not make them any less important. The dream of providing for our family, owning our own home, learning to drive a car, paying off the credit card are just as important to us and our family and friends.
Thinking about dreams reminded me of this video, I think you would like it
One of my first clients when I started as a broker was Adrian. Adrian and his family had immigrated to Australia, he is a registered nurse and his wife worked as an orderly in the hospital. About 18 months before I met him, Adrian was quite ill for a while, he couldn’t work for about 8 months. Unfortunately they could not meet all their commitments on his wife’s wage while he was off sick. By the time I met him, they were 3 months in arears on the home loan, the credit card was over the limit and they were regularly overdrawing their bank account to meet the bills between pays.
Adrian is an extreme case, and how I helped him is a story for another day. Through our own choices or circumstances out of our control we all can end up in situations where we are struggling to meet our commitments. Whether it is due to retrenchment, reduced work hours (therefore income), failure of a business, illness or simply bad budgeting, if you have a home loan (or other debts) this can quickly lead to mortgage stress as was the case with Adrian.
There are a number of simple tactics the can help you get through difficult times and set you up so next time something unexpected happens you (and your finances) stay in control.
Setting a budget: Work out your expenses, fortnightly or monthly, and factor in your home loan repayments and other commitments. You might need to cut back on spending in places to make sure your home loan is a priority. Keep a diary of your spending and stick to your budget.
Cutting your debt: Reduce the number of credit cards you have (ideally down to one) and their credit limits, and only use them sparingly. Having a home loan means taking control of your spending.
Arranging a direct debit: Arrange for your home loan repayments to be direct debited from your pay, so you always make the payment on time.
While these steps will help, it may not be enough. If you still cannot meet your repayments on your home loan and other debts comfortably you may have to look at refinancing your home. Three options available to you are:
Lower interest rate: If you refinance your home loan to a lower interest rate this will reduce your repayments. For example a $350,000 mortgage with 25 year term and it is refinanced from 5% interest rate to 4.5% would result in a reduction in repayments of $22.50 per week ($1,170 per year).
Extend the loan term: If you have had your mortgage for over 5 years a simple refinance to a new loan term of 30 years can offer immediate help. Using the same example above of $350,000 mortgage refinancing from a 25 year term to 30 years and reducing the interest rate from 5% to 4.5% would result in a reduction in repayments of $62.00 per week ($3,224 per year).
Consolidate debt: The final option is to consolidate other debts into your home loan (for example credit card debt, personal loans and other liabilities where you are paying a high interest rate). If we use the same example as above of $350,000 mortgage refinancing to 30 year term and 4.5% interest rate, but this time we consolidate in a $10,000 credit card debt (with monthly repayments of $300) and a personal loan of $20,000 (with fortnightly repayments of $250). This would result in a reduction in repayments of $220.00 per week ($11,500 per year).
A note of warning: All the options come at a cost, so you should budget at least $1,000 to refinance your home loan (you will not see the cost directly as it will be added to your home loan balance, but it is a cost). Additionally both option 2 and 3 will increase the amount of interest you pay over the term of the loan, so they are not options to be taken lightly and without careful consideration.
One final note: If you do find yourself in hardship and think you will not be able to make your home loan repayment, the first thing to do is contact your lender. They have options available to them which could help you through your difficult times.
As a borrower, taking out a loan of any kind can be an overwhelming and complex process. This isn’t helped by all the different financial product naming conventions, and acronyms that you will undoubtedly encounter.
Today I will endeavour to shed some light on a small yet significant part of the loan process and help explain the important differences between Lenders Mortgage Insurance (LMI) and Loan Protection (LPP) and who each protects.
Lenders Mortgage Insurance
The “Great Australian Dream” is to own your own home, with 70% of the population doing just that. Unfortunately saving for your dream property is becoming more and more difficult. With rising house prices, generating the traditional 20% deposit required to get a loan is harder than ever. Thankfully with the introduction of LMI, borrowers can get onto the property ladder much sooner with a smaller deposit.
What is LMI?
LMI was introduced to enable lenders to offer higher percentage loans while reducing their risk. This insurance is paid by the borrower (you) typically as a one off payment to the lender – either at settlement or added (as a capitalised amount) to the monthly repayments. Lenders will stipulate whether they require you to take out LMI. This is most likely if you have a deposit less than 20% of the purchase price.
Who does LMI cover?
One of the most important things you need to understand is that LMI covers the lender NOT the individual.
LMI covers the lender in the unfortunate event a borrower (you) is not able to maintain mortgage repayments and defaults on their loan. LMI provides assurance to the lender that the loan will be repaid to them.
This would not protect your assets. Though the lender is covered, you would still be at risk of losing your property.
How to protect yourself?
There are many insurance products available to cover you should you be unable to make your loan repayments due to unexpected life events.
Protection products vary and can include cover for a number of events such as loss of job, injury, illness, disability and death. The cost of cover will depend on numerous factors including; the insurance product you select, the insurer, the benefit amount, what is covered, your age and your health.
Choosing the right kind of cover can be daunting, however there are simplified loan protection products available that are easy to understand so you can be sure of what you’re getting. Many are available from your mortgage broker (me).
What if I can’t afford to protect myself?
With all the fees and costs associated with buying property, adding on premiums for loan protection can seem like an avoidable expense.
What you need to consider is whether you can afford not to have it? Do you have savings or other assets you could use if you became sick and couldn’t meet your repayments?
We all happily (yet begrudgingly) insure our car, home and our contents but what about your biggest asset of all…you?
If you are taking out a loan with less than a 20% deposit, unlike LMI you get to choose whether or not to take out loan protection. The most important thing you need to be aware of is the risks you’re left exposed to personally if you don’t.
If you’d like to know more about loan protection (LPP) or LMI you should contact me on 07 3911 1190 today.
Before taking their property off the market, your vendor wants a deposit to ensure that you will settle, but your funds won’t be available until settlement. What do you do?
Most vendors require property purchasers to pay a deposit ahead of settlement as a commitment to purchase the property. If a purchaser doesn’t have that money to hand immediately, but will at settlement, a deposit bond can be used in lieu of cash.
The bond provider will need to verify that the purchaser has the capacity to fund the property’s full purchase price plus the bond provider’s fees on the settlement date. Fees are usually a percentage of the purchase price, and approximately five per cent is common.
Most bond providers’ assessments do not take into account any expected earnings between the bond’s issue and the settlement. Rather, it assesses the equity value of the purchaser’s assets at the time of application.
A deposit bond is not a form of insurance for either the vendor or purchaser. If a purchaser who has used a deposit bond decides for any reason not to go ahead with settlement, the deposit can be claimed by the vendor, and the bond value will still be payable to the bond provider by the purchaser.
Deposit bonds can be used for residential, investment and commercial property purchases, and can be combined with other deposit types, so a deposit could be made up of bond, cash and loan money.
Most providers will issue a bond with an expiry date matching the settlement terms of the property, up to two years, so that a longer bond expiry can be used when purchasing property off the plan.
Usually, an unused guarantee can be returned to the bond provider for a refund, less administration fees that vary from one provider to another.
To work out whether a deposit bond is the best way for you to pay a vendor’s deposit, give us a call today on 07 3911 1190 for a chat or fill in the contact form.
When you’re desperately trying to save up a deposit for a home and just see the prices of property climbing and climbing, it’s difficult to remain patient. But there is another way: a guarantor can help.
If you don’t have a substantial deposit for a home loan, there are still a number of ways to obtain credit. These are known as family pledges and there are two types available to borrowers: service guarantees and security guarantees.
Service guarantees are less common that security guarantees and they involve a family member guaranteeing all of the repayments on a loan, as well as being named on the property title. The drawback of this approach is that it usually means first home buyers are not entitled to any government grants.
A more popular option is a security guarantee. Borrowers who have a limited deposit often use this approach. In this situation, a relative or friend (usually a borrower’s parent or parents) is prepared to use the equity in his or her own home to guarantee the deposit of the borrower.
For example, for a total loan amount of $600,000, in a security guarantor situation the borrower/s would take on the debt of 80 per cent of the value of their loan, which would be $480,000, in their own name/s.
The loan for the balance, $120,000, is then guaranteed in the names of the guarantor/s and borrower/s, limiting the guarantor’s liability while providing security for the lender, meaning that lender’s mortgage insurance is not necessary.
This is a very popular way of first home buyers entering the property market. It works well when borrowers don’t have a substantial deposit, but their parents own their own home. It’s a great option as long as the parents are comfortable with their child’s ability to pay back the loan.
To find a solution that will help you own your own home sooner, give us a call today on 07 3911 1190 for a chat.
One of my first clients when I started as a broker was Adrian. Adrian and his family had immigrated to Australia, he is a registered nurse and his wife worked as an orderly in the hospital. About 18 months before I met him, Adrian was quite ill for a while, he couldn’t work for about 8 months. Unfortunately they could not meet all their commitments on his wife’s wage while he was off sick. By the time I met him, they were 3 months in arears on the home loan, the credit card was over the limit and they were regularly overdrawing their bank account to meet the bills between pays.
