How to refinance to renovate

Refinancing your assets to renovate a property is a significant decision that will hopefully improve your standard of living or add substantial value to your property.

Refinancing isn’t as straightforward as you might expect. The type of renovation proposed goes a long way to dictating the loan required. If the wrong loan is chosen, you could be left with a pile of unexpected debt.

Know your budget

Before considering refinancing, you need to have a clear idea of your budget.

If you underestimate your budget, you run the risk of getting knocked back from your lender if there has been a cost blow out.

Be conservative with your projection. If you think you need $100,000, allow for contingencies and apply for an additional 10% -20% just in case, if you can afford it. The key is stick to your budget. What you don’t need can be cancelled once the building works are completed.

Line of credit loan (Home equity loan)

Also known as an equity loan, to be eligible, one must be looking to make upgrades to the cosmetic domain of their property.

Installing a new bathroom or kitchen, painting the interior or exterior of the house and other basic construction falls under a line of credit loan.

These renovations, often, do not supersede the costs of structural changes, so homeowners can call on up to 80 per cent of their Loan-to-Value Ratio (LVR).

A line of credit loan is a “revolving door” of credit that combines your home loan, daily spending and savings into one loan.

If you choose a line of credit home loan, it essentially works as a large credit card. You can use it to purchase cars, cosmetic renovations and other investments. However, the interest-only charge starts when the equity is drawn down.

Keep in mind, line of credit loans provide you with money that can gather interest quickly, so if you are ill disciplined with repayments or money, speak to that matches your unique circumstances.

Construction loans

Construction loans are suitable for structural work in your home, for example, if you’re adding a new room or making changes to the roof.

 Construction loans give homeowners the opportunity to access larger sums of money, with the amount dependent upon the expected value of the property after renovations are completed.

The advantage of a construction loan is that the interest is calculated on the outstanding amount, not the maximum amount borrowed. This means you have more money available in your kitty, but only pay interest on the money you choose to spend. For this reason, the broker may recommend that you apply for just one loan, but leave some leeway in your borrowed kitty.

When applying for a construction loan, council approval and a fixed price-building contract are required.

Your lender will appoint an assessor to value your construction at each stage of the renovation. This will happen before you pay your instalment. When construction is complete, speak to your mortgage broker as you may be able to refinance back to the loan of your choice.

When looking at both these loans, consumers can call on other property they own to boost their overall borrowing amount if they wish.

Broker advice

If you speak to a broker, they will be able to determine which loan will give you the options you seek.  This advice is essential, as a poorly planned construction loan could cost you more down the road.

Consumers should ask their broker, ‘What type of loan am I eligible for?’, because if you don’t get your construction loan right, you may be jeopardising your bank security.

 

What happens when your fixed rate expires

Do you know when your fixed rate term is coming to an end? Once it finishes, the bank is free to quietly switch you to a higher interest rate – unless you act fast! Think of how costly it could be if you simply let the bank choose your interest rate. If your bank charges you just 0.5% more than the competitive interest rates, this adds up to a significant amount over the term of your loan. You can save yourself a great deal of money and perhaps even cut years of your loan, if you are proactive about monitoring your interest rates and choosing the right option for you.

Switching to a variable rate

A variable rate can be a great option if you want to take advantage of low interest rates, or if you want the flexibility to redraw or make extra payments. When your fixed rate term expires, the bank will automatically switch your loan to the Bank Standard Variable Rate (BSVR). Do some research to find out whether this is a competitive rate; if not, you can talk to your bank and try negotiating a better deal. And if they do not offer you a competitive rate, you can switch lenders.

Lenders generally prefer to negotiate rather than lose a customer, while they don’t generally make their best offers to customers with a proven history of loyalty. So when it comes to your interest rate, stay alert and ask questions – keep your lender busy, trying to keep you happy!

Extend your fixed rate

One option is to ask the bank to re-fix your home loan, extending it for another one, three, five to ten years. The fixed rate is a good option for you, if you are planning to pay off your loan steadily over a long period of time, and you want each mortgage payment to be a regular amount, so you can budget your money precisely. Fixed rate protects you from rate rises and you could be paying less than the variable rate. However, there is also the risk that you could end up paying higher than the market rate if you are locked into an outdated fixed interest term. There may also be a break fee if you change or pay off your loan within the fixed period; this means the fixed rate is not a good option for anyone planning to sell their home.

Call us if you need assistance pinpointing the best and most competitive option for you.

 

How to speed up your home loan approval

Asking how long it takes to get a loan approved is like asking how long a piece of string is. Every application is unique, so the time between your first contact with your bank or broker and approval can never be predetermined. There are, however, some things you can do to help hurry your application along.

Although very rare, same-day loan approvals are possible depending on the lender’s criteria, the complexity of the deal and turnaround time.

If you’re not prepared, it could take up to a month. The most common reason for a delay is a lender’s turnaround time to assessment, especially when some lenders have competitive offerings and experience larger application volumes, but a lack of preparation can cause this delay to snowball.

Whilst a finance broker will help you take all the necessary steps to ensure a fast home loan approval, there are simple ways you can help hurry the process along before your first meeting with your broker.

Disclose all information

To avoid back and forth requests, which can delay your application, ensure your lender has a thorough understanding of you as an applicant including appropriate identification of all borrowers. Provide all the supporting and necessary documents upfront to your broker, and convey as much detail as possible in relation to your requirements and objectives and have good, current information on your financial position. The broker will need to not only have your full financial details but will also need to take reasonable steps to verify it.

Skip the valuation queue

Not all applications require a valuation, depending on the property and lending institution, and forgoing this step can save a considerable amount of time. You can also save time by having a valuation completed prior to your application, as long as it’s accepted by your chosen lender – but check with your broker first.

To ensure your application avoids any unnecessary delays, give us a call to discuss your requirements and objectives.

Interest only loans- What’s happening?

Interest rates are a hot topic right now.  Up until recent times, home loan rates were identical to investment loan rates It’s not as easy as it once was to apply for an interest only loan. Over the last few months lending for this type of loan has been tightened by the banks in an effort to slow the pace of record growth in investment home loans and encourage borrowers to start paying down their debt.

Lenders are under pressure by APRA (the government regulatory body) to make it less attractive to borrow interest only loans, a strategy intended to protect investors and achieve sustainable growth in the home loan market.

Lenders have responded to the crackdown in different ways. Some now ask for larger deposits for investor loans or have scraped discounts they previously offered. Others have begun to price loans with principle and interest repayments cheaper than interest only loans. Still others now offer better discounts on owner occupied loans or restrict investors to borrow less than owner occupiers.

As these changes vary from lender to lender, it has been difficult for investors to know which way to turn. Many borrowers are worried about whether the changes affect their existing loans or what they should do when they make a change or try to restructure their loan.

As your mortgage broker, we keep up to date with these industry changes and can assist you to assess the best options to suit your needs.

Interest-only loans can be a tax-effective way to invest in property, but they are most effective when accompanied by advice and tax planning.

Because the monthly repayments are minimal for a specified amount of time (usually between 1-5 years), it offers a method to free up funds in the short term for other investments, renovations or to pay off other non-tax-deductible debt.

Problems may however arise when the interest only period ends and borrowers who haven’t planned their finances carefully are unable to pay off the increased instalments, now including principle along with the interest.

Another drawback is that because you are only paying off interest, your original loan amount doesn’t reduce, which equates to a considerably higher cost over the full term of the loan.

 

Tips that will help you slash your mortgage payments

 

Your mortgage is one of the biggest financial commitments you’ll ever make—and it’s one that will last years.

Ill-informed decisions can easily cost you hundreds of thousands of dollars over the lifespan of your home loan. This translates to less money for savings, your children’s education, retirement, and living expenses.

Most borrowers are surprised to find out that a low interest rate is not the most significant factor in reducing the overall mortgage cost and payment period.

 

If you want to be debt-free sooner, then check out these tips:

  1. Review your home loan at least once a year.

Home loans generally become uncompetitive after a few years. With new products being added to the market regularly, it pays to do a review of your home loan at least once a year to determine if your current loan still meets your priorities. You may discover that there is a better product out there that would help you save on interest charges, gain access to better services, and increase your home loan amount.

2. Overpay your mortgage.

Making payments weekly or fortnightly can help you clear your home loan much faster. This tactic can also save you thousands of dollars in interest charges.

 

Use the calculator http://brickhill.com.au/extra-repayment-calculator/ to see how much interest you could save by making extra payments.

        3. Don’t focus solely on interest rates.

The interest rate isn’t the only factor that influences the total cost of your home loan. In fact, going for the lender that offers the best initial interest rate doesn’t mean you’ll get a cheaper loan.

Interest rates can change soon after your loan starts, and you can quickly end up with a very expensive and uncompetitive rate. Moreover, there are additional fees that can make a loan more expensive than it seems.

Additional fees might include:

  • application fees
  • valuation fees
  • establishment fees
  • legal and settlement fees
  • rate lock fees
  • lenders mortgage insurance
  • early pay out fees
  • discharge fees

In other words, if you want to objectively assess the overall cost of your loan, you’ll need to look at the bigger picture.

4.        Avoid going directly to a lender.

Lenders like it when you walk into their doors without being referred to by a broker, as they can pocket the commission they would normally have given to the broker. There is no financial saving to you by going direct to a lender as the broker’s services to you are at no cost to you.

If you deal directly with a bank, you won’t be able to ask a mortgage broker for more in-depth and comprehensive advice. Other lenders may provide loan products that are better suited to your finances and priorities, and you close yourself to these possibilities by going to just one lender.
By consulting an experienced mortgage broker with a wide range of lender contacts, you could gain access to better deals than are currently available on the market.

 

-Your Mortgage (Michael Mata)

Refinancing traps to avoid

Whether you’re after lower repayments or want to tap into the equity sitting in your home, refinancing can offer a world of benefits. Here are some things to be aware of so that you don’t find yourself hooked into a bad deal.

Don’t be fooled by the interest rate

Finding a lower interest rate doesn’t necessarily mean you’ve scored yourself a better deal. In fact, a product with more features may cost you a bit more in fees or interest, but could save you more in the long run. Including features such as an offset account will prove valuable as it will allow you to make larger repayments or put any extra cash against the loan. Products without this feature may charge a fee for early repayments.

Honeymoon rates are just that

Don’t be lured by offers with discounted introductory rates unless you’ve calculated the savings over the life of the loan. While a loan with a discounted interest rate seems a tempting offer, it’s only temporary. Once the introductory period is over, the interest will revert to a higher standard variable for the rest of the loan term. It may be more beneficial financially to negotiate a lower interest rate without an introductory discount.

Be aware of the fees

One of the main purposes of refinancing is to lighten the financial burden, however, that doesn’t mean that it’s not going to cost you. There are many fees involved, which may include discharge and application fees, a valuation fee, land registration fee, and mortgage insurance. You may also be subject to stamp duty depending on what state your property is located in. While these cannot be avoided, you must ensure that the costs involved are not higher than the savings, to make the process worthwhile.

While there are traps to avoid, a little expertise can take the stress out of refinancing to save you thousands, fund that renovation, or simply find a loan that suits your life a little better.

 

Give us a call on 1300 252 088 so that we can assist you through the process.

Six Ways To Fund A Renovation

Any renovation project, large or small, can be all-consuming in terms of your energy and money. Here are six loan types that can help you with the financing.

Considering transforming your home from ‘blah’ to ‘brilliant’, but lacking the funds to support your major makeover? Here are a few different home renovation loans to help you turn your dream into a reality.

Whether you want to make a few finishing touches to your home with the help of a paint job or completely turn your home into something special, there’s an option to suit your needs.

 

1 Home equity loan

This is probably the most common way people borrow money when they want to renovate. It involves borrowing against the current value of your home, before any value-adding renovations. You won’t be able to borrow the full value of your home but, without mortgage insurance, you can usually borrow up to 80 per cent of its value if you own it outright. One potential problem is that the cost of your renovations may actually be higher than the equity you have available.

 

2 Construction loan

This is similar to a home equity loan, except the lender will take into account the final value of your home after the renovation. You won’t be given the full loan amount upfront, but in staggered amounts over a period of time.

 

3 Line of credit

This may be ideal for ongoing or long-term renovations. When you apply, you can establish a revolving credit line that you can access whenever you want up to your approved limit. You only pay interest on the funds you use and, as you pay off your balance, you can re-borrow the unused funds without reapplying. However, care must be taken not to get in over your head in terms of serviceability – make sure you can make repayments on the line of credit that will reduce the principle. Read more about Line of credit here

 

4 Homeowner mortgage

If you’re planning to completely transform your home and undergo a major makeover, this may be a good option as you can spread the cost over a long period of time. You could even possibly borrow up to 90 per cent of the value of your home and take advantage of mortgage rates, which are often lower than credit card and personal loan rates.

 

5 Personal loan

If you’re only making minor renovations – personal loans are usually capped at around $30,000 – this might be suitable, but interest rates on personal loans are higher than on home equity loans.

 

6 Credit cards

This option is only if you want to undertake really small renovation projects. The interest rates are usually much higher than on mortgages, but for a very small project that extra interest might actually total less than loan establishment fees.

 

One thing you should do

There are very few exceptions to the rule that your renovations should add more value to your home than they will cost to carry out. Think about how the money you spend on a renovation will increase the value of your property. For example, consider making changes that would appeal to the majority of potential buyers to help you sell your house faster and at a higher price.

 

Give us a call on 1300 252 088 to discuss which option best suits your requirements

Is it time to fix your rates?

After many months of fixed rates lower than variable rates, December and early January saw fixed rates start to creep upwards which would suggest that at least the fixed rates have bottomed.

New data has found a growing proportion of borrowers are seeking the security that comes with a fixed rate home loan.

According to the latest national home loan approval data from a leading mortgage broker, fixed rate home loans accounted for 22.04% of all loans written in December, up from 19.51% in the month prior. The fourth consecutive month that has seen fixed rate demand increase.

With speculation mounting that the Reserve Bank of Australia may soon lift the official cash rate, it is clear that a growing proportion of borrowers wish to beat any potential rate hikes by opting for a fixed rate home loan.”

Current market conditions combined with a spate of rate increases by Australia’s lenders before and after Christmas has meant a rate rise by the Reserve Bank this year was now more likely than not.

It is also noted that the Reserve Bank of Australia has stated that the time for easing the monetary policy setting has now passed. All of these factors combined would suggest that a rate increase by the Reserve Bank could be right around the corner.

Borrowers understand this and that is why a growing proportion of mortgage holders are opting for fixed rate products to beat the threat of rising rates. Some are also switching to ‘combo’ products which allow the loan to be split into a fixed and variable component.

At Brickhill Financial Solutions we have access to many fixed rate products from a range of Australian lenders. Please give us a call to discuss your options and find out more.

 

Brickhill Financial Solutions – 1300 252 088

What Do I Need to Know About Debt Consolidation?

If you’re swamped with credit card debt and personal loans, it can sometimes help to talk to a professional about debt consolidation. However, you need to be wary. You might end up paying more in the long term and/or reduce the equity in your home.

What is debt consolidation?
Debt consolidation is where you transfer your credit card debt and any personal loans to your mortgage. The advantage of doing this is that the interest rate on your home loan is likely to be lower than you’re paying on your smaller debts. You might also benefit from a regular manageable repayment. However, there are some things you need to be aware of.

Debt consolidation is not debt elimination
Since debt consolidation clears the debt from your credit cards, the temptation is to think that you’ve paid off the debt. But you haven’t. You’ve merely transferred the debt to your mortgage. So, once you’ve consolidated your debts, consider snipping your credit cards in two. Otherwise, you could get trapped in a debt spiral.

Remember the 80% LVR threshold
When you took out your mortgage, you might have been under the 80% loan to value ratio, which meant that you didn’t have to pay lenders mortgage insurance. Be careful when you consolidate your debts that you don’t reduce the equity in your home and have to pay lenders mortgage insurance.

Personal loans aren’t tax deductible
Interest charges on an investment loan are tax-deductible but interest on a home loan isn’t. When you consolidate your debts, you need to be mindful of how much interest you can claim as a tax deduction. Seek advice from an accountant or tax agent before making a decision in this area.

Give us a call on 1300 252 088 to find out more.

Should I Refinance?

Refinancing a mortgage can be daunting. Fees, fixed versus variable interest rates and monthly charges all need to be considered.

The right refinanced loan could help you pay off your mortgage faster and for less, clear unhealthy debt or help you upgrade and add value your home, all of which are steps in the right direction.

My lender is charging me a higher loan rate than I see advertised elsewhere. Can I change lenders?

This is exactly the reason why most people change lenders. There may be a penalty clause in your current home loan, meaning you may need to pay a discharge fee, but it could still be in your financial interests to change.

When shopping around it is always important to look for the comparison rate of a product. A comparison rate is essentially the true rate, taking into account the fees and charges you will pay on the loan. So even though you see a lower rate it doesn’t mean the repayments are less.

We are able to take the hassle out of this for you. We have access to over 1,400 mortgage products from more than 30 lenders.

I have just come off a ‘fixed rate’ or a ‘honeymoon’ interest rate to a much higher rate. Can I move lenders or am I locked into my mortgage?

You can walk away from most mortgages, although penalty fees sometimes apply. To review your options, contact us.

If I move my mortgage to a new lender, is there anything stopping that lender from increasing their rates in a few months’ time?

It depends what kind of product you have. If you’re concerned about rising rates, perhaps you should consider a fixed rate home loan, where repayments are fixed for a period from 1 to 5 years.

Why do some lenders charge more than others for lending the same amount of money?

Banks and other lenders pay different amounts for the money they on-lend to you, they have different overhead structures and different profit expectations. All these factors affect how much they charge to lend people money.

 

To find out more on this and other mortgage related issued please give us a call on 1300 252 088.