Fixed, variable or split loans. The best option depends on your unique financial situation and the current state of the market.

Fixed, variable or split loans: what works best for you

Fixed, variable or split loans: what works best for you? There are pros and cons of each.  We’ll take you through each option. 

If your calculator has recently become your best friend, come join the party of budget battlers, particularly those in the mortgage war zone.

With the Reserve Bank of Australia (RBA) now hiking interest rates upwards and expected to do so for the short-term future at least, mortgage holders are now wondering which loan is the best to fly with.

Fixed, variable or split loans…let’s look at the pros and cons of each.

Fixed-rate loans

We talked about these loans previously so we suggest you look at this article for more information on them.

But here are some key details to emphasise about fixed-rate loans.

At a time of jumping interest rates, fixed-rate loans can seem like the best way to go, protecting mortgage holders from rapidly changing figures – and they can be fantastic.

They’re a good choice for risk-averse mortgage holders who prefer financial stability and a budget that won’t rise and fall with the RBA’s monthly cash rate announcements.

But there’s more to the story than this.

Interest rates may drop during the period of your fixed-rate loan so you’ll miss out on this choice benefit.

This is the main reason that mortgage holders shy away from these loans and long-term ones in particular.

Don’t be fooled by the “fixed” description

Every lender, from the small-scale lenders to the Big 4 banks, increases their interest rates for longer fixed-rate loans.

The interest you’ll pay for a one-year fixed-rate loan can be almost 1% lower than that of a five-year fixed-rate loan.

The good news is that you can cut and run from a fixed-rate loan – also known as refinancing – when it expires.

Alternatively, you can start over again with another fixed-rate loan with the same lender at this time.

But those who choose to begin again with their fixed-rate loan for another period will find themselves paying an updated rate, that reflects the current cash rates.

This change could be quite surprising – if not to say nasty – if you’re locked into a five-year fixed rate only to start over and find the market has changed considerably in that time.

Expect interest rates for five-year fixed-rate loans to be between 2.97%-4.84%.

These fixed rates were actually spiking well before the national cash rate increase began last month; in fact, they’ve double in the past year alone,  AMP Capital chief economist Dr Shane Oliver recently explained.

So, expect them to hike even higher as interest rates rise in the near future.

Fixed-rate loans usually don’t come with benefits such as offset accounts and redraw facilities, plus it’s harder to pay off your loan earlier or even make larger repayments thanks to high “break” fees.

Fixed, variable or split loans. We guide you through what each of these home loan options mean.
Fixed, variable or split loans: what works best for you depends on your unique financial situation and the current state of the market.

Variable home loans

Many people have now enjoyed variable home loans for so long, particularly in the past few years of record low interest rates, that switching to a fixed loan can be a major question mark.

Saying this, you don’t need to necessarily switch to a fixed rate if you feel the pros of variable loans outweigh the cons.

Here’s what to consider with variable home loans.

Variable loans were a great idea for mortgage-holders during the past decade as interest rates were decreasing – or at least remaining at a steady low point of 1.5% – throughout much of the 2010s.

Variable loan mortgage holders thus benefited from these low rates rather than remaining at the mercy of the higher rates we are now experiencing.

Saying this, variable loans can offer far lower rates than their fixed-rate cousins.

Lenders are offering variable rates of between 2.46%-3.05% and while these rates will probably increase with spiking interest rates, they’re still very attractive when compared to those of a fixed-rate loan.

Another great benefit of variable loans is their fantastic flexibility.

Think extra repayments with no nasty fees involved, benefits such as offset accounts and redraw facilities, and depending on your lender, the possibility to flex your financial muscles with loan agreement alterations and changes.

There is still plenty of general misgiving about when and by how much the RBA will change the cash rate.

Even industry experts aren’t certain about these points so it may well pay to stick with your variable loan.

Split loans

Enter: the (possibly) perfect loan compromise.

Also known as partially-fixed interest loans or combination loan structures, split loans allow mortgage holders to enjoy the best of both loan worlds: the stability of a fixed rate combined with the flexibility of a variable rate.

It’s important to note that you’ll still be applying for just one home loan but with the split of variable and fixed set beneath a single loan umbrella.

Sounds good, doesn’t it?

But everything isn’t exactly what it seems even in a perfect split world so let’s reflect on these points.

You can choose what part of your loan you’d like in your variable and fixed corners, such as a 20% variable component and an 80% fixed component.

In this particular case, 80% of your loan won’t be affected by interest rate hikes but the opposite is also true if rates drop.

Then again, your entire loan won’t have to go into damage control if a rate cut occurs – just 80% of it will.

In the meantime, your 20% variable component is working hard to enjoy potentially lower rates either way than its fixed neighbour and especially so if rates drop.

As well, benefits such as extra repayments and offset accounts can really benefit your variable component – but can’t be done in your fixed sector.

You will probably find yourself paying two very different interest rates within your one split loan, particularly in today’s rapidly changing market.

As a result, organising your budget can be more difficult compared to a 100% variable or fixed loan.

You’re always partially protected while being perpetually at a disadvantage, especially when it comes to interest rate rises and falls.

So the RBA’s monthly cash rate announcement will still be a day of both dread and comfortability.

Can you live with this half-and-half home loan life?

Only you can answer that.

We’re here to help

We know all too well how confusing home loan jargon can be.

Whether you’re leaning towards fixed, variable or split loans, your friendly Lending Loop team can help.

We’ve got access to more than 40 of Australia’s biggest banks and specialist lenders . So, whether you’re a first-home buyer or property investor, give us a call today at Lending Loop.

What should you do if your home loan is denied? We share some ways you can boost your chances of being approved.

What should you do if your home loan is denied?

What should you do if your home loan is denied? First, don’t panic. There are many steps you can take to fix the situation. And we’re here to help.

If you’re one of the many Australians who have been knocked back on your home loan application, don’t worry. There’s no reason to give up! At this stage we simply need to drill down into the reasons for the home loan denial and then determine what steps we need to take to fix them.

So what should you do if your home loan is denied?

What Should You Do If Your Home Loan is Denied?

As a first step we need to understand the reason your home loan was denied. In many cases it comes down to the lender’s requirements under responsible lending laws. At the end of the day they are responsible for ensuring that each borrower can meet their payment obligations and aren’t stretching themselves too far. And there are many reasons that could play into that decision.

However, for each of these reasons, there are things that you can do to mitigate their impact over time. So, here are the reasons why your loan might be rejected, and what you can do about it.

Reason 1: Repayment Risk

As a first step, lenders need to feel confident that you will be able to comfortably service the loan before approving your application. To get that comfort they’ll look at your income, your savings, your debts and obligations and your spending habits to see whether or not they believe you will be able to make your required repayments. If those numbers don’t add up in a way that the lender likes, they won’t approve the loan.

Tactic for Mitigating Repayment Risk

If your loan has been denied due to repayment risk, the main tactic here is just to take your time, reduce your debt and ramp up your savings. You might also consider a debt consolidation loan, if you have excess debts.

Reason 2: Low Deposit

When you have a low deposit amount (under 20%) – even if you’re planning on purchasing Lender’s Mortgage Insurance – lenders may see you as a high-risk borrower. Having a larger deposit gives lenders more assurance.

Tactic for Mitigating Low Deposit Risk

Consider how you can save more money towards your deposit. Can you give up extra spending and put it towards your deposit? Be sure to check if you’re eligible for any government schemes, such as first home buyer grants as well.

What should you do if your home loan is denied? We share some tips to help you get it approved next time.
What should you do if your home loan is denied? Can you give up extra spending like buying coffee and put it towards your deposit?

Reason 3: Low Credit Score

Each lender in Australia will assign you a credit score, and if this is low, they will be unlikely to approve your loan application. A low credit score might come from defaulting on repayments or having overdue repayments in your credit history.

Tactic for Mitigating a Low Credit Score

The first thing you should do is check with another lender. Unlike the US system, in Australia, every lender creates their own credit score for you. That means that you may have a better score, and a better chance at obtaining your home loan, with a different lender.

To improve your credit score, first obtain a copy and check it for any inaccuracies. Then you can take the following steps:

  • Make sure to be vigilant about making all your repayments strictly on time.
  • Stay in the same job.
  • Avoid making any loan applications for six months or so.

Reason 4: Risky Purchase

Some lenders don’t like financing the purchase of certain types of properties which have resale risk. For example, studio apartments, properties in a flood zone or even rural properties, all may fall into this category.

Tactic for Mitigating Your Risky Purchase

If you are truly committed to buying a property deemed ‘risky’ you should spend time making sure that the rest of your application is strong. Make sure you have a good credit score and a large enough deposit. Lenders may then see you as a good option despite the risk of the property itself.

Reason 5: Incomplete or Inaccurate Application

If your application or supporting documents are incomplete or inaccurate it will be tough for a lender to approve your loan.

Tactic for Mitigating Your Incomplete or Inaccurate Application

In this case you just need to ensure that your application is strictly correct and accurate. Read each line carefully and don’t just throw out numbers that you ‘think’ might be correct. Check and double check everything – your lender certainly will.

Reason 6: Maternity or Paternity Leave or Changing Jobs

If you are about to go on maternity or paternity leave, or are in the midst of changing jobs, lenders may knock back your application. They see you as higher risk because your income status is potentially in flux. Because of that they can’t ensure that you will be in a strong position to make your repayments.

Tactic for Mitigating Your Maternity, Paternity or Job Change Risk

There are many things you can do to prove to a lender that you are still in a strong position to make repayments despite your potential change in situation. Having good savings is an excellent step, as is having a good credit score and a robust career history. If you’re changing jobs, a recommendation from your new employer may help as well.

Reason 7: Retirement Looming

If you are close to retirement age, some lenders may deny your loan application simply because it extends too far into your retirement. The concern is that a retirement-age borrower won’t have enough time in the workforce to pay back the loan before their income begins to diminish.

Tactics for Mitigating Your Retirement Risk

Seek out a lender that understands and accepts mature age borrowers. Then put together an exit strategy – that is a strategy that demonstrates how you will have the loan paid off prior to your retirement.

Speak to an expert

What should you do when your  home loan is denied? Our first and best step is to talk to an expert. Our Lending Loop team can advise you on the right lender for your situation, and help you to get home loan ready so that next time you can get the funding you need.

Give us a call today at Lending Loop, and let’s see how we can help!

Lending Loop looks at what raising the RBA cash rate by 50 basis points means

RBA cash rate soars to hefty 0.85%

The Reserve Bank of Australia (RBA) cash rate soars to a hefty 0.85%, accelerating it by 50 basis points (bps).

It’s the first time in 22 years that the RBA’s monthly cash rate has increased by more than 0.25% and follows the first increase in 18 months to 0.35% in May.

Last month’s decision was also the first interest rate hike in a decade.

As with the RBA’s May decision, today’s announcement was unsurprising but still a much higher than expected hike.

Economic experts’ opinions were mixed on how far the RBA would continue to increase cash rates this month, but general predictions were for an 0.25-0.4 percentage point hike.

Coupled with dramatic recent increases in petrol and energy prices, today’s decision is expected to make the already tough cost of living become even tougher.

Jumbo interest rate spike will be worth it

In today’s cash rate announcement, RBA governor, Dr Philip Lowe, didn’t shy away from the fact that inflation has increased significantly and is expected to increase further.

However, he maintained that today’s jumbo cash rate hike was necessary given current inflation pressures in the economy and the still very low level of interest rates.

He pointed to both global and domestic factors  as the RBA cash rate soars to 0.85%, including a tight labour market and higher energy and petrol prices.

Dr Lowe also acknowledged the pressure that greater inflation and interest rates would place on household living costs, with just how household spending would evolve being a “source of uncertainty about the economic outlook.”

But he was confident this pressure would be worth it in the long term with a “central scenario” for strong household consumption growth this year while he expected inflation to drop to around 2%-3% next year as global supply issues and commodity prices stabilised.

“Today’s increase in interest rates will assist with the return of inflation to target over time,” Dr Lowe explained.

“Housing prices have declined in some markets over recent months but remain more than 25 per cent higher than prior to the pandemic, supporting household wealth and spending.

“The household saving rate also remains higher than it was before the pandemic and many households have built up large financial buffers.”

Dr Lowe maintained his confidence in Australia’s resilient economy, which he said had grown by 0.8 per cent in the March quarter and 3.3 per cent over the year.

“Household and business balance sheets are generally in good shape, an upswing in business investment is underway and there is a large pipeline of construction work to be completed,” he said.

“The labour market is strong, employment has grown significantly and the unemployment rate is 3.9 per cent, which is the lowest rate in almost 50 years.”

Cash rate heavy lifting = tough double whammy

CoreLogic research director, Tim Lawless, concurred that the RBA would continue to increase interest rates throughout 2022 and into 2023 as underlying inflation moved sharply upwards to 3.5% over the year.

This hike would mean tough times for both prospective borrowers and mortgage holders, Mr Lawless said.

The former group will see their borrowing capacity lowered and their household savings and balance sheets tightening sharply, resulting in a negative effect on serviceability assessments.

Mortgage holders in the meantime should expect variable mortgage rates to increase over the coming week to around 3.16%.

“This will add approximately $200 per month in additional repayments on a $500,000 mortgage, compared with mortgage rates in April,” Mr Lawless explained.

Mr Lawless added that for already indebted or struggling households, today’s jumbo cash rate hike would add to financial woes.

“The additional cost of debt comes as non-discretionary inflation rises at more than twice the pace of prices for discretionary goods,” he said.

“Higher costs for food, fuel and finance are likely to see household savings continue to taper as families funnel more of their income towards servicing their mortgage and funding essential costs of living.”

However, there was some good – or not so bad – news from today’s RBA announcement.

Mr Lawless said the new 0.85% figure is only somewhat to blame for the softening property market.

“Home values were already easing well ahead of the rising cash rate,” he said.

“A combination of higher fixed mortgage rates, lower consumer sentiment, tighter credit conditions and worsening affordability have all played a role in the slowdown to date.”

Mr Lawless also maintained his opinion that the effect of rising rates on the property market would depend on how fast and how high interest rates move and normalise, along with the performance of the broader Australian economy and labour market.

“A stronger economy, along with the tightest labour market conditions in a generation, should help to ensure the ensuing housing downturn remains orderly,” he said.

We’re here to help

Regardless of if the RBA cash rate soars, we encourage you to contact your lender soon to check where your interest rates will trend from here, particularly if you have a variable rate home loan.

Whether you’re a first-home buyer or property investor, you may also want to consider refinancing your loan to achieve the best possible deal.

Rest assured, we’re your biggest supporter and we can find you the best possible deals from more than 40 of Australia’s biggest banks and specialist lenders.

So give us a call today at Lending Loop.

The RBA’s next monthly cash rate announcement will be on Tuesday, July 5 at 2.30pm AEDT.

 

All you need to know about guarantor home loans

Guarantor home loans: you’ve got a friend in me

We’ve all read or heard the news that man, is it hard to save even a 5% deposit for your first home!

Political parties are reaching out to assist first-home buyers, including not making them pay Lender’s Mortgage Insurance (LMI) – that less than 20% deposit necessity.

But now that the Reserve Bank of Australia (RBA) is pushing up the cash rate, finding your dream house at a perfect price has become more challenging.

Here’s where guarantor home loans may help you (and btw: these loans aren’t just for first-home buyers either but can be utilised by refinancers, investors and those considering house construction).

Read on to find out more.

What are guarantor home loans and how do they work?

As the name suggests, guarantor home loans are all about giving a lender a firm guarantee that you are a worthy loan-er.

How?

Your guarantor is a close family member such as a parent or sibling (although some lenders will allow for a friend or colleague) and their house.

Or, more specifically, the lender’s guarantee is a parent or sibling’s equity in their home.

This equity is the security a lender will usually ask from you – the borrower – and as it must cover 20% or more of your new house,  you don’t need to pay LMI.

As a result, this means you don’t need a deposit to buy a home.

Not bad, right?

How do I begin a guarantor home loan?

Firstly, consider who best can be your guarantor – and by this, we mean a family member who has the financial means and business savvy to be your monetary back-up in the long-term.

You may not be super BFF close to your guarantor but in the end, this may work in both people’s favour.

After all, a guarantor home loan is a binding business contract and transaction before anything else – and you know what they say about mixing business with pleasure!

Secondly, sit down with your preferred guarantor and discuss your situation with them.

Don’t be surprised if they immediately say no or express concern and uncertainty – and if they do,  don’t push them to say yes.

Remember your guarantor is putting everything they own – virtually literally – on the line just for you, and for at least the two-three years of the loan’s length, if not more.

Lots of things can go pear-shaped during this time.

So, give them as much information about yourself, your finances, and guarantor loans in general, as you can, plus details on who they can go to for expert legal advice.

What do my guarantor and I need to obtain a loan?

Once your guarantor has given you the green light, the fun really begins.

For starters, you’ll both want to bear in mind that these loans look risky to lenders.

As a result, they’ll come down harder on both of you – and be less inclined to say yes – than if you were merely applying for your average first home loan.

Guarantors, you’ll need to show proof of the following:

  • Very good property equity and assets
  • Ability to repay the borrower’s loan if need be

Borrowers,  here’s what you’ll need to show lenders:

  • Stable employment and income
  • Excellent credit rating and history
  • Ability to pay your entire loan on current income
We break down guarantor home loans
Your guarantor will need to show assets and you will need to provide proof of stable employment

Benefits and disadvantages of guarantor home loans

We don’t wish to burst your guarantor loan bubble, especially if you’ve made it this far, but a loan like this comes with a lot of risks – and benefits too.

Stay with us while we look at them.

Guarantor home loan considerations

  • You’re responsible for your own home’s financial needs as well as that of your guarantee’s
  • As such, you may be required to repay your guarantee’s entire loan including all fees and charges,  and you stand the risk of losing your own property
  • Until the loan is fully paid, you may not be able to borrow against your assets (depending on your lender)
  • As well, you may be unable to get a new home loan
  • Your friendship with your guarantee can be damaged or affected, especially if details go pear-shaped (ie they’re unable to repay the loan long-term)

Guarantee considerations

  • Bottom line: you can buy a home sooner
  • You won’t have to pay LMI
  • There’s added financial security from your guarantor, which could help you secure extra funds for your new home

How long does a guarantor stay on a mortgage?

Your guarantor is legally part of your real estate plans until you’ve repaid your loan or until your property has increased in value to the stage that the Loan to Value Ratio (LVR)  is at least 80%.

Think of it like this: the quicker you pay off your loan, the quicker you can be full-on friends with your guarantor, rather than meeting and talking with them solely about your home loan.

We recommend though that you continue to buy them coffees, to say nothing of wine and dinners, for a very long time to come!

And finally….

As a guarantee/borrower, it’s your responsibility to always make loan repayments on time and have the entire loan paid off ASAP.

On this note: aim to keep the relationship and business transactions between yourself and your guarantor cool, calm and collected.

Don’t allow friendship and loans to interfere with one another if at all possible.

If financial details start to look pear-shaped in any way – such as the chance of losing your job – head straight to your guarantor’s front door and discuss the situation with them.

Ideally, have plans set up for just such a situation before signing off on your guarantor loan.

We’re here to help

Even if you’re BFF with your guarantor, it’s often best to talk to someone objective about your home loan.

This is where your friendly Lending Loop team can help because guess what?

You can vent, worry and cry with us, and all for free!

Not much in the world of home buying and selling is easy, but this is – and so is the help and advice we can give you from more than 40 of Australia’s biggest banks and specialist lenders.

So give us a call to discuss today at Lending Loop.

We’ve always got your property back.

rba-cash-rate-spikes-to-0-35

RBA cash rate spikes to 0.35%

It’s been a long, long time coming but on Tuesday, it finally happened: an increase in Australia’s 18-month-long, 0.1% RBA cash rate to 0.35% and our first interest rate hike in a decade.

The jump of 25 basis points came as a nasty surprise to many with financial market expectations forecasting only a 0.15 point change this month.

The announcement just a few weeks before a federal election was also seen as a spanner in the economy’s financial works.

Australia’s share market slumped 0.5% almost immediately after the Reserve Bank of Australia (RBA)’s afternoon announcement.

“Appropriate” withdrawal of “extraordinary monetary support”

Since the RBA dropped its cash rate to 0.1% in November 2020, after an eight-month setting at 0.25%, RBA governor, Dr Philip Lowe, has determinedly remained cautious about increases.

However, with headline inflation now 5.1% – well beyond the RBA’s 2%-3% target range – Dr Lowe explained it was an appropriately right time to withdraw some of the “extraordinary monetary support” which had assisted the economy during COVID.

“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected,” Dr Lowe said.

“There is also evidence that wages growth is picking up (and) given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”

Dr Lowe said Australia’s economic growth outlook, including unemployment, and household and business balance sheets was positive.

“The central forecast for 2022 is for headline inflation of around 6% and underlying inflation of around 4.75% and by mid-2024, headline and underlying inflation are forecast to moderate to around 3%,” he said.

Dr Lowe added that the country’s labour force participation has increased to a record high while the unemployment rate had declined over recent months to 4%.

It is expected to decline to around 3.5% by early 2023 and remain around this level long-term.

“This would be the lowest rate of unemployment in almost 50 years,” Dr Lowe said.

rba-cash-rate-spikes-to-0-35
The RBA Governor said that now is the time to withdraw some of the “extraordinary monetary support”.

Good and bad news for already softening property market

The RBA cash rate increase is not a surprise to industry experts and commentators, who have been predicting such a change for months – and Dr Lowe has already predicted future increases in his bid to ensure inflation “returns to target over time”.

CoreLogic research director Tim Lawless said RBA’s spike in interest rates would add further downward pressure to housing growth rates, which were already losing steam as the industry expert’s national monthly Home Value Index (HVI) report this month, released just a day before the cash rate announcement, had noted.

“In the case of Sydney and Melbourne, the trend into negative territory is due to factors including affordability constraints, higher fixed term mortgage rates and lower levels of consumer sentiment,” Mr Lawless said.

He added that any downturn in the housing market would depend on how high and fast rates rise, as well as other factors such as employment.

“A higher  RBA cash rate implies higher variable mortgage rates, a reduction in borrowing capacity and tighter serviceability assessments for prospective borrowers,” Mr Lawless said.

“Under a 100 basis point lift in variable mortgage rates, a new borrower in Sydney could be facing a rise in monthly mortgage costs of $486, while under a 200 basis point rise, monthly mortgage costs could be $1,005 higher than current levels.”

However, Mr Lawless explained that the cash rate shift was not all bad news for current mortgage holders.

“As we enter a period of higher interest rates, borrowers are generally well ahead of their mortgage repayments,” he said.

“The recent rise in fixed-term mortgage lending is another factor helping to insulate homeowners from higher interest rates.

We’re here to help

As Mr Lawless recently explained, a cash rate rise doesn’t necessarily mean overnight changes to your mortgage repayments.

However, we encourage you to contact your lender soon to check where your interest rates will trend from here, particularly if you have a fixed rate home loan.

Whether you’re a first-home buyer or property investor, you may want to consider refinancing your loan to achieve the best possible deal.

Rest assured, we’re your biggest supporter and we can find you the best possible deals from more than 40 of Australia’s biggest banks and specialist lenders.

So give us a call today at Lending Loop.

The RBA’s next monthly cash rate announcement will be on Tuesday, June 7 at 2.30pm AEDT.

5-reasons-its-important-to-get-home-loan-pre-approval

5 Reasons It’s Important to Get Home Loan Pre-Approval

When you’re looking to buy your first home, every step towards that end goal is important. But a home loan pre-approval is one of the most important… and the most exciting. It’s this moment that gives you the green light, the go-ahead, the all-clear, to really begin looking for, negotiating and, ultimately, purchasing, the home of your dreams.

Of course, there are other reasons that getting a home loan pre-approval is important and it goes far beyond just achieving your own goals. Let’s check them out.

5 Reasons It’s Important to Get Home Loan Pre-Approval

Verify Your Buying Power

First and foremost, your home loan pre-approval (sometimes also called a ‘conditional approval’) verifies your buying power. Some buyers start off by relying on online calculators. But these are not customised to your situation and can only give you a general indication of what you might be able to borrow and spend.

On the other hand, pre-approval shows you exactly the amount that you can afford to spend on your new home. It takes into account your current living expenses and other financial commitments. And it gives you a clear spending limit, letting you focus your energies on homes that fit within your spending budget.

Outsmart the Competition

Buying a home can sometimes be a cut-throat competition. But your home loan pre-approval can help you outsmart the competition. You see, your pre-approval doesn’t just verify your buying power to you, but also to potential home sellers.

Your pre-approval lets you move fast when the market is hot and competitive. You know what you can spend and so you’re ready to make an offer quickly or even on the spot. You and the potential seller also have the confidence of knowing that you’ll be able to get your finances organised quickly. And this gives you a leg up on the competition and puts you in a strong negotiating position.

Close Faster

It generally takes about 50 days to close on a new home. And part of this delay can be attributed to waiting for mortgage approvals. But if you’ve already got your home loan pre-approval, you can ensure the entire process goes more quickly and smoothly. And that means you’ll potentially be in your new home more quickly as well.

Sometimes sellers are under pressure to move quickly themselves. Perhaps they’re looking to get into their dream home too, or need to liquidate their assets for other reasons. When you’ve got a home loan pre-approval you’re a far more attractive buyer to that category of seller because they know that you’re in a position and motivated to move quickly as well.

Home Loan Pre-Approval Saves You Time and Money

Time is money, but your home loan pre-approval can save you both. Too often buyers spend months (or even years) searching for the right property, only to find that they aren’t able to get the financing they need. This is a waste of your time, of course, and a significant opportunity cost when you aren’t able to get the home that you want.

Understanding your budget means you can laser focus your search, only spending time and resources on those homes that you want and can actually afford.

Home Loan Pre-Approval Protects Your Deposit

When you buy a home you’ll likely need (and want) a deposit. But you don’t want to hand over your hard earned money without being absolutely confident that you’ll be able to get the home loan you need to complete the purchase. If you aren’t able to get the financing you need, you could lose the full amount of that deposit.

This is particularly important if you’re buying at auction because in that situation your deposit is non-refundable.

Speak to an Expert

When you’re ready to begin your new home search, we’re ready to help. Our expert team can talk to you about how to get home loan ready,  and help you get started on the process of getting a home loan pre-approval, and getting into your dream home.

Give us a call today at Lending Loop, and let’s see how we can help!

equity-home-loans-and-how-they-can-help-you

Equity home loans and how they can help you

We’ve talked about equity in our recent articles but we wanted to dive in and give you a full article of information on this point, especially for those still scratching their heads over this word.

So, grab a coffee – or tea, if you must! – and settle in for a superhighway of helpful facts and figures on one of our favourite words within real estate jargon.

What is equity home loans?

As we mentioned last week, equity is the difference between the current value of your first purchase and what you still owe on your loan.

Or in other words, equity is how much of your house you yourself actually own, rather than the lender.

Think of it like this:

Your house is worth $500,000 but you still owe your lender $300,000 so your equity – or how much of your house is undoubtedly yours – equals $200,000.

Lenders will see this $200,000 as your security or collateral against potential mortgage repayment failures on your behalf.

What can I use my equity for?

You name it, you can use it!

Think of house renovations or buying a car, starting a business or enjoying a holiday.

Investment properties are also often bought using home equity.

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You can use equity for house renovations, buying a car, starting a business or enjoying a holiday.

What are equity home loans and how do they work?

Not surprisingly, home equity loans are often known as second mortgages as they enable buyers – both owner-occupiers and investors – to purchase a second home.

However, regardless of what you’re using your equity for, lenders will have different rules and regulations on how much you can borrow and how you can access your equity.

They’ll want to check the following, for a start:

  • your home’s current market value
  • how much you’ve paid on your mortgage
  • what you plan to use the equity for
  • current market conditions

How much home equity can I borrow?

As a general rule, lenders like to stick to the 20% ultimate security number, much as they do when they prefer a 20% mortgage deposit.

In the case of a home equity loan, lenders won’t be happy if you’re still to pay 80% or more on your property’s current value.

Remember, your equity is their security so offering lenders just 5% for this security ain’t likely to cut it with them.

Also, if you do have less than 20% equity, you will have to pay Lender’s Mortgage Insurance (LMI), just as you would if you only had this much as a home deposit.

How can I grow my equity?

But cheer up!

Everything’s not lost if you’re in the 5% box.

There’s one easy way to grow your equity and it requires virtually no hard work on your behalf.

Simply put, your property may have shot up in value since you bought it, meaning its current value is now sky-high, along with its equity possibilities.

In other words, the $200,000 equity opportunity you may have enjoyed a few years ago may now be even bigger, and all thanks to your home’s market value.

Also much larger is your new ‘real’ ownership of your house.

Not bad, hey!

And although this market value change won’t happen with every property, it’s certainly something to keep in mind.

Other great ways to grow your equity include:

  • saving more /putting extra cash towards your mortgage
    (NB: this may well mean less eating out and coffee catch-ups)
  • get a shorter home loan – it’s harsh but it will force you to save!
  • pay larger payments more regularly
  • put all bonuses including tax refunds into your mortgage
  • dedicate one partner’s income solely towards repayments – and live off the other’s income alone. This is an oldie but still a goodie, we think!
  • revamp or renovate some or all of your house to up its value stakes – but be very careful that your budget doesn’t go overboard
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Take advantage of equity opportunities.

What are the benefits and risks of equity home loans?

Whether it’s buying an investment property or a much-needed car, utilising your home equity can be a game-changer for your finances.

But before you get too excited about using this cash, think about the following:

Risks

  • Higher overall debt = larger repayments and attendant interest rate factors
  • Extra fees and charges are needed when taking out an equity loan
  • More time is also needed to repay this loan
  • A risk of losing your first home if the loan is not repaid
  • The temptation to use equity for other purposes ie holidays
  • Can lead to spiralling debt

Benefits

  • Relatively easy source of funds
  • Ideal for those with steady source of income who know exactly how much they need to borrow
  • Interest rates on home equity loans can be lower than that of credit cards and similar

    We’re here to help

If you’re considering a home equity loan, chances are that even after reading this article, you still have questions about them.

That’s where Lending Loop can help out with our smart team of independent experts.

At the same time, they can find you the best possible deals from more than 40 of Australia’s biggest banks and specialist lenders.

So, whether you’re a brand new homeowner or an investor, come to Lending Loop!

tips-for-changing-jobs-while-buying-a-house

Tips For Buying a House While Changing Jobs

Most homeowners and potential homeowners in Australia know that it’s best not to be buying a house while changing jobs. After all, one of the main factors that potential lenders are looking for in potential borrowers is financial stability.

But sometimes life happens. The ideal job comes up, enticing you away from your current role. Or maybe your partner is given a transfer leaving you to look for a new job in a new city. Whatever the reason, you now find yourself in the situation of changing jobs while buying a house.

Before you panic,  buying a house while changing jobs is not the end of the world, or the end of your mortgage opportunities. There are many lenders out there who will lend to borrowers in your situation. But you do have to be prepared to do a little more legwork to improve your chances of getting a mortgage.

Tips for Buying A House While Changing Jobs

Be Honest

The first and most important tip for navigating changing jobs while buying a house is to be scrupulously honest and upfront with potential lenders. It might be very tempting to exaggerate the length of time you’ve been in your new role, but you should never mislead your lender.

Not only does this destroy any trust they might have in you as a borrower, lying on your mortgage application could have much further reaching consequences. Your home loan application could be denied. Or, if the lie is found out in the future, your home loan lender could call your loan in. Either way, you’ll be in a worse situation than if you’d told the truth in the first place.

Be a Good Saver

Demonstrating that you have good savings habits can go a long way to mitigating any difficulties you might face from changing jobs while buying a house. These savings habits go beyond just money in a savings account. What banks and non-bank lenders are actually looking for are ‘genuine savings’.

What is (or is not) genuine savings depends on the lender. But in general, it’s any savings that equals 5% (or more) of the purchase price of your home. These often include:

  • Savings held or accumulated over at least three months
  • Shares/managed funds held for at least three months
  • Term deposits held for at least three months
  • Contributions from First Home Super Saver Scheme
  • Cash gift or inheritance funds held for at least three months
  • Anything else that demonstrates good savings habits

Having genuine savings demonstrates your financial stability and builds trust between you and potential lenders.

Read more: When it comes to securing your first home, trust matters

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Demonstrated savings usually equals 5% (or more) of the purchase price of your home.

Protect Your Good Credit

Having a good credit history can help you get over the hurdle of changing jobs while buying a house. By ensuring that your credit score is as high as possible, you demonstrate that you are a low-risk borrower, and that your job change is merely one part of your overall financial position. If you’re not sure what your credit score is, it’s pretty easy to check through online credit sources.

Watch Your Career History

While you may be changing jobs while buying a house, you still want to demonstrate that you have a steady, stable career history. In other words, you’ll want to show that you tend to stay in each job at least two years before making a change.

Recommendation From Your New Employer

Sometimes it can help a little bit to get a letter addressed to the lender from your new boss. This letter needs to assure the lender that the new role you are entering is secure and available to you for the long term. While this isn’t a huge game changer, it could be just the thing to push you over the edge and into a mortgage.

Speak to an Expert

Our single best advice when confronted with the situation of changing jobs while buying a home, is to speak to an expert. At Lending Loop, our experts understand that life happens and they’re able to help you find the best loans for your changing situation. There are lenders out there who are happy to lend to buyers in your situation, and at Lending Loop we know who they are and the best way to reach out.

Give us a call today at Lending Loop, and let’s see how we can help!

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Guide to buying a second home

Buying a second home can be a lot like many other “second” life experiences: yes, you’re more experienced but at the same time, you’re not a super savvy, know-it-all either – even if you think you are!

Your financial circumstances will definitely be different this time around though and you’ll be more prepared when it comes to common first-home buyer mistakes and how to avoid them.

Read on for our top points to consider when buying a second home.

Why would I need to be buying a second home?

  1. You or your partner may have found a new job interstate or across town
  2. Your personal circumstances have changed ie you’ve just got married or you’re eager to start a family
  3. You’re retiring and keen for a tree or seachange, or simply want to downsize now that the kids have left home
  4. You’ve spotted an ideal hotspot suburb and all your ducks are in a row to invest
  5. The holiday area you love is producing too many ‘For Sale’ signs to resist

What do I need to qualify for a loan when buying a second home?

At the end of the day, your second home lender will essentially need the same details as your first home lender.

So, if you bought your first home fairly recently, you can be in a good place.

Why?

With a first home under your belt and (hopefully!) a strong loan repayment record, you’ll be a winning grinner when it comes to loan applications.

You should also still be fairly BFF with spreadsheets and as for real estate research, you have it down pat, right?

However, your lender will still need the following details:

  • strong credit ratings and savings deposit (or the equity on your first property but more about equity later)
  • strong income and employment history

When buying a second home, lenders will also need to see:

  • recent rates notices
  • recent loan statements
  • proof you’ve made first home loan repayments on time, and not defaulted

 

You will still require a strong credit rating and a savings deposit, or the equity on your first property, plus a strong income and employment history

What if I haven’t bought a home for years?

Second home loaners such as retirees may not have bought a property for decades and in this time, the real estate market will have changed a lot.

So, here are some extra points to consider when applying for another loan:

  • ensure your knowledge of the current market, including property values, is accurate and well-researched
  • don’t be afraid to ask for help from real estate agents or children and grandchildren, particularly those who have recently bought or sold
  • learn what’s involved in applying for a loan and the upfront costs of buying a home
  • absorb real estate jargon that’s come into play recently

What is equity and how can it help with buying a second home?

Talking real estate jargon, equity is a term you’ll hear a lot about especially when you’re buying a second home.

Why?

Equity is the difference between the current value of your first purchase and what you still owe on your loan – and guess what?

This figure can be used as a deposit for buying your second home!

You can think of this equity as a reward for all the hard work you’ve put into paying off your loan hard and fast – to say nothing of the sacrifice involved in cold-shouldering all those coffees and great clothes.

Just remember that while being able to use your first home equity for buying a second home is a great position to be in, lenders will still need to see both this equity plus proof of a strong income before ticking a loan application.

Also, remember that accessing your equity can include its own particular risks such as a larger loan, which will mean more years of potentially larger repayments.

Costly considerations

If you’re buying a second home for yourself, you will have to pay legal fees and stamp duty as well as establishment or application fees for a new loan.

If you’re a second home buyer buying your first investment property, extra care is needed when considering a second loan.

Here are just a few points to consider:

  • don’t assume your tenant’s rent will cover council rates, insurance, property management fees and strata levies
  • ensure you always have extra income to cover vacant rental periods and unexpected maintenance costs

Reconsider your loans

Buying your second home can be the ideal time to compare home loans and consider what’s best for you, including splitting your loan and refinancing.

Are interest-only loans preferable to principal and interest loans in your situation?

Or what about a debt consolidation loan or similar?

Buying a second home can be the ideal time to compare home loans

What are bridging loans?

We were tempted to write “otherwise known as ‘Should I be buying a second home before selling my first one?'” after this question because if you’re considering a bridging loan, this is exactly the question you’ll be asking yourself.

Bridging loans basically help buyers and sellers in the tricky position of being between houses and loans.

Perhaps a sale has fallen through on your first home while in the midst of you making an offer on your second house – or vice versa.

Crazy things like this can happen but this is exactly where a bridging loan can help.

As well, there are times when buying a second home before selling your first one simply suits your particular situation better than doing it the other way around.

A bridging loan is a short-term loan that helps you essentially pay for two loans.

Just remember to consider the risks and benefits involved with these loans before signing off on one:

  • Bridging loans are usually interest-only loans (see above)
  • Your lender may require repayments ASAP on a bridging loan – or they may be prepared to wait until your first house has sold
  • Sale price and time overestimation can happen to the best of us so keep an eye open to this possibility

We’re here to help

Making your lending life easier is what we’re all about.

In fact, it’s safe to say that Lending Loop loves anything remotely connected with buying and selling, to say nothing of all the ins and outs of mortgages.

We have loans big and small to choose from, including those for second-home buyers and property investors and we regularly deal with more than 40 of Australia’s biggest banks and specialist lenders

So, give us a call today at Lending Loop.

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What is a construction loan?

So, you’ve decided to buy a new home – but the only issue is this home doesn’t exist yet and sadly, you don’t have a magic wand to produce your dream home on the perfect block overnight.

Alternatively, you’ve decided to renovate your current house or make several structural changes to it.

How will you pay for these plans?

This is where a construction loan comes into play.

How does a construction loan work?

A construction loan allows for all of the materials, labour and other expenses involved in building or renovating your house.

They’re often called land and construction loans, particularly if you’re buying the land itself as well as preparing to build a house on this site.

But while they’re similar to your standard home loan, there are some big differences between the two.

Firstly, a construction loan sees the lender paying out instalments of a pre-agreed loan amount to the borrower – rather than an immediate lump sum – in various stages of the property’s build or renovations.

Called ‘progress draws’, ‘progressive drawdowns’ or ‘progress payments’, these instalments are also different from standard home loans in that the borrower need only concentrate on interest-only (IO) payments.

For example, while your total construction loan amounts to $500,000, your first progress draw is $50,000 and as such, you only need to pay the interest on this $50,000, rather than the entire $500,000 loan.

These IO repayments – rather than your usual principal and interest (PI) repayments for a home loan – can therefore save you a bundle of cash.

You will have to think about PI  payments eventually, but more about that later.

When do I pay my progressive loan payments?

These payments are usually based on about five to six construction loan stages and therefore need to be paid once these stages are done and dusted.

They include:

1. Foundation

  • Levelling and laying the concrete slab of the home and connecting basic plumbing and drainage.
  • This stage will usually require about 15-20% of your total loan funds.

2. Framework

  • This construction detail will give your new house its basic skeleton including insulation and roofing.
  • Expect to pay around 20% of your funds for this stage.

3. Lock up

  • As the name suggests, your home will enjoy full security after this stage with lockable doors and windows.
  • How much should you pay for this stage? About 20%, give or take.

4. Second fix or fit-out

  • Think plastering and sealing and the installation of internal fittings and fixtures such as lights, benches and cupboards.
  • About 30% of your funds should cover you for this stage.

4. Completion and clean up

  • This is the light at the end of your construction tunnel as builders install final plumbing and electricity points and also clean up the entire construction site.
  • Prepare to hand out about 10% of your funds for this final stage.
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Progressive loan payments are usually based on about five to six construction stages

What should I consider as construction progresses?

The construction of your dream home is progressing just as it should with even the weather staying kind and sunny.

But are you, your lender and your tradies also enjoying a kind and sunny relationship?

You definitely will be if, on the completion of each of the above stages, you swiftly submit all your tradespeople’s claims, invoices and similar paperwork to your lender.

Once the lender has checked and approved this paperwork, they will then advance you the agreed cash you need to pay to your tradespeople, just as you agreed to do in the builder’s contract.

The moral to the story is: ensure you’re ahead of the game – or at least keeping a very close eye on things – at both your construction site and with your lender.

What if things go pear-shaped?

It’s common for ups and downs to appear in the building journey, whether it’s a tradie not showing up or an unexpected cost somewhere, somehow.

If it’s a minor change, aim to pay for the cost yourself to save making changes to your loan.

But if it’s major – such as adding a new bathroom or similar – talk to your lender ASAP.

Also remember that even if your construction progresses beautifully,  your lender may send a valuer to the building site throughout the journey to ensure everything is A-OK.

How can I get a construction loan?

OK, you’ve decided a construction loan is the way to go for you.

What’s next?

Well, think of the lender documents and details you needed for your standard home loan and then up the game even more because guess what?

Construction home lenders are even more conservative than standard lenders – and also more rare.

Also, how much you can borrow will depend on a completed property appraisal, including the market price of the potential home’s site.

But never fear – registered builders able to provide you with most of the following details:

  • Council approved plans and permits
  • Progressive payment schedule
  • Industry-standard builder contract (usually fixed price)
  • Your builder’s registered licence
  • Your builder’s bank account details
  • Construction site and workers’ insurance policies

You’ll also need all the documentation from your standard home loan application for a construction loan including:

  • Credit history
  • Proof of income, debt and savings
  • Proof of deposit
  • Employment history background

These points are particularly important as the lender needs to rest assured you can repay the loan even when you move to PI payments.

Pros and cons of a construction loan

After all your hard work so far, we don’t wish to see you head downhill but we do want to let you know the ins and outs of a construction loan.

Benefits

  • Your initial IO loan repayments make for big savings overall
  • First-home buyers building a brand new home may be eligible for the expanded federal New Home Guarantee (NHG), with a further 10,000 places recently announced for the upcoming financial year
  • You can build your house exactly as you want it to be

Disadvantages

  • A construction loan is specialised and owner-builder ones (see below) even more so, so not every lender will offer them
  • The risk of such potential properties also means a generally higher interest rate is charged compared to your standard loan

Notable news

Are you lucky enough to be a licenced builder – or know of one amongst your friends and family members – and can construct your own home?

If so, you can apply for an owner-builder construction loan.

They’re not easy to find and lenders are highly conservative about splashing cash on them including only offering higher than usual interest rates.

But it’s worth a shot.

Just remember your lender will need to see the following documentation as well as your usual loan documentation:

  • Quantity surveyor report featuring expected costs and soil test details
  • Construction costs
  • Timing schedule
  • Quotations, invoices and estimates

What happens after construction is completed?  

The main difference in your construction loan now – besides the joys of moving into your brand new house! – is that you’ll start to pay a full PI loan when your lender releases your final splash of cash.

Your lender will also most likely request one last inspection before confirming the property is completed to the agreed specifications.

You may then choose to change your loan to a standard one at this point or refinance altogether.

We’re here to help

 There’s no doubt construction loans make for an exciting period ahead.

Yet whether you’re brand new to the buying circuit or a savvy investor turning to a renovation or an adventurous construction, know that we’re on your side with a wealth of advice and assistance for you.

Our team of experts can find you the best possible deals – both standard and for a  construction loan – plus we have more than 40 of Australia’s biggest banks and specialist lenders for you to choose from.

So, come to Lending Loop for top tips on finding a great lender for you!