A good credit score can help you in your home loan journey

Why is it important to have a good credit score?

A good credit score equals a higher chance of getting a home loan.

While you can arrange a mortgage with a low credit score, you’d be making an already stressful financial period even harder for yourself.

So, let’s jump into the exciting fray of credit scores.

What is a good credit score?

A good credit score is a high score which basically means you’ve always paid your debts – including utility bills, personal loans and credit cards – on time, every time.

As such, you’re a low financial risk to lenders and they will see you as financially reliable and trustworthy with a big mortgage.

What are the benefits of a good credit score?

Lenders will love you so you’re more likely to enjoy – or at least, have a better chance of – the following:

  1. Faster mortgage approval
  2. Potentially lower interest rates
  3. Better loan terms and conditions
  4. More negotiating power
A good credit score helps you in your home loan journey
A good credit score equals a higher chance of getting a home loan. This can help with faster mortgage approval and lower interest rates.

How is a credit score calculated?

  • Repayment history including all loans and credit cards
  • Your ability to pay bills on time
  • Your credit card limit
  • How much you’ve borrowed in the past
  • Your credit applications – including those for raising your credit card limit and applying for mortgages
  • Bankruptcies and court judgments

You want the most accurate score possible so provide as much information as possible when checking your credit score (more on that later), even if it means providing unpleasant information such as that bill you paid late five years ago.

This information will most likely come to the fore at some stage of the mortgage game so it’s best to provide it now, rather than appear as if you’re trying to hide it.

What credit score should I be aiming for?

As we’ve noted, the higher your credit score, the better – but don’t expect much higher than 1,000 or at best 1,200 as that’s the highest you can go (depending on the credit agency or reporting body).

It’s pretty rare to score 100% but don’t be downcast if you receive around 850 as that’s generally considered to be an excellent figure while around 600 is also great and 500 ain’t too bad either.

How do I check my credit score?

Firstly, there are only three credit score companies in Australia:  Experian, Equifax, and Illion (formerly Dun and Bradstreet).

However, there are multiple online websites that can assist to find your score through these companies, and many of them are free to use.

Does checking my score affect my credit file or mortgage?

No, it won’t.

But other similar actions might, particularly multiple credit card or loan applications and especially if these are done in a short period of time.

Multiple pre-approvals also don’t look good on your credit file.

Lenders see such applications as risky financial behaviour ie you’re desperate for credit at short notice.

Raising your credit card limit is also frowned upon by lenders.

How can I improve my credit score?

Firstly, don’t despair if your credit score isn’t brilliant because everything’s definitely not lost.

There are some quick and easy ways to improve your credit score, or at the very least, have lenders like you more than they did before.

  1. Start early and stay ahead: if you’re planning to buy a house in the near future, start working on your credit health now.
  2. Ensure you’re keeping on top of your bills and if you have other personal loans, pay them off – or make extra payments – ASAP.
  3. While you’re organising your budget, think about setting up automatic account transfers towards both bill payments and your savings.
  4. Decrease your credit card limit to as low as it can go because regardless of whether you’ve ever reached your limit, your lender will always assume your limit is a potential debt. And if they’re already wary of your financial reliability, they won’t like a high credit limit.
    Ideally, cut up your card altogether.
    (NB: You may want to look at credit cards with fewer fees and lower rates but don’t be tempted into applying for several other cards at once.)
  5. Look at your income and savings again and do all you can to improve these points in some way, shape or form, even if it’s just going without a regular night out for awhile.

After you’ve ticked all these points, remember to stick with your healthy repayments and savings long-term so that when you check your credit score next, you’ll have no fears.

If you’ve never practised healthy finances before, this can be tricky but better to do it now than when you’ve got a large mortgage loan to repay over the next 25 years.

Even if you’re not thinking of buying a home, it can be a good idea to check your credit score every year just to see where and how you can improve your credit health.

We’re here to help

Whether it’s organising a better budget, or holding your hand while with the other, you cut up your credit card, your friendly Lending Loop team can help you.

We’ve got more than 40 of Australia’s biggest banks and specialist lenders at our fingertips and repayment and borrowing calculators, refinancing and property investing are our bread and butter too.

Give us a call today at Lending Loop.

If you are looking at expanding your property portfolio, we share some useful information on the best cities for property investors.

The Best Cities for Property Investors

The pandemic-induced residential property boom is slowing down.  Interest rates are on the rise. And it’s a difficult time to predict where and how housing prices will move in the months ahead.

So, what does all this mean for property investing in 2022? As investors should we tuck our dollars back into our savings accounts and wait for a better day?

Well the answer is – no. If you have a strategic property plan to achieve your financial goals, then any time is the right time to invest.

But once you decide that investing is right for you and your financial strategy, the next, very important step, is to decide where.

Let’s explore the best cities for property investors.

The Best Cities For Property Investors

The answer to this question is both totally unique to you and universal. After all, what makes an excellent investment property for you, could be different from your neighbour or friends or person on the street. Factors such as your budget, age, timeframe and investment objectives are directly relevant. But of course, there are objective considerations to factor in as well.

So before you start to look at potential locations, consider first the things that are unique to you:

  1. What are your goals and needs?
  2. What are potential renters and occupiers looking for?
  3. What does the market say?

What Are Your Goals and Needs?

First consider your goals from property investing. Are you looking for cash flow from the property? Capital growth? Or just a second home or somewhere to house family members while earning rental income?

The answer to these questions will give you some information about the best cities for you to purchase an investment property. After all, it doesn’t make much sense for you to buy a home in the Gold Coast for your mother-in-law to occupy, if your family lives in Sydney.

Talking to a financial advisor or investment loan specialist about the right move for you is also a great idea. This will help you to be fully informed and ready to go.

What Are Potential Renters Looking For?

According to SQM Research, national residential property rental vacancies fell to 1% in May, a 16-year low. In the smaller capitals of Brisbane, Perth, Adelaide, Canberra and Darwin, the vacancy is less than 1%.

For all of these potential renters, there has been an increased emphasis on liveability and lifestyle. Particularly after lockdowns triggered an assessment of work/life balance for so many.

So the next step, when you’re considering where to purchase an investment property,  understand whether it will appeal to your potential renters. To understand that you’ll have to take into account:

  • Security – is the property private, secure and safe for potential occupiers?
  • Lifestyle – what does the area offer in terms of good schools, shops, healthcare, outdoor recreation, and other amenities?
  • Transport – what are the commute and local roads like and is there access to reliable public transport?
  • Jobs – are there solid employment opportunities, or reliable high-speed internet for those able to work from home?

What Does the Market Say?

Now you’ve considered your own situation and what your potential tenants and occupiers are looking for. You should be in a better position to understand what you’re looking for in a city for investment purposes. Now it’s time to look at what the market says.

Canstar’s Rising Stars: Australia Property Market Report 2022 is a great place to start. It ranks 14 jurisdictions nationally – eight capital cities and six regional areas. It also lists 110 ‘Rising Star’ suburbs across Australia as the best cities for property investors for future growth potential.

Demographics of any location play a big role in it being an investment ‘hot spot’, so research is always important. Look for areas that have a proven history of strong capital growth – with many owner-occupiers – and where wages (and disposable income) continue to increase above average.

Cities to Watch in 2022

While the market is currently in flux, there are still a great many opportunities for property investing. Here are a few cities and regions to keep your eye on. And if the area you’re interested in isn’t mentioned, get in touch with us to talk through your property investing plans.

Queensland – Brisbane, Sunshine Coast and Gold Coast

By late 2021, Brisbane was recording a rapid rate of house price growth, due mostly to interstate pandemic migration, increased infrastructure spending and its success in navigating through the pandemic. The 2032 Olympics announcement has also seen increased investment interest across Brisbane, particularly the suburbs of Woolloongabba, Annerley and East Brisbane.

Despite the recent downturns Brisbane will likely remain one of the best performing property markets in Australia over the next few years. In fact, Westpac Bank recently updated its property forecasts, with Brisbane prices tipped to surge 20% between 2022 and 2023.

The lifestyle coasts to the north and south of Brisbane have also seen strong investment growth. They’re within an hour or two of Brisbane and are ideal for those seeking a sea-change while working from home or commuting.

Queensland – Toowoomba

Regionally, the Darling Downs city of Toowoomba has seen strong investment growth, thanks to increased spending on transport infrastructure. It’s only an hour from Brisbane, so is a great affordable lifestyle option while being close to capital city amenities.

New South Wales – Sydney

Residential areas close to the CBD will hold their value, particularly where the local amenities and lifestyle opportunities are high.

Suburbs such as Coogee, Kensington and Maroubra to the east and Neutral Bay on the northern side of the harbour are ones to watch.

When determining the best cities for property investors, it's always important to firstly consider what is best for you.
The best cities for property investors depends on factors such as security, lifestyle, transport and jobs.

Regional New South Wales

Regional areas such as Tamworth, the Hunter Valley, Wagga Wagga, Dubbo, Port Macquarie and Orange offer vibrant, growing economies and an affordable lifestyle. Many people who left regional areas earlier in their lives, are making the move back for the promise of a better life for themselves and their families.

The $15 billion investment in the Inland Rail link connecting Brisbane and Melbourne also means that regional areas along the route may see a surge in property value when the freight line is operational.

Victoria – Brimbank

Brimbank – which includes St Albans, Deer Park and the Sunshine suburbs – is enjoying an investment growth at the moment. It offers the promise of growth that infrastructure projects and urban renewal trends are driving. Houses are still relatively affordable as well.

South Australia – Adelaide & Onkaparinga

The South Australian economy has recovered well from the pandemic. Adelaide has historically shown a steady growth rate, across housing and units. While it’s never been a heavy hitter, with lifestyle choices being front and centre, Adelaide may finally have it’s time to shine, especially for savvy investors. In fact, CoreLogic figures published in December 2021 showed that Adelaide had the second fastest house price growth in the November quarter.

Onkaparinga is one to watch – an Adelaide seaside suburb that offers lifestyle and affordability all within striking distance of the capital city.

Talk to an expert

Investing in property is an experience unique to you and your circumstances, and the ‘perfect location’ varies from person to person. It doesn’t matter where you are on your property investment journey. Whether you’re a first time investor or savvy investor adding to your property portfolio, we can help you identify the best cities for property investors and support you every step of the way.

A free home loan health check could end up saving you tens of thousands of dollars

Why it’s important to do a home loan health check

There are a few things you should do every year – get a wellness check from your GP, get a check-up from your dentist and complete an annual home loan health check.

Of course, most of us don’t think of our home loan in those terms. (Instead, we tend to set and forget!) But a home loan review can help you to ensure that you’re getting the most from your money by helping you work out if the products, features, and interest rate of your current mortgage are meeting your needs and circumstances.

If it’s time to break up with your home loan for health reasons, you’ll be able to make an informed decision about which home loan is better for you.

Why Get a Home Loan Health Check

The short answer is that they can save you money! An annual home loan health check could save you tens of thousands of dollars on the total cost of your mortgage. But they also have a few other advantages too.

Improved Finance Fitness

Another benefit of a home loan health check is that you’re more likely to improve your overall financial fitness by getting on top of other loans and assessing your finances. Your review could lead to a mortgage that better suits your financial situation. This could be one that has more flexible repayment options. Or it could mean splitting your loan between fixed and variable interest, or consolidating other loans into your home loan.

How To Do a Home Loan Health Check

To complete a home loan health check, all you need are a few documents, a bit of time to review of your current mortgage and a little research about alternative home loan options. You can DIY these steps or speak to one of our lending specialists. Either way, you’ll need to consider a similar set of information.

A free home loan health check may help you save by getting a better rate
A free home loan health check can save you thousands by getting a better home loan rate and loan features

1. Know Your Current Mortgage Interest Rate

Knowing your current mortgage interest rate is key, as it will potentially be the biggest deciding factor in whether your home loan is healthy or not. If you’re unhappy with your current rate, or if it’s causing your own health to suffer through stress, it’s time to switch to a loan with a lower interest rate.

If your current home loan repayments are manageable and you feel good about them, you may still benefit from switching to a home loan with a more competitive interest rate.

2. Determine If Your Fixed Term Is Coming to an End

If your home loan has a fixed term interest rate – is the term coming to an end? You would most likely then be automatically rolled over to your loan’s set variable rate – which may be higher than market rate. It’s time to review your home loan health and know what other options you have.

3. Are You Paying ‘Unnecessary’ Fees and Charges?

Home loans come with fees and charges for a range of things. Assess whether you’re paying fees and charges for any services, features or products you’re not using. Or whether you’re just paying more fees than you might with another product. Look for home loans with low or even no fees – you could save hundreds of dollars each year.

Be aware that if you do switch loans, there could be a fee for early discharge of your loan.

4. Know Your Repayment Capacity

Looking at your current income and financial commitments, can you increase your home loan repayments or make additional repayment amounts? Can you link an offset account to your mortgage? Any additional payments you make can pay off your home loan more quickly, potentially saving you thousands in interest.

5. What’s your current equity?

How much equity do you have in your home, and has your home increased in value? You may be able to leverage the equity in your home to finance a renovation – or even purchase an investment property. But if you don’t check, you won’t know!

6. Be Honest With Yourself About Your Circumstances

Any significant change in your personal circumstances can impact your home loan health. Marriage, children, divorce or a change in your employment status can all impact your repayment capacity. They might also drive the need for different features in your home loan.

7. Are You Happy With Your Current Lending Institution?

It’s OK to take a close look at your current lending institution and consider your options. If your home loan health check has made you realise you have no particular relationship with your lender, your loan is missing features that are important to you or you’re unhappy with your interest rate – it could be time to think about refinancing with a different lender.

Speak to an Expert About Your Home Loan Health Check

If you feel like it’s time for a home loan health check, we’re ready to help. Our expert team can talk you through a DIY health check – or do it for you. We’re standing ready to do the legwork needed to review your current mortgage and compare competitive alternatives.

Give us a call today at Lending Loop. We’re happy to help you with your home loan health check!

When is it time to consider should I refinance my loan?

Should I refinance my home loan?

Should I refinance my home loan or not? That is the burning question right now in mortgage holders’ minds.

And it’s hardly surprising when fixed-rate loans have already been on the rise for a year while variable loans are now increasing fast as well, in the wake of the Reserve Bank of Australia’s cash rate hike to 0.85% this month.

Amongst a wealth of top-notch refinancing advice we can offer, here are a few extra points to consider.

1.   Do cashback offers really give you cash back?

Aiming to keep further rate hike fears down, lenders are reaching out to mortgage holders with special offers and deals.

A good example of such deals is cashback offers which essentially give refinancers a quick cash splash, often in the form of a gift card or similar, if they choose to take up a refinanced loan with that lender.

Sounds great, right – but is it?

Tempting as these deals may be, it’s important to look at all the aspects of your potential new lender and loan, particularly what happens if and when their initial deal ends.

And with cashback offers in particular, don’t be surprised if, beyond the initial cash, you find high interest rates and other drawbacks, including agreeing to certain terms and conditions.

On the other hand, if you’re short on cash – and who isn’t, these days, particularly when you’ve just bought a home – cashback offers can be helpful.

Just remember that cashback offers may only be available for a certain period, amount, type of property, or loan-to-value ratio (LVR).

2. Short-term benefits or long-term gains?

Again, we recommend that you don’t get caught up in the rush and panic of rising interest rates combined with the frenzied property market that is just only beginning to ease.

Remember that if you are thinking, should I refinance my home loan, refinancing should help you save and not vice versa.

The actual financial cost of both short and long-term benefits with a refinanced loan should far outweigh that of your current mortgage.

So, apart from special deals, does your refinancing opportunity still feature excellent interest rates with reasonable fees, charges and other benefits?

Would you jump at it if didn’t come with a great offer?

Of course, none of this means you shouldn’t talk to lenders offering cashback offers, frequent flyer points and other benefits.

Be honest with them and tell them what you’d like to see in a refinanced loan from them.

Perhaps tell them that while their short-term benefits are great (it always pays to be polite), you’d prefer they take the cost of these benefits out of your mortgage debt or give it back to you in the form of an interest rate discount.

If nothing else, you’ll get a good idea of how easy it is to work with this lender.

Now is the time to ask, should I refinance my home loan? Especially with the RBA cash rate and interest rate rises.
Should I refinance my home loan? If you want to save money with a better interest rate and repay your home loan sooner this could be the option for you.

3. Should I stick with my current lender?

An excellent question!

You may end up staying with the lender you know and pushing for better benefits from them rather than refinancing.

It’s certainly worthwhile talking with your current lender before refinancing, especially if you’ve had a good relationship with them for awhile.

With rates now changing on almost a daily basis, your lender may have much better opportunities on offer for you and never more so than when you tell them you’re thinking of refinancing.

If not, there are spades of other lenders in the sea to choose from.

4. How do I know if I’ve got a good deal?

Yet another good question and much of the answer depends on your personal and financial situation and your mortgage priorities.

Research, explore and make some calls; ask friends, family members and industry experts for recommendations and advice; and spend plenty of time with your calculator and budget before you make your final decision.

NB: don’t forget you may have to pay exit fees to your current lender and application and valuation fees with your new lender.

But if you’ve got a good deal, these fees should soon be wiped out by all the great savings you’re enjoying.

Refinance My Home Loan. We Can Help.

Of course, if you’re wondering should I refinance my home loan, the best people to contact is our Lending Loop team.

We can help you get the hang of the refinancing game including sorting out figures and leading you through the maze of cashback offers and other tempting deals.

We’ve got more than 40 of Australia’s biggest banks and specialist lenders at our fingertips and best of all, we’re free!

Investors and first-home buyers – we’ve got your financial back too so give us a call today at Lending Loop.

 

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!

Tap into home equity for renovations

Access The Equity In Your Home For Renovating

If you’re like many Australians, you might be considering a home renovation. In the last year, Australians spent $1 billion dollars on renovations to their homes. Even pre-Covid, the average monthly amount spent on home renovations in Queensland alone was $255 million.

Renovating is a fantastic option. It lets your home grow and change as your lifestyle and family does. Maybe you’ve had another child, and want to build another storey to accommodate extra bedrooms and a second living space. Or maybe – like many of us – you’re primarily working from home now, and you need an office to suit your new situation.

Whatever the reason, when you’re ready to renovate, you’ll need the funds to do that.  Access the equity in your home. It’s  a smart way to get those funds.

What is Home Equity

But what is home equity? Home equity is just the difference between your property’s market value and the balance of your mortgage. So, if your home is mortgage-free then it’s the full value of the property. But even if you’ve only owned your home for a few years, you’ll likely have built up a good amount of equity in the home. And this can be accessed for your own needs – such as renovating.

Read more: Equity home loans and how they can help you

Access your home's equity to refinance
Accessing the equity in your home can help you get those renovations done.

How to Calculate the Equity in Your Home

Before you can determine whether you should access the equity in your home, you need to figure out how much you have available for use. And that means first calculating the equity in your home.

Your Home Loan Equity Calculation

  1. First check your records to confirm how much of a mortgage there is on your property.
  2. Next, find the estimated market value of your home. The best way to do this is by getting a real estate agent valuation. The agent will use the particulars of your home and comparable sales in the area to find an appropriate estimated value.
  3. Finally, subtract your mortgage from the estimated value of the home to get the estimated equity in your home.

Example: Your mortgage is $500,000. A real estate valuation shows the value at $900,000. You have $200,000 of estimated equity in your home.

A Note About Accessible Equity

Just because you have $200,000 worth of equity in your home, doesn’t mean that it will all be accessible for renovations. Your ability to service the additional amounts – how much additional repayments you can manage based on your income and expenses – will be taken into consideration as well. Our experts can help you determine how much this will be for you in your specific circumstances.

How to Access the Equity in Your Home

Once you’ve determined how much you have available in terms of home equity, you’ll want to know how to access that equity for your renovation.

Step 1: Work Out a Dollar Amount

Work out the amount of money you need for your renovation project. If you want to use your equity to fund it, ensure that it falls within your accessible equity.

Step 2: Review Your Loan Options

Now is the time to start researching your home loan options. Our Lending Loop experts have access to a vast array of lenders, both bank and non-bank options, with hundreds of different loan products. We can ensure you know what all your options are and help you determine the best one for you.

Step 3: Work Out Costs and Fees

There will be costs and fees associated with each loan product. For example, if you switch from one lender to another, you may need to pay a break fee. And if you access more than 80% of your home loans equity, you may need to pay Lender’s Mortgage Insurance. We can help you find the most cost-effective options for your specific situation.

Step 4: Complete a Loan Application

Once you’ve determined the lender and the loan product you want, as well as the amount of equity you want to access, you will need to complete a loan application. Your Lending Loop broker can help you do that quickly and easily. And it won’t be long until you’re on your way to your ‘new home’.

Speak to an expert

Once you understand how to access the equity in your home, and you’re ready to do so, we’re ready to help. Our expert team can talk to you about how to get refinancing ready, and do the legwork involved in comparing home loans and any relevant fees.

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

What are pre-approvals

A Guide To Home Loan Pre-Approvals

It’s a sunny world for you and your finances because after years of dithering, you’re going to buy your own home.

Firstly, congratulations and cheers to you!

Secondly, here’s a good place to start your new journey: pre-approvals.

Read on for our guide to home loan pre-approvals

What are home loan pre-approvals?

Pre-approvals are one of the most important points to consider when applying for a loan as they outline exactly how much a lender is prepared to give you to buy your dream home.

While it’s not a 100% guarantee that your actual mortgage application will be approved, pre-approvals are great indicators of how much you can borrow as compared to what you believe can.

And as they give you a much better idea of how much you can really, truly afford, pre-approvals mean you won’t waste time considering houses far above your financial reach.

In turn, you’ll be more confident when approaching affordable houses and their real estate agents and real estate agents themselves will be far more confident and respectful of you.

What are home loan pre-approvals?
Pre-approvals one of the most important points to consider when applying for a home loan as they outline exactly how much a lender is prepared to give you to buy your home.

Risk of applying for multiple pre-approvals

We considered whether to leave this point until later but we’d prefer to start with it as buyers often don’t know about it, which can have major negative consequences for you.

While we are a great fan of pre-approvals and getting one ASAP, we also want you to know that it’s crucial to get only one – not a stack.

You may think having a stack of pre-approvals from multiple lenders makes you look great to real estate agents but in fact, it’s actually the opposite.

Why?

Every time you apply for a pre-approval, a lender will check your credit score and file, as this will help them discover how financially risky you are.

The multiple “hard enquiries” of a credit score pre-approval check – especially if they’re done in quick succession – can indicate that you’re in financial dire straits and as such, are shopping around aiming to find a lender who can help you.

This can in turn quickly lower your score and make you look far riskier than you actually are.

And did we mention that hard enquiries can stay on your credit file for up to five years?

Trust us when we tell you that you want your credit score to be as un-risky as possible so bottom line: one is best when it comes to pre-approval applications.

How do I apply for a home loan pre-approval?

Firstly, shop around and don’t apply for a pre-approval until you’re 200% sure that your preferred mortgage broker or lender is A-OK for you and your real estate needs.

If you’re still only vaguely hoping to buy a property one day, hold off on pre-approvals for now and stick with online mortgage calculators and similar.

Remember too, that pre-approvals are only valid for around three to six months, although you can sometimes extend them (more about this point later).

Once you’re confident you’ve found your ideal lender opportunity, here’s what you’ll need to give them for your pre-approval application:

  1. Financial details

    Proof of income including recent payslips
    Loan statements (credit cards and other loans)
    Bank statements
    Australian Tax Office notice of assessments
    Liabilities, expenses, assets

  2. Personal identification

    Passport, driver’s licence or birth certificate

    Home loan pre-approval points to consider

    Again, we don’t wish to burst your bubble but there are some other points to think about even after you’ve applied for a pre-approval.

    What if my home loan pre-approval is rejected?

Sadly, this can happen but it doesn’t mean your real estate life is a complete disaster plus you’ll definitely know better if and when you try for a pre-approval again.

It may just be a matter of waiting a little longer so that you can save some more cash for your deposit or pump up your credit history.

Or you or your lender may be going through some big changes.

Whatever the rejection reason is, take heart!

No, it won’t look great on your credit score to have another pre-approval application but worse things have happened.

We recommend that before handing in your application, you talk to several people in your situation who’ve had experience with such details and ensure you’ve done everything right.

Can I extend my home loan pre-approval?

Yes!

As we mentioned above, pre-approvals usually only “last” for up to six months so you may well find you need an approval extension.

And even better: you won’t have to hand in all your financial and ID details this time as you’ve already recently done so (although the lender may need a few extra recent details).

But make sure you talk to your mortgage broker or lender about an extension before your current extension expires – otherwise, you will have to start all over again.

We’re here to help

From mortgage brokers to mortgage calculators, your friendly Lending Loop team can help you get the hang of pre-approvals and every other detail surrounding home buying – including refinancing or investing.

We’ve got more than 40 of Australia’s biggest banks and specialist lenders at our fingertips and best of all, we’re free!

So give us a call today at Lending Loop.

Have you considered refinancing your home loan?

A Guide To Refinancing A Home Loan

Considering refinancing? Here’s a guide to refinancing a home loan.

Refinancing is likely something you’ve heard about before. But you may not know precisely what it is – or, more importantly, how it could make a difference to your financial situation. But refinancing is an incredibly useful tool, especially when life changes.

There may be interest rate rises, you may be getting married or you may have a new job. Whatever the change, there may be a loan that’s better suited to your life now. Refinancing is a fantastic tool to help.

So, let’s learn what refinancing is and how it can help you.

What is refinancing a home loan

In the simplest terms, refinancing a home loan means moving your loan from one lending institution to another, or from one home loan product to another, after your mortgage is in place.

The process is also very straightforward. Once you’ve found the loan that suits you, you simply need to fill in your application forms, and the lender will take it from there. They will provide you with new loan documents to sign and will take care of organising the exchange of funds with your old lender.

When you refinance, your new lender considers it a whole new loan.

Reasons for refinancing a home loan

There are many reasons why you may consider refinancing a home loan. The terms of a new loan might be more financially attractive than your existing mortgage. Or it may have a better interest rate or more flexible features.

The most common reasons are:

  • to reduce your home loan interest rate.
  • to get features that your current home loan may be missing (such as an offset account).
  • because you are unhappy with your current lending institution.
  • to consolidate debt.
  • to fund a big expense such as a renovation, car purchase or travel.

Interest rate or home loan features

A lower interest rate on your home loan could save you thousands in interest repayments over the life of your home loan. The Australian Competition and Consumer Commission (ACCC) found that borrowers could save more than $17,000 in interest over the life of a home loan.

A lower interest rate could also reduce your home loan repayment amount.

Refinancing for a new home loan feature (such as flexible repayment options, redraw facilities or an offset account) is another reason why you may consider refinancing.

Consolidate debt

Refinancing your home loan to consolidate debt (such as a car loan and credit cards) into your mortgage is a great option. Mortgages offer comparatively low interest rates. So consolidating your loans in this way will reduce your monthly repayments and cut down the time and energy spent on managing multiple loans.

Be aware, however, that consolidating your debts through your mortgage can ultimately extend the term of your home loan. And that means you could be paying more interest over a longer period.

Use the equity in your home for lifestyle reasons

Equity is the dollar amount of ownership you have in a property minus the amount owed to the lending institution. For example, if your home is worth $800,000 and the balance of your home loan is $500,000, your equity in your property is $300,000.

You may wish to refinance to access the equity in your home loan. Often people use these equity funds for things like maintaining or renovating your home, as a deposit for another property, investing in shares, buying a new car or travel.

Why it's worthwhile refinancing your home loan
Refinancing could save more than $17,000 in interest over the life of a home loan.

Two Types of Refinancing

There are two main types of home loan refinancing:

  • Internal refinance, where you refinance your home loan with your existing lender.
  • External refinance, where you move your home loan to another lending institution.

You may choose to refinance with your existing lender (internal refinance) for many reasons. Perhaps they’re offering a new, better deal that you’d like to take advantage of. Perhaps your existing loan has a lot of bells and whistles you aren’t accessing or simply don’t need. Whatever the reasons, refinancing with your current lender can save you fees associated with changing lenders.

If you have a home loan that’s a few years old, talk to your current lending institution to see if there’s a better home loan product more suitable for your situation.

If you have found a better loan product from another lender, or are simply unhappy with your current lender for any reason, then you can consider external refinance as well. Take a look around and see what’s on offer in the current market.

Who Should Refinance

This is a question only you can answer, as your own situation is unique. What we can say though is that refinancing a home loan could be beneficial if you believe you are paying too much interest on your existing home loan, or if your personal circumstances have changed.

If your income has changed, your family situation has changed, such as through a new baby or divorce, you have recently retired or been made redundant – all of these are relevant reasons to.

Costs Associated With Refinancing a Home Loan

When comparing home loans for refinancing, it’s important to consider any costs involved. Some of these could include:

  • Exit fee

An exit fee may be charged by your existing home loan lender, if you have an older home loan taken out prior to 1 July 2011 (home loan exit fees on new home loans were banned under the Gillard government over ten years ago).

  • Application or establishment fee

Application or establishment fee may be charged by some lending institutions to cover the costs of setting up your home loan.

  • Valuation fee

Your new lender may require a valuation of your property before proceeding to refinance. The fee for this can depend on the particular lending institution and where your property is located. Fees tend to be higher in rural areas compared to urban areas. Many lending institutions don’t charge a valuation fee at all, so it’s best to find out.

How Long Does the Refinancing Process Take?

From start to finish, refinancing a home loan can take anywhere from a couple of days to a couple of months. In most cases, the process is completed within four to eight weeks. As the length of time can vary depending on the complexity of your home loan and personal circumstances, it’s important to allow more time than you think you will need.

It can help to have all your documentation ready to go, and also to seek pre-approval with the new lending institution.

Refinancing Checklist

There are many reasons to refinance, and a few steps involved and things to be aware of. Our mini checklist is to:

  1. Gather your paperwork. This is similar to what was required for your home loan in the first place, and includes proof of income, your current home loan statement, living expenses, current debts and assets.
  2. Seek pre-approval with the new lending institution.
  3. Work out the refinancing costs vs benefits. Write up a pros and cons list and work through it.
  4. Be clear on your own personal reasons for refinancing.

We’ve shared our top tips to consider when refinancing in an earlier post.

Speak to an Expert

When you’re ready to work through your refinancing checklist, we’re ready to help. Our expert team can talk to you about how to get refinancing ready, and do the legwork involved in comparing home loans and any relevant fees.

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.