Tag: Finance Broker

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Deposit Bonds for Property Purchases

One option for property buyers is to use Deposit Bonds for property purchases. For example, for the initial payment rather than handing over their own funds. This is especially important when buying off the plan or a property to be constructed. In these instances, funds may be handed over six to twelve months before settlement. A Bridging Loan may not have the term length needed to facilitate the transaction, so a Deposit Bond may be a better option.

What is a Deposit Bond?

A Deposit Bond is in effect an insurance guarantee – the holder of the bond is agreeing to provide the full deposit on an agreed date. This helps with liquidating other assets to pay for a deposit or allows the bondholder to retain their funds until the agreed payment date.

Deposit Bonds were first created in Australia in 1988 by the local arm of Royal Sun Alliance (RSA), an insurance company. They owned a subsidiary, Deposit Power who designed the concept which has now gone global. RSA became known as Promina and are now part of the ever growing Suncorp business.

How to use Deposit Bonds for Property Purchases

An example would be: a buyer is looking to purchase a property and doesn’t have the full deposit immediately due to cash in deposits that will be available within a few weeks. They would like to lock in the purchase, so they use a Deposit Bond to pay for the deposit and then within a few weeks have their home loan and cash ready to completed the transaction. The buyer pays the bond issuer and the vendor separately to close all accounts.

Another example would be a buyer of a yet to be constructed house, using a Deposit Bond as the first payment to the builder. They then put their own funds into a high interest short term deposit account to earn some interest. This should match the term of the bond. It may be possible to cover the cost of the bond through the interest earned on the funds locked away.

Unlocking your finances with a Deposit Bond to make property purchases.

Risks Associated with Deposit Bonds for Property Purchases

As with all financial instruments, there are potential risks to be assessed by the bondholder. Firstly, the selling agent or vendor may not accept the bond. Secondly, if the transaction fails, then the issuer will expect the bondholder to cover the full amount of the bond. Finally, the bond issuer may not consider the buyer a good credit risk and may decline the application! Remember, the bondholder is borrowing the funds.

Talk to Madison Wells Pty Ltd today!

Madison Wells Pty Ltd is a finance broker, trading as Astute St Leonards and a property buyer’s agent. We understand the property purchase process intimately and can help define the best finance solution for the purchase.

The first step is to ensure that your finance is in place. You can arrange a time to discuss your requirements by accessing our Calendar here.

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Cash Flow Finance Frees Up Time to Focus on Your Business

One of the biggest day-to-day issues all businesses face is the collection of unpaid invoices. This is where cash flow finance can really free up your time to focus on your business!

In today’s economic climate it can be very difficult to balance the cash flow of a business if you want to maintain a good relationship with your suppliers. This means paying them on the agreed terms when your clients may be pushing the limits of their payment terms with you.

It doesn’t matter how big or small your business is, there are times when you will need to reduce the risk of late payments – hurting your cash flow and potentially hindering growth.

There are several options when it comes to financing – use a line of credit, take a fixed term loan, refinance a property owned by the business or use invoice financing. This last option is a cost-effective way to deal with unpaid invoices.

Cash Flow Finance via Madison Wells Pty Ltd.

Invoice Finance – aka Cash Flow Finance

Madison Wells Pty Ltd through our finance broker team at Astute St Leonards can arrange cash flow finance that pays up to 80% of the outstanding invoice such that your business can remain solvent and pays its dues as and when they fall due.

Facilities have a minimum term of six months. Credit collection and trade insurance services are also available from some finance providers. This means that whilst you run your business, someone else has that difficult talk with your client!

Only invoices issued to Australian businesses can be covered by cash flow finance with approvals typically in as little as 24 hours. Funding can start in 48 hours, so this is a fast way to unlock working capital in the business!

For more information and a non-obligation discussion about cash flow finance, please contact Stephen using this link to book some time with him.

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Self Managed Super Fund Property

St Leonards Apartments

A Self Managed Super Fund is a great vehicle to buy property in readiness for a comfortable retirement!

Many people have created a Self Managed Super Fund (SMSF) to better manage their retirement savings plan. This is a great idea when you have the time or an advisor to guide you through the extra paperwork that needs to be filed. Properly managed, an SMSF is a great vehicle to build wealth for future use.

However, many super funds have no property – or only one property – held by the underlying trust. Considering the cost of setting up and maintaining the fund, this could be a waste of the fund’s reserves. The whole concept of the fund is to increase wealth over a long period of time. The fund is under the control of the trustee(s) rather than a large third party super fund.

Super funds are split into two “phases”: Accumulation and Retirement. It is critical to ensure that the accumulation phase is as productive as possible. It is worth noting that there may be a short period where the fund transitions and both phases are active. The advice is always to maximise the accumulation!

St Leonards Apartments suitable for a Self Managed Super Fund
Apartments in St Leonards

Property held in a Self Managed Super Fund

Holding property long term in a fund is a great way to grow wealth over a longer period of time. Although a quick gain in equity may be made, some of that gain will be lost in taxes along with the cost of selling the property. Therefore, consider holding the property longer and using the rental income to pay down any loan required to purchase the property. The goal should be that the property is debt free, before you move into the Retirement Phase.

Many funds bought townhouses in the outer suburbs of major cities which at the time was a great strategy. However, there are some great value studio or one bed apartments close to the city that provide a good rental yield. This market, especially on the Lower North Shore is running red hot at the moment!
It is worth noting that with the current infrastructure boom around Sydney’s North Shore, the ability to rent out an apartment held by an SMSF is strong.

Financial Advice

It is critical to get advice when managing a fund of any kind from a licenced advisor. For advice on starting or managing a Self Managed Super Fund, please talk with our financial advice partner: Apexx Wealth.

Finance Broker – Self Managed Super Funds

Madison Wells Pty Ltd trades as Astute St Leonards, a specialist in providing loan structures for Self Managed Super Funds. There is a growing competitive market within the lending community for these types of loans. This is putting pressure on interest rates and loan policy – to the benefit of the fund and guarantors.

Property Buyers Agent

Stephen Wells, our MD, is also a registered Buyers Agent in NSW. He has access to a wide stock of apartments on the Lower North Shore with rental yields in the 5%-7% range (based on a 60% Loan Value Ratio). Talk to Stephen about the opportunities on the Lower North Shore by booking some time here.

In summary, a Self Managed Super Fund is a great vehicle to build wealth for your retirement. With opportunities to purchase in suburbs close to new public transport infrastructure, any SMSF will benefit from buying now!

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Get Help to Buy a Home – Shared Equity Plan

Sydney Skyline

The media is constantly full of stories about people not being able to afford a house or an apartment and that most properties are out of reach of a larger group of residents. The reality is, is that there are a wide range of ways that someone can buy a property. One such plan recently introduced by the NSW Government is the Shared Equity Plan to help people buy a home.

What is the Shared Equity Plan?

As a single parent, older single or first home buyer “key worker”, you may be eligible for the Shared Equity plan where the State Government will pay a proportion of the purchase price of a property in exchange for an equivalent ownership share of the property.

The NSW Government will fund up to 40% of the purchase price of a new dwelling and up to 30% on the purchase price of an existing dwelling, in effect taking those percentages as ownership of the property. This helps the buyers through having to only finance the remaining portion which reduces the amount that would be needed to be borrowed. To help further, applicants need only find 2% of the purchase price as a deposit.

As always there is some fine print! The price threshold (highest price) for a property in Sydney or a major regional area is $950,000 and $600,000 elsewhere. The property must be occupied by the applicant(s). If the applicant is capable of securing a loan for the property without help, then the Government will not be a shared equity partner!

This initiative started accepting applications during the last financial year (2022–23) and will be in place for this financial year as well (2023–24). However, there will only be 3,000 places per financial year.

Who Can Apply?

The applicants will come from the following demographics:

  • Singles over 50 years old
  • Single parents with a dependent child
  • First Home Buyers who are “key workers”, namely
    • Police Officers,
    • Medical – Paramedics, Registered Nurses, Midwives,
    • Teachers and early childhood educators.

Single applicants must earn less than $93,200 pa and joint applicants must have a combined income less that $124,200 pa to qualify.

A Worked Example

An applicant wishes to buy an owner occupied property for $900,000.
The Government takes 40% – therefore $360,000.
Outstanding amount would be $540,000.
Applicant Deposit (at 2%) would be $18,000.
Maximum loan would be $522,000.
The applicant would need to cover the cost of the loan, legals etc, which could be $2,000.

How Can We Help to Buy a Home with the Shared Equity Plan?

Madison Wells can help in two ways:
Firstly, we can help you apply for a loan with the Shared Equity plan through our finance broker Astute St Leonards. This is a specialised loan with only a few lenders registered with the Government.
Secondly, we can find the right property that fits within the definition of the plan through our Buyers Agent work.

Book some time with me to discuss your requirements.

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A Successful Business Uses Finance

Did you know that finance brokers do more than just mortgages? Many provide finance options for successful business too!

Options for small business finance are growing with an increasing number of lenders and products on the market. Madison Wells Pty Ltd, trading as Astute St Leonards, can help you make sense of all the options.

Finance Successful Business

We know that small businesses may need to access finance for a number of reasons whether it be to expand, acquire another business, to buy inventory or equipment or to meet immediate costs.

Depending on your type of business and what you’re looking for, some financing options include:

Invoice Financing

These allow a business to borrow against the amounts due from customers and helps to smooth out cash flow.

Businesses pay a percentage of the invoice amount to the lender as a fee for borrowing the money.

Invoice financing is also referred to as debtor financing, accounts receivable financing and receivables financing.

Business Loans

A business loan could be secured or unsecured —

A secured business loan uses the business’ assets as security. Assets could include real estate, vehicles or inventory.

An unsecured business loan is approved based on a business’ creditworthiness, it is not secured against any type of collateral so the interest rate is often higher than a secured loan.

Unsecured Line of Credit

A loan that allows a business to access the funds as required for working capital or operational needs. It is not secured against any asset and is approved based on a business’ creditworthiness.

A line of credit is also referred to as a ‘revolving loan’ as the borrower can withdraw funds, repay, and withdraw again.

Contact Madison Wells Pty Ltd, trading as Astute St Leonards!

Call us today – or book some time – to talk about options regarding finance for your successful business today.

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Lenders Mortgage Insurance – A Cost to Avoid

Lenders Mortgage Insurance (LMI) Can be Avoided

Lenders Mortgage Insurance (LMI) is required when the value of a loan is more than 80% of a property’s purchase price, or property valuation if refinancing. In very basic terms, a lender considers a loan to carry a higher risk if the Loan to Value Ratio (LVR) is above 80%, in which case LMI is payable.

Not to be confused with mortgage protection insurance, which is designed to protect the borrower, LMI covers the lender’s risk within a residential mortgage transaction in case the borrower fails to make loan repayments. LMI is a fairly common practice within the industry, particularly for first home buyers who may struggle to save a 20% deposit. 

Even though the actual property acts as security for the mortgage, the nature of the property market, like any investment class, means there is a chance that its value declines. This could result in a financial loss for the lender if the borrower is unable to repay the loan and the property is sold at a price below the value of the loan.

The cost of the LMI premium is dependent on several factors, such as the loan size and property value. Most insurers are flexible when it comes to the method of payment of LMI, it can either be a one-off upfront premium payment, or a premium could be included in the overall cost of the loan and included in the regular repayments. 

It is not transferable, which means a new loan, for example if the borrower refinances the loan, may require a new LMI premium depending on how much equity the borrower has in the property.

What’s In It For Me?

While LMI protects the interests of the lender, there is value to borrowers in paying the LMI premium. 

Opting for LMI means it allows a borrower to independently purchase a property sooner than they otherwise might. LMI is the alternative to using a guarantor or having to save for a bigger deposit, both of which are not feasible options for many first home buyers.

A deposit of at least 20% of the desired loan amount is required for a borrower to not be deemed ‘high-risk’. For many buyers it is difficult to save this amount, LMI allows those borrowers with smaller deposits to enter the market sooner rather than later.

The major benefit of LMI is that it can allow the dream of homeownership to become a reality for a lot of first home buyers. 

How Can I Avoid Paying LMI?

Depending on your circumstances, you could save for a higher deposit – a higher deposit means a smaller loan amount and therefore a lower LVR thereby reducing the lender’s risk. A loan of 80% or less of the property’s value is the key to avoiding paying LMI.

If you don’t have the financial capacity to meet a 20% deposit but still want to avoid LMI, you do have the option of getting a guarantor for your loan. A close relative, such as a parent, sibling or perhaps a grandparent, may be eligible to act as a guarantor, and they use the equity in their property to help you secure yours and keep your total loan below 80%. However, it’s important to remember that acting as a guarantor does come with some risks too.

Madison Wells Pty Ltd has access to an LMI company who can provide this insurance on monthly instalments. This means that the buyer of the property could save thousands by spreading the cost over several months and at the same time reducing the LVR down to a pre-defined value set by the lender.

Talk to us about how we can help you avoid LMI!

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Making Money in Commercial Property Through a Self-Managed Super Fund

Some of the most important decisions a business owner will make are about their premises: whether to rent or buy, where to base the business and even the style of the property are important to get right. For those with a Self-Managed Super Fund (SMSF), there is one more option to consider: landing business premises and an investment property at the same time. This is a topic that all business owners should take some advice on.

Figuring out whether  buying your commercial premises through your SMSF is an option that’s suitable for you is imperative to the success of your investment. There can be many gains through purchasing commercial property through your SMSF, including creating a certain level of freedom by smart use of resources. It frees up capital for the business owner and they are unlocking super to do more for them.

Further to this, the property is protected against insolvency. Depending on the type of business, this can be particularly appealing. There’s a tremendous level of protection of assets within super, so it ticks the asset protection box for a lot of SMEs that may be subject to litigation due to the nature of what they do.

Then there are the tax benefits. While it is in accumulation phase, income tax is only $0.15 in the dollar. In retirement, as the law stands, its zero. This means that the money accumulated in an SMSF through the investment does not get taxed.

On the flip side of the shiny self-management coin, Astute St Leonards offers a word of warning regarding the obligations. There is an absolute element of responsibility on compliance matters. You are the trustee of an SMSF and you need to understand what those responsibilities entail and we recommend taking specialist advice from your financial planner.

You must pay commercial rates for rent through a prearranged lease agreement and, although having a protected asset is great for some businesses, it also means that equity is locked within the fund. You can’t take earnings elsewhere. 

Having an SMSF means you can’t give all of this work to someone else to do for you, but you can seek advice. Astute St Leonards has access to a very successful financial planner that forms an integral part of our team. Call us today to get the advice that will help your business grow.

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Improving Your Wealth with a Self-Managed Super Fund Loan

Many savvy investors run a portfolio of investments to balance the ebbs and flows of interest rates, the stock market and other asset fluctuations. One area that is very popular with these investors is a Self-Managed Super Fund (SMSF). The idea behind them is that it gives the investor more control over the fund and its related assets, namely property, shares and cash.

Several years ago, all the big Banks lent money to these funds to acquire property assets as part of the fund’s portfolio. However in recent years, the number of lenders has shrunk considerably with St George, the Commonwealth Bank and AMP, for example, pulling out of the new SMSF lending market and trying to retain their existing customer base.

At Astute St Leonards, we are working with two of the remaining lenders, Liberty and La Trobe Financial to refinance loans from the other lenders. The many reason for this is that the interest rates at the original lenders has remained up over 6.00% whilst new loans can be written from around 4.35% Principal & Interest with a 0.5% increase for Interest Only loans. These rates are based on the lenders risk assessment and the Loan Value Ratio – i.e. the size of the loan compared to the estimated value of the property.

SMSF loans are a little tricky compared to normal home loans in that the property acquisition is done by the fund – and the fund is a trust company with the owners acting as a trustee of the fund and as such the guarantor of any loan. So that means that the loan is taken on by the SMSF not the actual person who is the beneficiary of the trust.

This means a little more paperwork as both the trustee (guarantor) and the fund have to be tested by the lender for serviceability. This takes a little longer to go through as the lender works through all tax returns, accounts and income sources, for example, rental income from the property.

At the time of writing, Astute St Leonards is working with seven groups of trustees moving their SMSF loans to a new provider and saving up to 2.00% on their rates. By switching to a Principal & Interest loan from an Interest Only loan also reduces the capital so the fund retains more equity and therefore grows faster.

If you have property in your Self-Managed Super Fund and your loan is currently over 6.00% then talk with us and we will provide a free analysis of the costs to make the move, as well as an estimated new payment amount with the short, medium and long term savings to be made – it might be that the savings kick in during year two of a new loan simply because the break costs are very high from your existing lender.

Astute St Leonards will work with your financial planner to ensure that all parties are aware of the analysis and we will work collaboratively to ensure that the benefits are known prior to any decision being made.

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When Should You Refinance a Home Loan?

The answer: Whenever it makes financial sense to do so!

In the past, most people who took out a mortgage doggedly continued with it until they had paid it off. These days, people refinance their mortgage much more frequently. The average duration of a home loan in Australia now is just 4-5 years. Here we look at some of the reasons people in Australia refinance their home loan and Astute St Leonards can certainly help you if you choose to refinance.

Mortgage refinancing reason #1: lower rates

The most common reason for people to refinance their mortgage is to get a better deal. But be careful you don’t become interest rate-fixated. When you refinance your home loan, you need to consider fees and charges as well as the interest rate. You often have to pay charges for exiting your current home loan, plus charges for taking out the new mortgage. You need to be sure that in refinancing your home loan that you’ll be better off in the long run after taking into account all costs.

Mortgage refinancing reason #2: more flexibility

Many people only discover the full details about their mortgage when it’s too late. They try to do something and get told by their lender that either they can’t do it, or they will incur a hefty charge if they do. An example is a redraw facility – the ability to pay extra money into a mortgage and then redraw it later. This feature is not possible with a basic home loan, so many people refinance their mortgage to give themselves this sort of increased flexibility.

Mortgage refinancing reason #3: renovations

If you carry out renovations, it often makes sense to refinance your mortgage and take out a construction loan so you only pay interest as building progresses. Once construction is over, it might make sense to refinance your home loan again so that you consolidate the total amount you owe into a loan that minimises your interest bill, while giving you a degree of liquidity.

Mortgage refinancing reason #4: home equity

Over recent years in the property market houses have appreciated at a significant rate. e.g. a home you bought for $300,000 five years ago, might now be worth $500,000. Refinancing your mortgage with a home equity loan might let you tap into that extra $200,000 equity.

Mortgage refinancing reason #5: defaulting

Some people find they have borrowed more than they can comfortably repay, and they’re in danger of defaulting. There’s no shame in that. But don’t suffer in silence. If you’re having trouble making your mortgage repayments, talk to Astute St Leonards about refinancing your home loan to make it more manageable.

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Master Your Inner Musician with a Quality Instrument

In a recent article I described how Astute St Leonards was helping owners of classic cars to enjoy their assets by getting them roadworthy and usable. We are also doing a similar thing for another joy of life: musical instruments.

Over recent months, Astute St Leonards has partnered with two local businesses to help them grow their business by providing financial packages for string instruments and pianos, two very popular ways to make music, in fact as a child my parents encouraged my brothers and I to take up a musical instrument. We ended up enjoying automotive machines rather than musical instruments!

I was introduced to North Shore Strings last year who provide high quality violins, violas and cellos. They not only sell and service instruments from a wide range of suppliers, however they also make their own high quality instruments, notably violins! North Shore Strings are based in Alfred Street, North Sydney and work closely with many schools providing their students with a range of instruments, some that become that foundation of a musical career. Astute St Leonards has developed a finance package that starts around $5,000 and is cheaper than credit card or buy now pay later systems.

Around the corner from our base in St Leonards is the Steinway Gallery providing sales and service of premium pianos. Everyone has heard of Steinway, however, did you know they have two other brands: Boston & Essex? These pianos are made from the same materials and in the same way as a Steinway but at a mid-range price point. They are the perfect way to step into the market for a quality piano. Again, Astute St Leonards has the ability to provide a personal loan package at a cheaper rate than credit card and we would work with the gallery to ensure that all requirements are met.

For a Steinway, an option maybe to use some of the equity built up in your property and with amazingly low interest rates at the moment, now is the time to use it and enjoy the highest quality piano available.

So, if you are looking to purchase a quality piano or string instrument, talk with Astute St Leonards first and we can get pre-approval. From there it is simply a matter of choosing the right instrument and that is when the experts come in to advise on what is available. We would be happy to facilitate an introduction so you too can have a joy of life: musical instruments.