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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.

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Bringing Your Automotive Assets Back to Life Can Improve Your Health!

Over the weekend I attended the Sydney Harbour Concours held at the magnificent house called “Swifts” in the Eastern Suburbs. This was the third year in a row that this event has been held and showcases important cars from Australian owners ranging from the early 1920s up to brand new cars that have just been released – high end supercars. One year they had the first showing of the Ferrari Monza SP in the Southern Hemisphere and this year that honour went to the new McLaren Elva decked out in evocative Gulf Oil colours.

I went along because not only am I a Director of the Royal Automobile Club of Australia who were one of the sponsors, but also because through Astute St Leonards, we have developed finance packages to help owners of classic or vintage cars bring their vehicles up to roadworthy and even concours condition. Many of the cars at the event had only just finished a round of work within the last few weeks and were stunning.

1930s Delage – An Awards Winner!

Cars such as a 1920s Delage with an aeroplane engine, a 1930s Delage that not only won a Concours d’Elegance in the decade it was built, however it also won its class in the famous Le Mans 24 hour race. Both cars won awards at this event and were in immaculate condition – notably both are road legal and were driven to the event with the latter coming under its own steam from Melbourne!

Alongside these were 1960s Maserati, Mazda and Jaguars as well as 1970s Lamborghinis, Aston Martins and Porsche. All had been lovingly restored and this is the essence of why I created the finance packages for owners. Older cars are great to look at and they are a reminder of a time when they were individual and not common shapes. They are a tremendous source of joy for the owners and the general public when they are seen on the road!

Ferrari 246GT Dino

They can also be valuable assets for families and a reminder of past family members. The Maserati, for example, an early 1960s model, sold at auction during the event for $695,000! Several of the owners at the event spoke about completing work that their fathers had started and as such the vehicles were a homage to those relationships.

To that end I have partnered with two companies: Smart Restorations in Gosford and McCarrolls Classic in Roseville. Both of these companies are lead by highly skilled project managers who understand that a restoration is also a labour of love and must be done properly with no shortcuts and where possible using the original equipment and materials. They know the right artisans for the cars in bodywork, mechanical work, upholstery and paint and by helping owners get their cars back on the road, they are also saving some timeless skills that are lost in modern factories.

If you or your family have a classic car in need of work so that it can be enjoyed again, then give Astute St Leonards a call and we will facilitate an introduction and put together a cost effective finance package to enable these professionals to weave their magic!

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Is One Phone Call Really All It Takes To Secure a Lower Interest Rate?

With official interest rates trending downward, shrewd mortgage holders may take the opportunity to call their lender to ask for a better deal. But when even a small interest rate reduction means potential savings of thousands of dollars, is a simple phone call really enough to get you there?

In 2021, ‘your interest rate should have at most a two in front of it’, is common advice for home owners considering the competitiveness of their loan settings. But while a number of lenders offer lower rates to new customers, it’s not always so simple for existing customers to secure the same outcome.

A leading mortgage and finance broker says that if people want a better deal on their mortgage, there are basically two options:

  • Call your bank and ask them to match the new rate, or
  • Contact your broker and vote with your feet.

And although the first option is commonly recommended, lenders aren’t always so obliging when it comes to rate-matching to get you a more affordable mortgage. As an existing client, it can be disheartening to see your bank offer new customers a lower rate to the one you currently have. However, they have provided that money from a pool that came with a rate to match the one the borrower has been given, therefore by providing a lower rate, the lender will be losing money – so they really don’t want to consider that!

Lenders regularly try to ‘win’ new customers by offering low rates. It is a great acquisition strategy, but if they refuse to match your current rate to this new offer, you should contact a broker like Astute St Leonards and refinance with a lender who is hungry to win your business.

Mortgage brokers, on average, have access to a panel of 34 lenders and this creates competition amongst lenders. A broker like Astute St Leonards are also in a position to offer you a more in-depth and customised level of service. This can allow them to find their customers a mortgage product that may suit their current needs, wants and circumstances.

For a confidential discussion, call Stephen on 0412 166 815 and we can help assess your position and the rate that suits.

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How to Speed up your Home Loan Approval

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

Although very rare, same-day loan approvals are possible depending on the lender’s criteria, the complexity of the deal and turnaround time. “In my experience, this has been possible when the client’s lending position is fairly straightforward in terms of employment, asset and liability position,” says Stephen Wells from Astute St Leonards. “Also, if a valuation wasn’t required due to a low Loan Value Ratio (LVR) and both parties were happy with the contract price, then this could speed up the time to approval.”

If you’re not prepared, it could take up to a month. The most common reason for a delay is a lender’s turnaround time to assessment, especially when some lenders have competitive offerings and experience larger application volumes, but a lack of preparation can cause this delay to snowball. “When there are delays and then a lender needs to organise a valuation or request further information, this can lead to a lengthy process time,” Stephen says.

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

Disclose all Information

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

For more information have a read of our article entitled “My Broker Asks For So Many Documents“.

Skip the Valuation Queue

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

To ensure your application avoids any unnecessary delays, speak to Stephen at Astute St Leonards, a trading name of Madison Wells Pty Ltd, who will speed up your home loan approval.

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My Broker Asks For So Many Documents. Why?

No one likes paperwork, however, providing your broker with the right documentation will save you time and money. It will speed up the time to find you a loan that suits your requirements and this is why brokers ask for so many documents.

What information will your broker ask you to provide?

When you ask a broker like Astute St Leonards, they will probably ask you for the following documentation:

  • Identification, including photo ID such as a driver’s licence.
  • Income verification documentation such as recent payslips.
  • Birth certificate, if you are applying for a government funded first home owner grant.

Depending on the lender or bank you would like your broker to apply to for your loan, you may also be asked to provide:

  • A recent Pay As You Go (PAYG) summary.
  • A notice of assessment from the Australian Taxation Office.
  • Tax returns.
  • Proof of your contribution toward the transaction, such as savings or deposit statements.
  • Purchase contracts for a home loan, including building contracts, or plans if building a new home.
Why is this information important?

While it may seem that you are climbing the Mount Everest of paperwork, we will ask for all of this to ensure that we are protecting you and that we get the best possible deal for you to accept.

“Gathering various forms of documentation allows brokers to do a fact find, which is an important part of the loan process,” explains Lending Specialist Stephen Wells from Astute St Leonards.

This is the process by which brokers ensure that they match a client with a loan that helps them achieve their property goals, whether that is buying a home to live in, one to renovate and sell, or a long-term investment, and one that matches their financial positions. “Astute St Leonards does not want to put prospective loan clients into a situation where they cannot afford to repay their new loan commitments,” says Wells.

Will a bank ask for the same documentation?

If you apply for a loan with a bank that you do not currently have an account with, they will require much of the same information as the broker would. By having collated it for our compliance processes, Astute St Leonards can then speed up the settlement by having these documents to hand.

Although borrowers may be able to avoid the paperwork by applying for a loan with their current bank (which will already have a lot of information on file), this means being constrained by the products that the bank offers and risking missing out on a great deal.

“The benefit a broker has compared to an individual bank, is the broker – in our case Astute St Leonards – has access to over 30 different banks and lenders across Australia,” Wells said. “Lending policies and pricing vary greatly across the lending market and some clients don’t realise this, so why waste time going direct to a bank?” It is also likely to mean missing out on having a broker match a loan to longer-term goals, rather than just a purchase price and interest rate.

Saving you time and money

Using efficient and connected systems, Astute St Leonards can usually tell a client within 10 minutes whether they have a chance of obtaining loan approval.

Brokers have access to bank loan affordability and serviceability calculators, which show clients’ potential borrowing capacity. Depending on the size of the funding required and the loan to valuation ratio, these days the banks are extremely competitive, and Astute St Leonards can quite often get a better price deal than advertised.

If a client is not yet in a position to obtain a loan or has a credit issue on their file, such as a default, having a broker on-side can be invaluable. Brokers can guide the client with a view of getting defaults removed, or waiting until the default drops off the client’s credit file. Most brokers are accredited to gain access to client’s credit files these days, which is an extremely important issue due to the banks’ risk scoring.

In a nutshell, Astute St Leonards will shop around to get the best possible package for you, the client. This is why brokers ask for so many documents.

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Don’t Worry: Are you Concerned about Servicing your Loan?

After a very difficult 2020 where many people lost their jobs, were furloughed or simply had their hours reduced, many home owners have been under increased worry and stress. If you are concerned about servicing your loan, reach out to Astute St Leonards for help.

As Australians everywhere take a close look at their financial circumstances and consider what could happen in 2021, mortgage brokers like Astute St Leonards stand ready to lend a helping hand.

Whether experiencing financial hardship through job loss, a reduction in work hours, or business disruption, an increasing number of Australians may be struggling to balance their books as a result of the Coronavirus, and in many cases are wondering how they will continue to pay the bills.

Difficulty with Repayments

According to research conducted by Finder last year, about one in five mortgage borrowers, or about two million Australian households, were struggling to make repayments, despite record low interest rates. With the challenging circumstances that have emerged since – despite lockdowns and restrictions easing, it is anticipated that these pressures will only increase this year forcing more people to require financial assistance.

Financial Relief Strategies

In this difficult time lenders responded by announcing financial relief strategies to deal with the initial income loss and many have kept these in place as State Governments bounce between lockdown and freedom. In an official Australian Banking Association (ABA) statement, CEO Anna Bligh said, “Banks stand ready to support customers and if anyone is in need of assistance, they shouldn’t wait but come forward as soon as possible”.

Different lenders have different assistance options. These may include waiving fees on early term deposit withdrawals, interest rate freezes on loans, options to defer or restructure home loan repayments and emergency credit card limit increases. Above all, with record low interest rates, a simple refinance may be a great option.

It is important to remember that mortgage brokers have the knowledge, experience and relationships necessary to assist people experiencing or expecting to have trouble paying their home loans as a result of changing circumstances. In times like these, the importance of mortgage brokers in assisting customers with hardship and facilitating access to credit cannot be overstated. For many Australians – particularly those in rural or regional areas – brokers may represent the only source of assistance. 

Expertise of Brokers is of Critical Support

Brokers’ expertise in helping customers navigate the complex home lending market – and their intimate understanding of their customers’ personal circumstances – means they are uniquely positioned to provide critical support for people when discussing hardship and available options with lenders.

If you are concerned about servicing your loan, need further guidance on hardship assistance, or have other questions about your loan arrangements, give Astute St Leonards a call on 02 8912 2139. We are hear to help!

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Everything you Need to Know about Exit Costs when Refinancing

Exit Costs when Refinancing

Here at Astute St Leonards, we have just completed a refinance for a client where we moved two fixed rate loans into a cheaper package. This raised the issues of exit costs and break fees because refinancing can be a great way to save money if you believe you are paying too much for your loan. However, there is more to it than just finding a loan with a lower interest rate and making the change. Before making the switch, ensure the savings you could make outweigh the fees involved. Here are the different exit costs to consider when refinancing:

Exit Fee

Although loans taken out after 1st July 2011 are not subject to deferred establishment, known as “exit” fees, those taken out prior may still be subjected to this fee. Also known as “early termination” or “early discharge” fees, they can sometimes be paid by your new lender but are normally applied to an early contract exit. We will assess whether your loan has exit fees applied or not.

Establishment Fee

Also known as “application“, “up-front” or “set-up” fees, these cover the lender’s cost of preparing the necessary documents for your new home loan. They are payable on most new loans, and the alternative to not paying this particular fee is being charged higher ongoing fees or even a higher rate for the life of the loan.

Mortgage Discharge Fee

Covering your early legal release from all mortgage obligations, this fee is not to be confused with an exit fee. Also known as a “settlement” or “termination” fee, its purpose is to compensate your lender for the revenue it may lose due to the contract break.

Lender’s Mortgage Insurance (LMI)

This non-transferrable premium means that if you hold less than 20 per cent equity at the time of your refinance, you may have to pay LMI even if you paid it on the original loan. Extra care is also needed here because, whether or not you hold 20% of the original valuation of the property, you may not if the property’s value has decreased and while LMI may not have been a consideration at all in the original loan, it may be payable on the refinance.

Stamp Duty

If your purpose for making the switch is to increase your loan amount – maybe to fund renovations – then stamp duty will apply only to the difference between the original loan amount and the refinanced loan amount. Different rules apply in different States, so it’s worth speaking with us to see if this charge applies.

Other Government Charges

Fees are applied for the registration and deregistration of a mortgage so that all claims on a property can be checked by any future buyers. Varying from State to State, these can potentially add up to $1,000 or more, so it is important to review the whole package before making the decision to refinance.

Break Fee

If you were on a fixed rate loan, your lender is likely to charge you a fee for ‘breaking’ out of the loan term. This fee varies depending on the amount owed, the interest rate you were locked into, the current interest rate and the duration of your loan. Each lender will have an algorithm to define this fee and it may not be easily defined without help.

In Summary

Although some of these fees can be negotiated by a broker, the total cost can be substantial. At Astute St Leonards, we can ensure that refinancing will help you achieve your goals while maintaining your capacity to service the debt. We will ensure you are only paying the relevant fees for your unique circumstance.