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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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Can Your Profession Save Money on Your Home Loan?

When it comes to reducing fees on your home loan or lowering your interest rate, some of you may not have to look further than your job. If you are in a profession that classifies you as a ‘low risk’ borrower in the eyes of lenders, then you may be entitled to special discounts which can save money on your loan.

The Lucky Ones

Accountants, lawyers and teachers are commonly eligible for home loan discounts, or particular loan types without fees, based on their professions. The benefits differ depending on specific professions and it depends on what industry the lenders decide to target as it’s a constantly changing situation, so what’s here today may not be around tomorrow.

An example of this was the slowing down of the mining industry in 2015, which saw mining engineers lose their ‘in demand’ status and their profession-based discounts.

Doctors Take the Cake

Lenders have their own target lists of professions, but doctors are nearly always the big winners. They’ll get waived Lenders Mortgage Insurance, lower interest rates and, in many cases banks will even go outside of their normal policy to get their loans approved. However, not all medical professionals, such as psychiatrists, chiropractors, vets and pharmacists are accepted by all lenders so it’s always advisable to confirm.

How the Perks Work

Simply being in a certain profession won’t automatically save you on your home loan. To qualify you must apply with a lender that offers your profession a special discount and meet that lender’s criteria. You’ll often need to provide evidence of membership of a certain industry body such as the Australian Medical Association. Waived LMI is usually approved without any problems if you meet the criteria, however as your mortgage broker, Astute St Leonards may need to negotiate to get a better interest rate as well.

Because lenders don’t publish these better interest rates, to benefit from the discounts it’s best to have us by your side. Not only will we know which lenders to apply to, we can also assist you with pricing requests and negotiating the best possible interest rate.

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When is the Best Time to Refinance Your Home Loan?

As a home owner with a mortgage, chances are you’ve heard of the term ‘refinance’. A refinance involves reviewing your current home loan, and potentially swapping your loan to another lender who can better meet your current needs, wants and circumstances.

Refinancing can also allow you to consolidate your debts or pay down your mortgage more quickly. At Astute St Leonards, we are currently refinancing property loans in Self Managed Super Funds (SMSF) to increase the value of the super funds. Thus reduces the loan and increases the equity plus more rental income retained.

As described above, another common reason borrowers look to refinance is so that they can access equity – the amount you’d get from selling your home after settling any associated loans, such as a mortgage on that property, and any other costs associated with the property. Depending on that amount, you may be able to access equity in the property without having to sell it, for example, to make home renovations or to buy an investment property.

However, refinancing is not suited to everyone. There are many different factors you will need to consider when thinking about refinancing a loan. Before you initiate an application to refinance, we will need to assess your needs and objectives as well as your current financial situation.

So how will you know that refinancing is the right option for you?

The first step is to speak to a professional, such as a mortgage broker like Astute St Leonards, about your needs and whether you can afford a different loan structure or other change to your mortgage, particularly if you have more than one property.

Are you looking to pay less interest?

Some people are savvy researchers and will want to take advantage of a lower interest rate from another lender should that be available to reduce repayments. If you aim for a lower interest rate, this could potentially save you a lot of money in the long term. One of our SMSF clients saw this as a great way to get a better deal, especially as they are getting close to retirement age and need their fund to have as much cash as possible.

While saving money is often one of the biggest benefits of refinancing, it may not be as straightforward as that and careful consideration is required. At this point, we will need to find out about your existing loan, repayments and current loan structure.

We will also need to find out more about your current financial situation, including your income, any other current debts and about any assets you own. The current value of the property is also taken into consideration, so we will have access to current data that will indicate what your property is estimated to be worth.

We then review the various loan options and figure out whether it’s worth it for you to refinance. Sometimes it’s not worth it if it’s only going to save a couple of hundred dollars a year, particularly when you take into consideration any exit and application fees involved. But if it’s going to save upward of $1,000 a year, refinancing might be a sensible approach. In some cases, we can tell you if getting a lower interest rate from your current lender can be achieved without refinancing.

Do you want to change your loan type?

One of the risks of refinancing your home loan is that you may need to pay Lender’s Mortgage Insurance (LMI) to your new lender. If switching your loan means you will need to pay LMI again, it may not be worth refinancing. This insurance is used to protect the lender from default.

If you do decide to refinance your home loan, working with us rather than going straight to a lender has advantages. We generally have access to loan options from a range of different lenders (up to 36 different lenders) and if there’s a better opportunity for you, we are able to access the new package. It is also important to consider that when you take up a new home loan, it can incur exit fees and may not have all the features your existing home loan has.

Have your circumstances changed?

If you had a recent major life change such as a loss of income or a change in marital status, you might be looking at a refinance of your home loan. If you want to refinance to lower lending costs to help you manage your monthly repayments, speak to us because we can negotiate with your current lender for a rate suitable to your current situation. We can also help you look at alternate options to consolidate your personal loans and credit cards into the one loan. This could help you in lowering your monthly repayments, or help you keep your repayments on time and even save you interest in the long-term.

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Avoid These Refinancing Traps and Mistakes

It is a great time to look at refinancing your mortgages and home loans – with ever lower rates and increasing features being offered in a highly competitive market. The mortgagee is certainly in a powerful position with a market clamouring to be seen. Whether you’re after lower repayments or want to tap into the equity sitting in your home or investment, refinancing can offer a world of benefits. However, here are three refinancing traps and mistakes to be aware of so that you don’t find yourself hooked into a bad deal.

Don’t be fooled by the interest rate

Finding a lower interest rate doesn’t necessarily mean you’ve scored yourself a better deal. In fact, a product with more features may cost you a bit more in fees or interest, but could save you more in the long run. Including features such as an offset account will prove valuable as it will allow you to make larger repayments or put any extra cash against the loan. Products without this feature may charge a fee for early repayments. Worse still, when you come to refinance, you may be hit with huge exit fees because you thought you were being fiscally responsible! Astute St Leonards recently reviewed a refinance opportunity only to find the home owner would be charged $3,000 by their bank to leave, having put a little bit more into the loan each month even without a fixed interest period!

Honeymoon rates are just that

Don’t be lured by offers with discounted introductory rates unless you’ve calculated the savings over the life of the loan. While a loan with a discounted interest rate seems a tempting offer, it’s only temporary. Once the introductory period is over, the interest will revert to a higher standard variable for the rest of the loan term. It may be more beneficial financially to negotiate a lower interest rate without an introductory discount. This is important to consider – with low rates today the savings might add up if you can use an offset account to make a bigger gain.

Be aware of the fees

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

In Summary

While there are traps to avoid, a little expertise can take the stress out of refinancing to save you thousands, fund that renovation, or simply find a loan that suits your life a little better. Talk to Astute St Leonards and we will guide you through the process avoiding the refinancing traps and mistakes that can catch you out. We are here to help!

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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.

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Get Your Finance Broker Working for You!

Madison Wells Pty Ltd, trading as Astute St Leonards, has created a series of short videos to highlight how and why to use a finance broker for your home loans, cars loans or even a musical instrument or another asset! This video will show you how to get your finance broker working for you, especially if you are refinancing an expensive loan to a lower rate.

You can watch the other videos in the series here:
5 Great Reasons to use a Finance Broker
What to look for when Choosing a Broker
5 Key Ways a Finance Broker can help you

For more information and a free quote on any loan please give us a call on 02 8912 2139 or contact us through our Astute St Leonards page and you can get your finance broker working for you – i.e. us!