Tag: Mortgage

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Financial Literacy

This year I have noticed that financial literacy is often lacking in my client interactions. I have spoken with many people looking to buy an owner-occupied property who do not understand what is involved. Specifically, how to apply for a home loan, how the repayments are defined and what the term “security” means.

So it was pleasing to read the following article from the New York Times. It made me think that here in Australia, we need the same classes.

The New York Times Financial Literacy Classes

Financial Literacy Class

Education is the key to Financial Literacy

In my youth, Pink Floyd’s The Wall was a popular album. On the track Another Brick in the Wall, the Islington Green School students sang:

We don’t need no education
Wе don’t need no thought control
No dark sarcasm in the classroom
Teachers, lеave them kids alone

Pink Floyd (Waters, Gilmour, Ezrin, Guthrie)

I respectfully disagree with Pink Floyd. Having grown up in the UK during the 70s when it was in significant crisis with strikes, high unemployment and many economic failures, I do understand the sentiment of the song!

Education is the key to a great future for people of all ages – and there is no reason for anyone to not learn anything!

Having classes in high school that focus students on real world issues such as financial literacy would mean that young adults would be making better decisions about their future. When it comes to buying a home or borrowing what is basically, a small fortune, there would likely be a faster approval. The lenders would consider the borrower as being a good fit for them and may offer a better rate.

If you would like to discuss a home loan and what is needed prior to talking with a broker. Click here to arrange some time to talk with a broker!

If you need help finding a property to live in, then click here to talk with our property Buyer’s Agent.

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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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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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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.