Tag: Mortgage

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Household Expenditure Measure

Do you know what the Household Expenditure Measure is? If you are buying a property and need a loan, then it is important to know this metric!

Often simply called HEM, it is a standard benchmark that lenders use to assess an applicant’s monthly and annual expenses. It is often used to assess the borrowing capacity of the applicant(s), so is a very important number to have under control!

HEM is an Australian created benchmark, developed by the Melbourne Institute off the back of their annual HILDA (Household, Income and Labour Dynamics in Australia) report. It defines what a typical family unit should be spending each month and therefore each year.

HouseholdIncome < $50KIncome $50-70KIncome $70-85KIncome $85-100KIncome < $120KIncome < $140K
Single – 0 Dependants$1,450$1,765$2,139$2,437$2,819$3,191
Single – 1 Dependant$1,866$2,203$2,576$2,875$3,257$3,631
Single – 2 Dependants$2,352$2,669$3,044$3,344$3,727$4,102
Single – 3 Dependants$2,832$3,150$3,529$3,831$4,216$4,594
Each Extra Dependants$440$440$440$440$440$440
2 Adults – 0 Dependants$2,571$2,887$3,289$3,606$3,942$4,245
2 Adults – 1 Dependant$2,935$3,252$3,654$3,972$4,308$4,611
2 Adults – 2 Dependants$3,238$3,554$3,955$4,273$4,608$4,911
2 Adults – 3 Dependants$3,494$3,810$4,211$4,528$4,864$5,167
Current HEM Monthly Expenses Benchmark (as at December 2023)
Household Expenditure Measure Shopping Bag
Getting your monthly expenses in order is a key action to get a home loan!

Improving Your Household Expenditure Measure

If you are buying a property with a loan, either as an owner-occupier or as an investor (where you are the guarantor), you will need to consider how your expenditure matches the above table. If you are above or below the respective figure for your household, then you will need to explain why to your broker or lender.

Finance lenders expect a borrower to be close to these numbers, although if your expenses are explainable and the loan structure supports the purchase, then most lenders will note the difference and assess the application.

Our broking arm (Astute St Leonards) will provide templates to help you define your expenses as part of a loan application. We can also introduce you to a financial planner if required.

In recent weeks, there has been an increase in media articles about so-called “Liar Loans” where applicants have been less than truthful about their circumstances. It is worth remembering that lenders have access to all the data, so they can ascertain whether the expenses defined are accurate or not!

We are here to help you purchase a property, so get in touch here for a no-obligation discussion! We will help map your Household Expensiture Measure.

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Bridging Loans Ease Stress

A traditional property move means trying to settle on two properties at the same time. Often there is a chain of buyers/sellers all wanting to complete their respective transaction on the same day. No one is really in control. I regularly hear horror stories where one party has a delay that causes issues down the line. Bridging loans ease stress when multiple transactions are in play.

A Bridging Loan uses both the existing property and often the property to be purchased to define the equity requirements of the loan structure. In essence, the borrower will have a loan that funds the purchase of a new property that is then covered partially or completely by the sale. The loan period would be three to six months, allowing the sale of the existing property and then a possible refinance if there is still debt to be covered.

This helps the buyer to purchase the new property, move in and then get the old property ready for sale. It splits the process of the property change-over into three parts: the purchase, the move and the sale. Now, the buyer is in more control of the process and can define the timeframes to suit them. This could help get a higher price for the sale, simply because they can negotiate for longer!

Bridging Loans Ease Stress - enjoy the move without the tears!
Ease the stress of a property move with a Bridging Loan

A Real Example – how Bridging Loans Ease Stress!

During the last COVID lock-down in 2021, my wife and I started to think about the future. We were both in our late 50s and still working. However were not happy with our residential location on the Lower North Shore of Sydney. The apartment building was in excellent condition and we had owned it for about 17 years. The area was earmarked for significant over-development – which meant construction noise, more traffic, more dust and the removal of views in all directions. Importantly, the new buildings would remove all natural light and heat resulting in higher energy costs if we stayed put.

We had recently sold an old renovated house and had some equity locked away. Our primary residence, although in a well-maintained block, showed the signs of 17 years of being lived in and needed some “tlc” to bring it back to a sellable standard. We wanted to use the equity from the house sale to fund some of the renovations and also as part of buying in a suburban area. That meant that timing was an issue – we needed to be out of the first property whilst those renovations occurred. We also needed to use both equities to fund the new property.

The Bridging Loan Solution

The solution was to use a Bridging Loan. The structure was straight forward: a refinance of the existing mortgage and used some of the equity to cover the purchase of the new property. The plan was to end the move debt-free. The loan was for six months and the interest was deducted up front, so no mortgage payments were required. Now we were now able to move on our terms.

We bought the new property on the Northern Beaches. We then had our apartment on the Lower North Shore repainted, smartened up and restyled ready for the market. It sold for more than the bridging loan within a few weeks and we paid out the new loan in full, receiving a credit for the unused interest prepayment! It also left us with enough funds to plan some future property enhancements to suit our lifestyle.

The benefits of using this type of loan included a stress-free move (no time issues), no pressure to get the old apartment spruced up for sale and reduced stress in selling the property because we knew the sale price would cover the bridging loan. Financially we are much better off because we no longer have a mortgage – or any long-term debts – with funds to buy smaller properties that will provide an ongoing income.

The Benefits of a Bridging Loan

It simplified the move and we now live a much more relaxed and quieter lifestyle away from the hustle and bustle of inner city living. It has reduced stress and our health is better for it! Even though we still work, we are doing so in a better environment. Finally, the move means that we can enjoy the community and all its amenities for many years and not have to make the move in later life when it would be even more stressful.

To learn about our finance broking services – how bridging loans ease stress, click here to go to Astute St Leonards. Access our calendar to schedule a no-obligation discussion.

If you are looking for a property to purchase on the north side of Sydney, talk to us about our buyer’s agent services.

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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.

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Avoid These Refinancing Traps and Mistakes

Sydney Skyline

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.