Australian Mortgage and Loan Information

Mortgage holders need an up to date Will.

Ever heard of the term “died intestate”? Roughly it means dying without a valid will. The consequence is that your estate including any property you own, will be divided according to the law, regardless of your wishes. The result is often not what you intended for your family. Residential or Investment Property that you wish to keep in the family or provide to specific individuals may effected or have to be sold. Even the family home may have to be sold in extreme circumstances.

A “Last Will and Testament” drafted professionally, is an essential risk management tool for property owners, especially mortgage holders. Properly drafted, it should not only determine various parties’ property rights, but also appoint an administrator to follow your instructions and ensure your estate is distributed in accordance with your wishes.

Lawyers preach that pro forma wills should be avoided as they are supposedly inaccurate and frequently challenged. However, something is better than nothing. I believe in this instance that you get what you pay for so the cheapest pro forma will may not be the best. Shop around for a product that suits you best. Your mortgage broker will know a reputable source for a DIY Will.

Your will should be reviewed every 12 months and be updated when your circumstances change, for example:

• Home purchase or mortgage refinance• Retirement
• Marriage or remarriage, divorce or separation
• The birth of children and grandchildren and their change of marital status
• Financial commitments

Powers of Attorney are other useful risk management tools for property owners and should be considered as essential as a will.

Organise a will today, it is good risk management. A will is a sure way to “speak from the grave” and have your plans carried out. It is as important as your mortgage interest rate.

Glossary of Home Loan, Mortgage and Finance terms.
A
account balance – The amount of money you have in your account.
annual fee – The amount charged by the lender each year to cover the administration costs of the loan.
ANZ - A major Australian Banking Group.
application – A standardised form used to apply for a loan and to record relevant information about the prospective borrower and the proposed property.
appraisal – A written analysis of the estimated value of a property.
appreciation – An increase in the value of property due to changes in the market conditions, ie – inflation.
asset – Anything of monetary value owned by an individual.

B
bad debt – A debt that is not collectible and is therefore worthless to the creditor.
Bankwest – Major Australian Banking Group.
bankrupt – The condition of being unable to pay debts, with liabilities greater than assets.
business loan – A loan granted for the use of a business.
budget – A detailed plan of income and expenses estimated over a specific period of time, helping to manage costs and profits.

C
cash advance – An instant loan obtained from a lending institute.
CBA- Commonwealth Bank, a major Australian banking Group.
collateral – Property pledged as security for a debt.
commercial loan – A loan used to finance a company or its working capital needs.
construction loan – A loan used for financing the cost of construction.
contract – An oral or written binding agreement between two or more parties.
conveyancing – A legal process to transfer ownership of property from the seller to the buyer.
credit – An agreement in which a borrower receives something of value in exchange for a promise to repay the lender at a later date.
credit card – A card that allows you to buy goods, services and obtain cash advances on credit.
credit report – A report of a person’s credit history from a credit bureau used by a lender to determine a loan applicant’s worthiness.

D
debit – When money is taken out of your account for something you’ve bought or to repay money you owe.
debt – An obligation to pay an amount owed for funds borrowed.
debt consolidation – The replacement of multiple loans with a single loan, often at a lower periodic payment.
default – Failure to make a required debt payment when it is due.
deposit – Money paid in good faith to assure the performance of a contract.
depreciation – A decline in the value of real or personal property.
direct debit – An amount of money paid regularly and of various amounts, to an individual or a company from your account with your consent.

E
EFTPOS – (Electronic Funds Transfer at Point of Sale) A way of buying goods and services using a fast cash savings, cheque or credit card.
equity – The difference between the market value of your home and your outstanding mortgage balance.
EFM – Equity Finance Mortgage a home loan mortgage where the lender has a stake in the security property, and shares in any profit or loss. Allows buyers to borrow more.

F
finance – The commercial activity of providing funds and capital.
first home owner grant scheme – (FHOG) One off $7000 payment to eligible first home buyers.
fixed interest rate – An interest rate which is fixed for the term of the loan.

G
grace period – The period of time in which you are not required to make payments on a debt.
gross income – Your income before any tax or other deductions have been made.

H
home loan – A residential mortgage loan secured by a primary residence.
home loan statement checker – pc based software good for finding errors in your bank statements.

I
inflation – An increase in the amount of money or credit available relative to the amount of goods or services available, causing a rise in the price level of goods and services.
instalment – A regularly scheduled periodic payment that a borrower agrees to make to a lender.
insurance – A form of risk management that provides compensation for specific losses in exchange for a periodic payment.
interest rate – The cost of borrowing money expressed as a percentage of the amount borrowed.
Investment – The money paid to purchase a capital asset or a fixed asset.
investment property – A property that is not occupied by the owner, usually purchased to generate profit.

J
jargon – The specialized language of a particular profession, used predominantly in contracts.

K
king hit – an unexpected and unseen punch to the head.

L
lender – A person or company that supply funds.
liability – The debts or financial obligations of a person or company.
liquidate – When a company ends from being unable to pay off its debts.
loan – Borrowed money that is usually repaid with interest.
loan checking software - pc based loan statement checking software.
loan term – A lender’s agreement to make a loan on particular terms, including interest rate, fees and charges.
low doc loan – A loan requiring a lower level of verification documents.

M
Major Lenders – ANZ, Bankwest,CBA,Members Equity,StGeorge, Westpac.
Members Equity – major union based home mortgage lender.
mortgage – A legal document that pledges a property to the lender as security for payment of a debit.
mortgage broker – Lending professional, with the ability to advise and place mortgage and home loans.
mortgage checker software – pc based software that helps you check for mistakes on your loan statements. Very useful, as lenders make a lot of mistakes.

N
NAB – National Australia Bank, major Australian banking Group.
no doc loan – A loan requiring no documentation of income.

O
occupancy rate – Percentage of currently rented units in a building, neighbourhood, complex, or city.
owner finance – A property purchase transaction where the seller provides the financing.

P
personal loan – Money borrowed to meet personal needs.
profit – The positive gain from an investment or business operation after expenses.
property – That which is legally owned by an individual or property.
purchase agreement – A written contract signed by the buyer and seller stating the terms and conditions under which a property will be sold.

Q
quick cash – Liquid assets including cash on hand and assets readily convertible to cash.

R
rate – The annual rate of interest on a loan, expressed as a percentage of 100.
refinance – To repay one or more existing mortgage loans by getting a new loan.
renovation loan – A loan used to make improvements to an existing property.
rental property - house, unit, town house, flat or comercial property purchased for the sole purpose of renting out.
repayment plan – An agreement between a lender and a borrower, made to help the borrower repay installments.
risk – The probability of an event not goings as planned.

S
self employed – An individual who operates a business as a sole proprietor or in partnership.
second mortgage – A loan taken after the first mortgage and is secured against the same assets as the first.
security – Property or money that is pledged as collateral for a debt.
secured loan – A loan that is backed by property or other collateral.
settlement – The time when loan and mortgage documents are formally signed and the loan transaction is completed.
short term loan – A loan scheduled to be repaid in less than a year.
sole ownership – Ownership of property by a single person or entity.
St George Bank – major Australian Banking Group.

T
term – The period of time during which loan payments are made. At the end of the loan term, the loan must be paid.
title – A legal, written instrument detailing an individual’s lawful possession of a property.

U
underwriting – The process of verifying data and approving a loan.
unsecured loan – A loan that is obtained without security or collateral.

V
variable rate – An interest rate that changes with movement in the market.

W
warranty – A promise contained in a contract.
Westpac Bank – major Australian Banking Group.
write off – When a loan is uncollectible.

X

Y
yield – A measurement of the rate of earnings from an investment.

Z
zone – An area of property reserved for a specific or limited use, often subject to building restrictions or conditions.

Questions to ask when selecting a Mortgage Broker

Do they belong to a reputable professional mortgage industry body or association?
If yes, does the mortgage industry body have a dispute resolution system in place?

What are the Mortgage Brokers qualifications?

Which lenders do they deal with?

Do they have current Professional Indemnity Insurance?

Is the broker prepared to disclose their commission for arranging your mortgage or home loan up front?

Will they provide written evidence of their recommendations, especially when your are refinancing?

Are they up to date with interest rate movements?

Do they know about debt consolidation loans?

Can they advise on Equity Finance Mortgage’s or Shared Equity Home Loans?

Can they explain the requirements for, and arrange construction loans.

Mortgage brokers are generally professional and concerned individuals with your best interest at heart. However, you must listen carefully and make notes and ask questions when you speak to them. They talk and deal in financial home loan and mortgage language every day of their lives, they sometimes forget that we don’t.

Speak to professional Mortgage Broker even if you normally deal direct with a major Bank, Credit Union etc. It will be worth your while. They will give you the good oil on Australian Mortgage’s and Home Loans.

Have your financial circumstances changed? Suffering Mortgage Stress? Are you simply not happy with your current home loan? Maybe it’s changing priorities in life, starting a family, a new car, school fees, consolidating credit card debts or simply looking for a better deal; there’s no shortage of reasons why your current home loan/mortgage may not suit you now. If this is how you feel, you may have reached start of your home loan itch cycle. On average we Australian’s refinance our mortgages approximately every four years, so maybe it is time to find a new home loan with the features you need. Call your professional Mortgage Broker they have the experience, knowledge and capabilities to help you assess your situation and help you understand your options, so you can be comfortable in making an informed decision. Refinancing will cost you money, but it may be money well spent if you get it right.

My advice? Get the right help.

A competent Mortgage Broker will have professional mortgage checking software and will work out how much you can borrow and what the repayments will be. The loan application can also act as a review of your current financial wellbeing and the basis for a new budget or plan going forward. So even if you don’t go ahead and refinance, just going through the process will be beneficial and help scratch that itch.

Check out the Historical Home Loan Interest rates for Australia 1959-2009, interest rates will always fluctuate, key to managing your affairs is to review your home loan regularly.

So you have, or are about to sack the land lord.

One of the most important aspects of a persons well being is taking care of their financial affairs. There have been numerous studies that have indicated that poor physical health is linked to poor financial health, therefore successfully managing the risks of being a home owner/mortgage holder may well lead to a long healthy and happy life.

So what are the risks and how do we effectively manage them?

1) Physical Risk:
Your house may burn down as a result of a fire, a tree may fall through the roof as a result of a storm etc. The best way to manage this risk is to simply have adequate loss insurance on your building and contents. Any of the major insurance companies should be able to accommodate you. Please make sure you take cover for both home building and contents including public liability cover. If you think your property may be at risk of flood, get some flood damage cover if you can. If you find the cover is more expensive than you would like, shop around and consider a higher excess. Finally have the cover auto renew from a credit card or your everyday account. Some mortgage providers will even deduct the premiums for the cover with your mortgage repayments. An expired policy is generally worthless, so manage this risk well.

2) Financial Risk:
Well this is the big one. If you can’t pay for it you will loose it! Job loss, disablement, sickness, interest rate rise and marriage break down are some of the risks you face. Banks and other major lenders can be particularly ruthless when it comes to foreclosure for non-payment of mortgage loans. Why, because when took out your loan you signed a legally binding contract promising to pay off your loan at a certain rate for a certain time. You fail to meet your end of the deal they invoke the nasty clause’s. Remember, property in most areas is a fairly liquid asset so house’s can usually be sold quickly for a knock down price enabling the bank to recover all or most of its money.

My number one method to manage this risk is to stick to a strict household budget, that involves meeting all your bills and saving at least 10% of total household income each pay to a mortgage offset account or similar. Initially it will mean less chocolate bars, making your own lunch, going out less etc, but eventually it will mean, financial security and the ability to ride out periods of unemployment etc. I also encourage you to seek out some Income Protection or Sickness and Accident cover as it is also known to cover you in these circumstances. The premiums are tax deductible and can usually be paid monthly. You never know when you might get sick!

My number two strategy is to recommend that you do not become too attached to your property. If for whatever reason you have not been able to make your mortgage payments and the bank is threatening to sell you up, you must beat them to the punch. Don’t let pride get in the way of managing your risk. If you sell it, you will almost definitely get more for your property than if the bank sells it. You may even have enough to start again.

My number three strategy is to become friendly with your Mortgage Broker, make them your friend and get them to keep you up to date with all the new types of loans available like the new Equity Finance Mortgage. With their help and some knowledge gathered from sites like this, you could consider refinancing your loan over a longer period, hopefully making payments more affordable at the present. Refinance, of your mortgage should not be a frivolous event. You need to get it right, as it can be very costly and time consuming. Consolidating credit and store card debt to your home loan should also be considered, but only if you are prepared to cancel and cut up your card for good. Consolidate to home loan, can the credit card and show some loansense is the motto.

By now I hope you are formulating your own risk management strategies for your home mortgage. Say this phrase out load: “If it’s going to be, its up to me.”

You can apply the wisdom of the phrase to everything in your life.

Speaking of wisdom: get some credible loan statement checking software, it is a great risk management tool.

More properties = more wealth?

Even in this new world of responsible lending by Major Banks and other mortgage lending institutions, building wealth through property is still king. But only if your numbers stack up. 10% home loan mortgage rates should not discourage you. Plenty of investors got rich through property investment even when rates were 19%. Take a look at the historical home loan mortgage interest rates 1959-2009, many a multi millionaire property owner got their start in the peak. You will however, need a competent Mortgage Broker to find and advise you on the right finance deals to suit your wealth creation goals and needs.

People are dying to come to Australia (Literally, getting on boats and travelling through pirate infested seas to get here) and there is a scarcity of prime property in our cities already, so property will always be in demand and if you can acquire and service the mortgage’s on multiple properties you will be giving yourself every opportunity to become wealthy through property investment. However, If building wealth via property was measured by the number of home units, flats, town houses, warehouses, shops, offices or houses you own, then maybe anyone who could sign their name to a mortgage loan document would become rich overnight wouldn’t they? Many people have got rich by accident, but I bet many more have failed by accident. I mean you would not fail on purpose, so it must be an accident. So to be successful in property investment we have to be good risk managers.

What are the attributes of a good risk manager? Tune into my next blog!