Australian Mortgage and Loan Information

In brief, The First Home Owners Grant has been given a boost as follows:

First home buyers who purchase established homes will now receive a grant of $14,000

First home buyers who contract to build a new home or purchase a spec type, newly constructed home will receive a grant of $21,000.

To qualify for a grant you must have never owned or had an interest in a residential property other than a block of vacant land. The same seems to apply if your spouse/domestic partner previously owned a residential property anywhere in Australia. According to the SA government fact sheet, a spouse/domestic partner must be included on your application.

The boost is applicable to contracts signed between October 14 2008 and June 30 2009.

For clarification of your position I suggest you contact a reputable mortgage broker, they will also be able to advise you about which lenders can be used to take advantage of the grant. You may also want to consult the relevant Government Department in your state. I also suggest you get information on the First Home Buyers Deposit Saver Scheme as well.

Property developers and vacant land owners should benefit from these changes the most. So if you have a piece of land that has development potential, get moving. This is why I like investment properties on their own title. The opportunities for wealth creation are always there, even in tough economic times.

A few post’s ago I started to extol the virtues of rental property investment and that I thought there were going to be some outstanding opportunities on the horizon.

Well, unless you’ve been living marooned like Robinson Crusoe on an Island in isolation for the last year, I’m sure you’re aware of the US credit meltdown, and its domino effect on the economies of the world. A new style of economy is coming, and I am now doing a John Howard style back flip.

Don’t get me wrong, I am still bullish for Australian residential property for the long term, but with such a high percentage of our workforce now employed on a casual basis, and consumer demand on the wane, the short term outlook is now very cloudy. Timing is nearly as important as location in the current financial climate. Move to soon you, and you may get badly burned, especially if you have a short term outlook.

It is now a perfect time to review your current loans, credit cards and spending habits. Interest rates are coming down. Call your mortgage broker, organise a sit down, review your mortgage suitablility and see what’s available. If you can better your cash flow at the moment, you may well be in the box seat to take advantage when the new economy emerges.

All the major banks have announced further cuts to their standard variable mortgage interest rates in recent days.

Most have bought their rates down by .21%. I take this as proof that the Federal Government’s bail out of the finance sector has eased the pressure within the lending community. Ahmed Fahour, chief executive of The National Australia Bank is even quoted as saying he thought “further home loan mortgage rate cuts were possible in the near future“.

The banks have changed the names and descriptions of their variable or basic home loan product many times in recent years. So how do you tell if you have one of these loans and will you benefit from the rate cut? It is not easy.

For example ANZ offer home loans under the banners of: “Simplicity Plus” or just straight “Variable” the current rate is 8.57% with a comparison rate of 8.69% for the “Variable” and 7.87% and 7.92% for the “Simplicity Plus”. Both are touted as being variable. I remember my loan was variable, but which one do I have, my statement does not tell me much?

Now, I actually know which one I have, but my point here is, we should not only be aware of what type of home loan mortgage we have, but we must also know what sub category or name it is known by. The banks and other lenders will do their best to confuse, as it helps them justify the fees and charges on various products. The media reports only standard variable rates for convenience, so they are really no help. To understand our individual historcal home loan rates, we have to narrow down our focus or get help to make sense of the mumbo jumbo of home loan talk.

A competent mortgage broker will help you sort the wheat from the chaff when it comes to home loan mortgages. Get friendly with one as soon as possible. You don’t need to be refinancing to use their service, a good mortgage broker will help you anyway. You can then reward them by referring friends or transferring your loan administration to their “book” if you like their service.

In these uncertain times I have few home truths for you to consider.

Seek, find and stick with a reliable and loyal partner. Life is a lot easier when shared with a trusted, respected life partner.

Take good care of your loved ones.

Buy a house and make it your home.

Make your work something you enjoy and worthy of your time and talent.

Save some of the money you make in a deposit account for a rainy day.

When ever you transact with people, be generous and give them more than they expect, cheerfully!

Be honest, loyal and true to yourself and others, in other words; treat everyone you meet the way you want to be treated yourself.

Become the most positive, decisive, enthusiastic self-starter you know and set yourself the goal of constantly improving. Adjust your self talk to reflect this.

Forget about blaming others. Accept that sometimes you will be wrong. The blame game is for the evil, let them keep it, you are more worthy, so take personal responsibility for every area of your life and overcome mistakes, you know you can.

Decide to become wealthy.

Create some life goals, don’t always make them about money.

Take your opportunities, be bold and courageous about the things you want, it is human nature to regret the things you didn’t do, more than the ones you did.

Look up the word discipline in the dictionary. Apply the meaning to everything you do.

Persist with your goals.

Persist, persist, persist, anything worthwhile is never easy.

Use property to create wealth. It is real.

Check your mortgage statements for mistakes. Consider Mortgage Watchdog PC based loan statement checking software. I use it. With interest rates changing there is a greater opportunity for lenders to make mistakes. You could lose hundreds or thousands of dollars in overcharges on your mortgage. It is during periods of major change like we are currently experiencing or when you refinance a mortgage that many errors and large ones at that, occur in your loan statements.

The average life of a home loan is now just 4 years. Refinancing into a new loan product, enhances the propability for errors to occur and they could cost you significant sums of money.

Mortgage Watchdog’s Home Deluxe Bundle will help you find errors in your statements when you mortgage refinance. In fact we are so confident that you will find errors when you mortgage refinance that we even offer a Success Guarantee.

Before you consider a mortgage refinance it may pay to check your old statements. A recent survey of over 200 bank statements from 18 different lenders found that over 54% of loan statements contain errors. Not too surprisingly the vast majority of these errors favour the lenders. Hundreds of thousands of Australians are potentially affected by the problem and are actually owed money buy their lender.

More information on interest rate changes and mortgage refinance errors.

Essentially an Equity Finance Mortgage it is a home loan offering for owner occupiers only, where you joint venture with your lender. Your lender takes a stake in your property in lieu of regular monthly repayments or interest during the life of your loan.

When you come to sell your property or pay off your loan, you repay the original amount borrowed using the Equity Finance Mortgage plus up to a 40% share of any increase in the value of your property. Conversely, if you ever have to sell your property at a loss, your lender will possibly share up to 20% of any realised loss on your property. There are rules about who you can sell to if you have to realise a loss, including, not selling to a related party.

Application procedure is similar to all other home loan types. So Lenders Mortgage Insurance may be payable if your LVR is not within your lenders guidelines. By using an Equity Finance Mortgage in conjunction with a traditional home loan, it is possible to reduce monthly loan repayments by as much as 25% from what you would other wise have to pay, using a traditional home loan only.

Features of Equity Finance Mortgage Loans

You can borrow up to 20% of a property’s value using an Equity Finance Mortgage.
You will pay no debit interest or make any regular monthly repayments on your Equity Finance Mortgage for the entire life of the loan, which can be up to 25 years. It can be used in conjunction with a standard home loan, but if you default payments on the standard loan you may be up for debit interest on the Equity Finance Mortgage.

Benefits of Equity Finance Mortgage Loans

Help you leverage into a better home in an area of your choice.
Cut current mortgage repayments with a full or part refinance of a standard loan.
Can help reduce up front cost of lenders mortgage insurance premium and ongoing repayments on a new home purchase.

Tips and strategies

Use an EFM to buy a more expensive property while keeping your repayments at a level you can afford. For example: if you have saved a deposit of $150,000 to buy your home and you have been approved to borrow to a limit of $400,000, you could purchase a home up to a limit of $550,000. If you use an EFM with a traditional home loan of $400,000 your limit can improve to $687,500. The EFM would be $137,500 or 20%. This can be the difference between the beachside retreat you always wanted and the ex trust home you could otherwise afford.

If for any reason you are finding tough to meet your current mortgage repayments, refinancing to an EFM may just provide the relief you need. For example: If your current home loan is $350,000 on a property valued at $550,000 and your current monthly repayments are $2,818, you could free up approximately $850 per month by refinancing $110,000 of your current loan to an EFM. What could you do with that extra $200 a week?

Only a limited number of lenders are offering Equity Finance Mortgage’s, but you can apply over the Internet and ask the Home Loan Club for a free no-obligation quote on a Equity Finance Mortgage Loan.

Home Loan Rates in the 5% range not out the question.

Continued pessimism and low clearance rates for property sales in Australia has led to a chorus of economists predicting official interest rates will be near zero by 2010. Home loan rates are linked to official rates, so it would appear we could be in for some welcome news and lower mortgage stress over the next few years. Analysts expect the Australian cash rate to be close to 3.75% by March 2009, so home loan rates could be as low as 5.75%. Historically they have been lower, in fact as low as 5% in my lifetime.

Whilst many politicians and media pundits have publicly lauded the Australian Governments bail out of our economy, privately there is pessimistic talk that the global financial system meltdown will drag on for years and our economy may still require a further injection of cash to prop it up over the long term. I for one hope Mr Rudd increase’s the age pension or at least the rental subsidy for non home owner age pensioners. I would also like him to consider our manufacturing sector. We need jobs in our cities.

Whatever the Government decides to do with interest rates and pensions, people still want to come to Australia and live. They will need accommodation, This means opportunity for property investors. It is time to do some homework. Visit your local council, find out what new developments they are planning. Are they planning to change the zoning regulations in an old industrial area?

Opportunity is a funny word. The Websters dictionary definition is: 1 : “a favourable juncture of circumstances 2 : a good chance for advancement or progress.“ The current credit crisis I believe offers itself to both definitions. So for property investors the credit crisis means: “opportunity”.

There are several property investment opportunities currently presenting, in a few months there will be a dozen or so. You don’t need to rush out and slam a deposit down on just any piece of land. The opportunities I talk of will be available over the next five to seven years and will make a lot of thinking mums, average blokes and generation y kids wealthy.

The first step any of us need to take is to decide to be wealthy. Property will just be the means. Once you decide to be wealthy, get yourself a hard bound personal journal and write down in your own handwriting, the type of home, income and lifestyle you want to be enjoying in ten years. Date your entry and hold your image in your head. Every two months or so review what you have written, edit your entry if you want, but create and hold the image in your head.

The first opportunity presenting is that of property development. With many people in a panic about the their future, some very good property, with excellent development potential, is becoming liquid and available for the first time in two decades. Remember, property development does not necessarily mean building or construction. Property developement is really about increasing the value of your property purchase by any means available and managing your mortgages!

More about property development in my next post. In the mean time contact your mortgage broker and find out what your lender is doing about reducing your mortgage rate. Historical interest rates reveal a lot about the opportunities coming our way.

If the amount you need to borrow to purchase your new home or rental property gives you a Loan Valuation Ratio, LVR, of more than 80%. (65% for some low doc mortgage loans) Your lender will almost certainly compel you to pay Lenders Mortgage Insurance (LMI) on their behalf.

In fact most lenders will send all the details of your loan application to a Lenders Mortgage Insurance provider for approval of your loan, as they will now be sharing in the risk of lending you money. Lenders Mortgage Insurance insures your home loan mortgage lender in case you default on your loan payments and the lender has to sell your property at a loss. The Lenders Mortgage Insurer will meet the shortfall if your lender makes a claim for this loss. You as the borrower benefit only by getting the loan in the first place, without having to save or accumulate a minimum 20% deposit.

The Lenders Mortgage Insurance premium you pay will be dependent on your LVR and the size of your mortgage. At least one of the major banks is offering a special deal where there is no LMI up to 85%, but after all the recent kafuffle with sub prime mortgage lending they may have retracted the offer. The best ways to avoid the LMI expense is to save a larger deposit, take a cash gift from your family to help get you under the 80% LVR or use another property as joint collateral to keep that LVR below 80%.

If you just have to have a certain property and you don’t have a benevolent family to help with the deposit, make sure you get a fixed price quote on the LMI from your lender before you sign on the dotted line.

It is official, banks are making it tougher to get a home mortgage.

Despite the bail out from the Federal Government to free up lending, it seems some of our major banks have not got the message. A client reported to me today that she had been knocked back for a home loan by her bank (One of the Big Four), despite only looking to borrow a maximum LVR of 77%.

LVR is the abbreviation for the lending term Loan to Valuation Ratio. Like other ratios LVR is expressed as a percentage and is calculated by dividing the amount you need to borrow by the lenders valuation of the property used as security.

Eg if want to borrow $400,000 and your property is valued at $500,000. LVR would be (400,000/$500,000)x100 = 80% Generally an LVR of less than 80% is attractive to most mortgage lenders. The higher the LVR the riskier the proposition for the mortgage lender.

Now there are many reasons why a mortgage lender declines an application, but after reviewing the details I am at a loss to understand their decision and have referred my client to my mortgage broker. I will report further on this matter.

So is this an indication of how the major lenders are going to react to the current crisis? I hope not. The bail out and deposit guarantee was provided so they would lend money and help the economy grow. Could it be they are now a bit gun shy? A smaller bank I could understand, but the big four must do their bit. They have been taking for a long time, it is now time to give a little back.

Please don’t be discouraged if you ever get a knock back from a home loan mortgage lender. Get yourself a competent mortgage broker. They will go the extra mile for you, leave no stone unturned, in their efforts to help you get the home finance you need.