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10 tips that can help your mortgage application

As you have probably heard in the media the nations lenders have clamped down on their lending criteria as a result of pressure from various government agencies like APRA and ASIC and from recommendations made during the Banking Royal Commission into banking misconduct.

It would be fair to say that many lenders have perhaps taken this a little too far which has resulted in a market place full of inconsistent applications of an incomprehensible set of rules for borrowers to deal with.

As a result of this we felt that the following information can be used as bit of a guide to help maximise your chances of securing finance approval by implementing any number of the following tips.

1. Fill out your application form in full

Lenders will often apply a score to your loan application based on the information you supply and if you skip on optional questions this can be detrimental to the strength of your application if things a little tight. For example even if you have a savings account with another bank with a small amount in – tell your proposed lender. If you have a middle name don’t forget to include it – it matters. If you have moved a couple of times try and be accurate with your living history as lenders often marry up data they can see on your credit file with the information supplied in your application.

If you are looking to refinance or buy your next property check out client fact find here – this is a fantastic form which is responsive to asking you the questions we know a lender will want to know – nothing more and nothing less! We can contact you after you have completed to run some tailored options past you.

2. Don’t submit your application to too many lenders or brokers

Lenders get very concerned when they see on your credit file that you have applied to a number of credit providers within a short period of time for about the same amount of money. The lender in question will often take the pessimistic view and think that there is something wrong with your application and has been declined by other lenders prior to it so will pick over your file with more detail trying to find out why you would apply so many times.

3. Do you have credit defaults?

This might sound scary and a reason for a lender to decline a loan but many lenders have different policies that may consider your scenario depending on the circumstances and what you have done to remedy the situation. As a general rule of thumb defaults from utility providers like power and telecommunication companies have less impact on your scenario than do defaults on financial service providers like personal loans, credit cards and home loans.

It is important to realise that with the evolution of the positive credit reporting regime lenders can now increasingly see the conduct of other institutions credit facilities. So if you are late on your credit card payment with the CBA and your home loan application is with Macquarie Bank, then there is a good chance that they can see this on your credit file down to which months you were on time and those that were not!

Treat your repayment history with a healthy level of respect and you will find your application will run pretty smoothly. A good mortgage broker or banker will be able to work with you prior to submission to identify any sort of severity and work out the best course of action and the lenders most suited the scenario you have presented.

If in doubt you can get a free copy of your credit file from mycreditfile.com.au (a service from Equifax Pty Ltd). We can take a look at it for you free of charge and provide you with some insight – feel free to contact us here.

4. To Afterpay or not…

The advent of the ‘buy now and pay later with no interest’ companies like Afterpay and Zip Pay creates an interesting situation for lenders. In simple terms these are not seen as a great look on your bank statements because the lender makes the assumption that these often relatively low cost purchases were made because you did not have the money in the first place and with retailers quick to jump on the band wagon with this offering its even available on products and services that may be considered essential. Our recommendation is generally not to have these buy now pay later arrangements if you are seeking to make a mortgage or finance application.

5. Support Docs

You will of course have to supply items like payslips, ID, mortgage statements and tax returns etc depending on your situation. This often slows down the process when the information requested is not provided in a timely manner. Many lenders simply get to your file and if information is missing they request whats needed and place your file at the back of the queue again. Sometimes information supplied can result in additional questions being asked so be prepared for this to happen and its nothing unusual albeit it can be frustrating.

6. How much do you spend?

OK I get it that a budget is boring but again an increased focus is being made on just how much borrowers are spending on living expense and there is a general reduction on the reliance of HEM (Household Expenditure Measures) standards and a more tailored approach. Having a summary ready before your finance meeting will help you have a more productive and realistic expectation of your borrowing capacity for any sort of approval. There are often many ways that you can reduce and improve your living expense without making drastic changes in the months lading up to when you are looking at securing a mortgage. Go through your statements and look at where you may save money via;

  • Reducing utility bills by shopping around suppliers
  • Reducing or eliminating credit card debt
  • Do your food shopping with a list and don’t buy by impulse
  • Take a packed lunch (this $10 per day can save you $216 per month in after tax dollars!)
  • Love coffee (so do we) but consider a pod machine or something similar over the 4.90 large flat white with almond milk once or twice a day
  • Pay yourself first (savings) – putting money away first before you pay for everything else is a simple yet powerful process to help you get ahead. Think of every time you get a pay rise how easy it is spend that new amount of hard earned cash! There are some great online tools that can help with this. One that we love is Raize.com.au and ING Bank – these two companies have variations of a system that automatically squirrels away savings by rounding up your purchases to the nearest dollar and allows a regular savings plan. Simple, effective and above all – happens without effort. (note if you click the link above to Raize you receive a $5 credit to your new account as do AXTON Finance)

7. What happens if you are having or planning for a child

Lenders are now required to ask about any expected changes to your future income that may affect your ability to meet repayments. This of course is a requirement to be answered truthfully and is strengthened by your ability to provide other information about how you may deal with such a situation. For example if you are about to go on maternity or paternity leave you could state that you have a certain amount of funds available for the estimated period of you being on reduced income to meet the commitments of your loan. A return to work letter and using a lender with a strong appetite for this sort of scenario will also help you a lot.

8. How good is your mortgage broker or banker?

Of course we may be a little biased here but having an experience broker working with you will help explain things in plain English for you and be across the lending policies of dozens of lenders and not just one (like you would get directly at a bank).

The quality of your application submission that is made by your broker or banker can really dictate how smoothly your application goes. Do some simple research like looking up your preferred broker or banker online through Google, LinkedIn and the other usual social media links. Usually you will get a pretty quick impression as to how experienced and professional they are. If in doubt trust your instincts!

9. Consider the wider market

It is often that the more competitive products and policies lie outside the big four banks. Well over 50% of all mortgage lending goes to just four of the major banks. At AXTON finance, only 20% of our lending in the last six months has gone to a majors! There are better deals to be had if you are willing to look outside of the square it can save you tens of thousands over the life of your loan.

10. Is the cheapest rate the best?

A business mentor once told me of the following three things;

Good, fast and cheap…. pick two. It is impossible to have all three. 

Wise words to live by indeed.

A quick search of the internet may list some amazing rates that look too good to be true and while it is still may be worthwhile considering you should also think about;

  • How volatile is that rate online? Sometimes a great rate may be unsustainable for a lender to offer for a long term and you end up getting rate creep with increases outside of RBA changes. While you will be rather annoyed if this happens it would be good to understand what sort of history has been evident with the lender in question?
  • Does the lender’s computer say NO?.  In many instances lenders try and shoe horn customers into rigid processes with offshore credit decisioning driven by computer systems. If you fall outside of this sort of lenders policy due to any complexity then you want a human with experience going into bat for you. Paying an extra 0.1% or 0.2%pa in rate can often mean the difference between submitting to a lender who may view your application as being poor versus another one that is fine with your set of circumstances. Use a quality mortgage broker who understands the rules to maximise your outcomes and reduce your stress.
  • Does the lender have a good application and onboarding process or is it a process with baked in systems that worked in 1991 when fax machines were cool? This can have a significant impact on turn around times – a good broker will have excellent experience of this fist hand and can guide you.
  • Cheap online specials often blow out credit application queues resulting in turn around times that can take weeks (even months). Currently there is one lender that is out to almost 20 business days to pick up a file – do you have that sort of time to wait?
  • Enquire about what sort of service the lender has with clients. A quick look up of reviews online can give you a feel about one lender over another. However read with caution as people often use the internet to complain and rarely to praise.
  • Ensure that you understand the product that you are seeking really does have the features you need. There is no point paying for stuff you are unlikely going to benifit from if there is a cheaper and/or simpler product available that does what you need it to?

So there you have it – ten tips on helping get your mortgage application approved!

Please feel free to contact us on 1300 706 540 and ask for Clint or one of the team to help you out. We a sure you will love speaking to an experienced person and not a call centre!

Best regards,

Clint Waters
0422 464 353
AXTON Finance

How Does Refinancing Your Home Loan Save You Money?

How Does Refinancing Your Home Loan Save You Money?

When Australian academics researched the difference between renting for life and investing your hard-earned income into property ownership, the results were clear. Taking the leap into buying your own property gives you a better return in all Australia’s capital cities. The University of Melbourne economists came to their conclusion after studying data from 1983 – 2015 and compared buying a house with renting and investing in a combination of term deposits and shares.

But as house prices increase around the country, shopping around for the best possible home loan deal with a low interest rate is more important than ever.

If you’re already lucky enough to be a property owner, refinancing your existing loan in order to get access to  a better deal could be a smart move for your mortgage.

Choosing A Home Loan For Refinancing

The days of signing up for a mortgage with a 30-year repayment term are gone as banks and other lenders scramble to offer great deals that help them win customers. But as today’s workforce habits continue to evolve, flexibility is an important thing for borrowers to enjoy, and it’s important to remember that the best mortgage for you might be about more than just a low interest rate. To help you benefit from refinancing your existing home loan, take a closer look at extras on offer, and weigh up the benefits those extras may offer, in combination with the all-important interest rate.

The three main types of home loans include:

Basic loans: these no-frills frills loans typically have limited added features and a low interest rate. Although many now offer redraw facilities, there can be restrictions and fees, so if you want to make extra repayments at some point in the life of your loan this may not be the best deal for you.

Standard loans: you’ll enjoy greater flexibility that may include the ability to redraw money you have paid in, or the option to switch to a fixed rate, or perhaps split your home loan into both a fixed rate and variable rate home loan. You can also enjoy a 100% offset account but it’s important to shop around to find a loan with a cheaper interest rate and similar features.

Home loan package: this can include a standard loan with an interest rate discount that, depending on your loan amount, might be cheaper than many basic loans. The package can include a free transaction account and a credit card with no annual fee. But be warned of other hidden costs, including high package fees that can add up over the life of your mortgage.

Variable or fixed?

In these times of hefty house prices, low fixed rates can sound tempting.

Keep an eye out for reduced flexibility, including restrictions that may prevent you from making extra payments – something that can see your total interest soar over the life of your mortgage.

With rates always fluctuating, it’s difficult to predict if choosing a fixed rate over the next three or five years will save you money in the long-term. By asking yourself if you can afford a higher interest rate, you can make a well-informed decision about whether fixing the rate for at least part of your loan might be a good option.

A split loan can offer the best of both worlds and it’s something you’ll understand better by talking to an experienced mortgage broker.

Don’t Forget The Loan Fees

To help you choose the best refinancing deal for your mortgage, remember that interest rates are just one of the costs to think about. Always check the ongoing fees and charges that add up over the life of your home loan.

Asking for a better deal might just be the best thing you can do for your mortgage but it’s best to go into any refinancing deal with your eyes wide open.

Some common fees include:

Application fees

Valuation fees and lender’s legal fees

Lender’s mortgage insurance (LMI)

Monthly or annual fees

Break costs

Favourite Home Loan Features

Depending on your personal circumstances, there might be some home loan features you’ll love. These include:

  • Extra repayments – make accelerated repayments to pay off your home loan sooner
  • Redraw facility (some redraw facilities are easier to access than others, so talk to your broker to understand what’s on offer before committing)
  • Repayment holidays (with some mortgages allowing you to take a ‘repayment holiday’ for a short period to help you through lifestyle stages – such as having a baby – it’s smart to shop around to find one that suits your individual needs)
  • Interest only – although this will be more expensive these days (check out our other blog topic here why this is the case)
  • Mortgage offset accounts – the balance of your savings account reduces the interest charged on your mortgage and is usually calculated daily.

To help cut through the confusion and find the best deal to refinance your mortgage, talk to our team today or just call us on 1300 706 540 to discuss your scenario.

Reduce your mortgage insurance premium

There is no denying it – mortgage insurance or lenders mortgage insurance (LMI) kind of sucks.

This short article is about ways in which you can avoid mortgage insurance or at very least significantly reduce costs but first a few basic facts:

– It protects the bank not you

– It is a once off premium

– You have to pay it if your loan amount is greater than 80% of the property’s value

– The premium can often be added to the loan meaning you do not need to increase your cash deposit

– Getting a refund if your refinance these days is all but unheard of

– It can be expensive but you knew that right!

In the long term its often not as expensive as you may first think – especially if you have a strategy of paying off the loan sooner than the approved loan term (which everyone should try and aim for!). Paying one or two percent extra to buy a property sooner with a smaller deposit can often be recouped by paying today’s prices rather than delaying your purchase by a year or more and paying tomorrows prices which could be much more than the cost of the initial premium.

So how do you avoid or at least minimise paying lenders mortgage insurance?

Option One – Reduce your loan to valuation ratio

For almost all circumstances mortgage insurance kicks in once you borrow in excess of 80% of the value of your property. By increasing your deposit or reducing your purchase price you may be able to minimise the cost of the premium. A sure fire way to save money is to keep your lending under 90% of the value of the property – the moment you go above this threshold the cost of the mortgage insurance sky rockets (it can almost double in many instances). Call us to get a quote or tailored explanation of how it might apply based on your scenario.

Option Two – Use A Family Pledge

Your can eliminate the mortgage insurance cost entirely with the help from a family member who already owns property. This increasingly popular facility that we use is known as limited equity guarantee or a family pledge structure. Check out a detailed explanation of how this simple structure works here on our blog.

Option Three – Do you work in one of these industries?

Some of the banks offer packages that enable certain borrowers to lend up to 90% without paying any mortgage insurance. This is generally available for professionals in speciality industries such as lawyers, doctors, physios, dentists, sports stars and entertainers.

I hope this helps explain how mortgage insurance works in a little more detail. Please contact us here for an obligation free chat or ring 1300 706 540 to discuss your individual mortgage needs.

Get your home sooner when a family member guarantees part of your home loan.

Do your parents want to help you buy a home or invest in property?

Many lenders these days offer limited equity guarantee or family pledge loan structures to help you purchase a home without the absolute necessity of a cash deposit. Furthermore a family pledge structure will usually eliminate the need to pay expensive once off lenders mortgage insurance (LMI) costs.

How family pledge works?

Your family members (usually parents) can use their own home’s equity to provide additional security for a portion of your loan amount. This solution reduces your loan to value ratio and can also save you a significant amount of money by reducing or even avoiding the need to pay Lender’s Mortgage Insurance. So you get into your home faster, with help from your family.

With most lenders the guarantee can be limited to a specific amount (so not guaranteeing your full loan) which helps provide certainty and allows the property to be released much earlier than guarantees which cover 100% of the loan amount.

Benefits

  • By increasing your security through a guarantee from your family, you may be able to reduce or avoid paying Lender’s Mortgage Insurance. Lender’s Mortgage Insurance is generally payable on loans that exceed 80% of the value of the property.
  • A Family Pledge can help you maximise the amount you can borrow so you can purchase the property you want. A guarantor can request to limit the guarantee to a specific amount
  • Both the borrower or guarantor can ask us to release the guarantee at any time once standard Loan to Value ratio (LVR) requirements are achieved (usually 80%)
  • Interest rates and packages are the same for almost all Family Pledge loans. Standard guarantee and legal fees from most banks will normally apply.
  • The guarantor can be a new or existing customer of the bank we recommend. The guarantor can even retain their home loan with their current Home Loan provider providing sufficient equity exists.

Take this example

Say you were planning to purchase a $500,000 property with a $25,000 deposit (ignoring closing costs for simplicity you would have a Loan to Valuation LVR of 95%), this would mean Lenders Mortgage Insurance (LMI) would most certainly be payable.

If your parents had a residential property and agreed to provide a family pledge guarantee of $75,000 as an additional security, your LVR would be reduced to 80% (this guarantee is not a cash loan but the lender does register their interest by way of a mortgage for the guarantee amount only against the guarantors property).

This would result in the LMI premium requirement being waived, up to a $17,760 saving for you (eg. 3.4% of the required 95% loan amount plus Victorian stamp duty of 10% using indicative QBE LMI rates as of Jan 2015)!

While this example uses a deposit some lenders do not require this and can approve a loan to valuation ratio up to 100% PLUS costs (stamp duty etc). This may result in an approval of up to 106% if required – we of course recommend a deposit is always preferable though.

Are you eligible for Family Pledge guarantee?

  • You can use a Family Pledge to buy a home or invest in residential property, and you don’t have to be a first home buyer to be eligible!
  • Family members who can provide the Family Pledge guarantee include parents, grandparents, siblings, sons and daughters.
  • Family Pledge is generally not available for existing loans or refinances. Increases to loans with Family Pledge are allowed but the Family Pledge amount may not be increased usually.
  • Individual applicants are restricted to a maximum of one parental guarantee/family pledge borrowing.
  • As a rule of thumb no single guarantee is to represent more than 50% of the guarantor’s security. Some banks do not allow guarantees to be against a parents owner occupied home but only investments while other do not.
  • Guarantors are usually required to secure independent financial and legal advice as a condition of loan approval.
  • Family pledge loans can guarantee security only and NOT income (you must be able to earn sufficient income to service the entire loan based on your own resources).

Call us today to discuss your situation on 1300 706 540 or email.