Does your lender class you as an investor?

Since APRA's crackdown on investment lending, it has been reported that tens of thousands of borrowers have sought reclassify their investment loans as owner-occupier home loans, according to Liberty Network Services Managing Director, Brendan O'Donnell.

The reason being is that in July most banks bumped up there interest rates for investors by around 30 basis points. This means a 0.30% rise in investor interest rates, while a lot of owner-occupier rates have dropped.

For an average investor loan of some $400,000 this change means that investors may be charged around $100 extra each month, which could add up to thousands of dollars over the entire loan term.  

But the big problem is that not every loan that the bank classes as an ‘investment loan’ actually meets the investment loan criteria.

Even if your loan is for a non-investment purpose you may be facing investment rates on your loan. That’s why so many borrowers are speaking to their lender to reclassify their loan.

What classifies my loan as investment loan?

The bank will classify your loan as an investment loan if its original purpose was to fund an investment purchase.

Investments can take many forms, but to put it simply if you purchase a personal asset or assets that serve the sole purpose of generating income or gain, the money you borrow may be classed as an investment loan.   

Can the nature of my loan change?

Yes.

It could be that you purchased an investment home for the purpose of rental income, but mid-way through your loan term you decided to live in your investment property.

You may have borrowed money to buy a share portfolio, and then decided to sell your shares in order to travel overseas.

In either case your loan will no longer be an ‘investment loan’.

Should I reclassify my loan?

Prior to this year’s changes to investment lending, all property loans had similar interest rates so if the nature of your loan had changed it wasn’t a big problem. Now owner-occupier and investor loans can have significant pricing differences, so if the nature of your loan has changed you need to speak to your lender to make sure your loan is classified correctly.

Regardless of your loan type we recommend everyone with a home loan check their interest rates and make sure the right interest rate is being applied. If the bank misclassified your loan initially as an investment, you might only start feeling the consequences now.

To find out if your loan has been subjected to investor rates we suggest you look at your loan statements from June to current and scrutinize any significant changes to your interest rate, particularly those that are near to a 0.30% increase.

If you are unsure you can always speak to a broker about your interest rates to get expert advice.

How do I reclassify my loan?

In most cases it will be easy to contact your bank and find out why they've increased your interest rate. If your situation is complicated or you simply want help negotiating with the bank to make sure you aren’t paying too much interest, a broker will be able to negotiate on your behalf.

All About Loans can give you strong leverage with your bank to make sure they have your loan correctly classified and they are giving you the right interest rate.

Call 0732525208 for free advice!

Don Farquharson,

Loan Solution Expert

Owner & Principal Lender of All About Loans

[Photo credit: Lending Memo]

Purchasing property? It's time to get your affairs in order

According to a recent article published by smartcompany.com sixty percent of Australians die without a valid will. 

This whopping number includes people who have incorrect wills as well as those who don’t have a will at all.

There are many points in your life when you should review your estate and make sure your affairs in order, and one of these major junctures is the day you purchase your first home.

If you fall ill or pass away unexpectedly in the decades following your purchase then your mortgage could become a suffocating burden to your spouse or loved ones.

So three major points you need to address when buying your home are:

1. Your will
2. Your enduring power of attorney
3. Your insurance

Your Will

It’s vital for anyone above the age of 18 to establish a will, but when you buy your home it becomes even more important.

Whether you have a will or not, if you’re purchasing property you will need to decide on how you want your share of the property to be distributed in the event of your death. On your property transfer document you will need to state whether you and your spouse want to be ‘joint tenants’ of the property or ‘tenants in common’.

‘Joint tenancy’ means your partner assumes ownership of your share of the property after your death. ‘Tenants in common’ means your share makes up part of your estate to be distributed in your will.

Aside from your property there are a range of assets that you need to consider such as cars, superannuation, insurances, and any home contents of significant value.

Many people think that dying without a will (intestacy), doesn’t cause too many dramas, but the government’s distribution of your estate doesn’t always take into account your obvious preferences.

For example if your spouse relies on you for financial support, to meet mortgage repayments perhaps, you might want the entirety of your estate to go towards them.

But the government will look at the broader picture. Do you have step-children? Estranged family members? Ex-partners who might feel entitled to a share? The government will examine these people and might appoint them as beneficiaries.

The best method to ensure your assets are distributed correctly and easily to your chosen beneficiaries is to visit a solicitor and devise a well-thought-out will.

Your Enduring Power of Attorney

While seeing your solicitor you should also establish an enduring power of attorney.

An enduring power of attorney is someone you appoint to make financial and personal decisions in the event that you are no longer able to due to illness or injury.

Not only does this agreement protect you, but it also protects your loved ones from financial hardship in the event of tragedy.

To provide a grim example of how this precaution can protect your family consider the following situation:

You are the primary income earner for your family and the sole owner of several assets such as cars or inherited property. You suffer brain damage in an accident and fall into a coma.

You don’t have any insurance and so your spouse is left to pay for your medical bills, provide for your children and all the while continue to meet mortgage repayments.

If your partner is named your enduring power of attorney they will be able access your assets in order to sell them and meet expenses and remain financially stable.

If you don’t have an enduring power of attorney your loved ones will be left to fend for themselves and in some cases this could mean losing the roof over their heads.

Your Insurance

Before approving your home loan your lender will assess your income and whether you will be able to meet your loan repayments.

In most cases the lender will approve your loan only after considering the combined income of both you and your spouse.

So what happens if one of you can’t work?

Before purchasing your home it’s vitally important to visit a financial planner and look at your insurance options. Some important types of insurance to consider are:

•   Life insurance
•  Income protection insurance
•  Critical illness insurance
•  Temporary disability insurance

You may view insurance as an expense you just can’t afford, however in the real world, tragedies and accidents do happen. It’s important to make sacrifices so that you can hope for the best and plan for the worst.

As finance brokers All About Loans encourage all prospective borrowers to seek advice from both solicitors and financial planners to get their affairs in order.

Because without a plan, your first home could become the source of financial stress, pressure and hardship, rather than a place of fond family memories.

Don Farquharson,

Loan Solution Expert

Owner & Principal Lender of All About Loans

Why the time is right to buy your own home

People buying the roof over their own heads are fast becoming the favourite customers of the nation's lenders following the tightening restrictions on investment loans over the past few months.

In July the Australian Prudential Regulation Authority (APRA) spurred massive interest rate increases for investor loans across Australia's lenders. Before this APRA had put a 10% cap on the amount of lending banks could dedicate to investors.

The result of these restrictions has been that lenders have had to compete for their other major borrowers: owner-occupiers.

Over the past few months owner-occupier borrowers have seen consistently low interest rates. Some lenders have even dipped as low as 3.99% on principal and interest loans. 

The changes to investor interest rates have been put in place to slow the growth of the booming markets of Melbourne and Sydney where property prices are soaring. 

While in these booming markets it is still extremely expensive to purchase property regardless of whether you are an owner-occupier or an investor, in other capital cities such as Brisbane home-buyers who plan to live in the home they're buying are given the opportunity of both low interest rates as well as reasonable house-pricing.

These opportunities may not last forever so if you are looking to buy your own home get in touch with a All About Loans to take advantage of the current home-loan climate.

Oh, and by the way, despite APRA's restrictions we still have some competitive deals for investor borrowers, with rates as low as 4.13% pa. (Comparison Rate 4.27% for loans over $500,000, and Principal & Interest Repayments). Or 4.18%pa. interest only….

Call 0732525208 to receive free advice on your lending options!

Don Farquharson,

Loan Solution Expert

Owner & Principal Lender of All About Loans

Use Your Home Loan to Save Money

You probably look at your mortgage like a great big blackhole that your money disappears into. So when I say you might be able to save money with your home loan you might not believe me.

When you take out a variable rate home loan most lenders will offer you both a 100% Transactional Offset Account as well as a Redraw Facility. 

Whether you're a home owner with a mortgage or a property investor with an investment loan, you might be able to use these loan facilities to make genuine savings on your interest and your tax.

Here are some tips on how!

100% Transactional Offset Accounts

These are fundamentally the same as your average transaction account. Your lender will give you a debit card and you will be able to use this account for your everyday spending.

The only difference between this facility and your regular transaction account is that this account will be linked to your home loan. This means the money you park in your offset facility won't accrue any interest. Instead the balance of your offset account is subtracted from your loan total, meaning that you pay less interest on your debt. 

You will be saving money on your home loan interest rather than earning interest on your savings. Because home loan interest rates are generally higher than those of savings and transactions accounts this strategy will provide you with greater financial benefit.

Eliminating the interest you would otherwise earn on your savings may also save you money on your tax.

Tips for Home Owners

As a home owner I would suggest using your 100% Transactional Offset Account as your spending account, while using your Redraw Facility as your savings account.

Tips for Investors

As an investor I would suggest using your 100% Transactional Offset Account as both a transaction account and a savings account. I recommend investors avoid Redraw Facilities, and I will explain why below.

Redraw Facility

If you are paying off your home loan for your principal place of residence and you are looking to save at the same time a Redraw Facility can be a great savings tool.

This facility allows you to use your surplus funds to make extra payments on your mortgage. You'll be able to store your money within your loan account as if it were a savings account and then withdraw these funds at a time of your choosing. Like the offset account, using your Redraw Facility will mean that you won't accrue interest, and instead you will reduce your loan interest. 

Tips for Home Owners

Redraw Facilities are usually less accessible than your offset account so this makes them more suitable to use as a savings account. I recommend storing both your savings and your billing expenses in your Redraw Facility.

Tips for Investors

As an investor it is best to avoid Redraw Facilities. The reason being is that withdrawing money from a Redraw Facility on an investment loan can complicate the tax-deductibility of your loan.

If you withdraw money from an investment Redraw Facility for a non-tax-effective purpose then the money added back onto your loan may not be tax-deductible and this means you may not be able to subtract all of your loan interest from your taxable income**. 

The majority of lenders will offer these facilities as a part of your loan package. If you have an existing loan you may be eligible to open one or both of these facilities, so speak to your lender and find out about what loan facilities are available to you!

** For your particular tax position it is always best to consult your accountant or registered tax advisor.

Don Farquharson,

Loan Solution Expert

Owner & Principal Lender of All About Loans

Photo Credit: https://www.flickr.com/photos/pictures-of-money/

Budgeting for Your Home Loan Deposit

Saving for a home loan deposit can seem like a mammoth task, particularly when you don’t have a saving strategy in place.

With this in mind I’d like to put forward a few budgeting suggestions to make the process a bit easier.

I will lay out a very basic four step process which will give you a fundamental budgeting strategy.

These steps may seem simple but they are important to follow as they can remove a lot of stress and margin for error from the process.

1. Understand your money.
2. Set your savings target.
3. Draw up your savings plan.
4. Start saving!

Step One

The first step is the most important of the process. The key to any budget is understanding and monitoring the movements of your money. If you don’t know exactly how much you can save then you could set yourself up for failure.

To find out your saving capabilities you need to study your transaction statements.

I recommend printing out at least an entire month’s worth of statements. Or if you predominately use cash keep a notebook of your spending.

As you look over these you need to focus on your expenditures.

Look at every single expense and try to label it as either a ‘mandatory expense’ or an ‘optional expense’.

Your mandatory expenses will include rent, bills, groceries, petrol etc.

Your optional expenses will include things like movie tickets, restaurant dinners, and other leisure activities.

Calculate how much of your money is going towards mandatory expenses and how much is going towards optional expenses. As a couple you need to add your income and expenses together to make these calculations.

This will give you a good idea of how you are spending your money.

In some cases you might be able to find ways to lower your mandatory expenses, but generally the majority of your savings will come from setting limits to your optional expenses.

This might mean going out for dinner once a week instead of twice a week, or deciding to make your own lunch rather than buying lunch each day. 

Look at what limits you can put in place and come up with a dollar figure that you can put aside each week or each payment period, but make sure your figure is realistic and achievable.

Step Two

Next set your savings target. To do this you need to decide how long you are willing to save for and what sort of home you would like to buy. In most cases your first home won’t be your dream home. Buying an affordable home can be a stepping stone to your ideal property however, so set a realistic goal.

Step Three

Now move on to step three and write up your savings plan.

This should include:

• Your weekly allowance for each expense (e.g. Groceries: $100, Entertainment: $50, Bills: $150)
• Your weekly or regular savings deposit
• Your savings period (include here the number of savings deposits)
• Your savings target

While this savings plan sounds very simple you also need to consider your savings method.

Separating your savings from your spendings is the best approach, so if you don’t already have a separate savings account you need to establish one.

Once this is in place set up an automatic transfer to savings as your pay arrives in your account, or speak to your employer and organise for part of your wage to be delivered directly into your savings account.

You can detach most savings accounts from internet banking as well, meaning you can only withdraw money from them by visiting a branch.

Step Four

Once your plan is drawn up it is time to start implementing it. Remember, your budget is only as good as your last review.

Make sure you monitor how well you are sticking to your plan and what areas need to be improved or adjusted. This is where laying out an allowance for each expense is extremely important.

You won’t get it right the first time. It is something that you need to refine over time.

I recommend reviewing your budget at least once a month.

This process may seem like a hassle and you may think that you are capable of saving without a plan, but there is great benefit in understanding your money and creating a savings plan pays great dividends.

If you follow this basic budgeting strategy you will see improvements in your savings, and hopefully this will mean you will be able to put that deposit down on your home sooner.

Don Farquharson,

Loan Solution Expert

Owner & Principal Lender of All About Loans

What are ‘Genuine Savings’?

When you apply to the bank for your home loan you will need some savings to put towards your deposit, however it's not just about the amount of savings you have.

The lender you apply for your loan to will also care about your savings processes.

They will ask you for a deposit of ‘genuine savings’, and you may be wondering what exactly this means.

For savings to be classified as genuine, most banks will look at three months of your bank statements to see that regular deposits are being made towards your savings. While it’s expected that your bank balances will fluctuate during each payment period as you put money towards your regular expenses, lenders generally like to see an upward trend.

The reason lenders examine your savings history is because it gives them an indication of your financial discipline, and how well you will be able to commit to your loan repayments.

In some cases however, you won’t accumulate the savings for your deposit through a regular savings pattern. You may acquire a lump sum of money, which could be a gift from your parents, an inheritance or possibly the sale of an asset like a car.

Whether or not you can use this as a deposit depends on the size of the lump sum.

Depending on the lender, if your lump sum is less than 10% to 15% of the price of your property, you will need to hold the funds in a savings account for three months before they will be considered genuine.

However, sometimes when you are buying your home you have your time-frames dictated to you by real estate agents and other property market factors.

If you are on a tight time-frame there are some ways around genuine savings policies.

For example some lenders will accept a letter from your rental agent giving 12 months of rental history as evidence of your financial responsibility.  

While it’s always best to have savings behind you, don’t be daunted by bank policy. If you have your eyes on a home, but are unsure of whether your financial position is strong enough to apply for a loan, then a finance broker is your best friend.

We will often be able to find a solution that meets your loan needs as well as the bank's policies. While genuine savings are important, we focus on the full picture and displaying your financial position to the bank in the best possible light.

Call 0732525208 to receive free advice today!

Don Farquharson,

Loan Solution Expert

Owner & Principal Lender of All About Loans

Photo Credit: https://www.flickr.com/photos/pictures-of-money/

Banks Tighten the Noose on Property Investors

Australia’s lenders are cracking down on property investors in an attempt to ease the property bubble in Sydney and Melbourne.

Over the last week some of Australia’s major lenders, including ANZ, CBA, NAB, AMP and Macquarie have announced rises of 30 basis points to their interest rates for existing investor loans.

To add to this AMP announced yesterday that they will not be accepting new, or assessing existing investor loan applications. They will also be adding a further 20 basis points to their interest rates.

The Australian Prudential Regulation Authority (APRA), which acts as the regulating body for all of Australia’s lenders, instructed banks last December to curb their investment lending growth to 10% annually. Despite this instruction investment lending growth has exceeded its limits this year and due to this APRA have released further regulations, changing the amount of capital that banks need to hold before they can lend money. This has spurred the recent rise in interest rates.

These changes have been made by APRA to slow the process of property market growth in Melbourne and Sydney, however the changes to investor loans are likely to affect all property investors across Australia.

The banks with the largest investment lending portfolios are being hit the hardest by APRA’s regulations and subsequently they will be the most costly funders for investment loans.

If you have any existing investment loans now is the time to review your options. You may be able to refinance your loan to a smaller bank before interest rates rise across the board.

Investment lending is becoming a tricky area to navigate and it has never been more important to seek professional lending advice before you speak to a banker.

Despite the new limitations All About Loans still has access to a wide range of lenders who have not yet been affected by APRA’s regulations.

Talk to us to receive free advice and guidance on your decision, whether it be to refinance or acquire a new investment loan.

Call 0732525208

Don Farquharson,

Loan Solution Expert

Owner & Principal Lender of All About Loans

Photo Credit: www.aag.com