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

Family Guarantors

Are you ready to buy your first home but don' have the savings? 

You might be able to make the move sooner than you think.

Many people think that you need to have saved a huge sum of money before you buy your home, but this isn’t always true. To get around the banks' normal savings requirements, you might be able to secure your home loan with the help of your parents.

If you don't have the savings, but you're ready to buy your home speak to your parents about using a Family Equity Guarantee. Basically how a family guarantee works is that the lender looks at your parents’ home and assesses how much useable equity they have within that property. If they have enough equity to guarantee 20% of the purchase price of your property they can act as guarantors on your loan!

The benefits of using a family guarantor:

You don’t have to pay a deposit!

A family guarantor enables you to secure your loan without paying a deposit. If you have money set aside to put towards your home, however, we suggest for most people that you still put this down as a deposit.

You don’t have to pay Lenders Mortgage Insurance!

The equity in your parents’ home acts as insurance to the lender in case you are unable to pay back your loan. This means that you don’t have to pay the insurance yourself. This can save you thousands.

You get into your new home sooner!

If you have the income to meet your loan repayments then stop paying off someone else’s mortgage through your weekly rent. Speak to your parents about a family guarantor option and start paying off your own mortgage and furthering your financial position.

As always there are other considerations and it is best for both you and your parents to seek advice before moving forward with this option.

All About Loans can give you lending advice and lay out all your options for you for free!

You could have the keys to your first home much sooner than you think.

Call 0732525208 to get your planning started!

Don Farquharson,

Loan Solution Expert

Owner & Principal Lender of All About Loans

Choosing Your Home Loan

Interview with Loan Solution Expert: Don Farquharson

“Finding the right loan option isn’t just about your interest rate.”

Q: How do I choose the right home loan?

A: Many first home buyers rush into the decision of choosing their home loan. Often times they go to the lender that they do their every-day banking with simply because it's the easiest option. 

This can be a big mistake. Your home loan will demand a significant amount of your income for a number of years. You need to make an informed decision. The right loan option can save you thousands of dollars, but finding the right loan option isn’t always about your interest rate. You need to consider and compare a range of features between lenders.

1.     Interest Rates

2.     Variable and Fixed Interest Rates

3.     Lenders Mortgage Insurance (LMI) and Lender Costs

4.     Flexibility in Policy

When you consult with a finance broker the comparison process is handled professionally and a lot of confusion and margin for error is removed from your decision. Brokers even have the leverage to negotiate with your lender to get you an even better deal. This being said, whether you seek advice from a broker or not, it's still extremely important for you to understand all of the features of your home loan.

Q: What is a good interest rate?

A: When it comes to what is a good interest rate there is no clear-cut answer. Depending on the fluctuating market, lender competition and your particular circumstances, a good interest rate can fall between 4 and 5% p.a. On rare occasions particular lenders will offer interest rates below 4%, and usually in these circumstances we advise our clients to pounce upon them. 

But as always, pausing to compare your loan options is extremely important. You may find an excellent interest rate, and then discover that the lender charges higher Lenders Mortgage Insurance, or other fees and costs.

Q: Should I choose a Fixed or Variable rate home loan, or a combination of both?

A: If you think rates will rise, then choosing a fixed interest rate may be a good option.  Fixed Rate Loans generally don’t have as many features as a Variable Rate Loan though.  If rates fall, you may find that to repay your fixed rate loan, you may have to pay significant penalties. You can lock in fixed rates for terms from 1 to 15 years.

Variable interest rates allow you to repay your loan at any time without penalty, and you can have attached to your loan other features such as Redraw of early repayments, and 100% Transaction Savings Accounts.

Alternatively, you can choose a combination of both fixed and variable rates on your home loan which gives you both some surety of your repayments, some flexibility and some great features.

Q: What is Lenders Mortgage Insurance and what lender fees and costs will I have to pay?

A: Lenders Mortgage Insurance (LMI) exists to compensate the bank in any situation where they make a loss on your loan. Generally when your deposit is less than 20% of the purchase price you will need to pay LMI.

LMI is a one off cost that is added to the loan amount and is then factored into your interest and repayments.  By paying LMI, you only need to contribute as little as 5% of the purchase price plus your other costs. With the help of a broker you may be able to avoid this cost.

On top of LMI your lender may charge upfront fees such as an application fee and a settlement / documentation fee. There might also be ongoing fees depending on the loan package you choose.

                                                                               

Q: What does flexibility in policy mean?

A: If you have difficulty saving, have bad credit history, or have just started a new job, it can be very difficult to get a home loan. Sometimes the most important factor when looking for the right lender can be how flexible their policies are considering your individual situation.

Q: Is there anything else I need to consider?

A: Yes. There are lots of things to consider when choosing your home loan and not all of them are to do with pricing. If you like face-to-face banking you will want a lender with a branch near you; or similarly if your transactions are all electronic, you may prefer a lender with a good internet banking platform. There are a range of factors, some more important than others. But the key to success is comparison.

Make your decision an informed decision. All About Loans is very happy to provide free advice.

Call 0732525208

Great Opportunities for First Home Buyers in Queensland

The government initiatives that can get you into your first home sooner!

If you are a first home buyer in Queensland and not already aware of the of the great concessions and contributions you can receive from the government to go towards your first home, it's time to find out exactly what you can get and how.

Great Start Grant:

The Great Start Grant is a $15,000 contribution that the government provides for first home buyers who are buying a new house, unit, or townhouse (valued at less than $750,000). You can even receive the grant if you're looking to build your home. To receive this grant however, the property you are buying must be new and can't have previously been lived in. 

This is an excellent boost for first home buyers and builders. It's definitely something that you should take into account when you are saving and looking for your first home.

How to Apply:

There are two methods of applying for the Great Start Grant. You can apply directly to the Office of State Revenue (ORS) or you can submit your application to the lender that you are securing your home loan from. When you apply directly to the ORS you receive your grant about a month after your property has been purchased and the ownership has been registered over the title of the property. Applying through your lender is a faster and easier process. When you take this option you gain access to the funds at the settlement date of your loan. You may receive your money sooner if you are building your own home.

For information on how to apply visit: https://greatstartgrant.osr.qld.gov.au/apply.php 

Stamp Duty Concession:

If you are a first home buyer in Queensland and you are buying your home for $500,000 or less you won't have to pay stamp duty. For other home buyers this can be a significant up-front cost that takes a large dent out of their savings. For example if you weren't a first home buyer and you purchased a home for $500,000 you would have to pay approximately $8,750 in stamp duty. 

So what this concession means is that you have far less up-front cost when you purchase your new home, and that you can put more money toward your deposit.

How to receive stamp duty concession:

To receive this stamp duty concession you need to submit a statutory declaration proving that you are a first home buyer as well as your stamp duty documents. You can either organise and submit these documents yourself to the Office of State Revenue, or you can employ a solicitor to do this for you. We recommend hiring a solicitor not only for your stamp duty paperwork, but also for the agreements surrounding the purchase and ownership transfer of your property. This gives you some protection from legal issues that may arise, and also takes a lot of difficulty out of the process. 

If you want to calculate your stamp duty and your government contributions go to the Office of State Revenue estimator at: https://www.osr.qld.gov.au/calculators/transfer-duty-grants-calculator.shtml

Don Farquharson,

Loan Solution Expert

Owner & Principal Lender of All About Loans

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