Good Advice, Good Value, Good People

Archive for Mortgage Broking

10 Ways to Reduce Mortgage Repayments

As mortgage brokers, one of the most common questions we are asked is: “How can I reduce mortgage payments?

So we sat down and distilled what we do into this guide, “10 ways to reduce mortgage repayments“.

Your mortgage consists of:

Reduce mortgage payments overall by paying more in today

  • principal – the amount you borrowed to buy your home
  • interest – the amount you pay your lender and
  • fees for arranging and having the mortgage facility

The interest on a mortgage is substantial because you are borrowing over such long periods of time.

For example a standard variable 25 year loan of $350,000 at 6.25% interest would cost $692,652.85 – with nearly half the total cost being interest.

To see the cost of your home loan use this Home Loan Calculator.

To really slash years off your mortgage, you need to minimise interest in three ways:

  • Pay a lower interest rate (rate)
  • Minimise your loan balance daily (balance)
  • Borrow over a shorter period (duration)

There are a number of strategies to reduce mortgage repayments by minimising the rate, balance and duration. The key is to find the right mix of strategies which best fit your circumstances.

10 Ways to Reduce Mortgage Repayments

Rate (and Fee) Strategies

    1. Consolidate high interest personal debt into your variable loan within your mortgage AND continue to make those high personal repayments. You should aim to clear the personal debt off within 1 to 5 years. This is great for car loans and credit card debt where the interest rate can be over 9% compared to a mortgage rate currently around 4%.
    2. Take advantage of lenders’ discounts to the base rate e.g. professional occupation discount, lender packages, multiple accounts discounts and introductory (honeymoon) rates. If you choose a honeymoon rate you must check you can afford the repayments once the introductory period ends.
    3. Fix a proportion of your loan when rates are low and expected to rise. Still have a variable part of your loan to pay any windfalls into (to get your loan balance down) and to give you a buffer in case of any unexpected expense.
    4. Don’t pay lenders mortgage insurance (LMI) if you can avoid it. LMI is a non-refundable one off  fee added to your mortgage if you don’t have a 20% home deposit. LMI is there to protect the lender NOT you so there is no benefit of you of having this expensive cover.
    5. Refinance for a better overall deal. To get ahead on your mortgage you want a significant saving on your interest rate with a package suited to your life style and circumstances without paying a fortune in fees.
      Despite a surge in smaller lenders offering mortgage rates under 4.00%, borrowers are wasting $17 million a day by sticking with big bank lenders instead of switching to a cheaper home loan, according to a study by Mozo1. All lenders – banks, building societies and credit unions – operate under the same laws, rules and regulations for credit transactions in Australia. When refinancing appraise a number of lenders – a good way to do this is to talk to a reputable mortgage broker for a free no obligation consultation.

    Balance Strategies

      1. Pay windfalls or savings into your mortgage rather than into a lower interest savings account. Choose an account with no withdrawal fee if you need to access that money later.
      2. Get an offset account or revolving line of credit:
        With an offset account, any amount in your savings account is offset against your mortgage balance daily so your interest is charged on a smaller balance. Use the offset calculator to see how much you could save with an offset account.
        Revolving line of credit account – similar principle to an offset account. The line of credit (LOC) allows you to borrow to a pre-set ceiling. A LOC is great where you want flexibility e.g. to undertake major renovations without needing to arrange a new home loan. You need to be very disciplined to continue to pay off your line of credit account as many lenders require interest only repayments for the first 10 years which means that you have to significantly increase your payments later in the loan term and you will pay more in total. As they are riskier, lines of credit often:

        • have higher rates or ongoing fees
        • approval may be more difficult
        • they often offer a lower LVR amount, and
        • are usually not available with mortgage insurance.

          Reduce mortgage repayments with an offset account

          See how much you can save with an offset account

    Duration Strategies

      1. Finance over the shortest loan period you can comfortably afford – you pay considerably more interest on a 30 year loan over a 25 year loan. Bear in mind that interest rates are at historic lows so that they are going to increase over a 20+ year period. You need to know how comfortable you would be at making repayments if interest rates were at 6% to 9% (more typical long term levels).
      2. Shorten your loan period without refinancing. Use the calculator to find out the monthly repayments needed to pay your mortgage off a few years earlier. Make payments at this higher level. This will build up a buffer should you need to reduce mortgage repayments later e.g. because of redundancy or for a big ticket expense like a wedding.
      3. Make loan payments fortnightly, or weekly if you can. As interest is charged daily the effect of changing from monthly to weekly payments is considerable over the full loan period. It is best to set up a direct debit for your mortgage payments to synchronise with your salary so that your mortgage is always covered and not spent elsewhere. Furthermore, when changing over to fortnightly loan payments divide your monthly loan payments in two and you will end up paying another month off your mortgage each year.

    As you can see there are a number of ways to reduce mortgage repayments. Some you can adopt straight away and others will need the help of professional. The most important thing is to just get started as every dollar extra you put into your mortgage now could save you up to two dollars in the long run.

    1 Mozo Media Release 30/10/15

    This article was written by Andrew Maurer and Janine Leafe, accredited and licensed mortgage brokers at Approved Financial Planners. If you are in Perth and want a free no obligation chat about reducing your mortgage repayments call us on 6462 0888.

  1. This information is general in nature and should not be relied upon without financial advice tailored to your personal circumstances. Please refer to the Product Disclosure Statement before you purchase any financial product.

RBA Rate Outlook for 2016

We offer mortgage broking to clients in the Perth area and we feel it would be helpful to discuss where mortgage rates could be going in 2016. While we have been a trusted name with more than 70 years of experience in providing financial advice in the Perth area, our affiliation with AMP Capital has brought us one extremely trusted resource: Dr Shane Oliver.

Dr Oliver is the Head of Investment Strategy and Economics at AMP Capital. He is also their Chief Economist. Recently, Dr Oliver wrote an article on the AMP Capital company blog called, “2016 – a list of lists regarding the macro investment outlook.” We are covering various aspects of the piece on this blog.*

While the blog covers mostly investment strategy, it also has some information that is relevant to mortgage broking professionals and those who want to add investment property to their portfolios: Dr Oliver’s speculation and forecast about the RBA cash interest rates.*

RBA Rate Outlook By Mortgage Broking Firm in Perth

Dr Oliver provided “five reasons why the RBA will likely cut interest rates further.” We would like to summarise them for you.*

Five Reasons Why Dr Oliver Believes the RBA Will Likely Cut Interest Rates Further

    1. The business investment outlook is still weak.
    2. Contribution of housing to growth is slowing and another rate cut would offset it.
    3. Commodity prices have not rebounded as highly as many expected.
    4. The Australian Dollar is too strong and needs to drop further.
    5. To offset monetary tightening from lenders who have risen mortgage rates.*

Call Approved Financial Planners in Perth Today

At Approved Financial Planners, mortgage broking is one of the many services we offer to the Perth community. With the full resources of AMP and AMP Capital behind us, we can find a finance solution that works for your individual needs.

To learn more or for an obligation-free consult, call us today: 08 6462 0888.

*AMP Capital, Dr Shane Oliver. “2016 – a list of lists regarding the macro investment outlook.” 21 January 2016.

Mortgage Broking in Perth: Tips on Choosing a Home Loan

You may not know it, but mortgage broking is one of the many services we offer in our Perth area office. With the backing of AMP and AMP Capital, we are well-positioned to offer you a full menu of financial services. We would like to provide some information for you from our parent company AMP concerning how to choose the “right” home loan. *

Remember that we are prohibited by law from giving advice on this page. Financial advice must be obtained with an individual consult. But we can provide the basics of choosing a home loan for you. We hope you enjoy it.

Mortgage Broking in Perth

AMP advocates thinking about these three questions in the early stages:

What kind of property do I want?
How much can I borrow?
What other benefits would I like to have from my loan?

Options for Home Loans

Interest can be charged at a fixed rate or a variable rate. A fixed rate loan, as its name suggests, will have the same payments for a fixed amount of time. The payments of a variable rate loan fluctuate with economic conditions. The interest rate can move up or down, depending upon the economic factors.

Some borrowers choose to split their loans with a portion being fixed and a portion being variable rate.

You may also choose a line of credit, which allows you to consolidate all of your debt into one loan. The main benefit of a line of credit is that it is easy to manage your debt in one account instead of many. Also, the money is available when you need it, but you are only paying interest on the part that you borrow.

Mortgage Broking: Call The Professionals at Approved Financial Planners

There are numerous other options on home loans, such as redraw and mortgage offset. To find out all of your options, call the mortgage broking professionals at Approved Financial Planners in our Perth area office. We will be happy to provide you with an obligation-free individual consult. Call us today on 08 6462 0888.

*AMP Capital. Choosing the right loan. Copyright 2015.

Where do You Put Your Extra Money: Your Super or Your Mortgage?

Because we offer both mortgage broking and financial planning to our Perth area clientele, we are in a unique position to answer a question that a lot of people have: is it better to put your extra money in your super or your mortgage?

Recently, this issue was discussed on news.com.au in an article called, “Weigh your super and mortgage to see where it’s best to put your money.” In the article, some industry experts were quoted about various strategies to figure out where to put your extra money. *

Mortgage Broking and Financial Planning in Perth

At Approved Financial Planners, we aren’t allowed to provide anything on this blog that constitutes or can be interpreted as “individual advice.” All advice has to be given on an individual basis. This is usually done in person, after we gather some basic information from you.

The article we described above is a perfect example of why advice is best given in person after becoming acquainted with your financial situation. The only thing the “experts” seemed to agree upon is that there isn’t any “silver bullet” answer.*

According to the writer of the piece, Anthony Keane, the best way to make that decision is to take numerous factors into consideration, such as your income tax bracket, your age, your debt level and your lifestyle needs, both currently and in retirement.*

Call Approved Financial Planners Today

At Approved Financial Planners, we offer both mortgage broking and financial planning. This allows us to give objective, unbiased feedback to our Perth area clients, depending upon their individual financial situations.

There are many factors that can come into play. If we compare your super to your home loan, we may find that one or the other is easily determined to be the most important to pay into first.

To learn more or for a personal consult, call us today: 08 6462 0888.

*News.com.au. “Weigh your super and mortgage to see where it’s best to put your money.” 3 September 2015.

Why Real Estate Investment Trusts are So Popular

Some financial planning professionals in Perth are recommending real estate trusts as an investment vehicle. Recently, the Head of Listed Real Estate for AMP Capital, Mark Ferguson, wrote an article for the AMP Capital blog, called “Australian real estate investment trusts—the right time to invest?”*

The article referenced the fact that Australian Real Estate Investment Trusts (REITs) on the S&P/ASX 200 A-REIT list have delivered a three year return to investors of 18.4$ in the three years ending 31 July 2015. Past performance is not indicative of future performance. They listed four main reasons for investing in REITs.*

Real Estate Investment Trusts Popular In Perth

Strong Risk-Adjusted Returns

The REIT sector is now seen as a “defensive” investment that offers a high yield. They became popular as a defensive investment shortly after the Global Financial Crisis (GFC). Mr Ferguson expects the market to “be more discriminating,” making the highest quality property portfolios managed by the most conservative capital policies more popular.*

REITs have outperformed cash, direct property, Australian bonds and Australian shares over the last three years. Mr Ferguson doesn’t believe they can continue to perform quite as well as they have, but that they will still remain a good medium to long term investment.*

Strong Balance Sheets

Most REITs are very well-capitalised. This is due to some post-GFC policies but is also a result of conservative capital management techniques, such as sustainable distribution payout ratios, prudent gearing levels and good sell discipline.*

Strong Liquidity

A-REITs offer investors access to high-quality, diversified investment portfolios while providing liquidity if needed. An A-REIT allows an investor to invest in high-quality properties without a prohibitive entry cost.*

Higher than Average Yields Compared to Other Asset Classes

A-REITs are currently offering higher distribution yields to their investors, due to the aforementioned capitalisation level, the increase in value of commercial property and current low interest rates.

To learn more or for an individual consult, call Approved Financial Planners today: 08 6462 0888.

*AMP Capital: “Australian real estate investment trusts — the right time to invest?” 10 September, 2015.
http://www.ampcapital.com.au/site-assets/articles/market-watch/2015/september/australian-real-estate-investment-trusts-%E2%80%93-the-rig

Game Changer: Lenders Tighten Up Investment Property Loans

At Approved Financial Planners, we combine mortgage broking and financial planning into a “one-stop” shop for Perth area residents. Recently, the Australian Prudential Regulation Authority (APRA) issued a memorandum to lenders demanding that they adhere to a 10% cap on the growth of property investment lending growth.*

Lenders are doing this by making it more difficult for property investors to obtain loans. The intent is to slow areas such as Sydney, which is in an extremely strong growth cycle, while allowing the rest of the economy to flourish under the record low RBA cash interest rate. *

Lenders Tighten Up Investment Property Loans

According to Shane Oliver, Chief Economist for AMP Capital, the term for this is “macro prudential regulation” and was popular before the financial deregulation of the 1980’s. It refers to using prudential lending controls as a tool with which to influence the economy.*

According to Mr Oliver, “time will tell” whether or not the 10% cap will help APRA achieve its goal of boosting the entire economy. While APRA is demanding that lenders adhere to the 10% growth rate, compliance is officially voluntary. Mr Oliver believes that lenders will comply so they don’t force the APRA to create more regulations. *

What Does it Mean for Perth Investors?

Mr Oliver sees it becoming more difficult for investors to obtain loans for housing. He sees it as slowing down price growth, but doesn’t believe prices will drop.*

For Perth property investors, it means that it is going to be more important than ever to have a great financial planner and a great mortgage broker. Mr Oliver sees market uncertainty ahead in all capital cities except Sydney and Melbourne, with a chance that other capital cities such as Perth could see a market slowdown.*

At Approved Financial Planners, we pride ourselves in keeping up to date on all market trends and developments. To learn more or for an individual consult, call us today: 08 6462 0888.

*AMP Capital, 29 May 2015. “Dust off the history books – it’s back to the past to control the property cycle.”

Two Workarounds to Becoming a Property Owner

At Approved Financial Planners, we also offer mortgage broking to our Perth area clients. Many of our clients use us for “one-stop shopping” for financial planning and home loans. One of the most fulfilling facets of our job is being able to help someone into their first home or first investment property.

Mortgage Broking in Perth

We know that if you don’t yet own property, it can seem daunting. While we can’t give anyone specific advice on our company blog, we are allowed to provide general information that can be helpful. Here are two workarounds that have helped involve people in their first properties.

Sharing

You may decide to pool resources with family or a bunch of mates to buy a home. This allows you to save for your deposit and your stamp tax more quickly. It can also allow you to borrow more money and find a higher quality home. In addition, if you can raise 20% deposit, you may not have to purchase mortgage insurance.

Remember, though: there are a lot of pitfalls involved. It can be helpful to have a legal team draw up papers that afford all investors a measure of protection.

Investing

Some younger Australians are buying rental properties while renting cheaper properties or staying with their parents. However, it is wise to proceed with caution and ensure that the finances are sustainable. If the property is positively geared, meaning that the amount of rent you collect is more than your expenses, it can add to your cash flow.

However, if the rent you collect is less than operating expenses, you will have to invest money of your own every month. Consult an accountant for possible tax advantages.

If you do go the investment property route, it is important to do what is known as “due diligence.” The location and type of home can make or break the investment. Generally, family homes in areas with great infrastructure provide the best returns, but there are exceptions. Having the right mortgage broker can make a world of difference, too.

To learn more, call Approved Financial Planners today: 08 6462 0888.

The Basics of Debt Consolidation Loans

A lot of financial advisers in the Perth area advise their clients to obtain debt consolidation loans. They can be a wise or unwise strategy, depending upon your individual financial situation. We are always sure to let our readers know that we can’t give specific, individual financial advice on a blog, but we can give general information.

Obtaining Debt Consolidation Loan In Perth

What ASIC Says about Refinancing

ASIC says that it can sometimes be a good idea to consolidate loans, but only if the new loan results in the borrower paying less money in fees and interest. ASIC recommends that refinancing only be done if it is the best option.*

Contact the Current Credit Provider

ASIC recommends contacting current credit providers if you are having trouble making any payments. They can often work with you to come to a new arrangement.*

Caution when Switching Home Loans

ASIC recommends exercising caution with switching home loans. They caution borrowers to avoid unscrupulous mortgage brokers who may mislead you into a loan that won’t really benefit you.*

Check Your Interest Rate, Charges and Fees

ASIC recommends taking all costs into consideration before taking out a consolidation loan. For example, lower payments over a longer term can end up losing you money, especially with fees and charges added in.*

In addition, there may be hidden fees. For example, if the consolidation loan is secured against your home, it could bring legal fees, application fees, valuation fees and stamp duty into play.*

ASIC Licence

ASIC recommends that you always make sure any loan provider is ASIC licensed.

What We Think

We aren’t allowed to give any individual advice on this blog. All of this information is general and not intended to replace an individual consultation with a financial adviser. We can, however, offer to take a look at your financial situation for you from here in our Perth office.

For an individual consultation, call Approved Financial Planners today: 08 6462 0888.

*ASIC, MoneySmart. “Consolidating and refinancing debts.”

Consumer Credit Regulation

Besides financial planning, we also offer mortgage broking from our location in the Perth area. One of the first things that is done in the process of applying for any loan is to run a credit check. This credit report is an important part of determining whether or not you are able to obtain the financing you need for a home loan.

Unfortunately, some people don’t know their full rights under the National Credit Act and fall prey to predatory tactics. Courtesy of the ASIC’s MoneySmart website, we would like to remind you of some basic rights and safeguards that are designed to help consumers know exactly what they are getting into.

Consumer Credit Regulation

Obligations of Credit Providers

The National Credit Act establishes rules to help protect consumers from fraud. Everyone who wants to lease, provide or broker a loan must register with ASIC or work for someone who is registered.*

According to the National Credit Act, no credit provider may enter into any agreement with you that the Government would classify as “unsuitable.” This includes any contract that doesn’t meet your objectives or requirements. It also includes any loan which would inflict hardship upon you while trying to repay it.*

Credit providers also must make reasonable enquiries about your objectives, requirements and financial situation. They are required to make a reasonable effort to verify your financial situation. They must decide whether or not any particular credit product is suitable or “not suitable” for you.

Before you receive a loan, the credit assistance provider must make a preliminary assessment on the suitability of any credit product for which you apply. The credit provider then makes the final assessment and final decision. Both must decide that the product is “not unsuitable” for you before offering you credit.

Call the Professionals

At Approved Financial Planners, we have developed a great reputation around Perth for our accurate financial assessment and advice. For a “financial checkup,” call us today: 08 6462 0888.

*ASIC, MoneySmart. “Consumer Credit Regulation.”

Are You Ready to Buy Your First Home?

One of the least-rewarding duties of mortgage broking, especially in a market like that of Perth, is informing a would-be client that they have been turned down by the lenders. We can’t give specific advice, but we can provide some general reasons why would-be homeowners may want to reconsider their decision to purchase their first home.

Ready to Buy Your First Home

Insufficient Funding

Purchasing a home requires a substantial financial outlay. The first obstacle is finding ten percent for the deposit. After the deposit, it is then necessary to sustain a lifestyle that allows finding the capital to make mortgage repayments on a regular basis.

Lifestyle

Sometimes, a person’s lifestyle isn’t amenable to purchasing a home. Someone who is single and on the road for work most of the time may have a hard time keeping up with maintenance concerns. In addition, those who need the flexibility to transfer or relocate may have a harder time doing either when they own a home.

Bad Market

Sometimes, homes in an area will begin to fall sharply in price. While these may appear to be bargains, there is usually a reason for all of the homes in an area becoming devalued. Failure to do one’s “due diligence” and research a market can result in the loss of a lot of money.

Hot Market

Some families may feel pressured to buy because of a “hot market.” Hot markets usually result in higher prices. It is often wise to wait out the market and see where it goes. Sometimes a “hot market” is only temporary and prices fall back to their normal levels.

Renting is a Lot Cheaper

During times when it costs a lot less to rent a home than it does to own a home, it can be wise to reconsider buying. Spending less money for a rental can be a compelling reason to wait out the market for a while longer.

Call Approved Financial Planners

08 6462 0888.