Mortgage Basics Archives – Lendstreet

What is the Average Mortgage Size in Australia?

Michael Nasser — Mon, 27 Mar 2023 00:32:38 +0000

If you’re living in Australia and currently deciding whether to take out a home loan, it’s essential to understand how the rising interest rate will affect mortgage availability and repayment costs.

Luckily, in this article, we’ll explore what the rest of 2023 has in store for your future home loan, including the current average mortgage costs.

Key Takeaways:

Property prices are expected to decrease this year, as rising interest rates act as a deterrent for potential buyers.
The average loan size was $601,797 in late 2022, increasing by 36% since 2017.
Your monthly mortgage repayments should be at most 30% of your post-tax salary.

What is Australia’s average mortgage size in 2023?

Australia’s house price surge has significantly affected the average mortgage cost since 2020, with home buyers facing a 24% cost rise in 2022 alone. Rising interest rates, thanks to the RBA cash rate, are pushing up monthly repayments meaning fewer Australians are stepping onto the property ladder out of fear of facing unaffordable mortgage repayments.

In November 2022, the average mortgage cost for owner-occupier homes was $601,797, up by a massive 36% since 2017. However, because of the rising interest rate in Australia, house prices are expected to decrease as fewer people enter the property market. In 2023, the average mortgage will therefore decline compared to 2022.

The most expensive areas to take out a mortgage include New South Wales (average house price of $769,000), Victoria (average house price of $619,000) and the Australian Capital Territory (average price of $586,000).

How have home loans changed over the past 12 months?

With the Royal Bank of Australia increasing the cash rate nine times over the past year and interest rates at a record high, more and more Australian homeowners are facing mortgage stress – when over 30% of their pre-tax income goes towards home loan repayments.

While many secured a competitive interest rate when interest was low with a fixed mortgage, over 800,000 owners are now facing the end of their fixed-term loans. They must find new ways to deal with dramatically increasing mortgage stress and high regular repayments.

Let’s look at an example:

Melissa bought her home in 2017 for $600,000 and secured a fixed mortgage rate of 4% for five years. Her monthly repayments were once $3,177 per month. Her fixed mortgage rates ended at the beginning of 2023. Because of the rising interest rate, her monthly repayments have increased by $699. Melissa now needs to pay $3,876 per month for the foreseeable future.

How much income is needed to pay off a mortgage?

The income you need to pay off your mortgage depends on your mortgage size. Generally, your repayments should be at most 30% of your salary (after tax). If you spend more than this every month, you’re putting yourself at risk of mortgage stress.

Let’s look at the average Australian income.

According to the Australian bureau of statistics, the average monthly income of full-time working adults is $7,230. So, ideally, the average Australian home loan should only cost up to $2,169. Anything over that would cause mortgage stress.

Of course, everyone’s own personal circumstances are different, and how you approach your debt obligations can vary. We’re mainly referring to a guiding principle here and suggesting that many Australians face a situation where their mortgage payments are putting considerable strain on their monthly expenditure.

Estimated monthly repayments on an average new home loan

The average new home loan in 2023 is currently $601,797, with the current interest home loan rate for a variable mortgage sitting at 5.61%.

If we take the average loan size to be $601,797 (though it’s predicted to decrease by the end of 2023), then your estimated monthly repayment would be $3,745 per month (for a 25-year mortgage).

This monthly repayment amount would cause significant financial strain for the average homeowner.

How long does it take to save for a deposit?

On average, it takes Australians between two and six years to save for a deposit, though this depends entirely on your circumstances as home buyers. This might change as deposits reach new highs and many buyers struggle to save enough disposable income.

With home loans skyrocketing, the average deposit size has grown to over $119,000 – an unattainable amount for many Australians.

Luckily, many mortgage lenders accept deposits of under 5% of the asking price, making it easier to step onto Australia’s property ladder.

How much can you save by refinancing?

Refinancing your mortgage can help you lower your monthly payments, reduce the interest rate on your loan, allow you to pay your loan faster, and use your home’s equity.

During the process, you replace your current loan with a new one offering competitive interest rates.

Let’s look at an example:

Fred bought his house in 2021 for $450,000 and took out a two-year fixed-rate mortgage at 6.5 %. With the fixed rate ending in 2023, Fred faces a soaring interest rate, making his monthly repayment unaffordable. Fred decides to refinance his home and secures a new variable interest rate of 4.8 %. While Fred’s previous monthly repayments were $3,048 per month, his monthly payments are now $2,588 per month after refinancing.

In total, Fred is saving $460 per month or $5,520 per year.

Considering refinancing? Choose Lendstreet.

If you’re interested in saving money on your mortgage, refinancing can lower your monthly payments and make your home loan more manageable.

At Lendstreet, we’re experts in finding the best refinancing deals to help you achieve your financial goals. Whether you’re looking to release equity. consolidate a loan, or switch to a better deal, we’re here to help.

Contact one of our professional mortgage brokers today for advice on refinancing.

FAQs

What is the average house price in New South Wales?

The average Australian mortgage price in New South Wales is typically around $1,130,500 for a residential home, making it the highest in the country.

How much does the average mortgage cost in Australia?

As of November 2022, the average mortgage cost for a variable-rate home loan is $601,797.

What is the current interest rate in Australia?

The current interest rate on an Australian home loan is 5.88 %. The RBA hiked the cash rate nine times through 2022.

The post What is the Average Mortgage Size in Australia? appeared first on Lendstreet.

What is a Good Credit Score?

Michael Nasser — Fri, 27 May 2022 04:41:22 +0000

Key Takeaways:

Lenders inform credit bureaus of your lending and repayments activities.
Different credit reporting bureaus use different scale boundaries.
They also rate the importance of information differently.
You can improve your credit scores by never missing a repayment.
A good credit score for the average Australian is 695.6.

Did you know that a high credit score can save you tens of thousands of dollars? Lenders love a borrower with an excellent credit score! The best interest rates and lending terms will be at your fingertips, saving you so much money over the loan duration.

What is a credit score?

A credit score is 0 to 1,200, which illustrates how reliable you are when repaying debt. The higher your credit score, the more creditworthy you are! Lenders will see a snapshot of your history as a borrower, assessing if repayments are consistently paid on time.

Every time you have secured credit from a lender or paid a bill, your activity has been recorded. Each activity then affects your credit score, either positively or negatively. But, what is a good credit score?

Lenders will view high credit scores as an indicator that you are a good borrower and will pay back any debt. A low credit score signals to the lender that you are a risk and may not grant you any finance.

Your credit report will factor your success rate when you want to apply for a home loan. A good credit report will attract low-interest rates and a high chance of approval.

Unfortunately, a low credit score may result in a home loan rejection. A professional broker may be able to find you an alternative home loan, but you may risk higher interest rates.

Who rates my credit score?

Australia has three major credit bureaus that take care of credit reports: Equifax, Illion, and Experian. Your lender will report back to one or more of these agencies at the end of every month. The agency will use algorithms to assess your borrowing activity when calculating credit scores.

Each credit reporting organisation handles information slightly differently, with some scoring credit up to 1,200 points. They have their own credit scoring models.

You can register with one of these bureaus to obtain a free credit score. You may find that each of these credit-reporting agencies provides you with a slightly different credit score. However, any possible differences in your credit score will not be too significant.

What is a good credit score?

A good credit score is usually above 660 if Equifax or Experian is used. Illion rates a credit score of 500 to be good, however.

If you have always paid your bills on time and never defaulted, your credit score should be reasonably high.

The only way to negatively affect your credit report and score is to miss payments and handle your finances irresponsibly.

Experian

When using Experian, a good credit score is rated between 625 to 699. A very good score is judged to be 700 to 799, whilst an excellent score is above 800 points.

A fair credit score for an Experian credit report is stated as being between 550 and 624. Below a credit score of 550 is considered to be below average.

Take a look at the Experian credit score table below

Fair	Good	Very Good	Excellent
550-624	625-699	700-799	800-1,000

Illion

What can you expect to find if you decide to use an Illion credit report? A good credit score, according to Illion, is rated from 500 – 699, with a great score reaching between 700 – 799. If you achieve a rating of 800 – 1,000, your credit score is judged to be excellent.

Illion determines that a credit score from 300 – 499 leaves room for improvement, with low scores rated below 300.

Take a look at the Illion credit score table below

Room for improvement	Good	Great	Excellent
300-499	500-699	700-799	800-1,000

Equifax

An Equifax credit score can reach the dizzy heights of 1,200! An excellent credit score is rated between 853 and 1,200, whilst a very good score is judged from 735 to 852.

A good credit score from Equifax is achieved from 661 to 734, with an average score between 460 and 660. Under 460 is rated as a below-average score.

Take a look at the Equifax credit score table below:

Average	Good	Very Good	Excellent
460-600	661-764	765-852	853-1,000

Why do credit reporting agencies give different credit scores?

Credit reporting agencies give different credit scores because they use different scales when assessing credit activity. These agencies also used different algorithms which can impact the overall score given.

What does each credit reporting agency consider when calculating your credit score?

They take into account

How many credit accounts do you own
Your repayment history
The number of credit applications in the past 5 years
Credit infringements
Any court judgements
Bankruptcies

Whilst credit reporting agencies all see the same information, they actually weigh the relevance of the information differently.

For example, one credit reference agency may give more prevalence to the number of credit applications you have applied for. A different credit reference agency may give more weight to the number of credit accounts you actually have.

Differences in lenders

It is also interesting to note that not all lenders report activity to all credit reporting companies. A lender will report your activity to a credit reference agency at the end of each month.

They will inform them of positive or negative actions, such as paying or not paying your credit repayments.

For example, your credit card company may only report your credit activity to Experian. Experian will use up to date information to determine accurate credit scores.

As the credit card activity does not reach Illion or Equifax, the positive or negative action is omitted from their calculations.

Which credit reporting agency should I use?

Your lender will choose which credit reporting agency they will use when checking your credit report. You have no control over this as different lenders will trust and prefer a certain credit bureau.

For a greater level of credit score awareness, you can check your credit score yourself. Log into Equifax, Illion, and Experian and see what credit score each agency has rated you at!

You can then make necessary improvements to your credit score and check that all information stored is accurate.

If you subsequently apply for credit, you will not be able to judge which agency your credit provider will look at. You might think you have a good credit rating with Illion, but your potential lender may view an average rating with Equifax.

Being aware of all three credit scores arms you with sufficient information to make your credit scores work positively for you.

What is a bad credit score?

When using Experian, a bad credit score is usually under the 500 mark, or under 549. Illion, Equifax, and Experian will judge a bad credit score at different rates.

Illion judges a score of 300 to 499 as having room for improvement, with a low score rated as 1 – 299.
Equifax determines a bad credit score to reach 459 points and below.
Experian rates a below-average credit score at 0 to 549.

Do I have a good credit score?

Check your credit score today to see whether you have a good credit score! If you have passed the 600 credit score mark, you are on track to achieving a good credit rating! When using Illion, you may achieve a good credit rating when reaching only 500 points.

When using Illion, Experian, and Equifax, your credit rating will be clear to see on screen. Remember to check all relevant credit bureaus to assess the different credit scores rated against varying boundaries.

What is a good credit score for my age?

A good credit score for your age considers your life experience, with higher credit scores expected for older people. For example, if you are in your 40s, you should expect to have reached a credit rating of around 700.

As you age, your credit history will become more extensive. You may have additional credit by the time you are in your 40s, in contrast to your younger self. But, what is a good credit score for your age?

The older you are, the greater your chances of proving you are a reliable and responsible borrower. The recommended credit scores expected at various age ranges will offer different expectations.

There are also some slight differences in credit scores for females and males.

On average, the typical credit score of an Australian is 695.6. This credit score provides a ‘good’ rating at the high end of the scale with both Illion and Experian.

However, this credit score calculated under Equifax reveals a mid-range ‘good’ credit score.

Take a look at the following recommended credit score ranges according to age and gender

Age range	Male	Female
Aged under 21	743.2	742.3
20s	675.7	671.7
30s	684.8	679.4
40s	700.6	698.8
50s	735.1	736.9
Over 60	788.3	787.9

What affects my credit score?

Every positive and negative act between you and your lenders is recorded and affects your credit report and score. The amount of credit you have and the number of credit applications applied for also impact your rating.

One of the main factors affecting your credit score is your repayment history. Have you paid your home loan and credit card repayments and bills on time? If you have defaulted on any repayments or credit accounts, those actions will be recorded and affect your credit score.

Court judgements and bankruptcy will impact your credit report significantly. It may be challenging to improve your rating for quite a while, although it is possible with positive credit activity over time. Your credit history is with you for a long time so think carefully before defaulting!

The number of times you have applied for credit will also affect your credit report. A responsible borrower will give considerable thought before applying for credit. Frivolously applying for any type of credit signals to a lender that you may not be very responsible.

Can I improve my credit score?

If you are disappointed with your credit score, all is not lost! You CAN improve your credit score. It may take time, but it is a very real possibility.

Can I improve my credit score?

A credit rating changes every month when lenders report back to credit reference agencies. Making regular changes to your credit activity and repayment actions can really improve your score.

Pay all of your bills on time, as even one day late is classed as a default.
Set up direct debits for bills, so you never forget to pay them.
If you have credit cards, lower the limits available on them.
This reduces the temptation to use your credit card!
Never apply for credit frivolously – ask a mortgage broker for advice instead!
Read updated credit reports from all agencies regularly.
Check that errors have not been made to your credit score.

You can also seek the help of a credit repair expert. One of our favourite podcasts for first home buyers featured one in this episode. Listen to learn more about how to improve your credit score.

How can I view my credit score?

View your current credit rating when logging into a credit bureau website or app. You can see your free credit score instantly! Viewing your own credit rating and lender history can help you make real improvements.

Your consumer credit reports will hold information about credit card companies and any personal loan history.

It is important to check that all credit report information is accurate. Inaccurate credit reports and credit history will negatively affect your credit scores.

If you identify any incorrect information, contact the credit bureau immediately. They must provide precise credit details and so must rectify any inaccuracies.

How can I view my credit score?

Do you want to apply for a first home loan or refinance but have a poor credit report score? Contact Lendstreet’s expert brokers for professional advice regarding the credit products available to you.

Lendstreet will find the perfect credit option for you, whatever your personal circumstances, so contact the experts today!

FAQs

Will missing a credit card repayment affect my credit score?

Unfortunately, missing a credit card repayment will affect your credit score. Your lender will record the activity and report to a credit reference bureau.

Regardless of the length of time since your repayment was due, the impact on your credit health will be the same. You may also incur arrears fees.

Can I improve my credit score?

Yes, you can improve your credit score! Credit scores move fluidly regularly and can be improved. Making regular adjustments such as never missing a repayment will help increase your score in no time.

Remember that defaults will still stay on your recent credit report history, although plenty of positive actions will soon increase your score.

How long do you have to wait for your credit score to go up?

Your credit score could go up after just 30 days! Lenders usually report activity to credit bureaus at the end of every month. Seeing a credit score increase after such a short period is a real possibility.

Any improvement may be marginal, however, with just a few credit points increase. Although, continuous positive actions on your behalf will soon make a considerable difference.

What if I have no credit history?

If you have not yet applied for any credit, you have a fresh chance to build great credit! Your credit score will begin at around the 300 mark, not at zero, as some individuals may assume.

Applying for credit is not a bad decision. Providing the credit limit is low, such as a few hundred dollars, and as long as you pay repayments on time. Securing a small amount of credit allows you to prove to lenders that you are responsible.

Do I need a good credit score to buy a house?

You don’t need a good credit score to buy a house! Visiting a professional mortgage broker will enable you to envisage a series of possible home loan options. They could have choices for you, even if your credit report still needs improvement!

Having a good credit score will make the home loan application process easier. You will also be able to apply for lower interest rates and favourable terms.

However, a low credit score does not mean that all lenders will refuse your application. Although, you may have to consider higher interest rates or a larger deposit to ensure that your home loan application is successful.

Contact your expert Lendstreet broker today to discuss a range of possible options.

The post What is a Good Credit Score? appeared first on Lendstreet.

Should You Buy or Build a House in Australia?

Michael Nasser — Tue, 19 Apr 2022 05:11:46 +0000

Did you know that it is often cheaper to build a house on vacant land, rather than buy established properties?

The median property price in Sydney, including stamp duty, totals $1,134,810. Buying land and constructing a home in Sydney may only cost you $857,639. You could, therefore, save over $277,000 if you built your own home!

Of course, unexpected costs may appear, so the exact cost may differ. But, in general, it is often cheaper to build your own house, especially in capital cities.

So, what is the better choice; buying or building a house in Australia? What are the benefits of building a house vs buying?

Here, we detail the main benefits and limitations of choosing to buy an existing home or build your own house.

Buying vs Building a house?

Buying an established home is a more straightforward feat because more people apply for a regular mortgage loan.

But did you know that you can apply for finance to build your own house?

Building your own home

Building your property ensures that you can design a floor plan to meet your needs. You can achieve a show house finish and a two-car garage!

You can secure a house and land package and apply for a home construction loan to finance the project.

But what is a construction loan and how do these types of finance work?

What is a Construction Loan?

If you are considering building your own house, a construction loan is perfect for you! Why buy an existing property when you can design and build your own home exactly to meet your needs?!

A construction loan enables you to apply for finance but withdraw instalments. upon reaching a stage in the construction project.

Building a house can be complicated, and costs can sometimes be higher or lower than the initial quote.

A construction loan allows you to borrow the precise amount you need to complete the project.

How do construction loans work?

There are different types of loans for construction, so it is important to seek professional advice. Your professional mortgage broker can help you decide what type of construction loan is perfect for you.

There are variable-rate construction loans and fixed-rate construction loans available, depending on your personal status.

Every time an instalment is paid to you, you will only be charged interest on the borrowed amount.

Some construction projects can take up to one year or even longer. Paying interest on the instalments received considers the length of time construction can take. This type of loan also recognises the delays that can sometimes occur.

Once you have received the total number of instalments, the construction loan will become a regular variable home loan.

How long does it take to build a house?

A generous period of 24 months is given for the construction of the property to meet fruition. The average house requires between 4 months to 12 months to complete.

Therefore, the 24 months allowed by a construction loan allow for delays and some unforeseen circumstances.

Is it difficult to apply for a construction loan?

A wide range of documentation is required to apply for a construction loan due to the complexities of building a property.

You must agree with the lender about what each stage of the construction project will look like. Once this has been agreed upon, a progressive draw-down will be enacted to enable a list of instalments to be available.

When another stage of the project is reached, you can receive another instalment.

Five-Stage Plan

On average, construction projects in Australia follow a five-stage development plan. Lenders usually arrange instalments around those five stages.

These five stages are Slab, Frame, Lockup, Fitout, and Completion. Instalment plans can be tailored depending on which lender you choose, however.

Home Builder Grant

You may be able to apply for a home builder grant if you are also a first home buyer. This type of homeowner grant can be available to you if you earn no more than $125,000 each year as an individual.

If you are applying as a couple, then you can own no more than $200,000 per year together. You can reduce the costs of developing a newly built house by $15,000.

You can spend this amount on either part of the house and land package.

Pros and Cons of a Construction Loan

Applying for a home loan can be confusing. What is the best option for you?

Here are the advantages and disadvantages of applying for a construction home loan.

Pros

A construction loan opens up more choices for potential property buyers. You are not limited to solely purchasing an existing property. Many individuals buy an existing property and then extend the property or make other alterations.
Why not design your own home? Consisting of the size and layout you want, build your own home tailored to your lifestyle!

These loans are tailored for the construction industry. They understand that each stage of construction can come with delays or cost adjustments. A construction home loan, therefore, pays you in instalments depending on your construction plans.
The money is ready when you need it, but you are not paying interest on unused money.

Interest is only payable on the instalments that you have received. This is a great advantage as less interest is payable in the earlier stages of construction.

You can also make interest-only payments for the land prior to the commencement of construction. This enables you to get construction underway and keep initial costs low.

The construction home loan allows you 24 months to complete the project.

This period is substantially longer than the average time it takes to build a house.

If you wish, the construction loan can be divided to recognise investment debt and personal debt separately.
Your expert mortgage broker can advise you on the best course of action for you individually.

Cons

To release the instalments of the construction loan, proof of the work completed is required. Of course, this should not be a problem for most individuals.

However, if a stage has not been completed as you have run out of funds, you may face some difficulties.

Owner builders may only be able to raise a 50% loan to value ratio.

A wider range of documentation and requirements is needed for a construction home loan than a standard mortgage.
For example, before applying, your plans may have to be pre-approved by your local council.

Construction Loan Completion

Once the construction process has reached completion, the construction loan will become a variable home loan.

Like a regular home loan, you will now be required to pay the regular monthly payments. However, you now have the personally designed home of your dreams!

How can I apply for a construction home loan?

You CAN apply straight to a lender. But, how would you know if you were applying for the best type of loan for your circumstances?

Contact Lendstreet for personal advice

The best application process allows a mortgage broker to find the best loan options for you.

Visit your trusted broker and complete the online form.

You will need to enter your information into the online form, and then a professional broker will contact you ASAP!

Alternatively, you can speak directly to an expert broker by calling 1300 317 0412 or emailing support@lendstreet.com.au.

However, if you have decided that building your own home is not for you, Lendstreet can assist you with a range of home loans!

Buying an established home

Buying a house that is listed for sale is a simpler process than embarking on your own construction project.

Your appointed credit representatives can guide you through a range of home loan products from lenders such as the commonwealth bank.

But, what is a home loan, and how can you apply for one?

What is a Home Loan?

You may think that the building process to construct your dream home is too complex. After all, you first have to find vacant land in your desired location.

You then have to create a set of plans and seek the relevant approval required. You also have to begin the process to apply for a construction loan.

Many potential homebuyers find an existing house that is their dream home.

You simply have to apply for the home loan finance of the property and meet the monthly fees once the transaction is complete.

Buying an established home can be an easier and faster process for many homeowners.

Additionally, there can be more options available for your financial situation. Some individuals may be able to buy a property in cash, although most individuals will need a home loan.

How do Home Loans work?

There are different types of home loans, depending on your financial situation.

First Home Buyers

Buying your first home can be a daunting event. Which property location do you choose? Should you choose a new build or an existing home that requires modernisation? How do you apply for a home loan?

Your Broker Can Help You

Expert brokers can discover your perfect options, enabling you to easily buy your own house. Your friendly broker can listen to your needs and advise you on what course of action to take.

They can help you avoid unnecessary risks and help alleviate some of the stress that home buying can generate.

Seeking the services of a mortgage broker is free for you!

The fee which the mortgage broker receives comes from the lender who you choose to take your loan from. It costs you nothing and means that pre-approval is quick and straightforward.

This allows you to have an advantage over potential homebuyers without pre-approval when house hunting.

Applying for a First Home Loan

When applying for a first home loan, you would usually have a 20% deposit ready in your bank. Your credit score, along with any assets, savings, and income would be taken into account.

What help can you apply for?

There may be some help in the form of grants and saving schemes that first home buyers may be applicable for. You could also consider loans with a low or zero deposit or a guarantor loan.

First Home Owner Grants

You may be able to apply for a First Home Owner Grant, which contributes at least $10,000 toward your new home. This can be used to reduce the total amount of deposit you need.

Today, the median property price in Australia is a staggering $738,975, resulting in a required 20% deposit of $147,795. The First Home Owners’ Grant can help you reach this deposit amount quicker.

Stamp Duty Help

An additional incentive that first home buyers may be eligible for is the stamp duty waiver or concession. Stamp duty incentives vary across Australia, with NSW offering the most generous benefit. If you are a first home purchaser in NSW, you may be able to enjoy paying zero stamp duty fees!

The amount of stamp duty paid depends on the property value and the state or territory you live in. For example, if purchasing a house for the median property price of £738,975 in Queensland, stamp duty costs £21,592. First home purchasers may receive a $15,000 reduction off this stamp duty amount.

Visit Lendstreet’s stamp duty calculator to find the exact amount for you.

Stamp duty varies across states

Government grants vary from state to state, so visit Lendstreet to discover which grants apply to you. You must be over the age of 18, and you should be an Australian citizen or be a permanent resident of the country.

You are only eligible for such grants once, and you cannot have owned a property previously.

Low Deposit or No Deposit?

Buying an existing home can be an expensive venture. As property prices surge at an astounding rate, saving for the recommended 20% deposit can become unreachable for some individuals.

Your mortgage broker professional may have the perfect remedy for you in the form of low deposit or no deposit home loans.

Whilst paying a deposit of 20% is recommended when buying an established property, it is not compulsory. You could be lucky enough to find a credit provider who would accept as little as a 3% deposit!

Your mortgage broker will be able to tell you if this is achievable for your circumstances.

The reason why it is recommended to pay a 20% deposit is to eliminate the requirement to pay lenders’ mortgage insurance. This insurance amounts to ongoing fees.

The need to pay lenders’ mortgage insurance is at the lender’s request, although it leads to another monthly payment for you.

With rising energy bills, being lumbered with another cost is not a great option. Although you may think it is worth paying the lenders’ mortgage insurance if you can purchase an established house faster.

Super Saver Scheme

First home purchasers may also be eligible for the First Home Super Saver Scheme.

This scheme helps first home purchasers save for their deposit, although you may have fees to pay if you withdraw your savings too early.

Guarantor Loan

You could talk to your broker about a guarantor loan! A guarantor loan requires a family member, or a friend, to guarantee that you will always make the loan repayments.

If you do not pay, then they will be liable. This could be a great option to help you get on the property ladder quickly. However, someone with excellent credit will need to support you.

Applying for a Next Home Loan

Lendstreet can help you discover the options available to you if you are buying your next property. If you want to buy another established home, you may be more confused than when you were a first home buyer!

What normal home loans are available? What are the lending criteria? How much can I borrow? Your mortgage broker experts will guide you from step to step to buy your established home.

Every situation will be dealt with uniquely, tailoring solutions to meet your own needs. Maybe you want to talk with your broker about low deposit or no deposit home loans?

Whatever your circumstances, Lendstreet can help you!

Home Loans for the Self-Employed

Buying an established property can be the right choice for self-employed individuals.

The self-employed may find it more challenging to receive home construction loans, but they could purchase an existing home. A great option is the low doc home loan, offering home loans with relaxed lending criteria.

Applying for a Low Doc Loan

What evidence do you need to provide for a low doc loan? You may be able to show your ABN, BAS, and bank statements as your main evidence of income.

You will also have to sign an income declaration to confirm that you can meet repayments.

Should you buy a home or build a home?

Building a house yourself can be the best option. However, you must first find the perfect patch of land and then successfully apply for a construction home loan.

Unless you are paying cash, of course! Although, you can design your floor plan and choose a display home finish.

It is wise to expect the unexpected when building a house, however. There may be unexpected costs, and your cash flow may suffer from time to time.

You must hope that the council approvals go smoothly and that legal fees do not rise. However, land costs can be extremely costly, particularly in a capital city.

Finding a credit provider to finance a regular mortgage for established homes is much easier. Although, you may achieve lower financing costs when seeking credit services.

An established property means a simpler transaction with more relevant credit provider options available.

You will have to pay stamp duty, which varies from state to state. Visit Lendstreet’s stamp duty calculator; Australian states are searchable to determine higher government fees.

You may not have to pay stamp duty if you are buying your first established home.

However, building your own house is potentially money-saving depending on the location you choose. Whilst purchasing an existing home

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Secure personal advice from Lendstreet

Contact your broker experts today! Possessing an Australian Credit Licence, we can help you buy an existing home or finance a construction.

Simply contact us by phoning 1300 317 0412, or complete the online form on our website!

We will ask you a range of simple questions and will present you with a series of possible options. We will be with you every step of the way, so get in touch today!

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Low Doc Home Loan

Michael Nasser — Wed, 13 Apr 2022 07:58:44 +0000

Did you know that over 67% of Australians own their own home? That is over 5.4 million homeowners across the country! Despite such a high number of homeowners, a surging housing market is making it more difficult to buy a home. Individuals are seeking new ways to secure their first home or their dream home move.

Homeowners have so much to think about when applying for finance! Unfortunately, they may not realise the great low doc home loan options available to them. Here, we have provided tips and information about how YOU can easily secure a low doc mortgage!

Buying a property in Australia

To buy a property in Australia, you must meet various financial requirements. It can be a confusing and arduous task to find the best lender and then the most favourable rates. Of course, you then need to find the perfect home for the perfect price!

Most people will visit a reliable mortgage broker to ask for advice and to let them remove the hassle!

The standard type of mortgage available is a full doc loan.

Full Doc Loans

What are the requirements for a full doc loan application?

You must first prove your identity and submit your passport or driver’s licence. A birth certificate is usually accepted too.
You will need to show evidence of your assets, such as properties and vehicles. You will also need to show proof of any liabilities you are responsible for, such as debts.
Further information you will need to provide includes your monthly expenses and your regular income.
Usually, you will need to submit your payslips, if you are a regular employee.

But what if you are not a regular employee on a salary or pay as you go (PAYG)? How could you prove your income and apply for a home loan?

What other mortgage options are available?

Not everyone fits the typical requirements for a full doc loan. Self-employed borrowers and borrowers in unique circumstances may need to access different mortgage options.

A key option available for some potential borrowers is the low doc loan, sometimes called alt doc loans.

Low doc loans are a great option! They are perfect for individuals who do not have the usual financial evidence, due to being self-employed for example.

But what are low doc loans and how could you apply for one?

What are Low Doc Loans?

Quite simply, a low doc loan is a mortgage application where alternative financial evidence is accepted. A low doc loan is perfect for self-employed individuals or sole traders. It is also useful for individuals whose financial circumstances do not fit the status quo.

Why use a Low Doc Loan?

A full doc home loan is not practical for some people.

Unless you have been in a regular job for a period of time, you may struggle to provide proof of your income. Why should you miss out on applying for a mortgage that you are capable of paying back?

We don’t think you should miss out!

Who are Low Doc Loans for?

Low doc home loans are for people who do not meet the rigid requirements of full doc home loans.

What if your income has significantly increased since the last time you submitted a tax return? This could be true for many Australians affected by the Covid-19 pandemic who experienced a decline in income during 2020. What if they are currently experiencing a fantastic increase in income? A full doc home loan would only consider income data from their last tax return.

However, some low doc home loan lenders may accept your Business Activity Statements and bank statements as evidence. This provides an accurate and real-time picture of your income now, not from a couple of years ago!

This is where low doc home loans come into play, providing you with a different way of evidencing your income.

How do Low Doc Home Loans work?

So, you’re self-employed and want to apply for a home loan. You do not have payslips to prove your income or a PAYG statement, so what can you do?

You can apply for a low doc home loan that considers your unique circumstances.

Low doc home loans have improved dramatically in recent years. When low doc home loans were first created, very few lenders were interested. Interest rates were high and rigid criteria were set for individuals to meet.

Today, the low doc home loan market has opened up, providing you with a choice of lenders and rates. You are in control! With so many options available, which is the best low doc home loan for you? Which low doc home loan rates should you consider?

Our expert brokers can guide you through the low doc home loan process, so you don’t have to worry! We will narrow down the best low doc home loan rates and lenders applicable to your application!

What do I need to apply for a Low Doc Home Loan?

Quite simply, you need:

Your Australian Business Number (ABN)
Business Activity Statements (BAS)
Bank statements
Income Declaration Form

You will need your Australian Business Number and your Business Activity Statements. These requirements should be easy for you to locate and show recent activity. You will also need recent bank statements.

You may be required to complete an Income Declaration Form for a lender to verify your income. An Income Declaration Form is a self-verification that asks you to sign that all information included is true and accurate. It also asks you to confirm that you can meet the repayments.

Some lenders may request a clarification letter from your Accountant, as well as GST registration details. However, these requirements will vary depending on the lender, and it can be confusing to know what each lender wants!

Our professional broker can help you to choose the best provider for you!

Sometimes referred to as alt doc home loans, low doc home loans can provide the key to your dream home! Why delay applying for your home loan when there is a perfect option for you now?!

Contact your local, expert mortgage broker to discuss low doc home loans and which lenders are available to you!

Who can apply for a Low Doc Home Loan?

A low doc home loan is tailored for the self-employed professional. However, it is also a great choice for contract workers and employees who work casually or unconventionally!

If you are looking to secure a loan for business purposes, you could consider a no doc loan.

Self-employed Australians

If you are self-employed, you might find it challenging to apply for a full doc loan. Proving your income will depend on past tax returns. Tax returns do not provide a real-time picture of your current financial status and may not do justice to your business. Your business may have suffered during the Covid-19 restrictions, so tax returns may show low historical profits.

Alternatively, you may be relatively new to self-employed working or freelancing and may not have two years of tax returns to show lenders. You know how successful your business is, but only a real-time picture can support this.

Submitting the documents required for a low doc loan allows the lender to assess your recent earnings.

Investors

If you are an investor, you probably won’t receive a regular and standard income. You may find it difficult to apply for a full doc loan and may not know where to turn for advice! Your expert mortgage broker will guide you through your options in securing a low doc loan.

Contract and Seasonal Workers

A salaried worker can easily prove their income, but what about contract workers? Perhaps you work seasonally or move from contract to contract? Irregular income does not fit the requirements of a standard full doc loan. A low doc loan could be the perfect fit for you instead!

You can still apply for a low doc loan even if you are not self-employed or a small business owner! Our professional brokers will tailor low doc loan options for you. This will require different evidence as a contract worker.

Sole Traders and Small Business Owners

A low doc loan could be the perfect option for sole traders and small business owners! Even if you have only operated as a sole trader or small business owner for a short period! Your recent financial evidence will be taken into account, with your expert broker finding a range of low doc loans.

People with bad credit

Have you made some poor financial choices and missed a credit card payment or two? You may assume that this means you cannot apply for a home loan until your credit score is better. However, a low doc loan could be available to you today!

There may be some additional factors to consider, such as providing security for your low doc home loan. Or, you may have to consider much higher low doc home loan rates than you initially anticipated.

Contact your expert mortgage broker to discover what lender options are available to you!

Recently arrived in Australia?

If you are new to Australia, you may think that you cannot apply for a home loan. However, this may be a possibility! Your mortgage broker will be able to provide you with tailored options, but low doc loans could be a great choice!

In some cases, you may need permission from the Australian government before buying a property. However, we will let you know what requirements you need to meet, so get in touch today!

What other loan options are available?

A no doc loan or a low deposit or no deposit loan are additional choices to think about.

No Doc Loans

You could consider a no doc loan where zero evidence of income is required. However, lenders may require you to sign a statement to declare your assets and liabilities. This loan type is perfect if you want to secure a loan for business purposes. You may need a commercial property for the no doc loan to be secured against.

To secure a no doc loan, the loan must be in your company’s name. The loan security should be in good condition and in a saleable condition. Up to two-thirds of the property value may be borrowed by no doc borrowers although interest rates may be higher. Additionally, loan terms may be much shorter.

Poor credit history will mean higher interest rates, however, although our expert brokers will still have options for you!

No or Low Deposit Home Loans

On average, Australians need a 20% deposit when securing a mortgage. This can be a significant amount to save! With the median value of an Australian property reaching $738,975, a 20% deposit could total over $147,000! With the average Aussie earning $67,860 per year, it could take a long time to save such an amount!

Ask us today about no deposit or low deposit home loans tailored to meet your needs.

Will you be approved?

Every lender will set their own requirements when considering a low doc home loan. If you choose to find your own lender, you may miss out on some great deals with other lenders!

Visit your mortgage broker professionals and let us find the best deal for you and your circumstances!

Generally, full doc loan lenders will want to see evidence of your declared taxable income from the last two years. They will use these figures to assess whether your income is stable and determine the amount you can borrow.

Low doc loan lenders may ask you for Business Activity Statements and your Australian Business Number. You can find your ABN through ABN Lookup, a public information website. You may have to sign a self-certification to declare that you can meet repayments and show bank statements as evidence. Bank statements will also have to be evidenced.

How much can you borrow?

Low doc mortgages are a versatile option. Your trusted mortgage broker will guide you through which lenders would accept your application. They will also advise how much you can borrow and the best low doc home loan rates.

However, the amount you can borrow may depend on the interest rate attached to the low doc home loan. You may have to accept a higher interest rate to borrow a higher amount.

You may be offered a standard loan rate when applying for your low doc mortgage. This could help you borrow up to 60% of the property’s value.

If you are hoping to borrow up to 80% of the property’s value, interest rates will increase. You may have to consider slightly higher, more competitive interest rates to secure your home.

If you aim to borrow a significant 90% of the property’s value, much higher interest rates will be applicable.

Pros and Cons of a Low Doc Loan

What are the pros and cons of a low doc loan?

Pros

A low doc loan is an excellent choice for many individuals in Australia!

You can use a range of different documents that are not normally acceptable for a full doc loan.
You can evidence your current income.
This is perfect if your income declined during Covid-19 restrictions!
Low doc loans are great for people who are self-employed or freelance.
They are a great option for small business owners and contract workers.
If you have bad credit, you could still get a low doc loan!

Cons

Are there any cons to applying for a low doc loan?

Going straight to a lender can make a low doc loan application confusing!
Which lender will offer you the best deal?!
Some lenders will charge higher interest rates for low doc loans.

Visit a mortgage broker to find out different home loan options today!

Key Takeaways

An unconventional income does not mean that you cannot buy your dream home!
You can apply for a low doc loan to submit a range of different financial evidence.
You may need to submit your ABN, BAS, bank statements, and an IDF.
This evidence shows your current income.
Different lenders will require different evidence.
Some lenders may charge a higher interest rate.
Contact your local mortgage broker who will provide you with a range of options today!

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FAQs

What is the difference between low doc loans and full doc loans?

Full doc loans are standard mortgages, such as a fixed rate home loan given through a credit provider application. You will have to meet the standard criteria to provide financial evidence. You should evidence your assets and liabilities, as well as your expenses and income.

At this stage, you must inform credit providers of any property you own and any personal loan amounts that you are responsible for. To evidence income, you would be asked to provide payslips or similar documents.

As a business owner, you may show company financial reports and financial documentation.

The low doc loan option offers different criteria for people who do not meet the usual lending criteria set by credit providers. This will include self-employed borrowers and small business owners who cannot tick the usual loan application boxes.

The low documentation home loan interest rate offered may be higher than the standard full doc loan, however. Contact your impartial mortgage broker today to discover the best rates available to you!

Is it hard to get a low doc loan?

Not necessarily, but this depends on your circumstances and financial position. If you have a good credit history and have a larger deposit, securing a loan with minimal documentation should be relatively easy.

You must be an attractive borrower for lenders, so marks on your credit file MUST be avoided!

How much deposit you put down certainly increases your borrowing power and may enable fixed and variable interest rate offers. Lenders typically want to see BAS and your bank statements’ business activity statements. They will want to see your recent net income to assess whether you can afford repayments.

The lending criteria for low doc loan applications will differ depending on your lending criteria. A mortgage broker can determine which loan features will be available to you. Seek personal advice for alternative documentation loans and loan amount assessments from your broker today!

Is a low doc loan different to an alternative documentation loan?

No, they are the same! All the documentation required in alternative and low doc loans is the same! Some lenders will call those loans low doc loans, and some will call them alt, or alternative doc loans. But they both mean loans for the potential home buyer on the property ladder who may be self-employed.

You will have to show different evidence to a lending specialist to prove your declared income and employment history.

If you have an income but pay your own taxes then the low doc loan may be a great choice for you!

Contact a mortgage broker near you to seek advice and discuss your financial situation!

Contact your broker specialist today!

Whether you want to buy your first home, move to a different home, or buy an additional home, we can help you! We are experts in low doc loans, so contact us now if you think you fit the low doc loans criteria!

Low doc loans are challenging to navigate if you go straight to a lender, so let us find the best deals for you instead.

We never charge you any fees at all! After all, you will have enough fees and costs to pay if you do secure your mortgage! Our fees are received from the lender or the bank themselves. However, rest assured that our advice is impartial, and we have your best interests at heart!

We can help you, whatever your circumstances, so book a free consultation with us by clicking this link, and we will contact you ASAP! You can also send us an email at support@lendstreet.com.au.

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What Does a Mortgage Broker Do?

Michael Nasser — Tue, 22 Mar 2022 05:52:56 +0000

Mortgage brokers can save you a lot of stress on your home loan. From reducing your monthly repayments, lowering interest rates, and doing the legwork, your broker could be your lifeline during the home buying process. Shopping around for the right home loan could take years off your life. With so many options on the market, how do you know where to look?

Read on to learn what mortgage brokers do and how they can help you find your next home loan.

What is a Mortgage Broker?

A mortgage broker is an intermediary between homebuyers and lenders. As home loan specialists, their job is to match-make credit products with prospective borrowers. After match-making lenders with home buyers, the mortgage broker may also help the borrower in the application process.

Mortgage brokers will have a panel of lenders with a range of home loan products. If they connect you with one of their lenders, they might waive fees, such as loan application fees or provide special offers.

What does a Mortgage Broker do?

Mortgage brokers essentially play a match-maker between lenders and borrowers. Firstly, the broker assesses your financial situation. Before they can begin recommending home loan products, they need a clear picture of your creditworthiness and borrowing power. This helps the broker determine what type of home loan product will suit you.

Mortgage brokers will then offer a range of loan options, explaining the differences and why they might work for you. If you choose one of their recommendations, they will help you through the mortgage application process.

Bear in mind that mortgage brokers offer products from a panel of credit providers, not from every lender on the market. Therefore, it’s worth shopping around for a mortgage broker that specialises in your situation – e.g., local to your area.

Pros of Using a Mortgage Broker

Choosing a home loan is a big deal. Why should you trust someone else to do the job for you? Let’s look at the pros of using a mortgage broker to find the perfect mortgage.

1. Find you the best deal

Searching for a home loan is time-consuming. With so much jargon, different lenders, and credit services, finding a suitable mortgage could take days or even weeks. Even once you settle on a home loan product, there is no guarantee that it’s the best deal. Buying a house is stressful enough without the added bother of shopping around for a home loan.

A mortgage broker will do the job for you. Not only do they already know home loans and lenders like the back of their hands, a mortgage broker typically can get you a better deal. A good broker will negotiate interest rates, additional loan features, and ongoing fees to ensure you get the best loan arrangement.

Mortgage brokers are beneficial if you’re in a unique situation. For example, overseas borrowers, first-time buyers, or bad-credit score applicants might struggle to find home loan approval. Or, at least, they might only receive inferior offers from standard lenders. Mortgage brokers will help you find a specialist lender willing to offer competitive rates.

2. Will manage the paperwork

Purchasing a house is a very bureaucratic process. With contracts, documents, and all sorts flying about, home buyers might cry at the thought of more paperwork. Once you’ve chosen particular home loan products, your mortgage broker will fill out all the forms on your behalf. Not only will this free up time, but it will give you the peace of mind that it’s done correctly.

On top of this, they’ll explain any industry jargon or complex phrasing that might leave you unsure if you were to go it alone.

With a mortgage broker managing all the hard work, you’ll get your home loan pre-approval sooner. Once the home loan process is underway, you will be one step closer to getting the keys to your dream property.

3. They’re independent

Home buyers’ main worry is that the broker will only offer biased recommendations. While brokers operate with a panel of lenders, they are independent advisors. They work in the buyer’s best interest.

Generally speaking, a qualified mortgage broker will have between 20 and 40 lenders on their panel. They don’t favour any particular lender. And remember, if you don’t like their recommendations, you can always walk away. Although, you might have to pay the broker a fee if you back out. But this is better than agreeing to a 30 year home loan you don’t want.

4. Expert brokers

Mortgage brokers have a wealth of industry knowledge. Whether you’re a first-time buyer or purchasing your next investment property, you can guarantee your broker will know more than you.

Firstly, local mortgage brokers can advise you on the property market. Say you want to buy a house in Sydney. Your broker will do more than offer you loan options. They can offer recommendations on high capital growth suburbs and real estate agents.

Secondly, as we mentioned, mortgage brokers work with a financial institution to offer you the best deal available. However, the broker’s interests lay with the home buyer. Therefore, brokers put their expert negotiation skills to reduce the interest rate and other upfront fees lenders require.

5. Protect your credit score

When you apply for a mortgage, the lender runs a credit check. Hard inquiries into your credit score might cause it to dip a few points as it suggests you are taking on new debt. Usually, this is fine. The lender approves your loan, and your credit score bounces back after a few on-time monthly repayments.

However, if the lender rejects you after making a hard inquiry, your score won’t have a chance to recover.

Moreover, when you apply for a home loan or other products elsewhere, the next credit provider will see that you are trying to take on several new debts. From the lender’s point of view, this doesn’t look good. It suggests something negative about your financial situation, making it more challenging to find home loan approval.

Yet, if you enlist a mortgage broker, they will ensure you only apply to lenders who approve your home loan application. You won’t need to worry about damaging your credit score.

Cons of using a Mortgage Broker

Mortgage brokers aren’t for everyone. Why might you be better off doing it alone?

1. Untrustworthy brokers

Unfortunately, after the 2008 financial crash, the mortgage broking industry came under fire. However, Australian mortgage brokers have undergone a rigorous change. Qualified brokers now have to obey specific industry standards.

Organisations like the Mortgage and Finance Association of Australia (MFAA) and Finance Brokers Association of Australia (FBAA) ensure brokers maintain quality finance and mortgage broking. The Australian Securities and Investments Commission (ASIC) has ensured that any untrustworthy brokers have been convicted or left the industry.

To ensure you work with a professional mortgage broker, do your own research into their qualifications, experience, and online reviews. Accredited brokers with an Australian Credit Licence, and members of the MFAA and FBAA can help you get the perfect home loan for your situation.

2. Inexperienced brokers

Not all brokers have the right industry experience for your specific needs. This is especially true if you’re in a unique situation. Therefore, you must research your broker options.

Remember that lenders pay brokers commission if you choose their loan product. While most brokers will only recommend a relevant credit provider to you, some might be swayed by bias. Make sure you ask your broker how many lenders are on their panel and why they make a specific recommendation.

To work with award-winning mortgage brokers, contact Lendstreet today.

Do you need a Mortgage Broker?

While a mortgage broker can be a massive help throughout the application and settlement process, the wrong broker can also cause more harm than good. The real question to ask yourself is: Are you prepared to find a home loan yourself? If the answer is yes, then understand the level of research you need to do.

With nearly 100 banking companies and an immeasurable number of home loan products available, it could take you a long time to find the right one. Yes, there are also many mortgage brokers to choose from. However, deciding on a mortgage broker is a less significant decision. As we mentioned, qualified brokers work in your best interests.

If you’re at all unsure about the home loan application process, then speak to a broker.

How much do Mortgage Brokers charge?

The best thing about mortgage brokers is that they do not charge you a penny. Most brokers are generally paid a commission by credit unions when you choose their home loan product.

However, you may have to pay your broker a fine if you choose to look elsewhere after they have found you several home loan options. The fee could range from a few hundred dollars to the total price of commission they would have received if you chose the loan product. It’s a good idea to ask your broker about any cancellation fees before enlisting their services.

Can they shop around with every lender in Australia?

No, mortgage brokers have a panel of between 20 and 40 lenders at their side. They can only deal with organisations that they are accredited with, meaning they are authorised to act as a go-between with the lender and borrower. Moreover, some brokers may not work with lenders who do not offer them a commission.

Make sure you ask your broker which lending institutions they have on their panel.

What kind of licence should my broker have?

To ensure your broker is legitimate, ask for their Australian Credit Licence (ACL). This means that your broker operates under the National Consumer Credit Protection Act. Therefore, they cannot recommend poor options. Or rather, they must recommend products that are ‘not unsuitable’ based on ‘reasonable enquiries’ of your financial situation.

Your broker should either have their own Australian Credit Licence or authorised under an aggregator’s licence. Aggregators are umbrella companies responsible for paying the broker’s commission.

You should also check your broker’s testimonials and previous experience to ensure they are a good broker for you. A quick Google will reassure you of their reliability.

What questions should you ask a Mortgage Broker?

To ensure you team up with the perfect mortgage broker, you should ask them the following questions:

Are you licensed?
How many lenders do you deal with?
What are your fees?
Does the lender pay you a commission?
What will the borrowing costs be?
What’s your experience like?

Remember to always question your mortgage broker why they recommend a specific product. If a broker unpacks technical language and explains precisely why it might suit you, they’re probably acting in your best interests. If the broker struggles to define their recommendation clearly, you shouldn’t trust them.

Before offering products, the broker should thoroughly examine your financial situation, such as borrowing power. If they skip straight to the home loans, walk away.

Tips for finding a broker

Speak to friends and family – has anyone you know recently used a mortgage broker? Do they recommend anyone to you? This way, you can ensure you’re finding a good partner.

Do your research – even if the broker is supposed to do the hard work for you, it’s still sensible to research the market trends and loan products yourself. If you get a good idea of competitive interest rates and comparison rates, you’ll spot a lousy deal straightaway.

Check for testimonials or feedback – previous customers may have something to share about their experience working with your prospective mortgage broker. Check the mortgage broker’s website, their social media pages, or look them up on Google and other home-buying forums or groups, to see what others have to say about the broker’s service.

Take your time – no mortgage broker should pressure you to make a decision. Home loans are big financial decisions. Never feel like you have to make a hurried decision.

Do you want to speak to a Mortgage Broker?

If you want quality advice from experienced mortgage brokers, speak to our team today. We can help you with everything from borrowing power to loan terms. More than half of Australian home loans are organised by mortgage brokers. Why not ease the burden of searching for a home loan and enlist a broker’s help?

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FAQs

What are the duties of a Mortgage Broker?

Mortgage brokers act as go-betweens for the lender and borrower. Working in the home buyer’s best interest, brokers find a home loan deal with competitive rates suitable for their situation.

Is it worth getting a Mortgage Broker?

Mortgage brokers help match you up with the perfect home loan product. They can save you time, money, stress, and effort throughout the home loan process. Moreover, their negotiation skills will help you secure a better deal.

Why shouldn’t you use a Mortgage Broker?

The wrong broker can waste your time and potentially saddle you with a bad financial deal. To ensure your broker acts in your best interests, ensure they have an Australian Credit Licence and check reviews from previous customers.

How do Mortgage Brokers make their money?

Mortgage brokers are typically paid a commission by the lender when you choose their home loan product. Double-check how your broker makes their money before agreeing to their services to ensure you don’t get hit with the bill.

Are Mortgage Brokers financial advisers?

No, mortgage brokers are not financial advisers. A broker will help connect you with a suitable home loan. If you want professional financial support, you’ll need to contact a separate financial adviser.

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The post What Does a Mortgage Broker Do? appeared first on Lendstreet.

How Do Mortgage Brokers Get Paid?

Michael Nasser — Wed, 16 Mar 2022 04:57:30 +0000

Many mortgage brokers advertise their services as free but being the careful home buyer that you are, you want to make sure that there are no hidden costs that will come up along the way. If their services are really free of charge, then how do mortgage brokers get paid?

Don’t worry. Through this article, we’ll dig into how mortgage brokers derive income from a successful home loan application. This is what happens in the background after loan settlement with the bank or lender.

What are mortgage broker fees?

The majority of mortgage brokers are small businesses or contractors. If brokers don’t charge their customers or make money from the interest rate, who pay them? Typically, the lenders pay them a commission when the customer opts for their home loan product. The lender calculates the commissions paid based on various factors; different lenders may calculate commissions differently.

Generally speaking, it considers the loan amount, Loan to Value Ratio (LVR), and the overall quality of home loans. So, if the lender pays mortgage brokers, do you ever have to pay for their services? And how much are mortgage broker commissions exactly?

How much is the commission paid to mortgage brokers?

Most mortgage brokers get paid commissions based on the percentage of the home loan value to the bank. Essentially, the more money the bank earns through fees and interest on the home loan, the higher the commission to the mortgage broker. The exact percentage differs – some lenders might pay higher rates than others.

On average, it’s probably around 0.2% – which means the broker receives $800 a year on a $400,000 loan balance. Hang on, a year? Yes, mortgage brokers get paid by what’s known as “trail commission” determined by your loan balance.

How do mortgage broker commission rates work?

Mortgage brokers get paid two ways:

Upfront commission
Trail commission

They are only paid once the home loan settles. Generally, the upfront commission is between 0.65% to 0.7% of the home loan value. Trail commissions, also known as ongoing commissions, are about 0.165% to 0.275% of the home loan.

The upfront commission is a significant lump sum. With our earlier example of a $400,000 loan amount, the broker would receive between $2,600 and $2,800 for organising the home loan.

The trail commission continues for the life of the loan. The mortgage broker receives a set amount of 0.15% of the home loan value every year. Alternatively, some lenders pay increasing percentages over the years. For example, with a $400,000 home loan:

Year 1: 0% or $0
Year 2: 0.165% or $660
Year 3: 0.22% or $880
Year 4: 0.275% or $1,100
Year 5: 0.33% or $1,320
Year 6 onwards: 0.385% or $1,540

Even though the bank pays the broker, they don’t work for banks. Mortgage brokers work independently, with your best interests in mind.

Why are brokers paid Trail Commission?

Lenders like long home loans. The more time the borrowers have a home loan, the longer they pay interest on the remaining loan amount. Therefore, the lender continues to pay the broker a commission as long as the client stays with the same home loan and doesn’t default on payments.

Now, you may be wondering what’s in it for you if the banks encourage the brokers to organise longer home loans, which end up more expensive for you. Well, it actually works in your favour. The broker isn’t paid trail commission if an account remains in default for more than 60 days. Some banks stop paying the trail at 30 or 15 days.

Accordingly, your broker will work hard to understand your financial situation and find a home loan best suited to you. If they match you with a poor home loan product and go into arrears, the broker loses their commission. Moreover, good brokers complete regular health checks to ensure that your home loan still works for you, especially with fixed-term home loans.

If your mortgage broker has done their job correctly, you should feel comfortable making monthly loan repayments without mortgage stress.

The Aggregator

Mortgage brokering comes with many legislative and compliance requirements. Brokerage costs are high. Therefore, many brokers operate under an aggregator.

The aggregator is the intermediary between lenders and brokers in charge of distributing the commission. They take a percentage of the commission before handing it over to the broker. Generally, it’s an administrative cost and can vary depending on the aggregator. Usually, it’s around 5% – 50%.

What if trail commissions are banned?

The Australian government considered banning trail commissions on all new loans in July 2020. This could have meant brokers charging customers an upfront fee for their services. Borrowers may have thought twice about refinancing a home loan if they have to pay an upfront fee for a mortgage broker’s services again. Additionally, borrowers may have faced fewer home loan products and lenders.

The government backed out of its decision. However, the possibility remains that they’ll reintroduce the idea one day.

Is there a conflict of interest?

If the bank pays the broker to organise a loan with them, how can you trust they are working in your favour? Well, don’t worry; mortgage brokers must hold an Australian Credit Licence and adhere to the National Consumer Credit Protection Act. This means they are bound by law to work in the customer’s best interests.

In fact, brokers must not recommend “unsuitable” home loans based on “reasonable enquiries” of your financial situation.

Furthermore, some major banks, like Westpac and the Commonwealth Bank, have completed studies that show no link between the commission and home loan products. As a result, banks compete with interest rates rather than increasing mortgage broker commissions.

Will I ever have to pay for a mortgage broker directly?

Rarely you will ever need to pay mortgage brokers for their services if you don’t want to. The only times a broker may charge a fee is:

Someone with a complex situation
Smaller loans under $300,000
Commercial and business loans
Loans paid off or refinanced within two years

No commission mortgage brokers

However, a few brokers charge a fee rather than earning commission from the lender. Instead, the broker pays back the upfront and trailing commission each month to the borrower as a mortgage rebate or cash back. Yet, it’s not as good as it seems. This type of business model isn’t financially viable. Fee-based brokers face slim profit margins.

Therefore, if you opt for a fee-based broker, you might find they’re not able to offer you a quality mortgage broking practices. Moreover, if the company goes bust, they won’t provide an ongoing home loan service throughout the loan term.

Will I save money on my home loan with a mortgage broker?

Mortgage brokers with an Australian Credit Licence save customers time and effort. They’ll help you make massive cost savings on your home loan product.

When you engage a broker, they’ll ask you about your personal objectives and financial circumstances. They’ll use the information provided to determine which lenders and home loan products suit your needs. Essentially, they do all the legwork. The average home buyer doesn’t have the industry experience necessary to research hundreds of home loans.

Your broker will offer you recommendations and explain why they might be a good deal for you. Ask them about the comparison rate, interest, and other ongoing fees. A good broker can negotiate lower interest rates, fee waivers, and additional benefits, such as an offset account.

The mortgage broker will help you organise your mortgage application when you choose a particular product. Speak to a Sydney home loan broker about your options today.

Should I use a mortgage broker?

Many home buyers navigate the world of lending for the first time when getting a mortgage. You might have a credit card or student loan. But a home loan is often the first significant financial undertaking most of us have. It’s intimidating to understand comparison rates. With such a big decision, it makes sense to ask a professional for their advice.

Without expert recommendations, you could trap yourself into a home loan with expensive early repayment fees, a high interest rate, or redraw fees.

Moreover, as we’ve mentioned, mortgage brokers are free to use! Why wouldn’t you want an expert by your side during one of the most critical moments of your life?

How to find a mortgage broker

Finding a mortgage broker with an Australian Credit Licence is straightforward. All you need to do is type into Google “best mortgage brokers in Sydney” to get results. Or better yet, contact us at Lendstreet today to find out more about how we can connect you with the perfect credit provider for your circumstances.

In Summary

Mortgage brokers with an Australian Credit Licence work for the customer. Despite getting paid commissions from the lender, they are legally obliged to work in the borrower’s best interests. When engaging a mortgage broker, ask them how they get paid. If they’re transparent about their commission, you can expect them to remain honest throughout the home loan process.

You should also check out your broker’s previous experience. It takes years to get to know the mortgage industry, and you want to ensure that you find the best broker out there.

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FAQs

How do mortgage brokers make money?

Mortgage brokers with an Australian Credit Licence are paid a commission by lenders when you complete a mortgage application with them. The commission for finance and mortgage broking is split into an upfront payment and trail commission, meaning the broker gets paid an ongoing commission throughout the loan term. The borrower doesn’t have to pay anything for the broker’s services.

How much do banks pay mortgage brokers?

Commission rates for mortgage broking vary from lender to lender. Most mortgage brokers will receive around 0.15% of the home loan value per year of the loan term. The mortgage broker will stop receiving trail commission if the borrower defaults on their repayments. Therefore, you can trust that they’ll match you up with a suitable lender.

Do mortgage brokers charge fees?

Most mortgage broker services are free for the borrower. The lender pays them a commission for the mortgage broking process when they organise a loan between you and them. However, this doesn’t mean brokers work for the bank. They work with the customer’s best interests in mind.

Is it okay to use multiple mortgage brokers?

You can switch mortgage brokers if you feel that yours doesn’t suit your financial needs or find a lower interest rate. However, be mindful of changing finance brokers during the mortgage application process, as the broker may charge you for the lost commission when you leave. Speak to your mortgage broker about any cancellation fees before working with them.

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Can I Salary Sacrifice My Mortgage

Michael Nasser — Tue, 08 Mar 2022 00:02:34 +0000

While salary sacrificing into our super contributions is pretty standard, did you know that you can also sacrifice your salary into your mortgage repayments? Repaying your home loan faster and reducing taxable income salary sacrificing is a good idea for many Australians. It can help those who struggle to save money for regular repayments. But, is it right for you?

This guide will unpack what salary sacrificing is, the pros and cons, and how to salary sacrifice your mortgage.

How does salary sacrificing work?

Salary sacrificing, also called salary packaging, is an arrangement where the employee’s income is split between cash payments each month and other benefits. Rather than receiving the entire salary as a monthly income, the employee pays a percentage of it to your pension, home loan repayments, and other expenses.

Depending on the employer, a salary sacrifice arrangement might pay towards many things. Essentially, the aim of salary sacrificing your mortgage repayments and other non-cash benefits is to reduce your taxable income.

Some benefits might be subject to the Fringe Benefits Tax (FBT). This is a payment employers pay for additional benefits to their employees. Some sectors have FBT exemptions or rebates and might provide salary packaged benefits more cost-effectively than other employees. These industries include hospitals, charities, and other non-profits.

Your after-tax salary depends on the type of benefits paid by the employer and whether it’s liable to FBT. Accordingly, this determines whether salary sacrifice is worthwhile and cost-effective for you or your employer.

What are the rules?

Mortgage payments are typically a fully taxable fringe benefit. Therefore, salary sacrificing is not always in your employers’ best interests. Paying the total amount in FBT is not necessarily cost-effective. However, if you work for a not for profit organisation, there may be a financial advantage in a salary sacrifice arrangement.

Employers who are FBT exempt can offer non-cash benefits to employees without FBT, up to the following limits:

$17,000 for each employee of a hospital or ambulance service
$30,000 for each employee of a health promotion charity or a non-hospital Public Benevolent Institution
$30,000 for employees of other not for profit industries, registered charities, some educational organisations, trade unions, and employer associations. They are only allowed a rebate of 47% FBT.

For the most part, benefits for employees of other industries must pay the total FBT amount. Therefore, it’s probably not cost-effective for the employer. However, other professions get perks on their home loans.

An example

Let’s say that Kayla has a base salary of $100,000 per year. Her employer pays $15,899 per year in mortgage repayments, less than the capped limit of $30,000. Her take-home pre-tax income is $84,101. Therefore, she pays $20,562 in income tax. Comparatively, she owes $26,497 in tax without the salary sacrifice arrangement.

A saving of $5,935 is worth it to Kayla. However, if her employer had to pay FBT, they would lose $14,100. If Kayla works for a not for profit organisation, it is a cost-effective arrangement. However, if she does not work for an FBT exempt company, it is not worth it for the employer.

What are the other types of salary packaging?

As we mentioned, home loan repayments aren’t the only thing employers pay as a non-cash salary package. The other prominent kinds of salary sacrifice arrangements include

Super contributions: You and your employer might agree to pay part of your salary into your superannuation. This is the most prevalent type of salary sacrificing agreement. Some lenders consider this a voluntary contribution and add it back to your income when assessing your loan eligibility.
Novated lease: Some employers agree to pay for the cost of leasing and running a car or other vehicle from your pre-tax income.
Rent: Your employer might pay your rent out of your pre-tax salary. However, some lenders don’t like this as they assume that when you buy a house, the rent will cease, as will your benefits.
Electrical goods: Phones, laptops, and other minor electrical books are often included in salary sacrificing packages.
Bikes: Some employers offer a cycle to work scheme and pay for your bike out of your pre-tax salary.

Salary sacrificing your home loan is one of the smartest ways to lower your tax bill. The employer will directly pay the lender, and you won’t see any money.

The First Home Super Saver Scheme

If you’re a first-time buyer, you might be eligible for the First Home Super Saver Scheme. This scheme enables first-time buyers to sacrifice their salaries as a deposit for a home loan. The contributions are limited at $30,000, with a cap of $15,000 a year. Plus, the contributions are only taxed at 15%.

What are the benefits of salary sacrificing your mortgage?

While salary sacrifice mortgage arrangements aren’t for everyone, it has their benefits. Part of your pre-tax salary will go directly to the lender. While it might seem that you’re earning less income, you’ll pay less tax every year.

Moreover, if you’re already planning to buy a house, the money for your mortgage would be leaving your account anyway. With a salary package, you lower your income tax. As the mortgage repayments leave your income before paying tax, your yearly take-home salary is lower.

Say you earned $50,000. Without the salary sacrifice mortgage, you would pay $6,717 in tax. Whereas, with mortgage repayments of $10,000 per year, you only pay $4,142 tax. In the first scenario, you end up with $43,283 leftover. In the second, you have $35,858 – but you also have a house.

Therefore, you can spend these savings on other expenses. Accordingly, you will be able to pay off your loan faster and reduce your interest payments over the loan’s lifetime.

Furthermore, as the loan repayments are sent directly to your lender, you don’t need to worry about the hassle and stress of organising your monthly repayments.

What are the drawbacks of salary sacrificing your mortgage?

On the other hand, salary sacrificing your home loan is not for everyone. There are downsides to the arrangement. Once you have agreed to the scheme, you won’t be able to access the sacrificed wage – it will be automatically deducted from your pre-tax income and paid to your lender.

That said, if you’re worried about a cash flow shortage, tying your money up in property may not be the best plan for you.

Moreover, if you have a superannuation salary sacrifice plan in place, arranging a mortgage agreement will reduce your pension payments. This could impact your retirement savings. Similarly, other benefits you receive from your employer might change—for example, any holiday loading or overtime.

To get the best outcome, you may need to negotiate with your employer.

Traps to avoid

Make sure you know what traps you should avoid ahead of entering into a salary sacrificing agreement:

Employer refusal – your employer may not think it is in their best interest. It might be too time-consuming and costly for them to think it worthwhile. Therefore, it’s up to you to convince them. But, be aware that they may still say no.
Employer limits – some employers might limit the amount of pre-tax income you can sacrifice towards your home loan repayments. Speak to your employer about what they’re willing to offer you.
Less super contributions – as mentioned, with more money going towards your home loan, the less you’ll pay into your superannuation.
Less disposable income – if you need more cash flow, then salary sacrificing might not be the right decision for you.
Fees – some employers might charge an administrative fee.

What are technical arrears and how do I avoid them?

The issue of handing over your mortgage repayments to your employer is that you can’t be 100% sure it’s set up correctly. If your mortgage isn’t set up properly, your lender may contact you. This is because banks receive interest payments on a specific date. If your employer’s paydays differ from this, then you may be in technical arrears.

Plus, as your repayments vary from month to month with fluctuating interest rates, you may need to change what your employer pays into your mortgage. This is only the case with a variable rate home loan. Fixed-rate mortgage repayments stay the same every month.

However, some home loans are designed specifically for salary sacrificing. They provide greater payment flexibility. You can align your repayment dates and allow an automatic direct debit to take any shortfall from your regular account.

With a salary sacrifice mortgage, the payments are automatic. You won’t need to organise a thing. Seek professional advice from a specialized mortgage broker to find the perfect home loan to suit you and your employer.

How to save tax in a salary sacrifice agreement

While it’s not a well-known strategy, a mortgage salary sacrifice agreement might save you vast amounts of money. This is especially the case if you’re in an industry that doesn’t charge tax on employee benefits.

As we saw with our earlier example, savings could be a few thousand. However, your tax savings will be even higher if you’re in the maximum tax bracket. If you earn $185,000 a year, you’re usually taxed 45%. However, if you salary sacrifice $20,000 a year, you lower yourself into the next tax bracket.

Therefore, rather than paying $53,917 in tax, you would pay $46,117. Speak to your employer about whether your tax savings are worth mortgage salary sacrificing.

Does salary sacrificing impact your home loan application?

One important thing to note is whether salary sacrificing for a car, pension, school fees, or other purchases can affect your home loan application. Mainly the amount of money you can borrow. Some lenders might count your salary sacrifice as an expense rather than part of your income.

Say you have $5,000 of your pre-tax salary going towards your salary sacrificing arrangement, then they will reduce your income by that amount. To work out your borrowing power, use our calculator. Lenders also consider other factors, such as your credit score and deposit amount.

However, not all lenders view a sacrificed salary as an expense. If they view it as a voluntary payment, you might have a greater borrowing power. This is why you should seek the help of a mortgage broker to ensure you find the best lender for your situation.

Whether or not they view it as a voluntary payment depends on where the money is going. For example, if you’re salary sacrificing to car payments, it’s an expense. You cannot stop paying your car loan repayments. On the other hand, if you’re making extra contributions to your super, this is voluntary. You have no continued obligation to pay into your super.

Which banks accept home loan salary sacrifice?

You will need to talk to your lender about whether or not they offer salary sacrifice mortgages. If they do not, you may have to speak to a broker to find a lender that suits your situation. As with any loan, ensure you shop around to find the best deal. Look at the comparison and interest rate and loan term.

How to Check if You Can Salary Sacrifice Your Home Loan

Follow these steps to determine if you can salary sacrifice your home loan

Speak to your employer about whether they will let your salary sacrifice your home loan repayments. You may need to negotiate how much they’re ready to let you sacrifice. If you’re salary sacrificing other expense payments, such as superannuation, check how your mortgage payments will affect it.
Ask your accountant for their advice. You need to determine the best way to pay less income tax – the additional fees that sometimes come with salary sacrificing mortgage payments might not be in your best interest.
Speak to a mortgage broker about which lenders they recommend for your financial situation.

How can a mortgage broker help?

Mortgage brokers have many years of experience in the industry. With their help, you can compare home loans without any mortgage stress. Find a Sydney broker specialising in salary sacrifice mortgages to help you search.

Is salary sacrificing your mortgage repayments sensible?

Whether or not you choose to salary sacrifice your mortgage payments depends on your employer, tax bracket, and financial needs. If you’re receiving other salary-related benefits, it might not be cost-effective to arrange salary sacrifice repayments on your home loan too.

Ensure you speak to your employer, accountant, and broker to determine the best course of action.

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FAQs

Can you salary sacrifice mortgage interest and principal?

When you salary sacrifice, your employer will repay your mortgage interest and principal from your pre-tax salary. Salary sacrificing your mortgage reduces your taxable income and might help you pay off your loan sooner.

How does salary sacrifice impact mortgage?

If you’re sacrificing salary for other payments, such as a car loan, the lender will see this as an expense. Therefore, your borrowing power will reduce. However, if you’re paying into a super, this is a voluntary payment and does not impact your borrowing capacity.

What payments can be salary sacrificed?

Depending on your employer, you can salary sacrifice many different payments. These could include mortgage repayment, superannuation contributions, cycle to work, car lease, phones or computers, and school fees.

What are the disadvantages of salary sacrifice?

The most significant disadvantage of salary sacrifice is the loss of flexibility. As the mortgage payments are sent directly to the lender before you receive your income, you lose any ability to control your finances yourself. This might suit some people who would like someone else to handle the responsibility and hassle.

Does salary sacrifice affect tax return?

Yes, your total taxable income is reduced when you pay for your mortgage out of your pre-tax salary. Therefore, you’ll pay less tax while still being able to purchase a house.

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The post Can I Salary Sacrifice My Mortgage appeared first on Lendstreet.

What Is a Cooling-off Period for Property in NSW?

Michael Nasser — Tue, 01 Mar 2022 01:58:51 +0000

Buying a new property is both exciting and nerve-wracking. While we hope that the process will run smoothly, there is always the risk that this expensive venture won’t live up to what you want. You might find pests that the building inspection didn’t reveal. Or, the property might not be the dream home you had thought.

Fortunately, most sale contracts have a cooling-off period. Cooling-off periods exist to prevent you from being forced to stick to a wrong decision. So, what is a cooling-off period? And how does it work? We’ll answer all your questions and more.

What is a Cooling-off Period?

A cooling-off period is the length of time after the seller signs the contract of sale, where the buyer can pull out of the deal. Unlike a subject to finance clause, you don’t need to provide any reason or evidence for your decision.

Potential buyers put a lot of thought and consideration into their purchase. However, everyone has to make compromises and, given the current level of demand in the market, buyers can make rushed decisions. If you choose to back out of your contract for whatever reason, you can do so without legal penalties during the cooling-off period.

The cooling-off period is when you complete the final inspections and review your decision. You may need to pay a termination fee (0.25% of the purchase price) if you cancel the contract of sale during the cooling-off period. However, this is significantly less than the cost of buying the wrong house.

When is the property officially sold?

So, does the cooling-off period mean that the property isn’t officially yours? No. The property is formally sold when both you and the seller have signed the sale contract, as this is legally binding. Each party must receive a copy of the signed contract of sale.

The sale is completed when all the checks are made, the title and transfer exchanged, and the buyer has paid the purchase price.

The cooling-off period begins when all parties sign a contract of sale. However, as a buyer, don’t worry about losing your dream home. The vendor cannot cancel the contract during the cooling-off period – it’s exclusively for buyers.

Do all contracts have a cooling-off period?

In New South Wales, the cooling-off period must be in the contract of sale. However, the rules differ in other states. For example, it is not mandatory in Western Australia or Tasmania. Additionally, in other states, the terms and conditions vary. If you’re buying property in any other state than New South Wales, then it’s best to check how it works with Fair Trading.

You can waive the cooling-off period if you choose to – we’ll explain how later. Waiving the cooling-off period can improve your offer on the house more attractive to the seller. If your dream home is in a trendy area, you might offer an unconditional contract to get a competitive edge against other prospective buyers.

Steps of the cooling-off process

Firstly, the real estate agent must give the buyer and seller a copy of an unsigned sale contract at least one business day before signing the agreement. Then the seller’s agent must also provide a copy of the consumer guide regarding residential property agreements at least one day before signing the contract.

During the cooling-off period, your conveyancer should conduct a building inspection, among other enquiries. If you discover any problems, you can terminate the contract of sale. You will send a written notice, but you won’t need to explain why you cancelled your contract.

Make sure you send the letter within the cooling-off period; otherwise, it will not hold after that.

What about the deposit?

The buyer has to pay the deposit to the seller soon after both parties sign the contract. The seller’s agent acts as the deposit holder. They put it in a secure account. No one can access the money until either the end of the settlement period or if the buyer terminates the property sale during the cooling-off period.

The agent releases the deposit money to the seller on the settlement day. If the buyer cancels the contract of sale, then the agent returns the money to the buyer.

How long is the cooling-off period?

The cooling-off period starts once the seller and buyer have signed and exchanged the contract. It lasts five business days in NSW. However, other states differ, some lasting only two business days. The cooling-off period ends at 17:00 on the final business day of the period.

If you sign and exchange contracts late Friday afternoon, the cooling-off period will begin next Monday. Remember, bank holidays and weekends don’t count within the period.

Can cooling-off periods be extended?

If both the buyer and seller wish to extend the cooling-off period beyond ten days, they can do so in writing. The seller doesn’t have to agree to the request.

Asking for an extension might harm your chances of the seller accepting your offer. As we mentioned, the vendor might prefer sellers who offer unconditional contracts because they are less likely to withdraw from the sale.

When will a cooling-off period apply?

Cooling-off periods are the mandatory default in NSW. Generally only available for buyers, you don’t need to request it from your solicitor. However, you will need to make it known if you want to change the cooling-off period at all, for example, extend or waive it.

If you purchase the property through an auction, you won’t automatically get a cooling-off period. Even if you ask for one, you are unlikely to get it.

When does the cooling-off period not apply?

In NSW, the following circumstances are exempt from the cooling-off period:

Purchasing property at auction
Property purchases where the buyer and seller exchange contracts on the same day as the property is auctioned
An exclusively non-residential property
The property is larger than 2.5 hectare

If I buy at auction, do I still get a cooling-off period?

The cooling-off period does not apply if you buy at auction or exchange contracts in a private treaty on the same day the property was auctioned. This means that you need to complete building and pest inspections ahead of the auction. Additionally, you need to secure your finances.

Why might I decide to use the cooling-off period?

The cooling-off period helps buyers withdraw from a property sale contract that isn’t right for them. There are many reasons why you might decide to withdraw from the agreement. These include

Issues arising with the property and pest inspections – although this is often a separate conditional clause in the contract.
The buyer’s inability to get approved finance from a lender or home loan application denied – again, this is usually a separate clause. If you’re struggling to secure finance, speak to the best mortgage broker in Sydney.
Planned infrastructure or housing development in the area makes the property less desirable.
An unexpected change in the buyer’s personal life or financial position.
A change of heart – perhaps the buyer finds another property that suits their needs, or they no longer like this one.

Remember that the buyer does not need to offer reasoning for withdrawing from the agreement.

The seller may also back out of the sale before the contract is unconditional. For example, their circumstances might have changed, or they might receive a better offer. However, as the cooling-off period is not for their benefit, they face legal consequences.

Additionally, the seller’s agent might sue the seller to recover their lost commission. The buyer might use it to recover money paid for legal fees, building and pest inspections, and other costs. If you find yourself in this situation, it might be helpful to seek professional advice.

Who receives the penalty payment?

You won’t get the full deposit back when you terminate your sale contract during the cooling-off period. In NSW, the vendor receives 0.25% of the property’s purchase price. The buyer gets the rest of the deposit back. In some circumstances, the penalty is worth it. However, it could be costly, with property prices nearing $2 million in some parts of Sydney.

What costs will I get back?

Although the cooling-off period exists to protect buyers, if you withdraw, you’ll likely be in a worse financial situation than if you had never agreed. You should still carefully consider property sales before making an offer. Don’t rely on the cooling-off period to get out freely. You could still lose thousands of dollars.

What are my legal obligations?

If you wish to exit the property agreement, you must notify your vendor in writing before the deadline on the fifth business day.

What happens after the cooling-off period?

Once the cooling-off period ends, the buyer will struggle to terminate the sale contract without losing lots of money. Each contract should outline the penalties if either party backs out of the deal outside the cooling-off period. If the buyer wishes to pull out after the end of the period, they have to give written notice to the seller as soon as possible.

Generally speaking, a buyer will pull out of the contract if the seller breaches its terms or fails to disclose crucial information about the property.

If the buyer does not wish to get out of the property agreement, the solicitors will exchange the contracts, and the buyer will become the legal owner of the property.

Waiving the cooling-off period

Waiving the cooling-off period and other conditional clauses are known as an unconditional contract of sale. In such a competitive housing market or if you’re highly interested in a particular property, waiving the cooling-off period might get you a competitive edge over other potential buyers.

To waive the cooling-off period, you must contact your lawyer or conveyancer. They will sign off your decision on the waiver. Once you and the seller sign and exchange the contracts, the property is yours from the end of the settlement period. The buyer has then forfeited their right to terminate the agreement, even if your lender doesn’t approve your home loan.

While offering an unconditional contract guarantees the seller security with the sale, the buyer takes on significant risk. You should only provide an unconditional agreement if you have sorted your finances and completed all inspections and property valuations.

If you do back out of the deal after waiving the cooling-off period, the seller is legally entitled to keep your deposit and may sue you for damages.

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FAQs

Does the vendor get a cooling-off period too?

No, the cooling-off period is for the buyer’s benefit. If the vendor chooses to pull out of the agreement, they may face legal action from their real estate agent and the buyer. The seller must offer the buyer a cooling-off period of five business days to change their decision without legal consequences.

Can a vendor change their mind after accepting an offer?

If the seller changes their mind after accepting an offer from a buyer, they might face legal consequences from the buyer and real estate agent.

Do all contracts have a cooling-off period in NSW?

It’s mandatory in New South Wales to offer a cooling-off period of five days to the buyer. However, if the buyer chooses, they can waive their cooling-off period. If they withdraw after waiving, they might face legal action and lose their deposits.

Are cooling-off periods mandatory?

Every state differs. In NSW, five-day cooling-off periods are mandatory. However, in Western Australia and Tasmania, they are not the default. You would have to negotiate a cooling-off period with your vendor.

If I exit in a cooling-off period, will I get my money back?

If you pull out of a sale agreement during the cooling-off period, you lose 0.25% of the purchase price and get the rest of your deposit back. However, if you pull out outside of the period, you may lose the entire deposit and face legal action.

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LMI Waiver Scheme: Definition, Benefits, and How to Apply

Michael Nasser — Tue, 15 Feb 2022 02:06:33 +0000

Lender’s Mortgage Insurance or LMI is one of the dreaded costs of buying a property. It can cost home buyers tens of thousands of dollars on top of the initial home loan borrowings. However, not everyone will have to pay Lenders Mortgage Insurance.

What is Lender’s Mortgage Insurance?

Lender’s Mortgage Insurance (LMI) is an additional cost required by lenders and banks when homebuyers don’t have a big deposit. When a home buyer applies for a home loan, the lender will calculate their loan to value ratio. If the figure is higher than 80%, the borrower will have to pay Lender’s Mortgage Insurance premium. That is unless you qualify for an LMI waiver.

Why do lenders require Lenders’ Mortgage Insurance?

LMI protects lenders and banks against high-risk borrowers. If the loan amount is higher than 80% of the home’s purchase price, you are considered high risk and asked to pay LMI. The belief is that if you have a small deposit, it suggests that you aren’t in a solid financial position. Therefore, the lender thinks you’re at a greater risk of defaulting on your home loan repayments.

Those with a larger deposit, comparatively, prove their ability to save money. They’re low risk and will rarely default.

If the borrower defaults on their home loan repayments but has an LMI premium, the mortgage insurer will repay the loan amount.

How do I pay LMI?

There are two ways of paying LMI. Firstly, you can pay it upfront. However, as this is a huge cost, few have the funds to do so. This is particularly true of those with small deposits – it’s unlikely you can pay LMI fees in one lump sum.

Therefore, specific lenders allow borrowers to capitalise the LMI on their home loan. Accordingly, the LMI payments are added to the loan amount, and you pay interest on it. If you owe $10,000 in LMI fees, this could add an extra $3,488 in interest to a 30-year loan.

How is Lenders’ Mortgage Insurance calculated?

There are two leading mortgage insurers in Australia: Genworth Financial and QBE LMI. Most lenders will work with one insurer exclusively. However, some lenders have their own insurers. Each calculates LMI slightly differently. It depends on the following factors

Size of the loan
Deposit amount
Loan type
Investment property or residential property
Borrower’s employment status

For example, if someone wanted to borrow $450,000 with a deposit of $50,000, their loan to value ratio would be 90%. To calculate the LVR, divide the loan amount by the purchase price. In our scenario, the property is worth $500,000. The deposit is only 10%. Therefore, the lender would request you pay mortgage insurance.

You can use the fee estimation calculators on Genworth Financial and QBE’s websites to determine how much LMI you should pay. Using the Genworth Financial LMI calculator for our example reveals that the borrower would have to pay $9,644.32 on a 30-year loan. This is equivalent to $181.57 in monthly repayments.

The actual LMI cost might differ from the calculated estimate.

Who can access Lenders’ Mortgage Insurance waivers?

Luckily, not everyone has to pay LMI. Lenders typically offer higher amounts of money to low-risk borrowers. Depending on your occupation, the lender might use more than the deposit amount to determine your risk level. Certain professions are deemed high income and, therefore, low risk. As a result, lenders offer loans with higher LVR to some professionals without requiring LMI or with LMI discounts.

Find out about the LMI waiver for professionals.

Medical Professionals

Some medical professionals qualify for an LMI waiver on loans up to $4.5 million at 100% of the property value. This means that you wouldn’t need any deposit to buy a house. Medical professionals that qualify are

Doctors
Dentists
Surgeons
General practitioners
Optometrists
Pharmacists
Chiropractors
Surgeons
Pathologists
Veterinarians

You must also be a member of an accepted industry organisation, such as the Australian Medical Association (AMA). Additionally, some lenders offer lower interest rates to preferred medical professionals. However, as no one is entitled to any specific rate, this varies from lender to lender. You might need to negotiate or ask a mortgage broker to find low-interest rates.

Legal Professionals

Similarly, some legal professionals are eligible for an LMI waiver. However, they must also be members of an accepted organisation to qualify for an LMI waiver. Judges, solicitors, barristers, and lawyers earning $150,000 manually might be able to apply for an LMI waiver. Annual earnings include your salary, rental income, and any other forms of regular income.

It’s worth bearing in mind that the maximum loan limit is $2 million at 90% LVR.

Accountants

Accounting professionals can also access LMI waivers. Eligible borrowers include

Actuaries
Auditors
Financial managers
Chief financial officers

Just like legal professionals, the maximum loan size cannot exceed $2 million or 90% of the property’s value. Accountants must also be members of a relevant industry body, such as the Australian Charter of Accountants.

Yearly income must be $150,000 or more, rental income included. Some lenders will lower the minimum income threshold for those working with specific industry bodies. For instance, if you work for Ernst & Young or Deloitte, the lender might accept lower income amounts.

Mining Specialists

Mining specialists are one of the highest-earning professionals in Australia. Mining specialists include

Specialists in the resource, energy, or mining industries
Geophysicists
Geologists
Quantity surveyors
Mine surveyors

The maximum loan amount is $2 million with an LVR of 90%. Again, mining specialists must earn a minimum of $150,000 a year.

Professional Athletes

A professional athlete should have an accredited agent or manager to get an LMI waiver. The maximum loan amount must be $2 million or less and 90% of the property price. Again, your combined income should be $150,000 or higher.

Entertainment Industry Professionals

Entertainment industry professionals include anyone working in fashion, theatre, film, television, or the music industry with a minimum yearly income of $150,000. The maximum loan size and LVR are $2 million and 90% again.

However, the above eligibility criteria do not guarantee that you can avoid paying LMI. Most lenders will also require clean credit history, regardless of your profession.

First Home Buyers

Don’t worry if you’re not one of the above-listed professionals considered as low-risk borrowers. If you’re a first-time home buyer, then the First Home Owners Grant and First Home Loan Deposit Scheme might help you avoid paying LMI. The federal government introduced these schemes to help first home buyers get into the property market.

The First Home Owners Grant offers borrowers a $10,000 one-off payment towards the property’s purchase price. This might help first home buyers to qualify for a home loan without LMI or at least reduce the amount you pay on LMI home loans.

The First Home Loan Deposit Scheme specifically targets LMI home loans. If first home buyers don’t have a 20% deposit, this grants eligible borrowers to purchase property with a 5% deposit without incurring LMI on the home loan. It’s not a cash payment or deposit towards the home. However, it’s worth noting that there are a limited number of places on the First Home Loan Scheme.

Additionally, there are specific eligibility criteria to follow

Maximum loan amount
It cannot use for an investment property

Borrowers who have Guarantors

Another way to avoid paying LMI is to get yourself a guarantor. If your parents or another family member already own their own home, you could ask them to be guarantors of your home loan. In this instance, the lender will use the equity of your parents’ home as security. If you already own another house, you can use the equity on your old house as a deposit when you buy property. With a guarantor, you use their home equity.

For example, if your savings make up 15% of the deposit on your home loan, then your guarantor will only need to pledge 5%. The lender will waive the LMI entirely. Guarantor loans are worth considering if you’re unsure whether your financial situation will mean you have to pay LMI.

Benefit of LMI Waivers

The LMI waiver for professionals helps borrowers buy property without a significant deposit. As LMI waivers are offered to high pay-off customers, they’re low risk for the lender. So, professional athletes, chief financial officers, and quantity surveyors should all apply for an LMI waiver to improve their financial situation. Additionally, the LMI waiver benefits lenders too by attracting a lower-risk home buyer.

Why don’t all professionals qualify for LMI Waivers?

The list of preferred professionals is eligible for an LMI waiver because they are high-income earners. Lenders view your financial situation as strong. You can borrow a large sum of money and make payments on time. The risk of defaulting on your payment is low.

Moreover, high-income earners often move in circles of other high earners. The lenders hope a positive experience will ensure borrowers recommend their services to other co-workers.

The professionals who don’t qualify for LMI waivers typically don’t earn enough income. Plus, the lender still looks at your credit score. Even if you earn more than $150,000, if you have a history of making late payments, then you might not be able to access LMI waivers.

What if I don’t qualify for LMI Waivers?

If you’re not on the list of preferred professionals or don’t earn enough income, then you may be stuck with LMI. Fortunately, there are other ways you can avoid LMI.

Firstly, consider finding a less expensive property. If you cannot manage a 20% deposit on a $500,000 house, consider looking at different areas. Look for cheaper Sydney suburbs with high capital growth. If you’re buying an investment property, make sure you seek investment advice about high-yield areas.

Secondly, you could wait a bit longer before applying for your home loan. If it’s a matter of waiting an extra year to save enough for the 20% deposit, then it might be worth it to avoid the hefty cost of LMI.

Finally, remember that with a guarantor, you might save yourself plenty of money and get away with a smaller deposit.

How to apply for the LMI Waiver

To apply for LMI waivers, it’s best to consult a mortgage broker. Mortgage brokers can guide you through the home loan process. With years of experience in the industry, brokers know lending policies like the back of their hands.

How a Mortgage Broker can help you

A Sydney mortgage broker can do more than help you apply for LMI waivers. Shopping for a home loan is an exhausting, time-consuming process. A mortgage broker will do the hard work for you. With a panel of lenders at their side, they’ll know exactly who to recommend for your financial situation.

Moreover, they’ll help you present your application in the best possible light. For example, if you have a poor credit score, they will highlight the more substantial aspects of your situation to appeal to the lender. Plus, a broker’s negotiation tactics might save you thousands in interest.

Often, mortgage brokers advertise that they can get you excellent interest rates with their panel of lenders. Well, on top of this, brokers are also in the best place to negotiate rates and additional home loan features. An offset account or redraw feature could help you repay your home loan faster.

Final Thoughts

The above criteria don’t apply to every lender. There are no blanket rules that say all doctors must receive LMI waivers. The mining industry, for example, is particularly contentious among lenders. However, with a mortgage broker at your side, you’ll be in the best place to negotiate to pay LMI. You could save thousands on your mortgage.

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FAQs

Can you get LMI waived?

Certain professionals qualify for LMI waivers on their home loans. Most lenders will require you to have a minimum yearly income of $150,000 and a maximum loan amount of $2 million. Avoiding paying LMI could save you thousands on your home loan.

Who qualifies for LMI Waiver?

Medical, legal, accounting, sporting, entertainment, and mining industry professionals might all qualify for an LMI waiver. First home buyers can avoid paying LMI with the First Home Loan Deposit Scheme.

Do I have to pay back the First Home Loan Deposit Scheme?

The government acts as a guarantor for up to 15% of the home loan deposit. As it is not a cash payment, you won’t need to repay this sum.

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