Best Home Loans

On the Market? The Federal Government’s First Home Loan Deposit Scheme Explained.

Tue, 18 Feb 2020 02:12:00 GMT

The barriers a first home buyer faces when entering the property market are well documented. So, will the government’s new First Home Loan Deposit Scheme (FHLDS) help, or not? Here’s a guide to who’s eligible, how it will work and what the new scheme may mean for the housing market.

Have you got a spare $228,442.40? That’s the 20 per cent deposit needed for a property at Sydney’s median house price of $1,142,212. Aspiring home buyers have been repeatedly told to save for a deposit at that ratio. The FHLDS announced before the 2019 federal election, is intended to lower the required deposit for a first home and make it easier to enter the market.

How does it work?

Under the scheme, which launched in January, first home buyers may be eligible for a loan with a 5 per cent deposit. The government then lends the remaining 15 per cent, removing the need for lender’s mortgage insurance. The purchaser repays the 95 per cent remaining back to the bank, with interest, over the term of the loan, and the government acts as a guarantor, similar to parental or family guarantees, which currently exist.

Let’s take a home priced at $700,000, which is also the maximum value of property eligible for the scheme. The standard 20 per cent deposit would be $140,000. Under the FHLDS, that deposit becomes $35,000. That means it would take less time to save for your property, and make it much cheaper to kickstart the buying process.

“The annual cap of 10,000 amounts to less than one-tenth of the number of successful first home buyers in 2018, so places will be scarce.”

Who is a “first home buyer”?

A first home buyer under the scheme can’t have previously owned or had an interest in a residential property, either separately or jointly with someone else. Also, for the FHLDS to apply, individual applicants cannot have earned over $125,000 in the last financial year. Married or de facto couples applying together can’t have earned more than $200,000.

Under the scheme, the definition of a first home extends beyond existing homes. It includes townhouses and apartments, house and land packages, off the plan apartments, and land bought with a separate contract to build a home. You also must intend to move into and live in the property as your principal place of residence.

What limits apply to the scheme?

The FHLDS is limited to 10,000 loans per year. The first 3,000 places were made available in January 2020, with the remaining 7,000 made available from 1 February. Another 10,000 spots will be available from 1 July for the next financial year. The annual cap of 10,000 amounts to less than one-tenth of the number of successful first home buyers in 2018, so places will be scarce.

27 lenders are participating, including two of the big four banks: NAB and Commonwealth Bank. Once the loan is approved, you have a period of 90 days to purchase your property.

In each city and area, the prices of homes that can be guaranteed are capped at what is considered a “modest” price for a home. For the capital cities, the caps are:

$700,000 in Sydney
$600,000 in Melbourne
$475,000 in Queensland
$400,000 in Western Australia
$400,000 in Adelaide
$500,000 in Australian Capital Territory
$375,000 in Northern Territory
$400,000 in Hobart

Are there other government options available?

The states have individual grants for first home buyers, generally for between $10,000 and $15,000. However, they almost all require the property to be either new or ‘substantially renovated.’ Each is different, so it’s best to check the provisions in your state .

Some states also have stamp duty concessions for first home buyers. For example, first home buyers in NSW don’t pay stamp duty on new and existing homes valued at up to $650,000 and have a reduced stamp duty for houses up to $800,000.

The First Home Super Saver Scheme is another federal scheme. It allows you to save money for your first home using your super fund so that your savings are taxed at the lower rate for superannuation. You can withdraw up to $15,000 of your voluntary super contributions in any one financial year, up to a total of $30,000.

Have first home buyer schemes been used before?

Previous Australian governments have tried similar measures in the past to help first home buyers access the market. In 2000, the Howard government introduced the First Home Owners Grant – a $7,000 once-off payment. It was doubled to $14,000 for new homes by the Rudd government during the 2008-09 Global Financial Crisis, to stimulate the housing industry. Those grants were subsequently halved and then ended in 2010.

Do they work?

The jury is out on whether measures like the FHLDS help first home buyers enter the market or simply drive house prices upward negating that very help. Some experts say such schemes can help the construction industry but also can create a property “mini-bubble” as they can drive up prices at the lower end of the market, as occurred in 2008/9. This could happen again, as first home buyers compete for properties under the scheme’s caps for each major city.

However, house prices have been increasing recently as the market rebounds due to lower interest rates combined with the continuation of negative gearing and capital gains tax concessions following the Coalition election win. In this environment, any price rises attributable to the FHLDS may be minimal in relation to the wider market.

While the FHLDS allows first home buyers to enter the market sooner, the lower deposit means that buyers will be borrowing more and therefore paying more interest. There is also no guarantee that property prices will continue to rise, and a dramatic fall in house prices could lead to negative equity.

Top Ways To Cut Your Expenses And Increase Your Savings

Mon, 08 Apr 2019 03:21:00 GMT

Is the key to saving a home deposit as simple as giving up smashed avo toast for breakfast? Well not quite, but spending less does make a difference.

On top of a budget, a savings plan and strategies such as a high-interest savings account, an effective way to save is to reduce or eliminate expenses.

Start by understanding your spend

It can be easy to lose track of how you’re spending money, especially due to cashless payments and credit cards.

Many online banking systems include tools to categorise debits and make a budget – take advantage of them. Or, download an app that helps you track your personal expenses on the go, like ASIC’s TrackMySPEND .

Find savings in the essentials

Some costs can’t be avoided – but many everyday expenses can be reduced. For example you could:

Move in with your parents/relatives, or move into a cheaper rental or share house (short-term discomfort can pay off in the long term).
Implement tactics like meal planning, making grocery lists and buying in bulk to save money on food. Set aside a budget for eating out/take-away and stick to it.
Shop around to reduce your regular bills – you may get better value if you switch, or tell current providers you intend to switch. Seek discounts for taking out multiple policies with one insurer.
Use the car less: take public transport; carpool with colleagues; or try walking or riding. You’ll be amazed at how quickly it all adds up to savings.

Make sure you’re paying off debts or credit cards completely each month or as much as possible, to avoid the added expense of paying interest.

Reduce common overspending

If you spend excessively on things like buying clothes, going out or expensive hobbies, it may be unrealistic to cut the expense entirely. Set a weekly or monthly limit and reduce that limit over time.

A survey of more than 1000 Australians showed that 73 per cent have a problem with overspending . In particular, people tend to go overboard Christmas rolls around.

To reduce gift expenses, be like Santa: make a list (and a budget). Buy only planned items within your allocated budget – then stop! Ask your family for support; it’s easier to put a cap on gift values if everyone else does too.

Another common way Aussies overspend is on holidays. CommBank research has shown that a third of holidaymakers spent more on their trip than planned. Do your research and set a daily budget.

Costs that could be eliminated

Look for opportunities to eliminate costs. Cancel unused services. Update your internet or mobile plans if you’re always paying for excess data.

Ask yourself: are you really using that gym membership? Are you getting value from your subscriptions? Remember, every wasted dollar is money you could be spending on your own home.

What Type Of Loan Is Right For You?

Tue, 29 Jan 2019 03:55:00 GMT

The array of mortgages available helps a good credit adviser to tailor a package to suit your needs. Here are just some of the options.

Fixed-rate mortgages

With a fixed-rate loan, you know exactly how much you’ll pay per month for the fixed period of the loan (usually one to five years).

Variable rate mortgages

Repayments can change during the life of a variable-rate loan, so you may pay more or less as interest rates rise or fall. If you’re fairly sure that rates are set to fall, this is a good option.

Principal and interest mortgages

In this mortgage, you are paying the amount lent to you plus the interest.

Interest-only mortgages

With interest-only, you are paying just the interest on the loan – you are not paying off any of the original principal.

Split home loan (fixed and variable)

You can choose to have part of your loan at a fixed rate and the other part can be at a variable interest rate. If rates do fall, the interest will go down on the variable part of your loan, but you aren’t taking as big a risk should rates rise.

Redraw facility

If you have a variable-rate loan and you make extra repayments, then you can withdraw that additional money when you need to (you can’t do this on fixed-rate loans).

Land loan

A land loan lets you buy a block of land without the pressure to build on it as soon as possible. Land loans are usually variable interest for up to 30 years.

Construction loan

For buying land, building or renovating your home, a 12-month construction loan can be the best way to go. Usually, up to 90 per cent of the property value can be borrowed.

Non-PAYG loans

For self-employed people, a home loan can still be arranged using differing supporting documentation that shows your ability to service a loan and might include BAS and bank statements. You self-certify your income, which will need verification. You may be able to borrow up to 80 per cent of the property’s value.

Equity release

This loan type allows you to convert a portion of your residential property ‘asset’ into cash or an income stream while still allowing you to continue to live in your home.

The best person to help you tailor a loan to your needs is an MFAA accredited adviser. Call Best Home Loans today to arrange a no-obligation, free consultation.

Seven Tips For Securing A Business Loan

Wed, 16 Jan 2019 06:52:00 GMT

Securing a business loan in Australia isn’t necessarily difficult but knowing how to navigate your way can be the difference between success and failure.

Banks and other financial institutions offer a wide range of business finance options, from commercial property loans, commercial vehicle leases, and commercial and equipment leases, to simpler options such as letters of credit, overdrafts and lines of credit. Here are some tips on how to improve your chances of success.

1. Work out what is realistic

It’s a good idea to find and compare credit options based on the amount of money you need to borrow, how you want it supplied and the type of security you want to provide (residential, non-residential or none at all).

2. Find a Finance Broker

The next step is to speak to an MFAA accredited finance broker at Best Home Loans, who can help you work out what loan type and lender are appropriate for your business and you. Finance brokers work with clients to determine their borrowing needs and abilities, select a loan suited to their circumstances and manage the process through to settlement. They also do a lot of the legal and other paperwork, they have access to a wide range of loans and are experts in the area.

3. Have a credit history and make it good

Lenders are looking for two things when it comes to your credit status: an existing credit relationship and a relatively clear history. If a borrower already has an existing loan which they’re servicing on time, they are much more likely to be successful. Of course, there are options for those who are either credit impaired or just don’t have a documented credit history, and a finance broker can help clarify these.

4. Actively show how risk will be minimised

Demonstrate how you will lessen the risk to you and to the lender. Your finance broker can help.

5. Be prepared

For your first meeting with your finance broker, have up-to-date paperwork and tax records, make sure you’ve done your research and have a fair idea how much you want to borrow and how you plan to spend it. You should also know your total worth, listing your assets and liabilities.

6. Have a plan

Lenders like to see a business plan that shows that you know what you want to achieve and have a clear idea of how you can achieve it.

7. Provide more than one exit strategy

Lenders want to know how they’re going to get their money back and some want up to three scenarios for what is called the ‘exit strategy’.

To give your business a good chance of success, talk to an MFAA accredited finance broker at Best Home Loans today about finding the right commercial financing options for you.

First Meeting With A Broker

Fri, 14 Dec 2018 04:20:00 GMT

If you’re looking for a home loan but are inexperienced with finance brokers, attending your first appointment with a broker can be a nervous experience. Getting a home loan, after all, can be quite complex for a first-timer. There are lots of brokers around and there is a lot to learn. But there are many steps you can take to be confident that your appointment will be a success.

A good starting point is to familiarise yourself with the expectations of the first appointment between brokers and yourself. Your brokeris very likely to ask you about your medium and long-term financial goals, the amount you want to borrow, comparisons of your home loan options and your understanding of the fees, costs and conditions attached to home loans. Knowing the direction the appointment will likely take lets you participate more actively in the conversation. This means you can better articulate your needs to your broker.

It’s also recommended that you give some consideration before the meeting to the types of questions you wish to ask your broker.Questions that can be of use include such things as loan types (such as term,repayment options and interest rate types), the types of ongoing fees attached to various loans (such as early exit, late payment, break and redraw fees) andthe typical timeframe for a loan settlement.

These questions might pop into your head spontaneously during the meeting but preparing them in advance is a good way to refine them.By doing so, you are in a position to get more specific information from your broker.

It is common practice, too, for your broker to conduct a needs assessment prior to your face-to-face appointment – so you may be asked some pre-appointment questions. To assist in answering these, you’ll need to supply information about your employment history, assets and expenses.

At the appointment it will save you time and effort to prepare and then bring the required documentation with you. This can include ID, transaction histories, tax returns, rental income statements and borrowing documents such as “contract of sale” and proof that you have the deposit for a property. It’s mandatory for brokers to maintain the confidentiality of information that you provide to them and only pass on information necessary to enable them to lodge your loan application or where required by law.

The other preparation you can make to maximise the success of your appointment is to research your broker. Many brokers provide content on their web pages and social media. This can give you a good indication of their knowledge and expertise and highlight topics to discuss with them. You can also determine if they specialise in any types of loans that match your needs, where they are located and their panel of lenders. Finally, you should investigate their qualifications. Although brokers are only required to obtain Certificate 4 qualifications, it could be argued that the better brokers hold Diploma qualifications. Finding a diploma-qualified broker will help ensure you receive the best credit advice.

Brokers can also be accredited, with accredited brokers held to higher standards. By verifying they are accredited, you can approach the meeting knowing your broker is appropriately educated, adheres to a strict and professional code of practice and is authorised to access a large range of products offered by a variety of lenders.

Published by MFAA

How To Pay Off Your Home Loan Faster

Tue, 11 Dec 2018 01:55:00 GMT

How to pay off your home loan faster and save big bucks

Reducing the life of your loan isn’t difficult; there are many simple things you can do to cut years off your mortgage. Here are some tips that will help you be mortgage-free sooner than planned.

Small extra repayments

One of the most obvious ways to pay off your home loan quicker is to make extra repayments. Depositing lump sums, such as a tax return or work bonus, will always be beneficial, however it doesn’t always take large amounts or windfalls to make a substantial difference – planning for regular, small cash injections can have a great impact over the life of a loan.

“Let’s say we give an extra $50 a fortnight on a $500,000 loan, that saves you $32,000 of interest over the life of the loan which in turn will save you just over two years,” explains the finance broker. “That’s only $25 a week.”

Switch your payment intervals

If you find that you don’t have the discipline to make extra repayments, then simply switching your payment structure can also help save years off your mortgage, as well as simplifying your finances if you are paid fortnightly.

“Because there are 12 months in a year but 13 four-week cycles, by switching your payment intervals from monthly to fortnightly, you are essentially paying off an extra month per year,” says the finance broker.

Make sure you have the right type of loan

Ensuring your loan allows extra repayments without penalty will let you to make the most of bonuses or funnel small extra payments to reduce the loan principle more quickly, saving on interest immediately, while an offset account will use your savings or living expenses to reduce your principle, while still allowing you to access these funds from a transaction account.

“I’ve set the mortgage on my investment as interest-only but I make the principle and interest payment equivalent by putting surplus rental income into an offset account,” says the finance broker. “Because interest is calculated daily but charged monthly, any money sitting in the account will help reduce the loan.”

Although you may have to pay extra fees for the offset or redraw account, these may well be lower amounts than the interest saved. Talking to a finance broker is the easiest way to work out whether this option is financially sound.

Paying off your home loan faster isn’t difficult, however it does require financial discipline and expertise in ensuring the right loan features are in place. Find an MFAA Accredited Broker who can match you to your perfect loan.

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