1st And 2nd Mortgage Refinance Loan – Why Refinance Both Mortgages?

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Refinance

The hassle of making two monthly mortgage payments has prompted many homeowners to consider refinancing their 1st and 2nd mortgages into one loan. While combining both loans into one mortgage is convenient, and may save you money, homeowners should carefully weigh the risks and advantages before choosing to refinance their mortgages.

Benefits Associated with Combining 1st and 2nd Mortgages, aside from consolidating your mortgages and making one monthly payment.

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The hassle of making two monthly mortgage payments has prompted many homeowners to consider refinancing their 1st and 2nd mortgages into one loan. While combining both loans into one mortgage is convenient, and may save you money, homeowners should carefully weigh the risks and advantages before choosing to refinance their mortgages.

Benefits Associated with Combining 1st and 2nd Mortgages.

Aside from consolidating your mortgages and making one monthly payment, a mortgage consolidation may lower your monthly payments to mortgage lenders. If you acquired your 1st or 2nd mortgage before home loan rates began to decline, you are likely paying an interest rate that is at least two points above current market rates. If so, a refinancing will greatly benefit you. By refinancing both mortgages with a low-interest rate, you may save hundreds on your monthly mortgage payment.

Furthermore, if you accepted a 1st and 2nd mortgage with an adjustable mortgage rate, refinancing both loans at a fixed rate may benefit you in the long run. Even if your current rates are low, these rates are not guaranteed to remain low. As market trends fluctuated, your adjustable-rate mortgages are free to rise. Higher mortgage rates will cause your mortgage payment to climb considerably. Refinancing both mortgages with a fixed rate will ensure that your mortgage remains predictable.

Disadvantages to Refinancing 1st and 2nd Mortgage

Before choosing to refinance your mortgages, it is imperative to consider the drawbacks of combining both mortgages. To begin, refinancing a mortgage involves the same procedures as applying for the initial mortgage. Thus, you are required to pay closing costs and fees. In this case, refinancing is best for those who plan to live in their homes for a long time.

If your credit score has dropped considerably within recent years, lenders may not approve you for a low rate refinancing. By refinancing and consolidating both mortgages, be prepared to pay a higher interest rate. Before accepting an offer, carefully compare the savings.

Moreover, refinancing your two mortgages may result in you paying private mortgage insurance (PMI). PMI is required for home loans with less than 20% equity. To avoid paying private mortgage insurance, homeowners may consider refinancing both mortgages separately, as opposed to consolidating both mortgage loans.

Re-Financing To Consolidate Debts

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Some homeowners opt to re-finance to consolidate their existing debts. With this type of option, the homeowner can consolidate higher interest debts such as credit card debts under a lower interest home loan. The interest rates associated with home loans are traditionally lower than the rates associated with credit cards by a considerable amount. Deciding whether or not to re-finance for the purpose of debt consolidation can be a rather tricky issue. There are a number of complex factors which enter into the equation including the amount of existing debt, the difference in interest rates as well as the difference in loan terms and the current financial situation of the homeowner.

What is Debt Consolidation?

The term debt consolidation can be somewhat confusing because the term itself is somewhat deceptive. When a homeowner re-finances his home for the purpose of debt consolidation, he is not actually consolidating the debt in the true sense of the word. By definition to consolidate means to unite or to combine into one system. However, this is not what actually happens when debts are consolidated. The existing debts are actually repaid by the debt consolidation loan. Although the total amount of debt remains constant the individual debts are repaid by the new loan.

Prior to the debt consolidation the homeowner may have been repaying a monthly debt to one or more credit card companies, an auto lender, a student loan lender or any number of other lenders but now the homeowner is repaying one debt to the mortgage lender who provided the debt consolidation loan. This new loan will be subject to the applicable loan terms including interest rates and repayment period. Any terms associated with the individual loans are no longer valid as each of these loans has been repaid in full.

Are You Paying More in the Long Run?

When considering debt consolidation it is important to determine whether lower monthly payments or an overall increase in savings is being sought. This is an important consideration because while debt consolidation can lead to lower monthly payments when a lower interest mortgage is obtained to repay higher interest debts there is not always an overall cost savings. This is because interest rate alone does not determine the amount which will be paid in interest. The amount of debt and the loan term, or length of the loan, figure prominently into the equation as well.

As an example consider a debt with a relatively short loan term of five years and an interest only slightly higher than the rate associated with the debt consolidation loan. In this case, if the term of the debt consolidation loan, is 30 years the repayment of the original loan would be stretched out over the course of 30 years at an interest rate which is only slightly lower than the original rate. In this case it is clear the homeowner might end up paying more in the long run. However, the monthly payments will probably be drastically reduced. This type of decision forces the homeowner to decide whether an overall savings or lower monthly payments is more important.

Does Re-Financing Improve Your Financial Situation?

Homeowners who are considering re-financing for the purpose of debt consolidation should carefully consider whether or not their financial situation will be improved by re-financing. This is important because some homeowners may opt to re-finance because it increases their monthly cash flow even if it does not result in an overall cost savings. There are many mortgage calculators available on the Internet which can be used for purposes such as determining whether or not monthly cash flow will increase. Using these calculators and consulting with industry experts will help the homeowner to make a well informed decision.

Is it Beneficial To Re-Finance Your Home Loan?

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This is a question many homeowners may have when they are considering re-financing their home. Unfortunately the answer to this question is a rather complex one and the answer is not always the same. There are some standard situations where a homeowner might investigate the possibility of re-financing. These situations include when interest rates drop, when the homeowner’s credit score improves and when the homeowner has a significant change in their financial situation. While a re-finance may not necessarily be warranted in all of these situations, it is certainly worth at least investigating.

Drops in the Interest Rate

Drops in interest rates often send homeowners scrambling to re-finance. However the homeowner should carefully consider the rate drop before making the decision to re-finance. It is important to note that a homeowner pays closing costs each time they re-finance. These closings costs may include application fees, origination fees, appraisal fees and a variety of other costs and may add up quite quickly. Due to this fee, each homeowner should carefully evaluate their financial situation to determine whether or not the re-financing will be worthwhile. In general the closing fees should not exceed the overall savings and the amount of time the homeowner is required to retain the property to recoup these costs should not be longer than the homeowner plans to retain the property.

Credit Score Improvements

When the homeowner’s credit scores improve, considering re-financing is warranted. Lenders are in the business of making money and are more likely to offer favorable rates to those with good credit than they are to offer these rates to those with poor credit. As a result those with poor credit are likely to be offered terms such as high interest rates or adjustable rate mortgages. Homeowners who are dealing with these circumstances may investigate re-financing as their credit improves. The good thing about credit scores is mistakes and blemishes are eventually erased from the record. As a result, homeowners who make an honest effort to repair their credit by making payments in a timely fashion may find themselves in a position of improved credit in the future.

When credit scores are higher, lenders are willing to offer lower interest rates. For this reason homeowners should consider the option or re-financing when their credit score begins to show marked improvement. During this process the homeowner can determine whether or not re-financing under these conditions is worthwhile.

Changed Financial Situations

Homeowners should also consider re-financing when there is a considerable change in their financial situation. This may include a large raise as well as the loss of a job or a change in careers resulting in a considerable loss of pay. In either case, re-financing may be a viable solution. Homeowners who are making considerably more money might consider re-financing to pay off their debts earlier. Conversely, those who find themselves unable to fulfil their monthly financial obligations might turn to re-financing as a way of extending the debt which will lower the monthly payments. This may result in the homeowner paying more money in the long run because they are stretching their debt over a longer pay period but it might be necessary in times of need. In these cases a lower monthly payment may be worth paying more in the long run.

It is also wise to talk to a financial consultant or even finance broker.  We offer no obligation consultation and we located in Kenwick.

How your shopping habits could hurt your chances of securing a mortgage

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Are stricter rules slowing down home-loan approvals?

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Banks’ more stringent credit checks seem to be affecting the way they approve new home loans, two of the biggest Australian lenders say.

In a Reuters report, NAB interim CEO Philip Chronican said the stricter lending rules are affecting loan approvals and are inhibiting loan growth.

“Most borrowers who previously would have qualified for a home loan continue to qualify for a home loan,” he said before the House of Representatives Economics Committee in Canberra.

However, he said potential borrowers now have to verify up to 13 claims about their spending.

“However, the documentary requirements that are now being asked of our frontline bankers are such that it slows the process down and as a result, we are lending less in home lending that we might otherwise be able to,” he said.

NAB chief financial officer Gary Lennon shared the same insight, adding that while home-loan approval rates remain unchanged, the number of applications numbers have significantly gone down “as a result of the difficulty getting all the information together.”

Speaking at the same hearing, ANZ chief executive Shayne Elliott said the banks are still willing to lend despite the greater focus on responsible lending.

“Let me assure you that ANZ is ready to lend, especially for housing and small businesses. After a period of perhaps being too cautious, ANZ is easing back towards a sensible equilibrium,” he said.

However, Elliot noted that the debate on responsible lending has led to banks becoming more conservative in approving home loans.

“As a result of that, Australians … some, not all, will find it a little bit harder to either get credit or get the amount of credit that they would have otherwise had in the past or would like, and I’m not suggesting for a minute that’s wrong, it’s just the reality,” he said.

We are brokers located in Kenwick, WA.  Please visit us at www.championbroker.com.au for a non obligated appointment.

NAB scraps home-loan referral perks

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After facing public backlash due to the controversies revealed by the royal commission, the National Australian Bank announced that it would discontinue its home-loan referral scheme to rebuild its reputation and regain the trust of borrowers.

In a statement, NAB’s acting chief executive, Phil Chronican, said NAB will no longer pay commissions to members of the public who refer new home-loan clients to the bank.

“Like other businesses, we will still welcome referrals and will continue to build strong relationships with business and community partners,” he said.

NAB’s referral scheme, also known as the Introducer Program, involved payment of a spotter’s fee to people who successfully referred fresh home-loan borrowers to the bank. According to a report in The Sydney Morning Herald, NAB paid roughly $100m in referral payments between 2013 and 2016, providing introducers with commissions of 0.4% of the loans.

During its investigation, the royal commission found that many of the introducers were real estate agents, lawyers, and sports club members. One of the many red flags the investigation uncovered was the commission paid to a gym owner whose profession was not qualified for the program.

The commission also discovered the alleged involvement of some NAB introducers in a bribery ring in Western Sydney.

In response to these findings, NAB initially pledged to bolster its introducer program, creating regulations which would make qualifications for an introducer more stringent. This initial response was in line with Commissioner Kenneth Hayne’s suggestion, which was to improve the regulation of introducer schemes.

“Introducers must only act within the confines of their prescribed role. Entities must have systems in place to ensure that introducers do not exceed this role. And entities should not regard the role of the introducer as modifying their own responsible lending obligations,” he said.

However, Chronican said the bank’s decision to ultimately scrap the scheme is fitting to meet community expectations.

“We want customers to have the confidence to come to NAB because of the products and services we provide – not because a third party received a payment to recommend us,” he said.

Patrick Veyret, policy and campaigns adviser of consumer advocacy group Choice, told the Herald that commission-based schemes would only be detrimental to the industry and to the community it serves.

“As we’ve seen across the industry, percentage-based commissions create conflicts of interest, where advisers, such as introducers, are incentivised to recommend larger and less affordable home loans to maximise their own pay cheques,” he said.

 

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Property Investment In Australia For The Beginners

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Property investment can be so complicated. It can be really difficult for beginners to know where to start.  Here are 10 tips for property  investment in Australia for beginners.

1. Knowing How To Make Money

It is a good ideas to actually sit down and learn how people make money in property.

Generally no matter what strategy people are using there are 3 different ways they make money.

  1. Growth in the asset itself which is called capital gains.
  2. Passive income which comes from the rental income being more than the expenses we call it positive cash flow
  3. Tax benefits such as depreciation and things like that can help offset the tax that you have to pay in your employment or  whatever income you derive to for yourself.

2. Set Your Financial Goals

Before one actually go out and start looking at investing in property it’s a good idea to actually sit down and set some financial goals.

Understand what you want your life to be like and where you want to go.

For me my financial goal is $60,000 a year in passive income. The reason I set that goal was that $60,000 a year is not a lot of money but it’s enough that we can live off without someone having to work and we can get by on that.

I plan that once we hit that $60,000 to continue forward but the first goal is definitely $60,000.

Even if it takes me 20 years (I am now 26) I’ll be 46 that’s still 19 years before most people retire. It’s a great idea to set a time frame of five years or ten years or twenty years whatever it might be because that will then help you choose the right investment strategy for you.

3. Choose An Investment Strategy Before You Begin

Choose your investment strategy.

I think it is good to collect a bunch of different strategies, learn about a bunch different strategies and then think about your financial goal what you want to achieve. Then choose the strategy that suits you and your goals before you even go out and look at properties.

4. Be Aware of Salesmen

If you are looking to do a property investment in Australia and you are beginner then chances are you are going to stumble upon some companies that can offer you “investment advice”.

If someone is talking to you and wanting to be an advisor for you but you need to purchase property through them and its all new built property well they are actually going to be making some pretty hefty commissions on top of that which is coming out of your pocket.

What all this means is often beginners get sucked into buying new build properties that are overpriced for the area and they have to wait for years for the market to catch up with them. So be aware of salesmen and again that comes back to knowing the different strategies.

5. Deciding On Your Investment Strategy

It is all about finding a winning formula that works for you and then milking it for all it’s worth. The sooner you can find (and decide on) that winning strategy the better.

6. Go And See a Mortgage Broker

Seek a mortgage broker before you even start looking at property is that a mortgage broker will give you an idea of how much you can actually borrow and kind of deposit you need to save realistically in order to buy a property.

So a mortgage broker will help you understand how much you can borrow and how much you need to save so that you can have a goal to move towards.

7. Do Your Recon (Suburb Analysis)

Learn how to research an area and look at a few different areas such as Kenwick WA and research them.

  • What is the population like? Is it growing or declining?
  • What are the economics of the area is there any gentrification going on in the area where richer people are moving in and thus improving a suburb?

Doing this research and understanding suburb dynamics and how suburbs grow can help you to choose a suburb that is primed for growth and increase your chances of getting a great return on investment.

8. Play Make-Believe

Do a cash flow analysis on the property. Do that recon work into the suburbs. Look for value-added opportunities. All these sort of stuff and work out whether this property in Kenwick WA is actually going to deliver a return on investment or not.

9. After Researching Get Pre-Approval

Before you go and make an offer on a property get pre-approval from your mortgage broker. What this means is that you have approval based on the valuation of the property.

This means that when you do find a property and you do make an offer, the time period from making your offer to getting your loan fully approved is so much smaller. It’s a really great thing to do.

10. Start Making Offers

Make offers on properties that are not necessarily going to buy. Learn to play the game. This will boost your confidence in negotiating skill.

 

 

 

How To Buy Without 20% Deposit?

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When you consider that a small flat in Sydney could set you back half a million dollars at the moment, saving a 20% deposit to buy that flat – $100,000 – can seem an insurmountable task. That’s where insurance can help.

Lenders mortgage insurance (LMI) may be an added expense, but it offers buyers the opportunity to dive into the property market earlier, without saving up an entire 20 per cent of the property’s purchase price as a deposit.

 

 What is it?

LMI protects the bank or lender, should a home loan go into default, guaranteeing that the lender will get its money back if the property needs to be sold and there is a shortfall in repaying the loan.

While a 20% deposit generally provides a good buffer against any drops in property value over the life of a loan, LMI can also provide the same protection, meaning borrowers can purchase property with a smaller deposit.

 

What’s in it for you?

For the borrower, it may seem LMI it is just another expense to cover. But insurance can mean that some buyers will be able to enter the property market with, for example, only a five per cent deposit saved. In the example above, a $500,000 property, this brings the deposit down from $100,000 to just $25,000.

 

And, if the market is hot and prices are rising rapidly, paying LMI so that you can buy now could be cheaper than taking the time to save a bigger deposit. In the time it takes to save a higher deposit amount, property prices may well have surged by more than cost of the insurance so, for some properties and purchasers, it can make good financial sense to purchase earlier even with the added cost of LMI, especially when you consider the rent that you would pay while you’re saving.

 

What you need to know

The insurance premium is generally a one-off payment, but you may be able to roll it into the loan amount so that you are paying for it month-by-month along with your mortgage.

There can be a big difference between premiums paid if you have, for example, a 10 per cent deposit saved compared with a five per cent deposit, so it may well be worth trying to gather together some extra funds, even if you despair of reaching the full 20 per cent.

An MFAA-accredited finance broker is an expert on the industry and the credit market. Investigating your options and working out whether to buy now or save extra deposit is a decision that a good finance broker can help you with. Find an MFAA-accredit finance broker here, and look for the ‘MFAA accredited’ sign on your finance broker’s door.

 

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How To Avoid Loan Default

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Late payments and loan defaults leave marks on a credit history that can complicate any effort to refinance or secure a loan in the future. Default can also lead to a home being repossessed and sold by the lender, so it’s very important to act quickly to avoid it.

While late bill payments and a loan in arrears can impact your credit report and lead to difficulty securing finance in the future, the worst case scenario is repossession of a property.

In the past, lenders may have taken months to start the proceedings that lead to repossession. However, according to the Financial Rights Legal Centre (FRLC), this is not the case anymore.

“Lenders work to a timetable to begin court proceedings and this can be very difficult to stop once this process has started,” the FRLC explains in its Mortgage Stress Fact Sheet.

Once a mortgagee has defaulted on a loan by failing to make repayments as agreed, they can be sent a Default Notice, which gives them 30 days to catch up on the repayments that are in arrears, as well as continuing to make any repayments that are due in the 30-day period.

“This notice will include an acceleration clause,” the FRLC explains. “This means that if the arrears are still outstanding after the 30 days has lapsed, the entire loan becomes payable.”

Thirty days after the Default Notice, the lender can take vacant possession of a property that is not occupied, or seek a court order for possession of a property that is occupied.

The key to avoiding this substantial trouble is, of course, to keep making repayments. From time to time, circumstances such as unexpected job loss or illness will impact a mortgagee’s ability to make payments and, when this happens, the key is to act quickly, as there are more options before a Default Notice is served than there are after.

“Don’t be scared,” advises the FRLC. “Lenders make repayment arrangements all the time.”

Many lenders will negotiate short-term variations to repayment schedules as long as there is a plan to get back on track, and there are circumstances in which lenders are obligated to agree to such arrangements. It is important, however, not to agree to payment terms that cannot be met.

“Make sure you think through your plan as to when you will resume making payments. Do not promise something you are not certain you can achieve or is not realistic,” warns the FRLC. “If you don’t know when things will improve, ask for an initial arrangement to be reviewed at the end of the agreed repayment arrangement.”

One of the advantages of recognising a looming problem before you get behind in repayments is that a finance broker may be able to assist you to pinpoint the source of the problem, as well as identify savings that may be available by refinancing to a lower-rate or lower-fee loan. Once there are clear signs of financial distress, this will become much more difficult.

If you are struggling to make your mortgage repayments, an MFAA Accredited Finance Broker may be able to help you negotiate with your lender or find a more manageable loan.

 

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How to avoid paying too much for a home

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Knowing what a property is worth is central to avoiding paying too much for it.

Set a benchmark

Comparing nearby properties that have sold recently is the best way to assess an acceptable price for the property you are looking at and provides a valuable bargaining tool when you are negotiating with a seller or agent. Make sure the properties are comparable, with a similar land size and number of bedrooms, for example, so you aren’t measuring apples against oranges.

“Your mortgage broker can give you a list of sales in the area and then you can drive around and look online to do a quick comparison. If you can find one or two similar properties then you can be sure of what the property is worth,” advises the finance broker.

Keep in mind current market conditions

The property market is always changing, so doing this research once and sitting on it for a few months will offer little help. Going to open homes and auctions regularly will give you insight into the current state of the market and how much certain properties are going for.

Expand your search

“My number one tip is to look at properties in the suburb next to the one that you want,” says the finance broker. “We find that first-home buyers in particular usually end up buying in the more affordable suburb next door to the one that they first wanted to buy in.”

Don’t exceed your financial capacity

Even if a lender approves you for a particular loan amount, it doesn’t mean you have to accept it – a higher loan amount means higher interest charges over the life of the loan, increasing the total cost of the property purchase, so only ever commit to a loan that you can afford alongside your current income and real expenditure. When calculating figures for the price of a home, ensure you also budget for maintenance and repair costs, as well as any other expertise you may require in the purchasing process.

Bring in the experts

“I would strongly recommend using a buyer’s agent as buying a home is one of the biggest financial decisions of your life and most people go in blind,” says the finance broker. “If cost is a concern, then I would suggest maybe using them only for part of the process that you need help with, such as the negotiation or bidding at an auction.”

Having an MFAA accredited finance broker onside is key to avoid overpaying for finance – they will search out the best loan for you and make sure it is one that you can afford.

 

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