With property prices in Australian cities continuing to rise out of reach for first home buyers and first-time investors, using a guarantor to secure a home loan has become a popular route to entering the property market.
A guarantor is someone who will offer the lender the equity in their own property as additional security for someone else’s home loan. In most instances, this will be a parent assisting an adult child to buy their first home.
1. Beware the risksWhile going guarantor on your son or daughter’s home loan is a wonderful way to help them get into the property market, be aware that there are serious risks attached. Signing that guarantee means that you are legally bound to pay the entire loan off if your family member defaults on the repayments or cannot pay the loan out in full for any other reason.
The repercussions can be severe for the guarantor if the borrower defaults on their loan, including the possibility of having to sell your own home to service or clear the debt.
Before agreeing to go guarantor, you need to be sure your child will be able to service the loan now and well into the future. This is where ALI loan protection insurance steps in. Pending meeting the eligibility requirements, either you, as the guarantor, or your child, as the borrower, can be covered by an ALI Group Loan Protection Plan.
2. Seek independent adviceEven though you are dealing with family, going guarantor should be treated as a business agreement. Before signing, seek legal and financial advice to ensure you fully understand this commitment.
3. Be aware of the effect on your ability to get creditIf, during the life of the loan you have agreed to guarantee, and you are in need of credit, the credit provider will include the guarantor loan as a liability when assessing your application. This may mean you cannot get a loan yourself if and when you may need one.
4. Go co-guarantorTo reduce your risk as a guarantor you do not necessarily need to commit to the entire loan. Some lenders will allow you to go co-guarantor with your child so you only need to guarantee a portion of the loan. For example, if you limit the guaranteed amount to 20 percent of the purchase price of a property this will cover the loan’s deposit and help your child to avoid the additional costs of Lender’s Mortgage Insurance (which applies on loans greater than 80 percent of the value of the property).
5. Know when to seek releaseOnce your child has built up sufficient equity in their property, you can ask to be released as guarantor for the loan. A fee may apply for release, along with the cost for the lender to revalue the property which will remain as the sole security property on the loan.
ALI Group provides one policy with three types of benefits:
Keep in mind that 48% of all ALI Group claims paid in the 2015/16 financial year were for people aged 40 and under. With an ALI Group Loan Protection Plan, you can help ensure you’re not left in a difficult position.
By reducing your risks and protecting yourself and your child with an ALI Group Loan Protection Plan you can be more confident about going ahead with a guarantor loan. While most plans pay the lender, Loan Protection Plan benefits are paid directly to the claimant. This can allow you, or your child, to use the payout for purposes such as covering large debts or urgent medical bills if needed. There are no medicals, flexible payment options and all jobs and hobbies are covered.
Cairns Insurance customers have a new way to chose the best deal with the launch of Cairnshomeinsurance.com.au as comparison website. The site list 4 tier one insurers including Warren Buffets global insurance company Bershire hathaway and was launched by Cairns Mortgage Brokers director Roger Ward.
Mr Ward said the business was a last ditch effort to try to combat the high price Cairns Residents paid for insurance. Clients are able to compare numbers of insurance offering in just minutes. Queensland home owners pay up to 5 times what our southern cousins pay. Competition is the only method we have to drive prices down. The addition of Bershire hathaway is a major step forward for competition and lets hope this gets the major domestic insurers worried. They have been making billions from excessive prices on Queensland Property.
BORROWERS Should Check Their Existing Home Loan Interest Rate !
The latest cash rate is a record low of 1.75 per cent and this has seen both variable and three-year fixed rate deals on owner occupier loans plummet with some below the four per cent mark.
Roger Ward said borrowers should be maximising these ridiculously cheap deals while they last and expects offers to become even cheaper with possibly two more rate cuts this year.
The writing is already on the wall for another rate cut by August, with a third now also on the cards.
This would take Australia’s cash rate to a record 1.25 per cent — a figure few would have predicted, even a month ago.
If these cuts transpire, we’re likely to see rock-bottom home loan interest rates of under 3.5 per cent for some borrowers, while rates under 4 per cent will become the new norm.
If you have an older home loan it is worthwhile checking what interest rate you are on as many banks have not been passing on the full reduction. Roger Ward said.
This rate should be under four per cent.
If you are torn on whether to fix or stick with a variable rate, you have a few options.
You can do a mix of fixed and variable — the split is based on how you feel about whether the market has bottomed or not — or stick with variable,’’ Roger said.
Either way it is worth giving Roger a call on 0413 713 534 to see if you can secure a better deal. This is only worthwhile for loans over 2 years old because the rates Roger has secured for new mortgages are always going to be the best available. Older home loan holders, however could benefit from the lower rates.
Call for a free Home Loan Health Check – 0413 713 534
Investors look to the north as warning bells sound for the Sydney and Melbourne property market. This week Macquarie Bank announced a range of measure to make investor borrowing more expensive and difficult in its updated response to APRA’s need to cool investor demand. Buyers are finding the higher returns for Queensland properties attractive with the bonus of being far away from the risk of the Sydney market.
At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.75 per cent, effective 4 May 2016. This follows information showing inflationary pressures are lower than expected.
The global economy is continuing to grow, though at a slightly lower pace than earlier expected, with forecasts having been revised down a little further recently. While several advanced economies have recorded improved conditions over the past year, conditions have become more difficult for a number of emerging market economies. China's growth rate moderated further in the first part of the year, though recent actions by Chinese policymakers are supporting the near-term outlook.
Commodity prices have firmed noticeably from recent lows, but this follows very substantial declines over the past couple of years. Australia's terms of trade remain much lower than they had been in recent years.
Sentiment in financial markets has improved, after a period of heightened volatility early in the year. However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues. Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.
In Australia, the available information suggests that the economy is continuing to rebalance following the mining investment boom. GDP growth picked up over 2015, particularly in the second half of the year, and the labour market improved. Indications are that growth is continuing in 2016, though probably at a more moderate pace. Labour market indicators have been more mixed of late.
Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.
Monetary policy has been accommodative for quite some time. Low interest rates have been supporting demand and the lower exchange rate overall has helped the traded sector. Credit growth to households continues at a moderate pace, while that to businesses has picked up over the past year or so. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.
In reaching today's decision, the Board took careful note of developments in the housing market, where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate. At present, the potential risks of lower interest rates in this area are less than they were a year ago.
Taking all these considerations into account, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.
At its meeting today, the Board decided to leave the cash rate unchanged at 2.0 per cent.
Recent information suggests that the global economy is continuing to grow, though at a slightly lower pace than earlier expected. While several advanced economies have recorded improved growth over the past year, conditions have become more difficult for a number of emerging market economies. China's growth rate has continued to moderate.
Commodity prices have generally increased a little recently, but this follows very substantial declines over the past couple of years. Australia's terms of trade remain much lower than they had been in recent years.
Sentiment in financial markets has improved recently after a period of heightened volatility. However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues. Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.
In Australia, the available information suggests that the economy is continuing to rebalance following the mining investment boom. Consistent with developments in the labour market, overall GDP growth picked up over 2015, despite the contraction in mining investment. The pace of lending to businesses has also picked up.
Inflation is quite low. Recent information has confirmed that growth in labour costs remains quite subdued. Given this, and with inflation also restrained elsewhere in the world, inflation in Australia is likely to remain low over the next year or two.
Given these conditions, it is appropriate for monetary policy to be accommodative. Low interest rates are supporting demand, while supervisory measures are working to emphasise prudent lending standards and so to contain risks in the housing market. Credit growth to households continues at a moderate pace, albeit with a changed composition between investors and owner-occupiers. The pace of growth in dwelling prices has moderated in Melbourne and Sydney and has remained mostly subdued in other cities.
The Australian dollar has appreciated somewhat recently. In part, this reflects some increase in commodity prices, but monetary developments elsewhere in the world have also played a role. Under present circumstances, an appreciating exchange rate could complicate the adjustment under way in the economy.
At today's meeting, the Board judged that there were reasonable prospects for continued growth in the economy, with inflation close to target. The Board therefore decided that the current setting of monetary policy remained appropriate.
Over the period ahead, new information should allow the Board to assess the outlook for inflation and whether the improvement in labour market conditions evident last year is continuing. Continued low inflation would provide scope for easier policy, should that be appropriate to lend support to demand.
Financial fitness is not that different to physical fitness. Both take time, moderation and discipline, and both are equally rewarding in terms of improving your quality of life.
Here’s a five-step plan for putting your finances in healthy working order.
2. Make a plan
To include exercise into your week you have to schedule it in. Maybe you have to wake up earlier? Give up your lunch break? Take the same approach when making a plan for financial fitness: ask yourself what practical actions you can take on a daily and weekly basis to meet your goals.
3. Aim for moderation
It’s easier to stick with a new habit or goal if you give yourself some flexibility. There will be days when you don’t feel like exercising, just as there will be days when you spend more than your budget allows. Give yourself permission to have these occasional treats. Without moderation you are more likely to give up because it all seems too hard.
4. Focus on your weak spots
It’s often the body parts you avoid dealing with that need the most attention. For example, if you hate working abdominals, you’ll fail to build strength in that area. A universally disliked financial chore is tracking spending, yet ignoring it won’t make it go away.
5. Use mental preparation
Starting and maintaining a fitness routine requires willpower, effort and accountability. It’s no different with finances because in both situations there is often a lifetime of bad habits that need to be broken. When faced with roadblocks, remind yourself why you are making these changes – to get out of debt, to afford a new car, to take a holiday.
Some home loan approvals can be processed in days, others take weeks. Why the delay?
Don’t be tempted to blame your mortgage broker because rarely they are the ones causing the hold-up. Usually it is either a delay by the lender or incomplete client paperwork that causes the blowout.
Some lenders fund loans faster than others, and an increase in the number of loans can slow down a lender's usual processing time. The time of year also has a part to play – expect delays the closer you get to Christmas, as well as around Easter and the end of the financial year.
You can help move along the mortgage approval process by pulling together the necessary documents before you apply for a loan. Missing documents and inconsistent information on the paperwork are common reasons for delays.
The more complex the loan, the longer it takes for lenders to review. This is why many clients value the help of a mortgage broker – to assist with the time-consuming task of getting loan documents ready for approval.
Another important benefit of dealing with a mortgage broker is that we often know which lenders are experiencing processing delays, which means that if you need fast home loan approval we can usually recommend a lender that is more likely to provide approval within the necessary time frame.
We all set goals, either consciously or unconsciously, but most of us are content with vague easily set targets that are just as easily forgotten the next day.
We sort of know where we’re going and we count upon fate, luck, providence and quick thinking to get us there. This might work sometimes, but it also makes it easy for us to become confused, find excuses or give up.
Goal setting is one of the simplest and most powerful tools you have to bring about positive changes in your life. Like driving in a big city, it’s harder to find your way if you don’t know exactly where you’re going.
Setting goals is like stopping to look at a map – it takes a few minutes to do it, but it makes sure you’re headed in the right direction.
Here are some examples of the big picture goals we help our customers achieve.
Moving to a bigger house
We often hear parents say they wished they had moved to a bigger house when their children were young, rather than when they are teenagers and nearly out of home.
Parents of young children are often faced with the dilemma of where to prioritise their finances: family holidays, children’s education or a larger home? Some become paralysed by indecision and end up following a path without purpose.
To overcome indecision like this it helps to map out your goals – making sure they are specific, measurable, attainable, relevant and time-framed. If your goal is a bigger house then work out your cash flow on paper – what does it look like this year? What do you expect it to look like in three years?
Talk to us about what funding options are available and what risks you may encounter.
It’s easy to put your head in the sand about retirement and hope it will sort itself out nearer the time, but unfortunately it rarely does.
Property can be used as a means to fund retirement but a successful approach requires goals to be set well in advance. The two commonly used retirement property investment approaches are to live off the equity or to live off the rental income, yet many investors don’t have a strategy to ensure their plans bear fruit.
As your mortgage broker we can help you plan for success by setting you up with the right financing, as well as pointing you in the right direction for specialist financial planning and tax advice.
Some people pay off their home loan in record time, while others take 30 years. Which is better?
Deciding on the length of your home loan term is an important decision because it can significantly affect the amount of interest you pay, as well as have implications for equity and cash flow.
With a shorter-term loan you’ll build equity more quickly, which gives you the opportunity to generate a larger profit when you sell. With a longer home loan term you will pay significantly more interest over the life of the loan, but on the flipside, there is more flexibility and less financial risk.
For example, a 15 year loan of $430,000 at 4% interest, will cost you $142,518 in total interest paid and $3,181 in monthly repayments. A similar loan over 25 years will nearly double your interest to $250,909 and drop your monthly repayments to $2,270.
When making a decision about the loan term, think first about your financial plan and how much you can afford to spend on mortgage repayments. What level of payment can you sustain into the future? Do you have any other high-cost forms of debt? What emergency savings can you fall back on if required?
An option we sometimes suggest is to choose a loan that allows additional repayments at no fee. This allows you to select a loan with a longer term but if you are disciplined you can pay it off as if you had a shorter term.
Give us a call to find out what options are available for your individual situation.
With over 20 years experience in Home Loan Lending and Financial Planning, You can feel confident Cairns Mortgage Brokers will get you the best deal on the market. Call us today: 4057 9746