A home loan isn’t just a debt, it’s a great financial tool that you can use to build wealth and facilitate your lifestyle. That’s why few people keep their original home loan for the life of the loan – it pays to keep it up to date to meet your needs as circumstances change.

Refinancing your home loan means replacing it with one that better suits your current needs – and it’s something you may consider for a variety of different reasons. Here are the top four reasons why you might consider refinancing your home loan.

1. To save money on your home loan repayments

The top reason why people talk to us about the possibility of refinancing their home loan is because they may now be eligible for a better interest rate. Cutting back on the interest you pay could reduce your repayment amount and save you a considerable amount of money over time.

When you first apply for your home loan, your financial circumstances are one of the factors that influence the home loan interest rate available to you. As your personal situation improves over time, you may be able to refinance to get a better interest rate.

Additionally, you can often get a better interest rate by switching lenders. For example, the big four banks recently made a move to raise interest rates outside of RBA movements. However, not all lenders raised rates at the same time, with many of the smaller lenders keeping their rates between 0.20 and 1 percent lower than the bigger lenders.

If your lender raised your rates recently, now may be a good time to ask us to shop around for a better deal that could save you money.

2. To access your equity

Property investment is currently one of the most popular ways of building wealth for your future. Whilst saving the deposit to purchase a second property may be difficult for many, rapid rises in property values in recent years have provided an opportunity to refinance in order to access some of the equity in their homes to use as a deposit instead.

The equity in your home is calculated by subtracting the amount you owe from the current value of your home. In order to refinance to access your equity, you will need to have your home valued to determine its current value.

Accessing your equity will increase the amount you owe on your original property and increase your mortgage payments. However, if you use the equity to make a property investment, you will have the opportunity to capitalise on home loan value increases on two properties over time and this has the potential to help you increase your wealth in the long run.

Other uses for a lump sum in cash are literally endless – you could use your equity to buy your family a boat, a caravan, the overseas holiday you’ve always wanted or even use it to invest in a business or stocks and shares. However, we encourage you to act responsibly and only access your equity for lifestyle reasons if you can genuinely afford it. That means talking to us to help you discover your real financial position and if accessing your equity is a good idea for you.

3. To renovate or extend your home

Renovating or extending your current home to meet the needs of your growing family or changing lifestyle is often a better option than purchasing an entirely new home. By renovating or extending, you will be able to create the home that exactly meets your needs and if you’re careful about the improvements you make, perhaps even increase its value at the same time. Even though you will need to access your equity, you may be able to improve the value of your home to offset this cost.

Maintaining the value of your largest asset is important. So even if you don’t want to extend your home, keeping it up to date and in good repair is something you should consider periodically. If your home could do with an update, don’t hesitate to talk with us about refinancing to renovate.

4. To consolidate debts

Your home loan interest rate is probably the lowest form of interest you will need to pay on any loan in Australia. Credit card interest rates can be as much as four times higher than your home loan interest rate and this can make credit card debts difficult to pay off. Other expensive debts like car loans or personal loans can also prove to be a drain on your finances.

If the value of your home has increased over the last couple of years, it may be worth considering accessing some of the equity in your home to pay off your more expensive debts. This could dramatically reduce the amount of interest you have to pay on your overall debts each month, offering you some financial relief and helping you to enjoy a more comfortable lifestyle.

It’s a far better idea to be in a position to save money each month rather than waste it on expensive credit card interest repayments. By refinancing to consolidate your debts, you could possibly find yourself in a position to save money to make other investments or even pay off your home loan sooner. Ask us to help you crunch the numbers to see if using your home loan to consolidate your debts will be a good idea for you.

Ask us if refinancing is the right move

If you have plans or goals for your future then remember, your home loan can be used as a financial tool to help you reach them. We’re here to help you make the most out of your home loan, so please don’t hesitate to give us a call for a chat about what you want to achieve and how refinancing your home loan could help to get you where you want to be. We’re always happy to spend the time with you to help you make the right decisions to reach your financial goals, so please call us today.

What is pre-approval and what is subject to finance? Many first home buyers believe you don’t need pre-approval if you intend to use a subject to finance clause in the sales contract when you find a property to buy. But that’s not the case! In this article we explain why it’s a wise move to get pre-approval on your home loan and use a subject to finance clause as well if you can.

What does ‘pre-approval’ mean?
When you’ve saved your deposit and you’re ready to purchase your home, it’s a wise move to talk to us about getting pre-approval on your home loan. Pre-approval is where a lender confirms how much money they may be prepared to lend to you to purchase a home, based on the deposit you have saved, your income, expenses and your personal financial situation.

Getting pre-approval on your home loan is intended to give you clear guidance on how much money you can spend, so that it makes it easier for you to shop for a suitable home in your price bracket. It is important to remember that the amount you are pre-approved for is the maximum amount a lender believes that you can currently afford to borrow according to your personal circumstances.

If you intend to purchase a property at auction, it is important to get pre-approval on your home loan before you attend the auction so that you can be reasonably comfortable that you can borrow the required funds. Getting pre-approval will give you a bidding limit and help you to be reasonably sure that everything will go smoothly with the transaction.

It is important to note that even with pre-approval, a lender can still decline a loan application if they do not like the property you are looking to purchase. If they feel it is over-priced or something is wrong with the property, they will not approve your final loan application. However, getting pre-approval significantly reduces the risk of this occurring.

Additionally, some real estate agents and vendors will not take you seriously if you do not get pre-approval on your home loan before you approach them, particularly when you are buying off the plan or are considering building a new home. Remember, they are frequently approached by time-wasters and ‘tire-kickers’ – getting pre-approval will help them to realize you are a serious buyer.

Benefits

• Getting pre-approval is free and gives you considerable peace of mind, especially when bidding at an auction.
• Your pre-approved home loan is usually valid for up to three months.
• It helps you set your maximum spending limit – particularly important at an auction.
• It shows real estate agents and vendors that you are serious about purchasing a home.

What does ‘subject to finance’ mean?
When purchasing a property outside of an auction, the bank will always perform an independent valuation of the property to find out its current market value before agreeing to lend you the money you need to purchase it.

When you make an offer on a home, you will be required to make the offer in writing and this is called a sales contract. In this contract, you have the option to include a clause that says your offer is ‘subject to finance’. This means that your offer is conditional upon the lender approving the amount of finance you will need to purchase that particular property. If the lender does not approve the amount of financing required, you can withdraw your offer without losing your deposit or being any worse off.

You need to remember that property sellers and real estate agents are naturally out to get the maximum amount of money for a property that they possibly can. This can often mean that the asking price of a property exceeds its market value and also the amount of money a lender will allow you to borrow for that particular property.

It is important to note that a lender will only allow you to borrow what the valuation says the property is worth – even if you have been pre-approved to borrow more. That’s why it’s important to get pre-approval and use the subject to finance clause in your sales contract as well if you can! If the lender’s valuation turns out to be less than the asking price, you can always go back to the vendor and use the valuation to get a better deal.

Benefits

• You may think a property is a good price, but using a subject to finance clause in the sales contract gives you additional peace of mind that you’re not paying too much.
• Using the subject to finance clause gives you room to withdraw your offer if the asking price exceeds the lender’s valuation on the property.
• It can often help you to negotiate a better price if the lender’s valuation is lower than the asking price.

Things to consider

• Sometimes a real estate agent will look less favourably upon your offer if you use the subject to finance clause in the sales contract. Always remember to mention that your financing is pre-approved to help mitigate any negative view. 

Remember, if you have any questions about the property purchasing process, we’re here to help. We understand that getting you pre-approval on your home loan is important as it can save you a lot of time and hassle when searching for your new home. If you’re currently in the market for a new home, then please give us a call and we’ll help you get your pre-approval organised.

In March last year, an amendment was made to the Privacy Act 1988, which allowed regulation reforms to be applied to the way credit-related personal information can be collected about you by lenders. The new system is known as ‘Comprehensive Credit Reporting’ and has brought Australia in line with the rest of the world regarding the way consumers are assessed by lenders when applying for credit and home loans.

The new rules have now been in effect for over a year, and most lenders are using Comprehensive Credit Reporting as part of their day to day operations when assessing you for a loan. This article looks at how Comprehensive Credit Reporting affects you and your capacity to borrow.

How have things changed?
Previously, lenders were only allowed to access negative information about your credit history. By ‘negative’ we mean that they were only able to access information that indicated if you had any major credit infringements, credit payment defaults, bankruptcy situations and declined applications for credit. This information did not give lenders a very good picture about your current financial situation and was only of limited use when making assessments on major credit applications like home loans.

Comprehensive Credit Reporting is designed to give lenders enough information about you to assess if you can afford to take on more debt and how much you can afford to repay. Lenders now have access to more data about you more often, which gives them a better picture of your current personal financial situation.

Information that credit providers can collect about you now includes account information including when an account was opened and closed, your credit limits on credit cards and loans, the type of credit accounts you hold (such as credit card or personal loan), as well as 24 months repayment history on any credit accounts you hold. They can also check on your overdue debts and payment defaults, the number of recent credit applications you have made recently and any publicly available information such as personal insolvency information, court writs, court judgements and directorship information.

What does this mean for you?
The new Comprehensive Credit Reporting system gives you more power to demonstrate your creditworthiness to mortgage lenders and other credit providers. It allows your recent good credit behavior to be taken into consideration and any adverse financial events to be overcome more quickly. It is also faster and easier for you to establish a credit history and compile a Credit Report.

On the downside, it is more important than ever before that you pay your bills on time. It is also important that you avoid making multiple credit applications before you decide on your credit provider as these will show up as minor defaults. If you’re not careful, you could accumulate a lot of minor defaults that could add up to make it appear as though you are under financial stress – and that may make it more difficult for you to get a home loan approved or make you ineligible for the lowest interest rates.

Make sure your Credit Report is accurate
Your Credit Report is compiled by a credit agency and is made available to lenders when you apply for a loan. Understanding your Credit Report and making sure it is correct can help to ensure your loan application goes smoothly.

Lenders will use your Credit Report to assess risk before they decide to give you a loan. We recommend that you obtain a copy of your Credit Report and make sure that is completely accurate. You can download a copy of your Credit Report once every 12 months for free from a variety of different credit reporting agencies – we recommend Veda or Dun & Bradstreet.

Once you have your Credit Report, you can address any negative information that should not be on there and take action to have it removed. Occasionally, your Credit Report can contain information that is very old, untrue or contain fraudulent entries that simply belong to someone else – so it pays to give it careful attention before you apply for any loans.

If you obtain your Credit Report and discover you have a low credit score, you can improve the situation over time with the right behavior:

• Take action to remove any incorrect entries.
• Always pay your bills on time or before the due date.
• Pay down your existing debts.
• Keep unused bank accounts open.
• Reduce your credit limits – cancel any credit cards you don’t need.
• Don’t make multiple applications when you are shopping for credit – talk to us about choosing the correct provider before you submit any loan applications.

Comprehensive Credit Reporting is good for Australian consumers as it helps lenders to be fair when assessing you for a loan. If you would like to discuss your Credit Report with us, we’re happy to help. Remember, we’re here to help you get the best deal available for your personal financial situation and goals for your mortgage and other financing requirements, and your Credit Report is an important part of the application process. Please give us a call today for a chat.

Find out why more Aussies are ahead on mortgage repayments and how you can be too http://yhoo.it/1gC1bum

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