Tag: Mortgage

Understanding Lenders Mortgage Insurance

Posted on by venrockfinance

Buying a home is a significant milestone for many, but navigating the financial aspects can sometimes be daunting, especially when it comes to understanding additional costs like Lenders Mortgage Insurance (LMI). Whether you’re a first-time homebuyer or looking to invest in property, knowing about LMI can help you make informed decisions. Here’s a comprehensive guide to help you grasp the essentials of Lenders Mortgage Insurance.

What is Lenders Mortgage Insurance?

Lenders Mortgage Insurance (LMI) is a type of insurance that protects lenders in the event a borrower defaults on their home loan and the proceeds from selling the property are insufficient to cover the outstanding loan balance. It’s important to note that LMI does not protect the borrower; instead, it protects the lender against financial loss.

When is LMI Required?

LMI is typically required by lenders when the borrower’s deposit is less than 20% of the property’s purchase price. This is often referred to as a high Loan-to-Value Ratio (LVR), where the loan amount represents a high percentage of the property value. LMI provides lenders with the confidence to approve loans with smaller deposits, reducing their risk exposure.

How is LMI Calculated?

The cost of Lenders Mortgage Insurance depends on several factors:

  1. Loan Amount: The larger the loan amount, the higher the potential risk to the lender, influencing the cost of LMI.
  2. Deposit Size: A smaller deposit means a higher LVR, which generally leads to higher LMI premiums.
  3. Property Value: Higher property values can also impact LMI costs since larger loans are typically associated with higher-value properties.

Paying for LMI

LMI can generally be paid upfront as a lump sum or can be added to the home loan amount (capitalized). If it’s added to the loan, it will accrue interest over the life of the loan, increasing the overall cost.

Benefits of LMI

While LMI primarily protects lenders, it also offers some benefits to borrowers:

  • Access to Home Ownership: LMI allows borrowers to purchase a property with a smaller deposit, making home ownership achievable sooner.
  • Flexible Terms: Some lenders offer flexible terms and conditions on loans with LMI, potentially offering lower interest rates or other favorable terms.

Is LMI Necessary?

While LMI is an additional cost, it can be a viable option for borrowers who do not have a 20% deposit saved. It’s essential to weigh the upfront cost of LMI against the benefits of purchasing a property sooner and potentially benefiting from property appreciation over time.

Government’s First Home Guarantee Scheme

In addition to understanding Lenders Mortgage Insurance (LMI), prospective homebuyers in should also consider the Government’s First Home Guarantee schemes, which aim to support first-time buyers by reducing some of the financial barriers to homeownership. These schemes, such as the First Home Loan Deposit Scheme (FHLDS) and the New Home Guarantee (NHG), provide eligible applicants with the opportunity to purchase a home with a deposit as low as 5% without needing to pay LMI. This initiative can significantly reduce upfront costs for eligible buyers and complement the benefits of LMI, potentially making homeownership more accessible and affordable for those entering the property market for the first time. It’s advisable for interested buyers to check eligibility criteria and explore how these government schemes could align with their home-buying plans.

Conclusion

Lenders Mortgage Insurance plays a crucial role in the home buying process for many Australians, enabling borrowers to enter the property market with a smaller deposit. By understanding how LMI works and its implications, you can make informed decisions when navigating the complexities of securing a home loan.

Whether you’re a first-time buyer or looking to invest, consulting with a financial advisor or mortgage broker can provide valuable insights tailored to your financial situation. Remember, knowledge is key to making sound financial decisions that align with your long-term goals.

Financial Hardship during COVID-19

Posted on by venrockfinance

In light of the current unprecedented global events as a result of COVID-19, we wanted to ensure you that we are here to support you for the long haul. It is becoming increasingly evident this is going to be a marathon, not a sprint and that we need to prepare for increasing unemployment, and reduced incomes. With this in mind, many of you may struggle to make your home loan repayments so we wanted to explore the options available to you.

Payment Deferrals
If you have recently lost your job or found your income substantially reduced you may be able to defer your home loan repayments for 3-6 months. All lenders have a hardship department that can assist with this process. A link of their contact details can be found here. We are aware that bank call centres are struggling to keep up with call volumes, and in many cases banks have now started to forward us forms for you to complete and lodge. Please call us first to see if we can assist.

If your income hasn’t been affected yet, and you are unable to access deferrals through hardship but you still want to minimise your cashflow expenditure by reducing your repayments there are other options available to you.

Redraw
If you have been paying over and above your minimum monthly home loan repayments you may have funds available in either redraw, or sitting in your offset account. If you reduce your loan repayments to the minimum amount you can then use these funds to make your future loan repayments.

Fixed Rates
With the recent RBA rate reductions many of the banks have dropped their interest rates, with some 1, 2 and 3 year rates in the low 2’s. For most people this is around 1% lower than they are currently paying. Locking in to one of these low rates, could reduce your monthly repayments by hundreds of dollars. Note: there are other factors to consider before fixing, such as break costs, so please ensure you call us first before proceeding with this option.

Superannuation
Legislation passed this week enables individuals to access up to $10,000 before 1 July 2020, and then $10,000 after July 2020 if their income has ceased or fallen by 20%. This is done via the ATO myGov website and will be available from mid-April 2020. More information regarding eligibility and the process can be found here.

PAYG withholding variation
If you have had your work hours reduced but you are not technically unemployed (so unable to access jobseeker payments) you can apply to the ATO to have the tax withheld from you pay for the rest of the year so you don’t have to wait to get a refund when you lodge your tax. More information regarding this can be found here.

Finally, know that you are not alone and you do have options. We are only a phone call or email away and happy to answer your queries. You need a broker now more than ever!

First meeting with a broker

Posted on by venrockfinance

If you’re looking for a home loan but have not dealt with a mortgage broker before, 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 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 one of our friendly brokers and yourself. Your broker is 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) and the 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.

All Venrock Finance brokers are accredited, therefore you can attend 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.

To book an obligation free appointment today please contact Venrock Finance on 08 9557 0500 or admin@venrockfinance.com.au.

Buy Now Pay Later – the hidden danger potentially stopping you from owning your own home

Posted on by venrockfinance

The Buy Now Pay Later sector is winning-over consumers with the promise of instant gratification, but the mortgage industry is warning that with every sugar-high comes the risk of a corresponding low.

‘Buy Now Pay Later’ providers such as AfterPay and Zip Pay have experienced massive growth in popularity, with the number of users jumping from 400,000 to approximately 2 million between 2015 and 2018.

Driven by a simple proposition whereby the Buy Now Pay Later provider pays the merchant on behalf of the customer, allowing the customer to obtain the goods or receive a service immediately while subsequently paying off the debt generally through instalments, Buy Now Pay Later presents a tempting offering.

But as the sector’s breakneck growth continues, Venrock is warning users, to be mindful of overdoing it as this could risk effecting their chances of securing a home loan further down the track.

This service is the layby of our day but in reverse. It’s your forward credit for an item. In theory, it makes sense. You get the item or service and pay it off over instalments, so you’re actually putting forward your liability. This might be ok for someone that manages their money well, if they pay off the item on time and use their mortgage offset account correctly. This way they’re delaying expenses and offsetting more of their savings against their home loan.

Utilising this payment method may potentially send the wrong message to a bank. If a lender sees a ‘buy now pay later’ provider frequently on a client’s bank statements, that can trigger more questions about their spending behaviours and ultimately may mean they choose to decline the application.

If you are concerned about your level of expenditure or your ability to secure a home loan, a conversation with one of our friendly brokers could set you on the right path.

It’s important to appropriately manage your expenses well in advance of applying for a home loan, that way you can show the bank that you can save and afford to service a mortgage when the time comes.

Financial Focus: Understanding Living Expenses

Posted on by venrockfinance

Applying for a new mortgage or looking to purchase a new car is an exciting time, however with the need for comprehensive credit reporting and tightening lending practices, it is imperative that consumers understand how their spending habits can impact on their capacity to access finance.

With more and more expenses being paid electronically, the banks have greater transparency on what exactly people are spending their money on and how much they are spending. Banks use this information to determine what surplus you have left to pay for the proposed finance. Additionally, the expenses that may be a luxury or a one off can also paint a picture on the desirability of you gaining an approval.

With all of this you need to be very mindful on what you are spending and ensure repayments are met on time. So when seeking a mortgage or car finance, work with a Venrock Finance broker who will gain an understanding of your discretionary spending and living expenses. As each bank has different policies our role is to navigate through the policies and find the bank that will say yes to your particular scenario, as while one bank may say no, the other lender may have a policy that includes a realistic understanding of your living expenses.

To discuss your requirements further please contact one of our friendly brokers today.

To Fix or Not?

Posted on by venrockfinance

A well-known industry comparison website “Canstar” has suggested that borrowers should consider switching their arrangements to fixed rate options, as the market has in all probability, reached record lows. (This recommendation was issued in late July 2018).

This recommendation also co -incides with a time when several banks have started offering fixed rate mortgages which are cheaper than their standard variable rate loans. Both Macquarie and Aussie Home Loans have recently dropped their fixed mortgage rates by 10 basis points, while increasing their variable rates by 5-10 basis points.

Whilst this option has various pro and cons, and is definitely not for everybody, Venrock believes all borrowers should undertake a review to see if this option suits the borrowers circumstances.

If a fixed rate option is something that you would like to consider, talk to one of our brokers for a free review or a Mortgage Health Check.