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Family Guarantee Home Loans

Family Guarantee Home Loans

With house prices being so high many first home buyers are finding it difficult to save the deposit they need. An option that may suit some first home buyers is a family pledge or family guarantee home loan. These loans allow you to utilise a family member’s home as security for your home loan meaning that you don’t need a huge deposit.

It is important for all parties to fully understand the advantages and potential disadvantages to these type of loans. So what is a family pledge or guarantee loan? It is a loan that allows the shortfall in your deposit to be secured by a family member’s property. It allows family members to assist you without actually giving you cash or putting cash in.

Previously the whole of the family members property was used to secure the loan but now there are other options. That is, the security on the new purchase can be separated so the guarantee is actually limited. To give an example the family members property might be utilised to guarantee just 20% of the new loan and the property being purchased would be used as security for the other 80% of the loan. Either way the bank feels more comfortable as with this type of loan they have protection if first home buyers can’t make repayments or default on their loan.

For the first home buyers it means they can purchase a home, avoid the added cost of mortgage insurance and even be able to borrow more if for example, the property requires renovations. The family member needs to guarantee a minimum of 20% of the purchase price of the new property if the first home owners do not have a deposit.

With this type of loan first home owners can buy either a home or investment property. The other great news is that even if the loan is a family pledge / guarantee loan that the first home owners are still eligible for a First Home Owners Grant in their State (if applicable).

There are however some drawbacks to consider prior to entering into this type of loan:

  • The family member who provides the guarantee could be putting their family home at risk if the first home owner defaults on the new loan.
  • It is also extremely important that you all seek independent financial and legal advice before entering into a family pledge / guarantee loan so everyone understands clearly what happens if the loan is defaulted on and exactly what the guarantor will be liable for.
  • Not all lenders offer family guarantee / pledge loans so ensure you consult your Mortgage Professional before proceeding further.

This is general information only and is subject to change at any time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.

Mortgage Refinancing

Mortgage Refinancing

Refinancing is where a client obtains a new mortgage often to reduce monthly payments, lower interest rates, take cash out for large purchases or simply to change mortgage companies. Often people refinance when they have equity in their home, which is the difference between the amount owed to the mortgage company and the value of the home.

Whilst there are many advantages to refinancing your home loan, there are also disadvantages and you should consider both before deciding whether refinancing is right for you.

Advantages of Refinancing

• Reduce monthly repayment

• Acquire better loan features

• Use equity in your home to get additional cash

• Save money by paying a lower interest rate

• Allows you to consolidate multiple debts into one repayment

Disadvantages of Refinancing

• If getting cash out this will increase your mortgage repayment and the size of your mortgage and reduce the equity in your home

• May increase or extend the length / term of your mortgage (often resetting to 30 years)

• There may be fees or costs to refinance

• The valuation of your property may come back lower than you expected

• Short term debts consolidated into a refinance are paid out over a longer period of time

• Potentially higher long-term costs of repayment of a loan resulting from extending the loan term

• Default risk on unsecured loans is transferred onto the family home when consolidating debts

Consult a Mortgage Professional

Before making a decision on whether this type of loan is suitable for you it is important for you to consider the above information and discuss the suitability of this loan type with your Mortgage Professional.

This is general information only and is subject to change at any time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.

Refinancing Costs

Refinancing Costs

What are the costs of Refinancing?

People often think refinancing is difficult and expensive. It doesn’t have to be.

Using an experienced Mortgage Professional can simplify the process as they guide you through the transaction and explain any fees or charges before you sign for a loan. Some of the fees are outlined below:

Lenders are NO longer allowed to charge Exit fees

Lenders are NOT allowed to charge exit fees on loans taken out after 30 June 2011. If you did get your loan before 1 July 2011 your lender will be able to tell you if exit fees still apply on your loan. However, if you are on a fixed rate loan, be aware you may need to pay a break fee.

Establishment Fees

An Establishment fee may also be known as ‘application’, ‘up-front’, ‘start-up’ or ‘set-up’ fee. This fee is a one-off payment when you start your loan.

Lenders Mortgage Insurance (LMI)

Lenders mortgage insurance is an insurance that Lenders take out to protect themselves from borrowers not being able to repay their loan. It only applies if there is less than 20% equity in a home. If you paid LMI on your existing loan, before refinancing you will need to ensure that there is more than 20% equity in your property to avoid paying LMI again.

Ongoing fees

These are sometimes also known as administration fees. They may be a monthly charge or may be a fee that applies to a specific service. Not all Lenders charge ongoing fees.

Choosing the right loan for you

A Mortgage Professional will work with you to find out your requirements for a loan and will then present you with a comparison sheet of at least three Lenders that meet your needs. This comparison sheet is set out to allow you to easily compare loan features, fees, interest rates, comparison rates and other important information. They will also explain to you the advantages and disadvantages of refinancing so you are able to make an educated decision on what is right for you.

This is general information only and is subject to change at any time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.

Buying Your First Property

Buying Your First Property

Before you start looking for a home there are several key details to consider such as:

What savings do you currently have?

Most lenders will want to see that you are able to save consistently and will usually require your last six months saving history prior to considering you for a loan. If you are able to afford the repayments some lenders will loan you up to 95% of the property purchase price. They may even allow you to add mortgage insurance costs to the loan meaning you may be able to borrow up to 97% of the property value. Either way the lender will require you to have at least 5% of the property value in genuine savings as well as enough money available to cover the other costs of purchasing a property.

How much can you borrow?

It is extremely important to sit down with a Mortgage Professional and arrange a pre-approval for home loan finance prior to looking for a property so you know the maximum amount you can borrow and any conditions the lender would require to meet for finance.

What fees and costs apply to a mortgage?

Buyers will need to have funds available to cover a number of costs before settlement. These costs include a deposit, lenders mortgage insurance, stamp duty, loan set up fees, conveyancing, settlement fees, inspection costs, valuations and home insurance. Your Mortgage Professional will explain these costs in detail.

Grants and Incentives

There are several government incentives and benefits available to provide a helping hand. What is available to First Home Buyers depends on the State they are in and their individual circumstance. These include:

• First Home Savers Account

• Reduced Stamp Duty

• First Home Owners Grant

To find out more information on what may be available visit www.firsthome.gov.au

Your Mortgage Professional can provide you with a lot more information including facts on buying at auctions, funds required to settle your mortgage, the mortgage process and a detailed First Home Owners Guide.

Your Mortgage Professional will also explain the whole process to you and will guide you and support you through the entire lending transaction. Having the right person to assist you can make the world of difference when buying your first property.

This is general information only and is subject to change at any time. Your complete financial situation will need to be assessed before acceptance of any proposal or product.

Offset vs Redraw

Offset vs Redraw

WHAT IS AN OFFSET ACCOUNT?

This home loan feature is operated in concurrence with your home loan account. They function the same way as a regular savings or transaction account meaning you have immediate access to your funds and on many you can earn interest comparable to a standard savings account. The interest earned is then deposited into your home loan account which reduces the account balance and in effect then reduces the interest you pay. In addition the interest earned is not taxable.

Example:

Loan Amount:               $ 200,000
Interest Rate:                 4 %
Offset Balance:              $ 30,000
Offset Interest Rate:      2 %

Interest Saving $ 600 (assuming the $30k remains in the offset account for a full year)

100% OFFSET ACCOUNTS however are a little different and are often a far more popular option. These accounts earn interest equal to your home loan interest rate.

Using the same example as above except this time with a 100 % Offset Interest Rate of 4 %, the Interest Saving is $ 1,200 (assuming $ 30k remains in the offset account for a full year)

WHAT IS A REDRAW FACILITY?

A redraw facility allows you to deposit extra money (above your regular repayments) directly into your home loan account. You can then redraw those extra funds if and when you want to. In respect to saving interest, a redraw facility has a very similar effect to a 100 % offset account.

If you consider the example used earlier, it means that with a redraw you would be paying 4 % interest on $ 170,000 instead of on $ 200,000 (because of $ 30,000 in redraw)

OFFSET vs REDRAW

So if redraw facilities and 100 % offset accounts have very similar savings, which one is best for your needs?

As offset accounts operate in a similar fashion to a savings account your funds are usually easily accessible. Some offsets even come with credit cards, EFTPOS and cheques for ease of use. Depending on the Lender it may not be as easy to access your funds with a redraw account as some lenders will limit the redraws you can have per year, may have a minimum redraw amount and may charge you a redraw fee. However some people may prefer a redraw facility as the excess funds are not necessarily as easy to access.

What is important is to find out exactly how a Lender’s offset account or redraw facility operates before you choose a Lender or one of these facilities because they are definitely not all the same.

Talk to your trusted professional and make sure you have all the facts before making a decision!

The information in this article does not necessarily represent the opinions of our Company nor the writer. The article is provided for information purposes only and is not intended to constitute legal, financial or other professional advice and has not been provided with regard to the investment advice or objectives or circumstances of any particular reader. While based on information believed to be reliable no guarantee is given that the information is accurate or complete.