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What is a family guarantee and how can it help you secure your home?

What is a family guarantee and how can it help you secure your home?

Sep 1, 2022 | First Home Buyers, Investment Property, Purchase

It’s no secret that saving for a home deposit can be difficult. Whether you’re juggling the

cost of renting, further education or even just the rising cost of living, the dream of owning
a home can feel like a long shot – but there is something that could help you secure that
dream sooner.

A family security guarantee is commonly used by home buyers when they aren’t able to
secure a loan on their own.

What is a family security guarantee?

For borrowers who aren’t able to reach a deposit (as required by the lender) on their home
loan, a Family Security Guarantee may be a solution.

This allows a family member to act as a guarantor to secure your deposit, giving you greater
borrowing power. This can reduce your Loan to Value Ratio (LVR) to under 80%, removing
the need to pay Lender’s Mortgage Insurance (LMI) on top of your deposit.

That family member can choose to use equity from their home or cash (for example, savings
or term deposit funds) to use as security for your loan, however, they will not need to give
any funds directly to you or the lender.

What are the benefits of a Family Guarantee/Guarantor?

  • Borrowers can finance up to 100% of the purchase price, plus costs
  • Lender’s Mortgage Insurance and Low Deposit Premiums can be avoided
  • Wider range of loan products to choose from
  • Additional interest rate discounts available
  • You may be able to enter the market sooner than you would be able to otherwise
    What does this kind of loan look like?

Here is a quick example of how a Family Guarantee can work:

Jane is looking to purchase a property valued at $500,000. To do this, she needs to borrow
$450,000 to cover the loan abouts and other costs (not including LMI).

Loan Amount ÷ Property Value = LVR

$450,000 ÷ $500,000 x 100 = 90%

With an LVR of 90%, Jane would need to pay LMI as an added cost, however, if she adds a
Family Security Guarantee of $70,000 as additional security, the LVR on the loan reduces

Loan Amount ÷ (Property Value + Security Guarantee amount) = LVR

$450,000 ÷ ($500,000 + $70,000) x 100 = 79%

With a new LVR of 79%, Jane no longer requires LMI, saving her a significant amount of
money on her property purchase.

The details:

  • The value ($) of the guarantee can be limited to 20% of the purchase price, plus costs
    (including stamp duty, legal fees etc).
  • In most cases there are no servicing requirements from the Guarantor/s (this is not
    an income guarantee)
  • A second mortgage may be available if the guarantor’s current mortgage is with a
    different lender

How long does the guarantee last?

You can remove the guarantee when:

  • You haven’t missed any payments in the last 6 months
  • Your loan is less than 80% of the property value (you can still remove the guarantee
    if you owe more than this, however, you will need to pay LMI to achieve this)
    Most guarantees last from 2-5 years, depending on property prices and your ability to pay
    down your loan.

Want to see if this is suitable for you?

Get in touch with our team today to discuss your options. Send us an email or call us on (02)
9095 6888

Why the Home Loan Inquiry should make you reconsider your loan

Why the Home Loan Inquiry should make you reconsider your loan

Aug 2, 2022 | Refinance

In October 2019, the Treasurer direct the ACCC to conduct an enquiry into home loan pricing, wanting the commission to investigate two key concerns:

  • The prices charged for home loans since 1 January 2019
  • Impediments to borrowers switching to alternative lenders

Whilst the interim report, focusing on home loan prices, was released in April 2020, the final report has now been released which has found that many Australians with older home loans continue to pay significantly higher interest rates than those with newer loans.

This report also focuses on impediments to borrowers switching to alternative lenders and identifies recommendations to address these impediments. The ACCC also recommended that the Government action a further 5-year monitoring enquiry into pricing and competition in the home loan market.

So, let’s break down the recommendations outlined in the report and how you can action that advice yourself today.

All lenders should be required to provide an annual prompt to borrowers with older variable rates (loans three or more years old)

This recommendation is to encourage borrowers to engage in the home loan market so that they can potentially switch lenders or home loan products.

The problem, however, is that for a lender, complacency drives income. Often referred to as the “loyalty tax”, lenders often make a lot more money on customers who “set and forget” their loans – sticking with the original loan for years, if not, the full length of the loan.

Solving the problem now: Instead of waiting for the government to set requirements for lenders, you can act today.

At Sanford Finance, we do this for you, monitoring and reviewing every client’s loan annually, ensuring you always have the best loan product for your needs. In addition to this, we also encourage clients to get in contact should they feel their rate is too high or their circumstances have changed, and the loan product no longer suits their needs.

All lenders should provide borrowers with a standardised form to discharge the borrower’s home loan from their existing lender

The goal of this recommendation is to make it easier for borrowers to switch loans – providing a form which is easy to access, fill out and submit. They also recommended that a 10-day time limit be placed on lenders to complete the discharge process.

Currently the process to switch from one lender to another varies greatly depending on which lender you are currently with. For some lenders, the process is made simple whilst others make the task arduous and frustrating, often leading to borrowers sticking with their loan just to avoid the process.

Solving the problem now: If the thought of refinancing or switching lenders stresses you out (or feels like another thing on the to-do list that you just don’t have time for) we’re here to help. Whilst we can guarantee the discharge process will be done in 10 days, our team will do everything in our power to speed up the process.

Get in touch with our team today so we can assess your loan and find a loan product that’s more suited to your needs.

Who should consider renegotiating their loan?

With the Home Loan Inquiry identifying that, as at December 2019, almost half of all variable rate loans were at least four years old, most Australians should take the time to look at their loan and see if there is a better rate or loan product available.

As of September 2020, borrowers with home loans between three and five years old were, on average, paying around 58 basis points above the interest rate for new loans. Borrowers with home loans between five and ten years old were, on average, paying around 71 basis points above the average interest rate for new loans.  Borrowers with loans older than ten years old were, on average, paying around 104 basis points above the average interest rate for new loans.

Many of these borrowers could save a significant amount of money by switching to a new home loan. For example, if a borrower with a home loan of $250,000 switched to a home loan with an interest rate 58 basis points lower than their existing loan, they would save over $1,400 in interest in the first year. Over the remaining life of their loan, that borrower would save over $17,000 in interest in net present value terms.

Where should you start?

Thinking that now is the right time to look at your loan and find a better deal?

Get in touch with our team today to start the ball rolling. We’ll work with you to look at your current loan, your present circumstances and will recommend alternate loans that are better suited to your needs.

How consolidating your debt could save you money

How consolidating your debt could save you money

Jun 8, 2022 | Debt Consolidation

With interest rates and the cost of living rising, many Australians are searching for ways they can save money each month – but there’s one way you may not have thought of.

Debt consolidation involves bringing your existing debts together into one new loan. The objective is to reduce the number of individual payments you make and reduce the interest rate you are paying on your more expensive debts.

Who should consider debt consolidation?

Debt consolidation may be something to consider if you are:

  • Paying a very high interest rate on your debts – for example a credit card, cash advance debts or store credit purchases.
  • Managing multiple debt repayments and struggling to keep track of what is due and when.
  • Getting into a credit trap where all of your spare income is used to pay interest, but you don’t have enough left over to reduce your debt balances.

What does debt consolidation look like?

There are several different strategies that can be used to consolidate debts, including:

  • Moving debts to a new credit facility (e.g. a personal loan or mortgage) with a lower rate of interest or lower fees.
  • Lengthening the time of existing loans (e.g. taking a mortgage debt back out to the 30-year loan term).
  • Changing the repayment terms on an existing loan to interest only.

A combination of these strategies can also be used, depending on your circumstances.

What are the benefits of debt consolidation?

Usually, debt consolidation is implemented to make it easier for you to pay your debts, however, there are numerous other benefits, including:

  • Potential cash savings – Potentially the biggest benefit of debt consolidation. By consolidating your debt into a loan charging a lower interest rate, you have the potential to save interest on monthly repayments and reduce your overall interest.
  • Lower repayments – Reducing the interest rate and spreading out repayments over time could potentially reduce the monthly repayment due.
  • Simplicity – One loan repayment is a lot easier to manage than juggling several repayments.
  • Savings on interest and fees – Debt consolidation could potentially reduce the amount of interest you pay on high-interest facilities such as credit cards and save you money on fees for multiple credit facilities. This may make it easier to pay back your debts.
  • Stress relief – Specialist lenders are available that may lend to you if you have missed repayments on your current debts, or if you have a poor credit history.

What is important to remember about debt consolidation?

It’s important to remember that a debt consolidation strategy doesn’t reduce your debt – it just makes your repayments more manageable.

A debt consolidation strategy should be implemented in combination with a change to your spending behaviour, so that you can work to reduce your overall debt level over time.

Want to chat about debt consolidation?

Give our team a call on 9095 6888

Fixed Rate Loans: Have I Missed the Boat?

Fixed Rate Loans: Have I Missed the Boat?

May 5, 2022 | Interest rates, Purchase, Refinance

With talk of rate increases, we’re hearing from more and more clients who are looking to
secure a fixed rate loan – but is it too late?

Unfortunately for the most part, the answer is yes.

At this point, most fixed-rate loans have already factored in any future rate increases, but
that is not to say that a fixed rate loan shouldn’t be considered.

Over the years, variable rates have typically outperformed fixed rates, as you can see with
the below $1,000,000 loan example:

Example Loan Scenario:

Loan Amount $1,000,000
Total loan term (years) 30
Variable rate per annum 2.19%
Assumed quarterly rate increase 0.25%
Fixed rate per annum 3.79%
Fixed rate term (years) 3
Example Loan Scenario

Conclusion: The variable repayments will increase from $3,792 to $5,404 per month, superseding the fixed repayments of $4,654 p/m mid-way through year two of the fixed term.

Who should take out a fixed rate loan?

Whilst a variable rate loan may currently seem like the better option, that isn’t the case for
everyone.

There are numerous reasons that a fixed rate loan may be the better option for you,
however, the main one is cashflow security.

By locking in your rates, you know that your monthly repayments will not increase,
decreasing your risk of hardship if the repayments rise above a certain level.

In the above example, the variable repayments will increase from $5,350 to $12,850 per
month, superseding the fixed repayments of $9,475 p/m mid-way through the fixed term.
For many borrowers, a fixed rate loan provides peace of mind, knowing that you can
continue to afford your repayments for the length of the fixed term.

Is a fixed loan rate right for me?

The answer to that depends on your personal circumstances – but we’re here to help.
Whether you’re looking to refinance or take out your first loan, our team will guide you
through the process, taking into account your income, lifestyle, future goals and presenting
you with the best options for your needs.

Contact us today on [email protected] or (02) 9095 6888

Apartments vs Houses: What should you invest in?

Apartments vs Houses: What should you invest in?

Mar 3, 2022 | Investment Property, Purchase

You’ve decided you’re ready to invest – but the decision process doesn’t stop there.

Houses, units, apartments, townhouses, new builds, existing builds – where should you put your money?

Purchasing any property is a highly considered process. In previous years, houses were considered the best purchase, with apartments and units only really an option for those on a lower budget.

Today, however, this is a thing of the past as the Australian property market continues to thrive, attracting overseas investors, infrastructure evolution and changing living situations.

So what should you invest in?

Deciding whether an apartment or house is the right purchase for you all depends on your budget, strategic goals and the current market.

With any major financial purchase, it’s important to look beyond your personal preference to the overall environment. You need to set your feelings aside and look at the property purchase as a rational financial transaction to ensure you’re spending your money wisely.

By focusing on economic indicators such as auction clearance rates, interest rates and median purchase prices, you can develop a solid strategic plan.

But you shouldn’t do it alone. Seeking professional assistance from real estate agents, mortgage brokers and financial planners is critical as it allows you to properly evaluate this information and apply it to your goals.

What is the best type of property to invest in?

When considering investment opportunities, it’s important to look at the facts. There are three important indicators that need to be considered before purchasing an apartment or house:

  • Economic Factors – understanding key economic drivers such as cash and interest rates, clearance and vacancy rates, demographics and employment figures will help illustrate how the market is currently performing, as well as give you an idea of what may happen in the future.
  • Supply and Demand – how many apartments are on the market currently compared to the number of houses? Which are leasing faster? Are house prices increasing faster than apartments or vice versa? By understanding these factors, as well as any developments in the area, you are able to determine whether there is an oversupply or undersupply in a particular location.
  • Affordability – understanding the affordability of a property will ensure you are not over or under-capitalising on your purchase. Rental yield is also an important factor to consider for the affordability of prospective tenants.

What are the advantages of investing in an apartment?

  • Generally a cheaper purchase price
  • Often located in highly sought-after inner city or beachside locations
  • Strata maintenance assists in the upkeep and maintenance of your property
  • Higher levels of rent relative to the purchase price provides investors with a better yield
  • When investing in apartments, you’re often able to hold more property over the long term due to lower purchase and maintenance costs

What are the advantages of purchasing a house as an investment property?

  • More privacy for tenants – often attracting higher rental prices
  • More scope for renovations when looking to add value quickly, without the need for signoff from strata or body corporate
  • Ownership of appreciating land
  • Can be more resilient to market changes

What are the disadvantages of purchasing an apartment as an investment property?

  • Restrictions on pet ownership can turn away tenants
  • Upgrades and renovations can be restricted
  • Less privacy for tenants
  • Fewer facilities including pools, backyards and outdoor areas

What are the disadvantages of investing in a home?

  • Higher purchase prices
  • Maintenance of grounds including gardens and pools
  • No strata or body corporate to assist with building maintenance or compliance

What type of property is the best to invest in?

Ultimately, there is no clear winner when deciding between houses or apartments. Instead, the key is to assess each opportunity on a case-by-case basis, determining which is the right purchase for you.

Need help deciding? That’s where we come in. To find out more about whether an apartment or home is the right investment for you, contact our team on (02) 9095 6888 or [email protected]