Your HOME Your MORTGAGE

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Your HOME Your MORTGAGE Powered By Docstoc
					Your HOME
Your MORTGAGE
A home buyers guide
CONTENTS


                                         Introduction
                                         From the moment you turn the key in the lock and
                                         take those first few steps through your new front
                                         door, the feeling of owning your own home is second
                                         to none. But the path to home ownership can be
                                         stressful and if you’re not fully prepared, it can prove
                                         to be a time of great confusion, indecision and hard
                                         work – especially when it comes to finance.
Mortgages
                                         Your Home, Your Mortgage aims to arm home buyers
Mortgage Managers                    1
                                         and investors with essential know-how and proven
Tips for saving your deposit         2   techniques to ensure you avoid the common pitfalls
Refinance                            3   of financing a property.
Government incentives                4   With good buying opportunities across most markets
Borrowing within your means          5   – whether you’re buying a home to live in or for
Interest rates and your mortgage     6   investment – knowledge and insights into the home
Lenders mortgage insurance           7   buying process can give you a solid head start.
Loan types                           8   Throughout this handy guide you’ll find practical
Co-ownership                         9   advice and helpful worksheets to steer you through
                                         the whole process – from researching the market and
Managing your mortgage              10
                                         securing finance through to negotiating your property
Loan pre-approval                   11   purchase and final settlement. We particularly focus
Purchase/moving checklist           12   on the benefits of securing your mortgage via a
                                         Mortgage Manager rather than a mainstream lender.
Property                                 So whether you’re looking for your dream home
Buying skills                       13   or your first investment property Your Home, Your
Buying tips                         14   Mortgage provides insight and support every step of
Pre-purchase inspection checks      14   the way.
Your property wishlist              15   I wish you every success in your hunt for your dream
Purchasing an investment property   16   property.
Buyer’s agents                      18   Sincerely,
Moving your family                  19
Protecting your biggest asset       20
Your move                           21   Editor
                                                 MORTGAGE

Flexibility, surety
and service
Mortgage Managers are a key source of finance for Australians.
They provide mortgage finance services,          repayments, receiving insurance renewals,
with some specialising in servicing particular   interest rate adjustments and loan variations.
types of borrowers, such as self-employed,       Whatever happens through the life of the
first home buyers or those with a tarnished      loan, a Mortgage Manager is there to help.          Mortgage Managers are
credit history.
                                                 Are Mortgage Managers safe?                        with you for the life of your
Like banks, they offer a range of products
to meet borrower needs. However, because
                                                 Yes. Mortgage Managers do not lend their           loan; they are responsible
they are smaller and have access to different
                                                 own money for home or investment loans             for recommending a loan,
                                                 – they source their funds from elsewhere,
debt solutions they can provide you with                                                          helping with the application,
                                                 and this has significant benefits.
a stronger, more intimate service that is                                                         arranging the funds for your
personal and more specialised – a service to     Importantly, Mortgage Managers do not
suit your needs.                                 accept deposits or loan repayments –
                                                                                                   loan and ongoing customer
                                                 they are not banks.                              services through each phase
Mortgage Managers offer loans for diverse
types of properties: residential, commercial,    Mortgage Managers arrange and service                   of your loan’s life.
industrial, retail, from a variety of funding    home and investment loans using
sources.                                         funds from sources such as unit trusts,
                                                 superannuation funds, securitised funds and
They are responsible for recommending
                                                 even the banking sector itself.
a loan and assisting with the application
process, then arranging the funds for your       Some banks use Mortgage Managers to
loan and the ongoing, prudent management         provide loans. This reduces their need to
of customer service through each phase           support costly branch networks, and they
of your loan’s life. This can include credit     can allow Mortgage Managers to pass on
assessment to the monitoring of loan             very competitive rates to home buyers.




                                                                                                                                1
MORTGAGE
Who is responsible for the                      How does a Mortgage Manager
mortgage?                                       get paid?                                         Why use a
The lender is not the Mortgage Manager;         Mortgage Managers receive payments from
Mortgage Managers provide loans from            two main sources: application fees, which         mortgage
professional lenders which may be from
banks, investment trusts and some of
                                                help offset the cost of establishing your loan,
                                                and management fees paid by the providers
                                                                                                  manager?
Australian’s biggest non-bank lenders.          of the funds for the ongoing management           •	 Designed for you – Mortgage
These may be provided by a professional         of the loan. These may be reflected in the           Managers grew out of borrower
trustee or custodian company, which gives       interest rate that you pay on your loan.             frustration about bank pricing and
you peace of mind that your mortgage            What is the difference between a mortgage/           their customer service proposition.
provider is secure and that your mortgage is    finance broker and a Mortgage Manager?               Rather than charging huge margins
properly and professionally managed.                                                                 on the money they lent, the first
                                                A mortgage/finance broker introduces a
If your Mortgage Manager ceases trading,                                                             non-banks sought to share that
                                                borrower to a lender but has no ongoing
the Mortgage Manager or lender could                                                                 margin with the customer, which
                                                involvement with the mortgage. All ongoing
simply appoint another Mortgage Manager                                                              meant lower interest rates and
                                                customer service is left to the bank or lender
and your mortgage would carry on as                                                                  therefore lower repayments –
                                                who provides the loan.
before, but under new management.                                                                    something that resonated with
                                                The Mortgage Manager is responsible
Mortgage Managers are a key provider of                                                              borrowers. Non-banks are today still
                                                for managing the loan and servicing all
non-bank funding and have brought strong                                                             competitive with the major banks.
                                                your customer needs from the time it is
competition to the home loan market.
                                                provided, until the borrower’s payment of         •	 Service first – Non-banks are
They are subject to competition from other
                                                the final repayment of the loan, ensuring that       typically boutique businesses
sections of the finance industry, which
                                                your needs are understood and providing              compared to banks. They are usually
ensures they offer competitive interest rates
                                                customer service for the life of your loan.          mainly focused on mortgages and
and service.
                                                                                                     are often more nimble than the
                                                                                                     banks – allowing them to make

 Tips for saving your deposit                                                                        decisions quickly.
                                                                                                  •	 Customer focused – Large lenders
 Saving for that all important deposit can be tough, but here are three                              typically have rigid lending criteria
                                                                                                     based on complex risk assessment
 winning tips to help set you on your way to home ownership, fast!
                                                                                                     models. Mortgage Managers on the
 Put your goals in writing:                     credit card. If you can’t pay it off in one          other hand may be more flexible and
                                                lump sum, ensure that you pay more than              willing to look at a client’s particular
 Setting a financial goal will make it much
                                                the minimum monthly repayment. You’ll                circumstances rather than view them
 easier to plan and save successfully.
 Make a conscious effort to track your          not only slash your debt, you’ll also have           simply as another transaction.
 expenses so you can see where your             extra funds to channel into other debt              This boutique approach means
 money’s going and cut back where you           commitments or even savings.                        they’ll work hard to win and keep
 can. Small sacrifices, such as taking the      Make your savings work                              your business, beyond just looking
 bus instead of a taxi, cutting back on         harder for you:                                     at your ability to meet repayments to
 buying coffee or bringing your lunch to                                                            determine your ability to borrow, and
                                                Making cutbacks on your lifestyle is one
 work can also go a long way towards                                                                providing a personalised service to
                                                thing, but putting that money to use is
 helping you save.                                                                                  you for the life of your loan.
                                                another. Remove the temptation to spend
 Beat the credit monster:                       your savings by arranging a set amount to
 Credit card debt, unpaid bills and personal    be taken out of your pay each month and
 loan repayments can be major setbacks          put directly into a savings account
 to your saving efforts. As part of your        Shop around, and seek a high interest rate
 saving strategy get these debts paid off.      savings account to get the best returns
 Start by paying off your debts that have       – many banks now offer an online high
 the highest interest rate – typically your     interest account.


 2
                                                 MORTGAGE

Switching
for a better deal
Your life never stands still, and neither should your mortgage. If change is afoot, it might be
time to search for a more suitable product – and lender.
If your bank loan doesn’t suit your lifestyle    Pay off your mortgage faster!                     as you are capable of meeting your loan
or personal situation you could be wasting       If you’re striving to be mortgage free,           repayments, refinancing your mortgage can
thousands of dollars a year on extra interest,   there’s a good chance there may be a more         help you tap into the value that you’ve built
fees and features you don’t need.                appropriate product to meet your needs.           up, using it for other purposes, such as
You may be able to find a loan with a            Some mortgage products are designed to            purchasing an investment property.
Mortgage Manager that’s more appropriate         motivate borrowers to repay their mortgages       Avoid monthly fees and charges
for your needs, with more suitable features      quickly, so now is the perfect time to talk to
                                                                                                   Some lenders charge a monthly service fee
and a competitive interest rate to match.        a Mortgage Manager and consider whether
                                                                                                   – further adding to your debt. Competition
                                                 a new loan will see you on the road to
Mortgage Managers offer a compelling                                                               between lenders has increased and some
                                                 financial freedom – fast!
alternative to the high street banks and you                                                       now waive administration fees, so refinancing
may well find that their products might better   Better interest rates and lower                   your home loan with another provider can
suit your needs and situation.                   repayments                                        be a smart move to help cut your
If you think that there may be a better          Rates and mortgage deals are constantly on        mortgage costs.
alternative to your present home loan give us    the move. To make the most of a competitive
a call. Here are some key reasons to prompt      mortgage market, you might want to
a review of your mortgage:                       evaluate the loan product you currently have.
Consolidate your debt
                                                 For example, you may want to go for a                 If you’re striving to be
                                                 lower variable-rate, or lock into a fixed-rate.
Consolidating debts, such as credit cards                                                              mortgage free, faster,
                                                 Break costs can be expensive though,
or personal loans, into your home loan can       so you’ll need to check that you’ll come out       there’s a good chance there
save you thousands of dollars in interest        ahead when all costs are considered.                may be a more appropriate
charges. Rolling your debts into one monthly
or fortnightly repayment can also help make      Unlocking equity                                   product to meet your needs.
juggling your finances a little easier, while    As you pay off your mortgage you’ll
improving your cash flow to boot.                accumulate equity in your home. As long



                                                                                                                                              3
MORTGAGE
Capitalise on
government incentives
It can be hard for first time buyers to get a foothold on the home ownership ladder,
but take heart – there are various government grants and concessions that can help
offset some of the expenses when getting started.
Before you start searching for your dream      Note: Details are current as at print date and      Some first home buyers, vacant land
home, take some time out to learn more         should be confirmed with your local Office of       holders and farm buyers may be entitled
about these benefits. If you’d like more       State Revenue or equivalent body.                   to some exemption or discount on stamp
information about government incentives        Stamp duty breaks and                               duty in some states. So it pays to check out
give your Mortgage Manager a call.                                                                 whether any apply to you through contacting
                                               concessions
                                                                                                   the revenue office in your state or territory.
                                               Some of Australia’s State Governments
                                               have concession waivers of the stamp duty           Note: Details are current as at print date and
                                                                                                   should be confirmed with your local Office of
                                               associated with a property purchase.
     There are some financial                                                                      State Revenue or equivalent body.
                                               Stamp duty is a tax applied to certain
       advantages to being
                                               property transactions. For example, when
        a first time buyer.                    land is sold, transferred or leased stamp
                                               duty is generally payable.                            Need more
                                               It is usually the buyer, not the seller, who
                                               is liable to pay stamp duty. Payment must             information?
First Home Owner Grant                         generally be made within three months of              For further information on the First Home
First home buyers across Australia may         the purchase, otherwise penalty interest              Owner Grant or details on stamp duty
be eligible for the Federal Government’s       may apply.                                            breaks contact your state’s relevant
First Home Owner Grant (FHOG) – which          The amount of stamp duty payable depends              government office.
is a one-off, tax-free $7,000 gift from the    on which state the property is in, the value          ACT – www.revenue.act.gov.au
Government.                                    of the property and the amount for which it
                                                                                                     NSW – www.osr.nsw.gov.au
As long as you’re a first time buyer above     is sold, transferred or leased. If payable, it is
18 years of age, and an Australian citizen     calculated on its market value and the price          NT – www.nt.gov.au/ntt/revenue
or permanent resident, you’ll most likely be   paid by the buyer.                                    QLD – www.osr.qld.gov.au
eligible for the grant.                        Each State Government has its own                     SA – www.revenuesa.sa.gov.au
The grant is administered by each state        rules surrounding stamp duty on property              TAS – www.sro.tas.gov.au
and can differ depending on each state’s       purchases. For this reason, the exemptions
                                               and concessions available differ from state           VIC – www.sro.vic.gov.au
respective legislation. For more information
on the FHOG in your state visit                to state.                                             WA – www.osr.wa.gov.au
www.firsthome.gov.au or speak with your
Mortgage Manager.



 4
                                             MORTGAGE

Borrowing
within your means
Your lender will assess your loan and affordability to estimate a maximum borrowing
amount. However it’s essential that you work out what you can afford and what
repayments you feel comfortable with.
The choices you make when taking out a       Lenders will also need to assess your           Am I being realistic?
mortgage have long lasting implications –    circumstances to work out how much              Houses are like stepping stones – it’s
so you need to approach borrowing with a     to lend you. As a general rule, the bigger      probably best to start with something
healthy attitude.                            deposit you have and the higher your            affordable and move towards your dream
When determining your borrowing              income, the more they should be willing to      home as your personal earning capacity and
capability, start by measuring your          lend; however they will still need to assess    equity grows.
income against expenses, including your      your circumstances.
                                                                                             What are my plans?
mortgage repayments. While everyone’s        All lenders will need to determine a
                                                                                             Think about what the future holds – both
circumstances and expenses are different,    loan suitable to your circumstances but
                                                                                             personally and financially. Are you a one or
a good starting point is that no more than   Mortgage Managers can get to know your
                                                                                             two income household and is this likely to
35 per cent of your gross monthly income     circumstances personally – and may have
                                                                                             change in the future?
should go towards servicing your mortgage.   a little more flexibility than the banks to
                                             consider applicants on a case-by-case           What about interest rates?
                                             basis.                                          Consider how any rate rise will impact on
                                             Here are some factors to take into account      your ability to make repayments and factor
                                             when determining how much you should            that in when setting your borrowing limits.
      Ultimately the choice                  borrow:                                         And don’t forget, there are added extras
     is yours – so be careful                How much debt can I handle?
                                                                                             when purchasing a house, like in some
        not to over commit                   Don’t over commit. Borrowing too much
                                                                                             states stamp duty and mortgage duty,
                                                                                             solicitors and application fees, as well as
              yourself.                      can be a big strain on your personal life and   ongoing commitments including council
                                             lifestyle. Think about what aspects of your     rates, possible strata fees and utility bills –
                                             lifestyle you may be willing to give up, and    so consider these costs when determining
                                             those that you can’t.                           how much you think you should borrow.


                                                                                                                                          5
MORTGAGE
Interest rates and how
they affect your mortgage
While rates move up and down you should always consider the impact they will
have on your mortgage.
The rate of interest you’ll pay on your           The type of rate
mortgage depends on a combination of              Rates move up and down in line with the           Lessen the impact
factors. This can include the Reserve Bank
of Australia’s (RBA) cash rate, your lender
                                                  economic current cycle. When rates look like
                                                  going up some borrowers choose to fix their
                                                                                                    of a rate rise
and the type of loan you have.                    home loan rate – or ‘lock in’ a rate for a set    Should rates rise, there are a number of
When working through your loan options            period of time.                                   effective ways to lessen the impact on
with your Mortgage Manager there are                                                                your finances:
                                                  If you’re considering this option, it’s
a number of issues to keep in mind to             important to remember that a fixed interest       Factor in possible hikes – Leave room
ensure you’re getting the most appropriate        rate is usually higher than the current           for a number of interest rate rises when
mortgage for your needs.                          variable rate. However, if rates are on the       you assess how much you can afford
The type of loan                                  rise and you’re concerned they’ll keep going      to borrow – this is essential, particularly
                                                  up, fixing your rate will ensure consistency in   as rates are likely to rise at some stage
Different loan types tend to come with
                                                  repayments each month. However, if rates          during the life of your loan. You may have
different interest rates. So if your loan has a
                                                  go down you will still be required to make        to reduce your mortgage amount slightly
range of features, such as re-draw, offsets
                                                  loan repayments at the fixed interest rate        or purchase property that’s at the lower
or early repayment facilities, you’ll usually
                                                  until the expiry of the fixed rate period.        end of your price range as a result.
pay a little more in interest.
                                                  Alternatively a split loan can give you the       Interest only – If you have a loan and
Alternatively, while a basic loan doesn’t have
                                                  best of both worlds: a part fixed-rate and        you are really struggling to keep up with
all the bells and whistles of other products
                                                  part variable-rate loan. This means that if       rate hikes, you can consider changing
the interest rate is typically lower.
                                                  rates rise, a proportion of your loan will be     to an interest-only loan for a while. While
When assessing which loan best suits              protected – minimising the impact of higher       not an effective long-term strategy for
your needs, ask your Mortgage Manager             monthly repayments. If on the other hand          owner-occupiers, it might be an option
to explain how the different features work        rates fall your fixed-rate will remain higher     while you deal with the here and now.
to assess whether they are worth paying a         and the variable part of the loan will fall.      Refinance – Your situation may have
higher rate for.
                                                                                                    changed from when you first took out
For example, if you’re looking to drive                                                             your mortgage – for example you’ve now
your mortgage down quickly or would like                                                            only got one person in the household
flexibility in your repayments, it may be worth                                                     earning a salary. Rates between lenders
paying for the features needed to do this                                                           are also changing dramatically as
most effectively.                                                                                   competition amongst lenders increases.
                                                                                                    Ask your Mortgage Manager what
                                                                                                    products and rates are available that
                                                                                                    could better suit your situation.



 6
                                                 MORTGAGE

Lenders Mortgage
Insurance
Lenders Mortgage Insurance can help you enter the market sooner.
Lenders Mortgage Insurance (LMI) helps           The bigger the percentage of the property’s
Australian homeowners enter the market           purchase price you have to borrow, the
earlier through allowing you to borrow a         greater the amount you’re likely to pay on
higher percentage of a property’s value.         insurance. So if your deposit is less than     LMI covers the lender
                                                 20 per cent, and especially if you have no    if you default, it doesn’t
For first home buyers, particularly those
                                                 deposit at all, you will need to factor LMI
struggling to save a deposit but more than
                                                 into your home loan.
                                                                                                      cover you.
comfortable to meet their mortgage repay-
ments, it can be a key tool to break free of     Remember that in some cases lenders
the rental trap.                                 may require LMI even if you have a lower
                                                 deposit, depending on the type and style of
Through financing a higher proportion of a
                                                 property you’re purchasing – for example
property’s purchase price lenders take on
                                                 some inner-city apartments or rural land
a higher level of risk should you fail to meet
mortgage repayments, and the property            LMI is usually paid as a one-off lump sum
needs to be repossessed and resold.              at the time of settlement but in many cases
                                                 it can also be added into the loan amount
LMI is therefore paid by you to insure your
                                                 and paid off as part of your repayments
lender against loss should this happen. It is
                                                 over the life of the loan – a term known
important to be aware that LMI only covers
                                                 as capitalising the LMI. Speak with your
the lender if you default, not you.
                                                 Mortgage Manager to assess whether this
                                                 option is right for you.




                                                                                                                            7
MORTGAGE

  The pick
  of the bunch
There’s a huge choice of home loans available, but to find the one that best suits your
situation you’ll need to do a bit of homework.
Making yourself familiar with the most            loans allow you to borrow money for a set        Split-rate home loans
popular loan products available will give you     period of time, during which you make            Want the best of both worlds? A split-rate
a good head start when discussing your            regular repayments. The interest rate can        home loan offers both flexibility and security.
loan options with your Mortgage Manager.          vary depending on fluctuations in the official
                                                                                                   A good product for both first time and
Here are just a few of the product types          cash rate so it is likely to go up or down
                                                                                                   existing borrowers, split loans allow you to
you’re sure to come across:                       depending on the market cycle.
                                                                                                   customise your loan’s interest rate as you see
Basic home loans                                  Fixed-rate home loans                            fit: fixing a portion of your interest rate to give
                                                  Worried about rising interest rates?             certainty to part of your monthly repayments
Basic home loans or ‘no frills’ loans offer
                                                  A fixed-rate home loan will allow you to         should rates increase, but also flexibility
borrowers a loan with a low interest rate.
                                                  fix your interest rate for a specific period,    through taking out a variable-rate portion.
This interest and principal repayment loan is
                                                  usually from one to five years. It’s a sound
a popular choice among first home buyers.                                                          Interest-only home loans
A basic home loan’s interest rate can be half     option when interest rates are on the rise,
                                                                                                   Interest-only loans offer borrowers lower
to one per cent below the standard variable       or in times of economic uncertainty.
                                                                                                   repayment options, while maintaining many
rate, which is sometimes combined with            Should interest rates plummet, however,          of a traditional loan’s features.
minimal ongoing fees. Potential drawbacks         you’ll still have to pay off your mortgage at
                                                                                                   This type of loan allows you to pay only the
can include limited features, less flexibility,   the fixed-rate until the end of the agreed
                                                                                                   interest component on a mortgage; it does
and additional charges if you decide to           fixed-rate period. Additionally, keep in mind
                                                                                                   not reduce the principal component.
switch loans or pay the loan off sooner.          that you may be charged a fee should you
                                                                                                   They are a popular choice for investors who
                                                  decide to break your fixed term or switch to
Standard variable-rate                                                                             may wish to maximise negative gearing
                                                  another product.
home loans                                                                                         benefits of good capital appreciation on
A popular mainstream choice, standard                                                              their investments.
variable-rate interest and principal home




 8
  Products at a glance
                                                    MORTGAGE                                        Boost your
  Basic home loans                                  Split-rate home loans                           buying power
  Pros
  Interest rates are often half to one per cent
                                                    Pros
                                                    Fix a portion of your interest rate to give     through
  below the standard variable rate.
  Cons
                                                    certainty to monthly repayments while also
                                                    benefit from a variable-rate portion should     co-ownership
  Limited features, less flexibility and possible   rates drop.
  penalty fees for early loan repayment.            Cons                                            Buying through co-ownership is quickly
                                                    If interest rates do drop you’ll be left        becoming a popular strategy for budding
  Standard variable-rate                            paying a higher rate for your fixed-rate        investors hoping to enter the property
  home loans                                        portion.                                        market but without the capacity to do
                                                                                                    it alone.
  Pros                                              Interest-only home loans                        Through pooling resources with a friend
  Make regular repayments based on the
  current interest rate. Effective if rates do      Pros                                            or family member you can increase your
                                                    Pay only the interest component on your         buying power. There are a number of
  not rise.
                                                    mortgage.                                       other benefits as well.
  Cons
  Should interest rates increase, your regular      Cons                                            A joint purchase, for example, can help
                                                    Repayments do not reduce the principal          ease the deposit burden as you’ll only
  mortgage repayments will rise.
                                                    component of your mortgage.                     need to pay a portion of the deposit.
  Fixed-rate home loans                                                                             There are also other costs that can be
                                                    Low-doc home loans                              split, such as stamp duty, legal fees
  Pros                                                                                              and maintenance.
  Fix your interest rate for a specific period,     Pros
                                                    Can help you enter the property market          However, there are a number of pitfalls
  giving certainty to regular repayment
                                                    if you’re a self-employed, contract or          that you need to be aware of when
  amounts.
                                                    seasonal worker without regular income or       purchasing via co-ownership.
  Cons                                              proof of income.                                Importantly, you need to pick your
  Should interest rates fall you’ll still need to                                                   partner carefully and ensure you have
  repay your mortgage at the agreed fixed           Cons
                                                                                                    the same overall goals.
  rate. There are potentially also high break       Typically have higher interest rates.
                                                    You may also have to pay LMI.                   Key to this is a firm legal document
  costs payable of you wish to end the fixed
                                                                                                    outlining the partnership and the
  rate term early.
                                                                                                    conditions for selling the property,
                                                                                                    plus other associated issues. There are
                                                                                                    also a number of different options for
                                                                                                    financing the investment – give your
                                                                                                    Mortgage Manager a call to discuss
Low-doc home loans
                                                                                                    what strategies are available
If you’re a self-employed, contract or              Low-doc home loans are not as readily           to you.
seasonal worker and do not have a regular           available – and tend to have more
income, a low-doc loan may be a solution.           restrictions – following the global financial
While making home ownership a possibility           crisis as lenders have sought to minimise
for a cross section of Australian workers           their risk exposure to these types of loans.
that previously found it difficult to secure a      Call your Mortgage Manager to find out their
mainstream bank loan, most low-doc home             policy on this type of product if you think
loans typically have higher interest rates.         that it might suit your situation.




                                                                                                                                              9
MORTGAGE

Get a head start
with a pre-approved loan
Competition for property can be fierce. Put yourself ahead of the pack with a
pre-approved loan.
What’s pre-approval?                              These should include proof of your income
Sometimes referred to as an approval-in-          – such as a letter from your employer or       Why secure a
principle, pre-approval is a general indication   copies of your pay slips – proof of identity
of how much you’re able to borrow based           and details of any assets you own.             pre-approval?
on the information you provide to your            Other paperwork might include details of       •	 Peace of mind – A pre-approval
Mortgage Manager.                                 any existing loan commitments and limits          gives you the confidence of knowing
Although subject to terms and conditions,         on credit cards. Once your financial status       how much you can borrow when
a pre-approval basically gives you the green      has been given the tick of approval by            buying a property.
light on your home loan even if you’ve not        your Mortgage Manager, you’ll receive a
                                                                                                 •	 Jump the queue – Having your
yet decided on a particular property.             pre-approval notification that will see you
                                                                                                    home loan pre-approved enables
                                                  on your way to home ownership in little or
The amount of the pre-approval is usually                                                           you to seize the opportunity and act
                                                  no time at all.
determined by your ability to meet the loan                                                         quickly when you find the property
repayments. Most pre-approvals are valid for                                                        you want.
up to three months.
                                                                                                 •	 Stronger bargaining power –
Just remember that even with your                     A pre-approval basically                      A pre-approval can sometimes help
pre-approval, your purchase must still meet
                                                      gives you the green light                     you negotiate a better price with the
all of your Mortgage Manager’s requirements                                                         seller, especially if there are fewer
prior to obtaining final approval (including         on your home loan even if
                                                                                                    stringent conditions upon the sale.
valuations, if applicable).                            you’ve not yet decided
                                                                                                 •	 Ability to bid at auctions –
How do you get pre-approval?                               on a property.                           Under the conditions of most sale
To kick start the pre-approval process you’ll                                                       contracts, a pre-approval can
need to give your Mortgage Manager some                                                             allow you to bid at auction for the
key documents.                                                                                      property of your choice. However
                                                                                                    you will be responsible to meet the
                                                                                                    rest of your obligations under the
                                                                                                    contract including if unconditional
                                                                                                    approval is not obtained. You should
                                                                                                    seek advice on the contract before
                                                                                                    bidding at an auction.

10
                                                 MORTGAGE

How to manage your
mortgage more effectively
While there’s no getting out of your mortgage repayments (unless you strike a financial
windfall and can pay it off!) there are ways to make paying off your loan easier.
Here are five proven tips to better manage       of your loan. When extra funds come your         Direct debit
your mortgage.                                   way, like tax refunds, put them straight into    Arrange for your mortgage repayments to be
                                                 your home loan as well – it can really make a    direct debited from your pay, so you always
Set a budget
                                                 difference in the long term. Just keep in mind   make them on time.
Work out your expenses (fortnightly or
                                                 that you may be charged a fee for making
monthly) and factor in your mortgage
                                                 additional payments on your mortgage             Don’t be late
repayments. You might need to cut back on                                                         If you’re struggling to meet your repayments,
                                                 depending on the type of loan you have.
spending in certain areas to make sure your                                                       speak to your Mortgage Manager. It may be
mortgage is a priority. Keep a diary of your                                                      possible to restructure your repayments or
spending and stick to your budget.                                                                consolidate other debts into your home loan
Cut your debt                                                                                     under certain circumstances.
Reduce the number of credit cards you
have (ideally down to one), reduce credit
limits and use your cards sparingly.
Having a mortgage means taking control                                                                A small change can really
of your spending.
                                                                                                        make a difference to
Pay more than the minimum                                                                                your loan over the
Making fortnightly repayments can have
                                                                                                             long term.
a big impact, minimising on interest over
the long term. Through this strategy you
essentially make 13 monthly repayments
over the course of a year, rather than 12.
This extra month’s repayment helps reduce
your principal, which can potentially save
thousands in interest repayments over the life


                                                                                                                                           11
MORTGAGE
Are you ready
to move in?
Your step-by-step checklist for being
home owner ready!

 Arranging your finances
     Contact your Mortgage Manager to explore financing options
     Arrange supporting documents (i.e. pay slips, group
     certificates, credit card statements and other relevant
     documents)
     If using a mortgage broker ensure to ask them about the
     products offered by Mortgage Managers and how they may
     better suit your needs
     Submit loan application with all supporting documents
     Obtain pre-approval

 Note: Finance can be secured before or after you find a property. However   Moving in
 borrowers should consider a pre-approval so that they have a true
 measure of their borrowing capacity before they commit to a purchase.        If currently renting, advise landlord that you’re moving
 Pre-approvals are usually always subject to further conditions.
                                                                              Collect bond from rental agency
                                                                              Arrange disconnection of utilities and cleaning of old
 Buying your house                                                            premises (if required)

     Engage a solicitor or conveyancer to check sale contract                 Arrange quotes from removalist companies/schedule
                                                                              moving times
     Place offer for home/win at auction
                                                                              Connect the gas, electricity and other utilities
     Complete building and pest inspections, strata and title
     searches                                                                 Connect pay TV and internet

     Sign contracts and submit agreed deposit                                 Connect new phone line

     Arrange insurance (contents, building and/or income                      Redirect mail (can be arranged through your local post office)
     protection)                                                              Redirect newspaper delivery
     If applicable, process first home owner grant (FHOG)                     Advise family and friends of new address/phone details
     Complete settlement                                                      Clean up home before you move in
     Pick up keys                                                             Move the family in!



12
                                                        PROPERTY


Better buying
Arm yourself with some essential buying skills for purchasing property via
auction or private sale.
Both private sale and auction have               Cons                                            doesn’t always give you the scope to do.
positive and negative points from a buying       On the flipside, one of the downsides of a      Moreover, there’s the advantage of knowing
perspective. Once you’ve found your dream        private sale is the possibility that multiple   the property is yours there and then, rather
home, keep these points in mind when             offers may be made to the vendor without        than having to spend weeks or months in
purchasing under either situation.               your knowledge. This can work against you       negotiation.
                                                 if another party makes a higher offer that is   Cons
Buying via private treaty
                                                 accepted by the vendor, when you might          One of the disadvantages of buying at
A private sale is popular from a buyer’s
                                                 have been willing to make a similar offer       auction is the limited scope to negotiate the
perspective for several reasons, but top of
                                                 eventually.                                     terms and conditions of the sale contract.
the list would have to be the control and
flexibility it can offer.                        Buying at auction                               After a final bid is accepted, there is no
                                                 Purchasing a property at auction involves       cooling-off period – you must put the
Note: Terms and conditions of this buying
method may vary according to state.              bidding against other parties, and the          deposit down immediately. The other
                                                 competition can get fierce! For this reason,    possible downfall is the tendency for
Pros                                                                                             competition to drive up the purchase price.
In a private sale, as a buyer you may be in a    purchasing at auction is often preferred by
                                                 experienced or confident buyers.                Be careful that you don’t get tempted in
strong position to negotiate the terms and                                                       the heat of the moment into making a bid
conditions of the purchase to suit you.          Less experienced or first time buyers
                                                 can purchase at auction too with the            that’s beyond what you can afford, or have
You may be able to make several offers over                                                      budgeted, to spend.
a period of time, without rushing or being       right approach.
locked into a binding contract.                  Pros
There is often a cooling-off period after your   Buying a home at auction allows you to
offer has been accepted, which also gives        see your competition face-to-face, and
you the chance to pull out of the purchase       get an idea of how many other parties are
should you change your mind.                     interested in the property. It also gives you
                                                 the chance to make a higher offer than a
                                                 competing buyer, something a private sale


                                                                                                                                           13
PROPERTY
 Buying tips for private sale and auction
 Private purchase                                  Auction                                         for example longer settlement terms or
 •	 Get a mortgage pre-approval – it will          •	 Attend	a	few	auctions	to	familiarise         less deposit down.
    establish your credentials as a serious           yourself with the process before you       •	 Thoroughly examine the property
    buyer and may give you leverage to                take the plunge.                              before bidding at auction, including
    negotiate.                                     •	 Obtain	a	copy	of	the	auction	rules	           pest and building inspections.
 •	 Do	not	sign	any	contracts	without the             and conditions and make sure you           •	 Most	importantly,	set your maximum
    approval of your solicitor.                       understand them well. Also have your          bidding limit and stick to it.
 •	 Insert an acceptance date into                    solicitor review the contract before
    your offer by which time it will lapse if it      you attend the auction, and ask them
    is not officially accepted.                       to negotiate conditions on your behalf –




Before you buy – inspections
and pre-purchase checks
Use this checklist to make sure your new home doesn’t contain any hidden surprises.

 Check required                                                         Completed
 Have a qualified builder inspect your property and provide
 a professional condition report and highlight any structural
 problems or issues, such as rising damp or old wiring.
 Obtain quotes for repair.


 Organise pest inspection.




 Check the local council’s building regulations should you
 plan to renovate and determine any restrictions that may
 apply before you buy.


 Have all legal aspects relating to the land and title
 checked by your solicitor or conveyancer.



 Check with the council on zoning or any upcoming
 developments nearby – particularly those in your
 immediate neighbourhood, such as new roads and
 highways or high-rise, high-density unit developments.

 Ensure all appliances work (i.e. dishwashers, stoves,
 hot water systems).



14
                                                       PROPERTY
What are you looking for?
Searching for your ideal property is so much easier, when you have clear picture of
what you need and what you want.
Finding a property can be a challenge, especially when you have      Give yourself a head start through determining your ‘must have’
so many different considerations to take into account.               features compared to those you could possibly live without.




  Features                              Essential Preferable Handy                                       Essential Preferable Handy
  Location
  Close to work                                                        Off-street car parking
  Close to schools                                                     North facing
  Close to parks                                                       Swimming pool
  Close to shops                                                       Security system
  Close to amenities (i.e. hospitals)                                  Fully renovated/landscaped
                                                                       – no work required
  Close to sports grounds/
  local clubs                                                          Requires renovation/landscaping
                                                                       – work required
  Close to train station/bus routes/
  public transport                                                     No steps
  Close to family and friends                                          Low maintenance
  Close to leisure and                                                 Street lighting
  entertainment (i.e. cinemas)
  Internal features
  Separate dining room
  Separate children’s rumpus
  room/parents retreat
  Open plan layout
  Guest room/area
  Additional toilet/bath
  Study
  Modern kitchen
  Built-in heating/cooling system
  Built-in wardrobes
  Additional storage
  External features
  Fully-fenced yard
  Double/lock-up garage or
  workshop
  Gas cooking/heating
  Outdoor area


                                                                                                                                       15
PROPERTY
How to use the equity in
your home to finance an
investment property
Realise your property investment goals through capitalising on the equity
built up in your home.
The idea of property investment is one that      Example                                        Their Mortgage Manager suggested that
appeals to many Australians but is sadly         Dan and Jessica bought their four bedroom      they get a valuation of their home, and they
often overlooked because of the                  family home in Rockhampton in 2003 for         discovered that it was now estimated at
misconception that it is only within the         $247,000 putting down a $49,400 deposit        $480,000.
reach of the wealthy.                            and taking out a loan for $197,600.            Over the years Dan and Jessica had paid
The reality is that with the right finance,      The couple recently decided that they’d look   $48,000 off their original loan leaving
planning and strategy, owning an investment      at breaking into the investment market so      $149,600 owing on the property.
property may be easier to achieve than           they contacted their Mortgage Manager to       Today’s valuation of the property, less the
you think.                                       discuss potential finance.                     outstanding loan, left them with $330,400
Ease the deposit burden                                                                         worth of equity.
One of the key challenges to breaking into                                                      Their Mortgage Manager suggested that
property investment is raising a deposit,                                                       they consider refinancing their own home to
but there are solutions. Property buyers are                                                    the loan ratio of 50 per cent to free up some
typically required to contribute 20 per cent                                                    equity for an investment. Based on the
of the property’s value, and for some this                                                      current property value that would give them
can be a stumbling block. But existing home                                                     a loan of $240,000 – making an additional
owners may be able to unlock equity – or                                                        $90,400 available for investment purposes.
the increased value – that’s built up in their                                                  This strategy appealed to Dan and Jessica
own home to cover some or even all of the                                                       because otherwise they would have needed
down payment on an investment property.                                                         to liquidate their managed funds to raise
The following scenario illustrates how                                                          the deposit for the investment property
borrowers can capitalise on the equity                                                          and this was not a viable option as these
in their homes to purchase an                                                                   fund balances were low due to recent poor
investment property.                                                                            performance.




16
                                                 PROPERTY



They decided to put down a 20 per cent
deposit on a $350,000 two bedroom                                          First time
apartment and take out an 80 per cent loan.
                                                   You may be able to      investors
The deposit came to $70,000 leaving a            realise your investment
further $20,400 to cover stamp duty and                                    First time buyers can also crack the
other expenses while a $280,000 loan              goals by putting your    investment market without having to
covered the rest of the purchase price.         current property to work   scrape together a huge deposit.
Now that Dan and Jessica had a bigger loan                for you.         Traditionally lenders would look for a
on their home their repayments had gone                                    20 per cent deposit from property buyers
up, but they were pleased to discover that                                 but today it’s possible for certain types of
the repayment on their investment property                                 applicants to borrow up to 95 per cent of
was almost completely covered by the                                       a property’s value with the help of lenders
$385 weekly rental the investment property                                 mortgage insurance (LMI).
was generating.
                                                                           LMI essentially protects the lender
And because the couple managed their                                       against the risk associated with providing
investment themselves they reduced the                                     borrowers with a higher percentage loan
overheads against the gross rent. By taking                                in the event that they default.
out an interest-only loan they also minimised
                                                                           The cost of LMI can often be added to
their monthly outgoings and improved their
                                                                           the overall loan amount, reducing the
cash flow.
                                                                           overall initial outlay.




                                                                                                                    17
PROPERTY

  Ready, set, buy –
  the role of buyer’s agents
It’s well known that real estate agents act on behalf of the vendor, but did you know that
there are also professionals that provide a service to buyers?
Buyer’s agents are gaining popularity with      understanding of the market as well as the
time poor buyers and those with less            sales process – which can certainly be an
experience or confidence in the market.         advantage for those who lack confidence.           Buyer’s agents can
They can be engaged to identify suitable
properties and even take on the negotiations
                                                For investors it’s worth noting that the          provide services such
                                                cost of engaging a buyer’s agent may be
with real estate agents or vendors.                                                             as assistance with finding
                                                tax deductible, as with many of the other
They are particularly handy in markets where    associated costs involved with a property          suitable properties,
there’s a certain amount of uncertainty, such   purchase; however owner-occupiers will          negotiating the purchase
as the current climate where prices are         probably have to absorb the full cost.              terms – ideal if you
climbing rapidly in some areas and stagnant     Charges can vary from a flat fee to a              are pressed for time
in others.                                      percentage of the property purchase               or lacking experience.
Some buyers seek the services of an agent       depending on the services provided. You
to avoid trawling through property listings,    may be able to pay a smaller amount if you
pounding the pavement visiting open             are only after representation at an auction.
houses and haggling with estate agents.         If engaging a buyer’s agent appeals to you,
But for others, engaging a buyer’s agent can    look for a recommendation from friends
take much of the emotion out of negotiating,    or your broker and make sure you check
which some buyer’s agents claim can result      their credentials, fees and charges carefully
in a better purchase price.                     before engaging them.
Buyer’s agents are experienced in dealing
with real estate agents and have an in-depth




18
                                                     PROPERTY

Preparing the family
for the big move
While moving into a new home can be very exciting, it can be a bit challenging
for some families.
One of the most daunting parts of moving       Be positive                                       Keep them involved
can be sharing the news with the kids.         Your attitude will influence your family, so be   Younger children may be frightened if they
Communication is the key to a smooth           enthusiastic. Be realistic – adjusting could      have not experienced a move before. Giving
transition, so keep some of these tips in      take time and not every family member will        them the opportunity to help pack a special
mind when the time comes!                      be as excited about the move as you are.          “moving kit” of their own, with prized toys
Share from the start                                                                             and activities for the road or to keep them
                                               Be prepared
                                                                                                 busy while you unpack, gives them a sense
If you have children, it’s best to break the   Make a list of the positives about the new
                                                                                                 of control and security, as well as being a
news early on. They will feel involved and     house or neighbourhood, so you can
                                                                                                 lot of fun.
it will also give them time to get used to     mention these when you break the news.
the whole idea. Chat about their fears and     Think about the possible negatives as well        Older children could enjoy the opportunity to
uncertainties and try to be understanding.     so you can be prepared to tackle those            be involved in decoration of their new living
                                               head on.                                          space – which room, where their furniture
                                                                                                 would look best or selecting a new colour
                                               Inform them                                       for the walls!
        Give your children                     Provide your kids with lots of information
      plenty of opportunities                  about the new house and area, and what
                                               they can expect. If they will be attending a
       to ask questions and                    local school, find out as much information
       share their thoughts.                   about it beforehand and pay a visit before
                                               the move. This should help them feel more
                                               secure and make the adjustment easier.




                                                                                                                                          19
PROPERTY
Protecting
your purchase
When it comes to buying your new home, the insurance is just as important as
the home itself.
When it comes to buying your new home,             You’ll usually have a choice between two       repayments, providing you time to re-enter
insurance is just as important as the home         types of contents insurance: a policy that     the workforce or focus on regaining
itself. There are a number of types of             replaces the old goods with new ones or you    your health.
insurance you’ll need to consider: building or     can opt for an indemnity policy, under which   Speak with your Mortgage Manager if you’d
home insurance, contents insurance and             you’ll receive the depreciated value of what   like more information on any of these types
mortgage protection insurance to name a few.       was damaged. The choice is up to you!          of insurance – in many cases they may be
Building or home insurance                         Mortgage protection insurance                  able to recommend a qualified adviser that
Depending on the type of loan you’ve taken         Mortgage protection, while not mandatory       can assist you with your insurance needs.
out, it may be compulsory for you to take          for borrowers, can be an effective tool to
out building or home insurance to safeguard        help cover your mortgage should you find
the lender’s interest in the property. Even if     yourself unable to work through injury or
this is not mandatory, it is strongly advisable.   are diagnosed with a serious illness.            Tips to finding the
Building or home insurance covers you for          Typically mortgage protection insurance goes
                                                   towards the cost of your mortgage
                                                                                                    right insurance
damages to your property or its fixtures.
                                                                                                    Take time to shop around: Compare
Depending on your level of cover, you may
                                                                                                    the price of each policy with the cover
be able to protect yourself for anything from
                                                                                                    offered – don’t go for a cheap deal with
fire and storm damage to burglary.
                                                                                                    very little cover or pay top money for
Essentially, home insurance covers the cost                                                         cover you don’t really need.
of restoring your property to its present
                                                                                                    Engage specialists: Speak with your
condition if it is damaged. Make sure you
                                                                                                    Mortgage Manager for options on the
don’t underestimate these costs, as you
                                                                                                    insurances related to your new property
may end up seriously out of pocket in the
                                                                                                    purchase – they may well be able to
long run should disaster strike.
                                                                                                    recommend a professional who can
Contents insurance                                                                                  arrange the policies for you.
Contents insurance protects you in the                                                              Keep documents secure: Remember
case of loss or damage to your personal                                                             to keep copies of your insurance
belongings and items in your home, such                                                             policies, receipts and photographs away
as whitegoods, clothing and furniture. While                                                        from the house, as they won’t be much
you may already have contents insurance,                                                            help to you if they are damaged. Leave
it’s a good idea to update it after a move into                                                     a set at your parents or a friend’s house,
a new property – especially if you’ve decked                                                        for example.
out your new house with brand new furniture
and appliances.



20
                                                     PROPERTY

New home,
new community
Moving house can be one of life’s more exciting experiences, it can also be one of the
most stressful. To help ease the transition into a new home, it pays to think ahead.
Moving house can be one of life’s more         •	 Utilities: Find out about utilities (water,   •	 Neighbours: Pop over and say hello to
exciting experiences, it can also be one of       gas, electricity and phone) and what             your new neighbours. It’s always handy
the most stressful.                               you need to connect (including costs)            to have a good relationship with the
•	 Mail: Keeping on top of bills is a must,       before the big move to ensure your life          people in your neighbourhood, and they
   so make sure your post is redirected to        continues to run smoothly once you’re in         might have some tips to help you settle
   your new address as soon as possible.          your new home.                                   in quickly to the area.
   Make sure you remember to notify your       •	 Schools: If your move involves a change       •	 Budget: Moving into a new home is as
   bank and any other service providers or        in school for your children make sure            good a time as any to take a look at the
   regular billers about the move. The last       this is sorted out well before the move.         family budget and reassess your spending
   thing you want is to be late in paying an      Include them in the decision process to          priorities, as well as factor in any changes
   account or to miss out on any                  help them get excited about the move,            that might have occurred now that you’ve
   important news.                                rather than being upset and anxious.             moved. Keep in mind that rates are likely
                                               •	 Amenities: To help your family settle            to rise in the future – so make sure you
                                                  in, find out as much as you can about            factor this into your budget.
                                                  your new community so you can explore         The best advice when making a move into a
      A smooth transition                                                                       new home is to be organised and not to take
                                                  and discover it together. Establish the
     will leave you and your                      locations of any facilities that would        the move too seriously. Enjoy discovering
      family free to enjoy                        appeal, such as sporting clubs, gyms,         your new neighbourhood and make the
         your new home.                           parks and even video shops.                   most of that new home feeling!




                                                                                                                                           21
                                                   Phone 1300 230 240
                                   Dreamstreet Home Loans Pty. Ltd. 326a High Street, Northcote VIC 3070
                                            Fax: 03 9445 1730 Email: info@dreamstreet.com.au
                                                      Web: www.dreamstreet.com.au




                                                                                                           DreamstreetHBG11/11




All details are current as at October 2011.

				
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