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Mortgage Brokers

It is very important to get the “right finance” but is also just as important to get the “structure” right which Mortgage Brokers can help you with. It can be very costly, frustrating and time-consuming to act hastily and rush the finance part of the property transaction and not get it right. Realizing your mistake later can cost you tens of thousands of dollars in break fees, discharge fees, re-evaluation fees, application fees, fees, fees, and more fees.

PROS

  • – Will certainly save you time in shopping for loans.
  • – Usually free.
  • – Professional and Independent Assistance.
  • – Sometimes, given the broker-lender relationship, a bank will accept a loan application that they would otherwise have rejected.

CONS

  • – You may pay more for your loan than necessary if the broker is not independent.
  • – They may charge excessive fees or undisclosed commissions.
  • – You may be persuaded to borrow more than you need, as this will boost their commission.

SOLUTION

  • – Use a reputable broker, or a Broker that has been referred to you by a friend or family member.
  • – Make sure your broker gives you a clear and accurate breakdown of any fees and charges that you might have to pay.
  • – Check that your broker is appropriately licensed. If you have any doubts, verify this via ASIC, FBAA or MFAA websites.

mortgage brokers financing lending

Questions to ask your Mortgage Broker:

1. How much does the service cost and when do I have to pay?

2. Do you belong to an industry association such as the FBAA or MFAA and if so, does that association have a dispute resolution policy? (Ask to see it in writing. Dissatisfied borrowers can also contact the Mortgage Industry Ombudsman on 1800 138 422.)

3. How do you identify the best solution? Is it simply commission-based or do you use a software package? (Their criteria for selection should be logical and transparent.)

4. How many lenders (and which lenders) do you represent? (Make sure the broker deals with a spread of lender types i.e. banks, mortgage managers and others.)

5. How do you get paid? (Ask them to disclose all commissions and payments.)

6. Can you provide comparisons of any loans recommended, including upfront and ongoing fees?

7. Can you clarify the actual cost of the loan, including and excluding interest, fees and ongoing costs?

8. Do you comply with the Privacy Act?

9. Do you have professional indemnity insurance?

10. How long have you been in the industry and can I read your testimonials from previous clients?

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The Right Finance

Having a good broker can help you be confident that you have found the right loan and structure so that you can meet long-term financial goals and avoid serious costs. Also, potentially saving thousands of dollars in long term exit fees and interest rates.

Finding the right loan to meet your needs can be a very daunting task. With so many lenders to choose from and so many products within each lender, it is impossible for the average investor to choose between the various products (including all the fine print). It is important that you are sure the finance you are choosing is the most suitable for your circumstances.

Compare a Good Broker to a Good Bank Manager – Use the example of buying a car.

If you walk into a Ford car yard and describe all of the features you want in a car and the salesperson thinks to themselves, “Gee, the latest Holden Statesmen would be the best,” — will he tell you that? No! He will convince you that the latest Ford something-or-other meets your needs. It’s the same with the banks. If you walk into a bank, any bank, you will only be sold that bank’s products.

We would recommend that everyone who needs to take out a mortgage should use the valuable services of a mortgage broker. Whether you are buying your first home or investment property or whether you are building a huge investment portfolio you should consult a mortgage broker. The advantages of using a broker are twofold. Firstly, it is free — the bank pays the broker the commission — and secondly, the broker is aligned to many lenders and banks and will find the most suitable loan for you. It is in the broker’s interest to find you a great deal because they want your continued business.

In most cases, brokers have access to over 30 banks and lending institutions, including all of the majors (CBA, ANZ, NAB, Westpac) and many popular smaller and non-bank lenders (ING, Bankwest, Suncorp, etc). Mortgage brokers will help you find your way through the complex maze of product choices and help you decide the best one for you. Everyone’s situation is different and different products suit different circumstances.

Mortgage brokers also assist you with all of the paperwork, submit the loan, handle all the bank’s questions, coordinate the process with your solicitor and real estate agent and basically take all the stress and pressure from you. They’ll hold your hand the whole way through and deal with any complications that may arise

 

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Rental Income Guarantees

PROS

A genuine Rental Income Guarantee is a rare thing. If you can find one it can be an outstanding way of ensuring your ‘sleep-at-night’ factor. The biggest fears in property investing are; “What if I can’t find a tenant?” and “What if my tenant doesn’t pay their rent?”

A genuine Rental Income Guarantee can take both of these fears away as the guarantor pays your rent regardless of whether the property is tenanted or not. You can also therefore rest easy knowing that your rent will be coming in to cover your mortgage, each and every month.

CONS

Typically, the biggest pitfall to avoid here is buying a property where the purchase price has been inflated to cover the expense of a rental guarantee, even if you do not take it. Guaranteeing the rent can be very expensive. You should expect to pay a nominal fee for a reliable guarantee, just the same as you would expect from an insurance company.

rental income guarantee

SOLUTION

Once again, do your due diligence. Ensure the properties are not over-inflated to compensate for the rental guarantee. For example, are you able to buy the property on the open market? Or from the developer for the same price without the rental guarantee?

Ask the guarantor, “What’s the catch?”. There must be something in it for the guarantor or they wouldn’t do it. Ask them, “How do you make your money?”

Ensure the rental management fee is in line with industry norms — therefore around 7-8% depending on the state.

Ensure you can withdraw from the rental income guarantee anytime you want to. Just in case your circumstances change and you want to sell the property or move into it.

 

Our 10 Year Rental Income Agreement provides you with peace-of-mind.

It also comes with knowing that your rental income will be paid should your tenant not pay their rent, or if your property is untenanted. Don’t risk putting yourself through the financial stress of income loss if your tenant vacates, does not pay the rent or if you can’t even find a tenant in the first place.

Please note: The Property In A Box’s 10 Year Rental Income Agreement is valid only when held in conjunction with a landlord’s protection insurance policy, and only when making a purchase from our extensive range of property and from Property In A Box. Terms & conditions apply and are included in our 10 Year Rental Income Agreement document.

Ask us about our 10 Year Rental Income Agreement.

 

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House and Land Packages

PROS

Stamp duty savings as you pay stamp duty on the land component only. In a moving market, an investor can make a gain on the investment simply by holding it in the period between agreeing to purchase and when construction is complete.

CONS

The cost of servicing the loan throughout the construction period needs to be carefully considered. Remember also, that while the property is being built, you will not have a tenant to pay you rent. Because of this, banks might instruct valuers to be very conservative on construction valuations. This is due to the increased risk of taking an incomplete property as security for a loan. It can sometimes mean that more equity is required to secure finance for a House and Land package than would be required for a completed property.

package diligence construction

SOLUTION

The good news is that a lot of the cons can be extinguished by undertaking due diligence and research. You need to ensure that the developer has a sound track record of choosing houses in the right location. Also, choose builders that have stable and profitable track records. They must choose properties that suit your financial goals as well. You need a really good mortgage broker. House and land contracts and the process itself is fraught with complications and technicalities. You need a broker who is experienced in financing for such developments.

 

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Refresh your Portfolio

Sometimes it is necessary to go back to the drawing board.

You may have a portfolio that is not quite right. You may have had good intentions, theories, dreams or hunches when you bought particular properties but looking back you realize you made a mistake. But that’s OK. As they say, “There is no such thing as failure unless you fail to get back up again.” The successful man is one who fails four times but gets back up five times.

There are times when the best thing to do is sell and move on. Other times, you may need to sell because you did not seek the right advice in the first place and you have the wrong loan in place or have bought in the wrong name. A common example is the client who has bought a home and followed their parent’s advice focusing on paying down the mortgage. Now they want to upgrade and rent this property out. Bad news – the reduced loan amount means the property is positively geared and they will be taxed on the excess of rent over interest. Worse still, they will have to take out a large loan to buy their home and this will be a non-tax deductible debt.

refresh your portfolio property investment

 

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