Tips & Resources
Getting a loan can be a complicated process, and there are a number of things a lender will consider when they are deciding whether to lend you money. These days, many lenders are undertaking credit scoring, which involves a complex assessment of many different aspects of your financial situation (both past and present), which determines your desirability as a customer for that lender.
Capacity
This essentially refers to your capacity to repay the loan. To establish your capacity, the lender will assess your income and expenses, your field of employment, your duration in that employment, your previous employment history, and numerous other things, basically with the goal of answering this question: “Can you afford the loan?"
At Beyond Home Loans we will assess the answer to this question before submitting an application.
Collateral
In return for lending you money, a lender will want some collateral. In the case of a home loan, this would be the property you are offering as security. They will usually order an independent valuation of the property to ensure that it meets their requirements. If a property is unusual, you might find that lenders will be less inclined to lend against it, or will reduce the amount they will lend.
At Beyond Home Loans we can easily determine this for you.
Capital
In addition to proving that you can afford the loan repayments, you also usually need to contribute a deposit towards a purchase. Even in the days when lenders happily lent 100% of a property’s value, applicants usually still needed some form of deposit in order to cover the costs associated with buying a property. Nowadays, it is ideal to try to accumulate at least a 5% deposit, plus enough to cover costs.
Please contact us to find out what deposit you might need.
Character
This is an aspect of loan assessment that has become more important in recent times. A lender will now try to build a profile about your character as a borrower. This factors in many things, from the time you have spent living at each of your residential addresses to what credit enquiries you have made in recent years. A character assessment is designed to establish how stable an applicant is in their life, and how responsible they are with their debts.
Our aim at Beyond Home Loans is to preempt this and emphasis your strengths as an applicant.
The basics of loan repayment never change. However there are a few tricks we can suggest to give you that extra edge and cut years off your mortgage.
A low interest rate and low ongoing fees can make an enormous difference over the life of a loan. The home loan market is changing all the time. Make sure that your rate is competitive in the current market.
Get a flexible loan structure
Having the ability to make extra repayments and change your loan structure as your life changes will help you whittle the loan down as fast as you can. Every additional lump-sum payment you make to your loan has an enormous effect in the long-term.
Get the right loan
The better your loan fits with your lifestyle, the easier it will be to pay it off. You might be doing everything you possibly can to pay your loan off faster, but if it’s not set up to suit your situation or encourage extra repayments, you will feel like you’re treading water. Talk to your broker to ensure that you’re set up to achieve your goals.
Make extra repayments early
Interest is calculated every single day on your mortgage, so the earlier you can pay money into it, the less interest you will pay. This applies both on a monthly basis (i.e. make an extra payment towards the start of the month rather than the end), and over the entire term of the loan. The more you pay into the loan in its early stages, the greater the effect. Even a single extra repayment at the very start of the loan can cut years off its term.
Change the frequency of your loan repayments
Most lenders will allow you to not only make your loan repayments monthly, but also fortnightly or weekly. Since interest is calculated daily, more frequent payments will save you interest. Additionally, many lenders when calculating their weekly or fortnightly repayments will simply divide the monthly payment by four (for weekly) or two (for fortnightly). This essentially means that you make the equivalent of 13 monthly payments over the course of a year, instead of 12. This too can have a dramatic effect on how quickly you pay off your loan.
Keep abreast of changes
The home loan market changes continually. New products and features are entering the market all the time, and some offer significant savings to astute borrowers. There are many opportunities associated with technological improvements and use of the Internet. For example, by utilizing Internet banking, you can minimize transaction costs, set up automatic payments and manage your accounts as efficiently as possible. Make sure you stay in touch with your broker and let them know when your situation changes, so they can help you spot these opportunities.
Budget Budget Budget
It’s an old story, but budgets are incredibly powerful tools. The biggest strength in a budget lies in the fact that it makes you pay attention to the things that you are spending money on, and helps you identify where you have opportunities to save. Even if it’s very basic, a budget will help focus you on the important expenses, help you avoid nasty surprises, and generally leave you with a little extra at the end of the month. You can use this to help pay off your loan faster, and maybe even reward yourself for your hard work.
Reconsider the little luxuries
Are there expenses in your life that you can cut back on to free up extra cash to pay down your mortgage? Simply cutting down on the number of meals you eat out, the little afternoon snacks of coffee and muffins, the number of cigarettes you smoke, or other little luxuries can do tremendous things for your home loan. There are many strategies to help you do this, be it a gradual cut back (from five coffees a week to four, to three), a temporary period of abstinence where you commit to hardcore savings for a specified period of time, or even an alternating strategy where you have a normal week, and then an extra good week. The essential fact is the more money you can pay off your home loan sooner, the better it will be in the long run. Find a strategy that works for you.
Home loan portability
It is unlikely that you will live in the same house for the full 30 years of the loan. Many lenders will allow you to keep your same loan account when you sell one home and buy another. Provided that your loan is working well for you, this can save exit fees and set up fees when you transfer from one loan to another.
Be careful with fixed rates
Fixed rates can work excellently in managing the risk that interest rates will rise. At the same time, if you call it wrong and rates actually decrease, or if you find that you need to change the loan before the fixed period ends, they can cost you thousands. You therefore need to consider your choice very carefully. You might choose to split your loan so you have some fixed, some variable, thereby hedging your bets. You should also ensure that the term of your fixed rate matches with your plans for the future. If you’re likely to sell your home in 3 years, a 5-year fixed rate is not usually a good idea.
How much deposit do I need.
The amount of money you need as a deposit will vary depending on the price of the property you buy, how much you borrow against it, and what additional costs you need to pay. As a rule of thumb, it is a good idea to aim for a deposit of at least 10% of the property price you are planning to pay.
Please contact us if you would like to know more.
How much can I borrow.
In simple terms, your borrowing capacity is based on your income minus your existing expenses. Whatever is left over must be enough to cover your new loan repayments (plus an extra buffer to allow for contingency).
It is very important to make the distinction between how much a lender is willing to lend you, and how much you think you can afford. Lenders can only guess at your living expenses, so their assessment of your situation is never going to be the same as yours. Please make sure that you are aware of what you are currently spending, and how much you think you can spare toward your loan repayments. We can help you with this.
How much will my repayment be.
We have created a calculator to help you work this out.
What are genuine savings
A lender classifies your savings as genuine if they have been saved up incrementally over a period of time. Many lenders now require you to prove that you have genuine savings when you are borrowing over 80% of the value of a property. This is important to them because genuine savings prove that you have the ability to put aside money on a regular basis.
Please contact us if you would like to know more.
What paperwork do I need
When you apply for a loan, you will not only need to sign various application forms, but also provide copies of documents to verify your financial situation (e.g. drivers licence, payslips, savings statements). We will explain this to you as you progress, and complete any forms for you to make the process easier.
We have also created a list of the various documents you might be required to provide.
We can answer all of these questions and more in greater detail if you would like to contact us.