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Benefits of a Home Loan Refinance for the Self-Employed

Are you thinking about a home loan refinance while self-employed? If so, you’re certainly not alone. With the official cash rate jumping to 4.35% off the back of 13 interest rate rises, many homeowners are feeling the pinch. This is especially the case for borrowers at the end of their initial fixed rate term (when the loan automatically rolls over to the lender’s standard variable rate). 

Rather than put up with a substantial increase in their monthly repayments, people are instead choosing to refinance in record numbers. According to the latest data released by PEXA (an online property exchange network), refinancing activity increased during the 2023 FY by almost 14% nationally. In Queensland, there were 85,713 loans refinanced, an increase of 17.4%. And while it comes with some obvious benefits, refinancing when self-employed can present some unique challenges.

Self-Employed Home Loan Refinance Challenges

Home loan refinancing for self-employed people does involve some unique challenges. This mainly comes down to the basics: being able to prove you have a stable income, having the right documents and maintaining a good credit score.

  • Proof of income: Lenders may be hesitant to approve refinancing for self-employed people who can’t provide proof of a stable income. If your cash flow is irregular, then some lenders may view your application as high risk (meaning they’re less likely to offer favourable terms and competitive interest rates).
  • Having the right paperwork: Another self-employed refinance challenge is a lack of documentation. Lenders will be looking for copies of your business financial statements, business activity statements (BAS) and several years of completed tax returns. If you’re behind on lodging your paperwork, this could make it harder for you to refinance your home loan.
  • Your credit score: Lenders may view mortgage refinancing for self-employed people as a higher-risk proposition. Because of this, they’ll be looking closely at your credit history and current credit score. A lower credit score can make refinancing more difficult.

However, self-employed home loan refinance challenges can be successfully overcome with a bit of planning and the assistance of an experienced mortgage broker.

Benefits of Home Loan Refinancing for Self-Employed People

small business owner talking to mortgage broker about home loan refinance for self employed

Refinancing can offer a range of measurable benefits to self-employed people. It could help you to:

  • Save money: One of the greatest benefits of refinancing when self-employed is that it can save you money. By securing a lower interest rate, you’ll be able to reduce your monthly repayments and free up cash for other personal or business use.
  • Obtain greater flexibility: A good self-employed refinance tip to remember is to look for lenders who offer more flexible loan terms. Greater flexibility will allow you to customise your mortgage product to suit your needs. This could mean a shorter or longer loan term, depending on your financial situation.
  • Access equity: Considering how property prices have increased across the state since 2020, it’s possible that your home now has considerable equity. Refinancing would allow you to access this equity, which could then be used for business investments, a renovation or even for the purchase of an investment property.
  • Gain possible tax benefits: Mortgage refinancing for self-employed people can offer potential tax benefits. However, since individual circumstances may vary, it’s always a good idea to consult with a tax professional to see what kind of concessions may apply.
  • Consolidate debt: If you’re currently finding it difficult to service multiple high-interest debts, then refinancing could be a great opportunity for debt consolidation. This offers a simplified debt management approach and may improve cash flow.
  • Get access to better loan features: When you first applied for a home loan you may have found you were ineligible for (or perhaps just didn’t need) certain loan features. Now that your financial situation has changed, refinancing could give you access to redraw facilities, an offset account or a split loan with fixed and variable interest rate portions.

Refinancing when self-employed can offer clear benefits and be a useful tool for achieving your financial goals. If you think this could be beneficial for your current situation, then talk to a mortgage broker about your refinance options.

Talk to a Mortgage Broker About Refinancing When Self-Employed

There are obvious benefits to refinancing while self-employed. You could save money, consolidate debt, access valuable equity and gain greater financial flexibility. However, as with any major financial decision, it’s important to get professional advice before moving ahead. A mortgage broker can help you successfully navigate the complex process of refinancing.

The team at Professional Lending Solutions specialises in refinancing loans for self-employed individuals. We can help to assess your refinance eligibility, while also answering any questions you may have and identifying which lenders will be most likely to approve your application.

refinance cashback

Guide to Refinance Cashback Offers and Refinancing in 2023

With more and more people finding it challenging to meet the financial demands of the times, refinancing has become a go-to solution for many. There are a few different refinancing options a homeowner can tap into when the need arises. After a rapid-fire of interest rate increases this year,  we’ve now seen a resurgence in refinance cashback offers from many lenders. But what’s the deal with a cashback offer and are they worth it?  Read on to find out more about cashback refinance offers and how a professional mortgage broker can help you navigate refinancing.

Cash-out Refinance

Let’s first explain that a “cash-out refinance” is not the same as a cashback offer on a refinance deal. A cash-out refinance is a process that allows homeowners to tap into their property’s equity and receive an amount of cash when they draw down on that equity. This strategy is ideal for those looking to fund significant expenses, from home renovations to consolidating other high-interest debts.

However, it’s crucial to consider the implications. While accessing equity can be beneficial, it might lead to higher loan amounts, potentially longer repayment terms, and an impact on monthly commitments.

Refinance Cashback

On the other hand, a refinance cashback offer is a promotional tool used by lenders looking to acquire new customers. It comes packaged as a rebate or incentive after the refinancing process concludes. It can definitely be an attractive proposition, especially when looking to offset some associated costs.

These cashback refinance offers can vary – from rebates covering settlement costs to promotional offers for newcomers or loyalty bonuses for long standing clients. Here are a few of the usual offers a homeowner might encounter when they’re presented with a cashback refinance option: 

  1. Flat Cashback Amount – A predetermined lump sum offered to the homeowner upon successful completion of the refinancing process.
  2. Waived Fees – In addition to or instead of cashback, some lenders might waive certain fees, such as application fees, valuation fees, or annual fees, for a specified period.
  3. Loyalty Bonuses – For homeowners who choose to refinance with their current lender, there might be special cashback offers or bonuses as a reward for their loyalty.

The most common we see are lenders competing with one another for new business and offering a predetermined lump sum for completing a refinance settlement.

Pros and Cons of a Cashback Refinance Offer

Just like all types of home loans and refinancing options, a refinance cashback offer also has its own set of pros and cons. Here are some of them:

refinancing options

Pros

  • Immediate Financial Relief – The cashback received can be used to cover immediate expenses or to reinvest.
  • Incentives from Lenders – Lenders often provide cashback offers as an incentive to attract borrowers, which can mean competitive terms.
  • Offset Refinancing Costs – The cashback can be used to offset some of the costs associated with refinancing, such as closing costs or application fees.
  • Flexibility – The cashback received isn’t restricted to a specific use. Homeowners can use it as they see fit, whether it’s for home improvements, debt repayment, or other needs.

Cons

  • Potentially Higher Interest Rates – Some lenders might offer cashback refinance deals with slightly higher interest rates to compensate for the upfront cash given.
  • Long-Term Cost – While the immediate cashback is beneficial, it’s essential to consider the long-term implications, especially if the refinancing comes with less favourable terms.
  • Potential for More Debt – If not managed properly, homeowners might end up in more debt, especially if they don’t use the cashback to offset other debts or if they don’t account for potential changes in their financial situation.

It’s crucial for homeowners to weigh these pros and cons carefully and consult with an expert mortgage broker to make an informed decision about cashback refinancing offers if they are looking to refinance their home loan.

Refinancing and How Professional Lending Solutions Can Help You

Refinancing is a powerful tool, offering homeowners the flexibility to adapt to changing financial circumstances or leverage opportunities. Engaging with mortgage brokers like Phil and his team can offer insights tailored to your situation, ensuring you make a decision that aligns with your financial goals.

We can do a FREE home loan health check for you to understand your current loan, what is available on the market for refinancing and whether any available refinance cashback offers are worth the switch for you.

 

low doc home loans

Navigating Low Doc Home Loans: A Tradie’s Quick Guide to Financing in Australia

Getting a home loan can be challenging for tradies, particularly when they haven’t been in business for very long. Good thing there are low doc home loans that tradies can turn to when they’re planning on buying their own home.

These days, financial institutions seem to require even bigger piles of paperwork and mountains of documentation to prove financial capacity. Low doc home loans have emerged as a beacon of hope for tradies and other self-employed individuals since these loans are designed for those who might not have the traditional documentation required by lending organisations. These loans offer a flexible solution to the financing needs of those who are running their own businesses.

What are Low Doc Home Loans?

Low doc home loans, short for “low documentation home loans,” are a type of mortgage tailored for individuals who can’t provide the usual proof of income that standard loans demand. Unlike the more stringent requirements of regular mortgages, low doc mortgage options cater to those with irregular income streams, such as tradies or self-employed persons.

Why Low Doc Loans are Popular Among Tradies

For tradies, the nature of their work often means fluctuating incomes, making it challenging to provide consistent proof of earnings. This is where low doc loans come into play. They offer a more straightforward application process, eliminating the need for extensive documentation like payslips or tax returns. Instead, other forms of verification, such as bank statements or a declaration of income, are used.

Eligibility Criteria for Low Doc Loans

To qualify for low doc home loans, certain criteria must be met. While these can vary among lenders, common requirements include:

It’s essential to note that while low doc loan requirements are less stringent, they don’t equate to no requirements at all.

Advantages and Disadvantages of Low Doc Loans

Now, low doc home loans come with their set of pros and cons. On the upside, they offer a solution for those who might not qualify for standard loans due to lack of documentation. They’re especially beneficial for tradies with irregular incomes or those who’ve recently ventured into self-employment.

On the downside, low documentation mortgage loans might come with slightly higher interest rates, reflecting the perceived higher risk associated with less documentation. 

How to Apply for a Low Doc Home Loan

tradie filling out a low doc home loan application

The application process for low doc loans is relatively straightforward. It usually starts with you researching lenders who offer these types of loans. When you’ve found these options, you will then gather the necessary documentation for it. This can include business bank statements, a letter from an accountant, or evidence of ABN and GST registration. Submitting a well-prepared application increases the chances of approval.

The easier and quicker route is to ask for the help of a mortgage broker. With these professionals on your side, you gain access to the information you need without having to go through the tedious and time-consuming task of researching everything – from lenders who allow low doc home loans to their respective requirements to their terms and offers. With an experienced mortgage broker, like the ones here at Professional Lending Solutions, you get the information and advice you need.

Let Professional Lending Solutions Help You Out

Low doc loans offer a viable financing solution for Australian tradies, bridging the gap between traditional loans and the unique financial situations of those with irregular incomes. Our expert mortgage brokers here at PLS understand the ins and outs of these loans and can assist you in making informed decisions and securing the financing needed to buy your own home. To find out more about low doc home loans, don’t hesitate to contact us.

better renting banner

The age-old question of whether it’s better renting or buying a home has been a topic of debate across the world, and Australia is no exception. And it’s a question that often takes people by surprise. So, is it better to rent or buy? In the past, buying was deemed the better option. These days, however, with the successive hikes in the cash rate since May of 2022, it has been noted that renting may be cheaper than buying, but with many caveats.

The local real estate market has witnessed its fair share of fluctuations, even more so these last few years post-COVID. This leaves potential homeowners and renters with thoughts of the financial implications of their renting or home-buying decisions.

This article will delve into the factors that determine whether buying a home is cheaper than renting. It will also show you why, in most cases, it’s cheaper and better to buy than it is to rent.

Factors Affecting the Cost of Buying Vs Renting

Now, while it can be said that these days, it’s cheaper to rent than it is to buy, you should be aware of the limitations that come with this statement. When you think about whether it’s better renting or better buying, you have to consider the biggest factor that affects the price – location.

In the past couple of years, it was determined that a lot of suburban locations have homes that are cheaper to buy than rent. This trend has reversed of late and now, the number of suburbs where buying vs renting is better has reduced dramatically. It has now been deemed by CoreLogic’s research that renting is now cheaper than buying in approximately 90% of the country’s suburbs.

This means, however, that there are still places in the county where owning a home is better for your pocket than renting. In Queensland, it has been noted that there are approximately 70 locations where it’s NOT better renting as it is buying. In short, there are still lots of locations in QLD where you can benefit more from buying a home rather than renting one.

Is It Truly Better Renting or Buying?

deciding between renting or buying

Buying and renting both come with pros and cons, so it’s important to sit down and review all the facts before you come to any kind of decision. To help you compare renting vs owning, here are some of the pros and cons associated with each option:

Renting a Home

Pros:

  • Flexibility – Provides greater flexibility in terms of changing locations. This is ideal for individuals who need to relocate frequently for work or personal reasons.
  • Lower Upfront Costs – Requires lower upfront costs compared to buying. There’s no need for a large deposit or the associated costs of purchasing a property.
  • Maintenance and Repairs – Landlords are responsible for most maintenance and repair issues, saving renters from unexpected expenses and the hassle of upkeep.
  • Less Financial Risk – Property values can fluctuate, but renters aren’t as directly affected by market changes. They can avoid potential losses if property values decrease.
  • Amenities and Shared Facilities – Many rental properties offer amenities like pools, gyms, and communal areas, which may be costly to own and maintain.

Cons:

  • Limited Control – Limited control over the property. Renters may need permission for modifications, and the landlord can decide to sell or terminate the lease.
  • Lack of Equity – Unlike homeowners, renters don’t build equity over time. Rental payments contribute solely to the accommodation without potential long-term financial gains.
  • Rent Increases – Landlords can raise rents after the lease term, potentially leading to higher living costs and decreased affordability.
  • Uncertain Tenure – Rental agreements are typically shorter-term than owning a home, leading to less stability and the potential for more frequent moves.
  • Limited Personalisation – Renters may be restricted in customising their living space according to their preferences and needs.

Buying a Home

Pros:

  • Equity Building – Allows you to build equity over time. As you make mortgage payments, you gradually own a larger share of the property, potentially leading to substantial wealth accumulation.
  • Stability and Control – Get stability and a sense of control over your living space. You have the freedom to customise, renovate, and make modifications according to your preferences and needs.
  • Long-Term Investment – Real estate has historically appreciated over time, offering the potential for long-term financial gains. Property value appreciation can contribute significantly to your net worth.
  • Predictable Costs – With a fixed-rate mortgage, your monthly mortgage payments remain stable over part of the loan’s term, providing better budgeting and financial predictability at the beginning of your loan repayment cycle.
  • Asset Ownership – Property is an asset that can be passed down through generations, offering a legacy for your family.

Cons:

  • High Initial Costs – Buying a home may require a substantial upfront investment, including a deposit, legal fees, and stamp duty, which can strain your finances initially.
  • Market Fluctuations – Property values can fluctuate due to market conditions, affecting the potential resale value of your home if you are wanting to sell when properties are on a downward trend.
  • Maintenance Responsibilities – Homeowners are responsible for maintenance and repair costs, which can sometimes be unexpected and expensive.
  • Limited Flexibility – Owning a home can tie you down to a specific location, potentially affecting your ability to relocate for work or personal reasons.
  • Illiquidity – Real estate is not as liquid as other investments. Selling a property can take time, and you might not be able to access the funds quickly.
  • Interest Rate Risk – If you have a variable-rate mortgage, changes in interest rates can impact your monthly mortgage payments, potentially leading to financial strain.

Why It’s Wiser to Buy Than to Rent

While some people insist that it’s better renting than buying, opting to buy a home rather than rent one can often be a wiser financial decision. While both choices have their merits, buying offers a range of advantages that can lead to long-term benefits. By purchasing a property, individuals have the opportunity to build equity over time, effectively investing in their future.

Property values also tend to appreciate, providing you with the potential for increased wealth and financial stability. Homeownership can also provide a sense of stability and control over one’s living environment, allowing for personalisation and modification. Add to this list the predictable mortgage payments, and the potential for a valuable asset, and the choice to buy a home seems a more secure and prosperous path forward.

Work With a Professional Lending Solutions Mortgage Broker

Seeing a mortgage broker when you’re thinking of buying a home is a good move. Aside from being knowledgeable experts who facilitate the loan process, they can also become your trusted ally when it comes to finding the best lender for your needs.

Professional Lending Solutions mortgage brokers have the inside knowledge on the wide range of mortgage products available in the market. Such knowledge allows them to tailor these to match your unique needs and financial goals. 

A mortgage broker works in your best interest and will analyse your financial situation and preferences. This will help in finding you the most suitable loan terms, interest rates, and repayment options. Armed with a comprehensive understanding of the industry, PLS mortgage brokers will provide you with valuable insights to help you make informed decisions.

If you want to learn more about buying a home on the Gold Coast and finding out what home loan products would suit your needs, contact Phil and the team at Professional Lending Solutions today.

access home equity - header

Can I Access Home Equity with a Cash Out Refinance?

As a homeowner with a mortgage, you’ve likely heard about the concept of home equity and its potential benefits. But have you ever wondered if it’s possible to access home equity and use it to your advantage? 

In this article, we will explore the topic of accessing home equity through a cash out refinance. We’ll cover what equity is, how it’s calculated, the process of accessing equity through refinancing, and potential uses for these funds. We’ll also tackle rules and considerations, important factors to consider before proceeding, and the value of consulting experts in the field.

Understanding Property Equity

Equity is a fundamental concept that determines the portion of a property you possess. It’s essentially how much of your home you technically own.

To calculate your equity, start by determining the current market value of your home This is the amount you could reasonably expect to sell your home for. Next, deduct from this the remaining balance on your home loan. 

The resulting amount represents your equity. If the property market in your area has experienced growth since you purchased your home or if you’ve made additional mortgage repayments, your equity may have significantly increased.

For example, suppose you initially purchased your home for $350,000. After several years, your mortgage balance is $200,000, but the value of your property has risen to $500,000. This means you now have $300,000 in equity.

Accessing Equity through Refinancing

Now to answer the question as to whether you can access your home equity through a cash out refinance, the answer is – yes, it’s possible. By refinancing your existing mortgage, you can borrow against your equity or use it as collateral for a new loan. This allows homeowners to tap into the value they’ve built in their property without the need for a cash deposit.

When you opt for a cash-out refinance, the lender will approve a new loan that pays off your existing mortgage and provides you with additional funds based on the equity in your home. The amount you can access will depend on the lender’s criteria and the loan-to-value ratio they are willing to accept. The loan-to-value ratio (LVR) is the percentage of your property’s value that the lender is willing to lend.

Utilizing Funds from a Cash Out Refinance

home renovation using cash out refinance

When accessing equity through refinancing, you have a variety of options for utilizing the funds. Some common purposes people cite when they access home equity via refinancing include the following:

Investment

You can use the equity in your current property as a deposit when purchasing an investment property, shares, or a business. This can be a strategic way to diversify your investments and potentially increase your wealth. By leveraging the equity in your home, you can access funds to make these investments without having to save for a separate deposit.

Home Renovation

When you refinance to access equity, the funds can be used for the renovation of your existing home. By improving the property, you can increase its value and potentially enjoy a higher return on your investment. Whether it’s a kitchen upgrade, bathroom renovation, or adding a room, a renovation can enhance your living space and potentially increase the property’s market value.

New Vehicle

Instead of taking out a vehicle loan, which can come with a higher interest rate, you can use the money from an equity refinance to purchase a new car. Using your home equity gives you access to loans with lower interest rates and more favourable terms. This makes such an option a cost-effective solution for purchasing a new vehicle.

Personal Expenses

A cash-out refinance can also provide you with funds for various personal expenses. These include funds for travel or medical costs. A cashback refinance allows you to address immediate financial needs and fulfil long-held aspirations. It can be anything from a dream vacation to unexpected medical expenses and even funding your child’s education. The choice is yours when it comes to utilising your home equity to get a cash back refinance.

Rules and Considerations for Cash Out Refinancing 

When you’re thinking about refinancing your home loan to access home equity, there are specific rules and considerations to consider. The details, fees, and charges associated with refinancing will vary depending on the lender and home loan product you choose. It’s important to carefully review and compare the terms and conditions of different loan options to ensure you make an informed decision.

The lender will also evaluate the purpose of the funds when assessing your application. They may want to know how you plan to use the accessed equity and they will consider if it’s a justifiable expense. 

Note that it’s essential to communicate your intended use of the funds clearly and provide any necessary documentation. Supporting information to demonstrate that your need for the cash-out funds may help get your loan approved.

When it comes to your borrowing limits, most lenders will allow you to borrow up to 80% of your property’s current equity. Using the previous example, if you have $300,000 in equity, you could borrow up to $240,000. 

Keep in mind that specific lenders may offer higher loan-to-value ratios, allowing you to borrow up to 90% of your equity. This comes with a few caveats, of course. Also, be warned that exceeding the 80% threshold may require you to pay Lender’s Mortgage Insurance (LMI), which is an additional cost to consider.

Important Factors to Consider

assessing when to access home equity

Before proceeding with a cash-out refinance to access equity, it’s crucial to thoroughly assess your current financial circumstances and explore the various loan products available to you. You should consider the following factors:

Financial Situation

Evaluate your income, expenses, and overall financial stability. Ensure that accessing your equity aligns with your long-term financial goals and that you can comfortably afford the repayments associated with the new loan.

Loan Products 

Research and compare different loan products offered by various lenders. Consider factors such as interest rates, loan terms, and fees. Check out additional features to find the option that best suits your needs.

Professional Guidance 

Consulting a mortgage broker with experience in refinancing equity loans, like the brokers at Professional Lending Solutions, can provide invaluable guidance. A knowledgeable mortgage broker can help you evaluate any financial implications, recommend the ideal loan product for your situation, and address any remaining questions you may have about the pros and cons of refinancing to access equity.

What else should you know about cash-out refinancing to access home equity?

Accessing home equity through a cash-out refinance offers homeowners the opportunity to leverage their property’s value for various financial purposes. By understanding equity, calculating its value, and considering the caveats associated with refinancing, you can make informed decisions when you choose to access home equity for your financial needs. 

For more information, you can contact Phil Verheijen and his experienced team at Professional Lending Solutions. Remember, accessing equity through refinancing can be a valuable financial strategy, as long as it’s used wisely and with careful consideration.

Reverse mortgage - banner

Have you ever heard of a reverse mortgage? It’s a financial tool that has been gaining significant popularity in recent years, especially among senior homeowners on the Gold Coast. Imagine being able to access the equity you’ve built up in your home without having to sell or downsize. Sounds intriguing, doesn’t it? 

How does a reverse mortgage work in Australia, and can I have access to reverse mortgage lenders if I ever need one? Stay with me as I answer these questions and walk you through the top 6 things you need to know about a reverse mortgage.

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What is a reverse mortgage?

In a nutshell, a reverse mortgage is a unique type of loan that allows homeowners, typically those aged 60 and older, to convert a portion of their home equity into tax-free cash. Unlike traditional mortgages, where you make monthly repayments to the lender, with a reverse mortgage, the lender actually pays you, turning the tables on the borrowing process. It’s like unlocking the value of your home and turning it into a financial resource to support your retirement dreams or meet unexpected expenses.

How does a reverse mortgage work?

Instead of making regular payments, the loan balance increases over time, while the equity in your home decreases. You retain ownership of your home, and the loan is repaid when you sell the property, move out, or pass away. It’s a flexible financial solution designed to provide homeowners with extra funds and financial security during their golden years.

Now that you have a general idea of what a reverse mortgage is and how it works, let’s dive deeper into the top six things you need to know about this unique financial tool.

Top 6 things to know about a Reverse Mortgage

1. How much can you borrow from reverse mortgage loans?

When it comes to reverse mortgage loans, the amount you can borrow is primarily determined by your age and the value of your home. Generally, if you’re 60 years old, the maximum amount you can borrow is likely to be around 15-20% of your home’s value. As you get older, you become eligible to borrow a larger proportion of your home’s value. 

As a rule of thumb, you can add 1% for each year over 60. So, if you’re 65, the maximum borrowing amount may increase to about 20-25%.

The minimum amount you can borrow varies among lenders but is typically around $10,000. The flexibility of a reverse mortgage allows you to choose how you receive the borrowed funds. You can opt for a regular income stream, a line of credit, a lump sum payment, or a combination of these options.

It’s important to note that reverse mortgages are generally not available for younger homeowners. The borrowing ability and the increase in loan amount are linked to your age. To gain a better understanding of how much you can borrow and the potential impact on your home equity over time, you can use ASIC’s Moneysmart reverse mortgage calculator

2. Will I lose my property to the lender under the reverse mortgage scheme?

No, you will not lose your property to the lender under the reverse mortgage scheme. It is a common misconception that the bank will take ownership of your property. In reality, as a borrower, you remain the full legal owner of the property, and the lender holds a mortgage on it. Your name will continue to be on the title, just like with any other traditional mortgage.

The lender’s interest is registered on the property, similar to a conventional mortgage loan. As long as you fulfill your obligations and do not default on the agreement by breaching key terms, the lender cannot force the sale of your home. Default conditions can vary between lenders, but they generally include factors such as failure to pay council rates, inadequate property insurance, or intentional neglect or damage to the house.

The reverse mortgage arrangement is designed to provide you with the financial benefits of accessing your home’s equity while allowing you to retain ownership and occupancy.

3. Pros and cons of a reverse mortgage loan

PROS

CONS

4. When does the loan have to be repaid?

The reverse mortgage loan must be repaid when you move out of the home permanently, pass away, or sell your property. The repayment is typically made from the proceeds of selling your home, and any remaining balance is retained by you or your estate. If someone else is living with you in the home, they may be required to move out when the loan needs to be repaid.

In general, repayment is triggered by no longer using the home as your principal residence, failure to pay property taxes or homeowners insurance, or neglecting the maintenance of the property.

5. Is it possible to owe the reverse mortgage provider more than what your home is worth?

Short answer: no. You are protected by what we call the No Negative Equity Guarantee under the National Consumer Credit Protection Act if your reverse mortgage was taken out after 18 September 2012.

However, if you obtained a reverse mortgage before this date, it’s important to review your contract to determine if it includes negative equity protection. If your contract does not include this provision, it is advisable to discuss the situation with your lender or seek independent advice to understand your options and potential steps to take.

The negative equity protection provided by the guarantee offers a safeguard to borrowers, ensuring that even if the value of your home declines over time, you will not be held responsible for paying back more than the home’s worth. 

6. What must you consider before applying for a reverse mortgage?

Before deciding on anything, its best to consult with a qualified mortgage broker experienced in reverse mortgages and have them explain to you what’s in the fine print.

 

Applying for a reverse mortgage?

My team and I at Professional Lending Solutions can help you with your application. We’re also open to answering questions you may have regarding this type of financial commitment. Click the button below to speak to myself and my team.

Talk to Phil

Refinance your home loan - banner

Refinancing your home loan is a sensible thing to do during a period of interest rate hikes. In fact, a growing number of Aussie homeowners are actively searching for the best fixed rate home loans on offer from lenders. How are they doing this? By refinancing. 

According to the latest data released by the Australian Bureau of Statistics (ABS), Australians refinanced $17.8 billion worth of mortgages over the past 12 months! That’s a 4% increase from the year prior (back before the Reserve Bank of Australia started increasing the official cash rate).

But as a financially responsible mortgage holder, how do you decide if it’s a good time to refinance your home loan? Should you refinance in response to changed circumstances (perhaps the birth of a child or a promotion at work)? Or is refinancing something that you should schedule regularly if you want continual access to the best-fixed rate home loans?

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Why refinance your home loan in the first place?

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As of this writing, the RBA cash rate sits at 4.1%. This is the highest the cash rate has been in more than a decade. So with this in mind, why would homeowners want to refinance loans? Shouldn’t one look into home loans refinance when the cash rate is low?

While it’s true that many homeowners tend to consider refinancing when interest rates are low, there are still advantages to be gained in a rising rate environment:

Can you refinance a fixed loan?

Of course. Any type of home loan can be refinanced. But if you’re worried about the contract you signed outlining the period of time the loan is fixed, then you are right to feel so. To refinance a fixed loan essentially means breaking the contract, and your lender may require compensation for any loss. This comes in the from of break costs and discharge fees.

To help work out how much these costs could be, feel free to ask your lender or a mortgage broker. As a mortgage broker myself, I can help assess the potential savings and costs associated with refinancing.

Can a mortgage broker refinance your home loan for you? Well, we can certainly assist you with that. I personally will find competitive fixed home loan rates on your behalf, and help you understand the impact of refinancing on your financial situation.

Ask a refinance mortgage broker

So — when is it a good time to refinance your home loan?

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Many Australian homeowners wind up paying the dreaded home loan “loyalty tax” because they wait too long to refinance. But you aren’t always guaranteed to save money if you refinance like clockwork. 

Technically speaking, when can you refinance a home loan?

In general, you can technically refinance your home loan at any time, subject to certain conditions:

But how you decide if it’s a good time

Personally, I recommend that mortgage holders talk to a broker about reassessing their home loan every 2 years. This assessment will help you to figure out  how does refinancing work or when to refinance home loan,  whether or not refinancing is really going to work in your best interests, based on: 

1. How competitive your interest rate is

If your interest rate is no longer competitive, then you could be paying a lot more interest than necessary. Refinancing to a home loan with a lower interest rate could save you literally thousands of dollars in the first 12 months alone. 

2. Whether your home loan has the right features

When you were a first home buyer, you may not have needed any added features, but now that you’re a few years into your mortgage, you could find them more worthwhile. Home loan features can play a big role in helping you to achieve your long-term financial goals. For example, do you want to pay off your home loan as fast as possible? Then you’ll need a home loan that allows you to make additional repayments. Are you planning to renovate at some point in the future? Then a redraw facility could help you finance the construction. 

3. When your current fixed term is due to end

Most home loans with a fixed rate will automatically roll over to the standard variable rate when the fixed term ends. This could result in you suddenly paying a lot more interest than you were before. That’s why it’s a good idea to consider refinancing in the months leading up to when your fixed term expires.

4. If you need to access equity

Equity is the difference between what your property is worth and how much you currently owe on your home loan. For example, $600,000 (property value) minus $350,000 (mortgage balance) equals $250,000 of equity. If you’re thinking about funding a renovation, consolidating personal debt or buying a car, then refinancing could help you to access the equity in your home so you can fund your plans.

Book an appointment with Phil

When is it not a good time to refinance your home loan?

not a good time to refinance - banner

A home loan assessment may sometimes show that it is not a good time to refinance your home loan. This could be because of: 

1. High exit fees

Some lenders will charge borrowers a fee to discharge their home loan. And if you’re currently on a fixed term home loan, you could also be charged a penalty if you decide to refinance before the fixed term has expired. So, it’s important to compare potential savings (from reduced interest) with any associated fees. 

2. Your Loan to Value Ratio (LVR)

When considering a refinance, you’ll need to determine what your Loan to Value Ratio is. You can do this by dividing the balance of your loan (how much you want to refinance) by the current value of your property and then multiplying the answer by 100. For example, a $360,000 loan divided by $400,000 property value equals an LVR of 90%. If your LVR is higher than 80% you may be charged Lenders Mortgage Insurance (which could end up costing a lot more than what you would save on reduced interest). 

Refinance your home loan with trusted Gold Coast mortgage brokers

If you’re wondering whether or not it’s a good time to refinance your home loan, then the best thing you can do is ask a professional for some expert advice. 

I have been in the industry many years, and as a mortgage broker Gold Coast homeowners have come to know and trust, I can guide you on this refinancing journey with the utmost care and expertise. Give my team at Professional Lending Solutions a call on Ph: 0421 934 033 or Ph: 07 5597 6049, and I’ll happily do a free assessment of your home loan. If now’s not a great time for you to refinance, I’ll be honest and upfront about it.

Refinance Gold Coast today!

Business Finance Loans

Business finance loans can be beneficial for new businesses, expanding businesses and businesses that want greater flexibility in managing their cash flow. In fact, commercial loans can be the ideal solution to several common business problems. But commercial lending is also more complicated than applying for a standard home loan. So, it’s important to have a full understanding of what business loans are, how they operate and which options would be most beneficial for your business.    

What is a Business Finance Loan? 

Commercial lending involves a range of different finance solutions, so it’s well worth talking to a business finance broker to ensure you end up with the right type of loan. Business loans can include lines of credit, finance for equipment or commercial premises and development finance. There are secured and unsecured commercial loans, and they can range from just a few thousand dollars up to $1 million (depending on eligibility criteria). 

Some of the most common business loans include: 

Does a Business Finance Loan Need to be Secured? 

A secured loan has an asset listed as a form of security. If the borrower defaults on the loan, the lender can seize the listed asset to recover the cost of the loan. With commercial loans, the asset could be a property, commercial vehicle or even warehouse stock. Business finance loans can be secured or unsecured, depending on a range of factors. If you want to apply for an unsecured business loan, then you’ll need to demonstrate that your business has been performing strongly and that you’ve consistently been paying your bills on time. 

How to Get a Business Loan

If you want to apply for a business loan, then the best thing to do is contact an experienced business finance broker. A broker can help you to determine what kind of commercial loan is going to be most suitable for your business and which lenders are going to offer the most competitive finance product. A commercial finance broker can also help you get the necessary paperwork in order, to ensure you meet the lenders’ application criteria. 

Lenders will typically be interested in your credit history, turnover, assets and existing debts but they may also want to see a business plan and your cash flow history to ensure you’ll be able to meet the minimum repayments. Every lender is different, with its own unique system for assessing a commercial finance application. That’s why it’s so important to involve a business finance broker from the very beginning – to ensure your business gets the right finance solution from the right lender. 

You’ve decided to buy a car, so your first step is to visit a car dealership…right? While it’s tempting to jump straight to the test-drive stage (who doesn’t love a test-drive!), the first step should always be getting your car finance sorted. And this is where having a car finance broker on the Gold Coast can suddenly be invaluable.

But what does a car finance broker actually do? What car finance options are available? And what are the benefits of using a car finance broker on the Gold Coast?  

What Does a Car Finance Broker on the Gold Coast Do? 

A broker is someone who acts as an intermediary between a buyer and a lender. A car finance broker helps a car buyer obtain the finance they need from a suitable lender. This is similar to how a mortgage broker assists a property buyer to apply for a home loan. The big difference is that it’s very common for people to contact a mortgage broker when they need a home loan, but for some reason, people are less likely to use a car loan finance broker for help with a car loan. 

What Are Your Options for Car Finance on the Gold Coast? 

If you’re planning to buy a car, then you’ve got a few different options available to you for obtaining car finance on the Gold Coast:

1. You could approach a car dealership directly and ask them to organize finance on your behalf. While this might seem like the simplest way to do things, a car dealership won’t necessarily help you find the best loan – they’ll just sign you up to a standard contract with their preferred lender.

2. You can go straight to your bank and apply for a personal loan to cover the cost car loan finance broker of the car purchase. But once again, this limits you to one particular lender, so you won’t necessarily be getting the best car finance option. 

3. You can contact an experienced car loan finance broker and ask them for help. Just like the first two options, this is a simple and straightforward process. But unlike the other options, you can trust a car finance broker to help you get the best possible finance solution to suit your needs. 

What are the Benefits of Using a Car Finance Broker on the Gold Coast? 

There are quite a few benefits to using a broker when you need car finance on the Gold Coast. By using the best car finance broker, you’ll give yourself: 

To ensure you get the car loan that is best for you, contact the experienced team of car finance brokers at Professional Lending Solutions. We can answer your questions, compare car loan products and help you find the right solution. To find out more, visit our dedicated best car finance broker resource or try our free online car loan repayment calculator

Do you know your home loan interest rate? If not, you’re not alone. In fact, research by Australian start-up Finspo found that 54% of Australians don’t know how much interest they’re paying on their loan. The same survey found that almost three-quarters felt that they probably didn’t have the best interest rate available but, interestingly enough, only 21% said they’d negotiate with their lender for a better deal.

So, why are so many Australians in the dark when it comes to their home loan interest rate? 

Why You May Not Know Your Current Interest Rate

Home loan interest rates often change and this can make it difficult to keep track of exactly how much interest you are being charged. You may have been familiar with your interest rate when you first obtained the loan, but since then, the fixed-rate term may have ended, the Reserve Bank of Australia (RBA) may have adjusted the official cash rate and your lender may have altered your interest rate in response. All of a sudden, you’re not so sure how much you’re paying or how your loan compares to other home loan products. 

Why It’s Important to Know Your Home Loan Interest Rate

In an Australian government survey measuring the effects of COVID-19 on the population, 70% confirmed they were at least a little concerned about their future financial situation. As a result, 53% said they were cutting down on non-essential household costs in an effort to save money.

When you think of “non-essential household costs” you may be thinking of your gym membership or your daily coffee run, but the reality is, mortgage holders can often significantly reduce the amount of interest they’re paying on their loan just by refinancing to a lower interest rate. But, to do this, you first need to find out what your current interest rate is. 

Common Misconceptions About Home Loan Interest Rates

The same Finspo survey referred to earlier identified some common misconceptions about home loan interest rates. It showed that:

These misconceptions could end up costing you tens of thousands of dollars (or more!) over the life of your loan, so let’s address these points one at a time.  

Misconception #1: Fees and Interest Rates Aren’t Significant Enough to Justify A Change

Interest rates in Australia are currently the lowest they’ve ever been. If you haven’t compared your rate in the last two years, then it’s highly likely you could get significant savings from refinancing. What kind of savings? Well, imagine you have a $500,000 mortgage with a 30-year term, an interest rate of 3.5% and a $5 monthly fee.

You’d be paying around $2,250 per month. But if you were to refinance to a comparable loan with a 2.5% interest rate and no monthly fees, then your repayments would drop to about $1,975. By getting rid of the $5 monthly fee and reducing your interest rate by 1%, you could save $275 every month, equalling $98,862 over the life of the loan!

Misconception #2: All Financial Institutions Are (More or Less) the Same

On the surface, it may seem like most lenders are offering similar loan products. But a quick glance through mortgage products currently available from Australian lenders will show that this isn’t the case. For example, interest rates being offered with new loans can range from around 3% down to just 1.69%, while application fees fluctuate between $600 and $0 upfront. Some lenders will allow applicants to borrow up to 95% of the purchase price, while others will only offer 80% – a few will be unwilling to lend more than 60% of the purchase price.

Monthly fees can also fluctuate wildly, from $0 per month to $10 per month or even $395 per year. Additionally, some lenders will be more open to accepting an application from someone who is self-employed, while others will offer special deals to medical professionals or first home buyers who have a guarantor. 

Misconception #3: Refinancing is Too Difficult

This point should come with a clarifier – refinancing on your own can be very difficult. But there’s no reason for you to refinance on your own. An experienced mortgage broker can do all the hard work for you. This includes comparing all of the available loan products, identifying which mortgage deals will best suit your particular needs, negotiating with your current lender and handling the necessary paperwork.

Best of all, a mortgage broker is committed to acting in the best interests of the customer – so, if they think you’ve already got an amazing deal, they’ll tell you!

To find out more, contact Phil and the team at Professional Lending Solutions for some free and expert advice. 

Top Tips to Help Self-Employed Borrowers Get Mortgage Approval

If you’re planning for getting a home loan when self-employed, then you may be feeling a little nervous about your mortgage application. And this is understandable. Lenders have a reputation for being extra cautious when it comes to approving home loans for self-employed borrowers. In fact, a 2017 report found that self-employed borrowers account for over 25% of rejected mortgage applications (even though only 16% of Australian’s are self-employed). 

But this doesn’t mean that you’re destined to renting for the rest of your self-employed days.

There are several things that you can do to significantly improve your chances of obtaining a self-employed home loan. These include:

1. Working to improve your credit rating

Sometimes, it’s the little things that can trip us over. A gas bill accidentally paid a week or two late and overlooked phone bill or a maxed-out credit card may not seem like a big deal, but these things can do damage to your credit rating. So, start working to improve your credit rating before you apply for a home loan. Make it a goal to pay all your bills on time and start reducing your credit card debt. Paying a credit card off in full each month will reflect well on your credit rating, as it shows you’re in control of your finances and are capable of managing debt repayments. 

2. Planning when to apply for a self employed Home Loan

You may have heard that it’s possible to get a home loan when you’ve only been self-employed for 12 months. And this is true, some lenders will approve applications from self-employed borrowers with only one years’ worth of financial statements. But applying for a self-employed home loan for less than two years will likely reduce the number of home loan products that you’ll be able to choose from. It may also result in your interest rate is higher. If possible, waiting until you’ve been self-employed for at least two years will give you the best options to choose from when it comes to applying for a home loan.  

3. Staying up to date with your paperwork

Most lenders will want to see at least two years’ worth of financials that have been lodged with the Australian Tax Office (ATO). Keeping your paperwork up to date and lodging tax returns on time will help to ensure there are no unnecessary delays when it comes time to submit your mortgage application. Lenders also prefer it when your financial statements have been prepared by an accountant, so keep this in mind when deciding how to manage your books. 

4. Understanding add-backs

Your business may have a range of expenses that can be listed on your application as add-backs. Business add-backs are expenses that can be added back to increase the overall profit of a business. These could include one-off expenses, interest on a loan that has now been repaid, non-cash expenses, additional super contributions, depreciation or vehicle allowances. Understanding and correctly identifying add-backs can significantly affect your borrowing potential, so it’s very important that these details are correct. 

5. Getting expert advice from an impartial mortgage broker

When it comes to applying for a self-employed home loan, the best thing you can do is talk to an experienced mortgage broker. A mortgage broker will be able to offer expert advice that is tailored to your situation. They’ll be able to compare mortgage products from the widest range of lenders and offer industry insights into which lenders are favorable towards self-employed borrowers.

A mortgage broker who specializes in helping self-employed home loan borrowers will also be able to make sure your application is 100% accurate, includes all the relevant add-backs, and is a true reflection of your ability to repay a home loan.

With a client base that is 65% self-employed, we’re dedicated to helping self-employed borrowers achieve their goal of owning a home. For tailored advice from the “self-employed specialist,” contact Phil and the team at Professional Lending Solutions

Is Now a Good Time to Buy a House - Should I Move or Renovate?

No doubt you were really excited when you first bought your house. It was probably the right choice for you, at that point in your life. But fast forward a few years and you may be finding that your current home is no longer ideal. Maybe your family has gotten bigger. Perhaps you’ve changed jobs and you no longer live close to work. Or it could just be that you’ve started to dream of living somewhere a little newer, a little eco-friendlier, or a little more suitable for working from home. 

At this point, you have a decision to make: is now a good time to buy a house – should I move or renovate? The answer will depend in large part on your motivations, the needs of your family, your budget, and how much equity you have built up in your current home.  

Should I Move?

If your main issue with your current home is the location (not close enough to schools, too far to travel for work, etc.) then it makes more sense to move somewhere new.  Researching where you would like to move and what property prices are like in that area. 

While moving may sound like a simple solution, there are several factors that you’ll need to consider. These include: 

Are you going to sell your current home and then use those funds to buy your new home? If not, will you need bridging finance (to cover the cost of your new home until after your existing property sells)? Can you access the equity in your current home to use as a deposit for your next home? If not, and you have less than 20% of the purchase price saved as a deposit, will you need to pay for Lender’s Mortgage Insurance? These can be tricky questions to sort through, so it’s a good idea to talk to a mortgage broker before deciding on a definite course of action. 

When you buy property in Queensland, you’re required to pay stamp duty on the purchase. The amount of stamp duty you’ll need to pay will depend on how much the property costs and whether you qualify for a concession. 

When you’re planning to buy a new home you’ll also need to factor in a range of associated costs. These include conveyancing fees, title insurance, and registration costs, pre-purchase inspections, real estate fees (typically a commission of 1-3% of the sale price, plus advertising costs) and the expenses associated with moving (if you plan to hire a truck or use a removalist service). 

Should I Renovate?

If you love where you live but not the house you live in, then renovating may be the way to go. This could involve a simple extension (perhaps just adding another room), an overhaul of the existing property (updating key areas like the kitchen or bathroom), or even a total knock-down re-build.

Once you’ve decided on the extent of your renovation, you’ll also need to think about: 

If you’ve built up sufficient equity in your existing home, then you may be able to refinance your existing home loan to fund your renovation. Alternatively, you could take out a construction loan to cover the proposed renovation works. To determine which option is best, make an appointment to speak with a local broker. 

Project managing a renovation takes a lot of time and effort, so you’ll need to decide if this is something you can handle yourself or whether you’re better off paying a builder to manage the renovation for you. 

In addition to paying your builder for labor and materials, you’ll also need to budget in associated costs. This could include council fees, building permits, and a project insurance policy. It’s also wise to allow a buffer in your budget (usually 10% of the total cost) to allow for any unexpected expenses that could crop up once the work is underway. 

Regardless of whether you plan to move or renovate, a home upgrade is a big decision. For expert advice from someone you can trust, contact Phil and the team at Professional Lending Solutions. 

Homeowners in record-high numbers are taking advantage of reduced interest rates and competitive refinancing offers. Are you ready to take the leap? 

When times are tough, the belt gets tightened.

And we’ve seen that play out across the country in a big way recently, with the number of Australian families who refinanced their mortgage in May the highest on record, according to the latest figures from the Australian Bureau of Statistics (ABS).

In fact, 33,712 Australians refinanced a whopping $15 billion worth of mortgages in May.

To put that into context, before COVID-19 struck, that monthly figure floated around the $10 billion to $11 billion mark.

Anecdotally speaking, the recent 50% increase in refinancing sounds about right to us.

We’ve been flat chat over the past few months helping families refinance their home loans and save thousands of dollars in annual interest repayments.

Why are so many people refinancing?

First and foremost, the economic squeeze brought on by COVID-19 has made people stop and take stock of where they can make savings in their family budget.

And one possible way to do that is by refinancing, as Australian home loan rates have never been lower.

That’s because, on top of the Reserve Bank of Australia (RBA) dropping the cash rate to a record low, lenders are currently competing hard for your business by offering never seen before interest rates.

ABS Chief Economist Bruce Hockman further explains: “The value of existing owner-occupier loans refinanced with a different bank [in May] was by far the highest on record as borrowers responded to reduced interest rates and refinancing offers.”

So how much can you save by refinancing?

Well, that’ll depend on your individual circumstances and a number of other factors, including how big and old your loan is.

But to give you a lower-end-of-the-scale example, a recent RBA study found that for loans written four years ago, borrowers are charged an average of 40 basis points higher interest than new loans.

“For a loan balance of $250,000, this difference implies an extra $1,000 of interest payments per year,” explains the RBA.

And if your loan amount is higher than the above example – or if your loan is older – then there’s a decent chance that refinancing could save you even more than $1000 in interest payments each year.

What’s your next step?

That’s the easy part – get in touch today.

There’s a reason tens of thousands of families are currently refinancing their home loans: now’s a good time to do so as competition among lenders is running hot. And the longer you put it off, the longer you’ll keep paying your current rate.

So if you’d like to refinance your home loan, give us a call and we can run you through your options and get the ball rolling.

Disclaimer:

The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances.

Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

We’re all looking forward to things eventually getting back to normal, or at least the “new normal”. And while it’s not clear exactly what the “new normal” will look like in the property world, there are some promising early signs.

For instance, you might have seen that interest rates are pressing down towards 2% (and, in a few rare cases, dropping below 2%), and that property prices have dipped a little in some areas.

So what does this mean? Well, it spells good news for prospective buyers who’ve been fortunate enough to escape the financial impacts of COVID-19.

But where to buy it?

When looking for an ideal post-COVID-19 purchase location, the first thing to consider is that workplaces are likely to have changed forever.

In the post-pandemic world, it’s likely that those who want to work from home won’t face the same hurdles they did in 2019 and, as such, suburban and coastal suburbs may be more in demand.

This predicted shift in preferences away from inner-city living is clear in analysis supplied to Business Insider Australia by Finder, with half the suburbs on the list within walking distance to the beach.

The analysis also took into account factors including crime rates, property costs, and how family-friendly areas are.

The 10 top post-COVID-19 suburbs.

So here are the top 10 suburbs to buy in, according to the analysis.

NSW: Cordeaux Heights, in Wollongong, south of Sydney
NSW: Eleebana, Lake Macquarie, north of Sydney
QLD: Westlake, a western suburb in Brisbane
QLD: Bridgeman Downs, a northern suburb in Brisbane
QLD: Cotswold Hills, in Toowoomba, west of Brisbane
WA: Carine, a northern suburb in Perth
WA: Leeming, a southern suburb in Perth
WA: Gooseberry Hill, an eastern suburb in Perth
SA: Aldgate, just south-east of Adelaide
ACT: Fadden, a southern suburb in Canberra

It’s worth noting that most, if not all, of the above suburbs have an average property price between $720,000 and $800,000.

While Victoria didn’t get a look-in for the top 10, the analysis ranked Thomastown, Lalor, Watsonia North, Greenvale, and Gladstone Park in Melbourne’s north favourably. In the city’s west, Kings Park, Keilor Downs, Albanvale, Keilor Park and Kealba also got favourable rankings.

Where do you want to buy it?

You don’t need a list to tell you where you should live.

Everyone has different preferences, purchasing power, circumstances and dreams, all of which will influence your “top suburb” in the post-pandemic world.

So if you’ve been researching a suburb and have an eye on your next dream property, get in touch with our lending solutions experts today. We’d love to help you arrange finance for it.

Disclaimer: 

The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances.

Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Buy Now, Pay Now: the Importance of Budgeting for Gifts

How much do you think the average Aussie spends on gifts each month? $20, $50 or 100? (hint: we’re a generous bunch).

Today we’ll look at why it’s important to budget for these expenses correctly, rather than succumbing to ‘buy now, pay later services.

Did you know Australians spend nearly $20 billion a year on gifts?

That’s about $1,200 each per year, or $100 a month, according to a new research report by the Financial Planning Association of Australia (FPA).

It turns out that Gen Y is by far the most generous age bracket (25-39), spending $130 on gifts each month, well ahead of Gen Z ($91), Boomers ($89), and Gen X ($87).

The importance of budgeting for gifts

Ok, so here’s where this feel-good story starts to get a tad concerning: three in four Australians (73%) do not budget for gifts at all.

Now, with the average gift costing between $66 and $137 (depending on the occasion), that’s enough for some households to turn to ‘buy now, pay later services.

And make no mistake: these ‘buy now, pay later’ services are booming.

Market leader Afterpay saw its shares rise by 8% this week alone, with the company now valued at more than $7 billion.

In fact, in the 12 months to January 2019, 1.59 million Australians used one of the latest ‘buy-now-pay-later digital payment methods, with a whopping 40.6% of its customers being Millennials.

That’s right – Millennials, who are not only by far the most generous gift-givers, but are also seeking to enter the mortgage market for the first time.

So what’s the big deal?

According to recent media reports, lenders are increasingly trawling through bank statements for evidence of outstanding ‘buy now, pay later’ accounts when prospective borrowers apply for a loan.

In one incident, a 21-year-old NSW woman said a couple of hundred dollars worth of Zip Pay purchases, all of which had been paid off, almost prevented her from getting a bank loan to buy her first car.

“I honestly never thought it would impact me being able to get a loan. I am now petrified of using it at all, as I really want a house,” she said.

In another incident, a big 4 bank knocked back a 26-year-old Perth woman’s mortgage application after discovering she had an outstanding Afterpay balance.

These are just two examples of the importance of making sure you factor gifts into your monthly budget to ensure you aren’t setting off a lender’s warning bell by using ‘buy now, pay later’ services.

Need help getting your accounts in order?

If you’ve used a ‘buy now, pay later service to buy a gift for a friend, family member or even yourself, there are steps you can take to help minimize the impact it might have on your next loan application.

Your most obvious course of action is to pay it off as soon as you can, and then avoid using the service again in the future.

And look, let’s be honest, no one likes a Scrooge, so your next step would be to ensure you’re including an allocated (and realistic) amount for gifts in your monthly household budget moving forward.

If you’d like to know more or want a hand getting your monthly budget in order before applying for finance, then get in touch – we’d love to help out.

Disclaimer:

The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether gene into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice.

This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced, or republished without prior written consent.