ZIN-Should-I-Invest-Or-Buy-My-Own-Home

Should you invest or buy your own home?

Whether to buy an investment property (IP) or permanent place of residence (PPOR), is really a question about the goals of the individual.

Do you want to own your own home right away, start paying it down and perhaps consider investment options later? Or do you want to create long term wealth and a passive income stream, so that you are able to purchase your dream home later in life?

The case for a PPOR

Pros

-Buying your own place of residence comes with a number of benefits. First of all, you may be able to access government grants for first home buyers, especially if buying off the plan or a new build property. Benefits differ state by state and depend on the value of the property and how long you are planning to live in it.

-You will get access to better interest rates, discount periods and more flexible loan features from lenders than if you were a property investor.

-If and when you decide to sell your PPOR, you will be exempt from capital gains tax, which will be a big bonus if you hold the property through multiple growth cycles.

-You can truly make the home your own. You can renovate and put permanent changes in place to add to the home’s appeal, without having to ask a landlord first. Not answering to a landlord also means you won’t face suddenly being made to move out.

-The money you pay goes towards your own long term wealth, while if you were renting, you’d be financing someone else’s goals.

Cons

-Your location will be governed by your first home buyer’s budget and you therefore may not be able to afford to live where you really want to. This could mean long commutes to work or being a long way from friends or recreational favourites. This is one reason some people buy IPs in areas they can afford and then rent a home (usually cheaper than mortgage repayments) in their ideal suburb.

-Aside from the CGT exemption, there are no other tax deductions or benefits to be had from a PPOR. You are also the one paying the bank, so your home is not creating an income like an investment property might.

-Putting all your savings into buying the best PPOR you can afford will often mean your borrowing power is all used up. It could be some time before you can create enough of a buffer to borrow money for investment or other purposes. Being stretched like this can also cause financial stress.

The case for an investment property

Pros

-You can make your decision based purely on what stacks up financially, without the emotional attachment of needing to purchase something you really want to live in.

-If your investment property generates good rental return and you are able to rent where you want to live for less than a PPOR in that area would cost to buy, your borrowing power will not be so tied down. You can therefore use your cash flow to sink into further investments.

-You will be able to claim various associated costs as tax deductions. Interest paid on the loan, management fees, insurance costs, depreciation, educational expenditure, buyers’ agency fees and advertising/marketing costs are all examples.

-Making savvy investments can mean accumulating enough equity to buy a better PPOR later in life.

Cons

-If you are renting where you live you will be at the whims of a landlord, lease agreements and strata regulations. You may struggle to find a rental that allows pets or fulfils your other needs.

-You won’t have access to any government help or grants that first home buyers enjoy and will usually have to pay more interest as banks are tasked with dissuading investors from dominating entry level markets.

-If you have to sell investment properties, you will pay CGT, which is hard to take if your strategy is to invest for growth!

-Non-savvy investments might make it even harder to get a good PPOR down the track than it is now.

So what’s the verdict?

It’s really up to the individual. Both sides of the coin have their ups and downs. You need to figure out which path suits you best and then make a start. Independent financial planners and advisers can explain everything in clear terms, to help you make the right decision.

Why A Low Interest Rate Shouldn’t Be A Deciding Factor

Why a low interest rate shouldn’t be a deciding factor.

It’s great to save money on a cheaper rate loan. But, sometimes choosing a low interest rate can cost you more in other ways.

In fact, there are a whole host of other factors to consider before lodging a loan application that could make or break your ability to access equity, refinance or purchase further properties down the track.

Looking beyond the allure of low rates.

Kabir from Zinger finance says that while it is important to secure a competitive rate loan, there are many other things borrowers should consider.

“Low interest rates can be a factor – but, not the only one.”

He says borrowers should look at how the lender values properties, as well as its policies on what it does and doesn’t accept before making a decision.

Instead of saving $150 per month on interest repayments with a cheaper rate loan, he says it may be possible to fund a subsequent property purchase by going with a lender who values your property higher.

First and foremost, look at your plan.

Kabir says it is important to assess your specific needs and goals before deciding which lender to go with.

“It all boils down to the client’s plan.”

He says low interest rates should definitely not be a deciding factor for those looking to build an investment portfolio.

How does the lender value properties?

Often, lenders will run special promotions where they offer a discounted rate – but there can be hidden opportunity costs involved. Under these promotions, lenders will often lower their valuations on properties. This means that an investor looking to build their portfolio may not be able to access as much equity as they could have done with a different lender.

And while some banks will give really good valuations, they may not be that great at offering competitive rates. It’s a give and take thing.

How much can you save by choosing a low interest rate?

According to Kabir, banks are currently competing on a more even platform than they used to. The difference in rates can’t be too high from lender to lender, and generally doesn’t exceed 0.5%.

Banks have different policies.

It is detrimental to make sure you lodge your loan application with a lender whose policies fit in with your situation and goals.

Kabir says borrowers should speak with a broker or to the bank they are looking to use in order to confirm all of their details regarding employment, income and what they are looking for. 

“Get a confirmation first as to whether it fits into the bank’s policies before lodging a pre-approval or a loan application.” 

This is important because every loan application you make is included in your credit report – which is the first thing lenders look at when assessing if you are a desirable customer.

The more enquiries you make, the lower your score will drop. If you keep going from bank to bank and getting knocked back due to their criteria, you may then miss out on a bank that would have lent to you based on their criteria, because of your credit score.

Other employment types.

Those who are self-employed or employed on a contract basis may want to go with a lender who has the lowest rate. But, this lender may have stricter requirements when it comes to assessing serviceability. They may require a full year’s financials when you may only be four months into a contract. Whereas, other lenders may not require this, but their rates could be a bit higher.

What should people look for when choosing a loan?

Whether you are an investor or a home buyer, it is important to understand what features you need in a loan before making a decision.

Then, it is a matter of finding the right lender whose policies support your situation as well as the right loan that can help you achieve your financial loans.

What should investors look at when choosing a loan?

Kabir says investors who want to build a property portfolio should look at the following things first and foremost before considering interest rates.

1) How do different lenders value properties?

You can find this out by speaking with a broker. At Zinger finance, we have the ability to order an upfront valuation without charging our clients for it. 

We can then compare them to figure out which lender will give the best valuation before deciding which bank to lodge the application with.

This is important because it can affect the borrower’s ability to fund their next property purchase as they build an investment portfolio.

2) Which lenders will give the maximum amount of equity? 

Some lenders put a cap on the amount of equity they will let you pull out, so even if they have valued the property favourably, you may only have access to a small amount of it.

Others require strict documentation in order to release equity, such as a contract of sale. Whereas others only require you to state the purpose of release.

3) To fix or not to fix?

If you decide to fix rates for a set term but then decide to refinance in order to pull out equity before the end of the term, you will have to pay exit fees. 

It is important to make a sound decision before fixing rates to avoid paying break costs.

But, if you are unsure whether you will want to pull out equity yet you want some stability in your loan repayments, you may be able to enter into a split loan, in which a portion is fixed and the rest is not.

In this case, if you want to release equity, you will have to do it with the same financial institution, so it is important to look at how well they value properties before deciding.

What should first home buyers look for in a loan?

While first homebuyers would benefit from getting the best rate available, it is still important to weigh up all the options before making a decision.

If you want to release equity from your home in order to buy an investment property, then you should consider the same factors that a portfolio building investor would.

If, however, you want to buy a home and you are sure you won’t be tapping into its equity, then you should try to find the lowest rate available. However, you need to make sure that the bank’s policies fit in with your needs.


Disclaimer: Please note that the information given in this video blog is only applicable to a number of scenarios and may not be relevant to your financial situation. For more tailored information regarding your own credit report, we would urge you to seek advice from a professional who is privy to your personal circumstances and can give information specific to your financial situation. Please get in contact with our team if you have any questions regarding your own credit report, or would like any help regarding your own finances.

How To Structure Your Home Loans

How To Structure Your Home Loans.

Whether you are purchasing a home or an investment property, it is important to structure your home loans correctly. This will help you get the most out of your borrowing power over the long term, and ensure you can take action to achieve your financial goals through property.

Things we consider when looking at loan structuring.

At Zinger, we consider loan structuring to be a crucial part of every property purchase. We look at the following aspects when helping our clients get finance:

1) Are we declaring the right debt?

2) Are we over or under declaring owner occupier versus investment debt?

3) Are there any accounting benefits to what the client’s current structure holds.

Structuring doesn’t end after the first purchase.

While it is important to get your structure right from day one, it is also important to revisit it during every purchase you make. 

If you are building a property portfolio, structuring is something that could either help you move forward or hold you back.

Just as a good property investor will constantly review their strategy, a savvy borrower will reassess their loan structure at every step of the way.

Restructuring your loans.

One thing we look at with clients who have become stuck in their current structure, is whether restructuring will help. 

We have helped lots of people who couldn’t move forward with their property investing by reassessing their situation. 

One of our clients had a fairly large investment portfolio as well as a home that they were paying off. 

We went back to when the initial loan was set up and reviewed their accounting information. 

We were then able to restructure their existing portfolio and free up their position. This allowed them to continue on their investing journey.

If you are unsure about how to structure your home loans, the best thing you can do is talk with a broker who specialises in this. Not all brokers put time and effort into setting up loans in the best way for their clients, so make sure you choose one who will listen to your goals and help you tailor a strategy for success.


Disclaimer: Please note that the information given in this video blog is only applicable to a number of scenarios and may not be relevant to your financial situation. For more tailored information regarding your own credit report, we would urge you to seek advice from a professional who is privy to your personal circumstances and can give information specific to your financial situation. Please get in contact with our team if you have any questions regarding your own credit report, or would like any help regarding your own finances.

Property Interest Rates On The Rise?

There are a lot of changes taking place in order to help banks make more money (not that they need to). And even though the RBA isn’t moving their interest rates, property interest rates are on the rise after the banks decided they’ll do so independently.

The first change to take place was announced last week by Westpac, and discussed by Nathan in his recent Facebook Live seen above. Westpac have stated that, as of the 19th of September 2018, their home loan interest rates will increase by 0.14% independently of the RBA.

 

What sort of changes do we expect to see in the future?

In short, we are expecting other banks to follow suit.

The APRA restrictions have caused all banks to bleed. To compensate for that loss, banks now must raise their rates to get back some of that money.

Depending on what their needs are, they will play around with their interest rates accordingly.

 

So what does this mean for Australians?

The cost of money is going up all around the world. However, in Australia it hasn’t. This will cause 2 things:

  • The Australian dollar will suffer because of it, as all other countries around the world are rising their rates.
  • We are also going to be facing some rate rises independently of the RBA.

What is the good news?

As much as this may seem to be a restrictive situation, many opportunities arise due to it.

Since the interest rates have changed, so will the policies and criteria for lending.

Not many people will be buying or investing in properties. This opens a lot of doors and opportunities for bargains to those who are looking to invest and start building a property portfolio.

Rent prices are very likely to increase, and if you already have a property investment portfolio, you will potentially earn more rental return.

 

Why shouldn’t we panic?

This is just a natural part of the cycle and it’s happening all around the world.

Here at Zinger Finance, we don’t focus on interest rates and, even though property interest rates are on the rise, we’re not concerned about them. We don’t even believe that they will increase dramatically anyway.

In our experience, we’ve found that banks will offer cheap rates just to get you in the door. But, we guarantee you, that these cheap rates come with a lot more terms and conditions that don’t necessarily complement your long-term goals.

Therefore, don’t settle for cheap loans, as quite often they won’t get you very far.

 

What to do next?

Senior Zinger Finance strategist, Graham Turnbull explains that there are solutions, regardless of your current position.

“If you are a experienced investor, focus on building your investment portfolio and make sure to stay away from the bank’s cheap marketing strategies.

If you’re not already an investor, there are heaps of varying interest rates floating out there that you may be able to strike a good deal out of.”

 

As we have said before, we don’t just focus on interest rates. There are many things to consider when choosing the right home loan for you and your situation.

If you are buying your own home, you would potentially look at a different loan structure to what you would look at if you were building an investment property portfolio.

Zinger Finance structures mortgages in a way that minimizes the impact of changes such as the increase of interest rates.

If you have any questions, our experienced team at Zinger Finance are more than happy to help.


Westpac Wages War On Mortgage Interest Rates

Have you seen in the media about the ‘war’ on mortgage interest rates that’s going on right now? Major banks across Australia are dropping their rates and Westpac is the latest to get involved by offering discounts of up to 105 basis points for their property investment loans.

This is the second time this month that the nation’s second largest lender has cut their rates and Westpac is following in the footsteps of NAB, CAB and ANZ.

This time, the focus is on first time home buyers and rentvestors – property investors who rent their principal place of residence.

Westpac have introduced the following changes:

  • fixed rates for first time buyers have been reduced by 40 basis points for principal and interest repayments
  • a five year introductory variable rate for first time buyers
  • the abolishment of establishment and monthly fees
  • a five year investment loan of 4.09 per cent (including a discount of 105 basis points)
  • a ‘flexi’ five year loan of 3.79 per cent (including a discount of 80 basis points)

Andy Wright, Head of Portfolio Management for Home Ownership at Westpac, said the changes have been implemented “to help first time buyers at the start of their home ownership journey and a cut in fees means they can put their savings towards purchases for their new home.”

The offers have also been extended to first home buyers who are purchasing their first home with the intention of renting it out, a trend that is increasing significantly.

We’ve seen first home buyers emerge in force after high prices, tougher controls on overseas buyers and tighter lending standards saw the overall demand in the property market decrease.

In the last quarter of 2017, Victoria saw a 12.6 per cent increase in first time home buyers, about 9900 loans. This was a 40 per cent increase compared to 12 months before.

NSW saw a 75 per cent increase in the year-on-year comparison and the last 3 months of 2017 witnessed an 11 per cent increase, equating to 7500 loans.

Although the Reserve Bank of Australia and prudential regulators have concerns about record levels of household debt, major Australian lenders have been aggressive in reducing key fixed and investor interest-only rates.

Australia’s big four banks undershot APRA’s 30 per sent cap on new lending, which is how they are now able to apply additional interest-only cuts. They are also trying to reclaim their market share from smaller lenders, so they can boost their profits. Hence the rates ‘war’ we’re now seeing.

currency wars

The new lending strategy suggests that our major lenders are not anticipating an increase in rates any time soon, despite a lot of economists predicting an increase come the next interest rate change.

The Australian Bureau of Statistics has reported a reduction in fixed rate loans, implying that property buyers are also discrediting the probability of rates increasing.

Graham Turnbull, Senior Finance Strategist at Zinger Finance, says that this could be the end of APRA as we know it, but urges people to not place too much emphasis on only going after the lowest rates.

“When servicing for any home loan, you need to consider your long term goals. Going after the lowest interest rate is not always the best strategy because it doesn’t always equal the best value for your needs. Although a loan may offer the lowest rate, there may be other features lacking. That’s why our team of Finance Strategists look beyond today’s loan and think about how it will affect tomorrow’s.” 

 

What to know more?

Feel free to contact the team for a free Financial Review.

 

How To Find The Best Home Loan

How To Find The Best Home Loan

 

Whether you are buying your home or building an investment portfolio, finding the best home loan starts with a clear understanding of your needs and objectives – not just now, but in the foreseeable future too.

 

The best home loan is rarely the one with the lowest rate. You can’t start looking for it, unless you have answer the questions below.

 

1) What do I need the loan for? Is it to buy a principal home or an investment property?

2) What are my objectives – e.g. pay it off sooner, open up cash flow to invest further?

3) Will my circumstances change during the course of the loan?

4) How will I use the loan? What features will suit those needs?

 

This will help you decide what features you need.

 

Loan Considerations For Home Buyers

If you want to buy your own home, there are a number of different features you may want to consider depending on your needs and how you are likely to use the loan.

 

Options For A Repayment Flexibility

It is important to remember that circumstances change. Having a home loan that offers flexibility through these times can help to prevent against financial strain and mortgage related stress.

 

A perfect example of a foreseeable change that many young couples need to consider is that of having children.

 

When income is suddenly reduced, the option to reduce mortgage repayments may be desirable.

 

Will You Need A Repayment Holiday?

Many lenders offer what is called a ‘repayment holiday’. This allows the borrower to make reduced repayments over a certain period of time as they adjust to a new lifestyle.

 

Will You Want An Offset Account?

An offset facility is another feature that many home owners find useful.

 

It’s basically an everyday transaction account with the same interest rate as your mortgage.

 

The more money you hold in there, the less overall interest you pay on your mortgage.

 

Meanwhile, you can access the money whenever you need it.

 

Will You Need To Redraw Into The Loan?

A redraw facility allows borrowers to take money out of the loan to spend – much in the same way as a credit card.

What Is The Cost?

The best idea of cost can be found in the comparison rate. It’s intended to represent a truer cost of repayments once foreseeable fees and charges are factored in.

 

If you want to figure out how much your repayments will be each month, using the comparison rate will give you a more accurate figure than interest rate alone.

 

How Will You Use The Loan?

Say, you had a loan that offered five free redraws each month, but you were making 10, those extra redraws would come at an extra cost. Knowing how you are likely to use the loan will help you know what features to look for.

 

Investors Have Different Needs

Property investors should look beyond rates and focus on lender’s policies when choosing the right loan.

 

If you want to build a property portfolio, it is important to choose lenders with policies that will allow for maximum flexibility.

 

Investors are also much more likely to need to review their loan regularly in order to maximise tax benefits or release equity.

 

What Policies Should Investors Look For?

Investors should ask the following when looking for the best loan:

 

  • How does the lender assess rental income in order to help service the loan?
  • Is an interest only period available and for what portion of the loan?
  • What are the lender’s policies around revaluing properties to release equity?
  • How much equity can be released?

 

How to find out which lender offers what?

A finance strategist can compare the different policies across lenders to find the best loan for your needs.

 

While many banks have great lending managers who will analyse your needs to find the best loan product, they are limited to recommending their own products.

 

Strategists, on the other hand, have access to a wider range of products and an in depth knowledge of the different policies across lenders. They will find the most balanced product for your needs.

Where Can I Find The Lowest Home Loan Rate?

Where Can I Find The Lowest Home Loan Rate?

 

If you want to find the lowest rate home loan, you may be doing yourself a disservice.

 

Like most consumer products, a cheaper price doesn’t necessarily mean the best value. In fact, the cheapest product on the shelf may be the worst on offer.

 

Finance is no different. Many loan products that advertise a low interest rate are lacking in other features.

 

This is why it is important to look beyond rates and find a loan that is suited to your needs.

 

Keep in mind the needs of an investor are different to those of a home buyer.

 

Ditch The Comparison Sites

Comparison sites are useful for comparing rates, but they don’t compare what’s actually important – the back end and features.

 

Some mortgage brokers are the same, being stuck in an interest rates mentality, forgetting about the structure of the loan.

 

For example most people wouldn’t choose a phone plan just because it is the cheapest one out there. Instead, they would consider the ways in which they use their phone, and then choose the package that offers the best value for their needs.

 

Loans should be no different. And, since you will be entering into a mortgage that may take 30 years to pay off, it is important to think of how your needs may change over the long term.

 

You don’t want to have to break your contract early and pay out the remaining interest charges.

 

Consider Your Needs

You may be a home-buyer wanting to apply an offset account. You may be a property investor looking to release equity in a year’s time.  Either way, you will need to choose a loan that will allow you to fulfil your short and long term goals.

 

Will you need to redraw into the mortgage from time to time? Will you want to make extra repayments? Will you want to revalue your property to release equity within six months of the purchase date? Do you need to fix rates for a set period?

 

When it comes to questions such as these, comparison sites may not give you the answers you are looking for.

 

The cost of not considering these questions is often unexpected nasty surprises such as hidden fees, charges or exit costs.

 

How To Find The Best Loan

While it can be hard to sift through the credit policies of all the lenders available, a finance strategist can help you narrow it down.

 

By getting a clear idea of your goals, and developing an understanding of how you will need to use your loan, they can do the sorting for you.

 

Contrary to popular belief, most mortgage brokers don’t charge extra in the form of higher interest rates. If they do, and they don’t disclose it, they are dodgy – plain and simple.

 

Instead, brokers are remunerated through a commission that is paid by the lender.

 

A good mortgage strategist will save you hours of your precious time. Going through a good broker will give you piece of mind that you have the best loan product for your needs.

How Much Can I Borrow?

How Much Can I Borrow?

Calculating how much you can borrow is not as simple as you may think. Different banks might come to different decisions on how much to lend you. Here are some things they look at before deciding.

 

Lending Is Case By Case

Finance Manager for Zinger Finance, Graham Turnbull, says lending is a case by case scenario that depends on the borrower’s serviceability and credit history.

[Serviceability is a word that banks use to describe the borrower’s financial ability to pay back a loan.]

A number of different income and expense considerations are taken into account before deciding how much an individual can afford to borrow.

 

How Do Banks Assess Borrowing Capacity?

Before a bank lends you money, they need to find out if you can afford to make the monthly repayments on this amount.

They may do this by using a variety of different calculations such as Net Income Surplus (NIS).

The NIS shows the lender how much money the borrower will have left each month after paying for expenses and making mortgage repayments.

To calculate NIS, lenders will aggregate all sources of income before subtracting living expenses, and debt obligations. This includes monthly repayments on the new debt and monthly repayments on any existing debt.

Each bank is different. While most banks calculate NIS in this way, the way each financial institution treats income and expenses can vary.

 

Not All Income Is Treated Equally

Most banks will distinguish between different types of income.

For instance, income from a self-employed person is usually seen as less secure than that of a permanent, full-time employee.

The amount of time an individual has worked in their role can also affect serviceability. If a person has only just started at a new job, their income will be seen as less secure than that of a person who has worked 12 months in their role.

Uncertain income sources, such as rental income, investment income, Centrelink payments, bonuses and commissions, will usually be given a “haircut”.

This trimming strategy is used to reduce risk to the bank – and the borrower.

 

Expenses

When it comes to assessing a borrower’s level of expense, lenders apply a minimum benchmark that is based on the Household Expenditure Measure (HEM).

To the banks, it is almost irrelevant having a level of expense that is lower than this benchmark – even if you actually do. This is a safeguard to ensure that if your expenses do increase, you will still be able to make repayments.

 

Dependants

If you have dependants, you will have a greater level of expenditure than if you are single and without children.

 

Existing Debts

Lenders may load up your repayments on existing debt in order to reduce risk. While you may be paying interest only at a low interest rate, lenders will calculate this expense as though you were paying both principal and interest at a slightly higher rate.

 

Mortgage Repayment Buffers

Banks will also apply the above mentioned strategy to the repayments on the new loan. Even if you will be paying interest only for the first five years, the lender will use an “assessment rate” at higher interest on both interest and principal repayments.

 

Credit Cards

The limits on your credit cards are also taken into account when calculating expenses. The banks want to know that you will be able to pay your mortgage even if you max out each month.

 

Credit History

Banks may be reluctant to lend you money if you have a bad credit file. Missed payments and multiple loan applications may mean lenders will see you as a high risk customer, affecting how much you can borrow.

 

Put Your Best Foot Forward

Graham says, speaking with a finance strategist is the best way to find out how much you can borrow. He says, in order to present your best self to the banks, it is helpful to do the following:

 

  1. Stay in control of paperwork and have all income and expense statements in easy reach.
  2. Demonstrate a good savings history and manage statements to demonstrate consistency and financial control.
  3.  Check your credit file and clear up any black marks.

Let's chat

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