With such an abundance of home loan and lending products on the market, you will require a knowledgeable Mortgage Broker to help guide you to the most suitable product for your personal situation at the lowest possible interest rate. At Right Financial we pride ourselves on providing expert lending advice for the following products, and all without charging any advice fees ?
We know that everyone’s circumstances are different so we put in the extra effort to provide a range of products which we believe meet our clients’ ever-changing needs.
Home Loans: Are directed at the owner occupier property market and are used to purchase a property to live in or refinance an existing home loan. Home loans can be divided into two broad types, “Basic” home loans and “Professional Package” home loans. A basic home loan is a low-cost option with no ongoing fee’s that does not have an offset account, but it does allow you to pay extra off the loan. Any overpayments can then be redrawn later, should you require the funds. A professional package home loan generally has an annual package fee of between $199 and $395 and includes redraw, an offset account, free credit card and quite often discounts on interest rates and insurance.
There are several options available with both loans, which include the interest rate choice being either fixed or variable or a combination of both with a split loan and then you can choose the repayment type being principal & interest or interest only. The type of loan you choose, and the options selected will depend on your personal circumstances and should be carefully considered before a choice is made. Request a free consultation with one of our expert mortgage brokers by clicking here or calling 02 9934 9735.
Investment Home Loans: Are directed at the property investor market and are used to purchase investment properties and refinance existing investment debt. Currently, investment home loans have a higher interest rate than home loans in order to slow down investment lending. The two broad types of investment home loans are the same as regular home loans. “Basic” investment loans and “Professional Package” investment loans. A basic investment home loan is a low-cost option with no ongoing fee’s and does not have an offset account, but it does allow you to pay extra off the loan. Any overpayments can then be redrawn later, should you require the funds. A professional package home loan generally has an annual package fee of between $199 and $395 and includes redraw, an offset account, free credit card and quite often discounts on interest rates and insurance.
There are several options available with both loans, which include the interest rate choice being either fixed or variable or a combination of both with a split loan and then you can choose the repayment type being principal & interest or interest only. Please bear in mind that paying extra off an investment loan and redrawing it may have unintended tax consequences and should be discussed with a tax professional beforehand. Loan structuring is crucial with investment loans, the type of loan you choose, and the options selected will depend on your personal circumstances and should be carefully considered before a choice is made. Request a free consultation with one of our expert mortgage brokers by clicking here or calling 02 9934 9735.
Construction Loans: A construction loan is type of home or investment loan that is used to build a new property or strucutually renovate an existing property. Most lenders will want the build to start within 6 months of approval and it needs to be completed within 24 months, so you won’t want to waste too much time getting stuck in. A construction loan is generally drawn down in stages, commonly known as progress payments. These progress payments match the schedule of works in the building contract know as stages. A build is usually broken up into about 6 stages, similar to the example below:
- Deposit: This is usually 5% of the total build cost and covers the initial cost to inspect the site and apply for the development approval. Our experience has shown that it is much easier to organise to have these funds available beforehand, rather than arguing with the lender to release funds prior to formal approval. Our friendly brokers can show you how this can be achieved.
- Slab or Base Stage: The site is levelled at this stage, and the foundations and slab are laid, as well as the plumbing and waterproofing of your foundations.
- Frame Stage: During this stage, the wall frames and roof trusses are erected. It also covers partial brickwork, the roofing, electrical and plumbing rough in.
- Lockup Stage: This is the point when the house can be locked up to keep out any unwanted intruders. The external cladding should be completed, and all windows and doors installed.
- Fit Out or Fixing Stage: This is when the internal fittings and fixtures of your property are installed. It covers all internal cladding, waterproofing, skirting, cupboards and benches, electricity, plumbing and gutters.
- Practical Completion: This is the final stage where the builder will organise for you to do a “walk through” of the property with the site manager to give you an opportunity to point out any areas that still require attention. It is a wise choice to pay for a consultant to carry out a pre-handover inspection to make sure your home has been built to specification.
As the loan is being progressively drawn down, interest and repayments are calculated based only on the funds used, and not the full loan limit approved. When each stage is paid, your monthly repayment will increase until the full loan amount has been drawn down. Request a free consultation with one of our expert mortgage brokers by clicking here or calling 02 9934 9735.
SMSF Loans: Self Managed Super Fund (SMSF) loans are a type of investment home loan that is used to purchase an investment property inside a self-managed super fund (SMSF). A SMSF is a trust structure used to hold and manage superannuation funds, most typically set up with two members being husband and wife, although you can have up to four members. All members must be trustees (or directors, if there is a corporate trustee) and are responsible for all the decision making and fund compliance.
When buying property though a SMSF you must comply with the following rules:
- Must meet the ‘sole purpose test’ of solely providing retirement benefits to fund members
- Must not be acquired from a related party of a member
- Must not be lived in by a fund member or any fund members’ related parties
- Must not be rented by a fund member or any fund members’ related parties
There is an exclusion to the above in that if you are a business owner you can buy the premises inside with your SMSF and pay rent directly to your SMSF as long as it is at market rates.
Borrowing to purchase property inside your SMSF must be done using a “limited recourse borrowing arrangement” (LRBA). A LRBA is a bare trust structure that holds the property and the loan so that the lender only has recourse to the property in the SMSF that the loan is attached to and not the other assets held in the SMSF such as shares, bonds and cash. The bare trust holds legal title of the property until the loan is repaid in full and discharged, when this occurs, legal title of the property is transferred to the SMSF.
Due to the complexity involved with LRBA’s and the fact that the lender has limited recourse, it should be noted that the lender is far more stringent with their due diligence and the amount of paperwork required is significantly more than your typical home loan. You will require a qualified financial planner or certified SMSF accountant to help you set up the entities and structure correctly, and you will also require an experienced SMSF mortgage broker to assist you in finding the right lender at the lowest rate, because once you have the loan in place, it is very costly to refinance to another lender. To speak with one of our experienced SMSF mortgage brokers for free, please click here.
Commercial Property Loans: Are similar to residential home loans in that a lender will allow you to borrow an amount of debt as a percentage of the value of the security property at a set rate of interest. The largest point of difference is that commercial lending is not regulated by the National Consumer credit Act (NCCP). Therefore, commercial property borrowers do not have the same consumer protection laws in place like regular residential lending.
How much can you borrow?
Below is a general guide on how much debt can be secured against a commercial property:
- Borrow up to 80% of the property’s value if valued up to $1m
- Borrow up to 75% of the property’s value if valued up to $2m
- Borrow up to 70% of the property’s value if valued up to $5m
You may be able to borrow up to 100% of a commercial property if it is also secured by a residential property. If the property is valued over $5m and up to $100m there are lenders who will look at this scenario, but only on a case by case basis.
Types of Security Properties
The uses of commercial property are quite varied, and include the following:
- Office Buildings
- Shopping Centres
- Land Subdivisions
- More than three units in one residential development
- Residential property development finance
There are also “specialised” commercial properties that a lender will lend against, however, these properties are considered higher risk and therefore the deposit required to purchase this type of property would need to be larger with a more detailed and therefore costly valuation being required.
- Aged Care, like residential care and respite centres
- Short Term Accomodation, like a motel, hotel or caravan park
- Private schools
- Petrol Stations, and specialised retail outlets
- Pubs and Clubs
- Car Yards
- Function Centres
- Income producing farms
- Child Care Centres
- Shopping Villages
- Land banking sites or Englobo land
Commercial Property Loan Features
Unlike residential home loans, features are quite limited when it comes to commercial property loans, only basic features are offered.
- Offset accounts are only available with a select number of lenders
- Redraw is common, but not all lenders allow it
- Internet banking is generally available, however some lenders do not offer it
- Extra repayment sare available on variable loans
- Cash out available depending on the purpose
- Interest only repayments are available up to 10 years
- Loan terms are up to 25 years, however this can depend on the term of the lease
Commercial Property Loan Fees
Fees are generally much higher for commercial mortgages than residential mortgages. Below is a list of possible fees associated with a commercial property loan:
- Application Fees
- Line Fee or Administration Fees
- Valuation Fees
- Lender Solicitor Fees
Application fees and interest rates are generally negotiable, so it pays to have an experienced mortgage broker on your side doing the negotiation on your behalf.
Vehicle & Equipment Finance: There are a range of vehicle and equipment financing options available, these include:
- Chattel mortgage: The equipment is owned by the business or individual and will be used as the primary security against the loan. This is the most common form of vehicle and equipment financing these days
- Novated lease: Gives employees an option to lease a vehicle of their choice and retain ultimate responsibility for it while they make the lease payments by making deductions on their pre-tax income
- Finance lease: The lender purchases the equipment and leases it to you on agreed terms. At the end of the term the equipment is handed back to the lender
- Commercial hire purchase: This is also called asset purchase and is similar to a finance lease except your business owns the equipment once the final payment is made
You can pretty much finance any sort of business equipment and sizable leisure goods these days. Some of the more common equipment include:
- Cars, utes, trucks and buses
- Forklifts, cranes and similar equipment
- Computers and printers
- Medical and manufacturing equipment
- Industrial plant equipment including those for the mining industry
- Manufacturing equipment, such as those used in metal fabrication, timber joinery and
- Earthmoving equipment such as trenchers and excavators
- Boats, caravans and motorcycles
There is no single lender who will finance all the above so It’s important to know which lender specialises in what equipment to result in an approved loan application. To speak to our expert mortgage brokers click here or call 02 9934 9735.
No Deposit Home Loans (Family Guarantee): For many home buyers, saving a deposit to purchase a property is a very slow and arduous task. It becomes almost impossible when you factor in today’s high cost of living and renting somewhere to put a roof over your head.
You may think that no deposit home loans are a thing of the past. But a family guaranteed home loan remains a viable way for many home buyers to get on the property ladder.
The key is having a family member with enough equity in their property to act as a guarantor for you and to make up the shortfall of deposit with their spare equity.
There are plenty of benefits and a few drawbacks of this strategy. The guarantor and purchaser will need to carefully consider these before proceeding.
In order to be eligible for a family guarantee home loan:
- You must be an owner-occupier or, if you’re a first home buyer, you can buy the property as an investment
- Guarantors must be family members, including parents, grandparents, spouse, siblings, sons and daughters
- You can’t be looking to refinance
- You must not be looking for a loan ‘top up’
Key benefits of a family guarantee home loan
These are the main benefits:
- Helps you avoid the cost of lenders mortgage insurance (LMI), possibly saving tens of thousands of dollars
- Maximises the amount you can borrow – up to 100% of the purchase price plus legal costs and stamp duty to a total loan to value ratio (LVR) of 105%
- The guarantee amount can be limited to the exact amount required to make up the shortfall of a 20% deposit plus legal costs and stamp duty
- Some banks are happy to arrange a second mortgage behind the guarantor’s current lender if they already have a home loan in place and don’t particularly want to refinance it over to the new lender
- The guarantee can be released at any time by the guarantor; however, if the loan to value ratio is still above 80%, then ⦁ LMI may be payable
Key risks with a family guarantee home loan
These are the main risks:
- The guarantor is guaranteeing a specific loan amount that will go towards reducing the guarantor’s borrowing capacity, should they decide to increase their own debt while the guarantee is in place
- If the borrower is unable to make their monthly loan repayments, the guarantor will need to step in and cover the repayment
- If the borrower and the guarantor are unable to make the monthly repayments, the borrower may be forced to sell their property; the guarantor may also have to sell their own property if the sale of the borrower’s property falls short of paying out the entire loan and they’re unable to make up the difference with cash
Example: a family guarantee home loan in practice
Michael is a first home buyer, planning on purchasing a property worth $650,000 in NSW.
He only has $32,500 (5% deposit) after accounting for his legal costs and needs to borrow the remaining 95%.
The lenders mortgage insurance (LMI) on this purchase would be around $27,000. What’s more, only a couple of lenders will let you capitalise the LMI premium when the LVR is that high.
If Michael’s parents are willing to offer some equity in their home or investment property and agree to a family guarantee to make up the shortfall of the deposit to bring the overall LVR down to 80%, (which is a limited guarantee of $121,900), Michael could avoid having to pay out $27,000 in LMI.
Is a family guarantee home loan a good option for you to consider as a first step in property ownership? If so, contact our office and we’d be happy to guide you on your property journey.
Low Doc Loans: A low doc loan is used by borrowers wishing to borrow money to purchase a property who are self-employed and are unable to prove their income using traditional verification documents, including up to date tax returns and financial statements. Low doc lending in recent years has tightened up considerably and most of the majors no longer offer this type of lending. You will need to speak to one of our mortgage brokers, who will be able to find the right lender for your circumstances with the most competitive rates and fees.
What to look out for
Because low doc loans are considered high risk lending, lenders charge higher interest rates and fees and also place a number of restrictions on the loan.
- Interest rates: Rates can be anywhere from 1% to 3% higher than a standard home loan and will depend on a number of criteria, including loan to value ratio’s (LVR), income verification documents and loan use
- Lenders mortgage insurance (LMI): LMI is payable if you borrow over 60% of the value of the property versus a regular full doc loan where LMI is payable over an 80% loan to value ratio (LVR).
- Deposit: A larger deposit is required because there are no lenders who will let you lend above an 80% LVR and as per the point above LMI is payable above 60% LVR.
- Length of business tenure: The majority of lenders will require you to have an ABN that has been GST registered for 2 years.
- Credit file: Because this type of lending is higher risk the bank is going to want to see that your credit file is in excellent order and that your current debt obligations have been paid on time. There are options to go with lenders who provide low docs loans if you have a poor credit history, however, the interest rate charged can be very high.
- Maximum exposure: Most of the lenders have a maximum loan amount of $1m. A small number of lenders allow loans greater than $1m and are on a case by case basis.
Types of income verification
Under the National Consumer Credit Protection Act (NCCP) lenders are required by law to have some sort of income verification from you before they can approve your mortgage. You will therefore need to substantiate your income with supporting documents, below is a list of supporting documents that can be used.
- BAS statements: 12 months of BAS statements is the general requirement to verify sales turnover
- Accountants letter: An accountant letter verifying your income
- Expired tax returns: Old tax returns, which are over 24 months old
- Company bank statements: Bank statements are used to verify the amount of sale proceeds being deposited into the company bank account
- Interim financials: If they are available, the lender may ask for a copy of the business’s interim financial statements which can be used verify income
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