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I’m thinking of refinancing

Refinancing can be easier than you think these days. There are many reasons why you’d decide to switch, the main one of course being to get a better interest rate to reduce your monthly repayments and pay your home loan off sooner.

Is refinancing easy?

Refinancing can be simpler than you think these days. After a quick chat we can explain exactly how we can improve your financial situation and then we’ll do all the work for you and keep you informed along the way.

What are the main reasons people choose to refinance?

6 Reasons to Refinance, and a 7th that nobody has told you

There are six widely-understood reasons to consider refinancing, and a 7th reason to switch that you haven’t been advised about. So here they are:

1. Get a better structure

Too many Australians don’t use the banks products properly, so refinancing is an opportunity to press the reset button. Some of the things you’re able to do are: Split loans, particularly if a portion is tax deductible; fix a portion to provide certainty and keep a variable split, against which there can be one or two offsets – to ensure your pay immediately saves you interest; linking a credit card to use the bank’s money for up to 55-days interest-free; and eliminate the hassle of manually paying your credit card bill and – if there’s always funds in your offset – never having to pay a cent of interest on your credit card.

2. Debt consolidation

You can wrap small debts into a single structure and even use your home loan to pay off your car loan. While the latter would improve your capacity to service your loan and future loans, it does eat into your equity.

3. Unlock your equity

You could increase your limit to have more money in your offset account, or the extra funds could take the form of a separate split, with its own offset account. Of course, you’d only pay interest on what you actually use. Some banks allow you to unlock your equity all the way up to 80% of your property value – as long as you can afford to service it. Or if you’re ready to buy another property, having the funds to pay a deposit on auction day will help you avoid unnecessarily paying for a deposit bond. To avoid cross-collateralisation, many investment property buyers borrow 80% against the next property and 24% against their existing property. Both loans relate to the investment, so they’re tax deductible, but the securities won’t be crossed and could even be at different banks.

4. Get a better interest rate

If your loan is more than a year old, chances are you’re way behind the eight-ball. Bigger lifetime discounts are offered these days, but are reserved for ‘new to bank’ clients. So many still have an interest rate which is above 4% which is silly.

5. Get a cash rebate

Sure, you wouldn’t switch just for a short-term kick-back, but CBA will pay you $2,000 if you switch to them. Rebates are also offered by ANZ, Bankwest, NAB, St George & Suncorp.

6. Get Professional Representation

If your loan was directly from a bank, over time, they would have taken advantage of you – the Banking Royal Commission says so! By using an expert advisor at iChoice to get you into a better loan, you’ll immediately be professionally represented by someone with an impressive depth of knowledge. You’ll be kept informed, and we’ll ensure your rate remains competitive over time, while also having access to advice about wealth creation and valuable help with avoiding mistakes along the way.

And the mystery 7th reason for refinancing is……

7. Better tax Outcome

If you have a home loan, which must be serviced with your after-tax dollars and also have an investment loan which allows interest to be claimed as a tax deduction, you probably know you should concentrate on paying down the home loan faster.

Until a couple of years ago, you’d keep the investment loan interest-only, so the ‘good loan’ remained high and you could smash down the ‘bad loan’. Now that interest-only loans come at a higher rate, the benefit is washed away, so many of you have changed your investment loan to principal plus interest to get the better rate. Good – that was the right thing to do. So, let’s say you have 20 years remaining on your investment loan. If we help you refinance that, we’ll re-set it over a 30-year term. By stretching the loan term, the repayments will be less. The surplus can then be thrown in the ‘bad’ home loan. You’ll get a better rate and probably a refinance rebate, but you’ll also pay less tax and own your home sooner.

How much will it cost me to refinance?

For a single home loan refinance, the bank you are leaving will charge you a Discharge Fee of around $350 to attend settlement. It’s a fee, not a penalty (the days of unfair Early Repayment Fees are history)

If you’re currently on a fixed rate, there may be a Break Fee, particularly if your fixed rate is way out-of-market, so you need to ask your bank what the fee will approximately be.

Government Fees to discharge and then register the new mortgage, and a Title Search Fee, might amount to a few hundred dollars.

The bank you’re going to shouldn’t have an application Fee, if you’re entering into packaged-type product. The banks even normally waive the application fee for basic type products these days. There may however be a $100 or $200 settlement fee.

So the cost to switch is normally around $700. Of course, an iChoice Recommendation will detail the exact costs to the dollar, and the projected savings you’ll make moving forward.

Do banks offer a Refinance Rebate to cover the cost of switching?

Yes, some banks will pay you a ‘Refinance Rebate’ to compensate you for the cost of refinancing. Often the rebate is far greater than the cost, so you actually make a little cash, for switching to save! Please ask us who’s currently offering these rebates.

We want you to be completely informed and comfortable, so feel free to download our free eBook “10 Must-Do’s when refinancing”

I’m looking for my first home

There’s a lot to consider when you’re looking for your first property. Having the right advisors around you can make all the difference and give you peace of mind that you get the right product to let you get ahead.

Can I get an approval?

After few minutes we’ll be able to give you an indication of your likelihood of getting a quick approval. They’re generally subject to the following considerations, known as the 3 c’s:

Collateral: the bank will need to find the security property to be acceptable and will need you to pay a deposit so the bank doesn’t need to fund the whole purchase.

CAPACITY: The bank will assess your current income and expenses and calculate whether you are likely to afford the repayments.

CHARACTER: (for lack of a better term) the Bank will like you to have a clean credit history, stable employment and other requirements.

FAQ: Can I get a Government Grant?

Confused? You’re not alone. The grants offered by our Governments are always changing, here is where you can find out the latest info.

A.C.T Northern Territory NSW Queensland South Australia Tasmania Victoria Western Australia

http://www.osr.nsw.gov.au/grants
http://www.revenuesa.sa.gov.au/generic-pages/i-am-a-first-home-buyer
http://www.revenue.act.gov.au/home-buyer-assistance/first-home-owner-grant

How much of a deposit do I need?

The bank would ideally like you to pay for 20% of the property, so it can lend 80% and have a buffer.

But saving such a large amount can be difficult, especially if you need to save for the Stamp Duty too! If you need to borrow over 80% of the value of the property, you’ll generally need to pay Lenders Mortgage Insurance (LMI) which is a one-off fee that you pay on behalf of the bank, for the bank to be protected. It can be expensive, depending on the loan size and the size of your deposit.

How is LMI calculated?

All the banks charge it differently. As Credit Advisors, we not only compare the interest rates and fees – but also the LMI premiums as well as, so you get complete advice.

How about if I have a Guarantor?

The Family Guarantee products are treated quite differently amongst the banks.

They’re a great way to avoid LMI if you have a family member who is willing and able to use their property to help secure your loan. The guarantor can provide a limited guarantee, limited to roughly the amount of your loan that exceeds 80% of the value of the property. Over time, once your loan represents 80% of the value (whether you’ve been able to reduce the loan balance or the value of the property has appreciated), the guarantor can be immediately released.

Banks view this product very differently, and we expect things to soon change. For starters, some banks will want the guarantor to be working, where other banks don’t. Some banks want the guarantor to pledge by using an investment property, but some banks allow them to use their home. If the guarantors have a loan on their property at another bank, some banks will be OK with this.

Which loan is best for me?

There is just so much to consider. By completing our online Questionnaire, and a quick chat to understand your position, we’ll be in a position to make our recommendations.

I need to upgrade my home

If you’ve got a home but are thinking of swapping it for another one, there are a few ways of doing this. They each have their benefits & risks, so please get the right advice.

Should I sell first and then buy?

Ideally you agree to buy and sell at the same time, but this can be sometimes impossible. You could choose to sell your place and then be in a position where you know how much money you get from the sale and can then look to buy. The problem here is that you don’t have a home for a while. And worse still if you take too long to find the next place, you’re out of the market, which could be frustrating if property prices are rising.

Should I buy first and then sell my existing place?

You might be in a position where you can get the loan without it necessarily being a ‘bridging loan’ – that’s the best way. Bridging loans have specific guidelines and can also be a bit more expensive.

A bridging loan is where the bank will let you borrow for your next place, even before you have sold. You might not be able to afford the repayments on both but that’s OK, the bank capitalises your interest for say a 6-month period, so you’re not required to service all of the debt in the time it takes you sell your place. There is a time-limit, so the risk is that if the sale of your former home doesn’t get the sale price you were hoping, you might be out of time to drag it on.

I'm looking to build a home

Banks are generally happy for borrowers to get a construction loan for one, two or even three dwellings, without going through the fuss of a commercial-type product construction loan. The bank can treat it like a normal home loan, at standard home loan rates – they’ll fund the purchase of the land, and then progressively draw down the funds to the contract builder until completion.

If you’re an owner-builder, there may be a few restrictions, like lending a bit less, just to leave some room for any potential cost overruns.

What special items would the bank need?

If you have an approved Development Application and a building contract (with a list of inclusions) that’s all the bank needs to get a valuation done on the completion value of your property. Apart from that the application process is the same as normal. If it’s an investment, the bank will indeed take into account the rent it will generate.

I'm a property investor

Once you have some equity in your home, you may have the opportunity to buy an investment property without contributing any money, by taking advantage of the equity in your home. You’d generally want to borrow 104% of the purchase price (to cover stamp duty) to better minimise your tax. It’s best to more quickly reduce your home loan, which is the loan that you service with your after-tax dollars.

Of course, you may buy an investment property prior to purchasing a home – many choose to buy an investment property and simply rent where they want to live.

What’s important for new and seasoned property investors is the structure you adopt and the all-important tax consequences; you should be thinking about whose name you buy the property in, consider negative gearing, possible changes in income, Land Tax & Capital Gains Tax. That’s where dealing with experienced advisors can make a huge difference.

Should I cross-collateralise my home and investment?

If you have equity in your home, you can always allow the bank to take a charge over the investment property you’re purchasing as well as your home. That way you’ll be able to borrow the lot, as the loan is secured by a mortgage over each property. Depending on your age and your situation, cross collateralising actually might come in very handy.

Some like to have each property secure its own loan, with no cross-collateralisation. This can be advantageous if there are big movements in values down the track. If you’d like to borrow the full amount of your investments for tax reasons (which we recommend) we can extend 24% against your home and 80% against the investment.

Even if you have paid off your home loan, there may be a time when you again have non-deductible debt, like if you upgraded your home.

Can I get owner-occupied interest rate for an investment loan?

Strangely, yes! cross-collateralise my home and investment? Here are times when you’ll be able to take out an investment loan and land the cheaper owner-occupied rate! One way is to offer the bank your home as security, to secure your investment loan, but not all banks will do this. You’ll need individual advice.

Should I take a basic loan, or a packaged loan?

Banks generally offer a ‘packaged’ type product, which normally provide cheaper interest rates for both variable and fixed rate loans. There is generally an annual fee associated with packaged products, but generally provides a free offset account/s and a credit card with the annual fee of the credit card being waived. This means your financial life can be neatly managed.

Basic products offered by the banks can be a better option if:

  • You already have an offset account against your home loan
  • Your home is unlikely to ever become an investment property
  • Your loan is small (so the $395 per annum is a greater percentage)

Should I keep my investment loan ‘interest-only’?

The golden rule in the past was to keep your investment loan set up with interest-only repayments. This means that the balance of your investment loan doesn’t reduce, thus allowing you to further reduce the balance of your home loan, which is the one you service with your after-tax dollars.

Nowadays, interest-only loans attract a higher interest rate and the tax benefit of I.O. is overtaken. It’s easy to calculate whether it’s worth it or not.

Should I have multiple offset accounts?

Up to you. Ideally, any offset funds should be sitting against your home, since the interest paid on that loan is serviced with your after-tax dollars. Having said that, some borrowers like to have a separate offset account for each investment. It does make sense to have funds earmarked for property investment repairs etc, and might make your accountants job easier at tax time.

Are all banks the same when it comes to investment loans?

There is just so much to consider. By completing our online Questionnaire, and a quick chat to understand your position, we’ll be in a position to make our recommendations.

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