Mortgage Broking

As mortgage brokers, one of the most common questions we are asked is: “How can I reduce mortgage payments?”

So we sat down and distilled what we do into this guide, “10 ways to reduce mortgage repayments“.

Your mortgage consists of:

• principal – the amount you borrowed to buy your home
• interest – the amount you pay your lender and
• fees for arranging and having the mortgage facility

The interest on a mortgage is substantial because you are borrowing over such long periods of time.

For example a standard variable 25 year loan of $350,000 at 6.25% interest would cost $692,652.85 – with nearly half the total cost being interest.

We offer mortgage broking to clients in the Perth area and we feel it would be helpful to discuss where mortgage rates could be going in 2016. While we have been a trusted name with more than 70 years of experience in providing financial advice in the Perth area, our affiliation with AMP Capital has brought us one extremely trusted resource: Dr Shane Oliver.

Dr Oliver is the Head of Investment Strategy and Economics at AMP Capital. He is also their Chief Economist. Recently, Dr Oliver wrote an article on the AMP Capital company blog called, “2016 – a list of lists regarding the macro investment outlook.” We are covering various aspects of the piece on this blog.*

While the blog covers mostly investment strategy, it also has some information that is relevant to mortgage broking professionals and those who want to add investment property to their portfolios: Dr Oliver’s speculation and forecast about the RBA cash interest rates.*

You may not know it, but mortgage broking is one of the many services we offer in our Perth area office. With the backing of AMP and AMP Capital, we are well-positioned to offer you a full menu of financial services. We would like to provide some information for you from our parent company AMP concerning how to choose the “right” home loan. *

Remember that we are prohibited by law from giving advice on this page. Financial advice must be obtained with an individual consult. But we can provide the basics of choosing a home loan for you. We hope you enjoy it.

AMP advocates thinking about these three questions in the early stages:

What kind of property do I want?
How much can I borrow?
What other benefits would I like to have from my loan?

Because we offer both mortgage broking and financial planning to our Perth area clientele, we are in a unique position to answer a question that a lot of people have: is it better to put your extra money in your super or your mortgage?

Recently, this issue was discussed on news.com.au in an article called, “Weigh your super and mortgage to see where it’s best to put your money.” In the article, some industry experts were quoted about various strategies to figure out where to put your extra money. *

At Approved Financial Planners, we aren’t allowed to provide anything on this blog that constitutes or can be interpreted as “individual advice.” All advice has to be given on an individual basis. This is usually done in person, after we gather some basic information from you.

The article we described above is a perfect example of why advice is best given in person after becoming acquainted with your financial situation. The only thing the “experts” seemed to agree upon is that there isn’t any “silver bullet” answer.*

Some financial planning professionals in Perth are recommending real estate trusts as an investment vehicle. Recently, the Head of Listed Real Estate for AMP Capital, Mark Ferguson, wrote an article for the AMP Capital blog, called “Australian real estate investment trusts—the right time to invest?”*

The article referenced the fact that Australian Real Estate Investment Trusts (REITs) on the S&P/ASX 200 A-REIT list have delivered a three year return to investors of 18.4$ in the three years ending 31 July 2015. Past performance is not indicative of future performance. They listed four main reasons for investing in REITs.*

Strong Risk-Adjusted Returns

The REIT sector is now seen as a “defensive” investment that offers a high yield. They became popular as a defensive investment shortly after the Global Financial Crisis (GFC). Mr Ferguson expects the market to “be more discriminating,” making the highest quality property portfolios managed by the most conservative capital policies more popular.*

At Approved Financial Planners, we combine mortgage broking and financial planning into a “one-stop” shop for Perth area residents. Recently, the Australian Prudential Regulation Authority (APRA) issued a memorandum to lenders demanding that they adhere to a 10% cap on the growth of property investment lending growth.*

Lenders are doing this by making it more difficult for property investors to obtain loans. The intent is to slow areas such as Sydney, which is in an extremely strong growth cycle, while allowing the rest of the economy to flourish under the record low RBA cash interest rate. *

According to Shane Oliver, Chief Economist for AMP Capital, the term for this is “macro prudential regulation” and was popular before the financial deregulation of the 1980’s. It refers to using prudential lending controls as a tool with which to influence the economy.*

According to Mr Oliver, “time will tell” whether or not the 10% cap will help APRA achieve its goal of boosting the entire economy. While APRA is demanding that lenders adhere to the 10% growth rate, compliance is officially voluntary. Mr Oliver believes that lenders will comply so they don’t force the APRA to create more regulations. *

At Approved Financial Planners, we also offer mortgage broking to our Perth area clients. Many of our clients use us for “one-stop shopping” for financial planning and home loans. One of the most fulfilling facets of our job is being able to help someone into their first home or first investment property.

We know that if you don’t yet own property, it can seem daunting. While we can’t give anyone specific advice on our company blog, we are allowed to provide general information that can be helpful. Here are two workarounds that have helped involve people in their first properties.

Sharing

You may decide to pool resources with family or a bunch of mates to buy a home. This allows you to save for your deposit and your stamp tax more quickly. It can also allow you to borrow more money and find a higher quality home. In addition, if you can raise 20% deposit, you may not have to purchase mortgage insurance.

Remember, though: there are a lot of pitfalls involved. It can be helpful to have a legal team draw up papers that afford all investors a measure of protection.

A lot of financial advisers in the Perth area advise their clients to obtain debt consolidation loans. They can be a wise or unwise strategy, depending upon your individual financial situation. We are always sure to let our readers know that we can’t give specific, individual financial advice on a blog, but we can give general information.

What ASIC Says about Refinancing

ASIC says that it can sometimes be a good idea to consolidate loans, but only if the new loan results in the borrower paying less money in fees and interest. ASIC recommends that refinancing only be done if it is the best option.*

Contact the Current Credit Provider

ASIC recommends contacting current credit providers if you are having trouble making any payments. They can often work with you to come to a new arrangement.*

Besides financial planning, we also offer mortgage broking from our location in the Perth area. One of the first things that is done in the process of applying for any loan is to run a credit check. This credit report is an important part of determining whether or not you are able to obtain the financing you need for a home loan.

Unfortunately, some people don’t know their full rights under the National Credit Act and fall prey to predatory tactics. Courtesy of the ASIC’s MoneySmart website, we would like to remind you of some basic rights and safeguards that are designed to help consumers know exactly what they are getting into.

Obligations of Credit Providers

The National Credit Act establishes rules to help protect consumers from fraud. Everyone who wants to lease, provide or broker a loan must register with ASIC or work for someone who is registered.*

According to the National Credit Act, no credit provider may enter into any agreement with you that the Government would classify as “unsuitable.” This includes any contract that doesn’t meet your objectives or requirements. It also includes any loan which would inflict hardship upon you while trying to repay it.*

One of the least-rewarding duties of mortgage broking, especially in a market like that of Perth, is informing a would-be client that they have been turned down by the lenders. We can’t give specific advice, but we can provide some general reasons why would-be homeowners may want to reconsider their decision to purchase their first home.

Insufficient Funding

Purchasing a home requires a substantial financial outlay. The first obstacle is finding ten percent for the deposit. After the deposit, it is then necessary to sustain a lifestyle that allows finding the capital to make mortgage repayments on a regular basis.

Lifestyle

Sometimes, a person’s lifestyle isn’t amenable to purchasing a home. Someone who is single and on the road for work most of the time may have a hard time keeping up with maintenance concerns. In addition, those who need the flexibility to transfer or relocate may have a harder time doing either when they own a home.