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Author: Rix Almonicar

Are You Paying the Bank Loyalty Tax?

Posted on by Rix Almonicar

When was the last time you checked if your home loan is still the best deal out there? If it’s been a while, there’s a good chance you’re paying the “bank loyalty tax” — that hidden cost of sticking with your lender without questioning if they’re still giving you the best rate. Let’s break down why this happens and how Axton Finance helps you avoid this costly mistake.

 

What is the Bank Loyalty Tax?

 

The “bank loyalty tax” refers to the higher interest rates that loyal customers often end up paying simply because they haven’t refinanced or challenged their lender for a better rate. Banks and lenders often reserve their most competitive deals for new customers, enticing them with lower rates while you, as an existing customer, are left paying more. It’s frustrating but true: loyalty doesn’t always pay in the world of home loans.

 

New Deals for New Customers

 

Many lenders offer their best rates and incentives to attract new customers. As a result, you, who have been faithfully paying your mortgage, may be left on higher rates that were competitive at the time of signing but no longer reflect the best value available today. Staying with your current lender without regularly reviewing your rate could mean you’re missing out on significant savings.

 

Axton Finance: Keeping Your Deal Great

 

At Axton Finance, we believe you deserve the best deals — not just when your loan settles, but for the entire life of the loan. That’s why we conduct yearly loan reviews for you, proactively working with lenders to secure rate reductions and better terms. We use cutting-edge fintech software to automatically monitor your loan rate, ensuring it remains competitive. Imagine getting a call or SMS from us letting you know that we’ve successfully negotiated a better rate for you, without you lifting a finger. That’s the kind of service we provide.

 

Time for a Change? We’re Ready to Help

 

If your lender won’t play ball and refuses to adjust your rate, despite your loyalty, we won’t leave you hanging. We’ll use our industry expertise and powerful technology to explore the best options available across the market. If refinancing makes financial sense, we’ll make the process seamless, ensuring you benefit from the best possible deal. The days of being “too busy” to act on your mortgage rate are over — with Axton Finance, we do the work for you.

 

Let’s Make Sure You’re Not Paying the Loyalty Tax

 

Don’t let inaction or loyalty cost you thousands of dollars over the years. Book a time with us today for a no-obligation review of your home loan. We’ll help you determine if your lender is still giving you the best deal or if it’s time for a change.

 

Call us at our office, contact us  here or schedule a free consultation to start the conversation. We’re here to make sure your mortgage stays in top shape, so you can stay focused on your goals, not your rate.

 

How a Guarantor Can Help You Buy Your First Home

Posted on by Rix Almonicar

Buying your first home can feel like a distant dream, especially with rising property prices, high-interest rates, and increasing living costs. However, one way to make that dream a reality is by using a guarantor for your mortgage. A guarantor, often a parent or close family member, can help you access the property market sooner and potentially reduce some of the costs associated with buying a home. But what does this mean for you, and how does it work?

What is a Guarantor Mortgage?

A guarantor mortgage allows you to use another person’s property as additional security for your home loan. This doesn’t mean they’re buying the home for you or making your payments; instead, they’re offering part of their property as security to help you avoid Lender’s Mortgage Insurance (LMI) and possibly secure a lower interest rate. Essentially, it can help you get into your new home sooner and with less upfront cash.

How Can a Guarantor Help You?

There are several ways a guarantor can assist you in purchasing your first home:

  1. Avoiding LMI Costs: LMI is an insurance premium you might need to pay if your deposit is less than 20% of the property’s value. By having a guarantor, you can potentially avoid this cost altogether, making your home purchase more affordable.
  2. Lowering Interest Rates: With the additional security provided by a guarantor, lenders may offer you better interest rates. Lower rates mean lower monthly repayments, saving you money over the life of the loan.
  3. Increasing Your Borrowing Power: A guarantor can also help increase the amount you’re eligible to borrow. This could be particularly useful in a competitive market where you need extra funds to secure your desired property.

How Does a Guarantor Mortgage Work?

A guarantor mortgage can be structured in several ways, depending on the lender and your specific situation:

  1. Partial Guarantee: Your guarantor provides security for a portion of the loan, typically around 20%. This helps you reach the necessary deposit threshold and avoids LMI without making your guarantor liable for the entire mortgage amount.
  2. Full Guarantee: In some cases, the guarantor might cover the entire amount above what you can provide as a deposit. This can be particularly helpful if you have little savings but have good income and a guarantor willing and able to help. However, this option can increase their financial risk, so it’s important to discuss this carefully.

Is a Guarantor Mortgage Right for You?

Using a guarantor can be a great way to enter the property market sooner, but it’s essential to consider the implications carefully:

  • Understand the Risks to Your Guarantor: While a guarantor can help you avoid extra costs and potentially lower your interest rates, it’s crucial to understand the risks they’re taking on. If you severely default on your mortgage payments, your guarantor could be responsible for covering the outstanding debt. This could put their property at risk if they are unable to cover the payments in an extreme situation.
  • Consider Your Financial Stability: Before asking someone to be your guarantor, assess your own financial situation. Are you in a stable job? Do you have a reliable income? Can you comfortably afford the mortgage repayments? Ensuring you can meet your repayments will protect both you and your guarantor from financial strain.

Steps to Take Before Using a Guarantor

  1. Discuss with Your Family: Open communication with your potential guarantor is crucial. Make sure they fully understand what being a guarantor entails, including the risks and responsibilities.
  2. Seek Professional Advice: It’s always a good idea to speak with a mortgage broker to explore your options and understand the best way to structure a guarantor loan. At AXTON Finance, we can provide you with tailored advice to suit your situation.
  3.  Legal and Financial Consultation: Encourage your guarantor to seek independent legal and financial advice. This ensures they’re fully aware of their obligations and the potential impact on their finances.
  4. Plan for the Future: Have a plan for how you’ll release your guarantor from their obligations. This could be through repaying the loan to below 80% of the property’s value or refinancing when your financial situation improves.

Alternatives to a Guarantor Mortgage

If you or your potential guarantor are uncomfortable with the risks involved, consider other options:

  • Saving for a Larger Deposit: While it might take longer, saving for a larger deposit can reduce or eliminate the need for LMI and lower your loan amount, making repayments more manageable.
  • Co-Borrowing: Instead of a guarantor mortgage, consider co-borrowing with a family member. This means both of you are responsible for the loan and can share the repayments. However, this option also comes with its own set of complexities and risks.
  • Financial Gifts: Your parents or family members could gift you the money needed for a deposit. This would reduce the amount you need to borrow without tying their property to your loan.

Get Started with AXTON Finance Today

Navigating the complexities of buying your first home can be challenging, but you don’t have to do it alone. At AXTON Finance, our team of experienced mortgage brokers is here to guide you every step of the way. Whether you’re considering a guarantor mortgage or exploring other options, we can provide expert advice tailored to your needs. Contact us today to learn more about how we can help you achieve your homeownership dreams while protecting the interests of both you and your family.

Can You Use Your Super to Buy a House? 

Posted on by Rix Almonicar

Dreaming of owning your first home or expanding your property portfolio? You might be surprised to learn that you can use your superannuation to make it happen. Whether you’re eyeing the First Home Super Saver (FHSS) scheme or considering a self-managed super fund (SMSF), there are pathways available to help you step into your new home faster. Read on to find out how you can unlock the power of your super to achieve your property goals!

How Can You Leverage Your Super to Buy a House?

Ever wondered if your superannuation can help you buy a home? The short answer is yes, but it’s a bit more intricate than just stumping up a deposit for a standard home loan. You have two interesting options: the First Home Super Saver (FHSS) scheme and using a self-managed super fund. Each offers unique benefits and is tailored for different needs—whether you’re a first-time buyer or already managing an SMSF. Curious to see how these options can work for you? Let’s dive in!

Exploring the First Home Super Saver Scheme

The FHSS scheme is a federal government initiative that helps first-time buyers save for a home deposit within their super fund. With potentially better returns than a high-interest savings account, thanks to the lower tax advantages of superannuation, it’s an opportunity worth considering.

How Does It Work?

The FHSS scheme lets eligible first-time home buyers make voluntary contributions to their super fund, up to $15,000 per year, both before-tax and after-tax. These contributions benefit from a lower tax rate of just 15%, compared to the regular tax rates. Contributions from your employer and any additional voluntary payments count towards this cap.

Who Can Take Advantage?

To make the most of the FHSS scheme, you need to meet a few criteria:

  • Be at least 18 years old when applying for a FHSS determination or release (but you can contribute before turning 18).
  • Be an eligible first-time home buyer with no previous property ownership in Australia, including investments, vacant land, or commercial properties.
  • Plan to move into the property within a reasonable time and live there for at least six months within the first year.
  • Have not previously requested a FHSS release.

One benefit is that eligibility is assessed individually, so couples, friends, or family members can combine their FHSS contributions to purchase the same property!

Can a Mortgage Broker Help with the FHSS Scheme?

Absolutely! A licensed mortgage broker, like us here at AXTON Finance, can be your guide through the FHSS maze, offering:

  • Expert Insights: Navigate the complexities of home loans and government schemes with ease.
  • Financial Evaluation: Determine how much you can contribute and withdraw.
  • Loan Recommendations: Find the perfect loan to match your FHSS goals.
  • Application Assistance: Get help with paperwork to avoid mistakes.
  • Pre-Approval Guidance: Know your budget with pre-approval support.
  • Ongoing Help: Receive support throughout your home buying journey.

Connect with an experienced Axton Finance mortgage broker to harness the full potential of the FHSS scheme.

Using a Self-Managed Super Fund (SMSF) to Buy Property

Another exciting option is using an SMSF to buy property. While more complex, it offers a chance to invest in real estate through your super. Note that SMSFs can’t be used for personal residences, but you can buy investment properties.

How Does It Work?

To purchase property with an SMSF:

  • Your SMSF should have a substantial balance (ideally $200,000 or more).
  • Maintain a liquidity buffer of about 10% of the property’s value so that you don’t completely drain your fund.
  • Be aware of borrowing restrictions; you can’t use the entire fund balance for the purchase, use the property for any personal reason, lease it to friends or family and there are restrictions around what sort of renovations/developments can be made.

How Much Can You Use?

For SMSF borrowing, your balance will influence what you can borrow. Most lenders will allow you to borrow up to 60-80% of the value of the property being purchased. For example, with a $300,000 SMSF balance, you might use $200,000 as a deposit to borrow $400,000 for a $600,000 investment property. This would be approximately a 66% LVR (Loan to Valuation Ratio).  

For tailored mortgage advice that fits your unique situation, consult an Axton Finance mortgage broker in Brisbane or nearby locations.

How Can Axton Finance Help You Reach Your Property Goals?

Whether you’re buying your first home or investing in property, the Axton Finance team are here to guide you through using your superannuation effectively. Whether it be via a purchase within your SMSF (Self Managed Super Fund) to building a better deposit to buy your first home via the FHSS (First Home Savers Scheme), we’re ready to help you achieve your property dreams faster. Contact us today to get started!

Why Income is Key to Getting Your Loan Approved?

Posted on by Rix Almonicar

When you’re applying for a home or investment loan, your income is one of the most important factors lenders consider. It helps them decide if you can afford the loan and how much they’re willing to lend you.

What is Borrowing Capacity and Why Does It Matter?

Borrowing capacity is simply how much a lender thinks you can afford to borrow based on both their rules and government affordability guidelines for regulated credit. This is based on all of your assessable income, current debts, and other financial commitments. Knowing your borrowing capacity is essential because it ensures that you’re taking on a loan you can manage without financial stress.

Why Your Income Matters Most

Your ability to make regular loan repayments—what lenders call “servicing income”—is crucial. Lenders look at different types of income to see if you can handle the loan, including:

  • Your Salary or Wages
  • Part-Time and Overtime Pay
  • Income from Casual Jobs (usually with a consistent income over 3-6 months)
  • Rental Income
  • Dividends from Investments
  • Income from a Trust
  • Business Profits
  • Some Government Pensions
  • Insurance Payments

For certain incomes, like bonuses, lenders might only count a portion (say 80%) to account for any variability.

Equity and Debt-to-Income Ratio: Why They Matter

While having equity (like owning a portion of your home) is important, your ability to make repayments is even more critical. Lenders also check your Debt-to-Income (DTI) ratio, which ideally should be less than six times your gross income. This ratio helps them ensure you’re not taking on more debt than you can handle.

The Buffer

Australian banks are required by APRA (The Australian Prudential Regulation Authority – the regulatory body in Australia that oversees the financial services industry to ensure the stability, safety, and soundness of financial institutions) to add a three (3) percent margin to the actual home loan rate to ensure that you home loan repayment is manageable should interest rates rise.

At the time of writing this article (September 2024) it is generally expected that we are at or near the height of the current rate increasing cycle that started in May 2022 when the RBA raised the official cash rate from the historically low level of 0.10% to 0.35%, marking the beginning of its efforts to tighten monetary policy in response to rising inflation. 

So while we are near the absolute highest rates are likely to go the three percent buffer has reduced peoples borrowing capacity by a significant degree and in some cases it has even restricted people being able to refinance loan limits they already have even if it results in a cheaper repayment (there are exceptions to this rule so call us to learn more).

Credit Score and Reporting

Your credit score plays a significant role in loan approval. In Australia, VEDA and Illion are the main credit reporting agencies in Australia. A VEDA score below 500 can make it tough to get approved, while a score of 750 or above is ideal. Positive credit reporting gives lenders a clear view of your credit history with other financial institutions, so when looking to get pre approved for any form of finance it’s important to keep your repayments on time and avoid defaults.

Tips to Boost Your Borrowing Capacity

If you want to increase your borrowing capacity, here are some steps you can take:

  • Reduce or Close Credit Card Limits: High credit limits can reduce how much you can borrow.
  • Avoid Buy Now, Pay Later Services: Services like Afterpay and Zip Pay can indicate you’re stretching your budget to a potential lender
  • Limit Credit Applications: Too many applications can hurt your credit score.
  • Cut Down on Car Loan Repayments: These can eat into your ability to afford a new loan.
  • Stick to a Budget: Lenders will ask about your living expenses, so cutting back before applying for a mortgage can help show you’re ready to manage the repayments.

Take the Next Step

Curious about how much you can borrow? Find out with AXTON Finance expert mortgage broker in Sydney today by booking a quick 15-minute FREE discovery meeting here. 

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