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Myths about borrowing money that needs smashing

I typed “borrowing money” into Google and up came with 44,600,000 results. The internet is such a great place for information gathering that it sometimes gives would-be borrowers myths instead of facts. These myths need to be dispelled because some believe it as 100% true.

 

1) Interest rate is the most important consideration:

Naturally paying less is what we all like to strive for but at the end of the day the saying “Interest rate means nothing if you do not meet the lenders policy” applies when borrowing money. Lenders all have different policies and rules that need to be followed when assessing a clients suitability for a loan. A lender may have a low rate but does the applicants unique, personal situation meet the lenders policy in order to be approved for a loan with that rate?

2) Loyalty to a lender certainly helps when borrowing money:

Loyalty used to come into the picture many years ago as a positive point when borrowing money, but due to the changing nature of lending, new regulations and also our own personal situations, this cannot always be relied upon. You may have banked with a certain lender for years and been a great customer but if the rest of your current situation doesn’t fit the lender, you may not be able to borrow money.

3) Alternative lenders have higher interest rates:

This is a concern I hear a lot. Just like shopping for groceries where going to a different outlet may involve varied prices, different lenders have different rates BUT they are not always higher. The only way to compare is to do your research when you are considering applying for a loan. Every lender has different products and promotions at various times meaning that what you see today may change tomorrow.

 

As you can see what we think we have come to know may not always be so. Do your research before you jump in, ask as many questions as needed and if you have concerns or the responses raise more questions, get a second opinion.

– Peter

Your past shouldn’t always determine your future

When needing to borrow money the first thing many people do is go to the current lender they bank with or have previously borrowed money from. The reasons they do can include loyalty, simplicity and their money history being easily available.

To me, this used to make sense, but after a few years working in finance, coming across many clients who hadn’t been able to be assisted by their existing lender, I came to realise that this option should not be the only one you consider. Why?

When buying a product, if you cannot find it at one location, you usually go looking somewhere else for it. If this is the case why don’t many do the same when they cannot be assisted with finance from their lender?

According to lender Pepper Money, 54% of people turned down for a loan didn’t know there was another option available to consider.

(Source: Pepper Money)

Why is this you may ask? Life is forever evolving, so even though a lender may have helped you last time doesn’t mean they will this time as your situation or their appetite for certain client types may have changed. Also just like the shop that didn’t have the item you were after, they don’t have to advise you of an alternative if they don’t want to.

At Lending Mate we understand that employment and business conditions change, separations and health events occur, late payments happen and being self-employed is tough. Working with alternative lenders, those that look at things differently, we have been able to achieve many successful outcomes for borrowers who were previously advised there were no options available.

Together we help you navigate the difficulties and reduce the worries around borrowing money, allowing you to flourish again, aiming to improve your lifestyle.

If you have been told NO when applying for finance or have had a loan declined, know that there are plenty more fish in the sea.

Have you heard of..?

The advertising and marketing of products and services are prolific. Online, print media, bus shelters, hot air balloons, and billboards, you name it.

When it comes to financial services, whether borrowing money or needing debt help, we all usually know who the main players are, but not so many of the others as in reality. Those who advertise the most seem to get the lion’s share of the attention. If they have the money to throw around so be it, but what about the companies that haven’t got the same budgets to spend?

Years ago when I was looking for a new car I went to a dealership that I knew about through them advertising. They were not able to assist me with my needs as I was after a white manual hatchback which they did not have. Being pre-internet days (yes there were such times), I had to go to the Yellow Pages and look up other companies who may be able to assist me. After a few hours of searching, I found another dealer who had what I was after. When I got there I explained my situation and asked why I had never heard of their business. They said that they didn’t have the money to spend on advertising and also interestingly advised me that the dealer I had been to previously was part of their dealer group!

Why didn’t the first company advise me that there was another dealer that may have what I was after? The reply: ”They have a Manager who is only focused on his area and his sales”.

Moral of the story is that if someone is unable to assist you with your needs, look around and ask questions until you get what you are after. Most times those who you don’t know about have what you are after.

– Peter

Downsizing or RIGHT-SIZING?

Debt help

Downsizing your home can be an opportunity to reduce debt, work less and enjoy life more.

According to the Productivity Commission, about 20% of people aged 60 or over are downsizing and have sold their home and purchased a less expensive one since turning 50. Another 15% have “strong intentions” of doing so in the future*.

But downsizing doesn’t only relate to getting a smaller home, it could also be done to down-size your debt. Anyone struggling with large monthly home loan repayments and lots of smaller debts may choose to sell their expensive property and find one that is more affordable.

It can be a way to cut down on stress – in particular financial stress. We believe financial stress is one of the biggest things stopping Australian’s really enjoying their lives, keeping them chained to jobs they don’t like and has a serious impact on their health and relationships.

Get some help and supporters   

Understanding your options for downszing can take a huge weight off your mind, so start by surrounding yourself with supporters.  Apart from friends and family, find experts who can help guide you.  Seek out like-minded people who believe in what you want to do, can help you get there and also help you learn more in the process.

What to keep in mind                                                                                          

Will the changeover result in you being debt free or will you still have a home loan? Being debt free or reducing your home loan to a manageable size that you can actually picture paying off one day is empowering.  But it is important to get the numbers right.

Get a second opinion by getting someone to go through your calculations with you. Once you know they are accurate, you will have an idea of what life could look like after down-sizing.

How much will you have left over?

The amount you will have to contribute to your purchase will be what is left over after you sell your property. When you are working this out upfront, don’t forget to calculate it on a conservative selling price and deduct what you owe and all the costs.

These can include agent and solicitor fees, expenses to get the house ready for sale, and if you are paying out a loan – your mortgage discharge costs. Interest is paid in arrears so when a loan is paid out there will also be interest owing from the last payment to when it is paid out.

Buying your new home

Don’t forget to include all the purchase costs as they all add up.  Stamp duty will be one of the biggest but also add in legal fees and searches, building and pest inspections, adjustments to council, water & electricity rates on settlement, State Government registration and transfer fees, and loan setup costs.

Sell before you buy

It is generally advisable to have sold your property before committing to purchasing another. Falling in love with a new home and seeing it slipping through your fingers because you haven’t been able to sell your existing home can be very heart breaking. You also risk losing your deposit or having to get expensive bridging finance. All this is very stressful so err on the conservative side and sell first.

Do you qualify?

If you will still have a mortgage, will you keep the same loan and just change securities or start afresh with a new lender?  Research your home loan options with a financial advisor or mortgage broker. There will be pros and cons of either approach so you need to explore both to work out which one will be the right option for you.

The requirements and rules of lenders have changed significantly in the past few years, so if it has been a while since you got your home loan you need to work out if you qualify. This can be done by asking lots of questions upfront and getting the lender or mortgage broker to go over your entire situation before you give them the go ahead to start the application process.

You don’t want to start the process only to be told “no”.  This will result in a hit on your credit record as well as on your pride!

Loan terms

The loan term for a home you are living in is generally based on the number of years you will be earning an income before you retire.  Principal and interest repayments on a 30 year loan term will be dramatically different to repayments over 15 or 20 years.

By working out what repayments you can afford, you will also be mapping out your plan to be debt free.  Now that is exciting!

Are we friends on Facebook?

We would love you to join our Facebook community and get involved in the conversation.  We will keep you updated on the latest and how it may impact you, as well as interesting takes on topics you may not have considered.  Click here Lending Mate™ and select Follow.

By Peter Ellis

The Borrowers Advocate, Lending Mate™

Peter is a trail blazing campaigner with a vision to put power back into the hands of borrowers. He was disheartened by an industry where home loans were less about the individuals borrowing the money and more about sales targets.

Lending Mate™ wants to restore this power imbalance and start a movement where borrowers get a fair go. Lending Mate™ is having someone on your side, genuinely working in your interest to enable you to get ahead financially. We aim to provide the information, help and guidance you need to put you in control.

Disclaimer:  Your full financial situation will need to be reviewed prior to acceptance of any offer or product.

Free From Financial Worries Pty Ltd trading as Lending Mate™ ABN 88 134 812 165, Credit Representative 442518 is authorised under Australian Credit Licence 389328.

*Productivity Commission 2015, Housing Decisions of Older Australians, Commission Research Paper, Canberra,  http://www.pc.gov.au/research/completed/housing-decisions-older-australians/housing-decisions-older-australians-survey-results-presentation.pdf 

What Happens When House Prices Fall?

Contrary to popular belief, property prices don’t always rise, and property prices aren’t skyrocketing all over Australia.

Sydney and Melbourne might be booming, but did you know that prices have actually been going backwards in Perth and Darwin.

The average residential property price in Sydney jumped 23.7% in the two years to September 2016, according to the most recent available data from the Australian Bureau of Statistics.

Melbourne prices also significantly increased in those two years – by 17.5%.

However, during the same time Perth property values fell by 7.2%, while Darwin declined 9.1%.

We all know that property moves in cycles so eventually the cycle should turn but what sort of things do you need to be mindful of when property prices fall? How does it impact everyday mortgage holders?

Typically, we think of the worst case scenario, someone who might have bought at the top of the Perth or Darwin market, and the property now not worth as much as what they paid for it. Even worse if it drops so far that your mortgage now exceeds the value of your home.

These are fairly extreme, but there are more broad reaching impacts that all property holders may want to keep in mind. Borrowers usually find themselves in one or more of three camps when property prices fall.

  1. Grin and bear it

Some property buyers are ‘flippers’ – within a short space of time they acquire a property, do a few improvements and then flip it for a tidy profit. While that can be a lucrative strategy in a rising market or even a flat market if you have renovated cost effectively, in a falling market people might be forced to hold their property for longer to avoid making a loss. This may involve having to change your plans, rent the property out and become a landlord for a while until the opportunity comes up to sell at a profit.

In a falling market, many borrowers have the painful experience of seeing their equity decline. (Equity is the difference between the value of the home and the amount of the outstanding mortgage.) Thinking that you have $150 to $200k in equity can feel pretty comfortable but if this starts to shrink it can be a bit disconcerting. Focusing on paying off extra then becomes your chief means of building equity and even then, these gains may dwindle if the value continues to fall.

You may have no intention to sell and so are not concerned, but you may find a loan with a cheaper rate or want to shift lenders to access better features. If the balance of your home loan is hovering around 80% of the value of the property, it may not be feasible to refinance.

As bank valuations tend to be conservative, if the lender’s valuation comes in and you owe more than 80% of the value, then you may choose to stay with your current lender rather than having to pay thousands of dollars in mortgage insurance. Any savings that you get from the cheaper rate can be far outweighed by these sort of costs. Not being able to refinance can make you feel trapped with your current lender.

  1. Forced to sell at a loss

Although property prices can fall when the economy is in good shape, property market downturns can often coincide with economic downturns. That can mean a double whammy for some borrowers – losing their job and losing equity in their home.

You may not even lose your job completely but things like overtime, bonuses or a cut in number of hours you work could mean things get pretty tight.

Struggling to keep up with repayments can be bad enough, but it’s even worse if the asset you’re struggling to hang on to is depreciating.

Even though you don’t want to sell when prices are depressed you may be left with no option but to put your home on the market. It can seem like you have gone backwards when the cash you will have left over from the sale is less than what you put in to purchase it in the first place. Having to realise a loss can be very painful indeed.

  1. Have to find alternatives

If you are used to regularly accessing equity to fund other things in your life, a property downturn may mean that you have to find other sources of finance. When prices are rising, it can be quite simple to have your house revalued and top-up your loan to pay for a renovation, add a new room, consolidate smaller debts, pay for a new car, go on an overseas holiday or to take advantage of an investment opportunity.

Having constantly increasing equity financing these things can become an expectation or way of life.

When house prices fall, paying off your mortgage becomes one of the primary ways to build equity. Savings for these additional things or needing to resort to taking out a personal loan to fund large purchases may be the new reality.

Conclusion

Falling house prices are not something that we have really had to deal with in the Australian market but just because they have tended to rise doesn’t mean they always will. To ensure that we are able to weather such an occurrence, forward planning is key.

First, be careful not to over commit when you take out any finance – any sort of finance.

Stretching things that bit further to get that extra outdoor area or the beautifully renovated bathroom and kitchen may mean that things are very tight from a cashflow and an equity perspective. Having a bit of breathing space on both counts may help you sleep at night.

Be a little bit conservative when you are tempted by an interest free deal or great sounding finance option. Lots of small debts do add up and repayments on these can cause strain just as much as home loan repayments.

Second, make sure you have a buffer in place that you can rely on if you need it. Having savings put aside for a rainy day can give you peace of mind and options at the end of the day. Having to stick with a job that you hate because you can’t afford a few weeks or a month without an income can add a lot of stress and strain. Consistently paying more on your home loan can also build up funds for emergencies as well as get you used to paying more when interest rates rise.

By Peter Ellis

The Borrowers Advocate, Lending Mate™

Peter is a trail blazing campaigner with a vision to put power back into the hands of borrowers. He was disheartened by an industry where home loans were less about the individuals borrowing the money and more about sales targets. Those impacted most were people that didn’t tick all the boxes to fit the ideal profile, who were often being left to fend for themselves.

Lending Mate™ wants to restore this power imbalance and start a movement where borrowers get a fair go. Lending Mate™ is having someone on your side, genuinely working in your interest to enable you to get ahead financially. We aim to provide the information, help and guidance you need to put you back in control.

Disclaimer Statement:  Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.

 

Free From Financial Worries Pty Ltd trading as Lending Mate™ (ABN 88 134 812 165), Credit Representative number 442518 is an authorised representative of Connective Credit Services Pty Ltd (ABN: 51 143 651 496), Credit License number 389328.

When Is Helping Your Kids Buy Their Own Home A Good Idea For YOU?

When is helping your kids buy their own home a good idea for you?

Did you know that a whopping 54% of first time buyers receive financial support from their parents?

Also, according to research conducted by Digital Finance Analytics*, the average amount of support is $85,000.

This is not just limited to help with stamp duty, legals or going towards the deposit on a new home. Parental support could be allowing them to move back home while they save, helping out with repayments and ongoing expenses like childcare and private school fees. All of this can be a serious drain on your finances at a time when you should be ramping things up in preparation for when you are not working and earning an income yourself.

We all want our kids enter the property market and gain the benefits of home ownership that we have enjoyed – but it’s important to think of your own plans and finances before proceeding with something that could put your retirement plans on hold or lead to you facing financial difficulty.

At the end of the day, seeking good financial and legal advice will ensure that you go into this process with your eyes wide open.

Let’s check out the three main types of support parents are providing children, and some possible ramifications.

  1. Support your kids with one-off payments

A lump sum cash gift can seem like a no strings attached option that can be used to fund a deposit or pay property transaction expenses.

Pros

Doesn’t involve signing legal documents or tying up your property, and the funds are going towards a single transaction.

Cons

  • If you do it for one child are you then obliged to repeat it again for subsequent siblings? Don’t just consider the child who currently needs your assistance. If other children are coming along then it could turn out to be a significant sum.
  • If you are expecting the gift to be repaid, do you have definite plans for how this will happen? Just saying that it will be repaid when they see their way clear, may mean that it is never repaid or you only see a portion of what you gave. To save any misunderstanding and so you know whether you will see your funds again or not, you need to have a definite plan in place. If gifts are to be repaid, then lenders will also want to factor that into the “children’s” ongoing commitments.
  • What is your expectation if the property is sold? Your child may change their mind and decide that home ownership is not for them or they could change jobs that takes them to a different city or country and decide to sell the property. What happens then? Do you expect that the funds you gave them to be returned?
  • What happens if your child’s relationship breaks down? Although we don’t like to think worst case, how would you feel if in the divorce proceedings the gift you gave is divided between your child and their ex-partner.
  • Where are the funds coming from? If you haven’t paid off your home loan yet and increase your loan to access equity, are you going to be able to pay it off before you retire? Will this mean that you have to work longer than you want to or are able to in order to reach a debt free retirement.
  1. Support your kids with ongoing payments

Some parents go a step further by giving their children ongoing support, which is used for mortgage repayments or living expenses.

Pros

It gives the children the confidence to enter the property market knowing they have help and that things won’t be too tight.

Cons

  • It could encourage your children to over commit as they don’t have to live within their means. When deciding how much they can borrow, if they don’t factor in things like private school fees or other expenses, will they feel as though they are able to borrow more, thus putting further strain on their finances.
  • Having parental support when things are tight is fine but is this the start of a dependent relationship that will continue on? Having a limit or end point to the support may be needed to ensure that your good will is not taken advantage of.
  • It may only seem like a few dollars here or there but what are your plans for your retirement. Do you have a sense of what you need to be putting away each week and each year in order to achieve them?
  1. Support your kids as a co-borrower or guarantor

If you own your own home, it can seem like a simple thing to offer it as additional security and become a guarantor instead of having to part with cold hard cash.

This involves providing collateral (usually a home) that the lender uses so that the loan in effect is secured by two properties – the one the children are purchasing and yours. The lender usually gets a limited guarantee on your property so they only have rights to a proportion of your property to keep the loan to below 80% of the value of the two properties.

Pros

  • Allows the children to borrow what they need and avoid mortgage insurance. Since there are two properties being used as security, lenders will often borrow up to the value of the property they are purchasing which can allow them to put their money towards stamp duty and costs of setting up their home.
  • Mortgage insurance can add thousands of dollars to the children’s loan and take years to repay. Helping them avoid this can enable them to get ahead a lot faster.

Cons

  • You will be required to hand over your title and to sign fairly extensive mortgage documents. It can come as a rude shock when it comes to signing guarantor documents as they can seem to be just as onerous as if you are the main party to the loan itself. You may want to get your own solicitor involved to help you understand what you are signing.
  • You will need to get your own legal and financial advice. The lender needs to know that you understand what you are committing to and that you are not being coerced, so will probably require you to get legal and financial advice. This will take time and potentially cost money to get covered off.
  • What are your future plans for your home and your equity? A guarantee can be in place for quite a few years until either property values increase and/or the loan gets paid down. If you wanted to sell the property at some stage, downsize or move to a coastal retirement location – the guarantee would have to be removed before you could do so. You could also be limiting the amount of equity that you would have access to if you wanted to renovate or invest.
  • Relationship breakdown can also impact a property you are a guarantor for. Ensure that you cover off what happens in this situation. You don’t want to be left as a party to a loan where both partners are estranged and no one is taking responsibility for the repayments.

Conclusion

Just because a lot of parents help their children enter the property market, doesn’t mean you should do it.

We believe it’s a good idea to help your kids buy their own home only if it meets these four criteria:

  1. There’s no chance it will damage your retirement plans

Get a financial planner to go over your own retirement plans first. Make sure that these are firmly in place first so that you know that any support that you provide won’t impact them. It would be difficult to help out your children now only to become dependent on them later on.

  1. Everyone knows exactly where they stand regarding repayments

Open ended plans for repayments leave too much for interpretation. Get an agreement either written up through a solicitor so that you are both clear on exactly what will be repaid and when. You don’t want to risk wrecking your relationship as a result of your nice gesture to help out.

  1. Your child will be able to keep making repayments

Ensure that your children don’t over commit due to your assistance. Whether it is buying a home that puts them further in debt than they would have without your help or don’t put savings aside for unexpected expenses. Ensuring that they can financially stand on their own two feet is vital and this includes having a contingency plan if things get tight.

  1. Be fully informed before committing to helping

This is no time to skimp on getting the right advice. There is probably going to be quite a bit at stake for you so seeking the advice of a solicitor, accountant, financial planner, mortgage broker, lender or the like can ensure that you proceed only after you feel comfortable that everything has been covered off. As difficult as it may be to discuss things with your children like relationship breakdown, repayment of the funds and financial hardship, if you proceed you will all go into it with as best an understanding as you can.

By Peter Ellis

The Borrowers Advocate, Lending Mate™

Peter is a trail blazing campaigner with a vision to put power back into the hands of borrowers. He was disheartened by an industry where home loans were less about the individuals borrowing the money and more about sales targets. Those impacted most were people that didn’t tick all the boxes to fit the ideal profile, who were often being left to fend for themselves.

Lending Mate™ wants to restore this power imbalance and start a movement where borrowers get a fair go. Lending Mate™ is having someone on your side, genuinely working in your interest to enable you to get ahead financially. We aim to provide the information, help and guidance you need to put you back in control.

* www.digitalfinanceanalytics.com/blog/discussing-the-bank-of-mum-and-dad/

Disclaimer Statement:  Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.
Free From Financial Worries Pty Ltd trading as Lending Mate™ (ABN 88 134 812 165), Credit Representative number 442518 is an authorised representative of Connective Credit Services Pty Ltd (ABN: 51 143 651 496), Credit License number 389328.

Four Reasons For A Home Loan Decline That Might Surprise You

Did you hear Kylie Minogue recently called off her engagement because her partner cheated on her?

It seems strange that such a beautiful, vivacious star could be treated that way. After all, shouldn’t that sort of thing only happen to ‘undesirable’ men and women?

Funnily enough, applying for a mortgage is a bit like looking for love: even successful people can get the cold shoulder.

Yes, it’s true: being declined for a home loan is a lot more common than you think.

Just as romantics hear all sorts of strange reasons why he/she is just not that into you, lenders can also take us by surprise. Here are four strange reasons they might decline your loan.

  1. It’s not you, it’s me

Lenders like to have balance in their loan portfolio as a way of spreading their risk. That means they don’t like to have too many loans from the same lending sector (ie: investors) or the same postcode or the same industry. So they might decline your application just because they already have too many similar loans on their books.

  1. They’re not ready to move on

Lenders might automatically reject your loan if the information in your application doesn’t match what they’ve got on file. That seems reasonable, but what if you’ve made a genuine mistake? Or what if you’ve experienced a change regarding your marital situation or how many children you’re supporting or how many credit cards you have? If you are lucky they will ask you to explain if not, you may never know.

  1. You once messed up

Remember that time when you fell behind on your credit card repayments or you overdrew your savings account a few times? No? Well, unfortunately, your bank might. Even though it might’ve been a one-off mix-up that happened a few years ago, lenders can have memories like an elephant, and might decline your application even if your subsequent behaviour has been exemplary.

  1. You party too much

Banks can get suspicious if you make too many withdrawals from ATMs on weekends and this is stopping you from saving. Not having assets to show for the money you earn and subsequently spend can be an issue especially when it is an ongoing thing. You might be stereotyped as a spendthrift who can’t stop making impulse buys or who has a gambling problem. Unfortunately, banks don’t like to give mortgages to people who are not good with money.

Conclusion

Having a home loan application get declined is serious stuff – and not just because of the amount of time wasted but because of the psychological impact of being told ‘no’. If you have never had an issue getting finance before it can be a serious affront which can make you want to retreat to the nearest exit and never apply again.

You will also have an enquiry on your credit report which subsequent lenders may ask you about. They will want to know if it proceeded and if it didn’t why it didn’t. Having to ‘fess up to a decline can be a humbling experience and the new lender may be more cautious because of it.

What all this shows is that there is a lack of transparency in lending. None of the above is written down anywhere for consumers to tick off and so ordinary people can’t know ahead of time whether or not their application is going to be approved.

There is probably more information about a new car you purchase for tens of thousands of dollars than a home loan that you take out for hundreds of thousands of dollars. The vast amount of detail behind the loan and who qualifies is not freely available and this is where borrowers need to show caution.

That’s where the idea of Lending Mate came to be. Peter Ellis wanted to be able to give borrowers a better deal than what they were currently getting. To cut through the secrecy and educate borrowers on what’s actually going on behind the scenes. His dream was to give people all the information they needed to make proper decisions about lending.

Borrowers deserve better. I am sure you would agree that if Kylie Minogue had been told in advance that her partner had a roving eye, she probably would’ve made better romantic decisions.

By Peter Ellis

The Borrowers Advocate, Lending Mate™

Peter is a trail blazing campaigner with a vision to put power back into the hands of borrowers. He was disheartened by an industry where home loans were less about the individuals borrowing the money and more about sales targets. Those impacted most were people that didn’t tick all the boxes to fit the ideal profile, who were often being left to fend for themselves.

Lending Mate™ wants to restore this power imbalance and start a movement where borrowers get a fair go. Lending Mate™ is having someone on your side, genuinely working in your interest to enable you to get ahead financially. We aim to provide the information, help and guidance you need to put you back in control.

Disclaimer Statement:  Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.
Free From Financial Worries Pty Ltd trading as Lending Mate™ (ABN 88 134 812 165), Credit Representative number 442518 is an authorised representative of Connective Credit Services Pty Ltd (ABN: 51 143 651 496), Credit License number 389328.

Why Am I Being Asked So Many Questions When I Apply For A Home Loan?

Applying for a mortgage can be a frustrating and even invasive experience.

Not only do lenders ask lots of questions, but some of the questions can seem irrelevant and unnecessarily personal.

So why do lenders do this?

Lenders always ask themselves two big question when considering home loan applications: ‘If we do approve the mortgage, will we get our money back and, am I covering off my responsible lending obligations?’.

But before they can answer these big questions, they first need to ask you lots of little questions. Almost like piecing together a jigsaw puzzle.

A mortgage is a significant amount of money to borrow. Because the bank is loaning you the funds, they will go into a very detailed analysis to ensure that you are a good risk. Finding out all about you, how many addresses you have lived in in the past few years and details of your financial history may seem like overkill to you but to lenders they all help piece together a picture of you as a borrower.

In years gone by lenders would rely on demographic averages which gave a profile around based on national averages of households living in certain areas with a certain number of children etc. In recent times regulators have been critical of using these preferring a more complete assessment on an individual basis.

That’s why they dig into your unique circumstances – your age, your marital status, your postcode, your credit history, your employment situation, your spending patterns and your saving skills.

It’s all about establishing you as an ‘individual’ borrower rather than an ‘average’ borrower. About ensuring that they don’t lose money as well as ensuring that they are being responsible in lending you the money.

Lenders also think about what might happen in adverse circumstances. For example, would you be able to afford the mortgage repayments if you lost your job or interest rates increased? What if the your investment property were to remain vacant for a period of time? What happens when your child support income no longer applies? Factoring in rate increases, periods when the property is vacant and knowing how you manage your money all help answer the questions above.

Once they’ve worked out who you are, lenders also need to understand what sort of property you’d be buying. This property is the security for the loan and their “insurance” if it all turns pear shaped.

Valuers detail a lot more information than just the value when they inspect a property. Lenders are interested in things like how long it will take to sell, any risks associated with the property or the area that the property is located, does it have an odd zoning or in close proximity to power lines and what sort of repair is it in and is it readily saleable in its current state.

You may be able to provide this type of information yourself but they will usually want it to be verified by an independent third party.

What’s in it for me?

All of this means that when you are approved for a loan both the lender and the regulator are comfortable that you are a good risk and can afford the repayments. The rigour around this process is to help ensure that you don’t get into trouble down the track.

A lot of this is being driven by the NCCP, or National Consumer Credit Protection Act, which the federal parliament introduced in 2009 to help borrowers survive what can sometimes feel like a ‘lending jungle’. After the GFC, regulators wanted the onus to be on the lender to act responsibly and in the best interest of borrowers.

It is in no one’s best interest when loans fall over and people experience financial difficulty. Even in the GFC an excess of bad loans led to a financial crash that caused severe economic pain. Sometimes when house prices are increasing quickly and we feel an urgency to just get into the market, we need to be saved from ourselves.

So the next time you apply for a home loan expect to get asked some really detailed questions. It might be a good idea to come prepared with an annual budget of what you spend and save each month as well as your ongoing commitments. Think of it as putting time into something that could save you from financial distress sometime in the future.

By Peter Ellis

The Borrowers Advocate, Lending Mate™

Peter is a trail blazing campaigner with a vision to put power back into the hands of borrowers. He was disheartened by an industry where home loans were less about the individuals borrowing the money and more about sales targets. Those impacted most were people that didn’t tick all the boxes to fit the ideal profile, who were often being left to fend for themselves.

Lending Mate™ wants to restore this power imbalance and start a movement where borrowers get a fair go. Lending Mate™ is having someone on your side, genuinely working in your interest to enable you to get ahead financially. We aim to provide the information, help and guidance you need to put you back in control.

Disclaimer Statement:  Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.
Free From Financial Worries Pty Ltd trading as Lending Mate™ (ABN 88 134 812 165), Credit Representative number 442518 is an authorised representative of Connective Credit Services Pty Ltd (ABN: 51 143 651 496), Credit License number 389328.

A Dream To Create Lending Equality

Buying a home and taking out a loan to pay for it are probably the biggest financial decisions most people will ever make. Home loan repayments then become one of their largest monthly commitments, which can go for as long as 30 years It’s an exciting and daunting prospect.

But many lenders can neglect the human element of these pivotal life decisions. They overlook that within a short space of time their customers are burdened with difficult decisions and are then bombarded with a vast array of information that is not only confusing but is often conflicting! They can overlook that their customers need support and guidance so that they know that they are making the right choices. And they overlook the fact that buying a home is more than just borrowing money.

In this system, big business takes over and people are often viewed as sales targets. The service and support received at this critical stage can help to set them up for life, but sadly they often won’t receive the care they need. It was Peter Ellis’ dream to change this. To create a company that would help people get the right assistance with full transparency. This is provided at a time when they need someone to truly listen to them and provide the way forward to help them reach their goals.

As a group that was often overlooked, it was important to Peter that more than anyone else he could help those who were struggling to get finance. They may have been previously declined or didn’t meet the bank’s lending criteria. These people just needed a mate or someone to turn to, to help them understand the nuances of obtaining a loan. And, so, Lending Mate was born.

Lending Mate’s primary focus was to address what many lenders tend to forget – the human element of taking out a home loan. Peter wanted a company that would treat the individual as an individual or, as he says it, “fit a loan to a person, not a person to a loan”.

Peter has been a mortgage broker for nearly 10 years and over that time, he came to realise that most banks and many mortgage brokers were offering the same loans with the same lenders to the majority of their clients, because it seems quick and easy. But as soon as the borrower didn’t quite fit the mold everything changed and many times it became too hard to find options when they just want to move onto the next client. What borrowers don’t understand is the fine print of who doesn’t qualify. This can keep the dream of owning a home out of the reach for many Australian’s.

Truth and transparency is key to Lending Mate’s success. To be assured that you and your unique circumstances will be carefully considered and that you will be given an honest opinion as to the most effective solution for your situation. Peter’s goal was to create a culture of transparency, where his customers know both the positive and negative aspects of the options available to them. It’s a refreshing change from the polished approached of many lenders that are here to sell to interest rate and then bury the details in their terms and conditions in tiny fonts.

One client, Sue Hartman, found Lending Mate just in time. Sue had been declined three times by other lenders and was almost at the point of giving up her dream of buying a home for her family. After listening to Sue’s experience, Peter detailed her circumstances and what she wanted to achieve. Peter then worked to find a suitable loan that would enable her to proceed. He helped Sue understand what was going on in the background to cause the previous loan declines and stages that the loan was going through. Most importantly with Peter’s help she got her family into their dream home just in time for Christmas. Sue said, “Without Peter’s help and commitment I don’t think we would have ever been able to buy this house.”

If you’re ready to buy your home, don’t put your dreams in the hands of someone that is more about conversions than compassion. Peter Ellis started Lending Mate to create a new experience for Australians looking to borrow money. When it comes to owning your own home, don’t give up. Don’t take no for an answer. Peter Ellis and Lending Mate will provide the help and advice needed to put you back in control.

By Peter Ellis

The Borrowers Advocate, Lending Mate™

Peter is a trail blazing campaigner with a vision to put power back into the hands of borrowers. He was disheartened by an industry where home loans were less about the individuals borrowing the money and more about sales targets. Those impacted most were people that didn’t tick all the boxes to fit the ideal profile, who were often being left to fend for themselves.

Lending Mate™ wants to restore this power imbalance and start a movement where borrowers get a fair go. Lending Mate™ is having someone on your side, genuinely working in your interest to enable you to get ahead financially. We aim to provide the information, help and guidance you need to put you back in control.

Disclaimer Statement: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.
Lending Mate™ trading as Free From Financial Worries Pty Ltd (ABN 88 134 812 165), Credit Representative number 442518 is an authorised representative of Connective Credit Services Pty Ltd (ABN: 51 143 651 496), Credit License number 389328.

Is This Mortgage Stress?

Do things seem to be pretty tight financially? Are you not saving like you used to? Are you eating into your savings and emergency fund to pay the bills each month? Are you at risk of not being able to meet your mortgage repayments?

Even though interest rates are at historic lows you may be feeling that your finances are under increasing pressure.

If so, you are not alone. According to Digital Finance Analytics* currently 21.78% of mortgage holders are experiencing some degree of mortgage stress, which is around 1 in 5 households.

 

What is causing it?

Basically, over the past year or two increases in our incomes have ground to a halt. This means that what we are earning is not keeping pace with increases in our expenses which have continued to rise.

We have experienced sharp rises in energy bills and insurances in particular. Bills keep coming in and in order to get by we put a bit more on credit and start paying just the minimum and so it starts to creep up.

House prices have also continued to rise steadily. If you have had to buy a new house in the past year or two you would have had to pay more, and in a low interest rate environment, the repayments on a larger mortgage have seemed do-able.

Back in 2010 with the fear of the GFC spurring us on we were saving around 11% of our incomes. This has been trending downwards in the past few years and currently sits at 7.5% according to Digital Finance Analytics.

 

Diagnosing mortgage stress

Mortgage stress is a bit like a medical condition – initially, most people hope it’s a temporary thing, but eventually they realise they have a real problem that is not going to go away.

So what is it and how do I know if I have it?

An outdated definition of mortgage stress used by government organisations is if your mortgage repayments are 30% of what you earn you are considered to be in mortgage stress. More recently analysts have come up with symptoms around what you are experiencing which take into consideration all your financial situation not just your income and mortgage payments.

Check out these definitions from Digital Financial Analytics* and see which one most closely matches your situation.

 

Mild mortgage stress is when you are maintaining repayments but have had to re-prioritise expenditure in order to keep up. You are borrowing more on loans and credit cards and cutting back on luxuries and dipping into your savings.

Does this sound familiar?

  • Are you currently up to date with your mortgage payments but feel worried about being able to meet them in the future?
  • Have you cut down on luxuries to ensure you have enough money to pay your mortgage?
  • Have you re-prioritised your expenditure to ensure the funds are there when repayments are due?
  • Have your credit card balances been creeping up?

Severe mortgage stress is where things are getting serious and you are behind on repayments. You are considering selling or are under pressure from the bank about being forced to sell.

Does this sound like your situation?

  • Are you currently behind on your mortgage payments?
  • Have you sought help to refinance your mortgage to make it easier to repay?
  • Are you speaking to your lender about alternative repayment options?
  • Is your lender threatening to foreclose and sell your property?
  • Have you made arrangements with your lender under their customer hardship scheme?

Whether it is mild or severe, coming to the stage where you recognise there is a problem is really important. Nationally incomes are not expected to grow much over the foreseeable future so you can’t just hope that pay increases will solve the problem.

Stress about money can be debilitating. It can impact your life, your relationships and your health, so what can you do to reduce it and gain back control?

 

 What you can do now

  • Budget carefully. Now that you have recognised that you are struggling to make ends meet, really keep track of where it all goes and look for areas to cut down. Surveys conducted by Digital Financial Analytics found that less than half of households have a budget. Knowing what you are spending is key, then you can look at it objectively and make decisions to allocate what you earn more effectively.
  • Don’t get behind on repayments. Even if you are experiencing difficulty, you need to do whatever you can to ensure that it doesn’t impact your credit file. As soon as late payments and defaults are entered on your credit report they take years to come off and can affect your ability to consolidate debt or get finance in the future.
  • Make minimum repayments on all debts before you start paying extra on one. When things are tight, focusing on paying the minimum on all debts can help create stability. If you can keep up with this then you can work to a stage where you can start paying extra.
  • Pay the one with the highest interest rate first. As soon as you have extra cash, work out which debt is incurring interest at the highest rate and pay extra on it first. Work your way through your debts eliminating those that are costing you the most.

If things are getting worse or you are experiencing severe mortgage stress it is no time to bury your head in the sand and hope it will go away. The sooner you start seeking help, the sooner you can be working to get on top of things again.

 

Where do you go to for help?

  • Your lender will be able to outline what hardship arrangements they offer. If you start getting into difficulty, talk to your lender and credit providers early. They are obliged to help in hardship situation. See if they can give you some breathing space to help sort things out.
  • Financial counsellor or financial planner.
  • Specialist broker. Because there is a mortgage involved a specialist broker can look at your situation and go through what options you have available to you.

It probably won’t just be any broker who will be able to assist. They need to have dealt with situations like this before and understand what options are out there that may help you. Ask them extensive questions about their expertise. They should be experienced in specialist lending and know lenders that offer different options which are usually outside mainstream lenders. Find out if they regularly deal with these type of lenders.

For some lenders and brokers, as soon as you are experiencing difficulty, they may feel that it is just be too hard to work out. They know that the amount of work that they will have to do can be a lot compared to how much they are paid and can mean that they may think it is not worth their time. They might just want to speak to the next person who has a really simple loan that fits the box and will be able to do quickly and easily. So, instead of just saying they can’t help they can just try to fob you off or passively hope that you go away. If a lender or broker is not returning calls or taking weeks to come back to you with the simplest request, then maybe you should take the hint and go elsewhere.

There are organisations like Lending Mate™ that I founded, who openly say that it is this type of loan is what they are most interested in. Having a focus on difficult loan scenarios and situations means that you develop knowledge and relationships with lenders who are in a position to help. You also get skilled at pitching the loan in the right way to get the lender to see the strengths in your situation. We also have relationships with other organisations who can offer assistance as well. Our motivation is really about helping individuals and we give an honest appraisal of the options available.

Just like being diagnosed with a medical condition, if you recognise that you have mortgage stress, either mild or severe, it is time to seek some real help. Mortgage stress does not have to be terminal but unless you take action it could wreak havoc with your finances and your life. Reach out to people who can help and weigh up what is going to be the best course of action to get you back in control.

By Peter Ellis

The Borrowers Advocate, Lending Mate™

 

Peter is a trail blazing campaigner with a vision to put power back into the hands of borrowers. He was disheartened by an industry where home loans were less about the individuals borrowing the money and more about sales targets. Those impacted most were people that didn’t tick all the boxes to fit the ideal profile, who were often being left to fend for themselves.

Lending Mate™ wants to restore this power imbalance and start a movement where borrowers get a fair go. Lending Mate™ is having someone on your side, genuinely working in your interest to enable you to get ahead financially. We aim to provide the information, help and guidance you need to put you back in control.

* http://www.digitalfinanceanalytics.com/blog/the-anatomy-of-mortgage-stress/

 

Disclaimer Statement: Your full financial needs and requirements need to be assessed prior to any offer or acceptance of a loan product.