Buying your first home is very exciting. It is a big step and a huge financial commitment, so you want to get it right.
Without a doubt the question I get asked the most from First Home Buyers is how much do I need to save?
Everyone's situation is completely different and I am always happy to chat to you over Zoom or the Phone and discuss your unique situation. I can do some calculations for you based on how much you earn and your existing debt and expenses.
But in the meantime, as a summary, here are some of the more important things to consider when saving to buying your first home:
1. You will need at least 5% of the price of the property in savings.
On a $500k property that will mean you need to have at least $25k in savings.
2. Your savings need to be in your bank account for three months minimum.
Savings cannot be a lump sum or gift, it needs to be gradual savings that you have had in your account for at least 3 months when you apply. This shows the lender that you can save and therefore could repay a loan. Some lenders may allow you to show rental history as quasi ‘savings’.
3. Have enough additional funds to cover fees
On top of the 5% you need there will be all sorts of fees – Government registration fees, title searches, bank application or package fees and Conveyancer fees. There may also be valuation fees and settlement fees.
4. The killer is LMI
The big fees are for Lenders Mortgage Insurance (LMI). If you borrow over 80% of the value of the property you have to pay this. Some lenders will allow you to capitalise (add this amount to the loan) but your interest rate will be higher.
The only way to avoid this is by having a Guarantor (maybe a parent has a property they can use as security?).
There has also been a recent Government initiative whereby the Government becomes the ‘Guarantor’ and LMI was not require. This was called the First Home Loan Deposit Scheme (FHLDS) – unfortunately this has finished for 2020, there were 20,000 spots allocated. They may run this program again next year, it's hard to know. I can keep you informed in you are interested as this scheme provided substantial savings as you will see in the Calculations below.
Here is an example of what you need to purchase a $500k home in Victoria.
So all up to buy a $500k property you will need from $47k to over $69k (if you are not a First Home Buyer). As you can see the FHLDS is a significant saving.
Also worth noting is that the more you contribute the cheaper the interest rates will be.
Repayments on $475k at 3% (estimate) are approx. $2,003 per month or $462 per week. Rates can range from 1.99% (Fixed Rate P&I) to 4.62% (Variable 98% lend P&I) so interest rates can vary hugely depending on your situation.
My services are free as I am paid through the lender. So don't be afraid to ask me lots of questions. It is complicated so I am here to help.
I can also take your through the various Government initiatives for First Home Buyers, some of which can save you a lot of money. There are First Home Buyer Grants, Home Builder Grants, First Home Loan Deposit Schemes and Stamp Duty Exemptions and Concessions. Some are Federally but most are State based and different for each state. I can guide you through these as well as the eligibility criteria.
No question is a silly one but I do hope this give you a little insight into what or how much is required. Next time I will cover off on how much you can I borrow - the second most asked question I get!
In the meantime let us work together to help you make your home ownership dreams come true.
Principal, Volare Home Loans
Mobile: 0411 849 804
If you are a small or medium business owner, you probably aren’t in meaningful regular contact with your accountant. Instead, your relationship is occasional, and any communication will be limited to your accountant providing the latest financial statements for your business. The balance sheet and profit and loss statements will be given a glance, but you won’t delve into them any more in-depth than you need to – that is the accountant’s job, and you are busy running your business. This is a common scenario that plagues small business. It may very well mean you lack the financial insights to steer your company in the right direction.
If you understand the importance of being on top of your finances in achieving business success, the first step to making a change is to develop an understanding of your financial statements. Once you have analysed the statements your accountant provides to the best of your ability, it is a great idea to set up a conversation with them to follow up with some key questions. Understanding these eight essential questions will go a long way in cementing your knowledge of your company’s financial position.
1. What is my gross profit margin? The gross profit margin is an important metric to measure how much profit you are making from each sale you make. Gross profit subtracts the cost of goods sold from your topline sales number. Dividing your gross profit by sales produces the gross profit margin. A higher margin is usually better as it indicates you are making more money per dollar of sales. Keep in mind that it does not take into account any other costs. However, it does give you a baseline metric to measure any efforts to boost your income.
2. What is the business’ breakeven point? One of the most important pieces of financial information you need to identify is your break-even point. This is the point where your business is not running at a loss, yet not turning a profit either. Ideally, you will always stay above this point (profitability). The first step to consistently being profitable is understanding where the break-even point is and then taking action to achieve, and then exceed it.
3. How can I boost my business’ cashflow? Cashflow is much more important than many business owners realise. Even if you achieve profitability, it does not mean you are in the clear. Unless you have the cash to meet your bills when they fall due, pay your staff when they’re owed or take advantage of growth opportunities when they arise then your business will not be able to achieve its full potential.
“Discuss your cashflow position – it’s more important than you realise”
Discuss your cashflow position with your accountant. If you have a lot of unpaid invoices on your books or a history of late-paying customers, you may need to make some changes. They might also recommend a service such as invoice financing to help unlock cash from your account receivable ledger.
4. What is our net profit, and what does that tell us? Once you understand your sales, gross profit margin and break-even point, diving deeper into your net profit figure numbers are useful. Net profit takes your revenue and subtracts all the other costs involved in running your business, including staff, rent and taxes. Net profit is a holistic measure to assess how economical your business is over a specified period. It’s a great tool to establish opportunities for improvement.
For example, if your gross profit margin is industry-leading, yet your net profit is negative, then it may be a sign you are carrying too many unnecessary operating expenses. The benchmark level of net profitability varies depending on your industry, so check this with your accountant also.
5. Which areas of the business are most profitable? If you have multiple products or service lines, you’ll know that some perform better than others. The products you generate the most revenue from are not necessarily the most profitable. Once you identify which areas of your business are the most profitable, you can begin to develop a plan to boost sales of the right products or services. The insights your accountant can deliver here may make a significant difference to the strategy and direction of your business.
6. I want to cut expenses, where should I cut? As we have seen recently, there will be times when we need to cut costs urgently. When this occurs, it can often be challenging to know where to prioritise. Your accountant will be able to give you insights into where you can save the most bang for buck. They will be able to benchmark your expenses to your competitors, helping you identify opportunities.
7. How long can we survive if things go bad (again)? In addition to cutting costs, it helps to know how well your business would be able to weather the storm. Will you still be profitable if sales were to fall 50% (or more)? Your accountant can help you identify financial risks and advise you of funding options that would be appropriate for your company, helping you find solutions to survive a tough period.
8. How am I doing compared to my competitors? If you want to compete effectively, you need to understand how you are performing relative to your competitors. If you are underperforming across multiple metrics, you need to investigate why – there is almost always an opportunity for improvement. Ask your accountant what they think you can do to catch up and move ahead of other businesses in your industry.
Once you understand your financial position, you’ll be better placed to take advantage of growth opportunities and take your business to the next level. Don’t let a lack of cash flow hold your business back.
Speak to me, your broker and let me assist you with any of your funding needs.
One-eighth of all first home buyers who purchased a home between March and June 2020 did so using the First Home Loan Deposit Scheme, a new report shows.
Roughly 12.5% of all homes purchased by first home buyers during the pandemic's peak months were done so utilising the scheme, according to the scheme's administrator the National Housing Finance and Investment Corporation (NHFIC).
The first home loan deposit scheme (FHLDS) was launched on January 1 2020 by the Federal Government to help first home buyers secure a home loan with a deposit as little as 5% while avoiding the high cost of Lenders Mortgage Insurance (LMI).
A new report by the NHFIC said the scheme has supported many younger buyers, but also some older cohorts.
"The Scheme has had broad geographical reach supporting first home buyers across the country with strong interest from buyers in outer metropolitan and regional areas," the report said.
"First time buyers have been able to bring forward their home purchases in line with the objectives of the Scheme. FHLDS has now cemented itself as part of the first home buyer support policy architecture."
The scheme may have helped increase first home buyers' share of the market, with CoreLogic's head of research Eliza Owen last week reporting first home buyers made up 29.5% of all owner-occupier commitments in June, far above the 23.2% decade average.
"The expansion of the first home loan deposit scheme and other first home buyer incentives announced over June and July is likely to see a boost in first home buyer participation over the second half of 2020," Ms Owen said.
Article by William Jolly on August 31, 2020
What do you wish you knew before you bought your first property? Money magazine asked members of the Money team what they wished they know. It wasn't a list of boom suburbs, but a better understanding of just how mortgages and the cost of home-ownership work.
As a mortgage broker looking after your best interests, I'm always available to answer any questions you may have. Just give me a call.
Here's what the Money team had to say:
Pay it down
I wish I knew more about the mechanics of paying my home loan faster before I bought my first property.
I think I'm one of the lucky ones who bought my first property when I was only 21 years old but not by design, my dad forced me into it! He said I should get myself a mortgage as soon as possible and use time to my advantage.
But I wish someone sat me down back then and explained to me how interest rates worked and the benefits of paying more than my minimum monthly mortgage payments. I would have budgeted more towards it.
I think we all need to read publications like Money magazine earlier in life. - Michelle Baltazar, editor-in-chief
Commit to the reno
Before buying my first property I was all about saving what I could and not taking a loan to include the renovations I wanted to do.
In retrospect, the cost of renovations is always going to rise, so once you've bitten the bullet to buy the house you may as well get on with as many renovations you can afford early in the piece, that's if you know what you want to do.
If you're not sure what needs to be done, then put the renovations on hold, but make sure the money is ready for when you are. I bought the home and put in all the money I had.
I had budgeted for a new bathroom as that was a necessity but I couldn't even paint the house until I had worked extra jobs to afford the paint. Luckily I had family around to actually do the painting! - Julia Newbould, editor-at-large
Find a way in
Negative gearing can be a tax-effective way to maximise the capital appreciation of a property, as the net loss from the shortfall between rental income and mortgage repayments can be deducted from your taxable income.
It also gave me entry into the property market earlier than I would've had otherwise. But it still means you need to find money to plug the difference each month, and that has at times been a serious strain to my cashflow.
That said, the current low-rate environment has gone a long way to alleviating this pain, and goes to show how important it is to refinance as rates fall. I don't look forward to the day when rates rise and my fixed-rate expires. - David Thornton, staff writer
Understand the interest
I wish I knew what the interest on your home loan actually costs you (even at low rates and with a smallish offset). We pay our mortgage fortnightly and the interest is charged monthly.
In the first month we were charged interest that equalled almost two-thirds of our repayments - so initially it seemed we were on a hiding to nothing.
Thankfully over the course of three years this has come down significantly. This is because we now pay more than the minimum fortnightly repayment and have boosted the offset.- Darren Snyder, managing editor
Thank you to Money magazine for these thoughts.
A timely reminder that the enhanced Instant Asset Write Off Scheme for eligible businesses is set to expire on 30 June 2020.
This is the perfect time to be working out your vehicle and/or equipment finance purchase intentions before the end of this financial year. I can help you with any finance requirements you may have, just give me a call to discuss.
To recap, the scheme enables eligible businesses to write off or expense the full cost of a business asset this financial year rather than having to make periodic depreciation claims.
What are the rules?
Are you thinking of buying a new car or commercial vehicle as part of this Scheme?
If you are thinking of buying a car or commercial vehicle but don’t want the hassle of searching for a new car and having to negotiate with salespeople, we have access to a Leasing car buying team who can do all the hard work for you.
This car buying team can source all new vehicle makes and models across Australia at discounted pricing due to their buying power. They can also assist with trade-ins of existing vehicles and arranging test drives.
This service is complimentary and free for our customers. Give me a call and I can arrange this all for you.
How do you even get started when you are feeling very overwhelmed with bills still coming in but work has been cut back or you have been stood down. What do you do?
Focus on getting through one day at a time. Know that you are not the only one going through this and reach out for support if you need it. There is nothing to be ashamed of.
If your job situation is unstable now is probably not the right time to refinance your loan. You may instead qualify for financial support from your lender, such as deferring your mortgage repayments for up to six months. You also may be able to arrange to defer payments for bills or take advantage of the various government assistance packages on offer.
But if it’s all secure on the job front there are definitely many advantages of refinancing including:
1. Reducing your repayments
The first thing I recommend all my customers do when they come to see me is to try to negotiate a more competitive rate with your existing lender. All it takes is a phone call. With rates at an all-time low most lenders are willing to at least reduce your rate a little.
Often they will not offer as good a rate as if you were a new customer and if this is the case in your situation, it may be better to change lenders. Let me help you work out if you will be better off after taking into account any fees that you will incur.
2. Obtain cash out using equity to renovate or invest
With extra time on your hands is it time for a project? That bathroom or kitchen you’ve been thinking about renovating for ages, maybe some garden landscaping or painting the house? Or even something bigger – now might be the time to get plans drawn up and submitted for approval while you can.
Accessing the equity you have possibly built up is always a possibility. Equity is the difference between the value of your property and the balance of your mortgage. You can access up to 80% of the value of the property when refinancing and then use this money to do those renovations you’ve been putting off, potentially adding even more value to the property.
Using the funds to invest is another (more risky) option although with the market fluctuations currently occurring make sure you get some professional investment advice before attempting this!
3. Get a loan with more or less features or greater flexibility.
A loan from a different lender may allow you more features such as an offset account, additional repayments and redraw facilities or less features (e.g. a Basic Loan). If you don’t really need these options you shouldn’t have to pay for what you don’t use. You could also look at changing your repayments from P&I to Interest only or take a split rate options with a percentage Variable and some Fixed. Even something simple such as changing repayments from monthly to weekly could help you pay off your loan faster. If your current lender doesn’t offer you what you want from your loan, you could consider refinancing with a lender who can. Certain loan features may offer you more flexibility and/or help to save you money.
4. Refinancing a home loan to consolidate debt (other loans and credit cards)
Another valid reason to refinance is to consolidate other loans and debts into a single and possibly reduced payment. This can be useful when you have high-interest rate loans and debts like credit cards, personal loans or car loans. Your refinanced home loan will be replaced by a new one that incorporates the amount these debts. You just then have one repayment which is often less as the loan term may have been extended.
However, it's important to note that debt consolidation can come with some downsides too. It could turn a short term debt like a personal loan into a long term debt (your mortgage), and that means paying interest on the balance for a longer period which may cost you more in the long run.
Don’t forget to take into account the costs of refinancing
There will be costs involved in refinancing, depending on your lender. In most cases there will be a Discharge fee and there may also be an exit or break cost fee for leaving your current loan contract early if you have a Fixed Rate loan.
There will also be some government charges. Generally speaking the Discharge fee and Government fees add up to around $600 but this depends on the lender you are with. There can also be upfront fees for your new Loan application although these are often minimal. So you do need to be at least $600 better off to cover these refinancing costs. Speak to me and I can help you work out what these costs are for your individual situation to see if it is worthwhile.
But I can’t meet face to face?
And there is no need to be concerned around face to face meetings. Refinancing can be arranged via video conferences, online or over the phone. The easiest thing to do is give me a call and we can have a discussion about your options, your longer term goals and what is the best way forward for your situation.
Don’t forget that if you want to take advantage of these cash rebates, they finish soon so pick up that phone and give me a call. I can be reached on 0411 849 804.
It’s been a very unusual couple of weeks as we all come to terms with the current COVID-19 situation.
With many people losing their jobs or working from home and social distancing, none of us know how long this will go on for.
There can be a huge amount of anxiety caused by the ongoing uncertainty and it’s important to check in with each other to support each everyone in this difficult time.
As far as paying your Mortgage, there is help on offer. All lenders have come up with support and ‘hardship’ arrangements and it’s important to know what these mean and how it may impact you now and in the future.
Most lenders are offering at least three months where repayments are not required simply by contacting them and making them aware of your situation. Some are offering a further three months after a check in point at the three month mark.
Do keep in mind when taking up these offers, that a 'repayment holiday' does not mean that your interest has been waived. The repayments (interest) are simply being deferred. The interest will be capitalised – i.e. be added to the loan. At the end of the deferment period either the loan term will be extended (e.g. from 30 years to 30 years and 3 months) or your repayments will increase to ensure the loan is repaid in its original loan term. It’s not something you would just do for the sake of it as it could add interest to your total loan cost.
But if you are struggling to make your repayments or know you will be in the future, do not be afraid to contact your lender and ask for help. I can help you prepare for the call.
Rest assured that these arrangements are NOT reported as defaults and will not impact your borrower’s credit score or your future lending abilities.
Some other options available to you are:
1. If you have funds in redraw or Offset accounts, you could consider using these up these funds first.
2. If you still do have a job, you could consider refinancing to take advantage of cheaper rates (there are some very competitive fixed rate on offer at the moment), a new interest only term or one of the current cash back rebates (up to $4,000) available.
3. Access your superannuation. Details of this below.
Australians suffering financial hardship during the coronavirus crisis will be able to access up to $10,000 of their superannuation early. They will be able to access up to $10,000 this financial year and $10,000 next financial year. Eligible people will be able to apply to access their super accounts through MyGov before July 1 2020. After that, they will be able to access another $10,000 throughout the next three months. The withdrawals from superannuation will be tax free - and available to people on benefits and to sole traders and casuals who have lost 20 per cent or more in working hours or income as a result of the coronavirus crisis.
You can seek to access government support first and only access your Super as a last resort. Using Super as “free money” now could severely impact future earning capacity of your fund. It would be a good idea to seek Independent Financial Advice if you decide to take this option, so you are fully aware of the implications.
But sometimes you do not have a choice and you need to do whatever it is that helps you get through this difficult time.
Here at Volare Home Loans we hope that you, your family and friends look after yourselves during this challenging time. Keep yourself safe and healthy and we will get through this.
Please give me a call if you would like to discuss any of this further or if you have any questions. Take care and be safe.
Catherine Thompson, Principal, Volare Home Loans
This is a crisis that no one really knows how long will last or how big it will get. Unfortunately, none of us have a crystal ball to be able to accurately predict the future.
We don't know how the Coronavirus health crisis will pan out globally. We also can’t be exactly sure how it will affect the Australian economy or our property market until we see an end to the crisis.
While currently Coronavirus is alarming equity markets the recent RBA interest rate cut seems to be working for the property market. We are yet to see if this a temporary or longer term position but at the moment demand surges amid strong market conditions, especially for first home buyers.
While circumstances, in this environment, can change daily and may be changing for many of you - your goals should always stay the same. Stick with focusing on what is important to you in the long run. If that is owning your own home then be ready. And in doing this I would always recommend to continue to focus on logic and sound decision making.
Start with the right mindset and approach and take emotion out of the equation. Do your homework, get a pre-approval so you are ready to pounce when do you do find the right property and the time is right.
So what are the key things to look for when buying a property?
1. Location, location, location. How far you’re willing to travel to get to work, family friends? How good are the local schools, shopping centers and other public facilities like parks and sporting grounds? How convenient is public transport? Is it in a growth area?
2. Neighbourhood. What’s the neighbourhood like? Take a walk around it and find out whether the neighbourhood is family friendly or not. Check out the neighbourhood at different times of the day and night. Find out what facilities the area has by asking around.
3. Schools or Universities. Homes near good education facilities often are very highly sought after. Check that there are good schools close by that are easy enough to get to. This could also make a big difference in resale value.
4. Public Transport and other Infrastructure
Is the location well-connected by tram, freeway or train networks? Are there amenities such as street lighting, telephone, internet connectivity and is access to parks easily available?
Whether this is parks, playgrounds, sporting fuels, dog parks or cafe's and restaurants think about what’s important to you and your lifestyle. You are hopefully going to be there a while so you may as well enjoy it!
And then when you think you have found the perfect place ALWAYS get an inspection done. A building and pest inspection is an absolute must. Definitely get one of these done before signing anything. Do not ever rely on how “pretty” the property looks. Get the experts to check its maintenance, repairs and renovations in detail. The total expense to fix things after you’ve bought can be significant.
Just remember it’s never too early to start this home buying discussion with me - even if it is by Zoom.
If you’d like a copy of my Guide to Buying a Home please do not hesitate to drop me an email or give me a call. And stay safe, getting through this is a team sport not a one person race.
This article in the AFR highlights what we all suspect. That the more loyal you are to a bank the more you will get charged. And it is so wrong! Is it complacency or just not knowing where to start? Thanks AFR, a good prompt for us all to take action by refinancing or renegotiating for a better deal.
Message from CAtherine
Occasionally I come across an interesting article to do with Home Loans. I thought I'd share some of these with you here.