Finance 101 – what you need to know
A “home loan” or “mortgage” is a loan from a bank or financial institution to buy, build, refinance, or renovate a home. A home loan typically has a 25-year or 30-year loan term and is repaid via regular payments (usually monthly, but can be more frequent). With interest rates at a record low, the Government First Home-Owners Grant and the Government First Home Loan Deposit Scheme will provide a 15% deposit guarantee. This means a couple could apply for a housing loan with a deposit of just 5%. This could be withdrawn from your superannuation fund from voluntary contributions you have made from 1st July 2017.
How much can you borrow?
This will depend upon the valuation of the property, your income, the term of the loan, interest rate charged and the level of other borrowings and financial commitments such as credit cards and personal loans.
How much should you borrow?
The recommended amount you borrow should not exceed 80% of the valuation of the property. However, some financial institutions will lend up to 95% of the value of the property, provided the borrower meets certain conditions such as taking out mortgage insurance, which is a once only payment. Other considerations include legal expenses, lenders fees, inspections costs and Government charges such as stamp duty payable.
What happens if I default on my mortgage repayment?
A mortgage is a legal document that outlines the terms and conditions of a loan where the property is being used as security for repayment. Generally, if repayments are not maintained or the borrower breaches the mortgage terms and conditions, the lenders have the right to sell the property to recover the outstanding debt.
Should interest be fixed or variable?
Interest rates fluctuate with changes in economic conditions. The borrower has a choice to fix the interest rate on the total or nominated amount borrowed for a particular period, or, alternatively select either a standard or basic variable interest rate. The standard variable rate is normally higher than the basic variable rate as it includes features such as making additional repayments or increases to the amount borrowed.
In the event of a variable rate change, the monthly or fortnightly repayments will vary each time there is a change in interest rates, unless a request is made to alter the term of the loan. The decision as to whether the interest rate should be fixed or variable is dependent on many factors such as the current interest rates, present and future economic conditions (locally and globally), the inflation rate variations and Government budgetary philosophy.
In times of below average interest rates it would be wise to fix the interest rate on the total or part of the amount borrowed, even though it could be marginally higher than the variable interest rate. It is strongly recommended you seek professional advice before changing from fixed or variable interest rates.
What is “All-in-one loan?”
An all-in-one loan is normally a variable interest rate loan that allows the borrower to deposit all of their income into the one account and to access the account to meet personal expenses.
Selecting the Lender
There are many different types of lenders, each with different interest rates, terms, conditions and lending criteria. Major lenders include, Banks, Building Societies, Credit Unions and Co-operative housing societies. We strongly recommend you approach your bank first and then compare their offer with at least 3 other financial institutions.
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Business loans provide funding to businesses to assist with start-up capital for expenses or to pay for expansions. Business loans are debts and the business and or depending on its legal structure, owners, are obligated to repay these funds based on the lenders terms and conditions. Some new businesses use business loans to pay for wages until they get stabilised, while other businesses might use the money to help with things like office equipment and buying inventory. Lenders will want to know how you intend to use the funds, so you will need to have a business plan to support your application.
TYPES OF BUSINESS LOANS
Commercial & Mortgage Loans
Small Businesses Owners rely on Commercial loans to purchase their business premises and debt consolidation
Business Fixed Term Loans
Normally applied to invest or expand the business. These loans offer fixed and variable interest rates.
This is an approved ongoing credit limit that will assist the business to manage fluctuating cash flows.
Enables the business to purchase business plant & equipment including motor vehicles. Security is against the capital owned by the business
Invoice financing is a type of business loan with reduced risk, as its secured by outstanding invoices.
Low Doc Loans
This will assist borrowers who are unable to prove their income through traditional means and are mainly for the purpose of purchasing a family home, business or investment property.
Sales & Lease back
This enables business to purchase your business assets and then lease them back to you through regular monthly payments to inject cash flow for business growth.
Business line of Credit
This enables businesses to use a revolving line of credit to pay for any business expense or ongoing costs.
Application Form to be completed and signed.
Summary Loan details explaining the amount and purpose of the loan, the terms of repayment and the security that is being offered. This should be accompanied by a copy of your business plan for the business.
Financial Statements and Taxation Returns (current and previous three years’) and where the applicant is a company or a trust, an asset and liabilities registry for all directors.
Details of Titles, Photographs and Description and Valuation of all properties offered as security to the loan.
Company | Trust Flow Chart – where the applicant is part of a group of companies and/or a trust, a flow chart showing all related companies and trusts, including the names of shareholders, directors and other office bearers must be provided. Details of authorised and issued share capital should also be included.
Evidence of Taxation and BAS Returns being lodged and no outstanding monies being due from the ATO. Copies of assessment notices.
Contact Details (names, addresses and phone numbers) for your accountant, solicitor, bank partners and insurance brokers.
The secret to obtaining external funding is for you to demonstrate:
Your ability to meet the loan repayments as they arise
You have the necessary security to cover the loan amount
Your product or service is viable
You are credible and honest