Mortgage & Debt Refinancing

Mortgage & Debt Refinancing

Choosing a mortgage is the biggest financial decision for most people. It’s the one thing in life you can’t afford to get wrong because you don’t know what you don’t know. For some, accumulating debt can feel like sacrificing freedom, while for others it’s exactly the opposite. For people with a clear plan and a 'why', debt can be a resource to help them get ahead. We think big debts should always serve a worthwhile purpose.

Starting out

Getting your first mortgage is a big first step.

• Buying your own home will probably be one of the biggest financial decisions you'll ever make.
• Buying an investment property is probably the next biggest financial decision.
• Then consolidating debts above LMI ratios and equity stripping risks becomes a complex conversation.
• Then consolidating debts into an investment use mortgage (without upsetting tax deductibility of the interest – is where it can soon become messy).

Managing the reality of living with significant debt levels

As life and relationships continue to change, most of us will find ourselves taking out a sizeable home loan (mortgage) and making repayments for a major part of our working life.

Over time, as equity increases in a property, it’s not unusual for people to then see if they can refinance their home loan and consolidate some off, or sometimes all their outstanding credit cards, car loans, and other consumer debt into the home loan, all at a lower interest rate.

While this can initially look straightforward, as funders continue to take a stricter view of credit scores, buy-now-pay-later -schemes, missed repayments and defaults, a history of short-term employment and even having a mortgage debt that may last well into retirement – refinancing and debts consolidation can be a task that requires 90 days of pre-refinance work to better position yourself for a successful refinance

Starting out, again

Life never quite works out the way we want.

Relationship breakdowns, Family Court Financial Settlements, and past bankruptcy issues, there is no normal when it comes to refinancing a mortgage and debt consolidation. As lifestyles, business, and family pressures increase many people also find themselves unexpectedly having to start again after a relationship breakdown. As a result, mortgages are now becoming a part of our longer-term reality.

Over 30% of Baby Boomers expect to retire with a mortgage.

So it's worth taking the time to get proper financial advice and consider specialty lender options in the short term as part of a bigger mortgage repair strategy. Get some qualified advice about how these types of loans work, their effect on every other financial decision you'll probably make, and how you get them to work for you, not against you. If you're over 45, make sure you read our article, What happens when you're deemed too old for a home loan?

So where do you start?

With the market flooded with multiple mortgage products, special promotions, and introductory offers it's no wonder that most people feel overwhelmed with too much information.

Learning to compare different funders' offers to see what's right for you

One of the best ways to be able to compare-apples-with-apples, so to speak, is by understanding what's known as the comparison interest rate. Understanding this can be a real game changer.

What is a Comparison Interest Rate?

This is a great way to compare the raw cost of different loans and cut through the advertising fog.

 A comparison interest rate is a comparison tool to help consumers see the true cost of a loan so it can be easily compared with a competitor's true costs as well.  It's an interest rate that includes both the interest rate and the bank fees and charges relating to a loan, rounded up to a single percentage figure.

For example: a Bank's advertised interest rate may be 5.49% and its comparison interest rate is 6.75% See the difference?

What is the Actual Interest Rate?

Your repayments are charged at the actual advertised rate. The comparison interest rate is included for comparison purposes only and shows the effective rate over the full term of the loan when all the fees and charges are considered.

What is the Honeymoon Interest Rate?

Most people understand that an advertised honeymoon rate starts out low and then, after the honeymoon is over, so to speak, the real cost of the commitment becomes apparent. In a similar way, the comparison rate is closer to the real cost of the loan (the total interest you pay) over time.

For example: some banks might advertise a professional package interest rate (and charge you an annual fee for having it. These types of fees can add 0.2% to the overall cost of the loan. For example: Lower Rate + Annual account fee = Much the same.

Getting the right Loan Structure makes the difference and saves you money

Every person, their circumstances, their family, and their business is different. Our expertise is in looking at the bigger picture and showing you how it will affect you now, tomorrow, and in the future.

• Rushed decisions made before you understand all your options, usually cost you significantly more money, effort, and lost opportunity later.

So get the mortgage structure right from the start and sleep better.

Features to look for in a Home Loan

The loan features are often more important than the interest rate alone - but if you can combine both - you have a powerful advantage.

When choosing a mortgage that is right for you there are many things to consider, so speaking with us is the best place to start. What you want may turn out to be different from what you need and knowing the reasons why can save you a small fortune and a big headache.

Questions to ask about a home loan

Here are some basic questions to ask to get you started thinking about (and discussing) your bigger financial picture and a possible home loan.

• What is the comparison rate on the loan I'm considering?
• What features do I get for the cost and how many features are fee free?
• Is the home loan flexible and does it allow me to make additional repayments?
• Is the loan portable and can I take it with me to my next home without needing to refinance every time?
• Is the home loan easily managed online and allows redraws of extra repayments?
• Can I make additional repayments into the fixed portion of a loan?
• Is there a 100% offset account and am I paying for one I don't use?
• Is there a credit card linked to the loan?
• Is the credit card at the same interest rate as the home loan?
• Are there fees for fixing my loan, topping up my loan or splitting my loan for a worthwhile purpose?
• How much can I really afford and what amount do I want to borrow? (remember this may be less than what the funder is prepared to offer you).
• How much will different funders lend me (this will always vary between funders)?
• Will I be paying lenders mortgage insurance?

How we can help

Getting a mortgage or consolidating debts with your mortgage refinance, are important debt strategies that need consideration of both the short-term and longer-term financial picture. The Australian mortgage broker space is crowded and commoditised.  This means finding the high level of expertise needed for complex mortgage work is often harder than it should be. The Sapience Team has 20+ years of experience in mortgage brokering. Today we have decided to work alongside vetted, experienced, and forward-looking Mortgage Brokers to bring the highest level of combined expertise and insight to solve our client's problems.

Contact us for a confidential chat about your needs.