FINANCE How much you can borrow depends on which lender and which product you select – a big difference when chasing your dream of home ownership. Banks vary in what they consider as important criteria, for example: 1) Margin Lending • Some banks consider half the debt based on the servicing rate but ignore the income generated by the investments. • Some banks ignore both the investment income and the debt altogether in their deliberations. 2) Other Lender Debts • If you have debts with other lending institutions, it can make a mess of your capacity to borrow. • Some lenders use the existing rate the money is borrowed at from that institution. • Some banks add the two percent buffer and consider it to be principal and interest payments over 30 years. • Some banks will use the fi xed rate if interest only or principal and interest payments at the other institution. 3) Credit Cards • Some banks ignore credit card limits if given three-month statements confi rming debt is repaid to zero each month. • Some banks assume the actual limit is fully drawn. • Banks vary the assessment rate on credit cards from two to three percent of the limit per month. Investment Property The banks vary on whether they use 75 or 80 percent of gross rentals in their consideration. The added complexity that comes into play is that some lenders use your gross holiday rent based on historical facts while other lenders ignore the facts and only use what they deem to be a fi rm permanent weekly rent. In this case some rely on a local agent’s letter while others will only use the fi gure placed on the valuer report. Income Every bank has a different view on perceived risk. It’s crucial if you have a household where the second income is part-time, temporary, permanent part-time, casual or permanent casual. Banks will use 50 to 100 percent or can simply ignore it altogether. Other sources of income taken into account include any commission, dividends, car allowance, salary packaging or contracts. All these incomes can be excluded or included depending on the lender. Mortgage Insurance Not all banks are charging the same premiums with mortgage insurance. In fact some give you a discount if you are a fi rst home buyer but most don’t. To add to the confusion they have different tiers ranging from $300,000 - $500,000 or $300,000 – $600,000 with each attracting a different premium. There could be as much as $6,000 difference, so seek advice and go with the one that works best for you. Is a Fixed Rate Right for You? What’s missing out there in the debate around the cheapest rates and fees is people. It’s about individuals and a needs analysis – helping people to see the whole picture. There is any number of differences between banks when deciding on fi xed rates. Strategically, think about a two to three year plan – it’s easier than planning for fi ve years. Breaking a fi xed rate can be expensive if circumstances change. In the Fixed Rate Space, Banks have Different Policies. Firstly, there is the variation between banks based on how much you are able to pay in addition to minimal repayments on fi xed rate loans. For example $15,000 per fi xed period versus $15,000 per calendar year. Secondly, the differences between banks on the cost to lock the rate, to guarantee the rate at settlement. Some banks will charge a set fee, while others will charge a percentage based on loan amount. Thirdly, some banks will state the rate lock commences upon application for fi nance, others will be based on unconditional approval, which can take up to four weeks to achieve depending on conditions. Cooper refers to the mortgage space as a ‘minefi eld’ and advises borrowers to seek professional assistance before making what for most of us, is the biggest fi nancial decision we are likely to make in our lifetime. “You don’t need to be with the one bank – you need the right advice, so let’s sit down and see what the market is offering. Banks change policy all the time. As an individual, you have different needs at various stages of your life,” he says. pm Pindara Magazine 110 Summer - Autumn | 2014
Pindara Private Hospital Magazine - Issue One
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