With interest rates at a generational high and the cost of living becoming more expensive by the day, the cost of mortgage repayments is causing increased stress. So, if you’ve got a home loan – or are thinking about taking out a home loan soon – you need to be thinking strategically.
Jane Vaughan, Finance Broker at Fennell West, offers her six tips for securing a home loan – and making it manageable.
Consider a parental guarantee
Parental guarantees – whereby a parent uses their home to guarantee the home loan – are becoming increasingly common for first-home buyers. And, if it’s an option for you, it’s one that’s certainly worth considering. “A parental guarantee can help you not only get your home loan application over the line, but also avoid Lenders Mortgage Insurance,” explains Jane. “It takes you over that 20 per cent equity threshold that lenders look for, gives the lender the security they need, and helps you access finance to buy your first home.”
Bypass pre-approval
Getting pre-approval was the logical first step in any home loan process up until a year or so ago. Today, it’s so risky that Jane recommends bypassing it altogether. “Pre-approval today is incredibly risky as things are changing so quickly – interest rates are rising by the month, although we had a little respite from that in April, and banks are becoming increasingly cautious with their lending criteria.
“If you get pre-approval, there’s no guarantee you’ll get the home loan, which can cause a major issue if, for example, you bid on a property at auction on the basis of pre-approval.
“Now, we’re moving straight to a full application, which gives absolute certainty and gives you the confidence and ability to move forward.”
Be realistic about your outgoings
Whether you’re applying for a new home loan or managing increasing payments on your current variable rate mortgage, it’s important to be realistic about your outgoings and get absolute clarity and visibility on money that’s going out. Serviceability is key for any home loan, and over recent months banks have become increasingly stringent here.
“Getting your outgoings in good shape will not only help you save money, but your lender will need to see where your money’s going and ensure you have enough money to service the loan each month.
“It’s a good opportunity to review everything line by line and potentially save some money by cutting out some services, for example, that you may not be getting good value from.”
Avoid other credit
If you’re thinking about applying for a home loan – either as a first home buyer or refinancer – any time soon, get rid of any other credit facility you have. “Avoid taking out any other finance, such as personal loans or car loans, and if possible cancel your credit cards,” says Jane. “Lenders will look more favourably on you if you don’t have any other credit facilities.”
Get ready for the end of your fixed rate
If you’re on a fixed-rate mortgage right now, you may have been immune to the impact of those interest rate rises – however, don’t bury your head in the sand. If your fixed rate mortgage is coming to an end this year, you’re going see a big increase in repayments – so start preparing.
“If your fixed rate mortgage is ending in the next 12 months, prepare for it by increasing your repayments now to be in line with what they’ll rise to,” says Jane.
“As well as getting used to the impact from a budgeting perspective, you’ll also pay off more of your home loan. Just check with your lender first to ensure you can make overpayments on your home loan, as some have restrictions around this.”
It’s always worth having a conversation
Whatever your mortgage situation is, it’s smart to have a conversation with an expert to ensure you’re on the very best deal you can be.
“A small reduction in the interest rate can have a major impact, so it’s a good idea to have a conversation with us to see if we can get you a better deal,” says Jane.
“It’s amazing just how much a small percentage can impact the cost of the loan over its lifetime, so whether you’re refinancing or buying your first home, it’s well worth seeing what a broker can do for you.”
