Monthly Archives: April 2016

Mortgage-Broker-Benefits

Loan Officer Vs Mortgage broker

A Loan Officer and Mortgage broker are two well-known entities who work in the home loan industry. For homebuyers, the differences might not be clear regarding a loan officer and mortgage brokerin terms of their responsibility, credibility, benefits and drawbacks.

A loan officer is a professional who works for a bank or a specific lender and writes loans for that institution. A loan officer is also commonly known as a mortgage loan originator, home loan consultant, mortgage banker or mortgage consultant and acts as a salesman for a particular lender. The main responsibility of a loan officer is to recommend the best loan for you with the available options from ONE company or lender, the one which they are working for. During this process, a loan officer will help you with your home loan application and to prepare the documents you require to satisfy the lending criteria.

A mortgage broker is does not work for a particular institution, lender or bank but they act as a bridge between borrower and lender. A mortgage broker is a licensed middleman between the lender and the borrower. They maintain a relationship with many lending companies and suggest the best loan type to the borrower as per their individual financial situation and personal needs. A mortgage broker has multiple options of lenders and loan packages which they can recommend. Once a suitable package is chosen, a broker will guide the borrower until settlement, handling all of the paperwork and interaction with the lender.

While loan officer is limited to offering the available loan products offered by their lending institution, a mortgage broker can recommend other lending options if one lender is not suitable for a borrower’s situation. Therefore, a mortgage broker has access to a wider pool of products than a loan officer.

As to their income, mortgage brokers usually get paid a percentage of the mortgage amount from the lender whereas loan officers are commonly paid with a mix between base salary, commission and incentive targets. Both mortgage brokers and loan officers generally offer their services to a borrower for free. However, borrowers should be wary that brokers aren’t recommending products that are the best fit simply because they stand to make a larger commission. Ask your broker the terms of their commission regarding their recommendations to ease any concerns. Loan officers might also stand to gain a higher return for securing certain loans or for selling other products which the company is selling on top of a home loan (such as insurance or financial planning), therefore it is important to assess any product carefully before entering into any agreement.

If you are looking for personalized consultation to get started with your home loan, contact us today at Ausfinance for FREE tailored advice. AusFinance have access to a panel of lenders and our expert mortgage brokers have combined decades of experience in the housing industry helping our clients in Sydney, Melbourne and across Australia.

Mortgage-Mistakes

5 Common Mortgage Myths

Whether you’re a first time home buyer or experienced in the market, the home loan process can seem difficult to understand given the complexity and unique nature of every loan. People are likely to make decisions that can see them fall into common home buying mistakes.

Before you get started on your home loan journey, it is very important to know the basic details regarding your mortgage, the people you’ll need to deal with and to understand the requirements for being prepared to borrow. Importantly, it is crucial that you understand common mortgage myths.

If you are able to debunk these mortgage misconceptions, your path to a home loan will be smoother and less stressful that you might have thought!

Below are the top 5 most common mortgage myths:

  1. 20% Deposit

    If you don't have 20% of the home value saved as a deposit, you can still get approved for a home loan. Borrowers in a good financial position that can afford their repayments and have a healthy Debt-to-Income Ratio can find multiple offerings from lenders. You can even qualify for a mortgage with minimal or no deposit. This may require the borrower to pay lenders mortgage insurance (LMI) or have a guarantor. To understand buying costs, our handy calculator will give you an understanding of how much LMI or stamp duty you’d pay on a given loan.
  2. All Mortgages Are the Same

    The fact is that there are significant differences across loan types, rate types, interest rate charges, establishment and ongoing fees and penalties for early loan settlement. There are also different facilities such as re-draw and off-set which effect whether a loan is right for you. Break down the different charges on the different loan options and don’t forget to ask your lenders for the best rate. Identify a cheap mortgage after assessing the total charges and make sure it has the right facilities that you require. This may mean that you have to shop around and do some research across multiple lenders! Only then should you lock in your home loan.
  3. Perfect Credit Score

    To qualify for a mortgage you don't need to have a perfect credit score. A high credit score is recommended however if you have a had a few hiccups in your credit history, your loan can still be approved without issues. If your credit is still a problem, you should investigate other options such as saving a larger deposit, having extra security, explaining the discrepancies in your credit history, paying a higher rate of interest or finding a guarantor.
  4. Affording the Repayments Doesn’t Mean you Can Afford the Home

    Buyers often think that being able to repay the principle and interest are the only two monetary factors to consider. Being able to afford to pay the principal and interest does not mean you can necessarily afford the home loan long term. There are other fees that home ownership might accrue, such as strata levy, utilities, insurance and taxes. Make sure you factor these figures in and are comfortable that you are able to afford these extras in your budget.
  5. Earliest Mortgage Repayment

    To reduce your interest repayment across the life of your loan it may be optimal for you to pay off your mortgage as soon as possible. However, you might be missing the benefits of having a mortgage that you’re paying off in the long term. The main reasons to explore these options is if you’re able to structure your finances to minimise your tax obligations by way of claiming deductions from the interest and fees paid on your home loan.

If you are still feeling confused or would like to discuss your particular case with a home loan professional, get in touch with us today. An experienced AusFinance mortgage broker can help you avoid common mortgage mistakes and offer you assistance on your home loan journey

Debt-to-Income-Ratio

Debt to Income (DTI) Ratio Overview

The debt-to-income (DTI) ratio in financial terms is the proportion of your gross monthly revenue which goes towards your debt payments. DTI plays one of the vital roles when granting a mortgage to a borrower because it is a value that determines the ability to manage financial activities in terms of a borrower’s regular income and debt position. If you’re looking to secure a home loan then the balance between your ongoing repayments and your income should be at a manageable level.

How is DTI ratio calculated?

When calculating DTI, there are two components, one is front-end ratio and the other is back-end ratio. The front-end debt ratio includes only home-related expenses such as mortgage re-payments, homeowner's insurance, taxes, and strata fees. Back-end ratio includes all ongoing expenses such as food, entertainment, car loans, credit card bills or any other personal expenses. The total income includes the total amount of your salary and overall revenue.

Mathematically, DTI is calculated as:

DTI= (Total Debt Payment/Total Income) x 100%

For example, if you earn $10,000 per month and have a mortgage expense of $2000, taxes of $800 and insurance expenses of $600, car loans payment of $300, credit card bills of $350 and personal expenses of $100 your debt-to-income ratio is:

Total Front end Debt: $2000 (mortgage) + $800 (taxes) + $600 (Insurance) = $3400
Total Back End Debt: $300 (car loan) + $350 (credit card) + $100 (personal expenses) = $4150

Front End DTI Ratio: ($3,400/$10,000) x 100% = 34.00%
Back End DTI Ratio: ($4,150/$10,000) x 100% = 41.50%
Total DTI Ratio: ($7,550/$10,000) x 100% = 75.50%

The ideal front-end DTI is below 28% and back-end DTI is below 36% but higher ratios are also acceptable depending upon the type of loan you’re applying for, the options that the lender provide, your credit history, the loan amount, saved deposit amount, financial history and current financial situation.

How to improve your DTI?

Have you been rejected for a home loan from a lender because of a high DTI? Consider some of these practices to improve your DTI and overall financial standing:

  • Avoid taking out more loans
  • Control your personal expenses, particularly luxury items
  • Postpone your expensive vacation or consider a budget option
  • Focus on paying off your credit card or personal loan debts
  • Ask for a pay increase
  • Analyse your DTI ratio from time to time to assess your standing
  • Replace an asset you’ve borrowed against with a cheaper one (for example, sell your financed car and buy a more affordable vehicle to reduce your monthly expenses)

If you are looking for some personal advice regarding your current Debt-to-Income ratio or would like to get a clearer understanding of your options, get in touch with us or get a personalised quote with AusFinance today. AusFinance has decades of combined experience in the housing industry helping our clients in Sydney, Melbourne and across Australia. Our relationship with a wide panel of lenders allows our expert mortgage brokers to find the best outcome for your individual situation.