Property or the loan first?

What comes first: the property or the loan?

It’s easy to get carried away with the fun part of buying a property – looking at houses – but delaying the less compelling task of arranging finance will weaken your negotiating position on both the property and the loan.

Looking for a property to purchase is an exciting time. Choices regarding location, size, number of rooms and local amenities often see house hunters carried away in a deluge of daydreams and anticipation.

But, before you get carried away, it’s important to check off the essentials first. Although organising your finances may seem drab in comparison to perusing sales listings, gaining pre-approval with a lender will give you confidence about how much you can afford to borrow.

“First and foremost you need to determine if you’re eligible to borrow money from a lender,”. “Your ability to repay the loan will need to be assessed – you don’t what to find out after you’ve [made an offer] that your credit history or deposit is not up to scratch”.

Arranging finance before finding the perfect property will put you in a good position when it comes time to make an offer. When you do find the house you have always wanted, you can present to the seller and estate agent as a prepared applicant who is serious and reliable.

“It shows you mean business, and gives them peace of mind that your financing will not fall through. Don’t be afraid to let the selling agent know you have conditional loan approval in place”.

Sellers are most interested in completing their sale fuss-free and with steadfast funding, and showing that you are capable of both will help put you at the top of a potentially competitive list of applicants.

In the instance that you find and secure purchase of a home without having your loan pre-approved by a lender, there are a few pitfalls that you risk running into.

If you don’t have financing to pay for your property, you run the risk of forfeiting your initial 10 per cent non-refundable deposit you need to put down to secure the property. This may differ depending on what state you live in, but the point is it always pays to be organised and have pre-approval in place.

Saving home loan applications to the last minute also leaves less time to find the most suitable loan and have it approved ahead of settlement.

Arranging financing as an afterthought also adds immense pressure to the process of shopping around for the right loan and gathering the paperwork to prove you can service the loan. You don’t want to rush this process. The first step towards finding your new home is speaking to an MFAA Accredited Finance Broker to sort out the finances.

Refinancing, Should I Do It?

Exit costs when refinancing

Refinancing can be a great way to save money if you believe you are paying too much for your loan, but there is more to it than just finding a loan with a lower interest rate and making the change. Before making the switch, ensure the savings you could make outweigh the fees involved. Here are the different exit costs to consider:

Exit fee
Although loans that were taken out after 1 July 2011 are not subject to a deferred establishment, or exit, fees, those taken out prior may still be. Also, known as ‘early termination’ or ‘early discharge’ fees, they can sometimes be paid by your new lender but are normally applied to an early contract exit.

Establishment fee
Also, known as ‘application’, ‘up-front’ or ‘set-up’ fees, these cover the lender’s cost of preparing the necessary documents for your new home loan. They are payable on most new loans, and the alternative to not paying this particular fee is being charged higher ongoing fees for the life of the loan.

Mortgage discharge fee
Covering your early legal release from all mortgage obligations, this fee is not to be confused with an exit fee. Also known as a ‘settlement’ or ‘termination’ fee, its purpose is to compensate your lender for the revenue it may lose due to the contract break.

Lender’s mortgage insurance (LMI)
The non-transferrable premium means that if you hold less than 20 percent equity at the time of your refinance, you may have to pay LMI even if you paid it on the original loan. Extra care is also needed here because, whether or not you hold 20 per cent of the original valuation of the property, you may not if the property’s value has decreased and; while LMI may not have been a consideration at all in the original loan, it may be payable on the refinance.

Stamp duty
If your purpose for making the switch is to increase your loan amount, for example, to fund renovations, then stamp duty will apply only to the difference between the original loan amount and the refinanced loan amount. Different rules apply in different states, so it’s worth speaking to your broker to see if this charge applies.

Other government charges
Fees are applied for the registration and deregistration of a mortgage so that all claims on a property can be checked by any future buyers. Varying from state to state, these can potentially add up to $1000 or more.

Break fee
If you were on a fixed rate loan, your lender is likely to charge you a fee for ‘breaking’ out of the loan term. This fee varies depending on the amount owed, the interest rate you were locked into, the current interest rate and the duration of your loan.

Although some of these fees can be negotiated by a broker, the total cost can be substantial. An MFAA accredited finance broker can ensure that refinancing will help you achieve your goals while maintaining your capacity to service the debt. A finance broker can also ensure you are only paying the relevant fees for your unique circumstance.

Car finance for businesses

Car finance for businesses

 

The preservation of working capital and taxation benefits are two big draw cards for businesses looking to finance staff vehicles.

Companies the world over are often faced with the costly requirement for staff cars. However, with the number of financing options on the rise, many business owners are turning to funding these purchases rather than paying cash.

Financing, rather than buying outright, enables businesses to take advantage of two key benefits: greater control of cash flow and working capital, as well as various tax benefits.

The preservation of working capital is a key benefit for business owners when comparing financing against paying cash for staff vehicles.

A business owner needs to consider whether their working capital is better spent on other aspects of the business, such as paying debtors, advertising or even purchasing more inventory.

Some businesses may even be able to invest working capital and achieve a rate of return that exceeds the interest charges associated with financing.

The taxation benefits associated with financing staff vehicles is another key reason why businesses are turning to financing options. Of course, there are many different types of finance, each offering different tax benefits, as well as the luxury tax threshold to consider, so expert tax advice is strongly recommended.

In certain circumstances, the financing of business assets provides a business owner with an opportunity to claim various tax deductions, such as rental payments, interest payments and depreciation, thus minimising the amount of tax payable.

Going down the financing route can be cost-effective, and with expert advice it can also be pain-free when it comes to paperwork. Some businesses can arrange finance for a vehicle without the need for financial statements.

With a standard application taking no more than 20 minutes to complete, we see motor vehicle finance as an integral component in providing a holistic, comprehensive service to our customers.

What’s more, with interest rates at all-time lows, the decision between paying cash and financing business assets should be an easy one.

Many MFAA accredited finance brokers specialised in commercial and equipment finance, and can make car finance simple.

Finance Solutions for Small Business Owners

 

How can I secure cash fast?

 

Small business owners know all too well that the unpredictable nature of the industry can sometimes mean that quick access to cash flow is needed. MFAA Accredited Broker presents some of the options available to you when you’re faced with a cash-shortage.

 

Solution #1: equipment finance

For many small businesses, especially those in the hospitality industry, income and cash flow are heavily reliant on functioning equipment. So for restaurant owners who find their delivery truck has suddenly decided to call it quits, turning to equipment finance could be the best solution.

 

Supported by most major and subsidiary lenders, rates are offered competitively at around five to eight per cent. Where a chattel mortgage, a mortgage on a commercial vehicle, is elected, borrowers own the asset from day one and can claim GST payments upfront, which enables greater cash flow within the business as well as interest and depreciation add backs. This solution is safe, structured and can have tax benefits associated with ownerships.

 

Solution #2: unsecured business cash loan

A fast and modern alternative to traditional banking methods, an unsecured business cash loan doesn’t require you to use a business or personal asset as security.  It also has the advantage of speed with 90 per cent of their loans being approved and funded within 24 hours.

 

Not suited for start-ups, this option has stricter guidelines as approval is based on how long your business has existed, how long you’ve been at your current address, and on monthly sales. So if you find that you may fall short in covering rent for your company’s premises, this could be the solution most convenient for you.

 

Solution #3: equity release

If you have an existing property, you can cash in on the equity of this premises to secure additional funds. Barter advises that with planning and an understanding of overall objectives, this can be an excellent solution as interest rates are much lower than commercial rates.

 

“This facility will give you certainty and reduce the overall minimum repayment. However, the risk is that your home is on the line, so there are important things that must be considered, the business plan, the equity available and an alternative plan if your business can no longer service the facility.”

 

Solution #4: payday loan

For any business owner, especially freelancers, who need to cover everyday costs and expenses but are still waiting for a cheque to clear, taking out a payday loan may seem the ideal solution. They are easy to establish, with approval generally settled within 24 hours, are available in small amounts, and even those with bad credit histories can apply.

 

However, recommend to only consider this as an emergency or last-minute short-term solution. “These loans can ensure business maintains productivity and reduce downtime, which often overrides the additional interest costs. Payday rates are high, usually around 20 per cent of the principal loan amount, and it’s vital that a business has good cash flow projections to ensure they can meet the repayments.”

 

Solution #5: merchant cash advance

A fast transaction that’s designed to match your cash flow, a merchant cash advance is where a lender essentially purchases future transactions of the business and provides a lump sum payment in exchange for a percentage of future sales.

 

This should only be considered as a short-term solution as they are more expensive than traditional loans. Not suited for seasonal businesses, or those that experiences peaks and troughs, the amount advanced usually spans three months which may mean that it may not suffice.

 

If you find yourself in a situation where your business would benefit from quick access to cash flow, it is always recommended you speak with a broker before selecting which option to go with. They can advise you on the best route to take to ensure your business will not experience a cash-shortage predicament again.