Evolution Home Loans Newsletter MAY 2008

Contents

The Budget
Choosing A Home Loan

Evolution Home Loans
Elmbay Holdings Pty Ltd - FBL 2395

PO Box 1132
Joondalup WA 6919

Tel:	08 9300 1410
Fax:	08 9300 1412

E-mail:	Click Here
Website:	Click Here

While you are busy looking for a property, Evolution Home Loans can analyse and compare the home loan market on your behalf. We offer a range of home loans with access to 25+ lenders through the Australian Finance Group (AFG).

With fantastic software capabilities we are able to quickly and accurately determine which banks may best suit your lending requirements.

Our service to you is complimentary and may save you time, effort and money. We are available to see you during the day or evening, even on weekends, because we work "your" hours not bank hours.

The Mortgage and Finance Association of Australia (MFAA) has over 10,000 members including all the major banks and lenders, plus mortgage brokers.

The membership application process has strict requirements for experience, education, industry sponsorship, and probity checks.

All members must join the independent dispute resolution service, the Credit Ombudsman Service Limited (COSL), or a recognised equivalent.

Australian Finance Group (AFG) is an independently owned, Australian company specialising in arranging loans for almost any purpose, in most cases at no charge to the customer.

AFG is the largest third party wholesaler introducer of mortgages in Australia processing on average 6000+ residential mortgages per month, with market share in excess of 20% of the Australian broker market.

The Budget

Kevin Rudd The Labor Government's first budget has been announced to much fanfare.

This article details the specific policies that are targeted at the home purchaser, the renters and the property investors.

One of the headline announcements in the budget was the tax cuts of $46.7 billion over four years.

From July 1 this year the 30 per cent tax threshold will rise from $30,001 to $34,001, the 40 per cent threshold will rise from $75,001 to $80,001 and the 45 per cent threshold will increase from $150,001 to $180,001.

These changes are offset by some pulling back on some other spending areas, plus the allocating of much of the budget surplus into a number of “nation building funds”.

These funds are designed to fund infrastructure developments primarily through the interest earned. In addition, there are a number of other targeted schemes, including one for first home buyers.

First Home Saver Accounts

To encourage first-time buyers to save a deposit for a house, the government has announced some substantial changes to its first-home saver accounts. The government has allocated $1.2 billion over four years to fund the establishment of First Home Saver Accounts.

The accounts were announced earlier this year as a way of overcoming the housing affordability crisis, by providing government funds to top up accounts, making contributions tax free, levying a low tax rate on the earnings and ruling that withdrawals made to fund a house purchase would be tax free.

The first $5,000 saved in a First Home Saver Account each year will attract a 17 per cent contribution from the Government (i.e. $850 per annum). Better still each person can open an Account and enjoy the same co-contribution. Earnings on these accounts will be taxed at 15 per cent and withdrawals from the account will be tax free if used to buy or build a first home.

Two key initiatives

Also the plight of tenants has not been forgotten. The country needs about 190,000 new houses to be built each year to cope with demand, much more than the 150,000 a year that are actually being built.

The Budget unveiled two key initiatives aimed at easing the shortage:

1. The National Rental Affordability Scheme, where the Government will subsidise the construction of 50,000 new affordable rental properties over four years at a cost of $623 million.

Under the plan an annual incentive payment of $6,000 per property for up to 10 years will be made either through a tax credit or grant. States and territory governments will also contribute at least two thousand dollars a year for each property for up to 10 years. Investors must rent properties to eligible tenants at 20 per cent below the market rate.

2. The Housing Affordability Fund which will provide $512 million over five years to local and state governments to cut red tape for development projects and reduce the cost of building new homes, with an emphasis on proposals that improve the supply of new entry-level housing.

There will also be $100 million over the next four years to build 600 new homes for homeless people across the nation.

Interest rates

The Labor government believe the budget should help keep inflation, and therefore interest rates, under control.

Mr Swan said he couldn't guarantee there wouldn't be another rise in interest rates, but the Budget had struck the right balance.

Summary

The changes announced in the budget should result in some improvements for home purchasers, renters and investors.

The government is also hopeful that the budget is cautious enough to encourage the future movement of interest rates to be downwards, which of course play a major part in the strength of the property sector.

Choosing A Home Loan

Dice A recent report highlights the multitude of home loan options on the market.

Here are some tips to negotiate the mortgage maze of over 2,000 home loan products.

CHOICE, the largest independent consumer organisation in Australia, has just released a report on the complex world of home loans. In the report they make a very interesting statement:

“Home loans are no longer just about signing up for 25 years and making regular payments.”

Whilst the interest rate is still a very important feature for most borrowers, flexibility and peace of mind are also important.

Look out for fees

Along with the interest rate costs, you should also check the regular fees and charges. Fees and establishment costs can make a big difference to the amount you pay.

The comparison rate, or annualised average percentage rate (AAPR) is an 'effective interest rate' that takes into account these charges, making it easier to compare loans.

Typical fees include:

Application fees. Lenders may charge an upfront establishment fee and application fee.
Valuation fees. Lenders may also charge for a valuation of the property. If you're concerned you may not meet a lender's income requirements for the loan, ask them to check first, before going ahead with the valuation, as you may have to pay for the valuation even if your loan doesn’t get approved.
Exit penalties. Check the costs for early repayment of the loan or refinancing. Many loans have no payout penalties other than normal discharge costs, but if they exist they can be steep, particularly in the early years. They can be a flat fee, several months' interest or a percentage (around 1%) of the original amount borrowed.
Lender's mortgage insurance. Depending on how much you borrow compared with the amount you paid for your house, you may be required to take out lender's mortgage insurance. Typically you will have to insure if the Loan to Value Ratio (“LVR”) is over 80%, although for some lenders the bar is set at 85%. This insurance can be expensive, especially if you want to borrow up to 100% of the value of the property.

Features

Home loans have many different features which can affect their overall cost and convenience:

Extra repayments. Some loans, particularly those with a fixed interest rate, may limit the amount you can pay off your loan without having to pay a break fee.
Redraw facility. If you make extra payments you can get the money back later. This can have considerable tax advantages and provide useful security as you can store your savings in your mortgage. Some redraw facilities are much easier to access than others and may involve some costs.
Mortgage offset accounts. This lets you deposit money in an account and receive interest in the form of a reduction in the interest due on your loan. Because offset accounts don't actually pay you any money, they don't add to your taxable income, so like redraw facilities they offer tax advantages. Some offset accounts can be used as your everyday transaction account, while others are only suitable for putting your savings into.
Repayment holidays. Some home loans allow you to take a 'repayment holiday' for a short period such as six months, for example, if you just had a baby. Sometimes you can only make use of this feature if you've made extra repayments, or you may have to make higher repayments after the repayment holiday to make up for it.
Fee Exemption. Some lenders may give you an exemption from the fees and charges on other accounts such as a free transaction account.

Expert assistance

According to Cannex, the financial research company, there are over 2,000 home loan products on the market today with varying features, fees and interest rates.

Therefore finding the right home loan will take some time, but it can save a lot of money and stress. This is where a mortgage broker can help. As CHOICE states

“They explain your options, match your needs with lenders’ products, and assist with paperwork and loan application forms.”

DISCLAIMER: This newsletter is provided for general information only. Please do not rely on this newsletter as a substitute for specific legal or financial advice. Before making any decisions you should consider your specific objectives, financial situation and needs.