Aaron Funda

Many first-home buyers just can’t quite afford the property they want in Sydney and Melbourne. People seeking to buy in the inner-city suburbs that are well serviced by public transport should think about ditching the car.

“Maybe your car commitments are stopping your home aspirations. A relatively small car debt limits the extra capital that is often needed to buy in Sydney or Melbourne. Inner suburbs have good transport links which are continuing to improve, and car costs may be the last area that couples can change to get the loan size that they need.

By reducing your everyday expenses and any credit card limits, personal loans or car loans you can increase your borrowing power substantially,” said Aaron Fuda, mortgage broker, at Omniwealth.

The effect of paying out car loan and reducing credit card limits by a couple on their borrowing capacity could lead to a further $100,000 being available:

The couple’s increased borrowing power could allow them to afford that property they have always wanted but could not previously afford.

They exchanged only $20,000 of car loan debt for $100,000 worth of home loan borrowing power.

The post Want to increase your borrowing power by $100K? appeared first on AdviserVoice.

Interest-only options on home and investment loans have a limited life span, typically occurring in the first 1–5 years of your loan term. During this period, you will only pay the interest charged on your loan without any principal reductions to your loan.

At the end of the interest-only period, your lender will issue you a letter notifying you that your next repayment will be principal and interest, which will be much higher than your current repayment. Moving forward, the new repayment will be made up of the interest charged and the principal reduction of your loan; commonly over a 25 year period.

Lenders are currently reluctant to provide or extend interest-only options for home loans, due to government regulation. These same pressures are not being applied to investment loans and continued recommendations for interest-only repayments are presented by Omniwealth Finance to lenders.

Interest only loan expiry checklist

1. Borrowers need to minimise the impact on their cashflow from transitioning loan types. Omniwealth Finance has created a checklist for all borrowers to assist with this transition:
2. Contact your lender or check your internet banking to find out if your loan is on interest-only and, if so, when the interest-only period ends. Set yourself a reminder three months before this happens to allow adequate time to review your options.
3. Shop around at different lenders or appoint a mortgage broker to do so on your behalf. This should be a complete review to determine whether your loan still fits your needs and whether you have got the most competitive rate. Keep in mind it may have been up to five years since your last review.
4. If you want to pay principal & interest, moving to a new lender and obtaining a new 30-year loan term can decrease your monthly commitment but also slow down the repayment of your loan.
5. If you don’t want to pay principal & interest, then moving to a new lender may allow you to obtain a new interest-only period if that product fits your needs.
   It is important to consider the interest rate differential between the principal & interest and interest-only options. The switch to principal & interest with the right negotiating
6. on interest rate, can sometimes be a more cost-effective option for borrowers. Generally the difference in the interest rate is about 0.50%.
7. As a borrower, it is always important to remember that you are in control of your mortgage and you don’t have to stay with your current lender. So, if you receive a letter telling you that you ‘must’ switch to principal & interest, review the checklist and weigh up your options.

By Aaron Fuda, SMSF, Residential & Small Business Mortgage Broker

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Aaron Fuda

Omniwealth thinks that investors in their 30s are the perfect age to purchase property within an SMSF.

Leaving such a major investment decision until your mid to late 40s may not work for many investors and the lenders that are needed to make it all happen.

Investing in property through your SMSF in your 30s gives you plenty of time to maximise your investment potential because by the time you are ready to retire, the loan will either be paid off or the rental income will easily cover the repayments and still generate the fund a nice profit. It allows time to consider a second purchase a few years after the first, doubling the potential passive income the fund could generate upon retirement. It also gives you maximum property holding time, to progress through multiple property cycles and potentially receive maximum capital growth benefits.

Contributing to superannuation does not hurt personal cash flow or lending options (especially for PAYG employed), meaning you can still live a comfortable lifestyle while planning for your retirement. The younger the SMSF members are, the easier the loan approval is to obtain, provided you have sufficient liquid assets in the fund and are making sufficient contributions. The ability to obtain interest only loans allows you to take advantage of gearing up your SMSF, which is not offered to older clients. You also maximise the loan term (30 years) as no exit strategy is required because you can work until the maturity of the loan.

For a two-member fund, you can concessionally contribute $50,000 per annum into your SMSF. This means that it will not take long to have a sufficient balance to purchase a property.

In a lot of cases, by the time you are 40 you may have “missed the boat”. Most people are reactive when it comes to retirement planning. They are more likely to hit their late 40s before they think about how they will fund their retirement. If they were pro-active, they would consider this during their 30s so the realisation is not as harsh.

It’s a big decision at an early age as investors cannot redraw or cross collateralise an SMSF property. This means that you must contribute cash of at least 30% plus costs to any transaction in super. By making this decision and purchasing, it can put people in a position to build that balance up over a few years to afford a second property.

Early decisions like this can leave room for multiple investments by the time of retirement. The right strategy, the right circumstances and the right lender can make it possible.

By Aaron Fuda, SMSF, Residential & Small Business Mortgage Broker

The post Buy property through SMSF in your 30s appeared first on AdviserVoice.

This is a significant change and places uncertainty around SMSF lending until the next election.

In view of the proposed legislation and the likelihood that Labor will win the next election, I would suggest that investors bring forward any plans to borrow in their SMSF before it is too late!

The following criteria will allow for a quick initial self-assessment to determine whether SMSF lending is a suitable investment strategy for you:

• You have $200,000+ in your SMSF
• You are under the age of 55
• You are making regular contributions to superannuation

In case of an early election being called sometime next year, you should have discussions with a SMSF residential or commercial property specialist/broker now or early 2018.

By Aaron Fuda, SMSF, Residential & Small Business Mortgage Broker

The post Make sure you get your SMSF finance in place, before time runs out appeared first on AdviserVoice.

Aaron Fuda

It is essential to have the necessary cash flow inside the SMSF to fund the ups and downs of investment property ownership.

This SMSF trustee checklist can be useful when preparing to borrow money in an SMSF to purchase a property – the checklist only applies when a loan is being established:

1. Ensure that regular contributions are being made to your superannuation fund. Lenders want to see consistent contributions to the super fund that will be applying for a loan to purchase a property. These contributions need to be at a sufficient level in order to meet the lending criteria.
2. If you are PAYG employed, then 9.5% of your income, along with optional additional super contributions (concessional and non-concessional) will be taken into account when the lender is assessing the SMSF loan application. For self-employed applicants, all contributions made from the business will be taken into account for assessing the loan. It is recommended that members discuss the level of contributions with their accountant or financial advisor.
3. Ensure SMSF balance is above $200,000 with sufficient funds to allow for a deposit of at least 30%, costs associated with the purchase and lender’s liquidity buffer. The liquidity buffer has been introduced by lenders to provide the SMSF with sufficient capacity to cover any unexpected expenses that may arise after settlement of the property being purchased.
4. Age – it becomes increasingly difficult to obtain a loan in your SMSF where members are over the age of 55. The ideal age is under 50 at the time of settlement.
5. Retirement Age – a realistic retirement age is a key factor in getting the loan approved. This includes Employment type. For example, a solicitor can work beyond the retirement age of 65, whilst a bricklayer is unlikely to be working beyond the age of 65 as it is labour intensive work.
6. Ensure that all company, individual and SMSF financials and tax returns are up to date and showing a profit. The level of profit, along with member contributions, will determine the borrowing capacity of the SMSF.

By Aaron Fuda, SMSF Lending Specialist – Mortgage & Finance

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