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Mortgage and Lending : Bridging Loan

Mortgage & Lending – Bridging Loan

Are you considering buying a new home but still need to sell your current one?

If so, you may be considering a bridging loan. A bridging loan is a short-term loan that can help you bridge the gap between buying your new home and selling your old one.

 

How does a bridging loan work?

A bridging loan is typically an interest-only loan secured against your existing property. In a competitive market, this type of loan bridges the gap between purchase and sale, so you can take advantage of timing.

You could potentially borrow up to 80% of the combined value of the current and new properties with the intention to retain only 80% debt on the new property after sale of the current one.

Bridging loans typically have a term of 12 months and may not be extended beyond this time. The interest rate on a bridging loan is usually higher than the interest rate on a traditional home loan.

 

Who needs a bridging loan?

Bridging loans are often used by people who want to settle their purchased property before selling their existing one. It is also helpful for those who need to renovate their existing home and need extra time to sell.

 

Benefits of a bridging loan

There are several benefits to using a bridging loan, including:

  • You don’t lose out on your dream home while waiting for your existing home to sell; and
  • Allows you to borrow 100% of the purchased property plus associated costs or over your maximum borrowing capacity because you have an existing property to sell and pay down your debt

 

Risks of a bridging loan

There are also some risks associated with using a bridging loan, including:

  • Higher Interest rate;
  • No offset or redraw facilities; and
  • If you cannot sell your old home within the specified time frame, you may lose your property

 

Still trying to figure out if that’s what you need?

If you are considering a bridging loan or are unsure what loan product you need for your unique situation – you should speak to a lending professional.

Our mortgage specialists offer a no-obligation, free consultation to assess your situation and guide you through what type of loan you need.

To schedule a quick 15-minute phone call with our mortgage specialist, please click here. Alternatively, you can also contact us on 1300 726 082 or visit https://thehopkinsgroup.com.au/contact/

Important Update – Still here, albeit from afar

You will have seen the news, read the headlines, been inundated with emails – Melbourne has now entered stage four restrictions as we try to claw back some control over the dreaded coronavirus.

As a result of these new restrictions, businesses around Melbourne must shut their doors for at least the next six weeks – and our business is no exception.

However, despite having to close our doors at Level 23, 500 Collins Street – our virtual doors are always open as our team continues to work from home and provide support to our clients remotely. Your financial planner, accountant, mortgage & finance, property management, property investment, and property sales advisers are standing by, ready to help in any way we can.

We could go on and on, but we’ll keep this brief. We’re here for you now as we always have been, committed to providing you support and the high level of service you’re used to, when you need it most.

Whether it’s a chat on the phone or a virtual “face-to-face” meeting via the wonders of Microsoft Teams video calling technology, The Hopkins Group team is always here for you – even when we must be physically apart.

Keep strong,

The Hopkins Group

8 reasons why you should engage with a mortgage broker

Understanding bank valuations and market value

When buying a property or refinancing an existing loan, your lender will often request a bank valuation so they can make sure they are lending responsibly;  they need to make sure that they’re not lending over and above the recoverable value of the property. But property owners often make the mistake of assuming a bank valuation is the same as a market valuation – and can be shocked when a figure they weren’t expecting comes back from their lender. To help clear up this confusion, let’s break down the differences.

A bank valuation is an internal control tool, which reflects what a bank can reasonably expect to recover its losses if they need to take possession and sell the property in circumstances where the borrowers can no longer afford to repay their debt. This is why a bank valuation is often lower than a market valuation. This type of valuation can be requested by either the lender or a mortgage broker.

A market valuation on the other hand, acts as a guide estimating a property’s value on the real estate market – i.e. what someone may purchase the property for at an auction/private sale, etc.  This is usually higher than a bank valuation. This type of valuation on the property may be requested by a buyer, seller or lender.

How valuations are conducted

Now we know the difference between these two types of valuations, let’s unwrap the different ways they can be conducted.

If your home is or will be mortgaged, your lender will almost certainly need to value it. A full short-form valuation is comprehensive inspection of the premises, including measurements of internal and external areas. When you apply for a home loan your lender/broker will send out an independent valuer selected from a panel to inspect and determine the value of the property you wish to buy.

For a full short-form valuation, the appointed valuer will inspect the entire premises – inside and out.  The external part of the valuation involves an assessment of the land – its size, shape and potential zoning for development.  The internal part of the valuation then considers things that make up the inside of the property, i.e. the number of bedrooms, bathrooms, age of the building, its fixtures, plan, etc.

By contrast, a curbside or drive-by valuation, does not involve an inspection of the property. As the name suggests, it occurs outside the property – on the road or by the curb.

The final method is a desktop or electronic valuation. This method involves digital research, turning to the internet to research comparable sales data within a certain radius of the property.

What does a valuation cost?

Property valuations from independent valuers and banks can cost you between $100 and $600. Banks and lenders usually charge you between $100 and $200, as a part of your home loan fees/professional package fee, but independent valuers usually charge upwards of $400.

How to overcome a low valuation

Not all bank valuations will return at the expected price – but this isn’t necessarily something to worry about. Bank valuations are traditionally conservative assessments, sometimes 10 – 20% less than the current selling prices of comparable homes.

If you are concerned that your valuation is not a fair reflection of the value of your property, you can file a dispute with the valuer by using evidence of comparable sale of properties around that area.

You can also request another valuation to be undertaken by a different assessor that is engaged by the same or a different lender.

While the best case scenario is that you can bump up your valuation to something more palatable, there may be times that the issue lies with the vendor – perhaps the property was overpriced to begin with. For situations such as these, it might be worth negotiating a better price to bring your costs down in line with your valuation.

If you’re purchasing property, it makes sense to have an expert adviser on your side to navigate the tricky valuations landscape. At The Hopkins Group we pride ourselves on working to get the best results for our clients. Our mortgages and finance team has experience with a range of lenders and is familiar with a number of different valuers – so you can trust that we keep your options open. Chat to the team about your mortgage and finance needs today.

General advice warning: The information contained herein is of a general nature only and does not constitute personal advice. You should not act on any recommendation without considering your personal needs, circumstances and objectives. We recommend you obtain professional financial advice specific to your circumstances.

Your new property purchase is only a hop, skip and a jump away!

Think you’ve found the perfect property? Great! But do you know what happens next?

Finding a property is only the first part of the story – there’s a lot that happens after finding your dream home or investment, so it pays to get expert advice before you sign on the dotted line.

So where should you start?

HOP . . .

The first thing you’ll want to do when you’ve found a property you’d like to purchase, is to determine if you can afford it! A mortgage broker can help you set some realistic price expectations and take into consideration your existing savings, borrowing capacity and ongoing financial commitments to help you work out if the property in question is appropriate for you.

Once you’ve had the all clear and received pre-approval for a mortgage, the next person you should get in touch with is a legal adviser.

Your legal adviser will be responsible for checking the details of the contract. They’ll ensure it contains nothing detrimental to the purchase or intended use of the property, and you’ll be able to discuss and negotiate any special conditions you may require in the contract. Imagine if you bought a property and assumed you’d be able to renovate, then discovered after you’d settled that there are heritage restrictions around what you can and can’t do. Disaster! A legal adviser can help you identify these issues before it’s too late.

If you’re satisfied after having investigated the contract and received expert advice , it’s time to seal the deal. Once everything is signed, discuss any conditions you may have with your solicitor. This can include ensuring your finance is approved by the due date or any work that needs to be done by the seller.

Leading up to your settlement, remember to prepare everything for the big day with the help of your solicitor. Whether it’s signing bank loan documentation, checking up on moving arrangements, or your solicitor keeping transfer documents in order; preparation is crucial!

Understand settlement

Property settlement is the process of a seller passing their ownership onto a buyer. It’s an official transaction usually conducted between your legal and financial representatives and those of the seller. The seller (also known as a vendor) sets the settlement date in the contract of sale and this is normally 30 to 90 days after the deposit is paid and the contract is signed. It’s the responsibility of the buyer – in this case, you! – to ensure they can pay the balance of the sale price on this settlement date.

HOP . . . SKIP . . .

You’ve signed the paperwork and have a settlement date locked in, now what?!

Organise insurance

Your lender will usually recommend you take out building and contents insurance, effective from the date the seller signs the contract. This is to safeguard their interest in the property, as well as your own.

Understand outgoings

During settlement, all outgoings are adjusted between you and the seller. The seller is responsible for rates up to and including the day of settlement; you are then responsible for these from the day after settlement. You will also be required to pay stamp duty on the sale. Typically, a conveyancer will help you settle these costs and make sure each party only pays for the share of bills that applies to them during the period in which they’ve had ownership of the property. This includes council rates, water rates etc. You can find more information on this via the State Revenue Office website.

Arrange your final inspection

During the week before you move in, you are entitled to inspect the property at any reasonable time as long as you arrange an inspection with an agent. When it’s handover time, the seller must leave you the property in the same condition as when it was sold. Check all the items listed in the contract are there and in the right condition.

Check measurements

Your legal practitioner will send you a plan of the land in which you’ll be able to check all the measurements and boundaries corresponding with the Certificate of Title. If everything looks normal, send confirmation; on the other hand if there’s any discrepancies, alert your legal practitioner immediately. You’d hate to lose a corner of your backyard that you’re entitled to, so now’s the time to be pedantic and ensure you get what you’re paying for. Also remember to provide documents and other information promptly when requested, as delays can be costly.

HOP . . . SKIP . . . JUMP!

Settlement date has arrived, but what does that mean?

Collect the keys

If everything has progressed smoothly, your solicitor or bank will hand over the money to the seller on the settlement date, in exchange for the transfer documents to the property. These documents may also include release of mortgage documents, and anything else that is needed for you to obtain clear title to the property. And you know what ‘clear title to the property’ means? The keys are yours for the taking!

Post-Settlement

Crack open the champagne, now it’s time to celebrate! Finally, the property is yours to enjoy. Your solicitor or bank will register the transfer into your name shortly after you move in and they will attend to finalising any outstanding matters.

As you can see there’s a lot to think of when purchasing a property, but thankfully The Hopkins Group is here to help! We have extensive experience in helping people not only find a property that’s right for them, but also with all the nitty gritty details that happen next. From seasoned property investors through to first time home buyers, we can help anyone on their house purchase journey. Our team of professional advisers can hold your hand through all the stages including financing, property selection and ultimately purchase! If you’d like to learn more, contact an adviser today.

To borrow, or not to borrow; the important bottom lines

Borrowing money to invest is a strategy as old as investing itself.

The purpose of borrowing to invest, often referred to as financial gearing or financial leverage, is to increase the returns an investor would get on their capital invested.

Financial gearing or financial leverage, like the gearing of a car or bicycle, is when something small has the ability to operate something big.

Financial gearing, at its core, is the level of a person or company’s debt compared to equity. So, this means you start with an amount of money to invest in an asset, then you borrow the rest of the money to enable you to create a bigger investment portfolio with growth investment assets (whether equities or property). Therefore, you invest a small amount of money but receive the returns on a bigger portfolio. This strategy increases potential gains if investments perform well, however it may increase losses if the investments provide overall lower returns than the cost of the gearing.

There are three levels of gearing; positive, neutral and negative.

Positive gearing is where the levels of borrowings are such that the income is in excess of the costs of interest on borrowings and owning the investment (costs could include fees such as property management, administration and owners’ corporation). So, for example, the rent from your investment property is higher than the total of all the costs to hold the property.

Neutral gearing is where the income of the asset is equal to the costs of owning and running that investment.

Negative gearing, as the term suggests, is where the income is less than the costs of owning and running that investment. In other words, there is a financial loss created by owning that investment   (before capital growth or other benefits are considered).

Under the Australian taxation regime, if an investor has a negatively geared investment, this usually creates a tax deduction for that tax payer (against other income in the year that loss was incurred).

An investor generally aims to have an overall positive return where the combination of capital growth and after-tax positive or negative income provides them with an appropriate level of return on their capital invested after all relevant taxes.

Using financial gearing as a mechanism to increase returns is a widely used investment strategy for many.

The two bottom lines in benefiting from financial gearing are:

Firstly, make certain you obey ‘The Three Golden Rules of Investment’.

  1. Do your financial planning conservatively and correctly
  2. Acquire the right investments
  3. Give them time

Secondly, know that over your investment life, a crucial aim is to achieve ‘equity build-up’. This can happen in two ways; one, through capital growth, and two, through debt reduction.

Property cycles can sometimes mean that capital growth is slow. Sydney is a prime example of this; up until about six years ago, the city had nearly no growth at all for ten years. People who owned property investments in Sydney during this time would have been pleased if they had directed part of their surplus income into debt reduction, given capital growth was so minimal. At the same time, pre-retirees who held off retiring so they could put a few more years’ income into their debt reduction would equally have been pleased with this strategy.

So, borrowing may be good, depending upon your circumstances, period of investment and risk profile etc., however always keep the above bottom lines in your focus.

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The Hopkins Group

Street Address

Level 23, 500 Collins Street, Melbourne, VIC 3001

Postal Address

GPO Box 4347, Melbourne, VIC 3001

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