Four ways to fund a renovation

Considering transforming your home from ‘banal’ to ‘brilliant’, but lack the funds to support your makeover? Never fear, we’ve rounded up five home renovation finance options that could help turn your dream into reality.

1 Equity Release / Top Up Home Loan

This is probably the most common way people borrow money when they want to renovate. It involves borrowing against the current value of your home, before any value-adding renovations and in most cases allows you to obtain the funds upfront. You won’t be able to borrow the full value of your home but, without mortgage insurance, you can usually borrow up to 80 per cent of its value if you own it outright. One potential problem is that the cost of your renovations may actually be higher than the equity you have available. If you run out of funds mid-construction, and if the property is then not in sound, lock up condition, you may have an issue obtaining extra funds down the track.

2 Construction loan

If you’re planning to completely transform your home and undergo a major makeover, this may be a good option as you can spread the cost over a long period of time. You could even possibly borrow up to 90 per cent of the end value of your home and take advantage of mortgage rates which tend to be lower than credit card and personal loan rates. With a construction loan, the lender will assess the value of your home after the renovation based on the building plans and you can typically borrow against that value. You won’t be given the full loan amount upfront, but usually in staggered amounts over a period of time – this is called ‘progress payments’ and is linked to a fixed price building contract which will be from your builder.

3 Personal loan

If you’re only making minor renovations – personal loans are usually capped at around $40,000 – this might be suitable, but interest rates on personal loans are higher than on home equity loans and payments need to be made usually over a maximum of seven years.

4 Credit cards

This option should only be considered if you want to undertake really small renovation projects. The interest rates are usually much higher than on mortgages, but for a very small project, that extra interest might actually total less than loan establishment fees.

Lenders mortgage insurance (LMI)

While LMI can be viewed as being exclusively beneficial for lenders, we explore the value for first home buyers.

LMI is insurance that covers the lender’s risk within a residential mortgage transaction should the loan go into arrears and the borrower is unable to resolve the situation satisfactorily e.g. if the lender sells the property and there’s not enough to pay out the loan in full. LMI is a fairly common practice within the industry, particularly for new home buyers who may struggle to save a deposit. It usually applies when the loan is more than 80 percent of the purchase property’s price.

LMI is a one-off up-front insurance premium that is added to the loan amount borrowed. It is not to be confused with mortgage protection insurance (which is designed to protect the borrower).

The purpose of LMI is to ensure security for the lender in case the borrower fails to make loan repayments. Even though the actual house acts as security, the nature of the property market, like any investment class, means there is a chance that its value could decline, resulting in a financial loss for the lender.

The cost of the premium is dependent on several factors, such as the loan size and property value. It is generally not transferable, which means a new loan may require a new fee depending on how much equity the borrower has.

What’s in it for me?

While it may appear that it is exclusively favourable to the lender, there is value to borrowers in paying the premium. Opting for LMI allows a borrower to purchase a property sooner than they otherwise might. LMI is the alternative to using a family security guarantor or having to save a bigger deposit.

Generally, a deposit of at least 20 percent of the property purchase price is required for a borrower not to be deemed ‘high-risk’ and so avoid the need for LMI. LMI can mean that borrowers with smaller deposits are able to enter the market sooner rather than later.

The major benefit of LMI is that it allows the dream of homeownership to become a reality for a lot of first home buyers.

Fixed rate loans

With interest rates at an all-time low, and many lender’s fixed rates lower than their variable options, locking in an interest rate on your home loan to guard against possible future fluctuation may be attractive. However, it pays to know the ins and outs of fixed rate loans before committing to one.

When purchasing, refinancing, or renegotiating with your current lender, you can generally decide between one of two loans; fixed interest loans, which maintain the same interest rate over a specific period of time, or variable rate loans, that charge interest according to market rate fluctuations.

Fixed rate loans have stability and predictability, and can be locked in at an agreed amount of time between you and your lender. We often recommend one to three years, as so many things can change over this time frame, but some lenders offer up to 10 years.

You can choose to lock in the interest rate when you apply for a fixed rate. At the point of loan application, you can choose to pay a fixed rate lock-in fee, which will generally give you between 60 and 90 days from the time of application to settle the loan at that fixed rate.

In addition, you can consider a ‘split’ loan. This option allows you to split your loan between fixed and variable rates at a ratio of your choice. This allows you to have a portion of your loan with fixed repayments while the remainder is on a variable rate, giving you more flexibility when interest rates change and potentially minimise the risks associated with interest rate movements.

Of course, a fixed rate loan can come with a few provisos; you could be restricted to maximum payments during the fixed term, and you could face hefty break fees for paying off the loan early, paying lump sums into the loan or switching to variable interest during the fixed rate period.

Also, be aware that at the end of the fixed-rate term, your loan agreement will include information about how the loan will then be managed by the lender, usually to a ‘revert’ variable rate – which may not be the lowest the lender offers. We will contact you in the lead up to your fixed rate expiring to go through all your options at that time.

Buying a property in Metro Melbourne?

“Times and conditions change so rapidly that we must keep our aim constantly focused on the future.” -Walt Disney
If you have been on the hunt for a home or investment property recently, you would have noticed very few properties on the market. Most likely, you have put your search on hold for the time being.
For those lucky enough to find ‘the one’, you are still not able to physically inspect. Of course, you do not have to physically inspect a property to buy it – some agents are offering video remote inspections – but it would certainly make a big financial decision even harder, and may not provide quite enough confidence to make the purchase decision.

However, there is a possible silver lining… The money you would normally spend on things like petrol, transport, entertainment, and eating out can be put aside to give a boost to your savings. As soon as the market starts to open up, you will have a bigger deposit and be in a stronger buying position.
Contact us if you want to talk about getting yourself in a great position to buy your dream property.

Buying a property in Metro Melbourne?
Here’s a brief summary of the changing restrictions as they stand today:

Stage 4 / Second step (from 13th September)
Auctions – online only
Inspections – online only

Third step (proposed from 26th October)
Auctions – outdoor only and subject to gathering limits
Inspections – private inspections by appointment

Last step (proposed from 23rd November)
Auctions – physical distancing is required & records of attendees
Inspections – physical distancing is required & records of attendees

If you can’t make your loan repayments – contact us!

If you can’t make your loan repayments – contact us!

In these unprecedented times, we want to let you know how we can support you, our customers and our community, to get through the uncertainties we all face.

In order to contain the spread of the highly contagious COVID-19, governments around the world are taking extraordinary measures to limit person-to-person contact within their populations, which in turn is taking a great toll on economic activity.

The impact of these measures will be felt across all sections of our community, incomes are at risk and we expect there to be a rise in financial hardship.

We want you to know that we are here and available to support you and to assist with any of your finance needs and to answer any finance questions you may have.

What should you do if you experience financial stress or hardship?

Our Government and all banks want to help customers keep their homes.

The Reserve Bank and Federal Government are providing strong underlying support for the banking system to ensure they are able to assist home loan and business customers.

We expect all lenders will provide customers in financial hardship with a range of solutions to help you keep your homes.

These support packages will vary from lender to lender and we are staying informed of the options as they are being made available.

At this stage we expect some of the options will be:

– A deferral of scheduled loan repayments

– Temporary interest-only periods to assist with cashflow

– Debt consolidation to make repayments more manageable

Also, one of our favourite financial planners, Simone McMullin, has generously offered a complimentary phone/video consultation to any of our clients who are in financial stress. Please contact us if you would like to arrange this with Simone.

In the event you experience a change to your financial circumstances and feel you may find it difficult to meet your loan payments, please contact us for a discussion about your options.

First Home Loan Deposit Scheme (FHLDS)

What is it?

It’s a Government scheme to help first home buyers get into the property market.


– It started on 1 January 2020

– Eligible first home buyers can apply for a Government guarantee to enable you to purchase your first home with minimum savings of 5% of the purchase price.

– Once approved, you will not have to pay Lenders Mortgage Insurance

– This year there will be 10,000 places available.

– There are 27 lenders who are on the FHLDS panel

– Maximum threshholds apply for both income and property purchase prices

-Only Australian Citizens are able to apply

Together we will choose your lender, and then we will help you apply for both your FHLDS guarantee and a loan pre-approval. Getting you ready to start bidding at auctions or making offers on your first home.

There is no waiting list, so ask us today to find out if you are eligible and we’ll start the application process right away!

What to know for a hassle free settlement day

If you are buying or selling a property, the settlement period is when you will deal with paperwork to legally transfer ownership of the property. Of course, we help you with the loan paperwork, and your conveyancer or solicitor will handle the hard stuff but knowing what is involved is key to a smooth settlement. Here we guide you through it.

Before settlement
The length of the settlement (typically 30-90 days) can either be outlined in the contract of sale from the outset or negotiated by the buyer or seller before signing the contract.
If you are a seller and still looking for a new place to live, you might want to negotiate a longer settlement period. On the other hand, buyers may also have certain parameters, such as a settlement before Christmas or the start of the school year.
Negotiating the right settlement duration is all about what works for both parties.

Leading up to settlement day
Once the settlement period begins, you can expect a lot of activity.
First, the seller’s solicitor or conveyancer will contact them to fill in forms agreeing to transfer land, pay stamp duty and inform buyers of any encumbrances that exist on the title – for example, if there are restrictions on the use of land.
The conveyancer will also go over the contract, liaise with all of the parties involved to work out where all of the money has to go to and come from, and ensure any existing mortgages on the property are ready to be paid out.
Before settlement, you should check out the property one final time. This typically happens in the week before settlement day and is arranged by the seller’s agent.
On top of doing a final property clean, sellers can go the extra mile by leaving behind manuals for appliances, listing paint colours and passing on any other tips to help the new owners.

Settlement day
Settlement day is a much-anticipated day when you can finally take ownership of your new home or move on to new pastures.
A lot happens at settlement – much of it behind the scenes. Usually each party’s settlement agent (solicitor or conveyancer) will meet with representatives from the lenders (usually a bank) to exchange documents.

What usually happens is:
– The buyer’s new loan and mortgage comes into effect and the seller receives the remaining balance of the property price.
– The buyer’s conveyancer officially receives the property title and registers them as the new owner.
– Money is exchanged electronically and the seller can then claim the deposit from their agent.
– Any outstanding paperwork and payments, such as stamp duty and council rates, are signed and sorted.
– The keys are handed over and the property is officially sold!

What happens if it doesn’t go according to plan?
If you have engaged experienced professionals to help you with settlement, then setbacks are rare. On occasion, however, there may be issues such as delayed finance, missing signatures or concerns with the final property inspection. However, a good conveyancer will take it on themselves to do everything they can to rectify any problems quickly. We regularly check in during the lead up to settlement day to ensure a smooth process for you too.
Once everything is signed, sealed and delivered you will be free to move into your new home or begin your next adventure.

Time Poor

Too loyal or time-poor for a better rate? Problem solved

Another month, another rate cut. Finance can be so tedious.

That is until you realise it could mean more money in your pocket. But how?

For many, matters of personal finance are so dull and/or difficult, they are immediately filed in the too-hard basket.

And for their trouble, or lack thereof, these people are often slugged with a ‘lazy tax’ – the price paid for staying put.

Loyalty too, or simply being time-poor, can also be offences punishable by debt in the world of finance.

But it doesn’t have to be this way.

A 2018 Australian Competition and Consumer Commission (ACCC) report showed that new borrowers with an average-sized residential mortgage paid up to $850 less a year in interest than existing borrowers with the same lender.

However, despite the apparent benefits, actively ensuring an interest rate remains suitable is a practice that continues to elude many.

Fortunately, there are people out there whose job it is to assist in this process.

Finance brokers can play a vital role in assisting borrowers through the process of ensuring their mortgage is competitive.

MFAA mortgage brokers are just a phone call away and are ready to guide you through the task of refinancing your loan.

So get cracking. Click here to email us or call 03 8372 0775.

(published by MFAA 7 Nov 2019)

First Home Savers Scheme (FHSS)

It’s certainly tough saving enough deposit for your first home.
The government’s First Home Savers Scheme (FHSS) initiative is one way you can access concessional tax savings to help boost your savings.
It’s not for everyone, and there are quite a few rules which are all on the ATO website, but in a nutshell…
If you are a first home buyer, you can voluntarily contribute some of your salary to your superannuation fund.
The benefit for you is that the tax that the superannuation fund pays on the salary sacrificed amount is less that the income tax you would have paid if you had received your salary as cash.
Once you have saved enough to start the house hunt in earnest, you can apply to your super fund to release your excess contributions to put towards the purchase.

Things to consider:
– Check that your superannuation fund will allow you to release your savings
– Not all employers offer salary sacrifice arrangements
– You can release a maximum of $15,000 per financial year (a maximum total of $30,000)
– You have to purchase within 12 months of the release
– The savings released will be added to your taxable income
(information sourced from Australian Taxation Office website October 2019)