Siderum Finance

18/07/2022

CONSTRUCTION AND STRUCTURAL RENOVATION

Construction and structural renovation is inherently risky. Most construction projects do not run on schedule and run beyond the original budget. The matter is of late exacerbated by labour, material shortages and inflation. As a rule of thumb, only consider construction and structural renovation if you can contribute 20% - 30% of the costs using your own funds.

Having a signed fixed-price building contract meant that the builder agrees to bear any costs above the fixed price. This will not protect the consumer fully if the builder goes under. Per Equifax, construction insolvencies have substantially increased. Even the titan Metricon has been on the news lately of AFR suffering from cashflow problems.

Godspeed!

11/07/2022

Buying your first home, but don't know where to start? Why not join our free information filled first home buyer webinar? The date is for 10/8/2022 at 7.00PM. We will discuss:

- Common grievance when buying a property?
- Why borrowing money can go horribly wrong?
- Why a cheap interest rate is not everything?
- Borrowing power and deposit required?
- Steps to getting a property?
- What are the various home loan options?
- Eligibility for government incentives?

The presenter is Raymond Teh CPA, a seasoned mortgage broker and MFAA accredited mentor.

Buying your first home but don't know where to start? Join our free information filled webinar.

11/07/2022

MORTGAGE INTEREST RATE DROP

The media focus on rate hikes of nominal interest rates undoubtedly captures attention (and fear). If you are looking at making a purchase and have a substantial deposit, do not be overly perturbed. The real interest payable on your mortgage is most likely zero or less. In other words, you are paying no interest after factoring in inflation. Annual inflation is at 5.10% and is predicted to rise to 7.00% by year-end per the RBA. A purchase insulates your deposits from being eroded by inflation.

21/06/2022

LAND TAX OR STAMP DUTY FOR FIRST HOME BUYERS

From January 2023, NSW's first home buyers purchasing a property up to $1,500,000 will have the choice of paying one-off stamp duty or annual land tax. Stamp duty costs approximately 4.00% of property value whilst the land tax costs 0.30% of the land value.

First-home buyers looking at borrowing up to 95% in purchasing a property will benefit. Hefty stamp duty charges cannot be funded by a home loan and have to be outlay from own pocket.

Paying land tax in lieu of one-off stamp duty will cost more if the property is held for more than 15 years.

https://www.smh.com.au/politics/nsw/first-home-buyers-given-land-tax-option-in-perrottet-s-stamp-duty-overhaul-20220620-p5av5u.html

17/06/2022

UBANK vs NAB MORTGAGE

Borrowers are often attracted by fast turnover and cheap rates offered by online lenders such as Ubank. My office is accredited with Ubank. My thoughts:

Pros
- Cheaper rates of 0.10% - 0.50% over NAB consistently
- Minimal fees

Cons
- Slower turnaround time than NAB. The automated screening system will review 12 months of income received and 3 months of expenses. Expect approval delays if:

1. your income fluctuates over the last 12 months
2. you conduct international purchases, take cash from ATMs consistently or have overdrawn fees. This probably applies to a majority of borrowers

- Vanilla customers only. The self-employed, borrowing seeking bridging finance or significant cashout or looking at borrowing more than 85% need not apply
- Refinancing rebate is not offered. A lender offering a $4,000 cash rebate equates to 0.20% lower rates consistently for the next 4 years

Ubank and NAB are akin to Qantas and Jetstar. Ubank will provide marginally cheaper rates by targeting vanilla clients. Be realistic with its turnaround time and the clanky automated assessment system. Think Jetstar on-time performance.

09/06/2022

RATE RISE REDUCES BORROWING POWER

The RBA increased the cash rate by 0.50% at this month's meeting. Every 0.50% increase in the interest rate will reduce borrowing power by around 3.00%. The "Puffing Dragon" and some lenders may not honour the loan amount provided in pre-approvals when the interest rate rises. This is especially the case for 90% - 95% lending ratio mortgages.

05/11/2021

0.72% HOME LOAN RATE RISE

A well-known home loan lender will increase its 3 years fixed-rate product by 0.72% tomorrow 4th November. For a $1,000,000 loan, this increase repayment by $372/month.

My thoughts:

1.
PRE-APPROVAL AMOUNT IS INDICATIVE ONLY.
It is not a magic pill guaranteeing a mortgage. A rate rise is detrimental to borrowing power. A significant 0.72% rate rise is likely to reduce borrowing power by more than 5.00% than originally pre-approved

2.
RATE LOCK
This costs 0.15% - 0.20% of the loan amount. Failing this, most lenders would lock up a fixed rate product at funding, not at lodgement of an application. The trend of a higher fixed interest rate is well established.

3.
1.XX% FIXED RATE IS A "PHANTOM".
They are likely to rise in the coming days.

The official ABS measure of inflation to September 21 rose by 3.00% compared to a year ago. This was announced last week, leading to a rush by lenders to increase fixed rates.

04/11/2021

With the fixed rate being increased across the board for all lenders, now is the perfect time to attend the Free First Home Buyer Webinar, to find the best product for you. The time is Wednesday, 8/12/21 at 7.00 p.m. We will discuss:

- The home loan process
- How much deposit is needed
- The various home loan options
- Potential problems even if you have a pre-approval
- Government incentive & the new First Home Loan Deposit Scheme (FHLDS)

The presentation duration is 90 minutes.

Register now and start your journey!

Buying your first home but don't know where to start? Join our free information filled webinar.

27/08/2021

PURCHASE JOINTLY WITH A FRIEND OR RELATIVE?
We do not recommend this. For joint purchase, both owners cross-guarantee each other's loan. The adverse ramification includes:

1. if your friend defaults, you will be held liable for your friend component of the mortgage, vice versa.

2. It is detrimental to your borrowing power for future purchases. If this is an investment property, lenders will assume the rental income is shared but you having the full liability for the combined mortgage

3. Full transfer stamp duty is payable if there is a transfer of ownership between the two owners

A pertinent article on this:

It is becoming common for people to consider pooling their money with friends or family members to go into a real estate joint venture. But is it a good idea?

22/07/2021

PAYING OFF MORTGAGE OR SALARY SACRIFICE TO SUPER

Salary sacrificing advantages include:

1.
Only 15% tax applies – for contribution up to $27,500 inclusive of employer’s contribution - when salary sacrificing into super. This means $850 of every $1,000 contributed goes into super*. In contrast, as little as $610 of every $1,000 earned goes towards mortgage repayment if earning $120,001 - $180,000.

2.
Paying down an owner-occupied mortgage reduces tax benefits if you switch the property to investment use in future from upgrading, downsizing or relocating to another state.

3.
Your retirement nest egg is protected from all including yourself. Unless you suffer from serious health issues, it is not possible to redraw money from superannuation until closer to retirement age. This protects you from impulse purchases and guiltless in not being able to lend money to others

4,
From 1993 – 2020, growth funds returned 8.10% per year on average per www.superguide.com.au. This is significantly higher than the average mortgage interest rate.

The above are opinions and not financial advice. All investment comes with risks. Speak to your financial planner or tax accountant for professional advice.

Borrowers are bombarded daily with news on how to pay off a home loan quicker. Few articles have discussed the possible benefit of making lump sum sacrifices to superannuation in lieu of mortgage repayment.

16/07/2021

FIXED-RATE MORTGAGE
Consider fixing at least a part of your mortgage:
1. The downward rate trend since 2011 has ended. Rates will not go lower. The Reserve Bank cash rate is @ 0.10%, down from 4.75% in 2011.
2. Lenders are charging a premium of circa 0.50% for an offset variable loan over 2 or 3 years fixed-rate
3. Lenders are likely to increase rates independent of the Reserve Bank

If requiring flexibility, split the mortgage into a variable and fixed component. The limitation on a fixed-rate mortgage in its entirety includes:

• A cap on additional repayment of
• No redraw facility with most lenders.
• 100% offset facility is not offered

The split between fixed and variable mortgage products should be determined by the ability to deposit extra funds. Assuming five years fixed-rate is elected and up to $100,000 in additional repayment over five years can be deposited into the offset account, split the mortgage into fixed and $100,000 variable.
P.S/ Opinion given above is general in nature. Take into account your personal circumstances when making financial decisions.

28/06/2021

HOW UNIVERSITY DEBT AFFECT BORROWING POWER?

As an indication, every $1,000/month in HECs/HELP debt repayment reduces borrowing power for mortgages by:
- circa $200,000 if you are earning less than $180,000
- circa $150,000 if you are earning more than $180,000

It is the compulsory repayment amount, not the size of the HECs/HELP debt that affects borrowing power.

There’s a lot more to picking the right university course to study than just the subject. Making a wrong choice could mute your employment opportunities and even hurt your long-term financial future.