How it Works
The Breakdown: How much can you Borrow? | Plan Your Strategy | Lenders and Products | Seek Pre-Approvals | Costs Involved | Types of Loans | The Final Word

How it Works
With our assistance, you will find the loan application process not only simple but also quick, and we are sure you will be happy with the results. We have a tried and tested process for ensuring that we find you a loan suited to your needs.

In the breakdown below you will find more details on each of the phases we go through to find you a suitable loan. We begin by taking the time to listen to your needs and your specific situation. Then we access our large range of lenders to match their products against your criteria. Having access to a large number of financial products puts you in good situation to obtain a good deal.

  All our fees are paid by the lenders and are set to be the same for all sources. Furthermore, we believe in transparent transactions, so you know every detail of how we handle your application. This way you can rest assured that when we offer you a loan, there is no hidden agenda.

Everyone’s financial situation and goals are different and consequently, you should consider the appropriateness of applying the information on this website to your situation. However, this information demonstrates the importance of choosing an experienced mortgage broker that is able to provide considered professional advice – not just someone that fills out an application form!

- Angelo Benedetti

Dont panic if you dont understand:
Our job is to make the application process smooth, save you time and take all the stress out. So there is no need to panic. Just relax and let our friendly and knowledgable staff take you through the process. It really is not that overwhelming with professionals on your side that you can trust.

Glossary of Terms:
If you are having touble understanding the terms and language used in the lending process, please download the Glossary of Terms here.

The Breakdown:
How much can you borrow?

Once you have an investment plan, you can then bring this to us to find out if it's achievable (ie if you can afford to borrow the required amount of money). You can then scale up or down your plans depending on the outcome of this step. Maintaining your borrowing capacity is important, because it allows you to continue building your investment portfolio.

Here are some tips:
Stable employment income
Lenders will consider the type and stability of your employment. According to the lenders, a full-time permanent position with your employer is the safest position to be in. Lenders will take into account part-time income if you have been with the employer for at least six months. Casual employment is treated similarly to self employment where lenders will normally want to see two year's history.

Changing jobs can also affect your ability to obtain finance. Lenders will not normally approve a loan where a person starts a new job and has a probationary period. They will normally prefer the applicant to successfully complete the probationary period.

Minimise credit cards
When assessing an application, lenders will normally assume that you have utilized your credit card capacity (because you have access to that debt). Therefore, the higher your credit card limits, the lower your borrowing capacity. There are a handful of lenders that will ignore credit card limits if you can prove that the balance is repaid in full every month.

Rental yield
The rental yield is the amount of gross rent your receive relative to the property value. The higher the rental yield, the less a property 'eats' into your borrowing capacity. When assessing loans, a lender will normally only include 80% of the gross rental (allowing 20% for expenses and vacancy) and calculate proposed loan repayments using a benchmark interest rate (normally 2% above the standard variable rate) on a principal and interest repayment basis (even if the proposed loan is to be interest only). If you borrow 80% of a property's purchase price (and pay cash for 20%), the property's rental yield needs to be over 10% for it to be neutral on your borrowing capacity.

Rental reliance
As an investor builds a portfolio, they become more reliant on rental income, because it makes up a great proportion of their total income (total income =
rental + salary). A large reliance on rental income can make lenders nervous. If you are in this position there a a few things you can do such as:
• Ensure your properties are under long term leases (as opposed to month-by-month)
• When purchasing properties, look for ones that are already tenanted
• Build up history so that you can show (via tax returns) that your properties are normally fully tenanted

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Plan Your Strategy

Planning prevents poor performance
It is advisable to undertake some planning and research before embarking upon any significant investment. The benefit of planning from an investment finance perspective is that it allows you to consider your future financial requirements and provides you with an opportunity to select the right lender/products and structure now. This may end up saving you a lot of time and trouble.

Determine your investment strategy
Firstly, you need to determine your investment strategy and goals. You need to identify what assets you want to invest in, how much you want to invest, the amount of time you will invest for and how much wealth you would like to obtain.

This needs to be determined before you even find out how much you can borrow, to ensure you are not 'influenced' by your borrowing capacity.

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Lenders and Products

Selecting Lenders and Products
By now, you will have a clear idea of what property you will buy, when and how much. You would have also determined that you can borrow enough money to put the plan into action.

The next step is to consider which products/lenders are going to be best. For example, if your plan is to purchase a property, renovate it and then sell, then you need a loan that is inexpensive to establish and discharge (ie. No high exit fees).

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Seek Pre-Approvals

Always Seek Pre-Approvals.
Once we have helped you identify a suitable product/loan/deal, we will help you seek pre-approval before each purchase. A pre-approval is an 'in principle" commitment to lend you the required money for the next purchase. They do not cost anything.

The benefits are that they provide you with the ability to start negotiating for properties, making you a more qualified buyer (which agents love) and save time when you actually find a property because the application is already set up.

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Costs Involved

Understanding the Costs
It is very important that you understand all costs that are associated with a loan and how they may affect your flexibility. There are four categories of costs associated with mortgage loans.

Interest rate - This is easy to identify and compare.

Upfront fees - Upfront fees can include application/establishment fees, valuation costs, legal cost, settlement fees, stamp duty and other administrative fees.

Ongoing fees
- Some loans products have monthly or annual service fees. Other ongoing fees can include transactional fees such as redraw fees.

Break fees
- Break fees are any fees that may exist when a loan is repaid within a certain time. They may also be called deferred establishment fees, early repayment fees or discharge fees.

Some break fees exist for a defined period (eg for the first 5 years) or for the full life of the loan. This is a way a lender can 'hide' fees in a loan (because most people don't ask about exit fees). Break fees affect your flexibility, because they can have the effect of essentially "locking" you into a particular product. Break fees can cost many thousands of dollars and are very important to consider. I would recommend that you compare loans over a period of approximately five years. The reason for this is that people's circumstances change. The loan that you have today may not always be appropriate in the future.

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Types of Loans

Below is an overview of lender's key loan products:

Introductory Variable/Honeymoon
These products offer a low introductory rate for the first 12 months of the loan. The interest rate then normally reverts to the standard variable rate.

Basic Variable
This is a no frills product. Normally, basic variable products do not have many features like offset accounts. Most basic variables offer redraw, but at a higher cost.

Standard variable
Standard variable loans offer borrower the most features including offset accounts.

Professional Package
Professional packages are loan products that bundle certain benefits together, such as nil application fees, interest rate discounts, free transaction account and free credit cards. Standard interest rate discounts are normally 0.50% to 0.75%. For these benefits, the bank normally charges an annual fee of $295 to $495. They are no longer based on profession. Total borrowing is normally the sole qualification criterion.

Line of Credit
A line of credit is like a transaction account and loan account rolled into one. They allow borrowers to deposit and withdraw money exactly like a savings account (eg. By ATM, etc). The minimum repayment on a line of credit is limited to interest only (ie. no requirement ot repay principal). They are the most flexible products available, but they are also generally the most expensive.

Fixed Rate
A pretty simple product. The interest rate is fixed for a specific period of time. In Australia, you have the option to choose a fixed rate period from one to five years, seven years, ten years and even 15 years. Normally, fixed rate loans limit the amount of extra repayments you can make (eg limited to $10,000 per year).

General Guidelines
In our experience, choosing the wrong product can have as great an effect on overall cost as choosing the wrong lender. Therefore, product selection is just as important as lender selection.

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The Final Word

There are many issues that investors encounter when dealing with property finance and we can only touch on some of these issues on our website. This information highlights that there is a lot more involved in finance other than just filling out a few application forms. Most investors realize that the quality of accounting, tax and legal advice is very important. It is just as important that you also source professional lending advice. This can make a huge difference to your property returns.

If you are interested in obtaining more information, I would encourage you to contact our office.
Service provided by Oracle Lending Solutions:

• Home Loans
• Investment Loans
• Commercial Loans
• Business Loans
• Leasing
• Hire Purchase/Chattel Mortgage
• Plant/Equipment/Motor Vehicle Finance
• Low Doc Loans
• Credit Impaired Loans

All the consultants at Oracle Lending Solutions are Accredited Mortgage Consultants of the Mortgage Industry Association of Australia (MIAA).
Contact us here to speak to your Lending advisor today.

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