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Advice on the pros and cons of borrowing with a smaller lender compared to a big bank: Whether we realise it - or care to admit it - Australians are very loyal to our big banks. In fact, more than 80 per cent of home loans in Australia are held by one of the big four or their subsidiaries. But there are other options out there in the form of non-bank lenders. Haven takes a look at how non-bank lenders work and what they can and can't offer home owners. What is a non-bank lender? The term non-bank lender is a little confusing because it implies any financial institution that isn't a bank, such as a credit union or a building society, falls into this category. The term broadly covers financial institutions that only deal in loans and do not hold deposits. A building society, for example, where you can have a loan product and a savings account, is technically lumped in with banking lenders. However, most consumers would consider a credit union or a building society to be bank alternatives. How do they work? Because non-bank lenders don't hold deposits, they have to rely on other sources of funding for their loans. While all lenders borrow money on the wholesale market, non-bank lenders have to rely solely on this funding stream. Banks, credit unions and building societies, on the other hand, are able to prop up their lending to some extent with the funds from customers' savings. This distinction is important because it affected non-bank lenders' ability to weather the GFC, and why their market share fell from around 12 per cent before the crisis to around just 2.5 per cent afterwards. But non-bank lenders have bounced back and are being sought by many consumers as an alternative to traditional lenders, largely due to the post-GFC support of the Australian Office of Financial Management. Realising the importance of creating competition in the home loan market, the Federal Government decided to invest in home loans, creating a safety net for non-bank lenders. So supportive is the government of this increased competition, the government declared non-bank lenders the fifth pillar of our financial system. Are they safe? The GFC raised concerns about the flow-on effects of financial institutions who went belly up because they failed to manage their loan portfolios. Here in Australia, banks and other institutions that take deposits are regulated by the Australian Prudential Regulation Authority, while non- bank lenders come under the scrutiny of the Australian Securities and Investments Commission, which can intervene if you feel a lender has acted illegally. All consumer credit products, including home loans, are governed by the Uniform Consumer Credit Code, which ensures lenders make borrowers aware of their rights and obligations and put sufficient checks and balances in place to ensure borrowers can repay their loan. At the end of the day, if a lender folds, there is minimal risk to borrowers because the mortgage will be taken up by another lender. If you're not happy with that lender, the ban on exit fees means you can take your business elsewhere. Advantages of non-bank lenders Better rates Despite what many consumers may think, non-banks are usually able to offer lower standard rates. This is because they are looking for ways to claim market share and generally operate with lower overheads than banks. They are also usually not publicly-listed entities, so are not under the scrutiny of investors anticipating dividends or increased share prices. Traditionally, non-bank lenders offered lower rates and then relied on exit fees to deter borrowers from jumping ship. But since July 1, 2011, exit fees on consumer loans have been banned, curbing one of the competitive levers for non banks. Even though the new role was designed to drive competition, market watchers were concerned non-bank lenders would have to hike their rates if they could not charge exit fees. But any negative impacts of this change appear to have been offset by a boost to the wholesale funding market, allowing non-bank lenders to access funds at a competitive rate, which in turn benefits their customers. More flexibility Being leaner, non-bank lenders are often more nimble when it comes to service and responsiveness, although this can be difficult to measure. They are also often more open to consumers who have been knocked back by one of the banks due to previous credit issues or self-employment. Disadvantages of non-bank lenders Limited products If you are looking to house all of your financial products with one institution, a non-bank lender may not work for you. Although they tend to offer a solid range of mortgage products, they are unable to hold deposits, so you won't be able to set up a transactional account and credit card with the same lender. Some non banks do offer offset accounts by setting them up with a banking partner. The offset account acts like a savings account, where the funds reduce the balance on the loan and the amount of interest charged. Inconsistent offerings Because non-bank lenders have no deposits to support their loans, they often rely on a range of wholesale loans to source their funding, increasing their exposure to market fluctuations. This means the interest rate and terms offered to one customer with a non-bank lender may differ from what's offered to another. The simplest way to work out if a non-bank lender is right for you and your circumstances is to talk to your Mortgage Broker. Brokers act as a one-stop shop, with access to a wide range of lenders, including banks and non-banks, and hundreds of home loan products.

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What's the best way to lose your deposit - and be left out of the market for years? So, you're looking to purchase your first home. You already found a great mortgage broker who arranged a pre-approval for you, and you have the deposit ready to go. Let me ask you a question - is it okay to submit an offer on that dream home now, without making it 'subject to finance approval'? The answer is 'Heck No' - but instead of telling you why, I'm going to tell you a story about Melissa and Dave. Mel and Dave had put away money diligently for 5 years and they were keen as mustard about buying their first home. They had a pretty decent figure in the bank, enough to cover a 10 percent deposit on any property in their price range, as well as all of the stamp duties and other miscellaneous costs. The couple met with a mortgage broker, who arranged their loan application. Everything went well, and they received a pre-approval for finance. After looking for a couple of months, Mel and Dave found a great little property in their price range, and decided to make an offer. There were quite a few interested parties, and the selling agent mentioned that the vendor would only be considering 'unconditional offers'. It seemed that the vendor was motivated to sell, and didn't want to waste any time waiting to find out about finance approval. After talking it over, Mel and Dave decided that they weren't really taking much of a risk by making a clear offer on the property, because their finance was already approved. They decided to increase their offer by $20k due to the heated competition, and they crossed their fingers. To their delight, the offer was approved, and the agent dropped past to get some contracts signed and collect their deposit cheque. He left the couple with a nice bottle of champagne, and it seemed like all of their hard work was finally coming to fruition. That was until the valuation came back from their Lender. Unfortunately the lender determined that Mel and Dave had paid too much for the home. Even though they stayed under budget, their loan was not approved and they were unable to find another lender to finance the sale. As a result, the sale was unable to proceed, and the couple forfeited their deposit. This is just one of many sad stories about people who lose their deposit by not adding conditions when they make an offer on a property. The only purchaser who can really afford to buy unconditionally is someone who has the entire purchase price in the bank, ready to dispense. Even then, a wise investor would still insert a clause making the offer subject to a satisfactory building and pest inspection. Don't let this happen to you. Ask your Mortgage Broker or Solicitor about how to protect yourself when purchasing a home.

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The truth about the real costs of borrowing - don't get caught short! Many borrowers I work with don't have a clear picture of the upfront costs they may be up for when taking out a home loan. As well as loan application fees, there are settlement fees, stamp duty, mortgage insurance and more. Some of these can be added to the loan amount, but sometimes doing this can push you into a higher mortgage insurance bracket, resulting in even more fees! Knowing your fees is the first step, knowing how to manage them is the next. Have a look at my quick guide to knowing your costs.

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One little mistake that could ruin your life - and how to avoid it. There are so many things you need to organise when you purchase a property, and many buyers become quite overwhelmed with all of the paperwork, and coordinating their move. Mistakes can be made, and you might be surprised if you knew how many people forget to do a thorough inspection before settlement. By thorough inspection, I don't mean turning the lights on and off and looking for marks on the wall. The biggest mistake that many buyers make at the last hurdle, is forgetting to measure the boundaries of the property to check that everything is correct. You might think that this isn't really a big deal - who cares if the neighbour has a few centimetres of your back yard? Well sometimes it can make or break you financially, and cause an enormous amount of stress and conflict in your life. Meet the Wilsons: The Wilson family discovered the importance of checking boundaries when they moved from their 3 bedroom townhouse to a house with a big backyard in Fremantle last year. It was a hectic time for everyone, and it wasn't easy packing up the house with a baby and a toddler to think about. When the Wilsons did their final inspection, everything looked to be in order. The vendors had left the house wonderfully clean which was very helpful. They even mowed the lawns and replaced some of the light bulbs. The couple had forgotten to borrow a measuring wheel but they took a couple of minutes to count their paces along the boundary line to see that the title was correct. It wasn't until several months later that the family was confronted by their new neighbour on the left. He'd been measuring his block to get a planning permit through the council for a possible home extension. In the process, he discovered that the Wilson's garage on the edge of their property was actually built over 1.5 metres of his land. What followed was a lengthy legal battle which was expensive and stressful for all parties. In the end, the Wilsons were forced to tear down one side of their garage and make alterations to reduce its size. They also had to remove and rebuild the fence along the left boundary of their property. This is a great example of why it's so important to do your research when you buy a property, and avoid ending up in a similar situation.

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Discover how to turn your home equity into a better retirement for you. If you have equity stored away in your home, now could be the perfect time to tap into it for an investment property. Equity is simply the difference between the value of your home and what you owe on it. If you have a property valued at $500,000 and owe $200,000 on it, you have $300,000 equity available. There are a few reasons why the time is ripe for home owners to scout out an investment property. Firstly, property prices have flattened across most of Australia in the wake of global uncertainty. However, key indicators in the US now point to a recovery there, which our market is likely to follow, especially given our strong economy. So, not only is now a buyer's market but there's a good chance of capital gains in the first few years of ownership. Secondly, interest rates are low. After the recent drop in official rates, there is strong speculation they won't dip further in the short term. Thirdly, we still have a housing shortage here in Australia, which continues to drive low rental vacancy rates. That means good properties rent easily. So, where to begin? Start with a visit to your local Mortgage Broker to get a rough idea of what you can borrow. Your broker can estimate your equity, talk through the types of loans available and give you a rough idea of repayments. Then you will know what you can afford before you start looking at properties. You can also do some rough sums beforehand with some of the calculators on our website. A broker can find the right loan for your circumstances and shop around for the best deal. One of the most popular products among property investors is a line of credit. It acts like a big overdraft at a home loan rate, giving you instant access - as a rule - to up to 80% of the equity in your home. Interest is only paid on the funds you use. It's a very elastic, convenient product. But one word of caution: you need to be disciplined with your cash flow. Easy access to equity can be a temptation for many borrowers to spend up big on depreciating assets that offer no investment value and only add to your overall debt. Capital gains or rental return? You should decide whether you want strong rental returns or decent capital growth over the next several years on your investment. If you are in a high tax bracket and looking to create a tax advantage through an investment loss, you will be looking for capital gain. First-time investors looking to establish a portfolio of properties should also be aiming for capital growth over the next five or so years, as this will establish equity for the next property purchase. However, some investors are not in a hurry for capital growth and prefer their property to be cash positive or neutral from the get go. If that's the case, consider a property in one of the areas with a long-term future in resources, where rents reflect a shortage of housing. Just keep in mind that although the resources sector has a strong future, based on global demand, your investment is entirely dependent on the continued success of one industry. Right now, the bottom line is that there's potential for both decent capital gains and rental returns for property investors who chose the right property in the right location. Find the right property The first rule is to invest in property with your head and not your heart. Remember, you are not buying a home or apartment to live in yourself. Savvy investors look for properties: - Close to public transport and other amenities, such as shops or schools, especially in-demand public schools that only accept students in their local catchment. - That are low maintenance and well maintained. - In areas with good potential for capital gains. - In areas with low rental vacancy rates. Another tip for first-time investors is to stick to familiar turf. It could be near where you live now, where you grew up or previously lived, where you have friends or family or near where you work. Not only are you more likely to feel comfortable investing in a familiar area but you can keep an eye on local trends and the property itself. You should also find out whether any major infrastructure projects are slated for your target area. New roads, public transport and major developments, such as hospitals, can add significant value to rental properties. Visit www.infrastructureaustralia.gov.au for links to the major planning departments in each state. Managing your investment - and your tenants Like all investments, rental properties need to be managed. You can be landlord and property manager in one, or pay a professional property manager. If you are busy or live some distance from the property, your money will be well spent on a reputable, reliable manager. For a small monthly fee (generally 6 to 9% of rent), a good manager will vet prospective tenants, ensure the property is looked after, make sure rent is paid on time, arrange repairs and maintenance and recommend appropriate rent increases. Ask for referrals from other investors and look for an agent who specialises in property management, rather than sales, so you know your rental will not be second fiddle to other activities. You should agree on what your property manager can authorise automatically when it comes to repairs. It's also important you keep tabs on the local property market to track the equity you build over time, which not only adds to your wealth but could be used towards your next investment property.

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Here are the questions I get asked most often by Home Buyers: How much money can I borrow? We're all unique when it comes to our finances and borrowing needs. And different lenders lend very different amounts. Even if your own bank won't lend you the amount you want, do not assume other's won't. Contact me anytime, I can help with calculations based on your circumstances, all over the phone. How do I choose the loan that's right for me? Our guides to loan types and features will help you learn about the main options available. There are hundreds of different home loans available. How much do I need for a deposit? Usually between 5% - 10% of the value of a property, which you pay when signing a Contract of Sale. Speak with us to discuss your options for a deposit. You may be able to borrow against the equity in your existing home or an investment property. How much will regular repayments be? Go to the Repayment Calculator on our website for an estimate. Because there so many different loan products, some with lower introductory rates. How often do I make home loan repayments - weekly, fortnightly or monthly? Most lenders offer flexible repayment options to suit your pay cycle. Aim for weekly or fortnightly repayments, instead of monthly, as you will make more payments in a year, which will shave dollars and time off your loan. What fees/costs should I budget for? There are a number of fees involved when buying a property. To avoid any surprises, the list below sets out all of the usual costs: - Stamp Duty - This is the big one. All other costs are relatively small by comparison. Stamp duty rates vary between state and territory governments and also depend on the value of the property you buy. You may also have to pay stamp duty on the mortgage itself. To find out your total Stamp Duty charge, visit our Stamp Duty Calculator. - Legal/conveyancing fees - Generally around $1,000 - $1500, these fees cover all the legal rigor around your property purchase, including title searches. - Building inspection - This should be carried out by a qualified expert, such as a structural engineer, before you purchase the property. Your Contract of Sale should be subject to the building inspection, so if there are any structural problems you have the option to withdraw from the purchase without any significant financial penalties. A building inspection and report can cost up to $1,000, depending on the size of the property. Your conveyancer will usually arrange this inspection, and you will usually pay for it as part of their total invoice at settlement (in addition to the conveyancing fees). - Pest inspection - Also to be carried out before purchase to ensure the property is free of problems, such as white ants. Your Contract of Sale should be subject to the pest inspection, so if any unwanted crawlies are found you may have the option to withdraw from the purchase without any significant financial penalties. Allow up to $500 depending on the size of the property. Your real estate agent or conveyancer may arrange this inspection, and you will usually pay for it as part of their total invoice at settlement (in addition to the conveyancing fees). - Lender costs - Most lenders charge establishment fees to help cover the costs of their own valuation as well as administration fees. I will let you know what your lender charges but allow about $600 to $800. - Moving costs - Don't forget to factor in the cost of a removalist if you plan on using one. - Mortgage Insurance costs - If you borrow more than 80% of the purchase price of the property, you'll also need to pay Lender Mortgage Insurance. You may also choose to take out Mortgage Protection Insurance. If you buy a strata title, regular strata fees are payable. - Ongoing costs - You will need to include council and water rates along with regular loan repayments. It is important to also take out building insurance and contents insurance. Your lender will probably require a minimum sum insured for the building to cover the loan, but make sure you actually take out enough building insurance to cover what it would cost if you had to rebuild. Likewise, make sure you have enough contents cover should you need to replace everything if the worst happens.

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We all know that interest rates are cyclical and that when rates go down they will eventually go up. As a result, lenders have been assessing loan applications on the ability of borrowers to make repayments at interest rates approximately 2% higher than those currently available. While lenders have been assessing your ability to make repayments at a higher interest rate, what is the reality of the fi nancial impact of your regular loan repayments? To make sure you are ready, click here to read my "What goes down, must come up" article.

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How to fix a broken Credit Record. Do you know what a lender will find when they look at your credit history report? For many borrowers, it's not until they apply for a loan that they even lay eyes on this document for the first time. Unfortunately, this is also when many people find out that their credit history is less than perfect. There are lots of little mistakes you can easily stumble into when you're not focussing on maintaining a healthy credit record. Don't despair though - there are also ways to fix them, as long as you're willing to be a little proactive. Multiple Applications Some people cast a very wide net when applying for a home loan. They complete applications with a variety of lenders in the hope that one of them will be approved. This tactic might have been a great idea when you were applying to universities, but it's the worst possible way to apply for a home loan. Unfortunately when you apply for a loan and you aren't successful for any reason, this is noted on your credit record. There may be logical reasons for your application being declined - sometimes it's as simple as not being a customer of that particular bank. The problem is, when you have a few of these on your record it can start to appear that you aren't a very good risk for a lender - since so many other lenders have already said no. The best way around this is to engage a mortgage broker, who will investigate on your behalf before lodging and application with the most appropriate lender for your personal circumstances. Digging your heels in Let's face it - there are some companies out there who are just shocking to deal with. If you spend a lot of time on the phone arguing over incorrect bills, you're not alone. After lots of phone calls, it might seem like a good idea to ignore that incorrect phone bill and hope that it goes away. The problem with that approach - the bill might be listed as a default on your permanent record. For your own best interests, it's probably better to pay the bill, and then dispute it afterwards. Not keeping on top of your bills If you have moved house a couple of times, or if you don't have the best filing systems in place, it's possible that you might have misplaced or neglected to pay the occasional bill. Sometimes people have defaults listed on their credit history report due to moving house, and not receiving any bills or reminders relating to the debt. Make sure that you have proper mail redirections in place when you move, and make a list of companies to update your details with as soon as possible. If you have these sorts of defaults on your credit history report, you might be able to have them removed by communicating directly with the company who reported the default. Failing this, you might be able to lodge a dispute through a credit reporting body such as Veda.

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If you are a first home buyer - know what you are entitled to: First home buyers have a range of different entitlements and concessions they may be eligible for. They differ from state to state, and often are dependent on the value of the home you are buying. There are also various ways that first home buyers can be helped by family members to get into their first home - not just by lending money towards a deposit - which can possibly save thousands in fees when done the right way. For more details about the ever changing government incentives, read my guide - "Know your entitlements".

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Are a few unfamiliar words stopping you from building wealth? Are you thinking about dipping your foot in with property investment, but don't really know where to start? There is a lot of information out there, but many first-time investors become overwhelmed by all the technical stuff. Don't panic though - here is a list of some of the most common phrases to do with property investment - and they have been de-mystified for you. Capital gain Capital gain occurs when the property increases in value, over and above what you paid for it, and what you have spent on repayments, improvements and additional costs. So if you purchased a property for $200,000, and you spent $40,000 on improvements, and $50,000 on repayments - then you sold the property for $350,000, your gross capital gain would be $60,000. Equity Equity is the difference between what you owe on your loan, and how much your property is worth. You can build equity by investing in property that is likely to increase in value, while you work to reduce your loan amount. If you purchase a property for $300,000 and you put down a $30,000 deposit you would owe $270,000. Therefore you have $30,000 equity in the property. Investment Strategy Your investment strategy is the plan that you make, taking into account your financial goals. Are you looking for a way to get a quick win - and only plan to focus on short term gain? Or are you looking to build an investment portfolio over a number of years or decades? This could be something to discuss with your accountant or financial planner, as well as your mortgage broker. Interest only loans Interest only loans allow you to borrow money and only repay the interest for a specific period of time. Usually the interest only period lasts from 1 to 5 years. These loans are helpful if you're focussing on short term gain, and plan to sell the property within the first few years. Introductory rate loans 'Honeymoon rate' loans offer a lower interest rate for a short period at the beginning of the loan, before you return to standard variable interest rates. These loans can be attractive for owner builders, or those planning to achieve a short term gain on their investment. The lower repayments mean that you could pay more off your loan balance in the short term. Line of credit A line of credit is a pre-approved amount of money that you can borrow when you need it - either as a lump sum or in small portions. This option is popular with experienced investors, who are always on the lookout for their next property purchase, and need to be able to move quickly. Redraw facility A redraw facility allows you to make extra repayments against your loan, and then take the money back later if you need it. This is a great feature for people buying and selling multiple investment properties. All in one accounts All in one accounts are designed so that all of your income goes to the one place, and the account is used for your loan as well as all of your expenses. Because everything goes into this account, the amount that you owe will be reduced. Be sure to look into all of the fees involved with this option. Offset account An offset account is a savings account linked with your loan which reduces the interest you pay. Your lender will take your savings into account and deduct this figure from what you owe before calculating your interest. Construction loans If you're building a home and you don't need to borrow the full amount upfront, a construction loan allows you to only pay interest on the amount that you have spent. Bridging finance Bridging finance is designed to help you purchase one property before you sell the other. Once you sell the old property, the funds are paid straight into the loan for the new property. The danger here is, if you don't sell the old property as quickly as you thought, you will be responsible for servicing a much larger loan. Of course, there's so much more to think about when you start looking for an investment property. But armed with some of the lingo - you will be an expert in no time.

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Don't kick yourself later - ask these questions today and avoid loan confusion. There's nothing worse than walking out of an important meeting, only to realise that you forgot to ask some important questions. One of the most important meetings you will have when you enter the property market is your initial meeting with a mortgage broker. In order to get the most value out of your appointment, and improve your chances of being approved for a loan, you need to come along prepared to answer a host of questions about your finances and your living situation. But don't forget to ask some questions of your own. After all, the goal is to find the right loan for you, which won't happen if you don't speak up. When meeting with your mortgage broker, remember to ask: Which loan is right for my situation? There are a range of loans available but your mortgage broker should be able to help you decide which ones best fit your lifestyle. What is my borrowing power? This is usually based on your income and financial commitments, and it can vary greatly from one lender to another. What percentage of the property can I borrow? It's important to know how much you need to put down as a deposit, and also whether you need to pay other upfront costs, or whether they can be included in the loan amount. Will I have to take out LMI? Lenders Mortgage Insurance covers the lender in case you become unable to make your repayments, and there is a shortfall when the property is sold. Some lenders require borrowers to pay this amount upfront. Which loan offers the best rate? Some loans might offer a good introductory rate, but it's important to look at the ongoing rate once the honeymoon period is over. What flexibility does the loan offer? Can I make changes down the track? What if I want to make a lump sum payment in the future? Is the rate fixed or variable? Variable rates are usually lower, but keep in mind that they can change frequently. Fixed rates are a little higher but they provide some certainty for those on a strict budget. However fixed rate loans are usually a lot less flexible than variable rate loans. What will my repayments be? It's important to look at your budget and make sure you're not over-committing yourself. How much is the loan establishment fee? This is another cost that is often payable upfront, so you will need to ensure that you have funds available at settlement if this is the case. Are there any ongoing fees associated with the loan? Monthly account keeping fees can vary between lenders so it's important to make sure you compare your options. Are there any conditions to be aware of such as discharge costs, fees to change the loan? Not asking this question could be very costly if you're planning to refinance down the track, or make a significant lump sum payment in a few months.

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