750da26a6d76dc7c9b3ad96e0de7aa1d

HOW CAVEAT LOAN HELPS DURING SHORT-TERM CASH FLOW CRUNCH

ik@ippei.com (Tori Klein) — Thu, 26 Dec 2019 14:56:38 GMT

In this article, we’ll look at caveat loans and how they can be a good solution to deal with short-term cash flow requirements.

What is a caveat loan?

The first thing to understand about caveat loans is that they are not mortgage loans. While sometimes referred to as a ‘second mortgage’ because they are secured against a property, they are different in structure and terms to traditional mortgage loans.

You must own a property to take out a caveat loan against it. A caveat operates like a form of ‘injunction,’ which means the loan is lodged on title behind your existing mortgage (no consent is required from your bank to do so). This also means the borrower is prevented by a ‘caveat’ from selling the property (or taking out further loans against the property) without the permission of the caveat loan provider.

What are caveat loans for?

In Australia, caveat loans are a fast source of short-term funds that are commonly used to manage the cash flow between the sale and purchase of a property. If you have sold a property and need to pay for another, but settlement timing doesn’t match up, a caveat loan can be a great short-term solution.

In addition, caveat loans can be used to complete major renovations or residential development projects. Funds required for construction can be sourced with a caveat on the property, which will be released once the property is finished and sold.

Caveat loans are commonly used as a short-term option for business owners who need a fast cash flow injection, regardless of credit history. For example, you own a business and you:

Have a large tax bill due immediately, but won’t have the cash to pay it for a few months.
Could benefit from a working capital injection to maintain business operations to offset invoice lags.
Need to purchase a large amount of stock (to service an order, or to take advantage of a bulk purchase discount) and need to fund it with short-term debt.

Similarly, a caveat loan can be a good short-term solution for borrowers who need money in a hurry to do home renovations in preparation for sale, regardless of credit history.

What are the benefits of a caveat loan?

Caveat loans in Australia are widely available from a variety of lenders and offer a range of features that make them appealing for short-term loans when funds are needed quickly. The upside of caveat loans includes:

They’re quick: Caveat loans can be applied for, approved and settled often within a few days.
Minimal documentation required: The paperwork required for caveat loans is far less onerous than mortgage loans, making it easier and faster to apply for this type of loan.
Flexible: Caveat loan terms are flexible and can typically be negotiated for anywhere from one month to three years.
Easy: Once you have repaid the loan, the caveat on your property is lifted immediately with minimal fuss and red tape.

What do you need to qualify for a short-term home equity loan?

Key takeaways

If you own a property, even if it is the subject of a first mortgage, a caveat loan can be a fast and relatively cost-effective source of short-term funds for personal or business use.

5 THINGS TO CONSIDER BEFORE REFINANCING YOUR MORTGAGE

ik@ippei.com (Tori Klein) — Thu, 26 Dec 2019 14:56:38 GMT

In this article, we’ll look at refinancing your mortgage – what it is, why you might consider it, when you can do it, how it works, common refinancing scenarios, the benefits of refinancing, and things to consider before you refinance.

What is mortgage refinancing?

In simple terms, mortgage refinancing is the process of taking out a new mortgage loan to repay your existing loan. In some cases, it might be with your current lender, but more often, it involves moving your loan to a new lender. This means you need to apply with the new lender, which may require the payment of fees and costs when you pay out your existing loan, as well as for the establishment of the new loan.

Why might you consider refinancing your mortgage?

Mortgages are typically long-term commitments, sometimes as long as 30 years. And a lot can change during this time – market conditions, your financial circumstances, and general life changes. Any or all of these changes can make refinancing your mortgage an attractive proposition.

Better deals with lower interest rates and fees often makes refinancing an attractive proposition. In addition, the emergence of specialised non-bank lenders, private lenders and fintechs, means that there is increased choice.

When can you refinance your mortgage?

There is no ‘best’ time to refinance your mortgage , but as a general rule of thumb, you should be reassessing your mortgage relative to your situation and personal needs every two to three years and in line with a fixed interest period. There are a few factors to consider in regards to when is the best time to consider refinancing your mortgage:

Do you have at least 20% equity in your home? This is important so you can hopefully avoid Lender’s Mortgage Insurance (LMI). If you have built up more equity since you took out your loan, this can mean you don’t need LMI for the new loan.
Are you within a fixed interest term? Generally, it is not a good idea to refinance within a fixed interest period due to the exit fees you may be liable for. Instead, look at refinancing options towards the end of your fixed term period.
What’s happening with interest rates? This is typically the most important factor when considering refinancing, as this can equate to significant reductions in your monthly repayments and considerable savings over the entire term of your loan.

How does mortgage refinancing work?

The process for refinancing is the same as you would have undertaken when you secured your existing mortgage. You will need to consider the different loans available, including interest rates, whether rates are fixed or variable, and the loan flexibility – such as loan offsets and increased payments.

The good news is that there are a lot of different types of lenders in the market. And, depending on your circumstances, the approval process can be relatively fast.

Importantly, you need to check the terms and conditions of your existing mortgage carefully. In some cases, lenders may include financial penalties for paying out your loan early. This can take the form of break costs or associated fees. Therefore, any savings you expect to make by refinancing need to be considered in the context of any costs to end your existing mortgage. Note too that the application process for the refinanced mortgage will also include fees and charges such as establishment fees, valuation fees, and possibly even LMI depending on the amount of equity you have in your home.

Do your sums, and talk to an expert, such as your accountant or broker, if you’re not sure.

Common scenarios for refinancing your mortgage

There are various circumstances where you might look at your current mortgage and consider refinancing or switching to a new loan and lender:

Save money: By far, the biggest reason to refinance is to access a more attractive interest rate on your loan.
Reduce your mortgage term: Getting a better interest rate, while maintaining the same level of mortgage repayments, means your loan can be paid off sooner.
Access equity in your home: Refinancing your mortgage is a great way to access the equity you have in your home. You may want to renovate, purchase an investment property or even buy a new car. Refinancing can enable you to do this.
Consolidate debt : You may have a couple of high-interest credit cards or an urgent tax bill that requires payment. Refinancing your mortgage can provide you with access to funds to pay debts.
More suitable loan : Refinancing your mortgage provides an opportunity to secure a mortgage with enhanced features such as 100% offset accounts, fixed or variable rates (or a combination of the two), or a line of credit.

Also, keep in mind that your financial circumstances may have changed since you initially took out your mortgage loan. For example, you may have paid down and cancelled credit cards or paid off some debt, and this may have helped lift your credit score, thus opening up access to better interest rates than may have been available to you previously.

The benefits of refinancing your mortgage

Your mortgage is likely to be the largest single expense in your household budget, so it pays to ensure it best matches your needs – which can change significantly during a mortgage term. As your financial situation improves, or even if you find yourself in some short-term financial difficulty, it can be very worthwhile to consider your options and secure a more appropriate mortgage loan.

For example, the COVID-19 pandemic has coincided with record low-interest rates. Many people have refinanced their mortgages throughout this time to take advantage of lower interest costs or access equity in their homes for various purposes, such as renovating to improve their work-from-home set-up.

And for mortgages that were established years or even decades earlier, there is a wide range of more flexible and suitable mortgage products available from a new breed of lenders beyond the big banks, offering more attractive terms and conditions that can better reflect your individual circumstances.

5 things to consider before refinancing your mortgage

There are many good reasons why you might consider refinancing your mortgage and some potentially significant benefits from doing so. Before you go ahead, consider these five factors:

Key takeaway

A mortgage is a big financial commitment, generally over a long period. It is worth reviewing your mortgage every few years to make sure it suits your needs and reflects current interest rates.

FOUND YOUR DREAM HOME BEFORE SELLING YOUR CURRENT PLACE?

ik@ippei.com (Tori Klein) — Thu, 26 Dec 2019 14:56:38 GMT

How to overcome funding glitches with a short-term bridging loan?

In this article, you will discover how a bridging loan can be a fast and easy way to ‘bridge the gap’ between the purchase of a new home and sale of your current home.

A short-term bridging loan can help you to manage the potentially tricky scenario of purchasing a new home whilst simultaneously trying to sell your current home. If you don’t get the timing just right, you might be faced with the prospect of missing the settlement deadline on your new home, or feeling pressured to sell your current home for a lower-than-expected price due to time sensitivities.

What is a short-term bridging loan?

In simple terms, a short-term bridging loan helps ‘bridge the gap’ between the purchase of your new home and the sale of your current home. The good news is there’s a variety of short-term bridging loan providers in Australia, and you can easily apply for bridging loans online .

How does a short-term bridging loan work?

A bridging loan is a short-term loan that can be taken out on top of your current home loan until the property is sold. Typically, short-term bridging loans are for up to 12 months and range from $25,000 – $500,000, pending on the lender and your personal circumstances. You can apply for bridging loans online from a variety of lenders, with private lenders offering a relatively simple application process, minimal documentation and fast funding (usually within three to five days from application).

When a short-term bridging loan can help

Consider the situation where you find your new home, but have not yet even put your current home on the market. In this common scenario, a short-term bridging loan means you can complete the purchase, and then sell your current home in a more relaxed manner – ensuring you don’t have to settle for a ‘fire sale’ price.

What are the benefits of a short-term bridging loan?

Short-term bridging loans have some key benefits, to include:

Being able to purchase a new home when you find it – not after you sell your current place.
Avoiding a rushed sale, and potentially a lower sale price, of your current home due to time pressures.
Avoiding the rental and storage costs often incurred after the sale of your current home, whilst you find your new property.
Removing a lot of stress associated with buying and selling at the same time.

It’s also good to keep in mind that a short-term bridging loan can provide a cashflow injection for personal use when:

You want to renovate or prepare your property prior to sale
You’d like to complete a small land subdivision or duplex intended for sale
You need a deposit for a new property (investment or principal place of residence)
You require help with moving, living, legal or medical costs
You’re seeking to pay a personal bill or debt that can’t wait until the property is sold
You’re downsizing

Key Takeaway

A short-term bridging loan is a very fast and easy way to access cash via equity in your home through the sale period. It avoids the pressure of not being able to purchase your dream home when you find it, or conversely a rushed sale of your existing property.