Planning is key to success

Australian consumers like to think of themselves as financially literate people, able to assess financial products and make an informed choice. Paul Ryan disagrees.

Ryan is a founder of a website called Home Loan Hints, which offers borrowers an opportunity to ask questions about mortgages.

Ryan says: “It is true that we know more about finance than we did a decade ago but we are still not good at doing the preparation before going out to get a loan or reviewing the loan. We are not good on the detail. Ask people what their home loan or credit card interest rate is and most can't tell you.”

Ryan is also the head of non-bank lender and broker Opportune Home Loans. He says he set up Home Loan Hints without any Opportune branding because he felt that borrowers needed an independent source of advice. He has assembled a panel of home-loan experts to answer the questions.

The questions and answers stay on the site so browsers can consult them. Questions cover whether to fix loans, buying investment properties, the pros and cons of reverse mortgages, government grants, insurance and how to work out loan serviceability.

Ryan recommends borrowers attend to a few important matters before they go looking for a home loan. “Many young borrowers have no idea about their credit rating. Apart from the past couple of years, credit has been very easy to get and people have become accustomed to applying for multiple credit cards and store finance. They do not realise that each time they apply for credit it goes on their credit file.

“Their credit rating is something they have to look after," he says. "They should get a copy of their credit rating and make sure there are no mistakes on it.”

Ryan says savings are critical. Most lenders now require a minimum 5 per cent of “genuine” savings before they will consider providing mortgage finance. That means deposits that did not come from government grants or gifts from parents.

Borrowers need to look at different loan options and work out what features they want. “People need to assess this question critically. A lot of people end up paying a premium for redraw and offset functions they never use. A cheap, basic variable-rate loan might serve them just as well,” he says.

Ryan says lenders will assess the borrower's ability to service a loan based on interest rates that are 2 percentage points higher than the current rates. People can easily check that out for themselves. “People ask a lot about costs involved in making additional payments, paying a loan out early and so on. This is after they have taken the loan out. These are things that should be checked out before signing a contract.

“They should have a plan to review their loan on a regular basis, either with the lender, a broker or on their own. They need to keep a list of their requirements when they borrow and then refer back to that list to make sure the loan is meeting their needs."

How to bridge the gap

Finding bridging finance is one of the most difficult tasks a property buyer can face, says Opportune Home Loans director Paul Ryan. “Bridging finance is expensive and

hard to find. If you have bought a new property before the old one is sold, the first thing you have to do is negotiate a long settlement period on the purchase and

arrange the sale of the old property as quickly as possible.”

Ryan says the most popular bridging loan with the loan writers he knows is St George’s Relocation Home Loan. The loan is structured so the borrower only

borrows the amount of the deposit for the new property at purchase and then draws down the balance at settlement.



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