We Finance Loans

Loans broadly fall into two categories. Secured Loans and Unsecured Loans. A secured loan is where you have offered a security (a house, stocks, a business) as collateral such that the bank can call on this asset to repay the loan in case of default. An unsecured loan is, as the name suggests, the opposite where you are offering nothing as security except for your own personal profile, credit history, and ability to service and repay the loan + interest.

There are many different types of interest repayment terms to consider. Variable Rates, Fixed Rates, Discounted Rates, Comparison Rates, etc.,

A Fixed Rate is where the interest repayments are fixed on a certain amount for a fixed duration (eg. 1 year, 3 years, 5 years) regardless of the market movement on interest rates. This can provide a level of security against rising interest rates and a sense of comfort that you will always be able to pay that amount. On falling interest rates though, this can be an issue for some as they have locked in a higher rate. If the difference between your fixed rate and the lower prevailing interest rate is significantly high it may be worthwhile to investigate on the costs of refinancing your loan to take advantage of the new rates. Often though, it is not financially sensible to exit a fixed loan as the exit fees make this extremely costly.

A variable rate is where the interest rate is floating and subject to what the bank is charging at each period. It may sound scary as you are at the banks mercy in terms of what they choose to change the interest rate to in the future. In practise though, it is not as scary as the major banks will look to continue to offer competitve market rates to attract customers. The advantage of a variable rate is that you can take advantage of falling interest rates and the fees for early repayment are insignificant when compared to ending a fixed rate loan early. Because of this you also have the option of switching to a fixed rate loan in the future.

Fixed and Variable Rate loans have their own advantages and disadvantages and it really depends on your own circumstances and risk adversity when it comes to choosing which type to opt for. One way to hedge your bets is to split your loan between the two. Eg. Have half the loan as fixed and half the loan as variable.

There are many other factors to consider in loans, other than the interest rate. Is there an offset account? An offset account means that you can put money into this account and it will act as lowering your loan amount (without actually paying off your loan). The net effect is a lower interest repayment amount for the time you have money in the offset. Many banks provide 100% offset accounts which means 100% of the money you have in the account is used to offset the same amount in your loan. Eg. If you have $50,000 in your account and your loan amount is $200,000. You will only be paying interest on the $150,000. The advantage of this is that you have lowered your loan amount without actually paying it off. This means you still have access to the money for when you need it and you don’t have to redraw on your loan.

Some loans that do not have an offset account facility will have a redraw facility. This means that you can take money out of your loan when you need to. Often there is a fee for each redraw or you may be limited to a certain number of redraws per quarter or per year.

Setup Fees, Servicing Fees, Introductory offers, Repayment Frequencies, Special Offers, Bundled Offers, Free complimentary gifts, and discounts are other aspects of loans to compare. You need to look at the total package of the loan, compare them side by side, and see how they stack up. Is it worthwhile to go with the smaller bank for their lower interest rate or will you sacrifice a bit on interest for the added security and features of the larger bank loan? These are questions that different people will answer differently depending on their own personal circumstance.

Make sure you search online for the best deal that is right for you. Compare at least three lenders before choosing to sign on the dotted line for that loan.

Retirement sometimes is not all it is cracked up to be. Living past 60 can be a source of great stress and difficulty. Adjusting to life without the daily routine of a job and also the monthly wage can be very mentally and emotionally draining. Whilst you can stop ‘working’ on a 9 to 5 job, you should never really stop ‘working’ on living a life of fulfilment and satisfaction. Having goals and targets to work and strive towards is a great way to keep yourself active and your mind fresh. Often though, the ugly head of money will keep popping up into your consciousness. For those who already own their own home, this need not be a worry.

Retirees who fully own their own home are extremely fortunate. The home is not only a place of shelter but a great investment. Land is a scarce commodity and the population will only keep trending upwards. Having a house almost always means that over time it’s value would have increased. As a retiree, you can tap into this value by applying for a secured loan. Banks know the value of a house and the fact that you own your own home is a great source of trust for the lenders. The fact that you own your own home is proof enough of your credit worthiness and often there is not much more that you need to provide in terms of proof of ability to repay.

The lenders bank on the high probability that over the course of the loan, the value of your home will increase significantly more than the amount of interest that you will need to pay to service your loan. Whether or not you have regular income to pay the monthly interest expenditure is not paramount. This of course is great for the retiree. You can live your life financially worry free and work on the hobby that you always wanted to work on, go on that holiday that you never had a chance to, relax in that patio that you never had the time to finish.

Word of caution on loans for retirees: There are many untrustworthy lenders looking to take advantage of unexpecting seniors. Always look to lend from reputable lenders who have a sizable reputation to uphold. Not all loans are created equal. Shop around for the best deal. Know that you are a very valuable customer that every bank and financial lender wishes to get onto their books and use this to your advantage. Play the banks off at one another, compare rates and get your preferred lender to beat or at least match the best rate offered by the other lenders. A penny saved is a penny earned.

Not many people realize that when you purchase a property before disposing of your existing one, you are putting yourself in a great financial burden. There is a period of time where you are actually required to service two loans. A bridging loan can help ease the financial burden by providing a short term loan (up to 12 months) to bridge the gap between when you settle on the new home and when you dispose of the old home to discharge your old loan.

There are actually two types of bridging loans. Closed and Open. A closed bridging loan means that you have already sold you house and are just waiting for settlement and funds to clear before paying out your old loan. An open bridging loan means that you have not sold your house yet but are intending to do so within the set timeframe (up to 12 months).

Because bridging loans are essentially a sort of short term finance, the interest rates are comparatively higher than standard home loans. Of course, the best option is not have to use a bridging loan at all. To avoid this, make sure you have settled the sale of your existing house before finalizing the purchase of the new home. This is easier said than done. Having this kind of closure and defined cut off means that there is a period where you will not have a home. Even if you time the settlement on the same day, you will have to move your furniture and belongings all on the same day. This kind of timing is very uncommon and hard to juggle.

With the convenience of the internet these days, it is now much easier to find and compare bridging loans from the major banks and financial institutions. Not all Bridging Loans are made equal and as with all products, you will find that there is a large spread between interest rates charged by the lenders. Make sure you read all the fine print and fully understand what you are contracting yourself up to. When it comes to the substantial sums involved in property purchases, one mistake can be extremely costly.

Bridging loans are available to everyone – there is even bridging loans available to people with poor credit history and bad records. Shopping online can help you find the most competitive product and one that is tailored for your needs. Having a bad credit will mean that it may be slightly harder to find a willing lender and you will most likely have to pay a premium on the interest rates for the lender to take you on. This is why it is important to keep a clean record when it comes to your credit profile.