Michael 30 and Jenny 29, no children.
Michael is a self-employed electrician for the past 3 years, while Jenny has worked in an administrative job for the past 6 years.
Their goal was to pay their home loan off faster.
After seeing me speak at a breakfast meeting about the benefits of having their interest rates regularly reviewed Michael decided to call his own bank. Having been their client for 7 years he demanded a better interest rate than the 5.79% he was on.
A week later I spoke to him to see if we would like me to get a better deal for them. He told me not to worry as he had already done this – great news!!! I asked what the new rate was and he advised me he had gotten it reduced down to 5.13%, a monthly saving of $261.25 in lower interest.
I asked Michael if he minded if I also tried with his bank to see what better rate they might come back to me with – he said no problem and gave me his details – I made a call to the lender and immediately over the phone got a further reduction to 4.75% – a further saving of $150.41 per month.
Michael was furious at the bank for not offering the same rate to him….. we booked an appointment and after reviewing his loans we looked at the structure and the way they handle their money and ended up changing loan providers to get a rate of 4.28% – they were now an additional $186.04 per month better off. In fact, their total interest saving was now $597.70 per month compared to their original loan.
I also showed Michael and Jenny that if they kept their repayments at the same amount they were originally paying, they would own their home 4 years and 5 months sooner and save a massive $173,969 in interest.
Jennifer, at 22 years of age had just started in her first job a month ago, straight out of 4 years at university. She was looking to buy her first home but didn’t know where to start.
Very few options exist for a first home buyer with just a few weeks in a job and Jennifer had her heart set on a specific new home. She didn’t want to lose it to another buyer and didn’t have weeks to search to find a lender that might help her.
Jennifer didn’t drive so we met a coffee shop to go through home loan options. We knew which lender would help her, even with such a short time in her new job.
We completed the loan application with her and helped her with signing the paperwork for the mortgage once the loan was approved.
We assisted in coordinating the Real Estate agent, building inspection and settlement agent (from whom we obtained a discount of 33.33%, savings her an additional $491.00). Additionally we managed her First Home Owners Grant application of $3,000 and a REBA rebate of $2,000 (which she didn’t even know existed).
We further assisted her in opening new bank accounts and even provided a letter to her employer to have her pay put directly into the new 100% Offset Account for maximum interest savings.
We stayed in constant contact with Jennifer throughout the process so she knew what was happening and didn’t get stressed. I’m happy to report she has now moved in and is very happy with her first home.
First Home Buyer – Only in a new job for 4 weeks
Bruce and Sarah were looking to buy their first investment property. I sat down with them and we looked at lenders and repayments BUT most importantly the structure of the loans and ‘safety nets’. I explained how if you are buying property the importance of having it done the safest way possible.
Specifically we always look to using two lenders so we don’t put their own home at risk and discussed the importance of having cash left over for the ‘just in-cases’ and risk covers in place for anything than can and sometime does go wrong.
We also spoke about the emotional ride when buying their first investment and all the things we had in place to counteract any of these potential problems.
We assisted with locating a $650,000 property with rental income of $780 per week.
We structured everything so they were actually now ahead by an extra $90.00 per week! We directed this extra income into the loan on their home meaning they would be mortgage free just over two years earlier and save over $31,000 in interest payments. This is on top of any price growth in the property over the coming years.
Once their equity increases in the two homes they will be looking to buy their next one.
Samuel and Mel – Own their home and are wanting to upgrade a buy a new home for $1.2M but weren’t sure whether they should or even could keep their current home as an investment.
With our comprehensive lender information we were able to assess each option and which lender would be best depending on which direction they went in.
Different lenders offer very different rates depending on the loan size and the final equity position of the borrowers. Samuel and Mel soon realised this would prove to be a very valuable exercise.
Option 1 – Keeping their home and buying new one.
We estimated the rental income on their home would be $26,000 per year. Buy the new home for $1.2M and paying $56,000 in stamp duty would mean a new loan of $1,256,000. Interest only repayments on this new loan would be around $4,687.50 per month.
They would pay tax on the new rental income and would have few deductions due to the age of the property, whilst having no tax benefits for the cost of their new home. They were going to be under significant financial pressure as they would only receive $20,020 from the rent after tax each year and have $56,520 in repayments – a difference of $36,320.00 per year.
Option two – Buying and selling at the same time.
They could put an offer on the new home ‘subject to the sale’ of their current home. A $700K sale of their current home, minus real estate agent fees of 2.5% meant they would walk away with approximately $682,500 which could be used for the new purchase.
This meant they only needed to borrow $573,500 and pay interest of $2,150.51 per month.
With this saving of around $10,512.50 per year compared to Option 1 they can now look to buy a cash flow positive investment property and correctly have the higher debt on this new investment which is tax deductible, which will help them reduce their private debt and mortgage free faster.
Advised best way to structure home upgrade and prepare for a better investment property in the future.
Having read these case studies, if you feel you would like to sit down and discuss your own situation with us simply contact us.