Factors considered when identifying the right loan for you

All of our financial advisers are specialists in debt structuring advice, focusing on optimising the use of debt including paying down any non-deductible debt as effectively as possible, in particular the home mortgage.The strategies recommended by our advisers are highly effective, resulting in clients paying down their non-deductible home loans significantly faster than they would without the recommendations.  This includes highly effective ‘debt recycling’ strategies, where we ‘recycle’ non-deductible debt into tax-effective deductible debt.  These strategies work in concert with all other strategies the advisers have worked on to optimise each client’s overall outcome.A key consideration is the client’s ability to meet future loan obligations based on the plans they have.If for example a client plans to stop work and take extended unpaid maternity leave, we take this into consideration.  We frequently have new clients come to us having taken out significant mortgages (because the bank said they could without really understanding the client’s needs) and who now have to reluctantly work harder/longer just to sustain the mortgage.  Our planning includes interest rate sensitivity to ensure loans remain affordable even if interest rates rise.  The current 2% interest rates on offer aren’t going to last forever and it’s important to note that even a 1% rise in interest adds 50% to your interest obligations.Taking the client’s debt strategy into account, our Finance Manager’s role is to identify the loan that best fits from the many lenders in the market. Factors taken into consideration include:

Ability to borrow what’s needed

• ‍Not all lenders are created equal so our Finance Manager will review the market to see which lender’s policies allow for the amount of borrowing required.
• Our Finance Manager works with the Advisers to identify what income can and can’t be used in the borrowing assessment.  Although a client may have multiple income sources, for example from superannuation income, or trust income, not all banks accept this.  Some banks accept Leave Without Pay for a period of time without impacting borrowing, whilst others don’t.
• Sometimes there is great urgency – for example, clients see a property come on the market and decide at short notice that they want to be able to take part in the auction.  Different lenders have different time-frames and our Finance Manager knows which lenders have fast turnaround times for pre-approval.  This can often mean multiple applications.

Interest Rates

‍Identifying which lenders offer the:

• Best fixed rates over the longest term
• Ability to split fixed rates (critical in enabling additional repayments as interest rates change.  Rarely do we see brokers/banks advise clients to split not just between variable and fixed, but also within fixed loans.  Circumstances change so the ability to pay more off your loan from time to time without penalty is important.)
• Ability to make extra payments on fixed rates without penalty
• Best variable rates

Loan Structuring

• Identifying whether offset accounts are required and how well they work. Also, whether multiple offset accounts are available to deal with different parts of the plan.
• Optimising the relationship between variable and fixed rates, as the lenders with the best fixed rates may not have the best variable rates.  Advisers extensively cash-flow a client’s situation to identify when any variable loans will be paid down so we know how long to fix loans for.
• Establishing facilities for future opportunities, including renovations or future investments, or borrowing whilst satisfying a bank’s lending requirements given they change frequently, and the ability to borrow today doesn’t mean you can borrow the same amount from the same bank in the future.  (We take this into consideration as part of your overall planning).

The lending process is onerous and getting a loan to the approval stage is a significant task.  At times this involves approaching multiple lenders, doubling (or tripling) the amount of work required.As you can see from this list, there are many aspects we consider when determining whether a loan is right for you.5 Financial’s finance service is integrated with our broader wealth management advisory service.If you’d like to know more, please contact us.

This information is of a general nature only and is not intended as specific advice. Speak with your financial adviser to discuss your individual situation before taking action.