1st Street Newsletter FEBRUARY 2007

Contents

Helping The Family
A Good Report Card?

Jeremy Fisher
Director

518b Old South Head Rd
Rose Bay NSW 2029

Tel:	1300 880 109
Fax:	02 9371 1990
Mob:	0411 33 9998

E-mail:	Click Here
Website:	Click Here

Welcome to 1st Street Home Loans. We are an Australian-owned mortgage advisory company with a difference. Due to our strong relationships with the banks, industry leading technology, honest approach and only the highest level of service, we were recently awarded as the number 1 independant mortgage broker in Australia.

With an increasing number of people today turning to mortgage brokers for professional and unbiased service, 1st Street Home Loans is fast becoming their broker of choice. We offer a free and impartial service that provides access to over 30 residential and commercial lenders and more than 500 loan products from across Australia.

The Mortgage and Finance Association of Australia (MFAA) is the peak body for the Australian mortgage industry. Members include banks, mortgage managers, credit unions, mortgage brokers, wholesale funding institutions, real estate agents, valuers, solicitors and conveyancers.

All MFAA members belong to an independent dispute resolution scheme such as the Credit Ombudsman Service Limited.

Loan writing members are also required to become Accredited Mortgage Consultants (AMC). An AMC is covered by professional indemnity insurance, has passed probity checks, and has met education and experience requirements set out by the MFAA.

Hello,

Welcome to 1st Street's monthly newsletter. If you require any assistance in obtaining the right loan for you, or if you have any questions in regards to an existing loan, please do not hesitate to contact me personally on 1300 88 01 09 or 0411 33 9998.

Kind regards,

Jeremy Fisher

Helping The Family

Family Generations With property values at high levels, it's harder than ever to get into the property market.

Even with a good income, saving the initial deposit can be hardest task of all.

In response, many of the major lenders have developed new products to help buyers without sufficient deposits to get into the market. Although often used by first home buyers, these products may also be used to help people to upgrade their own home or purchase an investment property.

One of the more popular products is the family pledge or family guarantee loan. This is where a family member with equity in their own property provides a guarantee to cover the deposit and upfront expenses of the borrowers. A lender will allow this providing they can take a security over the guarantor’s own property.

This guarantee appeals to many families as it means that the couple can be helped but without any initial financial outlay or gift to help with the deposit.

How It Works

Here’s a simple example to illustrate how this works:

A couple want to buy a property for $300,000. They have saved a deposit of $15,000, and so need to borrow $285,000. They therefore have a loan to value ratio (LVR) of 95% which could mean they are refused the loan or, even if accepted, are liable to pay the Lenders’ Mortgage Insurance (LMI) which could easily be over $5,500.

If their parents gave a guarantee of $60,000 secured against their own home, this additional security would reduce the LVR to 79%. This is calculated as $285,000 divided by $360,000 [$300,000 + $60,000]. This lower LVR means that:

the loan application is more likely to be accepted by the lender,
the couple are no longer liable to pay the LMI (which normally becomes payable at 80%+ LVR), plus

they could also find a loan with a lower interest rate.

A couple may be able to use this guarantee option even when they have no savings at all, and so want to borrow the whole of the property’s price plus borrowing costs (e.g. Stamp Duty and legal fees), making the LVR as high as 110%.

InIt's worth noting that the borrowers retain full responsibility for the loan repayments, and the credit assessment for the full loan amount is based solely on their income.

Lessen The Risk

The benefit is, of course, that the guarantors get to help their loved ones to purchase a property. But what is the risk?

The main risk is that the borrowers do not meet their repayments. The lender would then seek to recoup the debt from the guarantors which, in the most extreme case, could result in the guarantors’ own property being sold.

“This product can help buyers without sufficient deposits to get into the property market.”

To lessen the risk, the guarantee can sometimes be limited to a specific amount. In the example above, the liability is limited to $60,000.

Whilst still a significant sum, in the event they are called upon to pay this amount, the guarantors may be able to raise the funds without selling their own home.

Also, the guarantors can ask to be released from the guarantee once the LMI is no longer required (or is paid), making the term of the guarantee much less than the life of the loan, again lessening their exposure to the risk of the guarantee being “called in”.

To ensure that guarantors are fully aware of the commitment they’re making and the potential risks, lenders normally insist that they take independent legal and/or financial advice.

Next Steps

As with all home loan products, there is lots of competition among the various lenders – each product has its own specific benefits, requirements and costs. If you’d like to know more and to get an understanding of the various products and options, please get in touch.

A Good Report Card?

Files Credit files are often used by lenders to help assess whether to lend you money.

So, what is a credit file, who can look at yours, and how can you make sure it’s in good order?

Virtually all of us apply for credit in one form or another. It may be for a home or personal loan, or even for a service like a mobile ‘phone or electricity where the payment is deferred (invoiced) rather than “cash on delivery”.

As part of their assessment process, the lender or credit provider will seek access to your credit file.

What Is A Credit File?

The file contains information about you and your credit history, including:

Personal Details - such as your name, date of birth, current and past addresses, driver’s licence number and employment details.
Credit Applications – who the credit provider was, the amount and type of credit applied for. Note that this is all applications made, whether or not the credit was approved or the credit offer taken up by you.
Credit Defaults – all overdue payments of 60 days or more can be listed provided that the provider has taken steps to recover the outstanding amount. These steps must include writing to the defaulter at their last known address to request payment of the outstanding amount.
Paid Credit Defaults – provided that the default was correctly listed in the first place, then it will remain on the person’s file for five years for when reported, even if it has been paid. The file must, however, note that the debt has been paid.
Serious Credit Infringements – information on the Public Record such as default judgements and bankruptcy information are stored on a credit file.
“Clearout” Listings – which is when a credit provider chasing an outstanding debt has tried to contact a person in writing and failed, and has reported that person as a missing debtor.

How To Check Your Credit File

Credit files are created and held by credit reporting agencies. Two of the main agencies in Australia are Baycorp Advantage and Dun and Bradstreet.

Additional listings are made on your credit file each time that you apply for credit providing that the credit provider made it clear beforehand that your application’s assessment included a credit file check. A listing will also be made if you are in default to a credit provider.

You can get a copy of your credit file for free by writing to one of these agencies. This may take up to ten working days. By paying a small fee you can get your file much more quickly.

It’s a good idea to check your credit file a few weeks before applying for a loan or other credit facility, to ensure that it is up-to-date and accurate:

Are your names and addresses spelt correctly? Simple errors could mean that you have multiple listings for one loan application or have someone else’s defaults showing on your file.
Has someone stolen your identity? Identity theft is a growing problem, and one of the ways it is used is to falsely obtain credit, which of course is never repaid. If it is your identity that is being used, your credit file will show this through the listing of applications for credit that you know nothing about!
Check the accuracy and age of any items of interest - listed credit defaults, serious credit infringements and Public Record information. Were the guidelines followed? Is the information accurate?

In the event of any mistakes or disputes, you should inform both the credit provider and the credit reporting agency and ask that they amend the report accordingly – and check that they do. For example, a disputed debt should be noted as such on your file.

If you are unable to fix any inaccuracies on your file then you can take your complaint to the Office of the Federal Privacy Commissioner www.privacy.gov.au.

Maintaining A Good Credit File

Here’s some tips to ensure your credit file stays clean:

Pay all bills on time.
If there is a problem in meeting a commitment, contact the credit provider ASAP and agree a payment schedule. This is far better for both parties, and many credit providers will be prepared to come to an arrangement.
Don’t make too many applications for credit. Each one shows up on your credit file and can be an issue for some lenders as it can give an impression that you have a debt problem. For example, continuously applying for new credit cards chasing low rate balance transfer deals can cause a provider to refuse you credit. Even if you don’t have a debt problem, they may believe that they won’t be able to make any money from you.

What If The File Shows Past Credit Issues?

There can be a number of reasons why a person can have had credit issues in the past.

Perhaps they lived in a shared house and a fellow tenant forgot to pay the electricity bill, which also had their name on it. Or maybe they missed a mobile phone payment because of a dispute on charges, but the dispute wasn't noted on their file.

It is important to be honest and upfront about a situation, rather than hide it and let the provider or broker find the issue when reviewing the credit file.

Many credit providers are understanding of past credit issues, and have products designed to take this into account. Plus there are many home loan lenders that specialise in lending to such applicants.

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