Autumn / Winter 2008 Newsletter

NEWS FROM JOHN, Awarded to Mortgage

Choic
e by A
ustra

PHILLIP AND ERIKA

lian B
ankin
g and
Finan
ce Magaz in e

We’ve made some changes to give

even better service to our clients.
Erika Jowers has now completed
her accreditations & is now a fully
qualified loan writer.
Megan Jeffery will now be our new
administration officer & will be your
1st point of contact.
The interest rate climate is
extremely complex at the moment.
There is no simple overall advice
which applies to all, the best solution
is an individual assessment which

Avoiding a
needs to apply to personal
fees can mean being
circumstances.
effectively “locked” into a more
We’re here to help. expensive or less suitable home loan if

Mortgage Choice Limited
449 Mossvale Road BOWRAL NSW 2576
Phone 02 4861 3633
Fax 02 4862 3644
phillip.jeffery@mortgagechoice.com.au
www.mortgagechoice.com.au/john.pearl
This franchise is independently owned and
operated by John Edward Pearl / Phillip
Edward Jeffery ABN 49 543 755 108
grand exit
In today’s competitive market,
many lenders have reduced their
upfront home loan fees in favour of
‘exit fees’ to dissuade borrowers
from bailing out early.
Exit fees come under a variety of
names including ‘early termination’
charges, ‘break’ costs, or ‘deferred
establishment’ fees. Whatever the title,
they tend to come as an unpleasant
surprise – and a potentially expensive
one, with the cost sometimes running
into thousands of dollars. These fees
typically apply if the loan is refinanced
or paid off in the first three to five years
of the loan term, and are definitely
something to look out for as high exit
the cost of refinancing is too great.
Not all lenders charge exit fees, but
among those that do, the cost may be
calculated in a variety of ways. Some
lenders charge a flat fee – anywhere
from around $500 to $1,500, while in
other cases, the fee will be based on a
percentage of the outstanding loan
balance in some cases as high as
1.5% of the remaining principal if you
exit within the first year. At that rate,
refinancing a $250,000 loan within the
first 12 months could see a departing
borrower charged $3,795 in exit fees.
The bottom line is that where exit fees
apply, the benefits of a new loan must
at least outweigh the cost of farewelling
the old mortgage.
Part of the problem with exit fees is
that we rarely anticipate swapping
Continued on p2...

OPPORTUNITIES IN A LOW VACANCY RENTAL MARKET

With the recent media coverage of rental vacancies at
record lows, potential investors may be considering
dipping their toe into property investment for the first time.
“Rental vacancies are at an all time low and are unlikely to
improve in the near future because of the undersupply of
housing stock across Australia. As a result, rents are
increasing,” according to Noel Dyett, President of the Real
Estate Institute of Australia (REIA).
“Rental returns have been quite consistent in all capital
cities, ranging between 10.3% for Sydney apartments to
18.8% for Perth apartments, and between 11.6% for Sydney
houses to 16.9% for Perth houses,” he says.
“However, investors should keep in mind that these
growth patterns are not necessarily the norm – the market is
cyclical – so people need to think of property as a medium-
to long-term investment,” he suggests.

INSIDE • Building a dream • Financial pressures • Low doc loans • Property valuations
...continued from p1
loans or lenders in the early years. As
a result, the issue of mortgage break
costs may be swept aside in favour of
more immediate concerns, such as a
favourable interest rate. However,
according to independent financial
information provider InfoChoice,
industry data shows the average life of
a home loan is now very short, as little
as 20 months in some cases, which
means that plenty of borrowers are
being stung by exit fees in order to
reap the rewards of refinancing.
Borrowers hoping to avoid exit fees
may need to dig deep in the fine print
of a loan contract to see if fees apply
to their personal circumstances.
Certainly, these charges are not
featured in the comparison interest
rate, which only includes upfront and
ongoing fees. Yet as Chief Executive
Officer of the Mortgage and Finance
Association (MFAA), Phil Naylor, points
out, “Costs such as exit fees influence
the total cost of a loan.”
For owner-occupiers looking to
refinance, the presence of exit fees
may make it worthwhile to negotiate
an even sweeter deal with a new
lender. Borrowers paying off a loan in
full may have little choice other than to
wear the cost. For property investors,
the outlook is slightly better as expenses
associated with discharging a
mortgage are generally tax-deductible
if the loan is used to produce
assessable income. (Note you should
always seek professional tax advice for
your particular circumstances.)
While exit fees are the bugbear of
borrowers chasing a better deal, it is
an impost that could be scaled back
or even abolished in the future. Growing
consumer angst has prompted
Commonwealth Treasurer Wayne
Swan to address the matter, with an
announcement in mid-February 2008,
that the Australian Securities and
Investments Commission will undertake
a review of exit charges. It’s a move
the Treasurer believes will “put further
competitive pressure on the banks”.
At present, however, the onus is on
borrowers to enquire about the
prospect of exit fees – whether they
apply and how they are calculated –
from their broker or lender. Knowing
just what expenses you could be
charged if you leave a lender is a vital
part of understanding your mortgage
and it could mean the luxury of choice
further down the track.
Building
a dream
Few things in life can be more
exciting than building a home of
your own. From the floor layout to
the kitchen fit-out, you have
complete control over how your
home will look and feel. And just as
you chose the design that meets
your needs, it is also important to
choose the right loan.
When it comes to financing the
construction of a new home, a
purpose-designed construction loan
can make better sense than a standard
mortgage. It’s a type of loan where the
principal is drawn down in line with the
completion of your home rather than as
a single lump sum. The beauty of this is
that the interest charge for borrowers is
minimised. For example, on a loan of
$350,000 for a house and land
package, you may only need to draw
the initial cost of land – we’ll say
$200,000, so interest is only paid on
this amount until work commences on
construction of your home.
Once building gets underway, a
construction loan will see the lender
make a series of payments to the
builder. Your individual building contract
will specify the number and timing of
progress payments; however, there are
four broad stages of home completion,
Concerned about financial pressures?
It may be time to revisit your budget.
With the cooler months approaching,
it’s an ideal time to spend some of
those chillier evenings at home,
becoming better acquainted with
your finances.
If you find yourself struggling to manage
your financial commitments – be they credit
card debts, extra personal loans or simply
managing household bills – it may be
worthwhile setting yourself a budget. This
can bring you peace of mind as well as the
confidence you need to move forward with
a clearer picture of your financial future.
There are many free budget templates to
choose from, including the ‘Understanding
Money’ budget planner from the Australian
Government website, http://www.
understandingmoney.gov.au.
including laying the slab, completing
framework, taking the building to
lock-up stage, and the most exciting
phase – completion!
As each stage of building is
completed, the lender’s valuer will
assess the progress to confirm that the
work has indeed been completed and
to ensure the builder’s progress claims
are accurate before payment is made.
Home buyers looking to build their
dream home with a construction loan
are asked to provide additional
paperwork. This typically includes a
copy of the builder’s fixed price
contract, council-approved plans and
specifications of your proposed home,
and a copy of the builder’s insurance
(this must be current for the period of
construction). Alternately, if you are
undertaking the project as an owner-
builder, your lender will want to see
detailed costings for your new home.
While your dream home is being
built, the payments on a construction
loan are typically interest-only. On
completion, a final valuation will be
made, and from here the loan will
normally revert to principal and interest.
With the hard work behind you - and a
new home standing in front of you, the
celebrations can begin in earnest!
Another useful tool for budgeting is the
Spendtracker. Small enough to fit in your
wallet, it enables you to keep track of your
expenses at the point of purchase. For more
information, visit www.mortgagechoice.com.au.
If you are still feeling uncomfortable
about managing your financial
commitments, there may be other solutions
available to you. Debt consolidation allows
you to merge your personal debts into a
single loan, which may enable you to pay off
your debts at lower home loan interest
rates. This could alleviate some of the
monthly financial pressure, since your
combined overall monthly repayments may
then be able to be reduced. Your mortgage
broker can determine if your home loan
structure allows for debt consolidation and
identify any costs associated with this.
 Low doc loans
With as many as 39% of
us deemed to be
self-employed or
contract workers, it is
little wonder demand for low
documentation or ‘low doc’
loans has skyrocketed - and the
changing face of Australia’s
workforce is likely to continue to
drive demand for this type of product.
Low doc loans caused quite a stir
when they first arrived on the scene a
decade ago. Prior to this, self-employed
workers enjoyed few options beyond
expensive solicitor’s mortgages. In
comparison, these days we’re spoilt
for choice, with low doc loans on offer
across a broad spectrum of lenders.
While similar to standard home loans
in terms of repayments and features, it
is in proof of income that low doc loans
stand apart. Rather than showing lenders
individual’s pay slips or a salary contract,
self-employed borrowers are able to
provide less paperwork – hence the name
‘low doc’. For a low doc loan, you may
simply be asked to state your income in
a process called self-certification.
Due to the minimal income evidence required by lenders for
low doc loans, the lender relies on two factors: firstly, the
credit worthiness of the borrower and secondly, confirmation
of the value of the security. There is also a larger emphasis on
the borrower, rather than the lender, to determine whether the
borrower can afford the repayments and any potential interest
rate rises in the future.
There are two main types of low doc loans: prime low doc
loans and sub-prime or credit-impaired low doc loans.
The majority of low doc loans issued in Australia are prime
low doc loans. These may be approved without the cost of
mortgage insurance up to a 60% Loan-to-Value ratio (LVR).
Loans insured by Lenders Mortgage Insurance are generally
allowed up to a maximum 80% LVR. A good credit history is
required and potential borrowers are required to self-certify
their income.
For those that have an impaired credit history or very
short-term employment, there are lenders who will provide
sub-prime or credit-impaired low doc loans. These lenders
often charge higher fees and interest rates. Most will
charge mortgage insurance, irrespective of the LVR and all will
do a valuation.
The low doc loan market is characterised by a large degree
of variation and complexity and a professional mortgage
broker can help you assess your options and assist you to
find a low doc loan suitable for your needs.

Property valuations:
What you need to know

Whether you are buying or selling a
property, involved in a marriage
settlement, or about to refinance a
property loan, you will require a
property valuation.
Valuations can take several forms. A
full valuation, for example, requires a
qualified or licensed valuer (the term
differs from state to state) who
physically inspects the property and
facilities. This type of valuation generally
also contains the property’s age,
construction type, accommodation,
fixtures and fittings, the general standard
of chattels, as well as special features,
such as security or air conditioning.
Your lender will generally arrange for
a full valuation of the property. As they
are using the property for security, the
lender will want to ensure that the value
of the property is more than the amount
which does not require a valuer but
calculates the valuation from property
market data only. These kinds of
valuations are generally obtained through
websites or via SMS services and are
sometimes used by prospective buyers to
find out a property’s market price estimate
and a sales history of the postcode.
WINNER

provides a report containing information Congratulations to the winner of the

such as the property’s market value,
historical sales information, a legal
description of the property’s title, the
land, its location, size, zoning,
maximum development potential, and
the property’s proximity to local
lent. To minimise the risk to the lender, Spring/Summer 2007 Mortgage
Choice It’s Your Choice promotion.
the lender’s valuation is generally
conservative and may be less than
what you expect. Gaye Dwyer of Stanhope Gardens in
NSW has won $6,000.
The second type is known as an
automated valuation model (AVM),
 $6,
Mortgage Choice Limited
449 Mossvale Road BOWRAL NSW 2576
Phone 02 4861 3633
000
Fax 02 4862 3644
phillip.jeffery@mortgagechoice.com.au
www.mortgagechoice.com.au/john.pearl
This franchise is independently
owned and operated by John
Edward Pearl / Phillip Edward Jeffery
ABN 49 543 755 108
with $6,000 to spend at the
Flight Centre

CHANGES Simply call 02 4861 3633 to make an appointment with Erika Jowers, John
Pearl or Phillip Jeffery and request to be entered into the draw.
As stated previously there
At Mortgage Choice we make getting started simple, from finding a home loan that suits you, to taking
has been some major you through the whole application process. Whether you are buying a new home, refinancing, consolidating
changes to the staff in debt, investing in property or financing a renovation, talk to the specialists. Mortgage Choice offers:
the office. • Wide choice: We have many of Australia’s leading banks and lenders on our panel who offer
Since 2006 we had 2 full collectively hundreds of home loan products
time loan writers & a casual • Professional home loan advice
part time administration person. • Local knowledge: We’re Australia’s leading mortgage broker because we combine local
As from mid March we will knowledge with over 15 years experience
have 4 full time employees. Ask us for a Free Mortgage Choice Home Loan Health Check to find out if your current home loan
is the most suitable one available or if there are other products out there that better address your
The reason for the
specific needs.
additional staff is because
of our loyal clients (who do Call now on 02 4861 3633 or fill in your contact details below and
refer family & friends) & new • Fax it to: (02) 9954 4913 or
clients who seek out our • Mail it to: Mortgage Choice Escape On Your Dream Holiday Promotion,
services because of the good Reply Paid 74789, North Sydney NSW 2060
reputation of the Mortgage
NAME CONTACT NUMBER
Choice brand name.
Thank you to all our ADDRESS POSTCODE
clients. This month we are
hopeful of passing a major EMAIL PREFERRED CONTACT TIME
milestone in our business ESCAPE ON YOUR DREAM HOLIDAY PROMOTION: Call 1800 110 170 to make an appointment with a Mortgage Choice consultant and once you’ve attended
- $150 million that we now that appointment you’ll automatically go in the draw to win $6,000 deposited into a Flight Centre account in your name. There will be 1 draw and the first valid entry
will win. Winners will be notified by telephone and confirmed by mail. The opening day of the competition is 1 May 2008. All entries must be received by Mortgage
have in our ‘loan book’. Choice at the address above by 5pm EST on 31st July 2008. The draw will be held at 4pm EST on 1st August 2008 at the offices of Mortgage Choice. The name
of the winner will be published in The Australian on 5th August 2008. Complete terms and conditions and the privacy notice are available from www.mortgagechoice.
com.au. Authorised under NSW Permit No. [LTPS/08/02050], A.C.T. Permit No. [TP 08/00861], VIC Permit No. [08/878], and S.A. Permit No. [T08/942].

STATE OF THE MARKET IN THE STH HIGHLANDS

Sales in the Southern Highlands
MOSS VALE;- Sales volumes have remained amazingly consistant over the past 3 years with a slight increase in 2007 with
average sale price being $325k in 2007.
BOWRAL:- has also shown consistant increases in sales however, average sales has dropped to $410k
in 2007 down from $440k from 2005.
MITTAGONG:- Sales volumes have shown a marginal increase each year for the past 3 years with
average sale price being $360k in 2007.
We believe that the market will up and down over the next 12-18 months given what is occuring
in the US & rate rises in Australia. Whilst we are not able to give advice please remember ‘what
goes up must come down’. You will hear many commentators giving their point of view & usually
all predictions will differ between them. Always speak with your financial advisor prior to
making a decision.

Privacy: There will be occasions where we would like to send you valuable information directly related to property finance, as well as other related offers, tips and opportunities. However should you wish to
receive only certain types of information or nothing at all, please contact your local franchise principal. Disclaimer: The content of this newsletter is written expressly for education purposes and is based on
the opinions of the authors. The authors and agents for the authors are unable to accept any liability or responsibility whatsoever to any error or omission or any loss or damage of any kind sustained by a person
or entity arising from the use of this information. It is recommended that you seek professional advice relevant to your specific circumstances before acting on the information based in this document.