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Buying Your First Home

How much of a deposit will I need?
What is a deposit?
What is Lenders Mortgage Insurance (LMI)?
What is Stamp Duty?
How much of a deposit will I need?

Most lenders now require a deposit of at least 5% of the purchase price of the property. If you are able to save 20% of the value of the home you will avoid Lenders Mortgage Insurance (LMI). This is unrealistic for most however, so at Finnacle we generally aim for around a 10% deposit.

What is a deposit?

This is the amount that you need to pay out of your savings. Banks like to see that you have been able to save over time as this shows that you are more likely to pay the mortgage off comfortably. Most lenders don’t allow you to borrow the full amount of the property.

What is Lenders Mortgage Insurance (LMI)?

LMI is insurance that the banks take up to protect themselves if you are borrowing more than 80% of the property’s value. The cost of the insurance is passed on to you and is based on the property value and the % of the property that you are borrowing (known as Loan to Value Ratio – LVR). The insurance protects the bank against any shortfall in the sale price compared to your purchase price if you are not able to make your repayments and they need to re-possess and sell the property to recoup the loan.

What is Stamp Duty?

Stamp Duty is a state based tax that you will pay on your property purchase. As it is levied by each State and Territory government it is slightly different in each state/territory. There are also times where certain groups pay less or even no stamp duty – currently in NSW and Victoria 1 st Home Buyers do not pay any stamp duty on purchases under $600,000.

Insurances (Protecting Yourself, your family, your home and your things)

What types of insurances are there?
Why do i need insurances?
How much do insurances cost?
Are there other ways to protect myself instead of paying for insurances?
What types of insurances are there?

There are many types of insurances available to protect yourself, family, home and belongings. These include private health insurance, home and contents insurance, personal insurances (such as life and disability cover), car insurance and of course pet insurance.

Why do i need insurances?

Insurances are used to cover yourself against negative incidents (such as illness, natural disasters, loss of income and even loss of life). By paying an insurance company an annual (or monthly) premium they will guarantee you a payment/s or other benefits if one of the above events occur.

How much do insurances cost?

Costs can vary widely, depending on the type of cover, quality of cover, your age and many other factors. We generally find that you can get a good level of cover for everything for around 5% of your income (leaving you to be able to spend the other 95% on everything else).

Are there other ways to protect myself instead of paying for insurances?

There are other strategies as part of a risk management plan. These can include building up a savings fund, having access to liquid assets, utilising leave entitlements and minimising the risks of certain events happening (for example living a healthy lifestyle to reduce illness, avoiding dangerous activities to reduce the risk of accidents). Everyone will have different requirements and we generally like to look at all your options as a combination.

Property Investing

Should I buy an investment property or pay off my home loan first?
What are the benefits of investing in property?
What are the risks of investing in property?
Should I buy an investment property or pay off my home loan first?

This really depends on your individual situation. Paying off your home loan is a great long term wealth building goal, however the earlier you start investing the more time you have for compounding to work it’s magic! This may be the difference between one investment property and a property portfolio.

What are the benefits of investing in property?

The main benefits of investing in property are the long term returns that a good quality property can bring you, and the ability to increase those returns through gearing (borrowing). Banks prefer lending for property as opposed to many other assets, so you can use a combination of your own savings/equity, a bank loan and rent from tenants to build a property portfolio. There can also be tax benefits provided to property investors, however this can be changed by the Government and should always be a secondary consideration when deciding to invest.

What are the risks of investing in property?

All investments carry risk. When investing in property these can be reduced by careful research, correct funding and ongoing monitoring, however risks cannot be completely eliminated. The main risks involved in property investing are tenant and vacancy risks (having bad tenants, damage, long periods without tenants), market risks (lower than expected growth and returns), lending/interest rate risks (increasing interest rates meaning the loan repayments are higher) and legislative risks (changes in laws that pass through the Government).

Investing

Should I invest in property or shares?
Should I add more to super or pay more off my home loan?
Should I invest in property or shares?

This will depend on your goals and current situation. Both property and shares can deliver good long-term returns, however they both have their own risks. Shares can be invested in with a small amount and added to regularly, whilst property requires a larger initial investment however borrowings can be used to fund the majority of the purchase.

Should I add more to super or pay more off my home loan?

Both options are good, and once again the best option will depend on your individual goals, timeframes and circumstances. Paying off your home loan provides a guaranteed return, whilst investing in super provides an uncertain however possibly greater return and can be more tax effective. It can be wise to do both as the compounding effects of super can work together with the early repayment of your home to help you become financially free.

Loans & Lending

How much deposit do I need?
What is Lenders Mortgage Insurance (LMI)?
Should I get a pre-approval?
Should I use a Mortgage Broking service or my bank for a loan?
How much deposit do I need?

Most lenders require a deposit of at least 5% of the purchase price of the property. As an example, on a $500,000 property a minimum $25,000 deposit would be required. If you are able to save 20% of the value of the home you will avoid Lenders Mortgage Insurance (LMI). This is unrealistic for most however, so at Finnacle we generally aim for around a 10% deposit.

What is Lenders Mortgage Insurance (LMI)?

LMI is insurance that the banks take up to protect themselves if you are borrowing more than 80% of the property’s value. The cost of the insurance is passed on to you and is based on the property value and the % of the property that you are borrowing (known as Loan to Value Ratio – LVR). The insurance protects the bank against any shortfall in the sale price compared to your purchase price if you are not able to make your repayments and they need to re-possess and sell the property to recoup the loan.

Should I get a pre-approval?

Yes, it is generally a good idea to have pre-approval in place. This is where a bank conditionally approves you for a loan before you buy a house. It allows you greater confidence that you are able to borrow the amount that you require, and can even be used as a negotiating tool as the seller knows you have your finances in order. Having a pre-approval in place will also reduce the time and stress of buying a home as a lot of the work to qualify for a loan has been done.

Should I use a Mortgage Broking service or my bank for a loan?

We generally recommend using the services of a Mortgage Broker to ‘shop around’ for the most suitable loan for you. Banks are only able to recommend their loans and products, whereas a Mortgage Broker can investigate many banks and lenders. There may be times where going directly to your bank is worthwhile, for example if you are a staff member and get discounts, and we would let you know if this is the case.

How We Work (The Finnacle Process & Who We Work With)

Am I locked in to anything?
What happens in the trial?
How do you help people?
Am I locked in to anything?

Finnacle has no contracts and so you are not locked in to anything. We hate lock-in contracts as much as everyone else! We offer monthly membership options, with rebates available for our members every 12 months.

What happens in the trial?

This is where we will discuss areas that are important to you and answer your questions (eg: how lending works, making the most of your incomes). We will also delve deeper into what you are hoping to achieve and explain how we work to see whether we are a good fit and, if so, which type of membership would suit you best.

How do you help people?

At Finnacle we strive to help people simplify their lives by making smarter money decisions. We do this by bringing together financial experts to tailor a plan for each of our members, from purchasing their 1 st home right through to helping them achieve financial independence.

Super & Retirement

Should I invest in super or pay more off my home loan ?
When can I access my super?
Should I contribute to super or pay extra off my home loan?
What is superannuation?
Should I invest in super or pay more off my home loan ?

The answer to this questions will depend on your specific goals, preferences and time frames. While paying off your home loan is a great long term wealth builder and a ‘pre-requisite’ for a comfortable retirement, adding extra to super can be tax effective and the earlier this is done the more time you have for the power of compounding to work its magic!

When can I access my super?

To access your super you generally need to meet two requirements – reach a certain age (known in super speak as your ‘preservation age’) and have retired (however from 65 onwards you get full access even if you are still working). For most people the earliest they can get access to their super is 60. There are other ‘conditions of release’, such as death, permanent disablement, financial hardship and compassionate grounds, where your super can be accessed if you meet any of these criteria. You can also access insurance benefits within your superannuation if you meet the criteria of these as well.
More recently the government has allowed 1 st Home Buyers to contribute extra to their super fund and access this to purchase a home. There are a number of conditions attached to this so do your homework or get advice on what is the best strategy for you.

Should I contribute to super or pay extra off my home loan?

The answer to this questions will depend on your specific goals, preferences and time frames. While paying off your home loan is a great long term wealth builder and a ‘pre-requisite’ for a comfortable retirement, adding extra to super can be tax effective and the earlier this is done the more time you have for the power of compounding to work its magic!

What is superannuation?

Superannuation (or super for short) was set up by the Keating government to help fund Aussie’s retirements. It isn’t an investment itself, it is more of a vehicle that you can invest in to grow your money over time. There are very generous tax concessions for those who contribute to super and for when you retire and access your money, and your employer (unless you are self-employed) must contribute at least 9.5% of your salary to your chosen super fund (this will increase to 12% over the coming years).
You are able to invest your superannuation in a way you see fit, however different funds will have different options for you so it is important to choose the right fund. You can invest aggressively, moderately or conservatively, with many super funds offering investments in shares, property, term deposits and some even offering commodities & currencies.

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