“History” – the thing we know we cannot change yet wish we could change because of how it shapes our options today.

It may not be because what happened in the past was bad either. It could just be us wishing that things were better. Come to think of it, the desire to better our standing is just us being human…as human as it is for us to try and fail miserably.

So how does this philosophical introduction tie into loans?

I’m glad you asked.

Imagine someone going through a break-up. During that time, things can be said, both well-intentioned and unsympathetic, to the person who is hurting. Not only that, in break-ups, friends take sides. The person hurting may want to change how the break-up happened as a result. But the fact is, the deed has been done and there is no taking it back. The same can be said about the events that lead to bad credit.

In every breakup, friends say things like…

“He wasn’t good enough for you anyways”

“I knew she was going to leave you eventually”

“It’s okay you’ll find someone better”

“It’s not your fault”

Sound familiar?

Well how about when mortgage repayments are not made because a couple are going through a divorce? Their credit histories will show the defaults, and this paints a negative picture. Not only that, their options for obtaining finance can seem few if any exist at all.

But perhaps the reason payments weren’t made could be because…

“The lawyer told me that I shouldn’t make any repayments until the court hearing”

“My husband emptied our accounts before leaving us”

“I was overseas when she decided to change all our passwords”

The list of reasons could go on. And with every bad mark on one’s credit report, there could be a list of good reasons why that mark came to be.

When someone finds themselves in a situation needing a loan to bail out of a bad scenario, or just wish they could start afresh once the dust of a bad incident has settled, their primary goal is to find someone who will listen to their story. Maybe their reason for being in this “hole” is an understandable one that they shouldn’t be penalised for going forward.

Now I’m not saying that all lenders are willing to provide hope to potential applicants with a “past”. Fact is, just as how there are people with bad credit because of reasons beyond their control, some people with bad credit put themselves there through bad decisions of their own. As such, most lenders are set up to view bad credit applicants as riskier applicants. This is the case where a bank is positioned to target the mainstream. They are unlikely to give you the time of day if you are a blemished applicant. It’s not that they don’t employ good people, as many banks have staff who are kind, share a moment and then politely and regretful decline to help. It’s just that their policies and products aren’t set up to help you.

If you are someone who has a blemished past, there is hope yet.

Lenders do exist who will empathise with you by hearing your full story to understand what went wrong. Some of them will even offer you a loan at interest rates close to what you get from a mainstream lender. Their aim is usually to find out if your bad credit mark has no bearing on your circumstances going forward.

I need to clarify that not all circumstances are acceptable and depending on the incident and documentation available to explain in detail what has happened, a case by case approach means that each lender will have a different take on how keen or able they are to help you.

So where does that leave you?

At Liveable Loans, if you require financial assistance by way of a loan but fear your past may disqualify you from one, we would like to offer you our ear to tell your story. Once we understand your situation, we will “workshop” your scenario with the multiple lenders on our panel who will listen to your story and seek to understand it too.

So, whenever you’re ready, feel free to get in touch with us so we can start helping you get back on track.

Banks launch offers every other day. Some via old school billboards and radio ads. Some via more specifically targeted online channels like as Facebook or straight-to-your-inbox email marketing.

It could read:

“Score yourself a never seen before low rate of x.59% for 2 years with no ongoing fees#. You could also receive a $1,000 rebate^. Give us a call to see if you qualify.

#Offer applies to applications received from 1 January 20** and must be funded by 30 April 20**.
^first home buyers (qualify for the FHOG) will receive a $1,000 rebate paid within 30 days of loan being funded.”

The structure of these offers don’t differ a whole lot either: low rate + free something + maybe cash back + fine print.

However fancy or familiar the bearer of their juicy offer, the objective is the same: they want your business!

So should the messenger knock on your proverbial door or you stumble across a blaring pop-up, how should you respond? Are there other considerations beyond the super-low rate and cash rebates? Furthermore, what’s in the fine print?

For starters, when a bank launches an aggressive campaign, they expect there to be an increase in inbound loan enquires that should hopefully convert into loan applications. From experience, very few banks ever manage this sudden increase in traffic adequately, which can lead to blown out turnaround times.

This is important to note because if you are wanting to obtain a pre-approval to bid at an auction or apply for a loan to settle a property in a short period of time, “Mr Best Offer” may not be able to deliver on your required (as opposed to desired) timeframe.

Other factors that affect turnaround times include processing centres being located interstate or overseas which could influence how fast applications are actually looked at.

As a brokers, we can push for assessment to happen quicker and request that your file be escalated multiple times. Ultimately though, workforce economics dictates that more traffic undoubtedly will slow things down, thus potentially risking you missing settlement and incurring penalty rates that significantly outweigh the rate saving of the “best rate”.

Secondly, it is worth noting the timeframe of the special offer. Usually this is located in the fine print. If you are not planning to buy or settle your purchase within that timeframe, then applying to that bank whilst useful just in case, could end up being a waste of time as upon the lapsing of the special offer, the next offer may not be as beneficial.

Chasing offers whilst logical actually confuses you. Let me explain.

Say you apply to Bank A because they have the best rate but after 3 months, their campaign lapses so you apply for Bank B, which has the new best rate. Then Bank B’s campaign lapses and you apply to Bank C and successfully buy. However upon approaching settlement, you realise that Bank C’s campaign too has lapsed and now you want to apply to Bank D because Bank C won’t honour the rate… now you are trying to get Bank D sorted in a very short time frame to settle your purchase. Confusing? Tedious?

Lastly, should you come across a special offer, you can be assured that will be able to obtain it for you if that bank is on our panel of lenders. Banks are under the spotlight constantly and generally consider it unwise to promote a product to one channel ie online without allowing it to be accessed by brokers or the branch etc. Call it shooting themselves in the foot as very quickly those who see an offer one place but are denied it when they go to a different channel will undoubtedly kick up a fuss.

To sum up the points above, if you are looking to obtain a loan and would like to get our opinion on an offer that is on the market, we would love to have a frank and honest discussion with you about the pros and cons of that offer, if it actually suits your purpose and what we can do to make it happen.

What we recommend generally is a preapproval with a reliable bank that is able to assist should you find a property that requires a short settlement. Once you are successful in securing your property, we will recommend the best offer that will be able to deliver in time for your anticipated settlement.

The benefit to you is a process that is managed from start to finish so that you are assured that you will be able to settle your purchase and be confident you are getting a competitive offer as well.

Just as banks are silly to selectively promote their offers, we would be silly to not be transparent with you so count on us to tell it as it is. Fancy an offer, have a chat with us to do a comparison. You could end up with a great offer and a seamless experience.

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From the picture above you can probably tell where this is going.

The word “debt” means to owe someone something. It connotes a lending of something, and a returning of something. In the case of loans, the thing borrowed is money, and the thing returned is money as well – usually with interest along the way or at the end.

You are probably familiar with various types of debt such as home loans, personal loans, credit cards etc… But what about term deposits and savings accounts? When you consider how they work, you place money in the bank’s possession, the bank holds it for a term and gives it back to you at the end of the term (in the case of term deposits) plus interest. Sounds like a loan, just in reverse.

So what makes a debt good or bad? Well, what it is used for and what the end outcome is for the borrower.

In a bank’s case, the money they borrow from you comes at a price – the interest rate they reward you with. They then have to lend this money out for a relatively higher interest rate, so that the difference, also known as the “spread” is positive. This positive spread is the profit the bank makes. So the end outcome for the bank is a positive one and thus the term deposit is a good debt.

If the bank wasn’t able to lend out or invest the money it borrowed for a profit, then the debt would be a bad debt.

Bad debts are essentially this: debts committed to that do not provide a positive net outcome.

As a consumer, without the ability to freely lend money out, how do you then classify a debt as good or bad?

We will use the home loan as an example.

Taking out a home loan is not a cheap decision. In some cases, if the borrower takes the full 30 years to pay off the loan, they could be paying back 2-3 times the property’s value in interest. That’s a lot! Yet we continue to do it because of the benefits it brings.

For starters, being able to obtain a home loan means that you can purchase a property to live in at a price that is lower than say 5 years time, which history tells us is likely to be higher.

Not only that, being able to purchase a home today means that you can start a new life stage such as starting a family because you have a home you can settle down in.

Some will argue that renting makes more sense because renting allows you to move into your dream suburb and start a family too. But there is always the risk of being asked to move because your landlord wants their house back. And this uncertainty comes at a price. That price, is the interest paid to have your own home. And some would argue that it’s worth it.

What about holidays? Or financing a new car?

You are probably waiting for me to say that they are examples of bad debts. Well, if you look at the numbers alone, they are. Holidays once enjoyed come to an end and cars go down in value the moment you drive them out of the showroom. Yet you could’ve met the love of your life on that holiday, or secured a more fitting job further away because you now have a car. Perhaps that holiday made you realise you had to live life differently and as such, proved to be the turning point of your life, a necessary pivot to a more satisfying everyday.

As you can see, the good and bad of debt really comes down to how it is spent and the benefits derived. If everyone’s reason for taking loans is to make money, then purchasing a home wouldn’t be an example of good debt. If anything, buying an investment which pays more rent than then rent you pay currently would be a better use of debt. You make money month to month in positive net rent and you also get the benefit of capital growth (property going up in value). If everyone’s reason for taking a car loan was to be able to obtain a car faster “just cos”, then it would be a bad use of debt.

If your goal is to purchase a home some day and you are grappling with the temptation of buying a new TV on credit card, don’t do it as it will be a decision that detracts from your long term goals. Being likely to regret a decision is a good indicator of bad debt. Conversely, feeling confident about being able to accomplish more and make progress tends to be an indicator of good debt.

Each of your circumstances are different and the reason for you obtaining a loan differs from the person to your left and right. If you are considering taking out a loan, for whatever reason, feel free to give us a buzz for a frank and honest discussion about it. Also if you have found our articles beneficial, please share them with your friends. You will earn many friendship points and help us grow this blog into a resource that will help many.

Let’s just say you have successfully understood the benefits of both fixed and variable rates. But you also understand the disadvantages of each option. And now you have to decide which one to go with… or so you think.

Usually the reason why it is so hard to decide is because as consumers and human beings, we want certainty and we also want flexibility.

So the conversation in your head will likely go a little bit like this:

“If I fix my rate, at least I will know what I’ll be paying for the next 2 years or 3 years if that’s how long I fix it for”

“If I leave my rate as variable, I will be able to use the offset account to save on interest.”

“But what if I don’t actually save the money I earn and the rates go up? Then it will just be me paying a higher interest rate with no interest being offset in the process…”

“Wait, didn’t that bank let us do additional repayments on fixed loans? How much per year?”

Sound familiar? By this point, information overload sets in and you need a cuppa (some might argue for a stiff cuppa… or a nap).

Well, what if you could have both? That’s right folks, you can have both a variable and fixed rates in what we call a split loan. The idea is simple. Split your total loan into two separate loans. One loan with a variable rate, flexibility of repayment and an offset account attached. The other with a fixed rate and thus certainty of repayment.

As an added bonus, this is generally available as a fee free option when you bundle your loan in a loan package (we discuss what this is here). Otherwise, there could be upfront fees ranging upwards from $200 to set it up. Sometimes, it could be a smart combination of two basic loan products (we discuss this here).

So we are done.

Well no, you have to decide how much of your loan to split and which way to split it.

This is where Tommy comes in.

You see, splitting a cake is very much like deciding how to slice a cake. There is the slice you really want to eat now and there is the rest which you will eat later. Ultimately, you want to just eat cake. Deciding how much you want to eat now will depend on how hungry you are, but also the capacity of your tum tum (because God knows that “hangry” slice is gonna make you sick afterwards).

Similarly, the best way to decide on how you split your loan is to take the “how much damage can I do in the short term” route. You know that one loan will be fixed for a set period of time ie 1-5 years. That means that once you lock in the amount, that fixed rate loan will ride it course almost in auto-pilot with the same repayment coming out of your account every month because the rate is fixed.

To decide how much of your loan to fix, start by working out how much you are likely to save during the fixed term. It helps to work out how much you are likely to save in a single year be it individually or as a couple or household. Then multiple that amount by the number of years your loan will be fixed for.

If the figure is say $20,000, then if you wish to fix your loan for 3 years, you would leave $60,000 as a variable rate loan because you could potentially fully offset the full amount by the end of the 3 year fixed term.

Consider also the possibility that you might receive funds from family members who are either generous or as an inheritance. The latter isn’t a pleasant thing to think about so consider it briefly. However, the former situation tends to happen when children buy their first home and parents who have excess cash, sometimes suggest that they hold money for them because it will save them interest. It’s a kind gesture and one that could go a long way to help a first home owning couple along. In that case, factor in that amount on top of what you can save a year and the new total will be your variable rate loan split.

Something else to think about is the rate that your split loan will give you. Most fixed rate loans have a minimum amount as low as $20,000. However, whilst variable rate loans may have low minimum amounts, they will likely be priced competitively on amounts higher than $150,000 or $250,000. This varies from bank to bank. As such, this minimum amount might be the amount you go by in deciding what amount of your loan is variable and what remainder there be left as fixed.

Ultimately, it comes down to what fits your circumstances now and in the future. So if you would like to have a frank and honest discussion with us about how you’d like to “slice your cake”, please get in contact with us below and we’d love to hear from you.

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LVR stands for loan to value ratio.

Banks use this to determine whether or not they should lend money to you for the purchase of a property or refinance. This is also used to determine if Lenders Mortgage Insurance (LMI) is payable. We discuss LMI here.

To work this out, divide the loan amount by the value of the property securing it and express this as a percentage ie 50%, 80% or 95%.

For example:

If you purchase a property at $500,000 and borrow $420,000 to complete the purchase, then your loan to value ratio (LVR) will be 84%.

So why does LVR matter?

Simply put, if you borrow at a high LVR, there is a chance that your LVR could go up, potentially over 100% even! Dum dum dum…

It sounds highly unlikely. But consider this…

If the economy were to face a sudden downturn, the property market could suffer in which case, your property’s value could decline. If your property’s value goes down significantly faster than your loan balance against it, your LVR will go up because your loan balance will now represent a larger percentage of your property’s value.

Also, an economic downturn generally impacts employment levels too. If you are unable to earn a regular income, the risk of you failing to make your regular repayments increases. Likewise, the risk of your loan going into default increases. Banks fear this because if they are forced to repossess your home during an economic downturn, there is a high chance they won’t be able to recoup the full loan outstanding as the sale proceeds may not be sufficient.

At this point, bank not being able to recoup the full loan amount won’t be your primary concern. Where will you and your family live?

As daunting as this scenario may sound the way you approach your LVR and manage it can play a role in helping ensure that this scenario never eventuates.

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For starters, you could approach it the same way you would approach a day out at the beach in the peak of summer.

Wearing minimal clothing may seem trendy at the start because everybody wants a tan, feel the warm breeze and cool of the ocean. At the same time, you would be smart to put on sunscreen. If however you start to feel a burn, get dressed quickly and seek cover, because at that point, you will burn up very quickly.

Applying this to your loan…

Many first time buyers will opt for a higher LVR because they haven’t saved a sufficient deposit and it is easy enough to request and pay for Lenders Mortgage Insurance in order to exceed 80% LVR. It is a way of getting into the market quicker and should be managed by ensuring that additional repayments are being made to pay down the loan quicker or money being deliberately deposited into an offset account to reduce the interest accumulated monthly.

This is because without a buffer, lowering the LVR or ensuring you have funds in an offset account to make repayments in the event of unforeseen circumstances, the speed at which your loan could get out of hand at the rate at which an over exposed person gets sunburnt.

Also, consider speaking to a financial advisor about protecting your home with relevant insurance cover that comes into effect should you find yourself unable to work.

Lastly, be sure to be diligent in researching your choice of property. Finding a property that grows in value over time whether due to location or property type is great for helping to lower your LVR over time without affecting your monthly cashflow.

In summary:

1. Recognise that high LVR’s aren’t to be taken lightly but managed actively

2. Make additional repayments or build up a buffer in an offset account (both reduce the interest accumulated on your loan and allow for a buffer in equity or cash in the event of a unfortunate event)

3. Seek financial advice around insurance cover to protect your home if you can’t work.

4. Be diligent in your choice of property seeking growth potential so that your property’s increase in value lowers your LVR over time.

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If you are contemplating what LVR works best for you and would like to have a frank and honest discussion with us, we’d love to hear from you. You can get in contact with us below.

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