Summer 2018 - mulcahy.com.au · accounting | financial planning | lending | legal | information technology | agri solutions 1 | mulcahy.com.au p 03 5330 7200 | [email protected]

ACCOUNTING | FINANCIAL PLANNING | LENDING | LEGAL | INFORMATION TECHNOLOGY | AGRI SOLUTIONS

1 | MULCAHY.COM.AU P 03 5330 7200 | [email protected] | 300B Gillies Street, Ballarat

mortgagenewsSummer 2018

HELPING KIDS BUYING PROPERTY I HOMELOANS WHEN YOUR’RE SELF EMPLOYED I COMMERCIAL AND ASSET FINANCE 101 I WHAT YOU CAN OR SHOULD BORROW

Want to help your kids buy property? Here’s howThe real estate market can be tough for young

adults, but as a parent you may be able to lend

a helping hand. We tell you how.

PARENT-TO-CHILD LOANA parent-to-child loan is when a parent lends

their child money. This is a formal, legally

binding arrangement, administered by an

independent third party. At the start of the

loan period, both parties agree to terms

including repayment amounts, a schedule and

a process to manage defaults.

Benefits: You can set generous terms for your

child, but your assets, savings and credit rating

are somewhat protected as you are not the

borrower.

Drawbacks: There are legal implications

for your child if they have a spouse and the

relationship breaks down, in that the spouse

could try to claim some of the loan proceeds

as an asset of the relationship to which they

are entitled. There are also tax considerations

for both parties.

FAMILY GUARANTEEIf your child doesn’t have enough security

for a mortgage, you could provide a family

guarantee. This is where you use some of

the equity in your own home as part of the

security. For example, your equity might cover

20% of the security, and your child’s new

property would be the other 80%. It’s also

known as a guarantor loan.

This can be a temporary arrangement until

your child has paid down the loan to an

acceptable level.

Benefits: You have the option of guaranteeing

only a portion of the loan.

Drawbacks: If your child defaults, your assets

are at risk.

BECOMING A CO-APPLICANTYou can help your child secure a loan if you

sign on as a co-applicant. This means you’re

equally as responsible as your child for

meeting repayments. The lender will consider

your assets in its borrower’s assessment.

Benefits: Your child can obtain a loan with a

low income.

Drawbacks: If your child stops making

repayments, you’re responsible for making

them. If you can’t make the repayments, it will

affect your credit rating.

GIFTWhen you give your child money but don’t

expect it to be repaid, it’s considered a gift.

You may need to sign a statement to say it’s a

gift, not a loan.

Welcome Summer, bring on the warmth, BBQ’s and Christmas.

While being a very busy time of the year for work and social engagements it is also a time that a lot of us take a well-earned rest and reflect on the year and what we have achieved.

I trust that this year has been successful for you in your endeavours, whether that be work or personal goals.

In these busy times it is important to balance our lives across, work, family and self.

Enjoy this summer newsletter reading, we are here to talk to you about your finance needs any time.

Sincerely,

Neil McCahon

03 5330 7200

MULCAHY & CO LENDING

CONTACTNeil McCahon 0412 860 223Matt Egan 0409 010 725

[email protected]

We can help you• Get a home loan• Reassess your current loan• Refinance you existing loan• Find a commercial or

business loan• Consolidate debt and free

up equity

Follow us on Facebook

NEWS



Benefits: You can provide financial help,

possibly without the legal, tax or financial

implications of a formal arrangement.

Drawbacks: If your child has a spouse and

their relationship breaks down, the former

partner could make a claim for the property.

ASSISTANCE IN KINDIf you’re risk averse, consider providing

assistance in kind; that is, covering some of

the expenses that come along with buying a

property. You could pay for services such as

a property survey or conveyancing fees, or

help with stamp duty.

Benefits: You can give practical financial

assistance.

Drawbacks: The amount of money you

provide may be more than what your child

ends up spending. For example, you might

want to contribute $20,000 but the services

cost $15,000. In this case, the rest of the

amount is subject to the terms of a gift or

loan.

Make sure you’re well informed about your

options when giving or lending money so

you can remain in the best position to help

your child become a home owner. You can

contact us to discuss the right financial

arrangement for your family.

Finding a home loan when you’re self-employedThere are many perks to working for yourself,

but when it comes to applying for a home

loan, it seems being your own boss sends up

a red flag to banks and other lenders. Why?

A salaried employee has a regular, steady

income and is less likely to experience the

cash flow volatility of a small business owner,

contractor, entrepreneur, tradesperson or

freelancer.

Yet by being proactive and accessing

specialist advice, self-employed applicants

can also enjoy a successful and hassle-free

road to securing a home loan. Try these top

tips for starters.

1. SEEK EXPERT ADVICETrying to navigate the home loan landscape

solo may not produce the outcome you

desire. There are many experts who can help

self-employed people access a home loan,

and a mortgage broker is a good first port of

call. We will be able to provide you with an

up-to-date overview of which lenders on their

panel are most comfortable lending to the

self-employed, and also explain what sorts

of loan products are available. We can also

provide valuable advice around the sort of

documentation you will need to have ready

before you submit your application.

2. GET YOUR AFFAIRS IN ORDER Many lenders will lend to self-employed

borrowers who provide their full business

financials. This generally includes your

personal and business tax returns for the

past two years. If you have these documents

on hand – and they reveal a fairly consistent

income – applying for a loan should be

relatively straightforward.

However, the hectic schedule that comes

with running your own business means

many self-employed borrowers’ tax returns

are not up to date. If you have time on your

side, consider working with us to lodge your

outstanding returns. If you’re in a hurry, you

may wish to explore the option of applying

for a low doc loan.

3. CONSIDER A LOW DOC LOANLow doc loans are offered by a wide range of

lenders and, as the name suggests, require

less documentation than traditional loans.

Many low doc loans only require 12 months

of business activity statements instead of

full financials, for example. A downside of

some low doc loans is that they may only be

available at a lower loan to property value

ratio (LVR), which means you may need a

larger deposit

4. DO YOUR HOMEWORKChecking your credit history is a good step

for anyone applying for a home loan. If you’re

self-employed, it’s definitely worth taking the

time to make sure your credit history doesn’t

include any defaults or errors – these can

hold up your loan application if they are not

rectified in advance.

Taking the time to work out exactly how much

you’d like to borrow is also a good idea. That

way, you can hit the ground running when

looking at your property.

5. THINK OUTSIDE THE SQUAREIt may be possible to apply for a home loan using a Certificate of Income Declaration – a

document that verifies your income and is

signed by your accountant. It’s wise to consult

us so we can advise which lenders will accept

an income declaration. It should be noted,

however, that applying for a loan using such

a document may mean that the required LVR

(the portion of the property value you can

borrow) may be lower, so you may need a

larger deposit.

While it’s a little more complicated for self-

employed borrowers, getting a home loan

can be easier than you’d imagined with a

mortgage broker in your corner. Speak to us

to find out how a we could help you secure a

home loan.


Helping clients achieve financially security | 3

Are you financially secure? Follow our 10 Steps to Success...visit www.mulcahy.com.au

Commercial and asset finance 101We not only can help with your home loan

we also do business loans. There are several

types of commercial and asset finance

options that we can assist with.

WHAT IS A COMMERCIAL FINANCE?Commercial finance is an umbrella term for

different kinds of business loans. They’re

designed to help manage your capital and

cash flow.

TYPES OF COMMERCIAL FINANCEBusiness overdraft: Your financial institution

allows you to overdraw your existing

business account up to an approved limit.

You can only access the overdraft after your

own funds have been used. The lender charges

interest on the overdrawn amount. Businesses

often use overdrafts as small loans, usually to

cover cash flow gaps.

Line of credit: A long-term arrangement

between a business and a lender, where the

business can access funds up to an approved

limit. The business may borrow all or part of

the money at any time, but only owes interest

and makes repayments on the amount used.

Accessibility and flexibility are key here.

Term loans: A business borrows money

and repays the lender in set amounts over

a set period. Good for businesses that like

predictable repayments.

Commercial rate loans: Also known as

business markets loans. A business borrows a

single loan amount, which can be spread across

a combination of components, such as floating

rates, fixed rates and cap rates. This helps to

protect against interest rate movements.

Cash flow finance: A way for a business to

get cash before their customers actually pay.

There are two common methods used by

businesses:

Invoice discounting is where a business

accesses a percentage of their debtors’

unpaid invoices through their lender, and

the lender uses the debtors as security.

Invoice factoring is where the lender

assumes responsibility of the business’s

debt ledger and chases payments on its

behalf.

Both attract a fee and are designed

to service the cash flow gap between

outgoings and income.

WHAT IS ASSET FINANCE?Asset finance includes a range of different

loan structures that can help your business

buy vehicles or equipment.

TYPES OF ASSET FINANCEChattel mortgage: Also known as an equipment loan. A business borrows money to purchase an asset. The business owns the asset outright, but the lender uses the asset as security until the business repays the loan. This frees capital and ensures the business has security against the loan.

Hire purchase: The lender purchases the equipment and rents it to the business. At the end of the term, assuming all payments are made, the business takes ownership of the asset. This is a popular way to spread the cost.

Finance lease: The lender owns the equipment and the business pays a hire fee for use. In some cases, the business may be able to purchase or refinance the asset at the end of the set term, which gives flexibility.

Operating lease: The lender owns the

equipment and the business pays a hire fee for use. The business does not take ownership of the asset. The costs are deemed operational expenses.

Novated lease: A Novated Lease involves a three-way agreement between an employer, an employee and a lender. The Novated arrangement involves the employee leasing the vehicle directly from the lender. The employer will then agree to deduct lease rentals from the employee’s salary during the term of employment and to pay the rentals directly to the lender. The employee has the use of the vehicle for personal purposes.

Whether it’s cash flow or capital, businesses need money. It’s good to know there’s a loan to suit every business. Contact us for more information about commercial and asset finance.

NEWS



This publication is prepared by Professional Lenders Association Network of Australia Pty. Ltd. (PL AN) ABN 99 086 490 833, as trustee for the PLAN Australia Unit Trust trading as PLAN Australia. PLAN is a Credit Representative (No. 392535) of BLSSA Pty Ltd ABN 69 117 651 760, Australian Credit License 391237. This publication does not necessarily reflect the opinion of the publisher. It is intended to provide general news and information only. While every care has been taken to ensure the accuracy of the information it contains, neither the publishers, authors nor their employees, can be held liable for any loss, damage, cost or expense incurred by you as a result of any inaccuracies, errors or omission. Copyright is reserved throughout. No part of this publication can be reproduced or reprinted without the express permission of the publisher. All information is current as at publication release and the publishers take no responsibility for any factors that may change thereafter. This publication has been prepared without taking into account your objectives, financial situation or needs. Readers are advised to contact their financial adviser, broker or accountant before acting on any information in this publication.

Disclaimer: This newsletter does not constitute advice. Clients should not act solely on the basis of the material contained in this newsletter. Items herein are general comments only and do not constitute or convey advice per se. Also changes in legislation may occur quickly and therefore recommend that our formal advice be sought before acting in any of these areas. This newsletter is issued as a helpful guide and for their private information.

The amount you can borrow and the

amount you should borrow are sometimes

two very different things. Before you

apply for a home loan, it makes sense to

realistically assess your financial situation.

Here’s how to do it.

UNDERSTAND YOUR BORROWING CAPACITYGenerally speaking, your borrowing capacity

– what you can borrow – depends on a

number of factors, including:

• your income

• your monthly expenses

• your existing debts

• how much deposit you have saved

• current interest rate

• type of loan

• whether it’s a principal, or principal

and interest loan

• the term of the loan

• estimated repayments

However, knowing the difference between

what you can borrow and what you should

borrow is very important. As a general rule,

it’s not a good idea to allocate more than

30% of your monthly household income to

repaying your home loan.

BUILD A BUDGETTo fully understand what your realistic

borrowing limit might be, first of all

create a budget – and stick to it. Once

you understand exactly what’s coming

in and going out you can properly assess

how much you can afford to repay – and

therefore what you should borrow.

If you don’t feel comfortable drawing up

the budget yourself, it’s wise to seek help.

Expenses to include in your budget include,

but are not limited to:

• Expenses to include in your budget

include, but are not limited to:

• council rates

• body corporate fees (if applicable)

• insurance costs

• maintenance costs

• utility bills

• estimated groceries

• medical bills and health fund payments

• school fees

• phone and internet costs

• petrol and transport payments

• entertainment, travel and clothing

• other loans or credit card debts.

• Future-proof your figures

Remember to leave a bit of wiggle room in

your budget in case circumstances change.

People can lose their jobs or get sick, or

interest rates can rise, which could impact

your ability to honour your repayments.

It’s also important to think about some

other things that may happen: Is your

income likely to increase within the next

few years? Are you likely to have children

and lose an income? Do you plan to retire

shortly? These are all questions that only

you can answer, and they will all have an

impact on how much you should borrow.

Remember, lenders tell you how much you

can borrow, but you know your personal

circumstances better than anyone else – it’s

up to you to decide how much you should

borrow. If you need support and advice,

talking to a mortgage broker is essential

during the decision-making process.

What you can borrow or what you should borrow?

Neil McCahon0412 860 2233

Matt Egan0409 010 725

Contact us today!

Documents

Summer 2018 - mulcahy.com.au · accounting | financial planning | lending | legal | information technology | agri solutions 1 | mulcahy.com.au p 03 5330 7200 | [email protected]