While home buyers borrowing more than 80 per cent of the property’s value will have to pay the lender’s mortgage insurance to protect the lender if the home buyer is unable to repay their mortgage, there also options available to the home buyer to ensure that they will be able to continue repaying the mortgage in the event that something goes wrong. Here we look at some of the options available.

Whenever a client takes out a mortgage, they should look to help protect their mortgage payments should they be unable to repay. The first obvious option is taking out life insurance. Life insurance will mean that if the main breadwinner in the family dies unexpectedly, the family will be protected. The life insurance policy should provide enough to not only repay any outstanding mortgage payments owed on the property; it should also cover ongoing expenses such as schooling for children and the everyday costs of living. Life insurance can help protect any surviving family members from losing the family home. If clients are refinancing, or borrowing against the equity in the property, they will also need to look at increasing their life insurance policies accordingly.

Income protection is also vital for providing peace of mind for anyone making mortgage repayments. Income protection, also known as salary continuance, provides an ongoing income of up to 75 per cent of the insured’s monthly salary in the event that the insured cannot work due to illness or injury. Income protection can help ensure that if a breadwinner within the family becomes sick or is injured and unable to work, they will be able to continue to meet their mortgage repayments.

Trauma and crisis insurance can also help maintain repayments on a mortgage. Crisis cover for example can provide a lump sum benefit if the insured person suffers a life threatening illness or debilitating health condition. These conditions will be specified in the policy and can change from policy to policy but will generally include, stroke, cancer, heart attack and other serious illness. This lump sum benefit can be used to continue making mortgage repayments while the insured person remains unable to work.

It may be a good idea to ask your clients to speak to their financial planner, or to seek financial advice when they refinance their mortgage, take out a new mortgage, or borrow against the equity in their property.

Of course, it’s also important for your clients to ensure that the property itself is adequately insured. If the property is destroyed by fire for example, they will need sufficient funds to be able to rebuild.

These are just some of the options available to anyone who is repaying a mortgage. The right type and level of cover will differ for each individual situation and therefore you should always encourage your clients to seek professional financial advice so that they remain fully protected. It’s also important to remind them that they should be reviewing their insurance whenever their situation changes.

While real estate markets in some Australian capitals, notably Sydney, Brisbane and Melbourne, are in the doldrums, many regional areas are experiencing growth. Is this an area you can take advantage of as a mortgage broker?

According to the Housing Industry Affordability Report for the March quarter 2006, prices have risen by an average of 6.2 per cent in regional Australia while holding relatively steady in the capitals.

Naturally, the largest real estate growth seen in regional Australia is predominantly in the sea change areas along the east coast of Australia. These centres include the popular areas of the north coast of New South Wales including Coffs Harbour and Byron Bay and along the Gold Coast in southern Queensland. Other popular spots include the areas around Port Macquarie on the NSW Mid North Coast and the Shoalhaven on the NSW South Coast.

But it isn’t just the coastal areas that are experiencing strong demand for real estate. Many large inland cities are also going through a period of strong growth. This can be explained partly by people looking for a cheaper alternative away from the main centres of Sydney and Melbourne and the desire for a change to a quieter rural lifestyle. Another aspect of this growth is the strong demand for workers in the booming resources industry. According to the latest census, some of the growth areas in regional Australia included Maitland, Queanbeyan, Geelong, Albury-Wodonga, Bendigo and Ballarat. Many of these areas have strong mining industries.

Cheaper house prices in regional centres are obviously a major consideration for people making the exodus from the expensive capitals to regional centres. For example, in Narromine, western NSW Dubbo Raine and Horne Real Estate Director Kim Hamilton says that houses can be picked up for around $100,000. And what’s more, they can be rented out for around $150 per week . This provides a golden opportunity for someone who can’t afford $500,000 in Sydney or for an investor looking for a profitable alternative to a city or suburban rental property.

Mildura is another regional area that is thriving. Sand mining and the wine industry are keeping the residents of the town working and therefore house prices are averaging $188,000 with average rents at around $220 per week.

Dr Shane Oliver, AMP’s Chief Economist believes capital cities are overvalued by around 25 per cent and that most of the recent growth has been seen in regional areas. And this is likely to continue into the foreseeable future.

What to look for in a growing regional centre
While many regional centres are booming, other areas are experiencing downturns. Here are some things to look out for in regional areas that could indicate strong real estate growth:

• booming local industries such as mining or tourism
• attractive area for those seeking a sea change or rural lifestyle change
• investment by larger retailers and other manufacturers
• university campuses attracting younger people (and increase demand for rental properties)
• high level of demand for rental properties
• thriving central business district
• new housing and industrial developments

improving infrastructure including road and rail links.

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Could your clients benefit from consolidating all their debts into their home loan? Debt consolidation has become a very effective way to reduce the amount of interest being paid on car loans, personal finance and credit cards by combining all these debts into the home loan at the home loan’s lower interest rate. Could your clients benefit from consolidating their debts into their mortgage?

With home loan interest rates significantly lower than the interest rates of other forms of credit in Australia, debt consolidation has become a very effective strategy for some people in reducing the total amount of interest that they pay on all their various forms of credit. And not only does debt consolidation reduce the amount of interest payable, it can also simplify your clients’ finances as well. This is because they only have the one loan to repay, rather than several loans. It allows them to take care of all their repayments with the one regular home loan repayment.

Here’s how debt consolidation works
Your client combines their existing personal loans, car loans, credit card debt and any other loans they have into their mortgage. With the interest rate on the mortgage generally at a much lower rate than for other types of credit, the client is paying the same low home loan interest rate on all their loans and credit. And when you consider some credit card interest rates can be over 17 per cent, this can produce a big saving on the amount of interest they have to repay.

There can be a trap
It’s important to be aware though, that your clients can fall into a trap if they seek the benefits of debt consolidation. If they simply transfer their other debt into the mortgage, and then continue to repay the same amount off the mortgage as they were before, they may be saving now by reducing their total monthly repayments, but they could end up paying much more interest in the long run. This is because they will be paying interest off their other debts for the life of their home loan instead of the original term of the loan, which is generally any where from three to five years. This could mean that the total amount of interest they repay actually increases quite substantially over the life of the home loan simply because they are dramatically increasing the term.

How it can benefit your clients
For debt consolidation to really be effective, your client should continue to pay the full amount of what their monthly repayments were on their total loans prior to consolidating, and then continue paying that same amount off their new mortgage amount. This way, they will pay off their other debts much more quickly and they will really benefit from the effects of consolidating their debts into their lower interest rate home loan.

In the United States, a strategy that has attracted attention from both investors and regulators is known as double closing. Is double closing a legitimate investment strategy, and does it provide good investment returns for investors?

Double closing is a property investment strategy widely touted in the United States. Double closing involves a purchaser buying a property from the vendor, and then selling it straight away, for a higher price to a third party. For the investor buying the property off the vendor, no capital is required as the property is paid for with the proceeds from the subsequent sale to the final buyer of the property. Hence the term, double closing (the property is settled twice).

While double closing is a popular investment strategy with some real estate investors, not everyone is happy with the practice. Some real estate agents and lenders believe that the strategy is illegal and tell potential investors so. There does however, remain some doubt about this. The problem may lie in that there are unscrupulous investors who are involved in similar schemes in which the property is sold many times, often with shoddy renovations or repairs in order to artificially inflate the value of the property. The building is then sold to an unsuspecting investor who has paid far too much for the property. In such schemes, property valuers, mortgage brokers and the sellers of the property are all in on the scheme, often submitting fraudulent documents. Such schemes are illegal and this is where the confusion may lie.

How double closing works
Here is how double closing works. The property investor agrees to purchase a property from a vendor by signing a written agreement. The property investor then on-sells the property to a third party for a higher amount than what the investor paid. A written contract is signed for the second sale of the property. The investor does not need to put up any capital for the sale because the original vendor of the property is paid when the property is settled (or closed) following the purchase from the third party purchaser. A closing agent (attorney, title company or escrow agent) receives the funds from the third party purchaser until the deal is finalised. The original vendor signs the deed of the property to the investor and the deed is then held in escrow with the closing agent. The investor then signs the deed to the third party purchaser and this is held with the closing agent until the deed is finalised. The vendor receives the funds from the third party purchaser and the investor receives the difference between the price they sold the property to the third investor and the price they paid from the original investor.

Is it a good investment strategy?
Some investors obviously receive good returns from double closing deals. But this is not always the case. Often, the deal can fall through with the third party purchaser. This can often be the case if they find out that they have bought a property off a double closing investor. It can also be difficult juggling the two deals in order that they go through simultaneously. Many escrow agents will not even participate in such deals, so there can be many obstacles for the inexperienced investor.

With property markets booming over the past decade, it’s easy to see why the mortgage broking industry has expanded as rapidly as it has in Australia. But with an ever increasing number of mortgage brokers joining the market, and with little regulation, especially when compared to other financial services providers, is it time for reform of the industry?

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In Australia, the mortgage broking industry has seen phenomenal growth over the past decade, and this appears to mirror what is happening elsewhere around the world. Here we look at various aspects of the mortgage broking industry internationally.

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It shouldn’t be news to anyone that the property market has experienced a downturn over the past couple of years, with a few notable exceptions. But what is the outlook over the next 6 to 12 months? And are there any opportunities for mortgage brokers struggling in a highly competitive marketplace?

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Recently, reverse mortgages and other equity release products have received a great deal of interest. But are they an appropriate solution for your clients?

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Your client comes to you, not with just poor credit, but in a period of post-bankruptcy and wants to finance the purchase of a home. What are the options for your client?

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With over 10,000 mortgage brokers in Australia, you have a lot of competition. How do you grow your business to success? What are the keys to making the sales, to writing large loans, and soaring to ever-greater heights in the industry?

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