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Written by Michael Calam
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Wednesday, 04 February 2009 06:05 |
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The wait is over and not only has the RBA dropped the official interest rate by 1.00%, but the Government has now unveiled a new stimulus package, injecting a lot of cash into the economy. I can't help but wonder about the effectiveness of the $950 payments. For a start, it is calculated on your taxable earnings for 2007-2008, so my first question is what about the thousands of Australians who were redundantised or simply fired since then - what happens with them? Then there is the question of how effective this massive spend will be on the economy. Many people have jokingly referred to the last bonus payment as either the "plasma bonus" or the "pokie bonus" considering how much money was injected into either the pokie machines or luxury items such as plasma tvs in December 2008. Will a quick spike in retail spending give us all the reassurance we all need. Don't get me wrong, if I'm eligible then I'm certainly not going to hand mine back in an excess of nationalism. I definitely think that the interest rate changes will stimulate further business for us brokers. I am already planning a small local marketing campaign based upon providing health checks on peoples existing mortgages as there is a real opportunity to help people to save money. That's one of my favourite aspects of broking. With some research and product knowledge, we can literally save people thousands. I spoke to one client recently who had bought an investment property with his finance from a non-conforming lender who he had found himself. He didn't need to be with that lender and was paying through the nose, simply because he had seen their advertising and thought that his position wouldn't allow him to go through one of the majors. He was really struggling with his cashflow. We sat down and looked at his position and we found another lender who would accept his particular circumstances which meant a drop of almost 3% in interest rates on a $300k loan. That saved him $9,000 a year immediately. We also switched him over to interest only (as an investment property) which saved a bit more. He was afraid to convert the loan to an investment loan even though the property was massively negatively geared, all because he thought that he'd have to pay more tax on the rental income. I put him in touch with a good accountant and he has now also completed a tax variation form, freeing up even more cashflow. For months this young guy has been working extra jobs simply because he was ill-informed. He now doesn't have to worry about losing his property and he's sleeping well at night. When I'm busy chasing up the banks and trying to get those hard loans over the edge, I reflect back on situations like above and remember that there are reasons other than financial why I do this job. |
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Written by Michael Calam
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Monday, 02 February 2009 06:20 |
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It's Monday morning and my computer beckons to me. It's my quiet time and I'm sitting here contemplating the day ahead. I really enjoy this time. Especially on a Monday. The temptation is there for me to simply shower, shave, find my car keys and leap into action. But I manfully resist this urge and then calmly start to plan my day. I start with taking the various lists I used last week and check through them to see what is outstanding and what needs following up. I then create my Monday morning list of things to do. The first thing I do is update my diary to included my follow up's and due dates for my work. Some of them aren't that obvious, and they're the ones that need noting. For example, I have a variety of applications in place at present with both CBA and Westpac and these two behemoths are moving with what seems to be a glacial pace in the loan approval process. In fairness to both of these companies, they have been inundated with applications and so their turnaround times are bound to be extended. But for my nervous first home buyer applicants, even an hour without an approval being reached is agonising. Mental note to everyone, make sure that you advise potential home buyers to ask for 21 day finance clauses as many contracts are having to be extended at present. So, this morning I'm making notes of all of my current clients and whether I have good news, bad news or no news, I'm giving them each a call and updating them. This stops them ringing me throughout the day and also goes towards helping to alleviate their stress levels. Although I may not be telling them anything other than the bank is still assessing their application, they know that I am on the job, that I haven't forgotten about them and that I'm following the progress closely. The other thing I'm doing this morning is planning my month. I've given myself a target for the month of $2.4m in new loan applications. But how do I achieve that? If I work backwards from that figure, I can work out exactly what I need to do. First, if I work on an average loan size of $300k. This means that I need to submit 8 applications. Hang on, what if some get declined? Well, if I work on an 80% approval rate then that means that I need to submit 10 applications for the month. Working off my recent interview stats, I'd probably need to do around 15 interviews in order to submit 10 applications (as many first home buyer applicants at the moment just won't stack up to the lenders criteria). So, I'm aiming for 15 interviews which means that I need approximately 40 leads. Now, being the beginning of the month, if I then work hard this week to get those interviews from the various lead sources available, I should then be able to plan out my month of appointments, group them wherever possible and by this Friday I'll know whether or not I'm on track to achieve my goal. I feel much more comfortable with a plan. |
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Written by Michael Calam
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Tuesday, 03 February 2009 06:15 |
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It's the first Tuesday of the month and for some of us, it's like Christmas Eve. Santa (in the form of the Reserve Bank) is on his way and we're all hoping that he'll bring us something nice, such as another 1.00% drop in interest rates. It's funny though, less than a year ago most people would have laughed at the thought of the RBA dropping rates by as much as 1 whole percent. After 8 or more successive interest rate hikes, rates dropping by even half a percent would have been a relief for many people and so the majority of us were shocked when they fell by so much. Now some time down the track after a couple of big drops, I think some people would actually be disappointed if the rates dropped today by less than the speculated 1 percent. It's interesting to see how many people out there are holding off on purchases waiting for the perfect conditions. I've spoken with a few people lately who are determined to wait until rates are at their lowest and house prices have fallen. I wonder how many of these people will be left behind simply because the conditions were never quite optimal enough for them? For me, the most frustrating thing is the constantly asked question of "What should I do, fix now or go variable?" I can't help but be overly cautious when that question is asked. Effectively, that question is asking me to try to predict what is going to happen with interest rates. Now, variable rates may fall even further, granted, but if the banks economists believe that the future looks like having a reversal then we'll see the 3 to 5 year fixed rates increase, so what does that mean. At present, it's possible to get 3 year fixed rates at around 5.5%. The standard variable rate is around 6.8% and is very likely to change today. But even if today the variable rate drops to 5.8%, the 3 year fixed at 5.5% is still better. But, let's look at it from another angle. What if you ignore what's happening around us at the moment (hard to do with the world media, but give it a go). Rental returns are generally very good at the moment, it's not unreasonable to be able to find yields of between 6-8%. Comparatively speaking to the last 20 years of Australian economic history, a bank interest rate of 5.5% is cheap. It's certainly a much better proposition than the 8.5-9% we were seeing a year ago. It all comes down to what you are comparing the rate to and whether you will feel disappointed if rates come down some more after you've fixed, or whether you will relax knowing that you've fixed in at a very affordable rate and can have the peace of mind of not having to worry if rates go up again. It's a personal thing. As a broker, I just sit on the fence and tell my clients that they have to do what they feel comfortable doing. I tell the clients that it's all about whatever helps them sleep best at night. |
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Broking - Business or Hobby? |
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Written by Michael Calam
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Friday, 30 January 2009 07:00 |
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I've been quiet for the last couple of days. My daughter arrived back from overseas and there has been much activity as we re-integrated her into her (newly painted) bedroom. She loved it and I'm sure that made it all worthwhile. I have my new VOIP up and running and it has mixed results. Sometimes I have an excellent connection and couldn't fault it, but at other times I ring someone and they either can't hear me speak at all or I sound like R2D2. I can see a great future for it, however it would need to be much more reliable before I could completely switch over. I'm witnessing first-hand the power of advocacy right now. An advocate is someone who has been so happy with your service that they start to spruik about you to their friends and family. A lady who I wrote a loan for on Saturday has since organised meetings with me with her ex-husband, mother and now, her sister. Wow! How much would that advertising have cost me? It proves to me that a satisfied customer is not an end it itself, it is the start of your business growth. I've heard some dialogue recently about the lenders perspective on part-time brokers. There has been some speculation that lenders will be increasingly tough on brokers who only use them sporadically. I can understand that from a lenders perspective. I would imagine that a broker who only uses a particular lender from time to time would possibly ask more questions and require more hand-holding whenever they do submit a loan, simply because they would be less than familiar with that lenders vagaries. I say vagaries because while we can research policy and procedure, there are some aspects of each lender that you only learn from dealing with them regularly. So, what about part-time brokers? Personally, I know many successfull brokers who started off part-time. They didn't have the capital to jump straight into full-time brokering so they kept their day jobs until their broking business had reached a point where it would support them. I think the keyword there is business. Is your mortgage broking a business or a hobby? To me, one of the key characteristics of a business is that it has a plan. You have committed (hopefully to paper) a set of goals and a means of obtaining them. You may have worked out the costs vs income you require and every day you work towards achieving that goal. A hobby is an activity which has no direction. I would call your broking a hobby if you didn't have a plan, if you approached broking in a casual and disorganised manner. So what do I think of the future of broking for part-time brokers? I think that the part-time brokers will need to be more thorough and possibly specialise with a couple of lenders in order to meet the lenders criteria. I think that those part-time brokers who have a plan and who run their broking operation as a business will succeed. And the hobby brokers, I think that they will fall by the wayside as the industry requirements get harder. The industry looks like getting tougher, through increased compliance and regulation. I see this as a huge opportunity for those brokers who have their acts together. As the cowboys leave the market, that provides greater opportunities for those of us who are willing to adapt, learn and to ultimately, do our best to service our customers. |
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