How do you get a home loan approved? What is the role of a mortgage broker and do you need one?
Today I am bringing you Obu Ramaraj. Obu is a successful entrepreneur, author, speaker, experienced mortgage broker and CEO of Smart Money Solutions, she is joining us today to let us in on all the essential information to successfully get a home loan approved and explaining exactly what a mortgage broker does and why you might need one.
You can listen to the episode above or read the following transcript.
Meaghan Smith 00:23
Hello beautiful people and welcome to another episode of the money mindful Podcast. I am your host Meaghan money mindset and empowerment coach for women. I help you connect with your future self transform the way you think about money and create the extraordinary life you want to live on purpose. This month on the podcast I've been focusing on investing in property. I am bringing you these guests so you can learn what is possible and give you some information so you too can start your property investment journey. I often talk about this because as humans, we're very good at placing limitations on ourselves, telling ourselves what we can and can't do. I hear a lot of talk about how investing in property is out of our reach, particularly for millennials. But I'm here to tell you that this is complete BS. If you tell yourself something is not available to you, that is the evidence, you're going to look for all the ways that property investing isn't available to you. Other people are doing what you dream about. Even millennials Yeah, who eat avocado toast. The only difference is that they have taken action. They've told their brain to figure it out. So in an effort to make this process even easier for you, today on the show, I'm bringing you Obu Ramaraj overs is set a little Let me say that again. Obu is a successful entrepreneur. She's an author, speaker experienced mortgage Broker and CEO of Smart Money Solutions. She's joining us today to let us in on all the essential information to getting a loan Obu welcome. And thank you for joining us today.
Obu Ramaraj 02:13
Thank you for having me on your show, Meaghan. It's my pleasure.
Meaghan Smith 02:17
Obu you have a pretty impressive resume. I know a little bit about your story through reading your books, What lenders won't tell you smart women, smart home loans and Smart women smart habits, powerful practices to create your ideal financial future. But perhaps you can tell us a little bit about your story. How did you get so good with money and how did you become a mortgage broker?
Obu Ramaraj 02:43
Um, I'm from India for those people who don't know about me. I've been in Australia since 2006. I come from a family of entrepreneurs. My father is a businessman. So was my grandfather. So I think Initially, I have it in me and and they were shrewd people, you know, they knew how to handle money. My grandfather created a very successful few businesses from scratch. So yeah, I've always been good with money. I've seen my parents and taken on their habits. Most of it good. You know, I used to even get some pocket money at a young age but never spent. That's a different story. You know, there are lessons that we can always learn from our surroundings and the habits that we have. Basically, my I studied science, I'm a Master of Science in biotechnology. I got married, I came to Australia because my husband was here. And it's an arranged marriage, a strange concept for a lot of people I guess. We've been married for 15 years anyway, so when I came here, I tried to not have my son straightaway. So I couldn't work for a couple of years. And then when I tried to get into science I was looking for a job. It just didn't happen. And even though I was disappointed my husband in the two, three years that I was looking for a job and raising my son, my husband, he wanted to become a mortgage broker. And he always urged me to become a mortgage broker because he knew I was really good with money and I loved numbers. But I sort of resisted it because I wanted to give my science degree a chance. Having studied for five years, I've put in a lot of effort and I did love science as well. So when I try to get a job and it didn't happen, there came a point when I had to decide what next? Since I had completed my mortgage broking certificate, then I decided I'm going to take on whichever happens next, either the science job or mortgage broking and mortgage broking just happened and that's how I got into to become a mortgage broker. I never understood the difficulties I would go through Or how hard it would be I just jumped in. And yeah, this will complete in 11 years come August this year.
Meaghan Smith 05:08
Wow. It's so interesting how our careers evolve, that you start out doing one thing and then end up doing something that's completely different, but it's actually the perfect thing that you need to be doing.
Obu Ramaraj 05:25
Yeah. This is not common in India, though. If I was in India, people, you know, whatever they study, that's their profession till the very end of their lives. So I guess it's a unique thing that when you're, you know, either in the Western countries, Australia, USA, UK, it's okay to explore and I love that.
Meaghan Smith 05:48
Yeah, I think that's a privilege actually, that we have through Yeah.
Meaghan Smith 05:55
So over wide property, like do you invest in other things? forms of passive income such as shares as well or is property, your main focus.
Obu Ramaraj 06:07
Um, for me personally, people used to ask me even when I started mortgage broking, I had not bought a property for a long time. People say, oh, you're a mortgage broker, you're not buying, but then I invested all of my money into my business so that I can grow it. So I guess there are different ways of investing, not just property or shares, if people are running their business for sure, they can always, you know, put more into work because they know it's going to bring them more income. as a as a mortgage broker, of course, you know, my speciality is to help people with their home loans. So yeah, I believe there are different ways there's no one right way or you know, whatever suits each person, that's what it is.
Meaghan Smith 06:51
Obu, can you talk us through the fundamentals of getting alone? What should we be taking into consideration when we're preparing for a loan, I'd love you to touch on the fact that banks want an accurate budget, and they look at your expenses over the last few months. And it's important to take that into account that the process starts months before the application is in, what do we need to do to prepare for applying for a loan?
Obu Ramaraj 07:24
So basically, if you want to get a loan, what you need to do is to have enough income to be able to pay off the debt. Yeah, so that's the very basic thing that anybody any bank will look for when you approach for a loan. The second thing is no bank will lend you 100%, which means you need to have some savings to put towards the loan. Of course, you know, there are different schemes that are happening now to boost the economy and the government's providing. But basically, those are the two things income and savings. So yeah, some clients you know, they come to me at a very preliminary stage, they wouldn't even have any savings. So then you know, I help them work out a plan, but other people might have a savings and even a budget in mind they might know okay, this is how much rent I'm paying this is an equivalent amount is what I would be comfortable or maybe a little bit more. But nowadays, the banks are focusing more on living expense, especially in the last two years. Earlier, they used to have something called the hem value. So for example, if a family has you know, a husband and wife and say two children and they live in a particular suburb, the banks would say Okay, a couple, two children, this suburb, this is how much their living expenses in the last two years because ASIC also has been playing an important role and you know, focusing on doing the right thing and they're putting a lot of pressure on banks. Banks are now coming out and saying, as a customer, you need to declare how much your living expenses are, of course, a lot of people are not used to this, they don't know how much money you know, they know how much money is coming in, but they don't know how much is going on.
Obu Ramaraj 09:06
So my clients, you know, a lot of them, they estimate a value, which was okay even a year ago. But right now, the banks go through every single transaction on your bank statement, and they match it up with what you've declared as living expense. So they know exactly where your money goes. That's how tedious or you know, they scrutinise every transaction. So it's really important to know how much your living expenses are. And the way I suggest to do that is to go back six months to 12 months, and then group through your expenses like you know, if you already live in a property, you'd have your property expenses, your rates and all that. Then you know, you have your recreation, which is like your holidays or you know, extra subscriptions, eating out things like that. They even look at, you know how much your clothing expenses are your personal expenses, your your phone bills, utility bills, those are all the fixed ones. So break it down into different categories and do that. Personally I do and review my budget every year come December, I'll just go back. And if you do it one time, it might be a little bit easier to do every year. So you can just go back and just check, you know, has your expenses gone up for in a particular category, the next year, so that way you also know exactly how much you're spending. And it's a good exercise because then if it doesn't match up, you will know that you know, you might say Oh, but I'm only spending this much but you will if you don't have enough savings, you will know that actually you are spending more and you can go back and review if you want to cut down.
Meaghan Smith 10:46
and how far back are the banks looking?
Obu Ramaraj 10:51
Banks want to look only for three months. But having said that, if you bank with a particular bank and you go back to them for a loan because that's the best choice, then of course, they have your whole history. So even though you might have been good for the last three months, they definitely can see what you've done through the last I don't know, months years. So yeah, but yeah, if you if you're going to a different bank, then yeah, you can follow all tips and tricks. You know, you can have a separate expense account and then go to a different bank, you can do all of that. Again, this is more exercise for yourself. If you want to be good with your money, then you do this more for yourself and for the bank.
Meaghan Smith 11:33
Right. So what I'm hearing you say is that when we're getting prepared to take out a loan, we need to start preparing months in advance in terms of making sure that our budget and our expense record looks clean. And that's right, yeah, maybe not having maybe not using Uber every every night.
Obu Ramaraj 12:00
Exactly, or even Yeah, you know, going to the pub every now and then takeaways. Yeah, small things add up actually cut off cups of coffee, everything adds up. So the other thing that you need to be aware of as well, before you go to an lender to get a loan is to disclose all your debts. Sometimes I'm seeing now that people forget some of their debts, you know, it could be a credit card that they got, like five years ago, but they have never used it. So they've forgot all about it. But when they apply for a home loan, of course, the banks have access to the credit, your credit report. When they look at it, they're like, oh, here's a credit card. And if you haven't disclosed, that's good enough reason for the bank to decline your loan because they think you've hidden something from them. So one other thing I suggest is to get a copy of your credit report from you know, Equifax or Dun and Bradstreet, one of those places where you can get a free Report, and to make sure that you know what's on your credit file. And if it's a credit card that you haven't used for a long time, you can just, you know, go back and close if you think you don't need it that way, when you go to the bank to get a loan, you have disclosed every debt that you actually have.
Meaghan Smith 13:18
Yeah, that's really good advice. And I think I'll make sure I get those names from you. And we'll put it in the show notes. So if people want to check their credit report they can. And I think some other things about credit cards that I've heard and you can correct me is that depending on how much it doesn't matter if you credit cards paid off, if you've got a limit of a particular amount, they take that all into account, right? Can you talk a little bit about that?
Obu Ramaraj 13:47
So um, with credit cards again, some of my clients will come and say I do have this $15,000 credit card, which you know, I paid off every month so I haven't you know, included it as a debt. banks don't look at it that way. Because you have that 15,000 limit, it means you can take the credit card and spend $15,000 tomorrow and all of a sudden, you end up having to make repayments on the $15,000. So any credit card debt that you have, the banks will always include a percentage as your monthly expense can be anywhere from three to 4%. And that will be included when they calculate your borrowing, how much you can borrow,
Meaghan Smith 14:32
right? So can we just reduce our credit card amount? So if we had a $15,000 card, bring it down to 5000? Say would that make a difference in our borrowing capacity?
Obu Ramaraj 14:42
Yeah, it won't make a huge difference, but it will like if you're really struggling, anything that you can bring it down to it will make a difference because you know, then the limit or your monthly expenses calculated on the lower limit rather than the higher expense.
Meaghan Smith 14:58
Right Well, there's a good little Tip. So what can we do to make ourselves more attractive for getting a loan?
Obu Ramaraj 15:07
As you mentioned before, you need to plan at least three to six months before your you want to get a loan just to make sure your accounts are in order. No late payments on your credit cards or any of your loans or no overdrawn bank accounts, make sure that you can make yourself as attractive as possible. And the bank cannot say no. And, and as we discussed, again, if you have been spending lavishly, you know, doing Uber every night, make sure that you are reducing that until at least that time that you can get that loan.
Obu Ramaraj 15:46
And of course, if you're you know, it could be you could be making 200 $300,000 as a couple and you could afford that that's fine. If that's what you want. That's fine. It's just understanding how much you can afford and then how much you can spend? So it's not like, you know, you cannot spend you just, you know, banks don't want to see any spending, of course, they want to also make sure that, you know, if you're making $300,000 and you're you're not spending at all, then of course, they will question you to say, Oh, you have such or such high income, how come you know, a normal couple would spend at least something. So it's just looking at all those things and planning accordingly, to make sure you know, you're very attractive as attractive as possible. One other thing I always tell clients as well, you know, if if someone's making say $6,000 a month is their take home income, and the living expense that they declare is like, thousand $500. And let's say they're, excuse me, let's say their rent is $1,500. So that's a total of $3,000 that they've declared as their monthly expense. But if you check their savings, and if they don't, if they're not saving, three thousand dollars every month? Where is the money going? It's a very simple calculation, isn't it? So then people don't think that way. They're like, Oh, but I'm not spending but where is the money going? That's a question they need to ask themselves and see, where exactly is that money going? Is it like, spent hours have been spent on something else that they're not even aware of? or? Yeah, that's a question. That's another way of looking at it, and helping them prepare.
Meaghan Smith 17:27
Yeah, I really like that. Just about having that awareness around your money. And I know that there's a lot of people in the debt free community and just some people in general who like to do their budget every month, but I will freely admit that I only do my budget once a year. And that's because I've put a lot of processes in place so I only need to do it once a year, and I don't want to have to be looking at it once a month to know where I'm at,
Obu Ramaraj 18:04
That helps me with is to know how much my monthly expenses are. So, for example, if my monthly expense is, you know, $5,000 I know it is thousand 250 a week. So then the idea is to have only that much money or you know, if you're going to transfer it from one account to another, only transfer that money so you can keep an eye on your expenses and you're not going to spend more than you know, by the end of the week, you will know what's left. That's another way of you know, like you said, there are various systems and processes you can adopt to make it easier for yourself. And you don't have to do this every month or you know, like it's like you I feel it's very tedious to do it every month. It's a lot of time that you need to spend.
Meaghan Smith 18:51
Yeah, and look if if you want to do it every month, but like that's totally fine. You know, I don't I don't see any problem with that at all. And That's why I think it's called personal finance. Because it's personal. We actually get to decide how we want to do it and do it in a way that works best for us. All right, so moving into more of the nitty gritty of loans, can we just define? Can you talk a little bit about what's the difference between principal place of residence home loan, like for your actual home, which gets referred to as PPR? So if you ever hear people say, PPR that's what that means. And then and an interest only loan or an investment loan, can you just talk us through the different types of loans and how we, if we're going to get an investment property that would differ from getting a home loan for our own home that we're actually living in?
Obu Ramaraj 19:48
Yeah. So I guess, there are, I mean, loans itself, you can have so many varieties, there are so many terms, but in the simplest sense you either buy a house for you, to live in, or you buy a house for investment purposes. So when you buy a house for investment, you get rent from it, which becomes your income. Again, there are so many things involved with that. But that's the simplest way to look you. Do you want a house for you to live in? Do you want a house for investment purposes. When you buy a house for you to live in, of course, there are no tax benefits with that. But when you buy an investment property, you are eligible for some tax benefits, again, depending on your income, how much rent you get, and the expenses and everything like that. So in terms of the principal and interest and the interest only loans, banks allow those two kinds of loans for either for PPR or investment purposes.
Obu Ramaraj 20:52
Nowadays, again, they are a little bit strict if you want an interest only loan for PPR. So when you Get a loan from a bank. They're not just giving you the loan if what I'm trying to say is if you get a loan for 400,000, you're not only going to pay the 400,000 you are going to pay interest on the 400,000 thousand. Normally people get a 30 year loan. So, the interest if you pay on a 30 year loan for a $400,000 loan could be equal to or more than the 400,000 principle that you are, you know, the loan amount is, so people aim to pay off that loan quicker. And with the repayment that you make on a loan, every repayment has a principal portion and the interest portion going towards the loan on a 30 year loan, very roughly the first 15 years more goes towards the interest portion of the loan. The banks want to get your interest first, and only in the second 15 years of your loan, more goes towards the principal. So if you want to pay off your loan quicker, you need to contribute a little bit more during the initial years. Again, that's a different, you know, there are tips and techniques to pay off your loan quicker. So going back to the principal and interest p&i versus interest only I/O loan because you want to pay off the loan quickly. You don't want to have a loan for 30 years. Investment loans. On the other hand, investors sometimes prefer interest only loans where you are only paying the interest the principal is never paid off. That's because investors plan to hold on to the property say 10 years or you know, the idea is that the property doubles in 10 years. So even though they have not paid the principal portion after 10 years, if they sell a property, they're still going to make some profit out of it.
Obu Ramaraj 23:00
Again, nowadays banks want even investors to have, you know, if you get if you get an interest only loan for a few years, they're not going to extend it unless you're able to prove with your income that you are able to pay off that loan. So, for example, if you get a 30 year loan with Bank A, and you've got three years interest only after three years, now, the bank's want you to pay the principal over 27 years instead of the 30 years, that means you will be paying a little bit more than if you had paid the principal over 30 years. Typically what investors used to do, they used to move banks keep changing banks every you know, after the interest only term completes. But now, if they are serial investors and they have multiple properties, it's getting harder for them to move banks because of the way assessment is done, which means you're stuck with the same bank and the banks are not going to extend their interest only term, which means all of a sudden they're having to contribute more towards their loan and a lot of investors struggle. So it's very important to have a plan. If you buy an investment property, what is your plan? What is your long term plan? How long do you want to hold on to it? And that also comes from choosing the right property. So you're not going to be stuck with something and you know, it's not growing at all and you're frustrated and you want to get out and things like that. So that's the basic thing with, you know, either buying a PPR or an investment loan.
Meaghan Smith 24:37
Right. So if we live in the house ourselves, of course, we don't want an investment only up sorry, an interest only loan because we want to pay the loan off. Yeah, because there's no financial benefit. You can't claim anything on tax. But if you're an investor, all the interest repayments are 100% deductible. So if you're paying your an interest only loan all those repayments to the bank, you can claim all of that on tax. And that's why I think sometimes there's this attractiveness with investment properties like people say it's, you know, good for tax, but personally, I don't think it's good to buy a property just for a tax reason. But it's it's like that the nice byproduct.
Obu Ramaraj 25:25
Yeah, as I said, if you're making you know, 200 to 300,000 as a combined income, you're a couple and you really want to save on tax, then why not? And you already have your own property PPR Why not? Again, it really depends on your income. So what you said you can claim, you know, your interest the interest you pay on the property on the loan against your income, there are two ways to look at it. So one is the positively geared property, the negatively geared property. When we say positively geared that means the rent that you receive is higher than the loan repayments that you make. In that case, you're not going to be able to claim that interest because you are getting income back from the property. Whereas if you buy a negatively geared property, that means that the rent you receive is much less than the repayment and you are out of pocket. And that's where you can, you know, claim against your tax. So then again, different strategies and all these things need to be taken into account when you want to buy an investment property. You know, what is your strategy? What do you want? And you know, plan that way?
Meaghan Smith 26:33
Absolutely. And I think this is where because I often say you don't need a financial advisor to be good with money. But this is when I think you need to talk to your accountant when you're doing these kind of things. If you are investing in property, you want to get really clear on how all that works, the ins and outs the tax implications. I certainly had many conversations with my accountant when we will buying investment properties. And also talk to your mortgage broker because they know all the ins and outs, they know the the look, the banks, what the banks look for, and what are the best loans to get. But the next thing I want to ask you about Obu, because I think this is something that will really help you listening today is that what does it mean when we say we're drawing down the equity from our home because a lot of people invest and this is how we did it, too. We saved we saved for many years, like it didn't just happen overnight, and I we bought our first property that we lived in for a period of time and it then became an investment property. But after a couple of years, we used the equity in that property to purchase a second property and I'd love for you to explain how does that work with the loans because there's I know for sure that there's people listening today who own their own home, they've owned it for a long period of time. They they might have, you know, in fact, I've got one friend that I know who has a home that is worth, you know, near a million dollars and they bought it at a time where they only paid about 300,000 for it so they have so so much equity sitting in it, right? But can you explain how that works and how you can then go and buy another property?
Obu Ramaraj 28:31
For sure. So let's even say your friend, let's take that as an example, a million dollar house, and let's even assume you know, they haven't paid off any of the debt and let's say they owe 300,000 is the loan on that $1 million property. So technically the difference is the equity so 700,000 people think that's the equity, but banks will not let you borrow again hundred percent on your property which means you know, they can, they can borrow up to 80% on a million dollar house after 800,000 without having to pay mortgage insurance. And now let's say they have 300,000 as a loan. So technically they have $500,000 that they can borrow from that property to put towards another purchase. So I have clients who are investors and who have multiple properties. Again, when it comes to planning earlier, especially when you have that much equity, you want to plan to say, Okay, do you want to buy one property that is worth a million dollars and 500,000? Do you want to buy two or three? When you plan ahead, you know, you can take that you can't you know, you have access to that equity. And of course, assuming that they're boring is all fine. They may look at buying two properties for $100,000 each, and the equity in your house might be more than enough. You know, if they want to even use like say 200,000 or $300,000 from their own property, and they can buy two properties and just buy in the right place, the right suburb and the right kind of property, that could be all that they need to do. So it's really important again, to set that up in the right way and to talk to a good mortgage broker who can you know, help you again, you don't want to buy for the sake of buying and then be stressed. So it's also the planning Yay. If you're not ready to buy multiple then you know, you have that equity. maybe buy one now and maybe in another couple of years, you can buy another property so yeah, just as you were talking earlier, as well, you know, I call it surrounding yourself with your dream team, having the right mortgage broker, having the right conveyance, the financial planner, the accountant, have your dream team and and, and that should be somebody who you can trust and go to for advice anytime you need. Because then you know that's how, because everybody cannot know everything. So it's important to have that to arm yourself with knowledge, but have that team who can help you achieve your financial dreams?
Meaghan Smith 31:12
Yeah, I absolutely agree. And I'd also like you to touch Obu on the on the point of when we do invest in investment properties. Why should we take out different loans? Why can't we just get it all under one loan with the one bank?
Obu Ramaraj 31:33
So what you're saying, if I'm right, if I'm right in understanding, you're saying you're talking about cross collateralization versus having individual loans. I usually don't recommend cross collateralization. What that means is you have two properties. You have two properties you have let's say you have one property, which is your PPR and then you want to buy an investment property. Most banks, what they'll say is Oh, Just put the two titles together. And you know, let's say you have 300,000 loan we'll lend you 100%. On the other one, let's just make that one big loan and have it it's very attractive for the bank to hold on to two titles and then combine everything because they have more control over your properties and your loans. The other way to structure a loan, you have your PPR have that as a separate low, draw as much equity as you need to buy the investment property. Again, that could be another separate split, and then have a third loan for your investment property. So the two titles are separate. And you have individual loans.
Obu Ramaraj 32:42
And the reason for having a separate split to draw your equity is because come tax time, it's easier to see how much interest you've paid. And because you're using that money to buy an investment property that again can be used to offset your tax. So having this right structures is so important. And this is when you buy one property. If you're going to buy multiple properties, it's always good to explore different banks. Because, again, you don't want everything stuck with the one bank and they have full control over your problem properties and your loans. It's good to have that spread. Typically what I tried to do is have up to a million million dollar loan with one bank and then I tried to offer a different solution to my clients to investor clients that we haven't spread. One of the other reasons why cross collateralization is not good, is because let's say you've you know, put the two titles and you've had one big loan and in the future you want to sell your investment property. And let's say the property value has gone down. The banks may or may not release that low, and you may or may not be able to sell that property. Assuming that you know, let's say LVR LVR is at two Which is loan to value ratio. And that's what I mean, when I say, you know, you can borrow 80%, or 90%. So the percentage that you borrow against the house value that's LVR. So if your LVR is not suitable for the bank, they may not let you release that investment property that you want to sell. I've seen situations like that where both the properties have gone down in value, and the loan is much higher, and the banks are not making you, you know, to sell their properties. That's why it's really good to keep the loan separate. So you have more control over your properties and what you want to do with them in the future.
Meaghan Smith 34:36
Yeah, and it's all these little points that you're mentioning now, which is why I recommend using mortgage broker. It's not that it's not that we're not intelligent women and we can't go and look, look up on a bank like how to take up a loan. Of course we can do that. But a mortgage broker is actually trained in the all of this information and these are this is one mistake that I think people make is when they do take out all the loans with one bank and then the bank has got control of all your houses because they're all linked. Whereas if you, you know, came into difficulty with one particular house, you've only lost that one house you haven't lost the whole portfolio. Yeah. And I'm, I'm wondering if you can talk about any other common mistakes that people make when when taking out a loan.
Obu Ramaraj 35:32
Common mistakes people make. So yeah, this is what like if you're an investor, definitely this I've seen again, and again, I've had a couple of clients, at least I can think of where they didn't want to have multiple splits because it was too tedious for them to maintain and they've gotten cross collateralized. And because I didn't suggest that as the right way they directly went to the bank. Good luck with them. Hope They don't have any difficulties in the future. But they are really like you said, wise women you know, in top paying jobs and things like that, sometimes Yeah, it's just, it's just what you don't know. But the banks make it look attractive. And that's why it's really important to go to a mortgage broker and someone who will work in your favour as well. And to listen to them to listen to someone's advice because if someone's been long enough in a profession they know what's right and what's not. It's like going to a doctor. Yeah, you don't question a doctor when they say something like, Oh, no, no, no, but you know, this is what I read up on Google and I think this is what it is no you listen to a doctor because you believe that their knowledge and professional detailing the right thing for you I think it's similarly history. I'm you're not arm yourself with knowledge and to listen. But again, I'm not saying blindly listen to everything that's being said. There's nothing wrong in question. And say, oh, but I heard about this. What do you think about this? And if someone can explain to you in a way to say why that has not gone to actually go with that advice?
Meaghan Smith 37:11
Yeah, I absolutely agree. I don't know how many conversations I had with our mortgage broker when we bought our last property. And he just was so used to me calling him up because we did quite a complex situation. So we had one property, we refinance that we drew down the equity that we had in that property, and we created a separate interest only loan. So we now have that money. We only used half of it, and we still have it and because we've got an offset account, yep. Well, while we were in the process of looking and buying the another property, we didn't pay any interest yet. On that equity because we had a We had the whole loan, but we had the whole loan amount sitting in an offset account. So you can have a couple of hundred thousand dollars sitting in account and be not paying any interest on it, even though you technically you know, have to pay interest but because you've got the whole loan sitting in the offset account, you're not paying interest. Yeah. And that's how you can have access to the equity. And then we went and got a loan with a separate bank for the investment property, which is actually principal and interest because interest rates are so low at the moment we and we eventually, you know, eventually have to pay the house off if we're not selling so we're like, of course, let's pay principal and interest. Let's get this house paid off while the interest rates are low. And we might change change things in the future if interest rates go up. But now we have three separate loans to cover these houses. And I think that's why it's, you know, we didn't even know how to do that. We we learned that through a mortgage broker. And so now we have this interest only loan that has only half been used. So if we want to buy another property, we still have that money that we can use. And this, this is where, you know, mortgage brokers are worth their weight in gold, because they can advise you on this sort of stuff and educate you on this stuff. And I absolutely think that and I spoke about this a million years ago in the podcast where I talked about when I bought properties is that don't worry about being that person who calls the mortgage broker every day. Who cares if you don't understand? Exactly, yeah, don't. You need to make sure you understand these things. And otherwise, that's when you get yourself into trouble. And I think if your mortgage broker is someone who's a good mortgage broker Are they going to answer those questions for you? Am I right?
Obu Ramaraj 40:03
I love my clients asking me questions. And the reason I wrote my first book, Smart Women Smart Home Loans is for that exact reason that, you know, I got every appointment I went to, I was explaining the same things again and again and again to clients. And I thought, why not write a book and you know that it's actually a good tool, especially for a first home buyer. So it's really important to ask questions, if you don't know and don't feel bad or think that you might look like a fool or asking those questions. The only way you're ever going to learn is to ask questions. And as I said, once you have that knowledge, it doesn't mean that you still have to do it. You can still use a mortgage broker. But yeah, arm yourself with knowledge and understanding exactly why things are done a certain way and don't just follow them blindly.
Meaghan Smith 40:55
Absolutely, and you'd be a bigger fool if you didn't ask the question and then take at a particular loan, that actually wasn't the right loan for you thinking forward into the future because you didn't understand what your mortgage broker was saying. So I think this is a good point to touch on. Let's demystify this, how do mortgage brokers get paid? Let's make it really clear and then pay can take the fear away from using a mortgage broker.
Obu Ramaraj 41:22
I hear some people, not everybody, some people will come and say, Oh, if I use you, you know, my interest rate is gonna go up, the bank's gonna add your commission onto mine loan and I'm like, No, banks just pay us of commission, just like they would pay a bank employee. Just because you walk into a branch and you get a loan through one of their employees doesn't mean that the bank's gonna add on the rate to you actually, they may because we are able to do better deals sometimes. And if you walk into a branch, so they pay us a commission and that doesn't mean that you are paying that it's just like an employee that we just like agents for them. Because we promote their products, they give us a commission. And as I was mentioning, sometimes, as brokers we are able to get better discounts than if you go directly to a branch or even if you call up. That's because as a group of brokers, we go through someone called an aggregator. So there could be thousands of brokers and an aggregator. So the aggregator as a group provides that much business to the bank, and then they're able to give us back a discount or special offers for each aggregator group and their brokers, which is then passed on to the clients. We also get paid something sorry, we also get something paid called a trail commission, which is paid again by the banks to us on the monthly loan balance. Again, it doesn't come you know, it's not a cost that's come out. Have the clients pocket, it's a cost that the banks pay us for having facilitated that loan.
Meaghan Smith 43:07
And the banks aren't stupid, like, these are intelligent companies, we're going to be paying the money, whether you use a mortgage broker or not, you know, the banks make money, that's their business. That's what they do. And also, if you're going to use a mortgage broker, mortgage brokers aren't a charity. Okay? So, you know, you can either pay a mortgage broker an upfront fee, or you can let the bank pay them. You know, it's it, that's how it works. You're getting a service like the mortgage brokers are actually working for you, but I think there's this What can I call it sometimes I think there's this distrust when it's commissioned based because you know, maybe is the mortgage broker, recommending a particular bank that gives them a good look? Yeah. Yeah. That might be that might be true. But I think at the end of the day, you just need to trust that the mortgage broker you have got you have faith in them and create that relationship with them. Because if they're a good mortgage broker, they're going to get you the best deal because they want your business again.
Obu Ramaraj 44:18
Yeah, that's very true. I guess if if a mortgage brokers doing the right thing, and you've built that trust with them, you know, they are going to offer products that will suit your needs. And based on the discussions you had with them, they're not going to just suggest something. I remember the story of my partner. He used to work for one of the big banks long ago. And when he was working there, he used to and there was a mortgage broker he used to tell me, oh, you know, this bank is offering this to you for the bank employees and like, no, that's just the general deal they offer everybody at the bank makes it look as if that's a special deal they're offering for their employees. They might have some changed now. This is many years ago. So yeah, you don't know what you don't know. And unless you do the actual comparison, you never know what is on offer. I think it's gotten a little bit more transparent now where we have to actually, at least, my aggregate, make sure that we show on the documents, the list of products that we've compared, and the commission that is paid by each of them. So clients have full transparency to see, you know, have we recommended something just purely because we're going to get paid more commission?
Meaghan Smith 45:39
That's right. It's all clearly there documented, you can see exactly how your mortgage broker is getting paid. It's like when you go to a financial advisor, it is transparent. And the other thing I was going to say about that is that when we got our loans because we just bought a property about 12 months ago, so it's it's Not it's sort of still a little bit fresh in my mind is that I remember clearly going and comparing the fees and the rates. And we definitely got a better deal using the mortgage broker than we would have gotten if we just negotiated with the banks ourselves. Yeah. So for us, it was totally worth it, and they do all the work. The mortgage brokers do all the work for you.
Obu Ramaraj 46:21
You save so much time is Yeah, and headspace so you can use that time to do something else. One of the thing I remember why use a mortgage broker. A lot of people don't understand that every time you go window shopping to a bank and get a pre approval, it goes on your credit file. That's really not good. You have to even when clients come to me and I provide options, they're like, Oh, so how many applications are we going to make unless I make a new one and only one application and we're going to get that approved? Because you want multiple checks going on your credit report. That's not good. People don't know that.
Meaghan Smith 47:02
Yes, that is a great point. Because you're absolutely right. It shows up on your credit report, and it can bring your credit rating down. And these are all the little secret behind the scenes stuff that the general public, I think I'm not aware of. And that's why exactly you want to use the mortgage broker because you're not having to go to individual banks and make an application, your mortgage broker. This is what they do every day. They know the loans, that's their product, and then you tell them what you want, and they're going to recommend the best product for you. So, exactly. I love that. It's like one, one application, and that's the loan you're going to get. Yeah,
Obu Ramaraj 47:45
Meaghan Smith 47:45
All right. So just moving towards wrapping up now over in regards to getting a loan if the listener was to just learn one thing from our discussion today, what's the most important takeaway Do you think when getting alone
Obu Ramaraj 48:00
Prepare, as we discussed, it's, I can't stress that enough, it's so important to make sure your accounts are in order. Just make sure that you know you you know your object. Know all that's on your credit file, a credit file is free, so you can get it you know, any number of times that you want. Of course, there's a time limit that you can get it for free. Just make sure that everything is super clean. And again, I can't stress this enough that just don't go to your bank because you've banked with them all the time. Find a really good mortgage broker and then be honest with them so they can get the best that will suit your needs.
Meaghan Smith 48:50
Yeah, I think that's great advice. So talking about money because we haven't really spoken about this Obu but over actually he is the author of two books. I mentioned them at the start of this podcast and I'll mention them again so she knows a thing or two about money. Her book Smart Woman Smart Habits, powerful practices to create your ideal financial future is a really great book to get you thinking and get you in the right mindset to create really good money habits. What is the most important advice about money Obu that you teach your children? What do you want your children to learn?
Obu Ramaraj 49:30
Um, I think the best thing I've taught them is to spend your money wisely. You can make a million dollars and spend a million dollars. It's just having that plan to know where your money should go and also not be pressurised by the environment to spend money in a certain way. I think my children have learned that really well because the way I Look at them and don't even ask for things like a normal child would and that sometimes I think back then, like, oh, what have I done to them, but it's a good thing that they actually, you know, don't just spend money. So it's really important to understand that. And we are good examples. My husband and I, you know, we just don't go buy things just because we want, we plan we think about it for a while. And then if we still want it, then we go and buy things or even you know, doing things around the house. So it's not just like, just go and spend money. So I think that's a very important lesson that children need to learn, spend your money wisely.
Meaghan Smith 50:38
I love that it's getting, it's being at peace with having money, not having to spend all our money. And I always end Obu by asking if you have a ritual or habit or tip, something that you do around money that you can share with our listener.
Obu Ramaraj 50:56
For me, I guess one of the important things I do is always put some money from my paycheck every month or every however, frequently I get paid. I've taken that on board a long time ago. And I probably would urge all the listeners to do that as well. It could be as less as $10 $50 whatever you are comfortable. It's just getting into the habit of putting away some money as savings, which is really important. It could be an emergency fund, it could be something for to do fun stuff. It could be anything, just put some money away as savings. Very important.
Meaghan Smith 51:40
Sound Advice? Well, we've covered a lot of ground today. Obu, thank you so much for giving us your precious time to talk to us about all the things mortgages, making it easier for us to understand it's been a pleasure having you on the show today.
Obu Ramaraj 51:58
Thank you for having me. It's Always my pleasure to share my knowledge and help other women men, you know, to understand everything about money.
Meaghan Smith 52:09
Fantastic and over, where can we find you? How do we find you all I'll be sure to put this in the show notes.
Obu Ramaraj 52:15
I'm on Facebook, my website Smart Money solutions.com.au. I'm on LinkedIn. I'll provide the links to you, but I'm everywhere on social media. I don't think there's another Obu Ramaraj. So if you go and Obu, Ramaraj, you'll get a lot of information.
Meaghan Smith 52:34
Great, I will be definitely sure to put all that in the show notes and also link to your books, which I've read both of them and I think they're really helpful and practical books to get you thinking about all the stuff that you need to know when it comes to mortgages, because there is a lot that we've got to get our head around and I think that was such a fantastic idea that you wrote that book. I'll definitely be linking to those. So Obu once again Thank you.
Meaghan Smith 53:02
Well, they have it. Wow, we covered a lot of information in that session. If you want to recap, you can go to the show notes on the podcast to read the transcript. Of course, you can check out Obu's books. What Your Lender Won't Tell You Smart Women Smart Home Loans and her other book Smart Women Smart Habits, powerful practices to create your ideal financial future. All the links will be in the show notes. When I was buying our first investment property, I had a coach that I worked with to process all my doubts about knowing what I was doing, and create how I wanted to show up deliberately as an investor and have the belief in myself that I was an investor and capable of creating that result for myself. If you would like to work with me on your money mindset, I work one on one with clients who are ready to make change to overcome their Money blocks and create the results you want on purpose. We are all capable of creating extraordinary lives for ourselves. Sometimes we just need some help to point out our blind spots and connect with our future self. The person who's already created what we are currently dreaming about and I can help you get there. All you have to do is connect with me wherever you are following me. You can email me through the website or DM me on Instagram or message me on Facebook. If you want to stay in touch between episodes and stay up to date with all things money mindful, get on the mailing list, follow me on Instagram and Facebook. All the links are in the show notes. Have a beautiful week. Until next time, bye bye.
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