Will interest rates increase in 2017?

Interest rates have been at historical lows for such a long time, home owners could be forgiven for forgetting what it is like for rates to rise.

 

In recent weeks though, major lenders have increased their fixed term rates, across several loan terms (two, three and five year terms). A rise in fixed rates usually signals a rise in the cost of funding, which may translate into rises in variable interest rates as well. Westpac, Bank of Melbourne, Ubank and Commonwealth have all increased some of their fixed loan products, some up to 60 bases points higher.

 

While you probably need a crystal ball to accurately predict if rates will rises or fall, there is increasing noise from some industry experts that variable interest rates will rise in the back half of 2017.*

If this the case, it will be the first time the market will have had a rate rise since November 2010.

Predicting whether the RBA will change the official interest rate requires complex consideration of the Australian economy in terms of inflation, industry sector growth or decline and unemployment or wages growth and the impact of the global economy. Against this backdrop though, there is the school of thought that there is significant risk in a continued lending boom which fuels housing growth and negatively impacts housing affordability.

 

So if interest rates rise what does it mean for you?

 

The impact of rate rises really comes down to your individual circumstances. Some of the things you could do to prepare for possible interest rate rises:

 

 Mini house with money on blue

Build yourself a buffer

One of the best things you can do to minimise the impact of a rate rise, is to pay off your mortgage faster than your required repayments and build yourself a buffer. That way if rates rise, you are paying less interest from either a reduced principle, or the impact of more money in your offset account. And if you find yourself in need of extra cash to make repayments, you have this available to you. It also gets you used to paying at a higher rate so you don’t feel the impact of any rate rises.

 

Interest Rates

Lock in a fixed rate

This may be an option for you if you want certainty and to hedge your bets against any rises. There are some disadvantages to locking in a fixed rate which you need to be aware of though, you can read more here on fixing loans. Given that fixed rates have already gone up though for many lenders, the horse may have already bolted. I am not the biggest fan of fixed rates but they can provide certainty for a locked in period of time.

 

Plan ahead

It can help to plan ahead to determine the impact on you if rates were to rise on your current loan. Look for an online calculator to see the impact on your repayments if interest rates were to go up, or ask your broker to calculate this for you. Would this amount cause issues with your current budget? Or are there are things that are changing for you in the future that might impact on your ability to pay your mortgage, like a new baby, or a change to your work circumstances? If you think there are things that might impact on your ability to service your mortgage you might want to look at possible strategies, like restructuring your loan.

 

We will have to wait and see if the predictions are true on rate rises. If you have any questions or need any information on current rates, please get in touch.

 

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

Sources:

  1. http://www.domain.com.au/news/the-five-things-on-the-agenda-for-sydneys-property-market-in-2017-20161211-gt8v8g/
  2. http://www.afr.com/news/economy/get-ready-for-2017-reserve-bank-of-australia-rate-hikes-says-oecd-20161128-gsz5k4
  3. http://www.afr.com/real-estate/residential/syd-melb-house-prices-to-rise-but-building-boom-to-end-hsbc-20170110-gtopcs
  4. http://www.abc.net.au/news/2016-12-09/interest-rates-on-mortgages-likely-to-rise/8106180

What is a good interest rate? How do you know if you have one?

Your mortgage is likely to be your single biggest monthly expense and yet you might (like many people) struggle to know what interest rate you are paying, let alone whether or not you are getting a ‘good deal’.

The difference in interest rates can be significant. The best rate in the market at the moment (after the recent rate cut) is around 3.8% and the highest rate (for low doc loans) are over 6.0%. A whopping variation of 2.4% ($12,000 in interest per year on a $500,000 loan – cash you would much rather have in your back pocket!!).

What impacts on the interest rate of your home loan?

There are several factors that will impact on the interest rate you have from your lender;

  1. The features you want
  2. The total amount you are borrowing
  3. The Loan to Value Ratio (LVR)
  4. Principle and Interest or Interest Only
  5. Owner Occupied or Investor

 

1) Features

As with many things in life, when it comes to a Home Loan you generally get what you pay for. If you want to buy a new car, you can choose to pay a little extra for DVD players, leather seats, carpet and window tint. With a Home Loan, it is no different except the sort of features that you will be looking at include Offset, Redraw and Fee Free Credit Cards.

And the reality of Home Loan pricing is that consumers tend to pay a premium for convenience. If you want to have all of your banking within the same institution, seamlessly linked as much as possible you will generally be getting a Home Loan package and this may come with a slightly higher interest rate to cover these features.

For example, a no frills home loan only available through a broker could be as low as 3.88% and a full package loan through the big lenders will be somewhat more expensive, anywhere from 4.2% upwards.

 

2) Total borrowing amount

Generally the higher the amount of money you are borrowing, the larger the discount the big banks will be willing to offer you off their standard variable rates (subject to their other criteria, more on that later). The non-bank lenders don’t tend to offer these same discounts as their advertised rates already incorporate a discounted rate. 

For example, with a recent home loan over $1.0 m, I negotiated a discount of 1.3% off the standard variable rate, reducing the standard variable rate down to 4.26%. Another client, with a total borrowing of $400,000 the discount negotiated was 1.1%, taking the standard variable rate down to 4.38%.

 

3) The Loan to Value Ratio (LVR)

The smaller the loan in relation to the value of the property the better the price generally available. The best discounts will be available for LVR’s that are 80% or below. The higher your LVR gets, the higher the risk to the lender, so the lower the discount. And in some cases, if the LVR is too high (over 95%) the banks won’t lend at all, let alone offer discount.

 

4) Principle and Interest or Interest Only

Principle and Interest loans will attract higher discounts than Interest Only Loans. The regulator (APRA) sees interest only loans as somewhat risky and fueling speculative investment. They want to see borrowers paying down loans and have put pressure on lenders in recent years to reduce the availability of interest only loans.

For example, a client recently wanted to change over their investment loan from Interest Only to Principle and Interest in order to reduce interest payments and the discount increased by 0.2%. 

 

5) Owner Occupied or Investor

In July 2015, the regulator (APRA) imposed guidelines on lenders to take the heat out of the property market by restricting the growth in investor lending to under 10% a year. This now means that borrowing for investment purposes now attracts a premium, and most lenders have separate rates for investment loans to owner occupied loans.

For example, the current standard variable rate for ANZ is 5.56% for Owner Occupied and 5.83% for Investors (a difference of 0.27%).

 

 And the impact of set and forget!

And a final word – borrowers who don’t regularly review their lending will also pay a premium as discounts offered years earlier may now be well below that available in the market today. Banks have relied on people to ‘set and forget’ and it’s the age old saying “don’t ask, don’t get”.

One of my clients had been paying 4.93% on an investment loan (with a discount of 0.9% that had been put in place 3 years ago). With additional negotiation I was able to reduce the rate to 4.58% (a total discount of 1.25%) saving over $3,000 per year in interest.

What rate do you have currently? Do you think it is a ‘good rate’?

If you aren’t sure, the best way to know if you have a ‘good rate’ is to get in touch for a free, no obligation, 30 minute home loan health check. 

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

 

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

How much can you afford to borrow with your first home loan?

Understanding how much borrowing capacity you have when buying your first home is an essential step for all newcomers to home ownership.

The question of “How much can I borrow?” rears its ugly head for all new home buyers. As daunting as it can be, understanding your borrowing power is important – and essential – for those ready to get their foot in the door with their first home purchase.

Financial factors

Before you start looking for a property – either to live in or as an investment – take a look at your finances from all angles and ask yourself a few important questions:

  •          Do I have enough money to pay for a deposit?
  •          Can I afford to make monthly repayments?
  •          Is my repayment/credit history positive?
  •          Have I assessed my household budget?
  •          Am I planning to start a family soon?

Understanding where you stand financially and what financial loads may be coming your way in the near future can give you a clearer picture of how large or small your borrowing capacity should realistically be.

Figures that figure

How much you can comfortably afford to borrow comes down to two factors:

  • The size of your deposit. Most lenders require a minimum of 10 per cent of the total property cost.
  • How much you can afford in mortgage repayments.

If you’re currently renting a property, your weekly or monthly rental amount is a good indication of the starting figure for your mortgage repayments. This is the bare minimum, however. You will need to add other expenditures to this figure, such as rates, taxes, lenders mortgage insurance (if applicable), among others.

New buyers may also want to consider single or joint income amounts. As a general rule, your mortgage repayments (along with other short and long-term expenses) shouldn’t cost more than 35 per cent of your gross income.

Help wanted!

Many people choose the help of a mortgage broker when shopping around for their first home loan, and for good reason. Using a mortgage broker to seal the deal can give you greater choice, peace of mind and clarity, especially for those just starting out in the property market.

Mortgage brokers have a wealth of knowledge to steer you in the right direction in terms of what you can realistically afford versus what you think you can afford.

There are many home loan calculators that can also help buyers get a sense of their borrowing capacity. These online calculators factor in your loan type, loan length and interest rates to calculate a general repayment figure. Your broker will be able to walk you through these calculations to ensure you’re aiming for the right figures. 

Doing your due diligence from the very start will pay big dividends when it comes to home ownership. Putting your expenses under the microscope may be intimidating at first, but it will ensure your home loan works as hard for you as you did for it.

 

If you are looking at buying a first home, be sure to get in touch to talk through your options.

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

7 Reasons to take the plunge and become a home owner

Mortgage can be a dirty word for anyone that doesn’t have one. It conjures up images of baked beans for dinner, never being able to go out and being enslaved to a 30 year financial commitment with a faceless big bank. But for most people it will eventually be something they consider.

 

So why would you take the plunge and take on the commitment it involves and get a place that it is all yours?

 

1) No more landlords

When you become the king of your castle, there goes the rental inspections and the need to have a landlord or agent approve the inevitable maintenance that all property requires. If your shower is leaking, you can get over to Bunnings yourself and pick up a few spanners to fix it. The downside is of course you are paying for it! (More on that later). On the upside, you have a new level of control that you just don’t get when renting.

 

2) You can hammer picture hooks into the wall

Speaking of control, once you buy your own place, you don’t need someone else’s permission to change things. Want to paint the walls? Get rid of those annoying tiles? Rip up that carpet? You can go for it. Did we mention Bunnings? Before you know it you will watching all those annoying home renovation shows looking for ideas.

 

3) Capital growth

Most people buy property in the hope that it will increase in value. Rent may be less than the cost of interest and the other costs you have as a home owner (rates, maintenance and so on), however once you factor in the capital growth, or increase in value of the property over time, that capital growth may make buying the best option financially over time.

 

4) To get a foot into the market at today’s value

Say you are interested in buying property that is selling around the $800,000 mark. If this type of property, in the suburb you are looking at is growing at 5% a year, it’s going up by a whopping $40,000 per year (which you probably already know if you’ve been looking around). It’s pretty hard to save $40,000 in a year when you are also paying rent, which is why you always hear people talking about ‘getting a foot in the market’. If you were to jump into the market this year, it might be easier than trying to keep up with the rising cost of the type of property you eventually want to buy. Of course though on the flip side, this is only true if values continue to rise the way they have.

 

5) Forced savings

OK now it is starting to sound like financial enslavement! Hear us out though. Having a mortgage is a financial commitment which forces you to save by paying off your home loan. That can be handy if you tend to, like most people, spend money when it is there. Having to pay off a mortgage each month can make sure that you are building towards having equity in an asset (your property) and you don’t get 10 years down the track and have nothing to show for all your hard work (apart from some awesome memories of that great trip to Europe of course).

 

6) You lock in your costs

When you are renting you will usually be given an annual increase in rent. Or if you decide to move you will be out in the market trying to a) find something b) possibly convince an agent you have the best application and c) be paying an amount that creeps up over time as the cost of property does (or demand outstrips supply). Once you buy your house you lock in the amount of your loan and your base cost from then on. It is dependent on interest rates – however the idea is to pay off principal and interest and have your costs go down over time (the more of your property you own) – not up (like your rent will).

 

7) It’s not usually as bad as you think

If in doubt, ask someone you know that has bought property. After some initial shock, they usually settle in to having a mortgage as a normal way of life. As daunting as it all sounds, the upside of owning your own place should (hopefully!) make up for what you might be thinking of as the downside.

 

So if getting yourself a property might be something you are after, take a look at some of these other great articles*, or get in touch and we’ll help you get started down the path.

 

For specialist lending advice, you can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

 

*Other articles and links for First Home Buyers:

10 Tips for First Home Buyers

Moneysmart Guide for First Home Buyers

Navigating your way to your first home loan

 

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

Why would you use a Mortgage Broker?

Research has revealed that 53% of Australian’s now use a mortgage broker for their lending needs, up from 35% ten years ago. So why are Australian’s increasingly using the services of a broker?

 

1) A choice of lenders

With an extensive panel of lenders (including the major banks), mortgage brokers are able to compare hundreds of loans to find a loan that gives you the best fit for what you need. If you go direct to a bank, they will only show you their lending products. Better choice across the whole market = a better loan and interest rate tailored to your needs. Here is the panel of lenders that we have at Choice Home Loans.

 

2) To save time

With today’s increasingly busy lifestyles you probably don’t have hours to devote to ‘shopping around’ to find the best loan and to go back and forth to a bank. Mortgage brokers are customer service focussed and most will come to you at a time and place that suits you – whether that is at home or work, during or after hours.

 

3) It’s free and could save you money

There is no cost to you for the services of a broker. Brokers get paid commission on loans from lenders, but regardless of whether you go direct to the bank or through a broker, the interest rate and fees to you will be the same. Very often, given brokers knowledge of the lending market and the access they have to special lending deals – using a broker can get you a better interest rate than going direct. Last year our clients who refinanced saved on average $3,800 a year in interest, a huge saving from finding a better rate in the market.

 

4) They are finance experts 

Mortgage brokers are experts in financing options, with an in depth understanding of the overwhelming array of loan options available. Many loans seem to offer a great deal, but they could have penalties, fees and charges you may not be aware of, or they may not offer the flexibility you require in the future. Mortgage brokers ensure that you find the best loan for your specific requirements, now and into the future.

 

5) They are with you for the loan and beyond 

Unlike constantly changing bank staff, Mortgage Brokers are often with you for the life of your loan and beyond. Mortgage Brokers usually own their own businesses and are committed to their clients for the long term, keeping in touch to make sure your loans are still right for you and that circumstances haven’t changed. How often does the bank call to tell you that interest rates have changed and you can get a better deal? Probably not often! But don’t be surprised if this is something your broker does.

 

There are significant advantages to using a mortgage broker. Whether you have an existing loan which needs a health check to see if it’s still the right fit and the best interest rate, or you are in the market for a first or next home, or it’s time to stretch yourself and get an investment loan – it’s a great idea to get in touch with your mortgage broker.

 

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

For specialist lending advice, you can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

 

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

Why you should definitely be thinking about refinancing

Some estimates put the cost to customers of their ‘loyalty’ to their existing home loans with the big four banks at ‘more than $6 billion in savings each year’*.

 

Given that there are home loan lenders offering rates as low as 3.99% at present ‘Australians are wasting $17 million every day by sticking with the big banks and paying higher interest rates’*.

So instead of an ‘out of sight out of mind’ approach on your home loan (bit like your super! Or that health check you need!) here’s why you might want to consider refinancing.

 

  1. There are big savings to be made

    Type home loan interest rate into google. The deals you see are how much you could be paying – which probably represents a huge saving for you. And if you don’t know exactly what rate you are paying now, that probably puts you in the majority of people in Australia! It’s often our single biggest monthly expense and yet it can be a vague figure that we can’t keep track of that changes randomly each time we get a letter from our lender.

  1. The big four banks are relying on you to be lazy

    The billion dollar profits of the banks don’t come no-where! The banks like to offer deals to entice new customers but rarely repay your loyalty when you ‘set and forget’ your home loan. Just like your car or home insurance, a simple review can result in a better deal.

  2. The banning of exit fees in 2012 has made switching more affordable

    In 2012 the government set about getting rid of the barriers that the banks had in place to make it difficult for you to shop around for a better deal on your home loan. There are still some costs of refinancing (like mortgage discharge fees and mortgage registration with your new lender) but they are nothing in comparison to the break costs the banks used to charge.

  1. There are some fantastic home loan deals out there

    Competition in the market continues to be strong, in spite of some of the regulatory changes that came into place in 2015 that impacted on interest rates. Lenders such as ING Direct, ME Bank, BankSA and Suncorp  not only have some terrific deals, but they also have high customer satisfaction levels**. And despite having the highest advertised variable interest rates, the big four banks will also compete aggressively for new borrowers or those that are refinancing, with discounts based on individual circumstances.

  1. It’s not as hard as you think

    It is really up to your Mortgage Broker to do the heavy lifting on assessing whether a refinance results in a better, or more suitable home loan for you. It is up to them to look at your current situation and then assess the hundreds of available loans in the market to see what options might represent a better option for you.

 

So whether your home loan is 1, 2 or 10 years old, it’s probably worth putting in a call or shooting off a quick email to see if you can get hold of some of that $6 billion in savings. I’m sure there are plenty of things you can think of to spend your money on than paying the banks interest you don’t need to on your home loan!

 

Interested in Refinancing?   You can contact Doug on (m) 0408 671 524 or (e) douglas.piening@choicehomeloans.com.au

Want to hear what clients have said about refinancing? Take a look at these reviews from LinkedIn and Facebook


Source:

*‘Loyalty to the big four banks costs home loan customers billions’ October 29, 2015 news.com.au

**‘Home loan customers urged to switch, as banks stand to reap an extra $9.9 billion’ November 24, 2015 Sydney Morning Herald.

 

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

 

The simple ‘Home Loan Health Check’ that could save you thousands

Mortgage repayments are often one of the largest expenses of a household and yet many people put their home loans in a ‘set and forget’ and don’t even consider whether their existing home loan suits their current circumstances, or if there might be savings to be had from a lower interest rate.

Your broker can do the hard work for you with a ‘Home Loan Health Check’. It could either save you thousands of dollars over the life of your loan, or at the very least reassure you that your existing home loan is continuing to work well for you.

The ‘Home Loan Health Check’ process is a simple one and like engaging with a broker to handle your home loan, it is a free process with no obligation.

A Home Loan Health Check looks at:

  • Your existing rate v’s current market rates
  • The fees and features of your existing home loan
  • The service from your existing lender
  • Changes to your financial circumstances

With interest rates at their lowest in 50 years, there are some great rates available. Given how simple a ‘Home Loan Health Check” is  and the thousands of dollars of potential savings, it is well worth the effort.

 

Need a Home Loan Health Check? Contact Douglas at (m) 0408 671 524 or (e) douglas.piening@choicehomeloans.com.au

The bubbles are on us! To celebrate the New Year, we are offering a bottle of Yarra Valley Chandon to the first 10 clients that book in Home Loan Health Check before 15 February 2016. Go on you know it is good for you! (the Home Loan Health Check that is!). For details and T&Cs see here http://douglaspiening.com.au/home-loan-health-check-promotion/

 

What you need to know if you ‘buy before you sell’

It happens all the time. You finally find that great next home you have been desperately looking for and you want to make an offer, like now, before you have sold your existing home. You can just picture yourself relaxing out on that back deck with a wine or two – it’s going to be great!

But what if you don’t settle on your existing property before the new place does and you need lender finance to tide you over? Enter the need for a Bridging Finance.

 

What exactly is a Bridging Loan?

Many people don’t understand what bridging loans are until it is too late. It’s best to understand what they are before you ‘buy before you sell’.

As the name implies a Bridging Loan provides a bridge between two loans, whereby for a period of time there will effectively be two loans to cover the purchase of a new property before settlement on the old property has occurred. The lender takes security over both properties and lends against them until the sale and purchase process on both has been completed.

 

How do they work?

There are a few (scary sounding!) terms when it comes to Bridging loans.

 

Peak Debt – this is the anticipated highest debt amount which includes your existing mortgage, new purchase costs and anticipated interest costs that accrue over the life of the Bridging.

End Debt – this is the anticipated debt level following the sale and settlement of the original property. This in effect is your new mortgage amount.

Capitalised Interest – interest is accrued and added to the loan balance during the period of Bridging

 

Example: May-Ann & Ben have purchased a property for $1.3m (including purchase costs). They still have $400,000 owing on their current property which they estimate will sell for $1m. In this case their “peak debt” begins at $1.7m.

 

Bridging loans are interest-only, so during the bridging period of say, six months, interest will be compounded monthly on your ongoing balance at the standard variable rate. The interest bill will then be added to the ongoing balance when you sell your house, and this amount becomes the mortgage on the new property.

 

May-Ann & Ben’s lender has a standard variable rate of 5.0% so over a period of 6 months their will incur interest of $42,500. As they are not paying any principal at this stage, this interest will be “capitalised” and added to their “peak debt” so it rises to $1.742m.

 

While the interest rates on bridging loans are now comparable with ordinary mortgages, don’t forget that you are still essentially carrying two mortgages, and during the bridging period you are not paying anything off. The longer you take to sell your existing home, the higher your interest bill, and hence your new mortgage, will be.

 

May-Ann & Ben sell their house and achieve a sale price of $970,000 (after agent costs). The loan is then reduced by that amount to $772,500 which becomes the “End Debt”.

 

Some lenders require a client to be able to service the loan at Peak Debt, meaning they have to have a lot of surplus funds every month, whilst others allow servicing on End Debt alone.

So what are the Pros and Cons of Buying before you sell and Bridging Finance?

It’s best to chat to your Mortgage Broker to weigh up the pros and cons for your particular circumstance, but generally speaking;

 

The Pros

  • You get to secure the next roof over your head (and that awesome deck!) before you sell the old one
  • It reduces the rush and stress of trying to match up two settlement dates exactly, or leaving you with no-where to live for an unknown period
  • With finance secured you may feel like you are in a better bargaining position when selling your existing home
  • Bridging Loans are now comparable to standard variable rates
  • With interest only Bridging Loans, you aren’t required to pay the interest at the time, it is added to your loan amount at the end of the bridging period.

 

The Cons

  • There is a pretty hefty cost involved during a Bridging Loan Period
  • For every $100,000 in additional costs you take on, you are paying an additional $416 a month on top of your existing loan. So if you buy a $1m house, that’s an additional $4,160 a month, every month while the Bridging Loan is in place
  • There are likely to be loan establishment costs
  • Different lenders have different requirements for Bridging Loans, many lenders will require you to be able to afford to pay the ‘peak debt’ amount, something that is out of reach for most people.
  • It’s fair to say lenders don’t like doing Bridging Loans as it is a lot of work for a short period of time, so they don’t always make it easy! Once again your broker can help you work out which lender options will work for you if you are Bridging.

 

And finally a small cautionary tale. Lenders also have minimum time frames for Bridging Loans. A recent client of mine had a 3 day period between the purchase of their new home and the sale of their existing one. There is no lender that will be able to execute a change of title and settlement of loan within that time period. Most banks will insist on a minimum 2 week Bridging Loan period.

 

So to Bridge or not to Bridge?

In most cases you are better off looking to sell and settle on an existing property before purchasing a new one, or line the settlements up to be on the exact same day. But real life (and buying property!) can get in the way of this. So if you are thinking about buying before you sell, or you have bought before you have sold get in touch to chat through your Bridging Loan options.

 

 

Thinking of buying before you sell?

telephone Call Douglas today on 0408 671 524

 

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

Why is your investment loan rate going up?

Changes to Investor Lending

Over the past several weeks we have seen the banks make changes to their lending policies, in particular around investment and interest only loans. Following some more discreet changes by some of the second tier lenders, over the past fortnight we have seen a number of significant announcements from the major lenders:

CBA on the 22nd of July – increasing the rate on investor loans by 27 basis points

ANZ on the 23rd of July – Increasing the rate on Investor loans by 27 basis points

NAB on the 29th of July – increasing the rate on investor and interest only loans by 29 basis points

Other such as AMP are ceasing all investor lending as well as imposing an additional 47 basis points on existing lenders.

Clients have asked why this is the case and quite simply it is in response to calls from the lenders regulator (Australian Prudential Regulatory Authority) asking them to slow growth in the investment space to less than 10% and tightening capital controls.  This is being done in an environment where policy makers are under pressure around housing affordability, whilst at the same time worried about a slowing economy.

It is the opinion of this humble Broker that these measures will only reduce the returns available to investors, which will in turn force the hand of landlords to recover these costs through higher rents, perversely achieving the opposite of the desired housing affordability.

What does that this mean for you? All is not lost. Speak to your Mortgage Broker as it is our job to find solutions and the best outcomes for our investor clients. There are still lenders out there offering great deals and there are strategies available which can minimise the cost to borrowers in many cases.

 

Do you have an investment loan rate that has recently increased? What will the annual increase in $ represent for you?

 

Like to discuss your investment property loan?

telephone Call Douglas today on 0408 671 524

 

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