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.

 

Finding a home loan when you’re self-employed

There are many perks to working for yourself, but when it comes to applying for a loan, it seems being your own boss sends up a red flag to banks and other lenders.

Andrew, owner of Tick Concepts, was one such person who found himself in a difficult position, after having left corporate life and a steady stream of high paying PAYG roles to go into business, when he went to sell the apartment he had owned in Sydney and buy a house in Adelaide. Despite the fact he was putting down a huge 50% of the equity in the new property and was doing well in his new business venture – he came up against several brick walls when looking for finance and a “sorry we can’t help”.

So why is it so difficult securing financing when you are self employed? For lenders a salaried employee has a regular, steady income and is less likely to experience the cash flow volatility of a small business owner, contractor, entrepreneur, tradesperson or freelancer.

Yet by being proactive and accessing specialist advice, self-employed applicants can also enjoy a successful and hassle-free road to securing a home loan. For Andrew this meant getting advice on an option with a Credit Union, who would take 1 year of financials rather than 3 and would accept BAS statements, making it easy for him to secure the loan for his new property.

So if you are self employed, try these 5 top tips when it comes to securing a loan.

1. Seek expert advice

Trying to navigate the home loan landscape solo may not produce the outcome you desire. There are many experts who can help self-employed people access a home loan, and a mortgage broker is a good first port of call. They will be able to provide you with an up-to-date overview of which lenders on their panel are most comfortable lending to the self-employed, and also explain what sorts of loan products are available. They can also provide valuable advice around the sort of documentation you will need to have ready before you submit your application.

2. Get your affairs in order

Many lenders will lend to self-employed borrowers who provide their full business financials. This generally includes your personal and business tax returns for the past two years. If you have these documents on hand – and they reveal a fairly consistent income – applying for a loan should be relatively straightforward.

However, the hectic schedule that comes with running your own business means many self-employed borrowers’ tax returns are not up to date. If you have time on your side, consider working with your accountant to lodge your outstanding returns. If you’re in a hurry, you may wish to explore the option of applying for a low doc loan.

3. Consider a low doc loan

Low doc loans are offered by a wide range of lenders and, as the name suggests, require less documentation than traditional loans. Many low doc loans only require 12 months of business activity statements instead of full financials, for example. A downside of some low doc loans is that they may only be available at a lower loan to property value ratio (LVR), which means you may need a larger deposit.

4. Do your homework

Checking your credit history is a good step for anyone applying for a home loan. If you’re self-employed, it’s definitely worth taking the time to make sure your credit history doesn’t include any defaults or errors – these can hold up your loan application if they are not rectified in advance.

Taking the time to work out exactly how much you’d like to borrow is also a good idea. That way, you can hit the ground running when you meet with lenders or your mortgage broker.

5. Think outside the square

It may be possible to apply for a home loan using a Certificate of Income Declaration – a document that verifies your income and is signed by your accountant. It’s wise to consult a mortgage broker before applying for a loan in this way, as they can advise which lenders will accept an income declaration. It should be noted, however, that applying for a loan using such a document may mean that the required LVR (the portion of the property value you can borrow) may be lower, so you may need a larger deposit.

So while it’s a little more complicated for self-employed borrowers, getting a home loan can be easier than you’d imagined with a good mortgage broker in your corner.

 

Self employed and looking for a home loan or refinancing? To get some specialist help and advice, you can contact Doug on (m)  0408 671 524 or (e) douglas.piening@choicehomeloans.com.au.

 

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 I Borrow?

This is often the first question that a client will ask before they even think about buying a new property, and many are surprised at the answer they get. Different lenders have different policies with regard to the maximum borrowing they will offer but there are some basic principles that remain constant throughout.

Borrowing capacity is determined by several factors:

  1. Eligible Income

Eligible income may include income from primary work, income from investments, income from Government benefits or a combination of the above. In some cases, Lenders will require that employment has been for a certain period of time, and they may not accept some types of income. Your Broker will navigate the maze of what is ‘eligible income’ for you.

  1. Living Expenses

Living expenses are generally calculated as the higher of your declared living expenses or a minimum benchmark set by the Lenders. The Henderson Poverty Index is one measure which has been used as a benchmark minimum. As a guide for a single person, the applied living expense ranges from just over $1,000 per month up to over $1,700 per month. Couples range from around $1,800 per month up to around $2,700 and each dependent can be from around $153 up to over $500 per month. This variation goes a long way to explaining why some borrowers may be eligible with one lender but not another.

  1. Other Commitments

Existing credit commitments will reduce the amount that someone is able to borrow. For example, if you have a car loan, personal loan or another property loan, the repayments on these will reduce the amount of additional finance available. If you have Credit Cards, the total limit (regardless of whether you pay them off in full) will impact the amount that you can borrow. As a guide the monthly commitment for a credit card is equal to around 3% of the total limit – for example if you have Credit Cards with a limit of $20,000 this equates to a commitment of $600 per month (3% x $20,000)

Once income, living expenses and other commitments are ascertained the borrower will hopefully have an amount of surplus money available each month – this amount is then used to calculate the maximum repayment possible and by extension the maximum loan amount.

The lender will apply a rate of interest that is higher than the current rates available – this provides a safety net or buffer in the event of rising interest rates. For example, whilst most Standard Variable Rates are around 5% at present, the Assessment Rates (or implied rates for this purpose) are between 7% and 8% in most cases.

Lender calculators can be useful, but should only used as an approximate guide. Your specific circumstances and the lenders policies will determine exactly how much you can borrow.

If it all sounds a bit complex, don’t worry your Mortgage Broker will help!

 

Need any information on Home Loan Options?

telephone  Contact Doug on (m) 0408 671 524 or (e) douglas.piening@choicehomeloans.com.au

 

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.

 

 

Refinancing your loan

Better interest rates, lower repayments, paying for that longed for renovation or consolidating other debts, there many reasons why you might want to consider refinancing.


What is refinancing?

Refinancing is when you pay out your existing loan and replace it with a new loan, either with a new lender or your existing lender. The loan may be for the same amount as you have currently, or if your home has grown in value over the time you have had your existing loan, you might look to increase the value of the loan and access some of the equity you have built up.

 

Why would you refinance?

Circumstances change over time and what was right for you when you first set up your loan may not be the best solution for you in the current market. It is a good idea to review your existing loan periodically to see if it continues to meet your needs, or if you might be better off refinancing.

 

Weighing up the benefits v’s the costs

Refinancing involves some benefits and some costs depending on your situation. Whilst the benefits can be great, it is important to weigh these up against the costs to make sure that refinancing is the right option.

 

What are some of the benefits of refinancing?

To get a better interest rate and reduce your monthly payments

  • If your current loan isn’t competitive in the market, you may be able to save a considerable amount on your monthly payments by switching to a new loan.

To access some of the equity in your home

  • You may want to free up some cash by tapping into the equity in your home. This could be to renovate, purchase an investment property, for a car or education costs (or just to run away to Las Vegas for awhile!).

To change lenders or the features of your loan

  • If your current lender isn’t providing you with the service, or loan features you are looking for, you might be considering switching to another lender, or loan.

To consolidate debts

  • If you have credit card, personal finance loans or store card debt, these will generally be at higher interest rates than your home loan, and you may have several payments to make every month. Refinancing can help to pay out these loans and consolidate your debt into your mortgage, creating one payment at the best rates on the market.

 

Why might you not refinance?

The costs involved

Depending on your circumstances there may be costs involved in refinancing which will have to be weighed up against the benefits.

  • Exit fees
    Exit fees are costs applied when you pay out a loan early. These fees were banned in new loans taken out after 1 July 2011, however if you have a loan that pre dates this these may apply. Your loan contract will specify what these costs are and they may be only applicable for a certain time period (say the first 3 years of your loan).
  • Break costs
    Generally fixed interest rates are for a specified time period. To end the loan before this contract time period can involve break costs.
  • Loan set up costs & Government Charges
    A loan application fee, valuation fee or settlement fee may be applicable, or these may be waived or negotiable. Your broker will also be able to let you know of any government charges involved in setting up with a new lender and discharging your mortgage from your current lender.

Meeting Lender Requirements

  • There may be reasons that your current circumstances don’t meet lender requirements, so the timing isn’t right for refinancing. This could be things such as existing debts or liabilities, or income levels for servicing a loan.

 

Cara and Peter – A case study in Refinancing

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Cara and Peter recently refinanced their house in Doncaster. 

They originally purchased their house in May 2011 for $830,000 and took out a loan for $600,000 payable over 30 years.  Their current loan balance was $550,000, with a variable rate of 4.75% and monthly repayments of principal and interest $2,870. 

They refinanced their loan with another lender and  secured a 0.9% discount off the variable rate. They also took the opportunity to increase the valuation of their property, up to $1.1m from $830,000, freeing up $270,000 in cash. They used this cash to pay off an outstanding credit card bill of $33,000 and a store card with $8,500 owing, then put the remainder of the cash in their offset account. 

Their refinancing costs were $170 in Mortgage Discharge fees to their existing lender and $360 in costs to their new lender (for Mortgage Registration and Settlement Costs). The new lender waived the loan establishment fee.

Given that with the refinance they are saving $4,950 in interest annually (0.9% of $550,000), it has only taken  one month to recoup the costs of the change and they are now effectively saving $412 every month in interest. They also have the flexibility of having cash available, at their low home loan rate, rather than at the higher rate they were paying on credit and store cards. 

 

Deciding whether to refinance

Working out whether to refinance comes down to weighing up the pros and the cons for your individual situation. Your broker can provide the information needed to help you to weigh these up. If refinancing is the right way to go for you, they can then assist you by negotiating the best loan for you in the market and handling the loan process to make it as simple as possible.

 

Thinking of refinancing? Or undertaking a Home Loan Health Check?

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.

 

 

Even lower rates for owner-occupiers from the major lenders

A combination of low interest rates and house pricing growth has led to a warning this week from ASIC of a ‘housing bubble’ and the regulator APRA putting a ceiling on investment lending growth for the banking sector.

This in turn has led to speculation that banks may look to entice more owner-occupier with deeper loan discounts in order to fuel their growth outside of the investor sector.

According to Smart Investor “NAB-owned Advantedge, a wholesale lender that customers access via a broker, is offering owner-occupiers a discount that is about 15 basis point larger than the discount for housing investors”.

This is of course good news for owner occupiers in an already historic low interest rate environment, while it will be interesting to see if house prices, particularly in Sydney and Melbourne continue with current annualised growth rates of 10 to 15 per cent in the longer term.

Why not undertake a 30 minute ‘Home Loan Health Check’ to make sure you are getting the best deal in the current market? It’s simple and it is free – call and book one today.

 

telephone Call Douglas today on 0408 671 524