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.

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.

 

 

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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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

 

Should I fix my loan?

Many people want to know whether they should fix (or set) the rate on their home loan, rather than riding the wave of variable interest rate fluctuations. Interest rates fluctuate due to changes in the performance of the economy. The Reserve Bank of Australia meets every month to decide whether the Target Cash Rate or rate at which Lenders access money at Wholesale prices should rise or fall. Lenders then pass some or all of this change onto their customers through variable interest rates.

Fixed rate loans typically work like a long term contract. You fix in a rate for a certain time period, like 3 years, with a fixed monthly payment. There are usually substantial break penalties for ending the fixed loan term.

There are some benefits of a fixed rate loan:

Certainty of repayments

With Fixed Interest loans the repayment amount will not change for the period that it is fixed, allowing the customer to plan and budget with certainty.

Saving money when rates rise

When Interest rates rise (and history will say that eventually they do) then you will save money. With current rates at historical lows, many people are considering fixing their rates.

Case Study of Fixed Loan – Warren

Warren has been saving hard for a long time and has just bought the house of his dreams, using his savings and a 30 year loan for $600,000. He has also recently commenced work on a new IT project which will see his income stay the same for the next few years, so he has decided to enter into a fixed Interest rate home loan for the next 3 years.

The current Variable Interest Rate is 4.9% and Warren has been able to negotiate via his Broker a fixed interest rate over 3 years at 5.00%. 

His repayments will be $3,221 per month (whereas on a Variable Interest Rate the repayment would be $3,184 per month)

6 months later the economy has been booming and Interest Rates have risen so the variable rate is now 5.4%. Warren is still paying $3.221 every month, whilst he would have been paying $3,369 if he was on variable rates, so in this case although he was paying more at the outset now is $148 better off every month.

So in this situation, Warren has done well out of fixing interest rates. On the flip side though, there are of course, potential pitfalls.

You won’t benefit from rate decreases

If interest rates continue to fall, you won’t benefit in the same way as if you had stayed variable. The arrangement is like a long term contract, which you can’t get out of easily or without incurring break costs. There are people who have fixed loans right now that are effectively ‘missing out’ on the latest round of rate cuts.

Less ability to move around

Banks like offering fixed term rate contracts, because they lock customers in. For astute borrowers who may want to shop around at a later date for a better deal, or whose circumstances change, fixing your rate will not provide the flexibility to move without incurring costs.

If you really want to hedge your bets, you can have part of your loan fixed and part of your loan variable. Then you get the best of both worlds, sort of.  If you’re unsure have a chat to your Broker.

 telephone Call Douglas today on 0408 671 524