Australian Mortgage and Loan Information

Rate Hiked Again.

Australian Home Loan Interest Rates Hiked 25 Basis Points

The RBA board has decided in its wisdom to raise official interest rates again. The third time in three months. The reasons are not plain to ordinary small business people or home mortgage holders and in my opinion, way to optimistic. The financial crisis is far from over at street level. Lending is tight and many properties very much overvalued.

The latest rate increase means a person who has a 30 year $300,000 mortgage is now going to pay $150 more per month than they would have before this latest hat-trick of interest rate hikes.

So how can you keep your sanity and reduce the effect of these rude, unnecessary and Christmas Grinch like increases?

Increase Your Loan Term:
Contact your broker or lender and see if you can stretch your payments over a longer period. This will lower your current monthly payments and assist your cash flow. The drawback is unless you can eventually pay more monthly, you will pay more interest to your lender over time.

Switch To A No Frills Loan:
Consider switching your home loan mortgage to a no frills operator like MyRate. You don’t really need a branch network to help manage you home loan, you have the Internet. The rate will be lower the only hassle may be getting your current lender to co-operate quickly.

Consolidate Your Personal Borrowing:
It may be a good time to assess the need for those credit cards. Fold your debt into your home loan and cut up the cards. You may not feel as affluent, but you may just enjoy your life a little more without the financial pressure. If your current lender wont help, get a reputable broker to help you.

Fix Your Rate:
You may think the horse has bolted here, but maybe fixing half your loan will at least give you some certainty moving forward, without getting caught out if rates fall, if the financial crisis/credit squeeze worsens.

Earn So Extra Cash:
Start a home based business in your spare time and use the profits to pay off your mortgage.
A Kiwi named Mark Ling has a few ideas. I am currently trying to copy his methods. An extra $500 per month will come in very handy to thwart the RBA and the Lizard conspiracy.

Or you could sit back, do nothing and see if the predictions about 2012 are correct. If they are the mortgage will not be such a worry.

Reflecting on the fees charged on a clients home loan I thought I would look up the RBA to see if there was any info on how much bank fees had increased over the last decade.

What I found makes interesting reading in light of the massive cuts to local jobs and outsourcing to foreign countries the banks and other financial institutions have proudly touted as the reason we “Australians enjoy the best value for money banking in the world.”

From the Reserve Bank Of Australia, Statistical Tables:

Average home loan fee income per Australian Household.

1997 $302 per household

2008 $1045 per household

That is a 246% increase in 11 years. 22.5% per year!

I guess loans are bigger now, but this is fees, not interest.
If you are getting gouged by high home loan fees consider refinance to MyRate.com.au.

Transaction account fees per Australian Household.

1997 $431 per household

2008 $1792 per household

That is a 315% increase in 11 years. 28.5% per year!

Increase must be for all the convenient services they offer? We are being gouged.

Credit Card Fees per Australian Household.

1997 $135 per household

2008 $332 per household

That is a 146% increase in 11 years. 13% per year!

Competition is keeping these fees under relative control.

Total bank Fees for all Accounts and Loans per Australian Household.

1997 $1160 per household

2008 $4845 per household

That is a 317% increase in 11 years. 29% per year!

So the big four major banks cry poor, do not pass on RBA interest rate cuts, increase home loan rates above RBA increases, continue to send jobs off shore and use 1950’s like lending practices. So much for CPI and the reasons we need high home loan rates. Bank fees are a catalyst, just like fuel costs, for bringing inflationary pressure to bear on home buying Aussie battlers. I say we need more competition in the banking sector.

Please check your loan statements for errors, I recommend you do it every month. If you get your statement six monthly, get access to transactions on-line and check them monthly. Fee income as you can see is a bounty for banks, don’t let them pirate more of your hard earned income than they are entitled too.

The RBA controls interest rates to an extent, and historically rates are not that volitile compared to other developed countries.

I received the following email from my mortgage broker today. Because of my diverse income streams I used lo doc for one of my loans. He is touting for business I am sure, but the letter also drives home the fact that we have a very different lending environment going forward into 2010.

Here’s the letter:

“I am sending you this email to advise you of some SIGNIFICANT changes that have occurred in the Low Doc market over the last few months.

4/ If you want to buy another Investment property”

I personally think we are returning to the nasty old days like in the 70’s, this means less people able to get loans and a stagnant property sector. I hope I am wrong. Take a look at interest rates in the 70’s, they are high, but not that bad. People just could not get a loan and banks were stupidly tough with lending. However the bankers of that day did not enjoy the extreme bonuses of their counterparts today, so I am guessing the rouges of Martin Place and Collins Street will find a way to gain from others misery.

Now, may just be the time to fix some of your loans for a year or two.

If you are considering an investment property real-estate purchase between now and Christmas, it will be imperative that you get some sort of pre-approval from your lender. Better still ask a competent mortgage broker to secure you pre-approval. In writing!

The Reserve Bank seem hell bent on increasing official interest rates again, (the popular media have been selling the idea for them in every news program or update) and I feel that this action may just be the trigger for a sell-off of property in the low to medium price band.

Many in this band are recent first home buyers who have paid the first home buyers bonus driven inflated market value for their property. So they have bigger than expected home loans. Added to this many have funded the exorbitant lenders mortgage insurance premiums charged on their home loans with their credit cards, personal loan or loan from family.

This means opportunity if you are cashed up and ready to move.

However, credit is tight and lenders seem reluctant to lend without creating time wasting road blocks. On the plus side your rents will be good as there is still a shortage and the people who have to sell up will need somewhere to live and with immigration adding 2000 new aussie’s a week, residential property is destine to rebound strongly over the next 20 years even if interest rates follow historical trends.

If you have a line of credit/home equity home loan, I suggest you dig out your mortgage documents and go over your rights and obligations. Pay special attention to the fine print regarding when you have to pay the loan back and when your lender can demand you pay the loan back.

With the tightening of lending criteria, many lenders are now looking at their loan books and increasing the rates on certain home loan products. In particular they are looking closely at low doc lines of credit.

My mail is they will be adding an extra basis point or two to the rate of these types of home loans and in some case’s recalling the loan altogether. If you can convert to a full doc, do so as soon as possible or speak to your mortgage broker about your options.

Finally, check your statements, lender’s, particularly major banks make mistakes whenever there is an interest rate change. Stay on top of your finances and get some loan statement checking software. I recommend a program it is reviewed on my mortgage checker web page.

Spend what you save on a holiday or some tennis lessons for the children.

Yes, It is time for a comprehensive analysis of your current home loan?

It seems all the major lenders are tinkering with their home loan offerings. They are playing their cards pretty close to their chest, but you can be assured of one thing, old loan holders will be treated like lepers’ were in the olden days once the new offering is about.

You will be getting plenty of encouragement from the tellers at the bank to speak to their home loan professional.

The “new stuff” will no doubt be irresistible, but will include new clause’s enabling the lender to boot you out of your home if you don’t comply with their current whim or fancy.

Please be prepared. Use a mortgage broker if you can. Heck, use two and play them off against each other.

Rates are on the way up, be ready.

The major banks and other lenders are making it almost impossible for mortgage brokers to access low doc loans for their clients.

This is part of a push by lenders to manage their risk in this area, and make more money on their existing portfolios. The message is: if you currently have a low doc loan, you will be paying a higher interest rate in the near future.

Personally I think this is a bad thing. Low doc or liar’s loans as they are sometimes known have really helped the Australian real estate and property market over the last 10 years. They have also helped establish the mortgage broker as our preferred professional when it comes to organising our home loan and investor finance.

Your best bet moving forward is to convert your existing low doc loan to a full doc loan as soon as possible to avoid punitive action by your lender in the guise of a higher rate.

Please remember your lender is not really a friend, you are just a business transaction to the company. Treat them the same. Demand satisfactory service standards and check up on them as they check up on you. Us a loan statement checker often and review your loan PDS frequently.

CBA to increase fixed rate lock loans by 60 basis points!

Should I lock the rate on my home loan?
This is an interesting question, and given the recent press leaks from the experts on what we should be paying for our home loans, it seems rates are unlikely to go lower. Even the RBA seems to have joined the: rates have bottomed chorus, so we are likely at the bottom of low rate the cycle. So maybe it is worth doing your sums on a rate lock.

Check with a reputable mortgage broker what rates are on offer before you jump, you may be wise to kick your old bank to the curb and find a new lender.

The main benefit of a rate lock is certainty. You will at least know what you have to pay for the period of fixed rate you choose. You may also be getting a jump on the banks, as they are likely to increase rates further if they think the market will handle it.

The downside is if rates drop further. Check out the history of rates for the last fifty years.

And finally check your loan statements, banks make mistakes every minute, make sure you are not getting ripped off. Click here for more info on loan checking software.

Landlord Insurance or Landlords Insurance as some call it, is a necessary cover for all rental property owners who are serious about making a success of their chosen asset investment.

The rental property road is littered with obstacles, none more apparent than the need to have tenants. I list tenants as obstacles, as many a well intentioned property investor as had their dreams shattered by a rip-off tenant. Surviving the experience they say makes you stronger, but for many it is the last straw. Many leave the property investing game after a bitter experience with a tenant.

Unless you count Tony Soprano as a close personal friend, Landlord Insurance. is the only way you can protect yourself and not feel so violated when a tenant walks without paying rent or wrecks your investment property.

The cost of a policy can vary wildly, but if you can get cover for around .2% of the replacement value of your property or an amount equal to three weeks rent you are not paying to much. I am always prepared to pay a little extra for a lower excess.

Things you need to be covered for as a minimum are:

Loss of rent due to rent default.
Loss of rent due to death of sole tenant.
Loss of rent due to an insured event e.g; fire, flood, storm damage or damage to a neighboring property that may restrict access to your property.
Legal costs for evicting a tenant in default of rent.
Building replacement, impact, storm damage and flood cover.
Theft, or malicious damage by tenant or visitor.
Personal liability at least $20,000,000
Accidental glass breakage.
Replacement of locks and keys.
Contents cover for fire theft and malicious damage.

These are the basics, a qualified insurance broker can give you the complete picture. Be sure to read the terms and conditions of the policy before you purchase. Get three quotes if you have time. Most landlord insurance providers let you pay monthly, so you can use your cash flow from the property to fund the premium. Or you maybe able to get it deducted from your mortgage. You cannot afford not to have this cover. The Bond money you get from a tenant is never enough to cover the damage they do.

I also advise you to make friends with a plumber. Tenants are always blocking drains or breaking taps.