Australian Mortgage and Loan Information

Owner occupier Home Loan approvals in Australia are down. The Australian Bureau of Statistics reports the number of owner occupied housing loan approvals dropped 4% in February 2010 as compared to January 2010. Loans for the construction of dwellings also decrease 2.8%.

So the RBA puts up interest rates in April?

The message, get ready to cash in on some bargains in a rising property market.

If you have the capacity and are contemplating buying an investment property, start making ridiculous offers on house’s you like. The higher rates go and the nastier the banks become, the tougher it will be for those who are highly committed.

Many will be tempted to sell. Be ready to be ruthless. There will be no place for compassion.

Your rents should reflect rental demand. The government will have some hand out available for those who need to rent, so charge as much as you can.

You need a competent mortgage broker if you are going to get the best mortgage finance deals. Shop around and get your advice in writing.

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.

It is time to take a closer look at your home loan.

Yes it is time to put your loan through its paces and compare it to other home loan contenders. You might find that you can save your self a heap of cash by simply taking out a new mortgage to replace your current mortgage. In any case it is worth having a mortgage check up. I suggest you get two opinions. Choose a reputable mortgage broker and your current Bank as your mortgage doctors. The mortgage broker should give you a fairly unbiased opinion and your Bank should want to keep your business, so it would be in their best interest to give you incentive to stay with them. In either case, it will be wise to ask for their recommendations in writing. Their recommendations should also be in short summary or table form to allow you to make a informed comparison.

Some of the important items to compare are:

Interest rate?
Administration Fees?
Can loan be increased without total refinance?
Can I fix the interest rate on a portion of my loan up to 5 years?
Is there a 100% Interest offset account available for your loan?
Is there a repayment pause facility available?
How is interest calculated?
When is interest debited to your loan?
Can I make extra payments?
Can I redraw some of my loan, and if so what are the conditions?
Have I any Lenders Mortgage Insurance?
Can I change the term of my loan?
What Banking packages are available for me, and how will they help me?

You should make your own list. Be as thorough or as concise as you see fit. Stick to your guns and get a better deal.

A Reputable Mortgage Broker

Basic Variable Home Loan.

Basic Variable Home Loans are generally the most inexpensive home loans available. They are inexpensive as they generally do not have all the bells and whistles that Banks and other Lenders add to their more profitable products. A Basic Variable Home Loan will suit most home buyers. Especially if you are the kind of home buyer who likes to pay their debts off quickly.

A Basic Variable Home Loan will provide you with the absolute essential for Home Ownership. It will provide the money to help you purchase your property. The maximum you can borrow is generally up to 95% of the purchase price of the property subject to a lenders valuation. Some lenders will lend up to 105%.

Your Basic Variable Loan will most possibly be a Principle and Interest Term Loan for a period of 1 to 30 years. Principle and Interest means that your payments will pay off both the interest the Bank or Lender charges for your loan and some of your original loan amount. Some progressive lenders will allow a period of say 10 to 15 years of interest only. Interest only is an important feature.

Most Basic Variable Home Loans also offer you a redraw facility at a certain level, internet and phone banking access, loan increase availability, no early repayment fee, unlimited extra payments and choice of payment frequency.

Another important feature offered by many lenders is a full offset account. This is a very worthwhile feature and can help you pay off your mortgage more quickly.

These Basic Variable Home Loans have a lot to offer no matter what the direction of home loan interest rates. They are worth considering for both refinance or purchase.

Government stimulus package and historically low lending interest rates will buy some time, but the risk of a massive correction in Australian house and commercial property prices is as high as it has ever been since the great depression. Over valued and in many cases in poor condition, Australian property has become decidedly on the nose internationally.

The International Monetary Fund has for some time voiced a considered opinion that: “Australian property is among the most overvalued in the developed world.“ International investors have heeded the IMF’s warning and are quitting their Australian holdings in the droves. New enquiries have all but dried up.

February 2009 is the perfect time to ready yourself for the turbulent time ahead. Consolidate your debts, sign your tenants to a longer lease, crack down on tardy payers. Repair and maintain your properties to keep them in top condition. Check your mortgage interest rate, get the lowest rate mortgage available or convert to interest only if you can and get some quality mortgage checking software.

It is official, banks are making it tougher to get a home mortgage.

Despite the bail out from the Federal Government to free up lending, it seems some of our major banks have not got the message. A client reported to me today that she had been knocked back for a home loan by her bank (One of the Big Four), despite only looking to borrow a maximum LVR of 77%.

LVR is the abbreviation for the lending term Loan to Valuation Ratio. Like other ratios LVR is expressed as a percentage and is calculated by dividing the amount you need to borrow by the lenders valuation of the property used as security.

Eg if want to borrow $400,000 and your property is valued at $500,000. LVR would be (400,000/$500,000)x100 = 80% Generally an LVR of less than 80% is attractive to most mortgage lenders. The higher the LVR the riskier the proposition for the mortgage lender.

Now there are many reasons why a mortgage lender declines an application, but after reviewing the details I am at a loss to understand their decision and have referred my client to my mortgage broker. I will report further on this matter.

So is this an indication of how the major lenders are going to react to the current crisis? I hope not. The bail out and deposit guarantee was provided so they would lend money and help the economy grow. Could it be they are now a bit gun shy? A smaller bank I could understand, but the big four must do their bit. They have been taking for a long time, it is now time to give a little back.

Please don’t be discouraged if you ever get a knock back from a home loan mortgage lender. Get yourself a competent mortgage broker. They will go the extra mile for you, leave no stone unturned, in their efforts to help you get the home finance you need.

After their bail out of the British Banking system last week, the Government of the UK has moved to cap the salaries and bonuses of British banking executives. The various bank boards seem to have agreed in principal to the deal. I for one applaud the UK Governments action, as the blame for the banking turmoil lays primarily with the greedy cows at the top of the banking food chain. They should not be rewarded for failing their shareholders and Joe tax payer.

Down here in Australia, the big four banks, namely Westpac, NAB, Commonwealth Bank and ANZ have played their typical arrogant role by refusing to rule out paying their executives higher bonuses or incentives this year, despite their failure to provide better customer service, shareholder profits and share value. Last year the big four paid their chiefs in excess of $20 million. Given the Banks have not passed on the entire official interest rate drop, and their share price’s in the main, are in the toilet, refusing to limit their excessive pay demands is typical. Do they deserve our loyalty? I say no. Give the alternative lenders a go next time you talk to your mortgage broker or are thinking home loan refinance or property purchase.

Where you have your mortgage borrowings does not really matter beyond your interest rate and fee structure. Being with one of the major banks is no benefit. In fact it can cost you thousands. Banks make big profits and with their focus on profits and not on customer satisfaction make huge errors, usually in their favour.

The following extract from one of my previous blogs is very pertinent when thinking about how loyal you should be to your bank:

A major Australian bank was recently cited for errors of this nature to the tune of $2,646,326.06. that’s 2.6 million dollars. It was calculated that at the date of judgement, they had made interest overcharges to a number of bank customers to the tune of $2,646,326.06 – yes, you read it correctly – in excess of 2.6 million dollars!! It was found that these overcharges arose principally as a result of the Bank’s use of an illegal formula to calculate accrued interest, and on systematic computer errors. With reference to the Bank’s management of its computers systems, the Commercial Tribunal of NSW made the following observations:

“The range of errors attributable to deficiencies in the Bank’s computer systems in these proceedings attest to a most serious failure by the Bank to properly program the systems and/or adequately check their functions once programmed”.

A recent survey of over 200 bank statements from 18 different lenders found that over 54% of loan statements contained errors. Not surprisingly the vast majority of these errors favoured the lenders.

Get some mortgage checking software or make your own loan interest checking spread sheet, to keep the banks honest.

A Home Equity Loan allows you to turn the equity you have built up in your home into cash to use as collateral for buying bargain priced assets in the current financial turmoil.

National property prices in Australia have surged by more than 60% over the last 7 years giving many home owners substantial equity to borrow against – Equity is the difference between what you owe on your home loan and what the property is actually worth.

Home Equity loans are commonly used to retire and consolidate high interest consumer debt or to purchase expensive items like a vehicle or boat. I think it would be better used to obtain a deposit on an investment property, to renovate and increase the value of your existing home or do what an old guy called Warren Buffet does: buy shares, listed property trusts and other income earning assets.

There are 2 main types of Equity Loans. There is the lump sum cash type where you get a lump sum for a particular project or investment where you start paying interest immediately. This loan could be any one of the types lenders offer like standard variable or fixed rate, but generally means refinancing your entire loan to access your equity. The second and my favourite is the Line of Credit type where you only pay interest on the part of the loan you have drawn down on. This type of loan can be in addition too and sit on top of your existing mortgage. It can also be a low doc loan. If set up properly and kept track of, it can be your loan for life, meaning you should never have to go back to the bank to apply for new loans for investment projects or similar.

If you have good cash flow from your job or business an equity loan can be a great leverage tool to facilitate investment in assets that appreciate in value to increase your wealth.

Call your mortgage broker and check out your equity. The global stock market crash has made some solid companies bargain buys. The equity in your home may be the key to taking advantage of this opportunity.