Australian Mortgage and Loan Information

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.

The Reserve Bank has come to the rescue of big business, now Mr Rudd please come to the rescue of the less fortunate.

The Board of The Reserve Bank of Australia today decided to lower the official Government cash interest rate by 1% from 7.0% to 6%, effective Wednesday 8 October 2008. For standard variable home loan mortgage borrowers, this drop may translate to a 0.5% to 0.8% reduction in their individual rate.

This huge drop is a direct response to the turmoil in world financial markets. The Bank in my opinion, is attempting to stimulate lending in both business and home loan sectors. Both benefit the bank executives and the top end of town. The benefit to ordinary home owners is a fortunate side dish winner for a government craving credibility, and wondering what will become us if China stop buying our commodities at an obsene rate. The drought has ment our ability to produce food for export is diminished and our manufacturing sector is almost dead after decades of neglect by sucessive governments. I guess we still have mountains of gold somewhere in the outback.

I hope the radical rate drop works, despite my misgivings for its reason, but I for one would also like to see an increase in all Centrelink payments, including the age pension and newstart allowance. This act will stimulate the economy, as the less fortunate will spend their money giving a boost to our biggest industry, retail.

If your Bank or Lender does offer to reduce your rate, please check their work. Banks and other financial institutions make huge profits and sometimes huge errors. Get some mortgage checking software, keep them honest.
Stumble It!

The Australian Federal Government will pump a further $3.5 million dollars of federal funding into 41 local government and community organisations to make financial counselling available free of charge for individuals and families who have got them selves into a mess with their home loan mortgages.

Aside from last months ¼% rate drop, Australian Home Loan borrowers have endured 10 consecutive mortgage rate increases. Charitable institution Wesley Mission report that mental health has become a big issue for mortgage borrowers with many stressed borrowers now suffering clinical depression.

Many feel trapped, and isolated by their debt as their lenders seem ambivalent to their plight. The Banks and other lenders are very chummy when issuing the home loans, but turn quickly to savage dogs when you miss a payment or go over your limit.

It can help sort things out quickly when you get a different perspective on your financial situation. If currently, you cannot afford an accountant or financial planner use the service. If your debts have got out of hand, they maybe able to structure a plan for you and advise a debt consolidation strategy to help you get back on track.

On another note, never trust your lender. This current economic turmoil was caused by greedy bank executives trying to impress others and fatten their bank balances. The truth is lenders really do not care for their customers. We are just numbers to them. Your mortgage broker is where your loyalty should be invested. He or she has a vested interest in your welfare at the grass roots level, they generally do care about you. Use your mortgage broker more, make them your trusted advisor.

Did you know 54% of monthly bank statements contain errors! Never accept the repayments specified by your mortgage lender as being correct. In November 2005 the National Australia Bank admitted it had been overcharging 50,000 customers for about 13 years and that it was going to hand back $21.6 million dollars. In this instance the overcharging mistake largely affected business customers with fixed interest rate loans.

To check up on my lenders, I have been using the PC based Mortgage Watchdog mortgage checker software for four years now. The banks do not want you to use this software because of the refunds they have had to make to users. If you have an existing mortgage then it will pay you to buy this particular mortgage calculator instead of using the free bank calculators. Not only can you do “what if” scenario’s but you can check whether the bank has been ripping you off with your existing mortgage and get a refund.