Unless soaring house prices abate somewhat, expect more rate rises in the very near future.

Reading the recently published RBA board minutes, it seems the RBA has pinned part of the blame for soaring house prices on the state and local governments. The RBA thinks most state governments have lacked the desire to address the fundamental tightness of housing markets. They are not releasing land for development, and most don’t have a long term strategy for future release. More land needs to be released now, developers and investors need to be encouraged.

The very landscape of Australian society will change for the worse if we do not act now. You never know, we may soon have our own “shanty towns” and the edge of the major cities. Population growth among recent immigrants is fantastic and will not be curbed by assimilation to our “old growth” population habits.

The RBA makes a pointed reference about local and state government in the latest minute release.

“Information on the housing market suggested that conditions remained buoyant. Nationwide capital city price growth was running at around 1 per cent per month in early 2010, and auction clearance rates had remained high in March, especially in Melbourne. Members discussed the factors contributing to the recent strong price growth. On the demand side, population growth was strong, households had confidence about future income growth, and mortgage rates were at below-average levels. At the same time, the supply of new housing was not expanding sufficiently, partly because of the land usage policies of local and state governments and also because of the tightness of finance for developers. Members also noted that the current price growth was somewhat at odds with the falls in housing loan approvals over recent months.” (www.rba.gov.au, Minutes of the Monetary Policy Meeting of the Reserve Bank Board Sydney – 6 April 2010)

Maybe it is time to diversify your home loan. Perhaps a mix of fixed rate and variable with a full offset against the fixed rate. Even an offset against both loans would be handy. Make friends with a reputable mortgage broker get the inside information about your home loan provider instead of just the sales speak.

• Be prepared to pay a higher application fee if you are buying a unit or property off the plan.

• If you plan to repay or refinance your loan within 4 years from the date of first loan drawing, you may also be slugged a “Deferred Establishment Fee”. This fee can vary from $700 to $2000 depending on the lending institution.

• Loan service fees: Usually $8 to $10 per month.

• Settlement attendance fee, usually $150 to $350.

• If you are changing lenders, you will also usually have to pay a security discharge fee of between: $350 and $1000 for the privilege.

• Be prepared to pay big if you want out of a fixed rate loan early. Lenders usually will not give any leeway to contract breakers. Picking the direction of home loan rates can be tricky. Just look at the historical rates for the last 50 years.

This is just a snapshot of the fees you can expect when taking out a new fixed rate home loan or changing from a standard variable home loan to a fixed rate home loan. Be sure to get a comprehensive list of fees from your lender or mortgage broker before you sign on the dotted line.

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.

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.

The Housing Industry Association (HIA), Australia’s peak housing construction body reports that home loan borrowers with a $250,000 Standard Variable Rate Mortgage should now be approximately $450 a month better off after the Reserve Bank of Australia’s recent rate cuts, relieving mortgage stress for some. I say: “should“, because not every home loan lender has passed on the rate cuts in full. Some banks and other lenders continue to profiteer at the expense of home owners, families and investors alike.

The rate cuts should be making it easier for mortgage holders to cope with their repayments, many have taken the opportunity to maintain their repayments so they can eliminate their mortgage earlier. This is a sound strategy, but it would be better if the lenders passed on the full cut.

If you are one of the unfortunate ones who have taken out a fixed rate mortgage in the last twelve months, it may be prudent to get a quote from your lender as to the break fees and penalties of your loan. The rumour is interest rates are going to be cut further to historical lows.

In a previous post I warned of putting all your eggs in the fixed rate basket. Fixed rates are good as they provide certainty for future planning and can be an effective in a rising interest rate environment, but with the recent dramatic falls you may want to review your loan arrangements.

One strategy if you are locked in to a fixed rate, is to borrow more if you can at the lower rates and place the funds in a full offset account against the fixed rate loan if you can. This strategy has few tax advantages, but effectively reduces your actual mortgage rate to current variable rate for the amounts of your extra borrowing. Do your sums, speak to your mortgage broker. It is time to think outside the square.

Compare Home Loans, Credit Cards, Personal Loans and more online at Rate Detective.