Australian Mortgage and Loan Information

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.

Can we expect another cut in official interest rates in June 2009? Or has the Australian economy hit its bottom. These vext questions will only be answered in the fullness of time. But, Australia’s major lenders have raised their fixed mortgage rates by nearly half a percent. Do they know something we don’t. Probably. So is now a good time to fix you rate?

My thoughts are no! If you are in a panic about rates, I still say no. If you simply must fix, fix a portion of your loan, not the lot. How will you feel if rates go down to 2% after you have fixed at 6%. There are lot of folk who have fixed at 8%, they now find it very expensive to refinance. I say remain flexible if you can.

My gut feel is that a lot of borrowers are enquiring about fixed loans and the Banks and other major lenders are simply taking advantage of the demand. They all have plenty of cheap money from over seas and from the Government deposit guarantee. First home owners may consider a fixed loan, as it will provide certainty for at least a five year period and give them a chance to accumulate some equity.

Before you take a fixed rate loan, be warned that there is devil in the fine print and a hefty cost if you decide to refinance your loan before the fixed term expires.

Check Your Mortgage Documents

Unfortunately, I know someone who is having to sell their home at the behest of a Lender. This is real mortgage stress.

The lender has demanded a loan be repaid or refinanced within 30days. So much for the mortgage holiday deal?

Their problem stems from having a cocktail of home loans on their residential property. One of their loans is a line of credit. Unfortunately they did not read their mortgage documents thoroughly. By not keeping their line of credit mortgage active and under it’s limit, they have trigged the lenders get out clause. If they can’t refinance the line of credit, the other home loan will also have to be refinanced. They had something called an all monies contract.

I have referred them to a mortgage broker who assures me he can help them. However, I think this situation highlights the need to read the fine print of your mortgage documents and get advice if you don’t understand what you read.

In the current economic climate, lenders will be inclined to manage their risks quite harshly. So please get your mortgage doc’s out and get an understanding quickly.

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.

A drop in Australian house and property values is imminent, it is not an if but a when the bubble will burst.

Four years ago the OECD (The Organisation for Economic Co-operation and Development) released a report revealing that: “AUSTRALIA had by far the most overvalued houses in the Western world, with prices 52 per cent higher than justified by rental values.” The report went on the say: “Australia was one of four countries where house prices were most out of line with fundamentals and that a correction of these inflated prices could generate an economic downturn, affecting growth, employment, government budgets and bank lending.”

So now in 2009 four years later we are in the middle of the biggest financial meltdown in the history of the world and our house prices have increased? I know Australia is a great place to live, but it just does not add up. Successive governments have subsidised the property bubble to an extent with first home owner grants and bonus’s, but that makes up a small part of the overall market. Why does our bubble continue to inflate, when will it burst and what will be the fallout for Australian residents and home owners? What will it mean for our major lenders and superannuation funds?

Consolidate your debts as soon as possible, get ready for a some rough property investment weather, but be ready to take advantage of the recovery if you can.

Variable rate home loan borrowers are rejoicing the recent rate cuts, but fixed rate home loan borrowers may need a new plan.

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.

With 70% of all housing stock in the hands of owner occupiers and home loan interest rates moving in the right direction, I seriously doubt it. Home owners will generally do what ever it takes to keep their home, so if the Banks and other lenders are sensible about foreclosures, we are unlikely to see a heap of properties, dumped on the market at once.

However, having said that, it is impossible to predict what new crisis, may spook the herd into action. If this happens, I suggest you may be best served by adopting a maverick attitude and not follow the herd. Property is long term, financial markets operate in cycles, the current tough times will only be temporary.

Rising unemployment could effect the value of House’s in the coming years. More Australians than ever are now employed on a casual basis or as subcontractors. They will be the first casualties of any big down turn in our economy and if they have bought homes in the last 5 to 6 years they may not have enough equity to help them ride out periods of unemployment. I suggest all casual employees and small business home owners look seriously at refinancing to interest only mortgages, for part or all of their home loan borrowing in these uncertain times.

The environment poses a different dilemma. Australia has a shortage of housing stock in areas where people want to live. To improve the situation the government has to sponsor a movement toward environmentally sustainable housing projects, taking into account the problems of water and transport. The internet and whatever is next will make communication and delivery of services more efficient, but people need drinking water and a way to get around without it costing them half of their incomes.

I am still bullish for property in all countries of the world. Individual house price’s may fall for a variety of reasons, but experienced investors know that the best time to buy property is when the market is weak. This year may be a good time to buy property if the basic fundamentals, including return on investment, are right.

I have always found it a good time to buy, when everybody is telling you that property is a bad investment. Now is the time to get set for the future. Don’t wait for the next boom to invest. Get set for the next boom and be one of those investors who pushes property to the next level by building and renovating this year. Create your own boom. Then when everyone else hop’s in and pushes the value of the properties up, you will be rewarded handsomely.

Refinance my home loan!

I am about to jump ship and refinance my line of credit. I use my line of credit as the base loan for my property investments. I leverage the equity in my home to grow my wealth in property. I always use a mortgage broker to find the best rate and deal for my circumstance. I am not happy with my currect lender as they have been tardy passing on the rate cuts and seem ambivalent to my welfare. They gotta go!

What is a mortgage broker and what can they do for me?

A mortgage broker is like an old fashioned Bank manager with a special difference, they are not tied to a certain Bank. Like the old Bank manager, they will:

Be available for personal interviews where you can let them know your lending requirements and provide a professional service to help manage your finance needs.

They will then talk you though the home loan options that may meet your requirements.

They will source the application paperwork necessary to secure your home loan and act as your representative in complex negotiations with lenders.

So, if you need a mortgage overhaul or need a new home loan to purchase your own piece of earth, then you might want to consider using a mortgage broker. A mortgage broker can save you valuable time and money. Two very valuable commodities.