The Assistant Governor of the Reserve Bank yesterday fanned these flames by complimenting home loan lenders on their increased levels of loan application scrutiny. He particularly lauded Westpac and Commonwealth Bank for increasing the amount of deposit required by home loan applicants.

Making it harder for borrowers will mean a reduction of the number of potential home buyers in the market. The RBA is also on record in saying it will increase official rates, so things are going to get tougher for home mortgage aspirants and current owners. Increasing Mortgage stress is a likely result.

I think as interest rates rise, we may see a flood of properties coming on the market. “For-closure sale”, may be the new catch cry of the real-estate industry moving forward.

Delutter your Home for a more peaceful and profitable likestlye.

I call it the real estate economy, because if you are like me, my house is my most important asset and my life revolves around making it comfortable, maintaining, improving and keeping it. My jobs and money making enterprises are generally a means to this end.

Why are we on the brink of disaster? Banks are ripping off small business and the public alike by not passing on the rate cuts. They are being wasted on bank profits and extremely obscene salaries for bank executives.

Thousands of jobs are disappearing daily as small business is forced to cut back on expenditure. People will be forced to sell their homes because the banks have not passed on the RBA interest rate cuts. Major Bank’s continue to overcharge mortgage holders for their finance, official interest rates are at an all time low of 3%, yet small business pay in excess of 6%. The majority of small business use residential real estate as their surety for their business loans. So as small business’s start to go under as predicted, the Australian banks will have plenty of residential property to sell as they foreclose on mortgages and we know they will flood the market like they did in the late eighties as it seems all the Bank CEO’s have memories similar to fish, they can be caught time and time again on the same hook and maggot. All this on the back of a Government deposit guarantee, that effectively bailed out the banks. The guarantee is indirectly from the very taxpayers they are ripping off.

The remedy?

The Government needs to put a cap on first mortgage loans. A figure of 2% should be plenty. That is, if official cash interest rate cashs are 3%, then the standard variable first mortgage rate would be 5%. If the RBA lower rates by .25% then the maximum rate for this mortgage would come down by a similar rate. The bank’s however, would be given a period of 15 to 20 days to adjust the rate.

Cheaper money for small business will stimulate the Australian economy in general, but the important boost will be to the real estate economy as the cost of keeping and obtaining a home will be more sustainable.

Write to your local MP if you agree with my sentiments. We can as a group achieve change.

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.

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.

Continued pessimism and low clearance rates for property sales in Australia has led to a chorus of economists predicting official interest rates will be near zero by 2010. Home loan rates are linked to official rates, so it would appear we could be in for some welcome news and lower mortgage stress over the next few years. Analysts expect the Australian cash rate to be close to 3.75% by March 2009, so home loan rates could be as low as 5.75%. Historically they have been lower, in fact as low as 5% in my lifetime.

Whilst many politicians and media pundits have publicly lauded the Australian Governments bail out of our economy, privately there is pessimistic talk that the global financial system meltdown will drag on for years and our economy may still require a further injection of cash to prop it up over the long term. I for one hope Mr Rudd increase’s the age pension or at least the rental subsidy for non home owner age pensioners. I would also like him to consider our manufacturing sector. We need jobs in our cities.

Whatever the Government decides to do with interest rates and pensions, people still want to come to Australia and live. They will need accommodation, This means opportunity for property investors. It is time to do some homework. Visit your local council, find out what new developments they are planning. Are they planning to change the zoning regulations in an old industrial area?

The main stream media has been responsible for a lot of unhelpful babble in recent days, especially in the relentless, unthinking, 24/7 TV media. The pretty talking heads continually drop doom and gloom prophecies as if they were experts. The truth is they are just filling the gap between commercials. But the panic they cause and the harm they do at grass roots level is criminal. Ordinary peoples super funds diminish because of their ill informed, trivial, bs banter.

Don’t listen to them property owners. Rates have come down, lending will resume, shops will sell stuff, people will buy new cars, bread. milk and need a roof over their heads.

Mortgage holders rejoice for there will be less mortgage stress. Start planning your next property move, Ring your mortgage broker and refinance for a lower rate if you can,visit your land agent or just tour an area you think has growth potential. Laugh in the face of all this media frenzy. They will have an expose on the plight of gay whales, some new financial disaster or a new war to highlight soon and will go back to their ridiculous reporting of the daily fluctuations on wall street. Please ignore the hype. Property was and will always be the king of assets.

To quote Denny Crane: Never Lost, Never Will”. That’s how I feel about property. (That’s property with some land under it, that may, if need be, developed.)

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.

Under the Australian Consumer Credit Code if you are borrowing 80% lvr or more of the value of a property a lender can require you to take out this insurance. Mortgage insurance does not protect you the borrower or your interest in your property. Rather, It protects the mortgage lender in the event that you default on the loan and they have to resort to a mortgagee sale of your property. The lender will recover the difference or shortfall from the insurer if the amount you still owe after the sale is greater than the home loan to be repaid.

Mortgage insurance or mortgage guarantee insurance is usually a one-off premium paid at the time of settlement. If mortgage insurance pays out, for you this will not be the end of the matter, as the
insurance company will pursue you to recover their money.

I think paying this type of insurance to borrow money for a home is old hat. Save your deposit or ask for your inheritance from your parents in advance. A competent mortgage broker will have some alternatives for you to consider ahead of paying mortgage insurance. Finally, please don’t be in a rush to buy your property. Take your time. Property is a great long term investment.

Tenants not paying on time or behind, unable to make your interest payment on your rental property loan?

Don’t use your own money, consider setting up an interest only line of credit allowing capitalisation of interest and use it to pay the interest on your principal investment property loan until you have sorted things out with your tenant or cash flow has improved. If you borrow to pay your interest, the interest on the line of credit will be tax deducible as well. The one proviso is that you genuinely have cash flow problems and are unable to pay the interest on your investment property home loan.

See your mortgage broker for details about interest only interest capitalised line of credit home loans. Remember treat your property investment as a business, not a hobby. Give it a chance to succeed, a ten year chance at least.

The Reserve Bank of Australia Board have cut the official cash rate by 1/4 of a percent. Home loan rates have historically followed cash rates. The press release from the RBA is below.

STATEMENT BY GLENN STEVENS, GOVERNOR
MONETARY POLICY
“At its meeting today the Board decided to lower the cash rate by 25 basis points to 7.0 per cent, effective 3 September.

Inflation in Australia has been high over the past year in an environment of limited spare capacity and earlier strong growth in demand. In these circumstances, the Board has been seeking to restrain demand in order to reduce inflation over time.

As a result of increases in the cash rate last year and early this year, additional rises in market interest rates and tougher credit standards, financial conditions have been quite tight. Some further tightening has occurred over the past couple of months. Conditions in international financial markets remain difficult, with heightened concerns over credit persisting.

The evidence is that the tight financial conditions, in conjunction with other factors including higher fuel costs and lower asset values, have exerted the needed restraint on demand. Indicators of household spending have recorded subdued outcomes over recent months, and credit expansion to both households and businesses has slowed. Surveys suggest a softening in business activity and growth in production has slowed. Indicators of capacity utilisation, while still high, are declining and there have also been some signs of an easing in labour market conditions.

The rise in Australia’s terms of trade that has occurred is working in the opposite direction, adding substantially to national income and ability to spend. Fixed investment spending by businesses continues to be very strong. At the same time, high prices of oil and a range of other commodities have added to global inflationary risks. They are also dampening growth in a number of countries.

Given the opposing forces at work, considerable uncertainty has surrounded the outlook for demand and inflation. On balance, however, it is looking more likely that household demand will remain subdued and overall economic growth slow over the period ahead. Inflation is likely to remain relatively high in the short term, with the CPI affected by the high global oil prices in mid year and other increases in raw materials prices. But looking further ahead, the outlook for demand suggests that inflation in both CPI and underlying terms is likely to decline over time, provided wages growth remains contained. The Bank’s forecast remains that inflation will fall below 3 per cent during 2010.

Weighing up the available domestic and international information, the Board judged that there was now scope for monetary policy to become less restrictive. The Board will continue to assess prospects for demand and inflation over the period ahead, and set monetary policy as needed to bring inflation back to the 2-3 per cent target over time.”

Make an appointment with a reputable Mortgage Broker to check out all the new refinance deals once the dust settles on the announcement. Now is a good time to check your mortgage statements for errors. Any change in interest rate is an opportunity for Banks and other Major Lenders to make mistakes. Don’t get ripped off. Get some reputable mortgage checking software asap.