Australian Mortgage and Loan Information

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

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.

For you current and potential investment property borrowers I have put together a short survey of the one year fixed rate offerings from the major lenders.

I am not suggesting this is the best type of loan in these uncertain times, this survey is just to provoke some thought about your current loan structure. Home Loan rates are trending down as the Government tries to soften the blow from the impending recession or depression.

Please find below the results of a quick Interest Only Home Loan survey for Investment purpose:

Major Australian Lenders.
Investment property home loans, Interest only, best rate, one year fixed interest rate.

No comparison rates are supplied as the rate is for investment purpose only. Borrowing costs and other fees may be tax deductible over one or several years.

Lender, rate, max LVR with MI, application fee, monthly fee.
ANZ…….6.79%……..97%………………$600…………….$10
CBA…….7.14%……..95%………………$600……………..$8
NAB…….6.89%…….100%……………..$600……………..$8
St G……7.39%………95%……………..$600……………..$10
Wpac….7.19%……..100%……………..$750……………..$8

Figures are gleaned from individual enquiry from each lender.
This is just a snapshot to give you an idea of what’s currently available, the terms and conditions of each loan are available from your mortgage broker or direct from the lender. Products may vary from lender to lender, but are for one year fixed, interest only, investment home loans advertised by the lender as at 07/11/2008. Remember, your home loan funding is an important part of your plan to create wealth through property investment. Interest only home loans can give you the edge. Consider interest only when you refinance your home loan mortgages.

So what is refinancing?

Refinancing is actually the closing out of a mortgage and then financing your home with a new loan. Before refinancing can be considered an investigation and comparison of available loan types needs to be carried out. Your mortgage broker can help, but a little home work of your own can pay huge dividends.

There are many reasons why homeowners decide to refinance their home. Refinancing your home and your home loan can be a lot of work. It can be as involved, confusing and as costly, as when you took out your first mortgage. With that said, refinancing can result in some significant savings, depending on your needs and circumstances.

The following are some of the most common reasons why people choose to refinance their homes.

1. Lower Payments. When interest rates fall below your current mortgage interest rates you may want to consider refinancing to lower your payments. Although there are costs involved, if you plan to stay in the home for a long time then the reduced monthly payments will likely offset the costs associated with the refinancing.

2. Converting Equity into Cash. Another reason why you may decide to refinance your home is to convert your equity into cash. The cash could be used to finance home improvements or for wealth creation.

3. To Consolidate debt. A common reason for refinancing is to pay off credit cards, auto loans, and other debts.

4. To Convert an Variable Rate Mortgage to a Fixed Rate mortgage. When interest rates are low, it might be a good time to convert an variable rate mortgage to a more stable fixed rate loan which will likely save the borrower money over time.

Deciding on whether to refinance your current mortgage will depend on many factors including the current interest rates, your reasons for refinancing, how long you plan to stay in the home, your current loan features, and your goals for mortgage refinancing.

The Home Loan Club (HLC) is an emerging online exchange that connects interested consumers to various professional mortgage services companies in its Australia wide network. Fill out the online form for a free no-obligation quote to see if Refinancing will help you.

Essentially an Equity Finance Mortgage it is a home loan offering for owner occupiers only, where you joint venture with your lender. Your lender takes a stake in your property in lieu of regular monthly repayments or interest during the life of your loan.

When you come to sell your property or pay off your loan, you repay the original amount borrowed using the Equity Finance Mortgage plus up to a 40% share of any increase in the value of your property. Conversely, if you ever have to sell your property at a loss, your lender will possibly share up to 20% of any realised loss on your property. There are rules about who you can sell to if you have to realise a loss, including, not selling to a related party.

Application procedure is similar to all other home loan types. So Lenders Mortgage Insurance may be payable if your LVR is not within your lenders guidelines. By using an Equity Finance Mortgage in conjunction with a traditional home loan, it is possible to reduce monthly loan repayments by as much as 25% from what you would other wise have to pay, using a traditional home loan only.

Features of Equity Finance Mortgage Loans

You can borrow up to 20% of a property’s value using an Equity Finance Mortgage.
You will pay no debit interest or make any regular monthly repayments on your Equity Finance Mortgage for the entire life of the loan, which can be up to 25 years. It can be used in conjunction with a standard home loan, but if you default payments on the standard loan you may be up for debit interest on the Equity Finance Mortgage.

Benefits of Equity Finance Mortgage Loans

Help you leverage into a better home in an area of your choice.
Cut current mortgage repayments with a full or part refinance of a standard loan.
Can help reduce up front cost of lenders mortgage insurance premium and ongoing repayments on a new home purchase.

Tips and strategies

Use an EFM to buy a more expensive property while keeping your repayments at a level you can afford. For example: if you have saved a deposit of $150,000 to buy your home and you have been approved to borrow to a limit of $400,000, you could purchase a home up to a limit of $550,000. If you use an EFM with a traditional home loan of $400,000 your limit can improve to $687,500. The EFM would be $137,500 or 20%. This can be the difference between the beachside retreat you always wanted and the ex trust home you could otherwise afford.

If for any reason you are finding tough to meet your current mortgage repayments, refinancing to an EFM may just provide the relief you need. For example: If your current home loan is $350,000 on a property valued at $550,000 and your current monthly repayments are $2,818, you could free up approximately $850 per month by refinancing $110,000 of your current loan to an EFM. What could you do with that extra $200 a week?

Only a limited number of lenders are offering Equity Finance Mortgage’s, but you can apply over the Internet and ask the Home Loan Club for a free no-obligation quote on a Equity Finance Mortgage Loan.

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.

Good news for home buyers mortgage holders, mortgage stress relief on the way.

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.