Current Interest Rates

Interest Rates RBA


It seems with all the micro managing by the RBA, home loan interest rates are likely to remain in their current band. Keeping rates on hold while the economy wilts is a novel idea. I wonder if we will see any movement in March 2012. I am betting no, but I am rooting for a 50 basis point drop to put some vigor back into the housing market and small business.

 

Interest Rates and Utility Bills

Another important factor for the RBA to consider is the ballooning cost of electricity, gas, water and council rates. Many property owners are going without food in an attempt to service their fixed overheads. Imagine the fallout if councils start foreclosure action against delinquent rate payers. Most council’s have borrowed to fund their operations and a lower rate would help them manage better in these messy financial times. Conversely, a rate drop may trigger an increase in other utilities, as the private companies in charge of our sovereign Australian resources scramble to improve their meager margins. There was a reason the electricity generation, gas and water supply were government run. The possibility for profit was slim. Now these private companies that are guaranteed a profit, want more, the Government is in a bind to comply even though the vast infrastructure supplied is in decay.

 

Interest Rates and Rents

If interest rates do not come down, rental property owners will have to consider increasing their asking rents. My opinion is that rents must increase by 25% in 2012 to keep pace with the costs of holding a rental property. The increase in rent, may stimulate construction and provide a lift to building activity and the broader economy as it becomes cheaper to own than rent. Where do people who rent find the extra 25%? They will find it, if they have a good rental property in the area they love and they have good landlords. My opinion is that currently renters are generally better off than owners. They bear little risk.

Historical Interest Rates

From 1959 to 1970 home loan interest rates were consistently below 6%. Australia was by international standards a developing country. Low interest rates fostered manufacturing, agriculture and innovation. We built and we invented and people saved and bought their own homes. Rents were relatively high.

Rental property owners should increase rents by 25%

Interest Rates Comparison

Interest Rates Chart

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Home Loan Interest Rates Are On The Move

Home Loan Interest Rates Are On The Move



Home loan interest rates are on the move. Lenders are offering discounted fixed rates. So should you stick with the variable rate loan, or move to a fixed rate loan. This is something you’ll have to decide for yourself, who knows where we are at in the interest rate cycle? See a list of historical Australian variable home loan interest rates from 1959 to 2012.

What Do The Gurus Think?

The general consensus in property investing circles is to stick with the variable rate. By switching to a fixed rate home loan you are making a bet with the lender that rates may go up. The major disadvantage of fixing rates is that you generally lose any flexibility you enjoyed with your variable loan. I suggest you stay with variable if selling in on the cards, but if you are sure you will be staying put, and think you will be able to make extra repayments, you could consider converting your loan to a “cocktail”, where part of the rate is fixed and part is variable. Then you could pay any surplus funds into the variable portion of the loan without penalty.

Flexible Home Loan

There is more to a home loan than the interest rate and the fees and charges. One of the most important things to consider is flexibility. What happens if you decide to move house, or borrow some money for renovations or investment, or need to reduce your repayments as the kids are at high school. If you have one of the no frill loans it generally won’t have a redraw facility and you may be required to take out a second mortgage for the extra money. Rates will come and go, but your main focus should always be to live within your means and get that home loan paid off as soon as you can. If you have a smaller debt, movements in interest rates will matter less to you.

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Australian Housing Lending Rates

Average Australian Housing Lending Rates

Up until recently average Australian Housing Lending Rates have closely followed the official interest rate as issued and declared by the Reserve Bank of Australia. The graph included in this post illustrates this correlation. Please note the margin between the rates is getting larger.

Historical Australian Housing Lending Rates

Historical Australian Housing Lending Rates


Australian Housing Lending Rates 2012

As the margin gets larger, so does the need for demanding better service from your lender. Lenders make a lot of clerical mistakes and hope you do not notice. It is very important that you keep all your loan statements and check them for errors regularly. You can set up your own excel spread sheet or purchase one of the many, mortgage checkers available these days.

Key Fact Sheet

Ask your lender for a copy of your loans “Key Fact Sheet”. I have written a post on these important documents previously. Keep a copy of this fact sheet with your home loan statements, just in case you get into a dispute with your lender. You have to ask for it, they will not readily supply it, as the Government forced these sheets onto the lenders and they don’t like being told how they should conduct their business.

From the web:

One banking reform to make the choice of home loans easier for customers is being delayed by banks.

The requirement for banks to publish home loan ”key fact sheets” by September could be delayed because they are struggling to meet the government-imposed deadline.

As part of Treasurer Wayne Swan’s banking reforms, lenders must give potential customers one-page documents that set out the costs of a loan in a consistent format that allows them to compare rival deals.

Banks have strongly opposed the planned changes, arguing there is ample information available for consumers to make comparisons on loans and credit cards.

Ask for a key fact sheet and keep it with your statements. I know I just repeated myself, but it was worth repeating.

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Switching Mortgage Lenders

Think Before Switching Mortgage Lenders

The big four banks are getting a hammering in the popular media at the moment about raising their home loan rates. Maybe they deserve the publicity, maybe they don’t. However before you take a leap and plunge into a refinance, consider your costs and how long it will take you to recover them. Most good mortgage brokers will have some comparison software you can use to make a comparison.

 

Switching Mortgage Lenders

A lot of the media including the ABC have been sprouting a tune alone the lines of “small lenders are better”. However, I have found the opposite. You might get lucky if you are in a regional centre and you are dealing with your local credit union and the lending manager knows you and what you are about, but generally my experience is that the fees are higher and the service lower with the small lenders. Many brokers do not deal with small lenders because of this.

 

Switching Mortgage Lenders Fine Print

The other down side to small lenders is their fine print. The big four seem to stick with the normal legal jargon, but I have found many of the small lenders have added little rows of fine print to contracts that they think will help them if you default. If you must deal with a small or minor lender, I advise getting legal opinion on the contract.

 

Check Your Statements Before Switching Lenders.

All lenders make mistakes, but before you head off to a new lender, please check if your current lender owes you money. Loan statement checking software is invaluable and can find thousands in overpaid interest in some cases.

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Interest Only Mortgage

What Is An Interest Only Mortgage?

Interest only mortgage home loans while becoming more popular, are a long way from taking over from the standard principal and interest home loan as the norm for most borrowers in Australia. In the standard home loan your monthly repayment takes care of the banks interest first, then settles a little of your outstanding debt. If you make the minimum payment required by your lender, you will generally pay off your loan in the period described in your loan document. 25 to 30 years is the norm.  Interest only, allows you to just pay the interest on your outstanding principle, giving you a lower repayment in most cases.

Why Would I consider A Interest Only Mortgage?

The ever present threat of a rise in official interest rates makes this style of loan a must for any savvy borrower. A lower monthly payment leaves room for saving or use of an offset account. My opinion is that, interest only home loans are an intelligent option for most people, especially for the first 5 to 10 years of borrowing. The first few years of a loan can be the make or break of property ownership. Having a lower payment will allow you to better manage your money and maybe allow you add value to your property with improvements.

Example Of Interest Only Mortgage Use

Kelly has found a nice vacant block and plans borrow to build a new home for her and the kids. Her bank has approved a home loan limit of $350,000, which will cover the cost of the vacant block and 80% of the home construction. Kelly will have to rent a house while her home is built. Meeting the rent and the loan repayment may put undue pressure on Kelly’s finances. A standard home loan may require full monthly payments. With an interest only loan, Kelly will only have to pay the interest due on any construction instalments drawn by her lender to pay her builder, while she is renting.

With this in mind, Kelly was advised by her lender that an interest only loan for the first two years of her loan may work best for her.

Pitfalls of Interest Only Mortgage

In the short term, using the money saved through having lower monthly repayments can be very helpful to fund your basic essentials of life, however, sustained use may dig you a financial hole. Best to be motivated to make money, save and eventually pay off your loan. Most interest only loans allow you to pay lump sums off your principal at various periods. Getting 15 years into a home loan contract and still owing the original amount may become a little depressing.

Where To Get An Interest Only Mortgage

An interest only mortgage can get you started in property ownership and give you options for wealth building. Seek out a competent lending professional like a mortgage broker for more information about interest only options for your next property purchase.

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Refinance to Reduce Your Mortgage Payment

Refinance to Reduce Your Mortgage Payment

If you are struggling to meet your monthly mortgage payment, you might consider applying for a home loan refinance quote. Refinancing your mortgage for a longer period can considerably lower your monthly mortgage payment. However, there are some risks.

Reduce Your Mortgage Payment Refinancing Risks

If you extend your home loan mortgage’s term, you will probably pay more interest to your lender. If you are just looking for some short term relief then back to paying a larger amount, the increase in interest may not be significant. Lookout for any prepayment penalty before you cast off your old home loan. The cost just may be prohibitive

How do I know if I should refinance Reduce My Mortgage Payment?

Usually, it’s a good idea to apply for a home loan refinance quote if official interest rates have dropped significantly since you took out your current mortgage. The recent .5% drop may not be enough to make it worthwhile unless you are desperate. If you cannot meet your current payment then a refinance is your first port of call. You probably do not want to leave it until your lender is about to foreclose. To maximize the benefits of a home loan refinance, it is advisable to think long term. Even if you plan to pay off your loan quickly after you get back on your feet, it takes a while to make up the cost of the refinance.

How do I apply for a home loan refinance quote?

I am a big fan of using the internet for all my business. As such I suggest you apply for a free home loan refinance quote online if you are planning to Refinance to Reduce Your Mortgage Payment.

They way the world economy seems to be heading is a worry for all of us, however, we can only take care of our own patch. Please make sure you are are on top of your personal finances, so that you can minimise the effect of the global problems.

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Home Loan Interest Rate Cut

A Welcome Home Loan Interest Rate Cut

The cut in interest rate’s, is a welcome respite for home loan borrowers. But should we just bask in its glow or should we be thinking longer term. After all home loans are generally for 30 years. Maybe we should take full advantage of this current rate cycle to pay more off our home loan mortgage, and save on future interest and maybe pay the loan out earlier.

Take Advantage of The Home Loan Interest Rate Cut

A simple, tried and tested strategy, is to keep your loan repayments at their current level. With a standard variable home loan you will pay more off your principal, maybe giving you a buffer against future rate hikes.  While I like this idea, of paying out a loan early I also like the functionality of a 100% mortgage offset account. The benefits of a 100% mortgage offset account are discussed here.

Home Loan Interest Rate Cut, A Reason To Speak To Your Lender.

Your relationship with your home loan mortgage lender is a very important financial link .  The home loan interest rate cut gives you a very valid reason to make contact and discuss your options, with an eye on improving your situation. If they do not want to provide service, call your broker or contact a new broker. You deserve good service and deserve to be able to ask the big questions to enable you to move forward and improve your financial security.

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Get A Home Loan

Rent or Buy A House

Data from one of Australia’s leading rental property research houses, suggest the rent or buy question has become more a case of how much you earn. According to RP Data, housing costs for renters are on average 2% higher than their mortgage holding counterparts. RP Data draw a conclusion that although renters have greater flexibility as far as their location, they are paying for the privilege and often paying in excess of 50% of their income on rent and on costs. They go on to say that there research indicates that mortgagees typically earn more than renters.

How To Get A Home Loan

So if you are renting and have decided to buy into the great Australian dream, the message seems to be, get a better higher paying job or start making more money! This message may seem harsh, but unfortunately with all the tightening of lending regulations and high property prices, owning your own home has become a goal that is hard to achieve. To get a home loan it now seems you will need to have at least $50,000 in personal savings, a clear credit record and have been in your job for two years. The home loan lenders continue to offer 95% mortgages, but the lenders mortgage insurance on these deals can add as much as 5% of the total loan. 5% of a $400,000 loan is $20,000. It appears the mining boom and the GFC combination have conspired to make home ownership very difficult in Australia.

The Good News

Property prices are under pressure and forced and mortgagee sales are up. This means we may see a correction in values. My suggestion, if you can get finance and want to become a home owner, is that you make contact with all the real estate agents in a area you like and let them know you are in the market for any property that may come on the market. Let them know you want them to contact you and you want first dibs on anything that comes on the market before the signs go up. This approach may jag you a bargain, as lenders and borrowers in trouble will be trying to keep the cost of marketing their property low. Meaning they can save a heap on advertising if a buyer can be found quickly. If you get a deal, you can open up a bottle of quality Australian shiraz wine and celebrate your good fortune and toast my advice.

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Home Loan Key Fact Sheets

Home Loan Key Fact Sheets are a must for Aussie Lenders and a god send for borrowers.

Ever been confused by a home loan consultant? I have and have once ended up with a loan I did not care for. Under new rules for lenders imposed by the Australian Government this will not happen again.

The Australian Government requires all lenders offering home loans to give you a  home loan key fact sheet when you ask for one, and to make it available on their company website.

Where To Get Home Loan Key Fact Sheets

From 1 January 2012 all home loan mortgage lenders must provide a home loan key fact sheet when you ask for one. If your mortgage broker or bank lender cannot provide one in a reasonable amount of time, I suggest you move on and find a new lending professional. You may not always be able to get the “Key Fact Sheet” at your first appointment, but remember to ask for it, so you can make proper comparison before you commit.

How To Use Key Home Loan Fact Sheets

A home loan fact sheet is supposed to be a comparison tool with exact information about the key points of each lenders offering, delivered in a standard format. Including interest rate. If you like a particular home loan offering, you should use the fact sheet as your reference when you make your loan application to make sure you are getting what you asked for.

Legitimate Home loan Key Fact Sheets have the words This Key Fact Sheet is an Australian Government requirement under the National Consumer Credit Protection Act 2009 on the top right hand corner.

A key fact sheet is not an offer of credit from a lender, you will still need to apply for a loan and hopefully meet the lending criteria imposed by the lender.

If you are house hunting and loan hunting in the new year ask for your home loan Key Fact Sheet from your lenders.

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Should I Refinance My Home Loan

Should I Refinance My Home Loan is the question?

Before you put yourself through the pain of a home loan refinance, ask yourself these particular questions.

Am I currently feeling any mortgage stress. i.e. is your mortgage payment more than 33% of your after tax income?

Are my other debts, credit card, car loan, store accounts killing my social life and making it hard for me to meet my mortgage repayment?

Is my loan rate over 2% higher than those being currently offered and sold by lenders?

If you can honestly answer at least two of these questions in the affirmative, then it may well be worth calling a mortgage broker.

However, please read an old post of mine that points out some pitfalls of refinancing your home loan.

So Should I Refinance My Home Loan

Our home loan is one of the few financial products that we can have a say in.  While there is good competition between the traditional big banks and credit unions we continue to have the chance of a better deal  and the possibility to save thousands with either a better rate or lower fees. On the other hand, it can be a painful experience dealing with the inevitable bureaucratic stone walling of the various home loan providers credit department and can in some cases lead to problems.

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