2007: I will pay off my bank loan.
2008: I will pay off my bank loans.
2009: I will be totally out of debt by next year.
2010: I will at least pay off my interest by next year.
2011: I will be out of the country by next year.
Don't get out of town just yet. Come and see us at Mortgage choice at Sutherland. We can explore your options.
Don’t get comfortable; fixed interest rates are already rising
Australia’s largest independently-owned mortgage broker, Mortgage Choice applauds the Reserve Bank of Australia for holding off on a cash rate rise for another month, while warning new and existing borrowers to batten down the hatches for an almost certain run of rises in the near future.
As talk continues of lenders looking to increase variable home loan interest rates independently of the cash rate cycle, the Reserve Bank made a mostly unexpected move on 5 October by keeping the rate steady at 4.5% for the fifth successive month.
This occurs as a number of lenders are increasing rates on some or all of their fixed term loans.
Local Mortgage Choice franchise owner Peter Johnson said, “Another month with a steady cash rate is fantastic news for anyone repaying a variable home loan and those looking to enter the market.”
“However, it’s pretty much a given we’ll soon see an increase to variable rates prompted by either a Reserve Bank cash rate move or by lenders moving interest rates regardless. The vast majority of economists say we’re looking at several rate rises by the end of 2011. Anyone who’s not aware of this and has, or is looking to take out, a variable rate home loan needs to catch up quickly on the information out there and prepare their budget now.
“Another important trend receiving little attention thanks to the heavy focus on variable rates is that fixed home loan interest rates have been creeping up over the past three weeks.
“Our lender panel’s average interest rate for a three-year fixed term home loan - the most popular - hit rock bottom in mid September and is very much on the way up. We have 24 lenders on that panel and 11 of those increased rates on one or all of their fixed loans over the past three weeks.
“A number of these lenders have already done so more than once.
“This saw our panel’s average three-year fixed rate rise by 0.14 percentage points in the past three weeks, from 7.33% to 7.47%.
“However, there are some fixed rate deals about with much lower rates and surprising flexibility.
“Anyone looking at fixing part or all of their loan amount really should get their skates on but be sure to base any home loan decision on thorough research and a good understanding of their current and future needs and financial situation. A fixed term home loan doesn’t suit everyone.”
With consumer and business spending, building approvals, housing finance and retail sales showing lacklustre results, Australia’s largest independently-owned mortgage broker, Mortgage Choice, believes the Reserve Bank has made an accurate decision in keeping the cash rate at 4.5%.
Existing and potential property owners will be elated to hear the cash rate is on hold for a second month, as they reassess their budget for the new financial year. It means lenders will be much less likely to move mortgage interest rates up as winter takes hold.
Local Mortgage Choice franchise owner Peter Johnson said, “A ‘wait and see’ approach from the RBA is what borrowers need at the moment. Interest rates stood at an emergency setting over much of 2009, but they rose very quickly from then on and caught many people unaware.”
“We have not yet seen the full effect of the six official rate rises from October to May, or the effect of further mortgage rate increases by a number of lenders.
“Although employment is solid, our resource sector is strong and many property markets are moving at a healthy pace, consumer spending is subdued and sentiment has dropped, just as housing finance demand has over several consecutive months now. We’re also seeing a slowing of housing prices and global economic uncertainty continuing.
“Slowed housing finance demand and prices is a good thing, however, for those looking to enter the market. Less competition means some local areas may become a buyers’ market. Anyone with a healthy deposit or equity, a steady income, few debts, a good credit record and solid employment, may find they are well placed to build upon their financial portfolio now by buying property.
“Greater credit should also be given to Australian mortgage holders, the majority of whom are coping well with ten-year average standard variable interest rates.
“Clever borrowers used the relief of decades-low rates over late 2008 and most of 2009 to get ahead with their repayments and prepare for changes to rates and their financial situation. Many continue to do so. Our 2010 Recent First Homeowners Survey found 64% of respondents were making extra repayments, with the majority contributing as much as possible. This not only helps a borrower create a financial buffer, it shaves time off their loan term and off the overall interest owed.
“Still, we hope the RBA keeps the cash rate on hold for at least another quarter or until we see an upturn in consumer and business sentiment, spending and confidence. Another tap on the brakes may have a heavier effect than expected.”
NSW property buyers slugged with a new tax
Overshadowed by the federal budget announcement in May, the introduction to New South Wales of the ‘Ad Valorem’ tax - a land transfer charge calculated on the value of a property being sold - is set to impact many property buyers.
The proposed new tax will be applied to residential and commercial properties selling for more than $500,000. It will be effective from 1 July 2010.
Local mortgage broker for Mortgage Choice, Peter Johnson said, “There are many costs associated with purchasing property and while it isn’t good to see NSW buyers slugged with one more, it demonstrates that those looking to buy need to make sure they are up to date with all taxes and expenses associated with their property purchase. That way, they can make the correct assumptions within their budget.”
The new tax will be imposed at a rate of 0.2% for land transactions between $500,000 and $1 million. For purchases above $1 million, the tax will be charged at a rate of 0.25%.
In all cases the first $500,000 will be exempt. For example, the levy on a $600,000 property will be $200.
“As higher interest rates impact consumer sentiment, this new tax has the potential to damage housing demand. It’s a shame many homebuyers and investors are facing this extra expense, but for some buyers, the benefits offered by long-term property investment will most probably outweigh the cost,” Peter said.
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At the beginning of each month variable rate borrowers turn their attention to the Reserve Bank of Australia (RBA) in anticipation of the latest interest rate decision. Running through their minds is ‘will it go up and cost me more, stay steady and offer me a reprieve or, better yet, go down and help me save money?’
Although the RBA’s cash rate decisions offer a good indication of where interest rates are headed, what really impacts borrowers’ hip pocket is the rate charged by their lender.
Lenders’ interest rates are also based on a multitude of other factors such as their funding costs, competition for retail deposits, whether or not the customer is new or existing and the size of the loan amount applied for.
Sometimes, if you take out a larger loan amount and/or have other accounts or debt commitments with a lender you may end up receiving an interest rate discount. However, property buyers should always aim to borrow within their means (and then some) and avoid the potential for mortgage stress. For this reason, it is worth shopping around and visiting a reputable mortgage broker to find a lender and loan amount to suit your individual needs and circumstances.
Keep in mind some lenders will also offer a rate discount if you are contributing 25% or more deposit to the purchase, meaning your loan-to-value ratio (LVR) will be 75% or less. Having an LVR below 80% of the purchase price will also help you avoid paying lenders mortgage insurance, which can be a costly expense for borrowers.
Professional packages are another consideration for wanting a discounted interest rate and lower month fees, remembering they often have an annual fee and features such as a credit card attached.
With further interest rate rises almost certainly on the horizon, if repayments are really going to be a struggle you may wish to consider a ‘no-frills’ loan option. Basic variable loans are just that, that they do not offer many features or added extras but they usually come with a lower interest rate and a reduced or no monthly fee.
Often, rate discounts may be outweighed by the potential savings that can be made via loan features such as off-set accounts and/or increased repayment options. Think carefully about your loan decision.
If you are keen to compare your current mortgage’s interest rate and other features with those offered by other lenders, visit your local Mortgage Choice loans consultant for a free home loan health check.
Call us on 02 9521 161 or visit:
www.mortgagechoice.com.au/sutherland1
www.facebook.com/pages/Sutherland-Australia/Mortgage-Choice-at-Sutherland/30448396311
http://mortgagechoiceatsutherland.blogspot.com/
Our mothers would like us to think they have everything under control and some do a very good job at hiding their concerns.
Have you spoken to yours about how she’ll deal with the interest rate rises predicted for 2010 and 2011? Perhaps you can work on your repayment strategies together to make sure you’re both prepared and feeling clear headed about the imminent changes.
Anyone with a mortgage will know it’s best to stay on top of your finances and be conscious of all ongoing financial commitments – no matter what your age.
Ahead of the new financial year, May is a good time to set an annual reminder to review the household budget, according to Peter Johnson, your local loan consultant at Mortgage Choice in Sutherland.
“Set yourself a ‘Mayday’ alarm for this time of year – a reminder to check how your loan repayments are travelling, what you expect to happen over the next year and if there is anything further you can do to better the situation. This may help you own your home sooner or help you to invest in another property in the near future.”
Peter said anyone with a loan, whether it’s for your home or another debt, should check its health regularly.
“Since taking out your loan you might have changed jobs, switched to part-time work or extended your family - all of which could change your loan’s suitability. Or, there could simply be a better loan out there now with a cheaper interest rate and/or improved features.”
“Consult an expert if you’re unsure. Reputable mortgage brokers exist to help you save time running around to different lenders and they may also help you save money over the long-term.”
This May Peter invites you, your mum and anyone else who feels it’s time to review their loan, to see him for a free home loan health check. In one quick visit, you each could compare your current loan with others and ensure it’s still tailored to your needs.
With access to a wide range of loans and lenders, Peter is experienced in helping individuals, friends and families achieve their property ownership dreams sooner.
If you are considering upgrading to a new home, you may ask yourself ‘should I hold on to what I already
have as I move on'?
Property gurus often advise that retaining your first property is a good investment strategy because of
the potential to gain from capital growth, healthy rental yields and tax breaks. It may even help you own your ideal home sooner.
Local franchise owner Mortgage Choice, Australia’s largest independently-owned mortgage broker,
Peter Johnson explains some advantages and disadvantages to owning a secondary property.
“The Australian property market is experiencing more buyers competing for a limited number
of properties, thanks to strong population growth and serious housing supply issues,” he said.
“Consider this situation when deciding whether to put your first property on the market
in order to purchase another. Doing so after a number of years and in a ‘sellers’ market’
will increase the likelihood of you making a solid profit; having greater capital gain to work
with will propel you further towards purchasing a more ‘ideal’ home.
“However, keeping your first home as an investment property can be beneficial.
Holding on to what is often a smaller, less expensive property may be a profitable
long-term investment if it is in a desirable location that sees strong demand for rental properties,
Of course, you must be able to afford to repay a larger or second mortgage plus
ongoing expenses and maintenance costs.
“The equity built up in your initial property can be utilised to secure finance for a
second property and may help you overcome today’s stricter lending criteria.
A reputable mortgage broker will help you search through a wide range of
lenders and loan products to find one that is tailored to your unique financial and lifestyle circumstances.
“You will need to think carefully about your repayment strategy such as whether you commit to
a principal and interest loan or an interest only loan. Keep in mind that although interest only
home loans are not structured to reduce the loan amount, they result in smaller monthly repayments.
This allows you to make greater contributions towards your principal place of residence,
if that is your strategy, while both properties hopefully experience capital growth.
“There are often tax benefits that come with being a property investor, which you can
discuss with an accountant. If you are negatively geared, you can claim a number of
deductions including, but not limited to, interest paid on the loan, cost of repairs
and maintenance, property management fees, travel to and from the property for inspections
and repair work, as well as property depreciation. However, you still need to budget accordingly and make up the shortfall throughout the year.
“There may be issues to contend with down the track such as the likelihood
of rental vacancy, bad tenants and rising interest rates. Prepare yourself for such situations
by saving as much as possible and depositing additional money into a redraw,
offset or savings account. Also bear in mind that capital gains tax will apply
when you sell any property that is not your principal place of residence.
“Property is often a terrific investment growth strategy if wise decisions are made early
on and all pros and cons are understood. Be sure to set yourself long-term
goals – remember that regular income from any investment isn’t a certainty
and capital gains don’t appear overnight.”
