When-was-the-last-time-you-had-your-loan-reviewed?

When Was The Last Time You Had Your Loan Reviewed?

The lending environment is changing all the time, so it’s important to regularly review your loan or loans and make sure you’re getting the best deal you can.

Say you’ve had a loan for the last 2 years for example, chances are that you’ve missed one or more potential interest rate reductions. On top of this, your life may have changed. Have you accrued some equity? Got a promotion at work? Had children? Any changes mean your current loan may not be the most suitable for you.

Rate expectations

One of the major reasons to review your loan is that there may be a better deal on interest rates available.

If you are paying more than you need to on interest, you are essentially donating money to the bank. 

Interest rates have been trending downwards for the past decade. In fact, multiple banks have cut rates on their variable loan offerings in the past month, so it’s well worth testing the market.

There are variable rate loans out there for owner-occupiers for below 2% and investment loan rates below 3%. On the flipside, some rates are above 5%. If you have a $300,000 loan and swap a 5% interest rate for a 2.5% one, that’s $7500 a year you are taking back from the bank and using elsewhere.

Once compound interest is factored in, you save even more money because you take years off your loan.

Flexible features

Loans are complex beasts these days with a raft of features that can be tailored to the diverse needs of borrowers.

A couple of years out of the market could mean you are unaware that lenders are offering extra repayment options on fixed loans, better offset facilities or waiving certain fees. All of these changes can add up to money and time saved.

The flipside of this is that if you sign up to a loan with more bells and whistles than you need, you may find you are paying for the privilege of features that you never use.

And sometimes you can be trapped by a loan’s fine print…ie, the rates are great, the features are great, but you’re locked in for 2 years and can’t revalue to access your equity.

So, always look further than just interest rates, when choosing a loan.

Introducing…a better deal

If it’s been some time since your last loan review, you’d better believe you’re not on the best deal that bank can offer you.

See, banks count on you paying the “lazy tax”. Why do you think the bank sent people to your primary school when you were a kid to “educate” you about saving money and using deposit and withdrawal books?

It’s because they know that once people sign up with a certain bank, the vast majority never bother to leave.

Once you are on their books and have been for years, do you think they are offering you the kind of deals they are offering potential new customers?

Of course not. They don’t need to. But go online and you might find they are offering customers of other banks a $3000 cashback deal to jump ship to them. That’s because their business models are based on recruitment and retention.

But what about you? You’ve been a loyal customer for years, shouldn’t they reward you for your loyalty? The reality is that if you want access to those deals, it’s all on you.

Research what is out there at other banks. Are there lower rates, cashback offers, better features, introductory deals? If there are, you should be fully prepared to switch.

And if you like your bank and want to stay, simply go back to them and threaten to leave if they don’t match the deals. That’s where the retention part of their business model kicks in and you might just find they have something a little better up their sleeve for you.

 

 

RBA Announcement September 2021

The RBA left the cash rate on hold at 0.1% at its September meeting, surprising no one..

The central bank has been telling everyone for some time now that it won’t consider a rate rise until at least 2024, even though some analysts are predicting it will hike earlier than this. And it also remains determined not to cut again and risk going into negative territory, though other analysts think negative interest rates are far more likely than an increase anytime soon.

“Prior to the Delta outbreak the Australian economy had considerable momentum,” RBA governor Philip Lowe said. “GDP increased by 0.7 per cent in the June quarter and by nearly 10 per cent over the year. Business investment was picking up and the labour market had strengthened. The unemployment rate had fallen below 5 per cent and job vacancies were at a high level.”

Lowe said Australia’s economic recovery had been “interrupted by the Delta outbreak and the associated restrictions on activity” and that he expected a decline in GDP in the next quarter and a rise in unemployment.

However he said some areas are “continuing to grow strongly” and the setback to the economic expansion “is expected to be only temporary.”

Taper the talk of the town

Much of the contention and anticipation in the lead up to the meeting had all been about whether the RBA would taper down its buying of bonds from $5 billion a week to $4 billion a week.

September was the month it planned to make that reduction, but there had been widespread debate from forecasters and major lenders about whether it would actually happen.

On one side of the coin, NAB was predicting it would continue with the reduction as planned. On the other side, ANZ anticipated a month’s delay to get a better idea of when and what lockdown restrictions might be lifted or eased in major cities. Most analysts expect a strong post-lockdown economic rebound, which could come this year or next year.

So what was the call?

Spoiler alert, the RBA surprised quite a few when it decided to stick to its plan.

The Board’s decision to extend the bond purchases at $4 billion a week until at least February 2022 reflects the delay in the economic recovery and the increased uncertainty associated with the Delta outbreak,” Lowe said. “These bond purchases, together with the low level of the cash rate, the yield target and the funding that has been provided under the Term Funding Facility, are providing substantial and ongoing support to the Australian economy.

Banks battle for borrowers

Continued uncertainty is a win for would-be borrowers, with banks dropping variable rates in a bid to attract new customers.

Fixed home loan rates may continue to rise, but in a further show that we won’t have to worry about higher variable mortgage payments for a long time yet, RateCity research found the number of variable rates under 2% in the market has leapt from 28 products to 46 in just 2 months.

The 68% increase has happened in spite of there being no official rate movement since November last year.

“Since COVID, the battleground for the banks has been fixed rates. However, with record numbers of customers now locked in, some lenders are shifting their sights to variable rates,” RateCity research director Sally Tindall said, adding that ABS data showed refinancing hit another record high in July with $17.22 billion in loans settled for the month. “The latest surge in refinancing is putting pressure on the banks to keep their rates competitive.

“Banks need to be winning new business, not losing it, if they want their loan books to keep moving in the right direction.

“Well over half of all mortgage holders are still on a variable rate. That’s a huge market of potential refinancers for the banks to target.”

Reach out for a better deal

Each month, regardless of what the RBA decides to do, there are deals out there to be made. It’s a great time to be a borrower and it’s rare that your current deal is the best one available to you. Reach out to Zinger Finance and our team of financial strategists can help you build a strategy for structuring your finance and find the deals that suit you best.

 

 

Looking to climb up the property ladder

Looking To Climb Up The Property Ladder

So you want to make the most of low interest rates and rising property markets and build a bigger property portfolio?

Unfortunately, those same low interest rates make it much harder to save for a deposit the old fashioned way. But that doesn’t mean you can’t climb up the property ladder. That’s where equity comes into the picture.

Equity is the amount your property is worth minus what you still owe on it. Basically, it’s the portion of the property that you own outright. If you owe $200,000 on a property that’s worth $300,000, your equity is $100,000. If that property rose by another $50,000 in value the next year and you paid off another $10,000 of it, your equity would go up by $60,000.

If you already have at least one property, chances are that it’s gained in value over the past 12 months.

Revaluing it can unlock that extra equity, so that you can use a portion of it as a deposit on your next investment property.

New way of thinking

Back in the days when interest rates were high, the biggest hurdle to buying property was actually paying off the loan. Deposits were easier to save because your cash was boosted by those same high rates. So, saving a 20 per cent deposit on a $100,000 property didn’t take long, but paying it off could take 30 years!

These days, super low interest rates mean servicing a loan is the easiest part. But saving a 20% deposit, plus stamp duty costs when there are returns of less than 1% interest on the cash you have in the bank is much more difficult.

And this is basically why property investors have been dominating first home buyers at the affordable end of the market in recent years. They have equity ready to use as a deposit while the first home buyers are stuck trying to save money.

So how do I do it?

First things first, talk to the experts. Zinger Finance has a team that specialises in helping people build big property portfolios by using smart financing strategies and regularly pulling equity out of their assets.

Zinger can organise a valuation on your existing property. If, like most real estate in Australia, it has increased in value since its purchase or last valuation, you will have made some equity.

But you can’t use it all. Say for example, you have $200,000 equity on a property, the bank won’t let you use the full amount to invest because it would be exposed to too much risk if there was a dip in values for your existing property, or new property.

Instead, they will allow you to access a portion of it. Usually around 80% of your existing property’s current value minus the debt still owing.

So, in the case of that example property at the beginning of this article; if it’s now worth $350,000 and you owe $190,000, your overall equity is $160,000.

But your useable equity might be $280,000 (80% of $350,000) minus $190,000. That leaves you $90,000 to invest with.

The Zinger difference

A lot of mortgage brokers set you up with loan products where you are locked in and unable to refinance for a certain period of time (usually years). This ensures they receive their full commission from the lender.

But Zinger Finance aren’t like your typical mortgage brokerage. They’re a team of Mortgage Strategist. It was founded to cater to property investors looking to build big property portfolios and one of the ways to do so is to ensure you have the flexibility to revalue and refinance as often as you need to.

Zinger’s team of strategists can help you get your properties valued and revalued regularly to unlock all the useable equity you need, at the right time to help you reach your property investment goals.

Reach out

If you need help building a strategy to climb the property ladder by maximizing your use of equity and being educated on the best way to structure loans, get in touch to our team of Mortgage Strategists.

 

 

RBA Announcement – August 2021

The RBA left the official cash rate on hold at 0.1% today, as rolling lockdowns keep Australia in a state of economic uncertainty.

RBA governor Philip Lowe had already reaffirmed his intention not to raise rates until at least 2024, but some analysts thought the move might come earlier. However, the Delta variant of Covid and the constant lockdowns called around major capitals has that speculation on ice for now.

At its monthly board meeting, the RBA also decided to maintain the target of 10 basis points for the April 2024 Australian Government Bond and continue its stimulus measures of purchasing government securities at a rate of $5 billion a week until September and then $4 billion a week until November and potentially beyond.

In its media statement the RBA noted that while the economic recovery in Australia has been stronger than was expected, recession was on the cards, saying “the recent outbreaks of the virus are interrupting the recovery and GDP is expected to decline in the September quarter”.

However, the central bank expects a fast recovery next year. “The economy is benefiting from significant additional policy support and the vaccination program will also assist with the recovery,” it said.

The RBA says it will continue to monitor and review its approach to the rate of bond purchases, according to economic condition and the nation’s health situation. The board still believes conditions will not warrant a rate increase until 2024.

Sentiment suffers

Meanwhile, a recent survey of 40 experts and economists by Finder revealed that two in five believed another two months of lockdown could cause another recession.

The positivity around Australia’s quicker than expected recovery from last year’s lockdowns has disappeared in a flash, with confidence in key indicators such as housing affordability, employment, wage growth, cost of living and household debt all plummeting. Confidence in employment had the sharpest fall, going from 71% in July to 29% in August.

Other key takeaways from the survey of experts included 52% believing household debts would increase due to lockdowns; while 43% believe Australia’s response to the pandemic has seen our international reputation take a hit.

“Economists fear that a prolonged lockdown could push us into recession, and the extension of the measures in Sydney will get us a third of the way there,” said Graham Cooke, Finder head of consumer research.

Give yourself a rate cut

There may be a pause on talk of official cash rate rises, but there have been a number of interest rate movements from lenders in recent times. While fixed rate products have been subject to interest rate hikes, the opposite is happening in variable rate markets according to further research.

A RateCity study shows 49 lenders have cut at least one variable rate in the past two months. Sounds good, but your bank is unlikely to come to you with a better deal, according to RateCity research director Sally Tindall.

“Variable rates are at record lows, however, most of these deals are reserved for new customers, not existing ones, unless you specifically ask,” she said, adding that the best way to get a better deal was to pick up the phone and ask.

“Before you call, check what rate your bank is giving new customers for the same home loan, but also find out what other lenders have on offer,” she suggested.

“If you are paying significantly more than a new customer, pick up the phone and ask your bank ‘why?’.”

The RateCity study found that more than 73% of bank customers they had surveyed were successful when they asked their bank for a personal rate cut.

“If you have a good track record of paying down your debt, and the bank thinks you might switch to a more competitive lender, they’re likely to play ball,” Tindall said, noting that a reduction of just 0.25% could save you more than $1000 a year on loan repayments.

“A lot of people think a handful of basis points won’t make much of a difference, but if the discount is permanent, then the savings can potentially run into the thousands in just a few years.”

 

 

Who-can-borrow?

Who Can Borrow?

There are a number of different borrower types that banks will lend money to for property investment in Australia. This article looks at what you need to know if you want to take a loan as: an individual, a joint venture, a trust and a self-managed superannuation fund (SMSF).

I’m an individual

Borrowing as an individual is the most common and straightforward way to get into the property market and you can use equity in your family home, the estimated rental return and your own steady employment to appease lenders. It also means you are the only one who signs off on selling, raising rent, engaging property managers and other decisions.

You are the only one responsible for your property investments and debt strategy and you won’t be affected by anyone else’s financial misfortune or mismanagement. You need to personally suit lender eligibility requirements around income, spending habits and credit history. Bear in mind that individuals with a full-time job will be assessed differently than someone who is self-employed.

Another benefit is being able to use negative gearing as a strategy, as long as it suits you. This means that if you are making a yearly loss by putting more money into the repayments and holding costs of an investment property than you are getting in return from rental income, you can offset that loss against your personal income for the year and pay less tax, while still benefiting from the growth potential of the investment. Negative gearing is not available when borrowing as a trust.

Let’s get together

If you and one or more associates want to get into the property market but don’t have enough of a deposit or serviceability to buy alone, you can go in together on a joint venture. If the property you purchase grows in value, you might find you can sell or withdraw enough equity to each go alone on a future investment. However, there are things to be aware of. If you split the loan and serviceability requirements down the middle, each investor will be held liable for the full debt, but will only have half the rental assessed as an income. So, if one loses their job and can’t make repayments, other members of the joint venture will be held liable and in the event that you’re not able to continue the full commitment your credit record and future borrowing power might be personally damaged.

If you’re going into a joint venture, you will need independent financial and legal advice before borrowing. Ensure you agree on a financial debt structure and exit strategy and have a legal professional draw up an agreement for the venture, to be referred to down the track if circumstances change or if one member wants to take a different direction than the others. 

In property we trust

Creating a family trust is a method of property investment growing in popularity. Under this financial structure, the assets and income are held by the trust and profits are distributed to the members/beneficiaries of the trust by an appointed trustee, who manages the investments.

Trusts offer a good way to create intergenerational wealth by passing assets to future generations without having to sell and pay capital gains tax (CGT). It also protects assets from the circumstances of individual beneficiaries: i.e., if financial disaster should befall one of the beneficiaries, the trust’s assets are not under threat from debt collectors.

The trustee can also use discretion to distribute profits to beneficiaries in a way that can reduce the amount of tax everyone has to pay. There are several different types of trust that will be considered, so engage a professional for advice on which is the best structure for you. 

Wanna be a super star?

Every year there are more Australians establishing SMSFs in order to manage their own superannuation. One of the key reasons they do so is to invest their nest egg in property. Your SMSF can borrow for a property but it’s harder than borrowing as an individual and there are complexities.

First, there is more risk attached for lenders, so banks are more conservative. You may need more than the usual 20% deposit and could pay higher interest rates and fees than a regular borrower. Superannuation law also makes it harder to service and benefit from the loan.

For example, when making repayments, your SMSF can only use the property’s rental income, plus 10% of your personal salary (your superannuation contributions), so you need to make sure it’s positively geared and in a market with great tenant demand.

Because it’s your super, you are not allowed to access the income or equity of the property until you retire (at least age 60). Also, neither you, nor your family or friends can stay in or use the property for personal reasons.

The good news is that investing using super is a non-recourse loan, so if the loan defaults for some reason, the lender can only access the asset in the SMSF trust, not your personal assets outside of super.

Reach out

If you have any more questions or want some information on borrowing and debt strategies, reach out to Zinger Finance. Our team of Mortgage Strategists can help you choose the best options for your investment journey.

 

 

RBA Announcement – July 2021

The first RBA board meeting of the new financial year was one of the most eagerly anticipated in some time. Not because of what might happen with interest rates – which incidentally were left on hold at 0.1% for the eighth consecutive month – but because the RBA was expected to begin winding back parts of its quantitative easing program as the economy continues to recover from coronavirus ahead of schedule.

Since Australia first went into lockdown in 2020, the RBA has splashed out hundreds of billions of dollars on government bonds and kept the yield on three-year government debt under control in order to offer cheap loans to banks…who would then pass more affordable money onto borrowers.

But is all that still necessary?

Three main goals

There has been plenty of speculation from economists and so-called experts that the RBA will raise official interest rates earlier than its repeated promise of “not before 2024”.

In order to consider moving rates away from the historic low of 0.1% and back up towards longer term averages, the RBA wants to see the unemployment rate keep travelling down, wages growth begin to grow again and inflation to get back to a target bracket of 2 to 3%.

And at least one of those boxes is ticked, with unemployment now down to 5.1%, a 17-month low, even as we head into another series of lockdowns in various parts of the country. There are more people employed than before the pandemic kicked off, which is also partly due to the decline in overseas worker arrivals with international borders closed.

However, the RBA statement from today noted that “despite the strong recovery in jobs and reports of labour shortages, inflation and wage outcomes remain subdued”. The statement added that the RBA expects a gradual and modest pick-up in inflation and wages growth, with inflation likely to only reach 2% by mid-2023, after a short-term bounce to 3.5% over the next year due to the reversal of Covid-related price reductions from the previous year.

RBA takes cautious first steps

The anticipated first step to take in getting things back to some kind of normal was to end the targeting of a yield of 0.1 per cent on three-year government bonds. The RBA today however announced it would continue to maintain the current target to “keep interest rates low at the short end of the yield curve and support low funding costs in Australia”.

The next thing to do would be to wind back the level of spending on government debt. The $100 billion quantitative easing program announced in November last year will finish in September.

The RBA today confirmed that it would continue to purchase government bonds after September but would respond to the strengthening economy by adjusting its weekly spend to $4 billion, down from the current spend of around $5 billion. The new spend will be in place until at least mid-November, at which stage the RBA can take stock of the situation again.

So will official rates rise sooner than expected?

The RBA continues to stand firm and say it won’t be in a position to raise rates until at least 2024.

Even though the housing market is strong across major markets, with value growth, housing credit growth and increased borrowing from owner-occupiers and investors, the central bank says it will not increase the cash rate “until inflation is sustainably within the 2 to 3% target range”.

What about the unofficial rates?

As we’ve reported in recent months, Australian lenders are already increasing their rates independently of the central bank.

They began by raising rates on five and four-year fixed rate mortgage products but have since begun to target three and even two-year loans.

A recent analysis found that in the last month, 19 lenders increased a three-year fixed rate, including Westpac and NAB, while 17 increased a two-year fixed rate.

This was the first month that the number of lenders hiking a two-year fixed rate outnumbered those cutting (albeit only by one, 17-16). Meanwhile, for one-year fixed rates, 13 lenders cut, while 11 hiked.

There are still close to 200 loan products out there in the market for below 2%. So, if you are worried, you’re not on the best deal, remember to regularly see what’s out there and refinance when necessary.

 

 

Introduction-to-the-family-home-guarantee

Introduction To The Family Home Guarantee

The year has been a tough one so far for first home buyers trying to get into the property market, with asking prices headed for double digit growth in multiple capital city and regional markets around Australia according to Propertyology.

If you are a single income loan applicant, it has been even tougher, so imagine being a single parent on top of that.

But there was good news in the recent federal budget announcement, with single income earners with dependents to be eligible to borrow to buy a home with only a 2% deposit.

So, here’s what you need to know about the Family Home Guarantee.

Are you eligible?

From July 1, single income parents will be able to apply for a loan under the scheme. To do so, you will need to have a household income of under $125,000. After your 2% deposit, the government will guarantee up to a maximum of the remaining 18% of a regular 20% deposit usually required by lenders to avoid lenders mortgage insurance (LMI).

As a single parent with at least one dependent, you will need to demonstrate you are legally responsible for the day-to-day care, welfare and development of the child and that they are in your care. You must be the sole applicant on the form and intending to live in the home you purchase.

It doesn’t necessarily have to be your first home, but you won’t be eligible if you currently own a home already, including an investment property, commercial property or land holding.

Depending on existing custody arrangements, two separated parents of the same child may be eligible to apply in some cases.

What properties are eligible?

As with most government grants and concessions, there are limits around the values of the properties that apply to the scheme. These differ by state and territory, so it’s important to check what price caps apply to you.

NSW has the highest price caps, with $700,000 for an established property and $950,000 for a new build in the metro and major regional centres, and $450,000 (established) and $600,000 (new build) for the rest of the state.

VIC is next with $600,000 (established) and $850,000 (new) in major centres; and $375,000 (established) and $550,000 (new) in the rest of the state.

In QLD, it’s $475,000/$650,000 and $400,000/$500,000, while in WA, it’s $400,000/$550,000 and $300,000/$400,000.

In SA, it’s $400,000/$550,000 and $250,000/$400,000, while in TAS it’s $400,000/$550,000 and $300,000/$400,000.

In the ACT, it’s $500,000 for established and $600,000 for new properties all over the territory and in the Northern Territory $375,000 (established) and $550,000 (new).

Spaces are limited

Right now, the government estimates 125,000 single parents who may be eligible. Around 80% of these are single mothers.

But not everyone who is eligible will get a look in as the government plans to grant just 10,000 applications over the next four financial years.

How do I apply?

Applications will need to be made via one of 27 participating lenders across Australia, so check with a mortgage broker or potential lender before applying.

Applications will open on July 1 and the scheme is being administered by the National Housing Finance and Investment Corporation.

Still not sure if you qualify for assistance?

If you are unsure if you are eligible to apply for the Family Home Guarantee or wish to know more about the other first home buyer grants or concessions you may have access to, please reach out to the team at Zinger Finance.

Our Mortgage Strategists can help you understand your options and make an informed choice moving forward.

RBA Cash Rate Announcement – June 2021

The RBA made it seven straight months with no cash rate movements today, leaving the official rate on hold at 0.1% during its June meeting.

The decision was never in real doubt, with no recognised finance analysts predicting a rise or fall.

The RBA board has decided to keep in place its current policy settings, including targets of 10 basis points for the cash rate and the yield on the 3-year Australian Government bond.

The central bank maintains that the global economy is recovering strongly from the pandemic and that the outlook for growth is strong for this year and next.

However, don’t mention that to the Victorians currently wallowing in their fourth pandemic lockdown, as they might be a little less optimistic. 

Making noise about rate rises

Recent months have seen the RBA claim it won’t consider a rate rise until 2024 at the earliest, but that hasn’t stopped some banks from lifting rates on home loan products with fixed terms of 3 years and over.

Some analysts have noted that the continued downward trajectory of unemployment rates from 5.8% in February and 5.6% in March plus positive recent economic reports by central banks in New Zealand, Canada and the USA may give the RBA cause to consider withdrawing some of its current stimulus measures. This would potentially send the Australian dollar higher and raise expectations for interest rate hikes.

However, other commentators point to the fact that inflation is close to, or above target, in New Zealand, Canada and the USA, while it is still a long way below where it would need to be in Australia for the RBA to consider a hike.

The jobs market is still a long way from full employment, wages growth at 1.5% is way below the 3% plus pace necessary to sustain 2-3% inflation and in any case, inflation is still well below its target zone,” AMP economist Shane Oliver said. “So, a rate hike remains some time off.

No doubt the RBA would dearly love to be in a position to raise rates but for the moment at least, they are stuck on this historic low with the looming threat of further rate cuts still a distinct possibility.

Investors making waves in housing

Data out last week showed that housing credit grew by 0.5% in April, adding up to now be 4.4% higher for the year and the RBA has noticed that lending to property investors has increased.

The washout from hot property markets across Australia is that credit growth is likely to quicken in the next few months as new lending to both investors and owner-occupiers is up by more than 50% year on year.

It makes sense as property investors are buoyed by recent property results across capital cities and major regional hubs and want to get a piece of the double-digit growth primed for this year across various property markets.

The RBA will be under some pressure to keep an eye on this increase in credit as housing markets look likely to remain strong during the traditional slowdown period in the winter months.

Banks moving independently

If there’s one thing, we have grown accustomed to from banks, it’s the passing on to borrowers of any additional costs or hardships to the bottom line.

Therefore, it’s not surprising that the RBA’s potential withdrawal of pandemic stimulus for banks has seen some lenders move to raise rates independently. In addition to long term fixed rates tracking upwards, we may soon see rates on shorter term fixed products increased too.

You should follow suit

In the same way that banks move independently, outside of rate cycles, you can do the same with your own interest rates. Banks are in the business of attracting new customers and retaining existing ones. You can use these two traits to your advantage.

A simple phone call to your current lender to let them know you are about to jump ship for a better rate elsewhere will usually see them offer you a better deal. Do this regularly and you can future proof yourself from RBA rate movements. If you need some help or don’t know where to start, reach out to Zinger Finance. 

 

 

how-brokers-can-screw-you-over

How Mortgage Brokers Can Screw You Over

If you want to build a property portfolio to get you where you need to be, you need to make sure everyone you are relying on is on the same page as you.

Your accountant, legal team, buyer’s agent and, most importantly when it comes to loans, your mortgage broker.

Your average mortgage brokers out there may not be interested in your whole property journey. Often, they focus on one job only, getting a loan approved for the one property you are currently looking to purchase, and in doing so, secure their commission.

They are not thinking ahead and getting you the right loan that will allow you to purchase your next one, two or even 10 properties.

Here are a few common ways you can get screwed over by a mortgage broker who may be focusing more on their commission than your property portfolio.

Cross securitization

Cross securitization is a common one. When you are building a portfolio, you don’t want one under-performing property to drag down the rest.

Say you have three loans for three different properties. Loan 1 is worth $100,000; Loan 2 is worth $200,000 and Loan 3 is worth $300,000. You may think they are all their own entities, but let’s just say that unbeknownst to you, your mortgage broker has cross securitized them.

That means that there is a total loan of $600,000, secured against all three properties and you can’t sell or refinance one of the properties without the other two also being considered by the lender.

This situation can present a couple of nightmare scenarios.

Say you want to sell or refinance

Imagine the property attached to Loan 1 is in a property market that has seen some growth and you decide you want to sell that property and access the capital. The bank might say ‘OK, but first we need to do a valuation on the other properties because between them they need to be able to service the remaining $500,000 of that original $600,000 loan’.

If properties 2 and 3 have gone down in value, this may mean you will have to make up the difference to the bank.

Say you’ve paid down some of the loan and you only owe $400,000 but now properties 2 and 3 are only valued at $400,000, having lost $50,000 each in value of the properties. This means your loan to value ratio would now be 100% which the bank won’t allow. The bank may require you to pay $80,000 to get your loan down to $320,000 and 80% of the value of the properties. You’ve now lost any of the gain you may have realised by selling property 1.

The same applies for refinancing. Want to access some equity or get a better interest rate on one loan? Well, this won’t be easy if the two other properties and their loans must be considered, and they are holding you back.

If they weren’t cross securitized?

If the three loans were each stand alone, you could sell the top performing property, keep the money you make and continue servicing the loans of the two underperforming properties as long as you can make the repayments.

Inexperienced or unaccredited

Another trap with mortgage brokers is that you may end up with a higher interest rate than you should be paying or with a lack of flexibility in your loan product. This could be because your mortgage broker isn’t accredited to deal with the best lenders.

It’s important to realise that not all mortgage brokers have access to all the deals that are out there. They may be unqualified or inexperienced.

You need to ask a mortgage broker how many lenders are on their books and what commissions do they get from what lenders. The broker may have access to only a handful of options for you and may be steering you towards the loans that get him or her the best commissions.

Want to cut through the confusion?

The team at Zinger Finance has the best knowledge when it comes to structuring finance for maximum flexibility and growth and can make sure you are getting access to the loans most likely to help you through your whole property journey. If you need help building a finance structure strategy, reach out to us.

 

 

RBA Cash Rate Remains On Hold At 0.1%

The RBA has left its cash rate on hold at 0.1% during its May meeting today which came as no surprise to analysts.

The decision marked the sixth straight month the rate has remained unchanged, after Australia’s central bank lowered it to 0.1% in November 2020.

RBA Governor Philip Lowe has repeatedly stated in recent months that the rate would remain unchanged until at least 2024, as the bank attempts to maintain its commitments on interest rates and market expectations.

One of these commitments is the three-year government bond yield target of 10 basis points. The initial $100 billion government bond purchase wound up last month and the next $100 billion program is underway.

More jobs but wages stagnant

As Australia’s post-pandemic economic recovery continues, unemployment is on a downward trajectory from its 5.8% level in February, but still remains too high for the RBA’s liking and wage and price pressure remain subdued.

There had been speculation from some corners that rates could fall into negative territory since the November rate cut, which saw the RBA move away from the traditional 25 basis point reduction that would have taken the official rate all the way to 0%, and instead lowered by 15 basis points. But so far the RBA has remained firm.

Most analysts predicted the hold decision, with AMP economist Shane Oliver saying that while he believes a rate rise will come before 2024, now was not the time to make a move.

“While the economy is recovering faster than expected, the RBA is still a long way away from seeing its stated requirements for a rate hike… a tight jobs market, wages growth well above 3 per cent and actual inflation sustainably within the 2 to 3 per cent target range,” he said.

Fellow economist Saul Eslake agreed that a hike may come before 2024, but that wages growth needed a major boost first.

“It will take some time for unemployment to fall to a sufficiently low level to trigger wages growth fast enough to ensure price inflation sustainably within the RBA’s 2 to 3% target range – but I suspect that situation may be reached before ‘2024 at the earliest’,” Eslake wrote in his forecast.

Banks looking four years ahead

Meanwhile in a sign that major banks think official rates have bottomed out and will rise after 2024, lenders have begun increasing rates on long term fixed products.

Last week Westpac and its subsidiaries increased rates on their four and five-year fixed loan offerings.

Westpac’s four-year rate of 1.89% was previously the lowest on the market, but the 30 basis point hike now sees the new rate at 2.19%. Westpac also raised its five-year fixed loan rate from 2.19% to 2.49%.

The last two months have seen 24 Australian lenders hike at least one four-year fixed rate, leaving just six now offering rates below 2%. NAB is the only big four bank to offer less than 2%.

Rate City research director Sally Tindall said Westpac’s 1.89% four-year rate was consigned to the history books.

“With a cash rate hike on the cards in 2024 and the RNA’s term funding facility wrapping up in a couple of months, the bank’s record-low four-year fixed rate was unsustainable,” she said. “It’s hard to see a major bank dropping its four-year fixed rate this low for a very long time, if ever.

“While the majority of banks’ three-year fixed rate changes are still cuts, rather than hikes, the tide could turn later this year as the economy continues to recover.

“The cost of funding is likely to increase in coming years, so it’s no surprise lenders are starting to factor this in.”

Any future rate hike would be a momentous occasion, however, as the RBA has not raised rates for over a decade. The last rate hike was all the way back in 2010, when Australia was still experiencing the fallout from the GFC.

 

 

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