Low-rates-what-does-this-mean-for-you?

Low rates – what does this mean for you?

The RBA decided to once again leave interest rates on hold at 0.1% at its recent March meeting, which means yet another month at the lowest interest rates ever.

In fact, if you have been paying off a mortgage at any stage over the past few years, you have been doing so in a historically low interest rate environment.

The RBA does this to stimulate the economy. The lower the interest rates are, the less money you spend on your debt, which means you have more to spend elsewhere. This extra spending helps prop up the economy.

But how you put that money to use is up to you. Recent research has shown the pandemic changed many of our spending habits, with Australian households saving an estimated extra $120 billion between April and December last year, due to restrictions on travel, hospitality and more. We seem to be more cautious about spending on material goods and luxuries and now choose to funnel extra cashflow back into our homes.

First things first

In order to take advantage of low interest rates, you need to make sure you’re paying the lowest that you can be.

Get online and check out loan comparison websites to see what else is out there. If there are better deals, you can consider refinancing with another lender; or, if you don’t want to leave your current bank, give them a call and ask them to match the better rate.

It’s a competitive market for lenders and they are keen to retain customers, so banks will often grant you a better deal if you pick up the phone and make them think you are ready to take your debt elsewhere.

Pay your own mortgage off sooner?

Now that you’re happy with your interest rate, where to next? One option is to keep making the same mortgage repayments, or even increase them and pay down your mortgage as soon as you can. Traditionally, people would want to pay their house off ASAP. Paying a bit extra when you can manage can shave years off your repayment term and save you tens of thousands of dollars over the life of the loan. You own your own house and any money that comes in. But is that still the best option?

Conditions have changed

Paying off your house early used to be beneficial when interest rates were much higher. For example, when banks were offering an average of around 7% on standard variable products, the accumulative effect of compound interest meant you would end up paying more than the purchase price of the property in interest alone over a 30-year loan term.

Now though, it’s a different story. You can get much better returns by focusing on acquiring new, quality debt rather than paying off existing debt which is attracting very small interest. Investing in property with plenty of upside for growth and good rental return can be a great way to take advantage of low interest rates.

Make lower repayments?

An option is to make lower repayments on your mortgage and free up more cash for your day to day life. That extra cash could be used to pay for something you need, or again, to invest in shares or property.

Making minimum repayments on your owner-occupier mortgage will free up even more cash to leverage into as much quality debt as you can manage.

You might use that cashflow to acquire multiple investment properties, which pay a rental income and appreciate in value throughout the rest of your own mortgage term.

Then, later down the track, you have the option to sell off some of your assets and use the capital gains to pay off your remaining debt, while keeping remaining properties for further income and equity. Or, simply keep holding the assets and benefiting from their growth and returns for as long as possible.

 

 

Package-loans-VS-basic-loans-under-variable-rates

Package Loans VS Basic Loans Under Variable Rates

The mortgage market is full of options as lenders try to attract business in a competitive landscape.
Getting advice from a mortgage broker can be a great way to get an idea of what type of home loan will suit your situation, but it’s also good to educate yourself on the types of products that are out there.
Let’s take a look at two main categories when considering a home loan product: package loans versus basic loans.

Do good things come in packages?

Package loans have become very popular in recent years and account for more than 50% of loans written by major lenders.
Package loans usually combine your home loan with other common financial products, which may include a mortgage offset account, transaction or savings account and credit card. They are eligible for interest rate discounts off the standard variable rate, fee waivers on loan approval and valuation fees.

Basic home loans are not packaged with anything. They are ‘no-frills’ loans where you save money on upfront and ongoing fees, because you don’t have the flexible features that cost more to administer but often allow you to save much more money long term.

What a fee-ling

In return for packaging products, lenders will make it worth your while by charging one annual fee for multiple loans, rather than separate fees for each product.
If considering a package loan, find out whether that one annual fee includes the other home loan fees you may not know about, such as an application fee, property valuation fees, redraw fees, switching fee (from variable to fixed and vice versa) and offset account keeping fees. Other fees to be aware of are the application or establishment fee, bank solicitor fee and settlement fee, when setting up your home loan.
These can vary in price, but average between $150 and $700. They are usually nonrefundable but major banks are often happy to waive these fees, so make sure you ask ahead or negotiate, as this could be the difference between choosing a package or basic.

Rate expectations

Banks will often give you a discounted rate for package loans. Market comparison platforms generally find that interest on average package loan products is between 0.25% and 0.5% lower than average standard variable rate loans.

That saving alone is more than enough to make up for the annual fees which can be higher than what you would be charged for a basic loan.

Unique borrowers can benefit

Flexibility is the key for borrowers such as property investors or the self-employed who want to free up cash flow and maximise future borrowing power. Features such as interest only repayments, line of credit and others will appeal to investors as long as they choose the package that suits their strategy, while credit cards and transaction accounts are useful to small business owners.

Break it down to the basics

So when would it be better to shun a package for a basic home loan? You may just want a simple, no frills home loan that you can quietly pay off. 

Basic loan products will likely offer you the low interest rates you want, but there may be loan features and loan flexibility that you may not realise you need.

 

 

Refinance-cash-rebates-What-you-need-to-know

Refinance Cash Rebates – What You Need to Know

A lot of banks seem to be offering cash incentives at the moment to tempt you to jump ship from your current lender and refinance with them.

Sums of between $1000 and $4000 are being offered up for borrowers that could use some extra funds in their account, with the added bonus of switching to (at least what they think) will be a better deal.

But just because they throw you a wad of cash, it doesn’t mean you’ll be better off over the long term… or even the short term.

Why do banks offer cash?

These incentive deals, nicknamed ‘cashback loans’, but actually known as refinance cash rebates, usually pop up in a competitive market for lenders. Banks need your money on their books and in times like these, when interest rates are so low, more people than ever want to be paying off a mortgage. It is also a time of unprecedented disruption in the mortgage space. Online only banks, second tier lenders and financial startups are emerging for a slice of the market. So banks need to stand out from their competitors.

At some point, banks came to the conclusion that offering cash was a good incentive. Maybe borrowers would be low on funds at the moment due to the strains of COVID, or would like the opportunity to pay off a bit of debt, or even buy something they need without having to use credit.

The survey says yes… sometimes

A recent study found that one in three borrowers were planning to refinance in the coming months. Of these, one in four surveyed would choose a cashback offer over a low interest rate. One in three millennials would opt for cash, but just one in 10 baby boomers.

Overall though, nearly half of the borrowers surveyed (46%) would opt for the lower interest rate over a cash rebate.

The good news for borrowers at the moment is that you may not have to choose one option or the other, because you can now get cash rebates on loans that already have super low interest rates.

What you should use the rebate for

The whole point of a rebate is that it is there to cover the costs of moving loans to another bank.

And there are quite a few costs involved. You will incur such expenses as government fees for discharge of title, discharge of mortgage, title registration, costs of title searches, settlement fees and solicitor documentation fees. If you go ahead and break a fixed rate mortgage term, you will also incur early exit fees.

So if you do opt for a loan with a cash rebate, don’t start planning your next holiday or big retail purchase without first covering off those costs.

Of course, putting that rebate straight back into your loan will save you even more when interest is taken into account.

For your consideration

While the rebates are usually enough to cover the costs of switching lenders, the savings made could dry up quickly if the loan is less flexible than your previous one, or if it doesn’t suit your specific needs.

Lower interest rates add up to significant savings over the life of a loan, usually much more than a few thousand dollars’ worth.

Of course, not many people these days choose a loan and stick with it for the full term – you may change homes a number of times – so if you refinance regularly, you can make good use of the incentives on offer at any given time.

Before you do take the plunge however, make sure you read the fine print. Most lenders will have a minimum loan amount that qualifies for the rebate. If you have a relatively small remaining balance on your loan, you may not qualify as it may not be worth their while to get you on board for a small amount only. Also, many of these deals are restricted to owner occupiers only, so if you are building an investment portfolio, you may not be eligible.

Independent financial advice will help you decide your best option.

 

 

Home-Expenditure-Measure-(HEM)-explained

Home Expenditure Measure (HEM) explained

There have been stories emerging in recent years about banks getting a little too familiar when assessing home loan applications. “Why did you spend all that money on duty free at the airport a few months back?”
“That was a big bill at that fancy restaurant, how often do you dine out at the top end of town?

These may not be exact quotes, but they are the types of questions people are being asked when applying for home loans these days. Don’t worry, the bank’s loan assessment team aren’t following you on flights or spying from adjacent restaurant tables, but they do have a forensic level of access to your expenditure.

It’s a far cry from the days of banks just approving loans that are around five times your yearly income, give or take a 2.25% repayment buffer in case of a rate rise or rainy day.

Times have changed

A decade of events like the GFC and royal commission on banking have forced banks to get serious about responsible lending. Regulations have been put in place so stop borrowers being approved for finance they are unable to cope with.

Meanwhile the ready availability of more and more consumer behavior data makes it easier to predict if you will be unable to service a loan. One feature of this brave new lending world is that lifestyle expenses are now taken into account when assessing loan applications.

You might say “I work hard, I can afford a mortgage, what I spend my spare money on is my business”. Well that’s true, but who a bank lends money to is their business too, and they now have to make snap judgements on whether it’s wise – and legal – to lend money to you. So, like it or not, your lifestyle spending habits go hand in hand with your loan serviceability. And that’s where the Home Expenditure measure (HEM) comes into play.

OK, so what is it?

Dreamt up by an economic think tank a number of years back, the HEM is a standard guide that lenders use to estimate what a potential borrower might spend on annual living expenses. That figure may then be added to whatever algorithm a lender uses to assess a loan application. The HEM is believed to be used for the great majority of home loans applied for each year.

The HEM takes into account the borrower’s location, their dependents, their total income (some lenders include rental income as part of the total gross income) and the type of lifestyle they live. Most borrowers fall into the ‘basic’ lifestyle category, estimated to spend just over $32,000 a year, while those considered ‘lavish’ spend closer to $60,000.

Items considered ‘absolute basics’ include food and supermarket, coffee, lunches and takeaway, entertainment (includes cigarettes and alcohol), domestic and international holidays, hairdressing and grooming, media streaming and subscription services, phone, internet and pay TV, utilities, transport, communication, kid’s clothing, while ‘discretionary basics’ may be gifts, private health fund, private education, fashion and childcare.

The HEM calculates the median spend on absolute basics, plus the 25th percentile spend on discretionary basics.

How do banks use it?

Ordinarily, if you apply for a loan, the bank will ask you to estimate your weekly or monthly spend on various expenses. They then compare your estimation to what the HEM tells them about people with a similar profile to you (those living in your neighbourhood, with the same number of kids, similar income, etc).
To be conservative, the lender will often use the higher of the two estimated spends when figuring out whether you can afford the loan. 

Is it accurate?

Banks have been criticised for relying too heavily on the HEM because it is often deemed to underestimate what people spend on lifestyle and may therefore leave them stuck, unable to pay off a loan. Banks have therefore been pressured to take extra steps in conducting their due diligence in verifying spending.

That is where some of those questions about your big one-off splurges may be asked. You may “conveniently forget” to include some of your more frivolous spending habits in your own estimations, but be called to answer for them anyway, which may make you seem untrustworthy. Honesty is the best policy when applying for a loan.

 

 

ZIN-Last-Call-For-2020

Last Call For Property Finance In 2020

If you can remember back to when we were able to go to the pub, ‘last call’ always signified that the bar was about to close for the night and this was your last chance to get a beverage.

‘What? Already?’

The end of the night can creep up on you, because time flies when you’re having fun.

However, you don’t have to be having fun. Time can also speed by when there’s a lot happening…like the year 2020 for example.

We’d barely begun picking up the pieces from the deadly bushfire season, when we were thrown into pandemic panic… if you can believe it, that first lockdown was now more than seven months ago.

While it’s felt like a long year for many (shout out to our poor friends in Victoria especially), it’s about to be all over.

So ask yourself, when it comes to your finance goals, what have you been able to achieve?

And is there enough time to make the rest of the year count.

Bank backlog

If you were still planning to buy property this year, you’re running out of time. An average settlement period of six weeks would take you through to Christmas, and that’s after you’ve sourced the property and made a successful offer.

If you’re in a position to offer a shorter settlement to the vendors, you might be able to get the deal done, but if you need to borrow money from the bank, that could be a whole new kettle of fish.

The pressure put on the banks by COVID and its financial mess means many have a backlog of loan and other applications they will need to get through before assessing yours.

There are stories out there at the moment about buyers picking up great property deals, only to run out of time to settle before the bank is able to pick up and process a loan application that they would be all but certain to grant.

The flipside is that if you don’t need finance approved, you may be able to swoop in and pick up a property from an eager vendor while your competition struggles to get their finances sorted.

As government grants and economic stimulus begin to wind up, there will be a lot of people looking to offload assets to free up capital or get rid of some of their debt.

A motivated seller may mean you pick up a property for $50,000 cheaper than you otherwise would have and that will be money you have earned on the way in when the market gets back into the swing.

Get in shape for summer

There is never a wrong time to make sure your finances are in the best health possible.

Look at the interest rates you are paying on investment properties or your permanent place of residence.

Chances are, you will be able to get a better deal by refinancing, or even calling up your own bank and threatening to look elsewhere unless they give you a rate reduction.

Especially since the RBA dropped rates yet again. With the official rate set at 0.1% there are now lenders offering rates below 2% and RBA Governor Philip Lowe says it will realistically be at least three years before rates look like rising again, so you’re in a strong bargaining position for a better deal.

Prepare for next year

While you’re at it, look at whether you can get a better deal in other areas affecting your household budget.

If you have been with the same energy provider or health insurer for longer than a year for example, you are missing out on a better deal from elsewhere.

Pick up the phone and you may save thousands and make sure you’re ready to start the new year with maximum borrowing power freed up.

Set your 2021 goals now and get the jump on those that do so in January. Make plans and get what you need into place to make sure next year is a great one.

And talk to a Zinger Finance strategist to see what you need to do to get finance ready for your 2021 goals.

ZIN-Should-I-Invest-Or-Buy-My-Own-Home

Should you invest or buy your own home?

Whether to buy an investment property (IP) or permanent place of residence (PPOR), is really a question about the goals of the individual.

Do you want to own your own home right away, start paying it down and perhaps consider investment options later? Or do you want to create long term wealth and a passive income stream, so that you are able to purchase your dream home later in life?

The case for a PPOR

Pros

-Buying your own place of residence comes with a number of benefits. First of all, you may be able to access government grants for first home buyers, especially if buying off the plan or a new build property. Benefits differ state by state and depend on the value of the property and how long you are planning to live in it.

-You will get access to better interest rates, discount periods and more flexible loan features from lenders than if you were a property investor.

-If and when you decide to sell your PPOR, you will be exempt from capital gains tax, which will be a big bonus if you hold the property through multiple growth cycles.

-You can truly make the home your own. You can renovate and put permanent changes in place to add to the home’s appeal, without having to ask a landlord first. Not answering to a landlord also means you won’t face suddenly being made to move out.

-The money you pay goes towards your own long term wealth, while if you were renting, you’d be financing someone else’s goals.

Cons

-Your location will be governed by your first home buyer’s budget and you therefore may not be able to afford to live where you really want to. This could mean long commutes to work or being a long way from friends or recreational favourites. This is one reason some people buy IPs in areas they can afford and then rent a home (usually cheaper than mortgage repayments) in their ideal suburb.

-Aside from the CGT exemption, there are no other tax deductions or benefits to be had from a PPOR. You are also the one paying the bank, so your home is not creating an income like an investment property might.

-Putting all your savings into buying the best PPOR you can afford will often mean your borrowing power is all used up. It could be some time before you can create enough of a buffer to borrow money for investment or other purposes. Being stretched like this can also cause financial stress.

The case for an investment property

Pros

-You can make your decision based purely on what stacks up financially, without the emotional attachment of needing to purchase something you really want to live in.

-If your investment property generates good rental return and you are able to rent where you want to live for less than a PPOR in that area would cost to buy, your borrowing power will not be so tied down. You can therefore use your cash flow to sink into further investments.

-You will be able to claim various associated costs as tax deductions. Interest paid on the loan, management fees, insurance costs, depreciation, educational expenditure, buyers’ agency fees and advertising/marketing costs are all examples.

-Making savvy investments can mean accumulating enough equity to buy a better PPOR later in life.

Cons

-If you are renting where you live you will be at the whims of a landlord, lease agreements and strata regulations. You may struggle to find a rental that allows pets or fulfils your other needs.

-You won’t have access to any government help or grants that first home buyers enjoy and will usually have to pay more interest as banks are tasked with dissuading investors from dominating entry level markets.

-If you have to sell investment properties, you will pay CGT, which is hard to take if your strategy is to invest for growth!

-Non-savvy investments might make it even harder to get a good PPOR down the track than it is now.

So what’s the verdict?

It’s really up to the individual. Both sides of the coin have their ups and downs. You need to figure out which path suits you best and then make a start. Independent financial planners and advisers can explain everything in clear terms, to help you make the right decision.

Why A Low Interest Rate Shouldn’t Be A Deciding Factor

Why a low interest rate shouldn’t be a deciding factor.

It’s great to save money on a cheaper rate loan. But, sometimes choosing a low interest rate can cost you more in other ways.

In fact, there are a whole host of other factors to consider before lodging a loan application that could make or break your ability to access equity, refinance or purchase further properties down the track.

Looking beyond the allure of low rates.

Kabir from Zinger finance says that while it is important to secure a competitive rate loan, there are many other things borrowers should consider.

“Low interest rates can be a factor – but, not the only one.”

He says borrowers should look at how the lender values properties, as well as its policies on what it does and doesn’t accept before making a decision.

Instead of saving $150 per month on interest repayments with a cheaper rate loan, he says it may be possible to fund a subsequent property purchase by going with a lender who values your property higher.

First and foremost, look at your plan.

Kabir says it is important to assess your specific needs and goals before deciding which lender to go with.

“It all boils down to the client’s plan.”

He says low interest rates should definitely not be a deciding factor for those looking to build an investment portfolio.

How does the lender value properties?

Often, lenders will run special promotions where they offer a discounted rate – but there can be hidden opportunity costs involved. Under these promotions, lenders will often lower their valuations on properties. This means that an investor looking to build their portfolio may not be able to access as much equity as they could have done with a different lender.

And while some banks will give really good valuations, they may not be that great at offering competitive rates. It’s a give and take thing.

How much can you save by choosing a low interest rate?

According to Kabir, banks are currently competing on a more even platform than they used to. The difference in rates can’t be too high from lender to lender, and generally doesn’t exceed 0.5%.

Banks have different policies.

It is detrimental to make sure you lodge your loan application with a lender whose policies fit in with your situation and goals.

Kabir says borrowers should speak with a broker or to the bank they are looking to use in order to confirm all of their details regarding employment, income and what they are looking for. 

“Get a confirmation first as to whether it fits into the bank’s policies before lodging a pre-approval or a loan application.” 

This is important because every loan application you make is included in your credit report – which is the first thing lenders look at when assessing if you are a desirable customer.

The more enquiries you make, the lower your score will drop. If you keep going from bank to bank and getting knocked back due to their criteria, you may then miss out on a bank that would have lent to you based on their criteria, because of your credit score.

Other employment types.

Those who are self-employed or employed on a contract basis may want to go with a lender who has the lowest rate. But, this lender may have stricter requirements when it comes to assessing serviceability. They may require a full year’s financials when you may only be four months into a contract. Whereas, other lenders may not require this, but their rates could be a bit higher.

What should people look for when choosing a loan?

Whether you are an investor or a home buyer, it is important to understand what features you need in a loan before making a decision.

Then, it is a matter of finding the right lender whose policies support your situation as well as the right loan that can help you achieve your financial loans.

What should investors look at when choosing a loan?

Kabir says investors who want to build a property portfolio should look at the following things first and foremost before considering interest rates.

1) How do different lenders value properties?

You can find this out by speaking with a broker. At Zinger finance, we have the ability to order an upfront valuation without charging our clients for it. 

We can then compare them to figure out which lender will give the best valuation before deciding which bank to lodge the application with.

This is important because it can affect the borrower’s ability to fund their next property purchase as they build an investment portfolio.

2) Which lenders will give the maximum amount of equity? 

Some lenders put a cap on the amount of equity they will let you pull out, so even if they have valued the property favourably, you may only have access to a small amount of it.

Others require strict documentation in order to release equity, such as a contract of sale. Whereas others only require you to state the purpose of release.

3) To fix or not to fix?

If you decide to fix rates for a set term but then decide to refinance in order to pull out equity before the end of the term, you will have to pay exit fees. 

It is important to make a sound decision before fixing rates to avoid paying break costs.

But, if you are unsure whether you will want to pull out equity yet you want some stability in your loan repayments, you may be able to enter into a split loan, in which a portion is fixed and the rest is not.

In this case, if you want to release equity, you will have to do it with the same financial institution, so it is important to look at how well they value properties before deciding.

What should first home buyers look for in a loan?

While first homebuyers would benefit from getting the best rate available, it is still important to weigh up all the options before making a decision.

If you want to release equity from your home in order to buy an investment property, then you should consider the same factors that a portfolio building investor would.

If, however, you want to buy a home and you are sure you won’t be tapping into its equity, then you should try to find the lowest rate available. However, you need to make sure that the bank’s policies fit in with your needs.


Disclaimer: Please note that the information given in this video blog is only applicable to a number of scenarios and may not be relevant to your financial situation. For more tailored information regarding your own credit report, we would urge you to seek advice from a professional who is privy to your personal circumstances and can give information specific to your financial situation. Please get in contact with our team if you have any questions regarding your own credit report, or would like any help regarding your own finances.

Property Interest Rates On The Rise?

There are a lot of changes taking place in order to help banks make more money (not that they need to). And even though the RBA isn’t moving their interest rates, property interest rates are on the rise after the banks decided they’ll do so independently.

The first change to take place was announced last week by Westpac, and discussed by Nathan in his recent Facebook Live seen above. Westpac have stated that, as of the 19th of September 2018, their home loan interest rates will increase by 0.14% independently of the RBA.

 

What sort of changes do we expect to see in the future?

In short, we are expecting other banks to follow suit.

The APRA restrictions have caused all banks to bleed. To compensate for that loss, banks now must raise their rates to get back some of that money.

Depending on what their needs are, they will play around with their interest rates accordingly.

 

So what does this mean for Australians?

The cost of money is going up all around the world. However, in Australia it hasn’t. This will cause 2 things:

  • The Australian dollar will suffer because of it, as all other countries around the world are rising their rates.
  • We are also going to be facing some rate rises independently of the RBA.

What is the good news?

As much as this may seem to be a restrictive situation, many opportunities arise due to it.

Since the interest rates have changed, so will the policies and criteria for lending.

Not many people will be buying or investing in properties. This opens a lot of doors and opportunities for bargains to those who are looking to invest and start building a property portfolio.

Rent prices are very likely to increase, and if you already have a property investment portfolio, you will potentially earn more rental return.

 

Why shouldn’t we panic?

This is just a natural part of the cycle and it’s happening all around the world.

Here at Zinger Finance, we don’t focus on interest rates and, even though property interest rates are on the rise, we’re not concerned about them. We don’t even believe that they will increase dramatically anyway.

In our experience, we’ve found that banks will offer cheap rates just to get you in the door. But, we guarantee you, that these cheap rates come with a lot more terms and conditions that don’t necessarily complement your long-term goals.

Therefore, don’t settle for cheap loans, as quite often they won’t get you very far.

 

What to do next?

Senior Zinger Finance strategist, Graham Turnbull explains that there are solutions, regardless of your current position.

“If you are a experienced investor, focus on building your investment portfolio and make sure to stay away from the bank’s cheap marketing strategies.

If you’re not already an investor, there are heaps of varying interest rates floating out there that you may be able to strike a good deal out of.”

 

As we have said before, we don’t just focus on interest rates. There are many things to consider when choosing the right home loan for you and your situation.

If you are buying your own home, you would potentially look at a different loan structure to what you would look at if you were building an investment property portfolio.

Zinger Finance structures mortgages in a way that minimizes the impact of changes such as the increase of interest rates.

If you have any questions, our experienced team at Zinger Finance are more than happy to help.


Westpac Wages War On Mortgage Interest Rates

Have you seen in the media about the ‘war’ on mortgage interest rates that’s going on right now? Major banks across Australia are dropping their rates and Westpac is the latest to get involved by offering discounts of up to 105 basis points for their property investment loans.

This is the second time this month that the nation’s second largest lender has cut their rates and Westpac is following in the footsteps of NAB, CAB and ANZ.

This time, the focus is on first time home buyers and rentvestors – property investors who rent their principal place of residence.

Westpac have introduced the following changes:

  • fixed rates for first time buyers have been reduced by 40 basis points for principal and interest repayments
  • a five year introductory variable rate for first time buyers
  • the abolishment of establishment and monthly fees
  • a five year investment loan of 4.09 per cent (including a discount of 105 basis points)
  • a ‘flexi’ five year loan of 3.79 per cent (including a discount of 80 basis points)

Andy Wright, Head of Portfolio Management for Home Ownership at Westpac, said the changes have been implemented “to help first time buyers at the start of their home ownership journey and a cut in fees means they can put their savings towards purchases for their new home.”

The offers have also been extended to first home buyers who are purchasing their first home with the intention of renting it out, a trend that is increasing significantly.

We’ve seen first home buyers emerge in force after high prices, tougher controls on overseas buyers and tighter lending standards saw the overall demand in the property market decrease.

In the last quarter of 2017, Victoria saw a 12.6 per cent increase in first time home buyers, about 9900 loans. This was a 40 per cent increase compared to 12 months before.

NSW saw a 75 per cent increase in the year-on-year comparison and the last 3 months of 2017 witnessed an 11 per cent increase, equating to 7500 loans.

Although the Reserve Bank of Australia and prudential regulators have concerns about record levels of household debt, major Australian lenders have been aggressive in reducing key fixed and investor interest-only rates.

Australia’s big four banks undershot APRA’s 30 per sent cap on new lending, which is how they are now able to apply additional interest-only cuts. They are also trying to reclaim their market share from smaller lenders, so they can boost their profits. Hence the rates ‘war’ we’re now seeing.

currency wars

The new lending strategy suggests that our major lenders are not anticipating an increase in rates any time soon, despite a lot of economists predicting an increase come the next interest rate change.

The Australian Bureau of Statistics has reported a reduction in fixed rate loans, implying that property buyers are also discrediting the probability of rates increasing.

Graham Turnbull, Senior Finance Strategist at Zinger Finance, says that this could be the end of APRA as we know it, but urges people to not place too much emphasis on only going after the lowest rates.

“When servicing for any home loan, you need to consider your long term goals. Going after the lowest interest rate is not always the best strategy because it doesn’t always equal the best value for your needs. Although a loan may offer the lowest rate, there may be other features lacking. That’s why our team of Finance Strategists look beyond today’s loan and think about how it will affect tomorrow’s.” 

 

What to know more?

Feel free to contact the team for a free Financial Review.

 

How To Find The Best Home Loan

How To Find The Best Home Loan

 

Whether you are buying your home or building an investment portfolio, finding the best home loan starts with a clear understanding of your needs and objectives – not just now, but in the foreseeable future too.

 

The best home loan is rarely the one with the lowest rate. You can’t start looking for it, unless you have answer the questions below.

 

1) What do I need the loan for? Is it to buy a principal home or an investment property?

2) What are my objectives – e.g. pay it off sooner, open up cash flow to invest further?

3) Will my circumstances change during the course of the loan?

4) How will I use the loan? What features will suit those needs?

 

This will help you decide what features you need.

 

Loan Considerations For Home Buyers

If you want to buy your own home, there are a number of different features you may want to consider depending on your needs and how you are likely to use the loan.

 

Options For A Repayment Flexibility

It is important to remember that circumstances change. Having a home loan that offers flexibility through these times can help to prevent against financial strain and mortgage related stress.

 

A perfect example of a foreseeable change that many young couples need to consider is that of having children.

 

When income is suddenly reduced, the option to reduce mortgage repayments may be desirable.

 

Will You Need A Repayment Holiday?

Many lenders offer what is called a ‘repayment holiday’. This allows the borrower to make reduced repayments over a certain period of time as they adjust to a new lifestyle.

 

Will You Want An Offset Account?

An offset facility is another feature that many home owners find useful.

 

It’s basically an everyday transaction account with the same interest rate as your mortgage.

 

The more money you hold in there, the less overall interest you pay on your mortgage.

 

Meanwhile, you can access the money whenever you need it.

 

Will You Need To Redraw Into The Loan?

A redraw facility allows borrowers to take money out of the loan to spend – much in the same way as a credit card.

What Is The Cost?

The best idea of cost can be found in the comparison rate. It’s intended to represent a truer cost of repayments once foreseeable fees and charges are factored in.

 

If you want to figure out how much your repayments will be each month, using the comparison rate will give you a more accurate figure than interest rate alone.

 

How Will You Use The Loan?

Say, you had a loan that offered five free redraws each month, but you were making 10, those extra redraws would come at an extra cost. Knowing how you are likely to use the loan will help you know what features to look for.

 

Investors Have Different Needs

Property investors should look beyond rates and focus on lender’s policies when choosing the right loan.

 

If you want to build a property portfolio, it is important to choose lenders with policies that will allow for maximum flexibility.

 

Investors are also much more likely to need to review their loan regularly in order to maximise tax benefits or release equity.

 

What Policies Should Investors Look For?

Investors should ask the following when looking for the best loan:

 

  • How does the lender assess rental income in order to help service the loan?
  • Is an interest only period available and for what portion of the loan?
  • What are the lender’s policies around revaluing properties to release equity?
  • How much equity can be released?

 

How to find out which lender offers what?

A finance strategist can compare the different policies across lenders to find the best loan for your needs.

 

While many banks have great lending managers who will analyse your needs to find the best loan product, they are limited to recommending their own products.

 

Strategists, on the other hand, have access to a wider range of products and an in depth knowledge of the different policies across lenders. They will find the most balanced product for your needs.

Let's chat

Take the next step and book a chat with a Mortgage Strategist today.

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