Sticking with the same loan longer than three years can cost borrowers thousands, with competition to win business resulting in new customers paying lower rates than existing ones.

This so-called loyalty tax has become such a hot topic, the Australian Competition and Consumer Commission has recommended mortgage holders review their options regularly and consider switching to secure better terms. Now is a great time to follow that advice and get in touch.

Rush to reset

Homeowner refinancing has hit an all-time record in the past six months, and it’s easy to see why, with interest rates at long-term lows. But it’s not just fixed rates borrowers should have their eye on. Homeowners with variable rates need to check they aren’t unwittingly paying a loyalty tax too.

Reserve Bank figures show owner-occupiers who took out new variable loans in October 2021 paid, on average, 2.63 per cent interest, while those with existing variable loans paid rates around 0.37 per cent higher rates at 3 per cent.¹ On a loan around $350,000, that’s potentially adding an extra $1,295 in interest each year.

As a customer there’s few things more galling than finding out someone who came to the party late has been given a bigger slice of cake than you. That’s why the most empowering thing you can do is to simply shop around, which is what I can do for you.

Annual review

Being financially savvy is about developing good habits, and one of the best for homeowners is to book an annual appointment to review your home loan arrangements.

The start of a new year is the perfect time to dive in. People usually have a little more headspace before the year really ramps up and finding savings can be a great cure for that summer spending hangover.

Speak to me to check how current variable rates compare, or perhaps it’s a good time to consider locking in a deal. Fixed rates have increased recently and speculation is mounting about a possible official interest rate rise in late 2022 or early in 2023.

More than interest only

Of course, refinancing isn’t always about interest rates alone, although they are a big part of the equation. It may be about building more flexibility into your loan with offset and redraw facilities, the ability to make additional repayments, or unlock equity for a renovation, a major purchase or holiday.

Some borrowers may even want to consider options such as splitting a home loan between both fixed and variable options.

It’s all about what your goals and priorities are right now, and we all know that can change unexpectedly year on year.

Broker insight

The home loan market has never been more competitive and we’re adding more lenders to our panel each year, with more loan products and features. It can be daunting, but it’s also where I can offer you an advantage in guiding you through what’s out there to meet your needs.

I can also help calculate how any potential savings stack up in the short and long term against any search and switch costs. It’s important to stay on top of rates and offerings in a fast-moving market. So, get in touch to arrange a quick check-up for your home loan.

¹ Lenders’ Interest Rates, Reserve Bank of Australia (published monthly online: rba.gov.au/statistics/interest-rates/#lenders-rates-table)

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Getting the itch to fix? Choosing the right time to lock in an interest rate can be tricky.

In the past year interest rates on fixed-rate loans have plummeted to all-time lows, prompting many borrowers to ask whether it’s time to lock in a rate.

If you’re thinking about it, you’re not alone. The number of homeowners opting for a fixed rate loan jumped sharply in March last year and remained high as rates continued to fall. According to the Australian Bureau of Statistics’ Lending Indicators data, the proportion of new home finance in fixed loans has jumped from around 14 per cent pre-COVID to just under 40 per cent. There are a few things to consider before you look at fixing.

First, how do interest rates compare on fixed and variable mortgages?

Across the past few months, fixed rate mortgages are tracking lower than standard variable mortgages, in some cases by quite a significant amount.

Do you expect interest rates to go up or down?

The major advantage in fixing is to avoid, or at least postpone, an expected rate hike. At the same time, no one wants to fix, then watch rates fall further.

Under normal conditions, when fixed rates are lower than variable rates it indicates the market expects further cuts. But with the RBA cash rate at 0.1 per cent, further cuts are highly unlikely. So, what gives?

Why are fixed rates so low?

The key phrase above is “under normal conditions”. Remember those?

When the pandemic hit last year, the Reserve Bank deployed billions to support the Australian economy through lockdowns and job losses. One of these measures was the Term Funding Facility. Set up in March 2020, the TFF is supplying money to banks on cheap three-year terms to support lending. It’s a great deal for lenders. They borrow from the RBA (at 0.25 or 0.1 per cent), then pass it on at a low rate to consumers, which is one reason fixed rates are so low. The TTF winds up at the end of June.

What can impact interest rates?

RBA cash rate: Reserve Bank Governor Philip Lowe has said the bank doesn’t expect to lift rates before 2024. It believes the Australian economy can’t sustain a rise until sluggish wage growth hits 3 per cent a year, which the RBA believes requires unemployment to drop to 4 per cent, and that is unlikely before 2024.

Bond markets: Bank interest rates do not mirror the RBA’s official cash rate. While the RBA may keep rates on hold until 2024, banks raise capital in bond markets and if the cost of money there rises, mortgage rates are likely to lift independent of the RBA rate. Rising bond yields signal inflation and possible interest rate rises. Yields spiked in February, but the RBA began aggressively buying bonds to hold them down. Commentators say money markets are pricing in a cash rate rise before 2024 and some lenders have recently lifted their four-year fixed rates.

It’s not just about interest

Interest rates are a major factor in deciding whether to fix or float but there are other things to weigh up.

Pros

• Fixed rates are currently very competitive.
• If you’re on a tight budget, fixing gives you certainty about repayments for the length of your loan term.
• Lock in at the bottom of the cycle and save on rate hikes.

Cons

• If you sell during a fixed term, you may incur significant break fees for ending the contract early.
• You will also be hit with break fees if you want to access equity generated by rising house prices in your home by refinancing during the term.
• You may not be able to pay off your loan faster by depositing lump sums or increasing your repayments as suits.
• Many fixed-rate loans do not come with offset or redraw facilities.
• If rates climb significantly during the fixed term, it can be a budget shock when mortgages revert back to a standard variable rate.

Is there a third option?

There are strategies to hedge your bets. Some lenders offer split home loans. These are exactly what they sound like – borrowers divide their mortgage between fixed and variable rates in any ratio they like: 70:30, 50:50 or 60:40. This allows extra repayments on the variable portion without incurring fees, and if interest rates rise, repayments on the fixed portion stay the same. If you have an offset account however, you will need to ensure enough of the split is retained in the variable portion to maximise savings, as offsets are not always offered against fixed loans. Get in touch and we can look at whether splitting your loan may suit your individual circumstances.

Another tactic uncertain borrowers adopt is to fix for a short period – say one year – then reassess.

If you would like to run through your options and the current range of low-rate fixed mortgage products on the market, get in touch with me to make a time – I’m always here to help.

The post Lock it in Eddie appeared first on 5 Star Finance Pty Ltd .

Some tips and tricks to paying off your home loan sooner.

Buying a home is likely the most significant financial transaction you’ll ever make. So it stands to reason that your home loan will be your largest ongoing financial obligation. Imagine what life would be like without that monthly or fortnightly strain on your income? With the extra money in your account you can afford to work less, travel more and do the things you’ve always dreamed of.

Most loan repayments are calculated on a 25 or 30-year term. And chances are you’ll have more than one home loan over your life if you upgrade to a new house. If you take out your second home loan at 35, you could still be paying it off as you hit 60. But with a few simple tips and tricks, you can shave money off your principal and pay off your loan a lot sooner. Even paying off a little more than you have to now will have a big impact over the life of the loan.

Tip 1. Shop around for a lower interest rate.

The competition out there for your business from lenders is fierce. Get in touch with me, by shopping around and finding a slightly lower interest rate and you could save money on lower repayments. What you do with this money you save can make a big difference.

One safe way is to keep paying the same amount you were previously paying to reduce the loan amount faster. Even a reduction of $150 per month adds up to $54,000 over the life of a 30-year loan. And, because you are reducing the principal faster, you’ll be reducing the amount of interest you have to pay, which will only increase the amount of principal you’re paying off if you maintain the original repayment amount.

Tip 2. Make your offset or redraw facility work harder for you.

Offset and redraw accounts are very handy add-ons to a mortgage. In fact, if your loan doesn’t have this feature, talk to me about your situation and it may be worth finding one that does. It’s an account that’s linked to your home loan, and any money in that account is considered a reduction in your principal loan amount. A lower principal means less interest to pay, and more of your ongoing repayments will be paying off more of your original loan.

The money in the offset/redraw account is generally accessible anytime. One way to make the most of it is to have your salary paid into this account. While the money is there, it reduces your interest. Even if you use a lot of this cash throughout the month, it’s topped up when you get paid again.

Simply by doing this, you could shave thousands of dollars off your mortgage, and months or even years off the life of the loan.

Tip 3. Get a new loan with a shorter term.

Refinancing your loan and choosing a shorter term is probably the simplest and most obvious way to paying off your loan sooner. The attraction to a 30-year term for many is to reduce the amount you pay every week, fortnight or month, to give you a little more cash in hand for other things. But taking five years off the length of a loan can save you thousands over the long-term. For example:

$500,000 loan at 2.50% interest p.a.

Tip 4: Round up your repayments.

By now, you probably realise that most of these tips are based around paying more off your loan than your repayments require. The amount of interest you pay is calculated on how much is left owing on the principal amount of the loan. Every extra bit of money you pay off the principal is effectively earning interest at the rate you’re being charged on your mortgage. Just a small monthly repayment increase on a $500,000 loan over 25 years, from $2,244 to $2,400, will not only reduce the length of your loan by two years and two months, but it will also save you more than $16,425 in interest payments.

It doesn’t take much to make a difference. Thanks to the length of loan terms, just regularly paying a little bit extra can grow into significant time and money savings over the years and make you mortgage-free in your 50s.

Get in touch to find out how you can reduce your current loan faster, or refinance to start saving.

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If you are experiencing mortgage stress, now’s the time to get on the front foot with your lender. As your mortgage broker, we can help you prepare and plan for the unknown.

It’s no surprise that the outbreak of COVID-19 has caused a huge increase in mortgage stress. According to the Australian Banking Association (ABA), more than 485,000 mortgage repayments were deferred between February and June this year.

IS THE CLIFF COMING?

Experts and commentators have been warning us of the impending cliff that’s coming. Lenders have been giving borrowers a pause on their mortgage repayments. These breaks were due to end soon, but with the support of APRA, lenders have recently announced an extension of deferrals until the end of March 2021. At the same time, JobKeeper and JobSeeker programs were only promised until September. Fortunately, JobKeeper and JobSeeker are not coming to a sudden stop. There is now a clearer outline of the next stages, allowing people to better prepare for what may come next.

A MORE GRADUAL REDUCTION IN SUPPORT.

JobKeeper and JobSeeker were announced early on in the Government’s response to the unfolding crisis. What would happen after the first six months wasn’t announced and everyone’s fear was that the end of the assistance would be devastating. The schemes have been widely regarded as a success and fortunately the Government is looking at a more gradual reduction in payments. At this stage, the JobKeeper payment will continue to be available to eligible businesses until March 28.

JobKeeper will be being reduced in two steps. From the end of September, full-time employees will go from $1,500 a fortnight to $1,200. And then, at the beginning of the new year on January 3, it will drop to $1,000 a fortnight.

For part-time workers, which is people working fewer than 20 hours a week in February this year, JobKeeper will be halved to $750 a fortnight from the end of September. In the new year it will make a less drastic reduction to $650 a fortnight.

If you’re receiving JobKeeper, it’s not an automatic transition to the new amount. Businesses and employees will need to apply for the extension after the initial JobKeeper finishes on September 28. Once again, employers and sole traders will have to demonstrate a 30 or 50 per cent reduction in turnover, depending on the size of their turnover, in the September quarter (compared with the same period in 2019). The second extension will commence on January 3. To qualify for this stage, a business will need to show a loss for the December quarter.

It’s also worth noting that the JobKeeper payment will continue to be made available to new recipients, as long as they meet the eligibility requirements and the turnover tests that apply during the relevant JobKeeper payment period.

JobSeeker is also changing. The $550 coronavirus supplement paid each fortnight is being reduced to $250, but the base rate is staying the same. So, the total payment will go from $1,115 down to $815.

To make up for this reduction, the Government is allowing those on JobSeeker to earn $300 a fortnight, up from the current $106. The intention is to encourage people to get out and get work, without having to worry about losing their financial support. And, from the beginning of August this year, you’ll have to actively be looking for work to stay on JobSeeker.

HOW WILL YOU FEEL AFTER A MORTGAGE HOLIDAY?

Like many people you may have taken up your lender’s offer of a mortgage repayment pause. While this can certainly help in the short-term, there are long-term ramifications you should watch out for. The lenders aren’t just giving you these payments for free. Instead, the amount of interest you missed is getting added on to the principal of the loan. This is called interest capitalisation.

In short, after the mortgage pause you will have a bigger loan and your repayments will likely be more than before the ‘holiday’. And things like monthly fees (based on the size of your loan) could be added to your loan balance.

HOW CAN YOU AVOID MORTGAGE STRESS?

Your circumstances are unique, and our world is shifting week to week. Changes in the economy, society, health, employment and government support will affect every one of us in different ways. Knowing how government support is being delivered is one thing. If you are receiving this support, it can help you plan for the next few months. But there are many other things you can do to protect your financial well-being and avoid mortgage stress. For instance, should you swap to an interest-only loan? With interest rates at a historic low, is it a good time to fix your loan? Or split your loan? Or is there a more suitable loan out there that could help save you money? Maybe you’re fortunate enough not to have had an income loss during this time and therefore might be considering opportunities to invest in the property market.

In these times, it’s a good idea to reach out and get help. And that’s why we’re here. We can answer your questions and look at your circumstances to make sure you’re prepared for what could be coming next. This could mean refinancing or approaching your lender for a better rate. Because we do this type of work every day, we have a pretty good idea what lenders can do to win or keep your business.

While sometimes it can feel like things are out of our control, you can take control of your mortgage. Get in touch and we can help you find the financial product that’s right for you, right now.

The post JobKeeper, home loan holidays and mortgage stress: What happens next? appeared first on 5 Star Finance Pty Ltd .

In this time of economic instability, we know that jobs and mortgages are of the highest concern to you, the Government and the lenders. With things changing on a daily basis, we’re perfectly positioned to help.

As the response and effects of COVID-19 on our health and economy continue to develop, we’ve all been forced to try and keep up with how our world is changing by the day.

Shutdowns, lockdowns and social distancing have had a huge impact on businesses and employment. It’s no surprise that for many, the fear for our financial health is as big a concern as our physical well-being.

A mortgage is the single biggest financial obligation for most Australians. How we can manage our loan repayments during the crisis is vital to how we can get through this.

And helping you through this is where a mortgage broker can help.

Since March, the Federal and State Governments have been releasing billions of dollars in assistance and stimulus packages, as well as changing some rules and regulations to support people and businesses.

The lenders have also been actively supporting both business and personal customers by reducing and freezing repayment obligations and changing interest rates, fees and terms, among other things.

And as all these continue to change, the good news is one thing hasn’t – we’re here, keeping up to speed with all these changes and dealing with the lenders on a day-to-day basis.

So, if your income has dropped, we can help take you through your options (even now you do have some). Here are a few things to think about.

Should you freeze your mortgage?

For many, the chance to pause payments on the home loan for a few months is a welcome short-term relief, taking the pressure off cash flow and savings. But this may not be the right thing for you. The payments you miss will increase your debt in the long-term. It’s important to think carefully before making any decision and consider all your choices. There are several other things you can do instead of pausing your mortgage.

Firstly, you can keep paying your mortgage. Don’t get lured in by the ability to pause just because it’s there. If it’s possible to keep up with payments, then you’ll be reducing future repayments and interest.

You can minimise your payments. You may have room to move on what you’re paying, or you can negotiate with your lender about going interest-only, and maybe reducing your interest rate. We can help you with that.

If you’re also getting slugged with high-interest rates on credit card repayments, you can consolidate your debt into your home loan which has lower rates over the longer-term. If you do decide to do this it is very important to understand that it could end up costing you more in interest if you repay the additional balance over the full 25 or 30 year home loan term.

Some of you will have been saving for a rainy day. It is worth pointing out that we’re in a massive storm with huge downpours right now. Maybe this is that day you’ve built up a buffer for? You could choose to use some of your savings on your mortgage.

There are other features in loan products that can help. A redraw facility lets you withdraw any extra payments you’ve made into your loan. An offset account, which any salary or payments can be made into, uses its balance to reduce the balance of your home loan. This in turn reduces the interest you’re paying off. It is important to understand the difference between the two options. With a redraw facility you are drawing back the amount that you are ahead of the scheduled loan repayments and this may require the lender’s approval. An offset account operates in much the same way as a normal deposit account and the funds are yours to withdraw at any time.

Fixing your interest rate is another way you can reduce your payments. Interest rates are at an historic low and lenders are trying to assist customers where they can. One way some are doing this is by dropping their rates on short-term one or two-year fixed loans.

Is now a good time to refinance?

That’s a tricky one. With people losing jobs and income, businesses closing or ‘hibernating’, and the economy going in the wrong direction, there is a lot of uncertainty out there and that equates to risk for lenders.

For those with a lower income or insecure work situation, seeking a better rate from your existing lender could be a good option. And for those with strong, safe jobs, we may still be able to secure a better deal for you, even in these uncertain terms.

And that’s one of the most important services we can provide you with. We work for you, not the lenders. We can go into bat for you and negotiate on your behalf to get a better rate or terms for you. Because we deal with the lenders every day, we know what they can offer. Now, more than ever, it pays to have us in your corner.

What about a new home loan?

If your income has dropped significantly, you’ll have trouble borrowing what you could before this crisis. What’s more, we’ve noticed lenders are understandably taking a more conservative approach to new applications.

Having said that, your situation and needs are unique to you and we know what different lenders are looking for. You may still have good options, and with an expected drop or flattening in real estate prices, you may not have to borrow as much as before.

If your income is still good and your business or industry looks to be strong throughout the coming months then there could be some opportunities for you out there. Lenders will still be looking for good, lower-risk customers. This, coupled with low-interest rates, lower real estate values and borrower-friendly conditions on many loans, could put you in a position to take advantage of a very unique set of circumstances.

So, what’s right for you?

Everyone’s circumstances are different, and this crisis has affected each one of us in different ways. It may not feel like it, but there are likely options available to you right now. We can work with you to understand your circumstances and marry up your situation to the help being provided by lenders and governments.

With so much uncertainty right now, it’s our job to stay up to date with what’s happening in home loan lending and provide you with guidance to get through. When this is all over, we all want to be in the best position possible to bounce back.

As a broker, we like to start with a good chat so we can go through options available to you. While we would normally meet you somewhere convenient for you, under the current circumstance we can setup a virtual face-to-face catchup via a videocall or over the phone. And as always, at a time that suits you.

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One in two Australian home buyers¹ now borrow via a broker. A dip in sentiment towards traditional banks, tighter lending criteria for investors and better-educated consumers have all helped boost mortgage brokers’ popularity over the past decade. There are, indeed, a raft of reasons to turn to a broker for your next home loan. Here are eight to get you started.

01
Freedom of choice

Brokers generally give you access to multiple loans from multiple lenders. Compare that with the loan options you might be presented with by a single lender. At the end of the day, competition and choice are the most powerful benefits a broker brings to the table and it’s the reason so many Australians have one onside.

02
You don’t pay a fee

Most brokers don’t charge their clients an up-front fee to use their services (and if they do, they need to give you a Credit Quote for your agreement). Brokers receive payment from lenders in the form of a commission and are required by law to disclose the details of these payments under the National Consumer Credit Protection Act to ensure transparency and to give you the peace of mind you’re after. Ask your broker to provide an overview of his or her commissions when you meet.

03
Save time

Why spend your valuable time researching home loans when a broker can do it for you? It’s the broker’s job to do the hard yards when it comes to your homework. A broker will make the most of your appointment time to get the necessary information to narrow down and present you with easy-to-understand options, saving you hours of online research and hard-to-translate comparisons.

04
It’s all about you

06
Smooth sailing

Buying a home and taking out a loan is an exciting and momentous milestone, but also a stressful process. Brokers ease many of the pain points by dealing with the lender and managing your application process through to approval. Brokers can also arrange after-hours appointments to fit your schedule, rather than the schedule of just one bank or lender.

07
The latest legislation

It’s also a broker’s job to stay up to date with legislation so they can make the right recommendations for customers and ensure they meet lending requirements, which have tightened in recent years to reduce the risk of loan defaults and help maintain a stable economy. Brokers stay across industry, economic and regulatory shifts to avoid unexpected roadblocks for borrowers.

08
Home loan health checks

Just like you get a check-up with your GP, your broker can run a regular health check on your home loan to see if it’s still right for you. Competition remains high in the mortgage market so it’s always worth asking your broker to reconsider your options. You could be paying off your loan sooner and saving thousands on interest repayments with a product that is better suited to your needs.

1 www.canstar.com.au/home-loans/should-you-use-a-mortgage-broker

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