Posts Tagged interest rate

Can Sydney’s housing affordability be fixed in five steps?

Australia has ranked as one of the least affordable countries in the world for housing again – but solutions are on the way. Demographia’s 2017 report ranked Australia third behind Hong Kong and New Zealand for unaffordable housing, largely driven by price hikes in Sydney and Melbourne.

Of course, that’s nothing new. Anyone who’s tried to secure a home loan in the last five years would understand the issues with many east coast housing markets. But what about solutions?

The Property Council of Australia (PCA) has come to the rescue – in a sense. It has released a five-point plan it believes can address affordability in New South Wales, if the government will adopt it.

Can you really fix the Sydney market in five steps?

Can we really fix the Sydney market in five steps?

Five points to fix it all

Jane Fitzgerald, NSW Director for the PCA, says the five-point plan has already been delivered to the Reserve Bank and the New South Wales government. She believes the following steps will go a long way to helping struggling buyers:

  1. Reform the planning system to increase land and housing supply
  2. Cut red tape, property taxes and fees
  3. Increase cooperation between Federal, State and Local Government departments
  4. Provide more support to first home buyers
  5. Increase innovation in the rental market

Now, that’s a lot of buzzwords without many tangible measures. But, as Fitzgerald notes, the PCA does have a full report outlining what the NSW Government can specifically do to make sure it achieves these goals.

Items like less stamp duty, a higher level of housing supply and more FHB support will certainly be music to the ears of buyers who are yet to get onto the ladder. CoreLogic RP Data’s monthly indices show the median house value for Sydney is still above the $1.2 million mark – something has to be done to make buying easier.

Give yourself every advantage you can

Of course, this is a proposal put to the government – it’s far from concrete. For now, anyone struggling to make a property purchase has to wait and see. That is, unless they start taking matters into their own hands.

One way to start working on affordability issues is to make sure you have access to the full spectrum of home loans. Too often, people restrict themselves to just one or two types of mortgage, thinking that’s all they have to work with.

By using a mortgage broker, you can tap into dozens of home loan products, each tailored to a different financial situation. It won’t necessarily fix the housing market – but for some people, it can help out a lot.

You can contact me Kim Wight Mortgage Broker Sydney on 0412 167 551  for mortgage advice.

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The Renter-Investor

Are you a renter-investor?

 

Mortgage broker Sydney

If you are, you’re one of a savvy group of first homebuyers who have chosen to purchase an investment property instead of their first home.

The rise of the first homebuyer as ‘renter-investor’ shows borrowers are thinking outside the square to get a foothold in the property market without compromising lifestyle.

Not only do people want to live in areas that suit their lifestyles now – near beaches or cafés or in inner city lifestyle suburbs – but they’re also keen to live close to their workplace so the commute to and from work doesn’t eat into their valuable personal time.

With the cost of properties located in these ‘lifestyle areas’ out of reach for many first homebuyers, they’re taking a more creative approach.

Be vigilant and strategic

While all borrowers need to have a clear strategy and structure their lending accordingly, this is of particular importance for first-time rentor – investors

There are a number of considerations that first-time property investors need to think about. For example: What is your strategy? Are you looking to buy and sell an investment property within five years or are you planning to purchase and keep it as an investment offering growth over a long-term period of, say, 10 or 20 years?

Will you then draw equity from it to use as a deposit for a home or another Investment property in the future?

It’s important to do your homework – ask yourself why and where you’re going to buy your investment property, and what the expected capital growth rates and rental returns will be in the areas you’re looking to purchase.

The answers to these questions allow you to run projections of what sort of gains you could expect to make if you sell in the future.

Of course you would also need to consider a range of costs including buying and selling expenses, capital gains, tax implications, and fees for professional advice.

Property investors also need to consider a range of factors that are best discussed with their mortgage advisor first and then with their accountant.

For example, if you purchase an investment property with a view to selling it within, say five years, you will have to pay capital gains tax.

Conversely, if you’re going to hold the property for a longer period of time and draw on the equity to fund a home or additional investment properties, then you won’t need to pay selling costs and capital gains tax and, as such, your mortgage broker can help you to structure your lending to suit.

There are also a range of options available to minimise cash flow shortfalls when owning an investment property, such as making interest only payments, maintaining depreciation schedules, conducting regular rent reviews, and having tax adjustments paid back to you monthly.

 Borrowers should discuss this with their mortgage broker and accountant so they can structure their lending and finances to their advantage.

Renter-investor approach not just for first homebuyers

Our living circumstances can change for a host of reasons: You may have received a job offer that requires you to move to an inner city location or you may just want to live in a suburb that offers the lifestyle you and your family desire, now. As a result you may decide to rent out your home and make it an investment property.

Likewise, you may live in an area that is currently achieving good capital growth and yielding excellent rental returns for homes like yours, so you decide to rent a smaller property elsewhere in order to rent out your existing home.

There is a range of reasons for choosing to rent while putting your owner-occupier property on the rental market.

Regardless of your circumstances, seek the advice of a quality mortgage broker to help you structure your lending and get the most out of your investment strategy .

I hope you have found this information useful and if you have any questions please contact me Kim Wight Mortgage Broker Sydney at kwight@smartline.com.au.

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Why Use a Mortgage Broker

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When I meet people and tell them I am a mortgage broker and explain I arrange loans for my clients they often say Why Use a Mortgage Broker and not go directly to a bank.

Here a few reason why you should be using me Kim Wight as your mortgage broker.

Expertise
As your mortgage broker I need to be up-to-speed with lenders’ ever-changing policies – not only where to find the best deals but which lender will accommodate your unique personal circumstances.

Package your loan application
Lenders are getting more selective about the level of risk to which they’ll expose themselves, so they’re looking for borrowers with genuine savings who can show discipline with their finances.

Lenders will scrutinise a borrower’s credit history with even a seemingly insignificant late phone or credit card bill repayments potentially jeopardising a loan application.

As your mortgage broker I will package your loan application to make sure you’re presented to lenders in the best possible light.

Get organised
Being disorganised in your finances could lead to a loan application being declined. If a lender needs more information during the loan application process, it’s important to respond to this immediately, otherwise the momentum can be lost. It can take time to get your loan application back on track. This is especially the case when refinancing or topping up a loan.

As your mortgage broker I will work with you to pull together all the paperwork needed to support your loan application.

Finding opportunities to save
Opportunities to save money can come from anywhere.

There may be greater flexibility for customers who already do business with a particular lender – even if you only have something as simple as a credit card or transaction account.

Also, because  as your mortgage broker  I have great relationships with the lenders, depending on a range of factors  I  may be able to negotiate a significant reduction on the interest rate, the waiving or reduction of fees, or some flexibility on the amount that can be borrowed.

 No Charge for My Service

Yes that is right I do not charge you to arrange your loan and work with your solicitor or conveyancer to get the loan to settlement. I am paid a commission from whichever lender you decide to use.  My team and I take all the stress out of getting a loan.

How can I, Kim Wight Mortgage Broker Sydney help you?
Call me on 0412167551 to chat about your situation and find out what options are available to you. 

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Beginners Guide to Home Loans Myths

 

Mortgage Broker SydneyDon’t believe everything you hear about home loans. Seek the truth from a professional. This Beginners Guide to Home Loans  Myths can help understand the home loan process and clear up some of the misinformation you might hear.

I have been involved in arranging home finance for people for many years. I have worked for a major bank and finance company and as I write this guide to home loans, I have been an independent Mortgage Broker in Sydney  for 13 years. With 25 years of experience and access to information from other highly experienced brokers and bankers I still get challenged by clients who sometimes do not like what I tell them, if only they had read this guide to home loans and not believed what their other “experts”had told them !

There is a lot of “water cooler” talk out there in the market place and people, while trying to be helpful, will offer advice on borrowing money or structuring loans. Beware, quite often this advice is based on hearsay and not lender policy or principles, that’s where this guide to home loans comes in. You may have heard people say “just get a guarantor”, or, “you need a credit card to get a credit rating before you get a loan”.  Or perhaps the old favourite “I can buy a house and consolidate all my other debt into the mortgage”. While some of this information may have some relevance in some circumstances, in a lot of cases it is just plain wrong. I hope this guide to home loans will dispel some of these myths to help people looking for a home loan get onto the right track.

Guide to home loans – Myth No 1. You Have to Shop Around for the Best Deal

While I agree you need to look at many loan options BEWARE how you do it. This part of my guide to home loans will help you choose how to research a home loan that is right for you.

Nowadays with so much information on the internet many people use it to source loan information. But what I have seen happen is people can get into a trap of applying for a loan on line with out knowing they are doing it, if only they had read this guide to home loans! Mistakenly applying for a home loan can also happen sometimes if you meet with a lending manager in a Branch. With these methods sometimes before you know it your details are entered into the lenders computer system, a credit check done and you are told your loan is approved subject to you providing the supporting income and savings evidence.  While you might be please to know the lender will give you a loan you were really only shopping around and had not made a decision on the lender of your choice but now you have this application recorded against your credit rating.

Most lenders now use an online credit scoring system to assess loan applications. The human personal element has been removed. Here is a secret the banking industry doesn’t tell you. There are about numerous fields in an application that get a “Score”.  No one knows the exact number of fields, the lender can’t or won’t tell us.  If the score comes in outside the approval score your application is automatically declined. Have you seen Little Britain, “The computer says No”. If the computer says no it is very hard to get it overturned. It might be possible to have it overturned but it will delay your application at a time when time is of the essence. One of the main reasons loans are being declined with this credit scoring system is too many credit enquires over a short period of time on a client’s credit check report. From a lenders point of view they do not know that you have only been shopping around and did not actually proceeded with the loan applications that appear on your report. Their thinking is if the previous lenders would not approve a loan for you why should they take the risk and your loan is declined.

Guide to home loans – Myth No 2.    You can have a guarantor

So many times I have new clients coming to me and saying “my father will go guarantor” so I can get the loan. It just does not work that way, this part of my guide to home loans explains some of the ins and outs of having someone being your guarantor on a loan.

A guarantor can not be used to help you borrow more money than you can afford on your income alone. If their income is needed to help repay the loan the lender will require them to be a co borrower and their name will be on the loan. This in turn will restrict them from borrowing money in their own name as they now have a loan listed on their credit report. The only way a guarantor can be used is by offering an additional property or cash as security against a loan in order to save the cost of mortgage insurance.

When you are buying a property and you need a loan unless, in most instances, you have savings to cover not 20% of the purchase price plus stamp duty and legal costs you have to pay a once only mortgage insurance premium. This premium protects the lender in case you default on the loan. The premium can be thousands of dollars. Most lenders allow a guarantor in this instance.  The guarantor has to offer a property as security for the loan and the amount of the guarantee is limited to the mount required to have property offered as security covering up to 20% of property purchase and associated costs.

This form of guarantee is often referred to as a family guarantee or family pledge.

It is important to note that the guarantor in this instance is not being assessed in order to make repayments on behalf of the borrowers. Their guarantee is only being used to save the borrowers the cost of the mortgage insurance.  There usually has to be a family connection in order for this guarantee to be approved and the guarantor has to obtain independent financial and legal advice.

Should the borrower default on the loan both the borrowers and guarantor’s property could be sold to cover the amount owing to the bank.  In most cases should this happen it would be in the guarantors favour to try and arrange finance to cover this limited guarantee and have his property handed back to him. The problem arises then the guarantor does not have the borrowing capabilities to finance the amount of debt he has guaranteed.

Guide to home loans – Myth No 3.  I need to borrow money and get a credit rating before I can get a home loan.

I often hear clients say I have to borrow money on a credit card or personal loan to get a credit rating so I can get a home loan. Borrowing money on a high interest loan just to get a credit rating is just throwing good money away. There are other ways to build a great credit rating – these will now be explained in this guide to home loans.

What you really need to do to get a home loan is show a good savings history that will demonstrate to the lender that you have the income and lifestyle to commit to and repay a home loan.

When a lender is accessing you for a home loan they look for a savings history, stability of employment and your ability to repay the loan based on your income and other loan commitments. By having a credit card or personal loan the amount you can borrow is reduced.

If you have borrowed money in the past and missed payments or defaulted on the loan this will make it very difficult to be able to get a home loan.

Guide to home loans – Myth No 4. I can combine all my debts into my home loan.  

 Time and time again I have clients coming to me and they want to buy a property or refinance their current loan and also combine all their current debts into the new loan. This part of my guide to home loans will explain your options for debt consolidation.

This can only be done if you have enough equity in the property you are giving the lender as security for the loan. By equity I mean the difference in the loan amount to the value of the property. An example of this is you have a loan of $400,000 against a property worth $500,000 which means you have $100,000 equity or 80% equity.

When you are combining additional debts into your home loan this is seen as refinancing and the lender will only lend up to 90% of the value of the property held as security. Most first home buyers borrow between 90% to 95% of the value of the property so combining additional debts is not an option available to them.

 

No guide to home loans is complete without some tips for making the process of obtaining a home loan run smoothly.

Guide to home loans – Truth Number 1. Seek the Advice of an expert.

When you are looking for a home loan or even once you have one you will constantly have people giving advice on what can and can’t be done. Some advice will be correct, some will have once been right but now due to changes in lending policies will be obsolete and some advice will be just plain wrong. That’s where my guide to home loans, and more importantly personalised advice I can give you, comes in handy.

In order to ensure that you have the most up to date information you need to be speaking with the people who are involved on a daily basis with a variety of lenders and know their policies and procedures.

I have been advising people on home loans for over 25 years and have not only the knowledge and experience that comes with working in the home loan field but I also have the latest information at my fingertips due to the technology I have available to me.

My best advice to you is before you believe any of the “water cooler” talk about home loans you contact me to confirm what you have heard is true of false.

Guide to home loans – Truth Number 2. Know what is on your credit report.

Everyone should be aware of what is on their credit report. My guide to home loans will help you sort this out.

You can get a copy of your report at www.vedaadvantage.com.au.  You will wait 10 days for a free report or for about $60 dollars it can be emailed back to you in an hour. I provide these free for my clients if we think there may be a problem. So how can you shop around safely, investigate your options and not have your enquiries recorded on your credit report? The best way is by meeting with a reputable mortgage broker who is a member of the Mortgage & Finance Association of Australia.  A  member of this organization has a standard of ethic and education they must meet and you can feel confident you are dealing with a professional.

Guide to home loans – Truth Number 3. Get the best advice and information.

A mortgage broker will be able to show you various interest rates and loan products from a number of lenders. They can also discuss your personal situation and advise you on what loan product best suits your needs. Each lender has different criteria when they assess your loan application and some lenders will offer you a bigger loan than another lender. A mortgage broker can sort through all the options and you get to pick the loan that you want.  They know the policies and procedures of the lenders and can save you a lot of time and effort by talking through any loan characteristics that may or may not suite your situation.

A Mortgage Broker really is a one stop shop for your home loan needs.

I hope you have found this information useful and if you have any questions please contact me Kim Wight Mortgage Broker Sydney at kwight@smartline.com.au.

 

 

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Investment Property Gurus- I Don’t Trust Them.

If I had a dollar for all the “investment property gurus”, that contact me on a regular basis with the offer to assist my clients in making the right property investment decision I could retire and not live long enough to spend all my money.

Mortgage broker Sydney

But the problem I have with 99.9% of the people who contact me is I don’t trust them and I do not believe they have my client’s best interest at heart. These people offer the “get rich quick”  “guarantee return on investment” which is all too often too good to be true. In my experience these property spruikers target people who are looking for a quick fix and do not understand the property market.

Property investing and creating wealth is a long term strategy and takes time.  My advice to people who attend these property investment seminars is to go with an open mind but be sceptical and if it sounds too good to be true it is probably a con and beware.

Say, “No!” to bad property investment advice!

Some things to look out for when dealing with these property spruikers

1.    They are trying to sell you a property rather than provide you with advice to your specific situation.

What I often see is that they are more interested in getting the sale without finding out about your personal situation and even if you can afford it. I had a new client come to me who had contracted to buy a property off the plan but with their income and other commitments had no hope of getting the finance. Even if we were had been able to get the finance the completed properties were not worth the price originally paid due to a turn down in the market.

2.    They offer a One Stop Shop.

Most often they will not only sell you the property but  encourage you to use their recommended solicitor/ conveyance, accountant, ,mortgage broker, real estate property management agent all of who are most likely  being paid a commission from the sales agent. You must use your own independent legal and finance people to ensure you get the best advice for your interest.

3.    They offer “dodgy” loan structures.

If have heard all too often the sales line of pay $150,000 off your home loan in two years. They then set up loans where the rent and your income pays down to your home loan while the loan repayments and living expenses are taken from a line of credit. Sure you may have paid off your home loan but you have only moved the debt to another loan product. Get independent finance advice.

4.    The properties are interstate.

The problem of buying interstate is if you do not know the area and prices you may be paying well over the market price. You need to do your own research. I had one client who flew interstate to buy a property only to find he could get a better property closer to the regional centre he was looking at a much cheaper price. Needless to say he did not proceed.

Avoid being ripped off.

Do your own research. Get property reports which show comparative sales. I even had clients who rang the local police station to see what the crime rate in the area they were looking to buy in.  If you do not know the area I thought this was a great idea.

Arrange your own finance through an independent broker or your own bank.

Have your own solicitor or conveyancer look over the contract and handle the settlement for you.

And remember “buyer beware” and if it sound too good to be true it probably is too good to be true.

I hope you have found this information useful and if you have any questions please contact me Kim Wight Mortgage Broker Sydney at kwight@smartline.com.au.

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HOW CAN I GET A HOME LOAN WHEN I AM SELF EMPLOYED ?

 

How can I get a home loan when I am self employedMany  new clients ask me  ”How can I get a home loan when I am self employed?”  

As a self employed person you may find getting a home loan difficult as you tend to be caught up in two different dilemmas.

By this I mean you and your accountant try to minimize your taxable income by claiming every possible expense within your business, but in order to borrow money you need to be able to show the lender the maximum amount of disposable income available to cover future loan repayments.

While your accountant does this fantastic job of legally minimizing your taxable income, which is what you  employ them to do, your borrowing capacity is then reduced as the lenders base their decision solely on your taxable income.

I have to tell you a hard fact of life – “you can’t have it both ways” and you need to understand the borrowing process and have a strategy to achieve your financial goals.

Plan Ahead

If you are self employed and looking to get a home loan you need to plan ahead. While the method of getting a loan is the same for both self employed and PAYG borrowers the real difference is how the lenders will assess your income.

For a PAYG borrower they only need to provide payslips for a lender to verify their income but much more is required for a self employed borrower.

Most lenders will require your last two year tax returns for both the business and your personal income. By looking at the last two year’s returns they will average the income over that two year period. This will mean that if in the first year you were showing little income or perhaps even a loss and  then if you showed good income in the second year by averaging the two year’s your income your for borrowing potential will be reduced.
Example

2014 taxable income  $25,000     2015 taxable income $60,000

Total for two years $85,000
divided by 2 = assessable income of $42,500

If you are planning on buying a home you need to speak with your accountant and tell them  and together with them and your finance broker a plan can be developed to have the maximum amount of taxable income declared to allow you to borrow the maximum amount of funds required.

Full Documentation Loans – Full Doc

By providing your tax years and financial statements when applying for a home loan while you might have paid more tax than you may have liked but you are saving $’000 long term as you will qualify for up to 95% of the purchase price of a property and also have access to any of the great discounted interest rates in the market place.

With full doc loans lenders will also allow for certain expense deductions to be added back to your income and increase your borrowing potential. These “add backs” can include depreciation, directors salaries, extra superannuation payments and one off capital expenses.

Low Documentation Loans – Low Doc

Before the GFC these loan were extremely popular with self employed clients as you could borrow up to 80 % of the property value and you did not need to provide any tax returns or financial statements. You simply made a declaration of your income and in the majority of cases you were offered discounted interest rates in line with PAYG clients.

Those days have gone!

Now if you are unable to provide tax returns you can still borrow up to 80% of the property value but you need to provide, in most cases, your BAS and trading statements to verify income. You also need to have held an ABN for a minimum of two years and be registered for GST if declaring an income above $75,000pa.

The Need for Bricks & Mortar

As a business person you may be thinking that you do not want to buy property but want to borrow for investment in your business. The fact is lenders want security for any money they lend you and they want bricks and mortar. Whether you have residential or commercial property you will be in the best position to borrow money if you have equity in real estate.

If you require a loan for business purposes some lenders will give you a loan on residential interest rates rather than commercial interest rates and over a longer term which may help with cash flow if you can offer them the security of a residential property.

Get Professional Advice

Researching all the various lenders  policies can be a minefield as some only want the latest year’s figures for a full documentation loan which may be better for you , some will accept an accountant’s letter for a 60% low documentation loan and the list goes on and on.

If you are thinking about getting a home loan I suggest you contact me and together we can navigate the various lenders rules and policies for your benefit

I have access to 25  different lenders and have the experience to advise you not only on interest rates and fees but also the various lender’s policies that might make the difference between you getting a loan or not.

I hope you have found this information useful and if you have any questions please contact me Kim Wight Mortgage Broker Sydney on 0412 167 551 or at kwight@smartline.com.au.

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RBA Cash Rate Decision

The RBA’s cash rate decision is always handed down at 2.30pm on the first Tuesday of each month.

This means the November cash rate decision always occurs half an hour before the big race.

Every year for the last six years I have made  a form guide for the RBA’s November decision. Enjoy.

The ASX Futures Market

Mortgage broker sydney

As you can see, the ASX futures market is very much on the fence with 51% predicting no change as at COB last Friday.

Mortgage broker sydneyWestpac, CBA and NAB

The Commonwealth Bank and Westpac are forecasting no change in the cash rate for the next 12 months. The NAB is forecasting no change in the cash rate until December where they predict a 0.50% rise to 2.50% p.a..

As you know, predicting the future is a difficult business, however, it is pretty clear that most “experts” are suggesting a stable variable interest rate environment for most of 2016.

If you are a betting person, I hope you have a lucky Melbourne Cup. If you are not having a punt, my tip is always going to be “put your money on your mortgage”.

As always if you want to discuss your current home loan or are looking at getting into the market please contact me Kim Wight Mortgage Broker Sydney at kwight@smartline.com.au. 

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Theories On How To Pay Your Loan Off Quicker

It always amuses me how some people have has theories on how to pay your mortgage off  quicker and I end  up having the same conversation over and over again.

Here is what happened last week when I received this email from an existing client.

“‘The reason for my e-mail is after having a chat with a colleague at work he mentioned that a redraw mortgage works out to repay a mortgage quicker than an offset, I was hoping if you could confirm if this had any merit?”

Here is my reply

Mortgage Broker Sydney“‘When I first saw this I wanted to scream!!!! Everyone has some sort of theory about paying the loan off quicker when the only way is to make larger repayments than the lender wants.

Your loan has both a redraw facility and an offset account.

With the redraw- any amount you pay over the expected monthly repayment amount goes into the redraw portion of the loan and can be withdraw at any time. The extra amount also visibly lowers the loan amount owing.

With the offset account you use this for all your everyday banking and the daily amount in the account offsets the interest on the loan. With deposits you see the offset account balance go up but the loan amount does not change.

Now let’s compare his theory.

I think he is referring to a loan where you basically use the loan as your everyday account. You pay all your wages into the loan and then you draw down the money from the loan to make all your repayments of bills etc. and cash withdrawals just as you do in the offset account.

Any money left would appear to lower the loan balance each month as would any money left in an offset account would increase the saving balance. The effect on the interest charges are the same in both cases.

With the offset account you can easily see how much you have to spend. With the “redraw”‘ loan you can spend as much as is in the loan account to keep you current in repayments as per the loan contract term. Some people can manage to control and monitor the spending but not everyone is that disciplined.

I believe the best way to manage the loan is to put the money into the offset account and then  before the next pay goes in transfer the money to the loan account and then not touch it.

They are not many lenders who do these “”redraw”‘ loans. They are usually offered by mortgage manager companies but if you want to look at refinancing to one let me know. The rates are low at around 4.13% & 4.19% but they are not flexible when you need to make any changes unlike your current lender. They have no branch network. The cost of refinancing would be around $1000.

Also lets check your rate again so let me know what you are currently on and I will see if we can get a further discount.

Let me know what you would like to do. “‘

If you have some friendly  expert giving you advice and you  want to check the facts please contact me Kim Wight Mortgage Broker Sydney and I will either comfirm what you are being told or set you on the right path to achieve your goals. 

 

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Mortgage Repayment Stress

Almost every time we come across someone in mortgage repayment stress we find that credit cards and personal loans are the culprits.

Our first response to this situation is to look at a consolidation home loan.

This type of loan may significantly reduce the immediate cash flow burden on a borrower.

The table below attempts to demonstrate just how much cheaper a home loan can be compared to credit cards or personal loans.

Mortgage broker Sydney Kim Wight

NOTE: The overall interest cost of a loan is usually greater when the loan term is extended. One good way to avoid a higher “life of the loan” interest cost is to make additional repayments (above the minimum) on your home loan once the debt is consolidated.

Even if you are not experiencing mortgage stress, now might be a good time to make a pre-emptive move. There are a few good reasons for this suggestion:

  1. Much of the Australian property market has experienced some level of capital growth over the last year or two. This means that many people now have enough equity to combine their personal debts into a home loan.
  1. Interest rates are at record low levels which means that our incomes can borrow more. If interest rates begin to rise again, you may not be able to have a consolidation loan approved by the lender.
  1. None of us plan to have lower income. None of us plan to lose our income. However, we all know that this is a possibility. Many of us take on income protection insurance for illness or injury but we can’t protect ourselves from business failure or the loss of a job. No income, no consolidation loan.

 The main message here is to take action when times are good…… Times are good. If you want help to organize your finance contact me Kim WIght Mortgage Broker Sydney, I am here to help you. 

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RBA Decision – The Need to Plan

Since Tuesday’s RBA decision to keep rates on hold, we have heard that the Australian economy has grown quite strongly over the first quarter of 2015.

Strong economic growth, if sustained, could lead to an increase in rates. However, the ASX futures market, armed with these positive economic growth numbers, are still predicting stable interest rates for a while to come (see below).

What I  find disappointing is the almost universal belief (in the media) that borrowers will be in deep trouble if interest rates begin to rise.

I have a contrary view. Although there will always be individual circumstances where people unfortunately find themselves in mortgage stress, the majority of borrowers are prepared to handle a modest increase in interest rates. This view is based on two key points:

  1. When banks assess a clients ability to repay a loan they use a “test” interest rate that is almost always above 7.00% p.a..

This means that most variable rates would have to increase by around 2.50% before clients could potentially struggle. In fact some lenders assess repayment capacity at 8.00% p.a., which is nearly double the current interest rate.

  1. The average monthly variable interest rate over the last 10 years is approximately 6.71% p.a. (see below). So the “test” rate is approximately 0.30% p.a. above the long term variable interest rate.
Interest rates

RTBA Decision

As you can see, our banks have and are adopting quite conservative lending practices. Australian banks are arguably some of the most prudent financial institutions in the world. This conservative lending approach underpins the current price growth that we are seeing in some of our Capital cities. Far from contributing to house price growth, we feel that current lending policy is keeping a lid on the market.

As always  if you would like any advice around your mortgage, please do not hesitate to give me a call, Kim Wight Mortgage Broker Sydney. 

 

Posted in: Blog, First Home Buyers, Latest Mortgage News, Mortgage Broker Sydney

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