Want to switch home loans? Here are some top tips for refinancing

More and more mortgage holders are looking for a better deal on their home loan.

According to ABS data, the total number of home loan customers who switched providers in 2020 increased by 27% – from 143,664 in 2019 to 182,016 in 2020.

And it is estimated that a further 200,000 Australian families switched lenders to save in 2021.

But there’s switching lenders the wrong way, and switching lenders the right way.

Fortunately, Laura Higgins, ASIC’s Senior Executive Leader Consumer Insights and Communication, recently shared some important tips with ABC radio, which we’ve compiled for you below.

 

1. See if your current lender can cut you a better deal

Here’s the thing about the big banks and home loans: customer loyalty is rarely rewarded.

In fact, the RBA found that for loans written four years ago, borrowers were charged an average of 40 basis points higher interest than new loans.

For a loan balance of $250,000, that could cost you an extra $1,000 in interest payments per year.

“Many times, new customers are offered a better deal than existing borrowers, so if you have a home loan that is a few years old you could potentially get a better deal that saves you thousands of dollars over time,” explains Ms Higgins.

“Even if you’re happy with your current lender, it’s worth checking you’re not paying for features or add-ons you’re not using.”

 

2. Don’t jump at the easy money: do the maths

There are a lot of incentives out there to entice you to switch mortgages quickly, such as cashback offers or very low-interest rates.

But Ms Higgins urges borrowers to closely compare these offers with the long term costs.

“For example, it’s worth doing the maths to ensure a cashback offer still puts you ahead over the long term when considered against other aspects of the loan, like interest rates and fees,” she explains.

“If you decide to switch lenders, you may end up with a longer-term loan.

It’s also important to consider whether lenders mortgage insurance or other costs, like discharge and loan arrangement fees, may be payable.

“These additional costs can outweigh the benefit of a lower interest rate,” she adds.

“A mortgage broker can also help you compare loans and decide whether to switch.”

Which is very true, if we do say so ourselves!

 

3. Consider switching to an offset account or redraw facility option

With interest rates so low, many borrowers are aiming to pay off their mortgage faster by making extra repayments.

“Interest rates may be low now, but probably won’t be this low forever. Making some extra repayments now can benefit customers in the long term,” says Ms Higgins.

But if you’re worried about tying up all your funds in your home loan, then you can consider switching to a mortgage redraw facility or offset account, which can allow you to make extra repayments but withdraw them if you need to.

“Either of these options might work for you depending on your goals,” Ms Higgins adds.

“Not all home loans can be linked to an offset account, and often those that can may have a fee charged or a slightly higher interest rate, so it’s worth making sure you’d be saving enough in there to warrant any extra costs.”

 

4. To fix the rate or not? Or both?

Last but not least, a refinancing tip that we think is worth considering in this climate of record-low interest rates (which probably won’t be around forever).

One of the most common ‘big decision’ questions we get asked when it comes to refinancing is: should I fix my home loan rate or not?

But did you know a third option exists?

Yep, you can fix the rate on some of your mortgage, but not all of it.

This allows you to lock in a low rate for a portion of your home loan, while also taking advantage of some of the flexibility that a variable rate can offer, such as the ability to make extensive additional payments.

If you’d like to know more about it – or any of the other refinancing tips in this article – then get in touch today.

We’d be more than happy to help you refinance your home loan, whether that be renegotiating with your current lender or exploring your options elsewhere.

 

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

5 reasons it’s a good time to refinance

So where does refinancing fit in?

Well, the many social and financial changes that have been thrust upon us recently have combined to make it a good time to consider refinancing your home loan.

Here are five reasons why you may want to consider doing so.

 

1. Payment relief

When was the last time you refinanced your home loan?

If your answer was ‘one year ago (or longer), the finance and lending landscape has changed dramatically since then and it might be time to catch up.

According to the RBA, a recent study found that borrowers who refinance with another lender or negotiate a better deal with their existing lender, do in fact achieve interest savings.

So if you or your partner have recently had your work hours cut back and you’re starting to worry about how you’ll meet your monthly mortgage repayments, refinancing could be a more suitable option than applying for a hardship variation on your loan.

 

2. Consolidate your debts

Refinancing can also help you consolidate your other debts – including your credit card, car loans or personal loans – by combining them into a refinanced mortgage.

Not only will this give you one simple repayment to make each month (reducing the risk of forgetting payments and being slugged with a late fee), but all your debts will be charged at your home loan interest rate – which is usually much lower than credit card rates, for example.

 

3. Low interest rates: time to lock one in?

Fixed rates have recently experienced a big drop.

In fact, Domain’s David Hyman has described the current batch of fixed interest rate loans as “staggeringly cheap”.

“Only a couple of months ago the cheapest headline rate started with a three. If you look back to this time last year rates were in the high threes,” Hyman explains.

“For someone with a half a million-dollar mortgage, that is well in excess of $10,000 a year in savings. It’s never been a better time to refinance quite frankly.”

And with the official RBA cash rate now at a record low of 0.25%, there isn’t a great deal of room for it to go much lower.

 

4. Time on your hands

One of the more common reasons homeowners give for not refinancing is that they simply don’t have the time to do so.

But, without pointing out the obvious, I think it’s fair to say that we have far fewer social commitments taking up our time at present.

So, if you’ve compiled a list of things to do to keep busy at home, consider adding refinancing to the list.

Once you get the ball rolling on it and get in touch with us you’ll be surprised how little you actually have to do – after all, that’s our job, right?

 

5. We’re available to help you, whenever you need us

Finally, rest assured that we’re available and here to help you any way we can.

During trying times like these we know that we need to support each other now, more than ever.

So if you’d like us to help you explore your refinancing, hardship variation, or support package options then please get in touch – we’re ready to jump into action and make it happen for you.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Netflix and too chill: house hunters cutting corners on inspections

 

We get it. You see a house you like and you immediately want to buy it, warts and all.

But take a breath, as FOMO can be costly – with a third of recent purchasers admitting to “buyers regret”.

Not doing your due diligence on a property can also have implications when applying for finance if the lender’s valuation doesn’t come in at what you expected.

And it turns out that a lot of house hunters are leaping before they look right now.

A recent survey of 1,000 property owners by lender ME revealed that 55% of house hunters spent less than 60 minutes checking out the property they eventually purchased, despite it being one of the biggest purchases of their lifetime.

That’s about the length of a standard 55 minute Netflix episode.

 

The impact of COVID-19

Turns out we haven’t just become better at bingeing during COVID-19.

COVID-19 has also reduced the time buyers have to check out properties.

But it’s not always the purchaser’s fault.

About two-thirds (65%) of recent buyers said “real estate restrictions impacted their ability to inspect and purchase their property”.

And surprisingly, almost half (45%) of buyers restricted by lockdowns admitted to doorknocking vendors to ask for an inspection on the sly, as well as looking at photos and/or videos of the property.

 

Hidden issues

The lack of inspection time led to around 61% of Australian home buyers discovering issues with their property after moving in.

Around 40% of this group said they missed picking up the issues because they “lacked the skill or experience in inspecting the property”, while 33% simply “fell in love with the property and overlooked them”, and 18% were “impatient and concerned by rising prices”.

Overall, the top post-purchase problems included construction quality (32%), paintwork (28%), gardens and fences (23%), fittings and chattels (21%) and neighbours (17%).

Among owners who identified issues:

– 34% experienced a degree of “buyers regret” following the purchase.
– 58% would have paid less for the property had they discovered the problems earlier.
– 84% spent money fixing, replacing or improving the issues identified, or have plans to do so.

The moral of the story? Emotions are always involved when purchasing a home, which can cloud your judgement.

“Give weight to any niggling hunches that give you cause for concern and get a professional property inspector to do the looking for you,” says ME General Manager John Powell.

“It is also important to know your borrowing capacity in advance so you can buy your home with full confidence knowing you’ve got solid financial backing.”

 

Get in touch to find out your borrowing capacity

As mentioned above, it’s important to know your borrowing capacity before you start house hunting so you don’t stretch yourself beyond your limits.

So if you’d like to find out what you can borrow – get in touch today. We’d be more than happy to sit down with you, take a breath, and help you work it all out.

 

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

 

Seismic shift: two major banks hike fixed interest rates

 

Do you know how when one tectonic plate shifts, others around it soon follow?

Well, in the past week, the Commonwealth Bank (CBA) and then Westpac hiked the interest rates on their 2-, 3-, 4- and 5-year fixed-rate home loans by 0.1% (for owner-occupiers paying principal and interest).

Meanwhile, ING also lifted its fixed rates on 2- to 5-year terms by 0.05% to 0.2%.

For mortgage-holders, it’s a clear ol’ rumbling sign that the days of super-low fixed interest rates are coming to an end.

 

So why are banks increasing fixed interest rates?

The Reserve Bank of Australia (RBA) has repeatedly insisted the official cash rate isn’t likely to rise until 2024 at the earliest.

But it seems the banks don’t believe them. The banks think it’ll happen sooner.

CBA, for example, is currently predicting the RBA will increase the official cash rate in May 2023, while Westpac is predicting a rate hike in March 2023 – both well before the RBA’s 2024 timeline.

Given that’s about 18 months away, the major banks are now adjusting the fixed rates on fixed terms of 2-years and longer, in order to head off the expected rise in their funding costs.

“Lenders are scrambling to lift fixed rates before they start to feel the margin squeeze,” explains Canstar finance expert Steve Mickenbecker.

“Borrowers shouldn’t be so complacent as they must expect rises inside two years, and the closer they get to that point, the less attractive the fixed rates alternative will be.

“They may want to consider fixing their interest rate for three years or longer, while the going is still good.”

 

Variable interest rates cut

Interestingly, a number of the banks – including CBA and ING – simultaneously slashed interest rates on some of their variable-rate home loans this week.

And CBA even cut their 1-year fixed rate by 0.1% (for owner-occupiers paying principal and interest).

So why did they do this when (longer-term) fixed rates are going up?

Well, aggressively competing for customers on variable-rate mortgages (and 1-year fixed) makes sense for lenders when a cash rate hike is predicted to be at least 18 months away.

They can always increase their variable rates when needed, but they can’t do the same for borrowers locked in on longer-term fixed-rate mortgages.

 

So what’s next?

As mentioned above, when the big banks make a move, it’s not uncommon for other lenders to follow suit – as seen with ING this week.

So if you’ve been on the fence about fixing your rate, it’s definitely worth getting in touch with us sooner rather than later.

We can run you through a number of different options, including fixing your interest rate for two, three, four or five years, or just fixing a part of your mortgage (but not all of it).

If you’d like to know more about this – or any other topics raised in this article – then please get in touch today.

 

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Make the most of increased caps and move into your dream home sooner

With caps increased from July 1, more and more first home buyers are now able to make good use of the Federal Government’s 5 per cent no Lenders Mortgage Insurance (LMI) scheme.

Since 2020, The First Home Loan Deposit Scheme (FHLDS) has helped thousands of budding home owners get into the property market sooner.

This year, the good news is that single parents with dependent children can also look to benefit from higher price caps, which also applies to the government’s new Family Home Guarantee scheme.

Below you can see a summary of how much money you can spend while still remaining eligible to qualify for the FHLDS and Family Home Guarantee Scheme (FHGS).

  • New South Wales: $800,000 (Sydney, Newcastle/Lake Macquarie, Illawarra) and $600,000 (rest of the state).
  • Victoria: $700,000 (Melbourne and Geelong) and $500,000 (rest of the state).
  • Queensland: $600,000 (Brisbane, Gold Coast, Sunshine Coast) and $450,000 (rest of the state).
  • Western Australia: $500,000 (Perth) and $400,000 (rest of the state).
  • South Australia: $500,000 (Adelaide) and $350,000 (rest of the state).
  • Tasmania: $500,000 (Hobart) and $400,000 (rest of the state).
  • ACT: $500,000.
  • Northern Territory: $500,000.

More detail about increased property price caps is available on the NHFIC website.

The First Home Deposit Scheme enables eligible first home buyers to purchase a residence with only a 5 per cent deposit and to avoid forking out for lender’s mortgage insurance (LMI). This can save buyers anywhere up to $35,000, depending on the property price and deposit amount.

Meanwhile, the new Family Home Guarantee Scheme allows eligible single parents to build or purchase a home with a deposit of just 2 per cent without paying LMI, regardless of whether or not this is their first home.

These schemes run alongside the New Home Guarantee Scheme, a new initiative that allows both eligible first home buyers to build or purchase a new build with a 5 per cent deposit. This scheme features even higher property price caps which accounts for the extra costs that come with building a new home.

THE TIME IS NOW:

With only 10,000 spots available under each of these schemes, it’s important to get in quick as previous rounds tell us they are going to go fast. And if you’ve been thinking about looking into your options but keep putting it off, consider this the reminder you need to take action and see how you can take advantage before the opportunity has passed by.

How 1-in-10 first home buyers cracked the market 4 years sooner

We love a feel-good news story around here.

And hearing that so many first home buyers got a leg up into the property market much sooner than they ever dreamed makes us feel pretty warm and fuzzy.

This week the federal government released figures on the popular First Home Loan Deposit Scheme (FHLDS) and New Home Guarantee (NHG) initiatives.

The data showed that the two initiatives supported 1-in-10 first-time homeowners during the 2020-21 financial year.

And on average, the schemes allowed those first home buyers to bring forward their home purchases by four (FHLDS) to 4.5 years (NHG).

 

Hold up, what are these first home buyer schemes?

The FHLDS allows eligible first home buyers with only a 5% deposit (rather than the typical 20% deposit) to purchase a property without forking out for lenders mortgage insurance (LMI).

This is because the federal government guarantees (to a participating lender) up to 15% of the value of the property purchased.

Not paying LMI can save buyers anywhere between $4,000 and $35,000, depending on the property price and deposit amount.

The NHG scheme is very similar but is only for new builds – such as house and land purchases or a land purchase with a contract to build.

Another key difference is that the NHG property price caps are higher (see here) to account for the extra expenses associated with building a new home.

 

So who’s using the schemes?

Mostly younger buyers!

According to the latest stats, 58% of all buyers under the schemes are aged under 30-years-old.

NSW (11,000 residents) and Queensland (9,000 residents) make up nearly two-thirds of the scheme’s recipients.

And it turns out that most first home buyers who secured a spot in one of the schemes used a mortgage broker (56%).

But for the NHG scheme specifically, brokers originated the vast majority of government guarantees (72%).

 

How to secure a spot

We’ve got good news. And a bit of not-so-good news.

The good news is that for the NHG, only 2,443 of the 10,000 spots had been secured as of October 6 – so there’s still the opportunity for eager first home buyers wanting a new build.

The not-so-good news is that spots in the FHLDS are almost full for the latest round released on July 1.

Figures show that 7,784 of the 10,000 spots have already been secured, and word is that participating lenders have waiting lists for many of the remaining spots.

That said, if you’re a single parent there’s a third, similar scheme called the Family Home Guarantee (FHG), which allows eligible single parents with dependants to build or purchase a home with a deposit of just 2% without paying LMI.

Only 1,023 of 10,000 spots have been secured in the FHG, for which you don’t need to be a first home buyer.

Last but not least, it’s worth noting that the FHLDS is an annual scheme with new spots expected to be available from July 2022 – and previously the federal government made a surprise announcement to release 10,000 additional spots in January.

So if any of the above schemes are of interest to you, get in touch with us today and we can run you through everything you need to know about them so that you’re ready to apply when the time comes.

 

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

Four key tips for helping you make the big home loan switch

There’s no better time than now to find a better deal on your home loan and we’ve observed the sharp rise in homeowners seeking to explore refinancing options since the beginning of the global pandemic.

And there’s good reason we’re seeing more and more mortgage holders seeking a better deal. With the total number of home loan customers who switched providers jumping by 27 per cent – from 143,664 in 2019 to 182,016 in 2020.

More than 200,000 Australian families are tipped to make the switch in 2021. But making the switch isn’t foolproof and there are common mistakes people make.

Laura Higgins, Senior Executive Leader Consumer Insights and Communication at ASIC, recently shared some important tips with ABC radio, which we’ve compiled for you below as well as some additional advice for good measure.

  1. GET A BETTER DEAL WITH YOUR CURRENT LENDER

When it comes to the big banks and home loans, it’s often the case that customer loyalty goes largely unrewarded. RBA data tells us that for loans written four years ago, borrowers were charged an average of 40 basis points higher interest than new loans.

So on a loan balance of $250,000, the reality is that it could cost you an additional $1,000 in interest payments each year.

“Many times, new customers are offered a better deal than existing borrowers, so if you have a home loan that is a few years old you could potentially get a better deal that saves you thousands of dollars over time,” Ms Higgins explains.

“Even if you’re happy with your current lender, it’s worth checking you’re not paying for features or add-ons you’re not using.”

  1. LOOK BEFORE YOU LEAP

Cashback offers and super low interest rates are just two ways lenders are enticing new customers to make the switch, which means you need to do your homework first to ensure you’re truly getting the best deal.

Glittery incentives are designed to entice customers to switch mortgages quickly, but Ms Higgins urges borrowers to look closely and weigh up the long-term costs.

“For example, it’s worth doing the maths to ensure a cashback offer still puts you ahead over the long-term when considered against other aspects of the loan, like interest rates and fees. If you decide to switch lenders, you may end up with a longer-term loan,” she said.

It’s vital to check whether you’re up for any other costs such as Lenders Mortgage Insurance (LMI) or discharge and loan arrangement fees, which can sometimes outweigh the benefit of having a lower interest rate.

“A mortgage broker can also help you compare loans and decide whether to switch,” Ms Higgins adds. 

  1. OFFSET BUT DON’T FORGET

If you’ve been lucky enough to put some savings away and are now eyeing off low interest rates, perhaps it’s wise to try and pay off your mortgage sooner rather than later.

And as Ms Higgins notes, “Interest rates may be low now, but probably won’t be this low forever. Making some extra repayments now can benefit customers in the long term.”

But if you’re not quite in that position and are worried about tying up all your funds in your home loan, perhaps consider switching to a mortgage redraw facility or offset account, which can help you to make extra repayments but still withdraw them if you need to.

“Either of these options might work for you depending on your goals,” Ms Higgins adds.

“Not all home loans can be linked to an offset account, and often those that can may have a fee charged or a slightly higher interest rate, so it’s worth making sure you’d be saving enough in there to warrant any extra costs.”

  1. TO FIX OR NOT TO FIX IS NOT THE ONLY QUESTION

One of the most common big questions we field relates to whether you should consider a fixed home loan rate or not, however it’s good to know there is another option available.

The good news is that you can also choose to fix the rate for a part of your mortgage, but not all of it. Doing this allows you to lock in a low rate for a portion of your home loan, while also taking advantage of some wriggle room a variable rate can offer, including being able to make extensive additional payments.

WANT TO FIND OUT MORE?

Now really is the time to get on top of your refinancing options and see how your loans can work for you, instead of you working for them – now and well into the future.  We would love to go over home loan refinancing options with you, whether that be renegotiating with your current lender or exploring your options elsewhere.

Bar raised for borrowers: tougher home loan serviceability tests

The Australian Prudential Regulation Authority (APRA) will increase the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications from 2.5% to 3% from the end of October.

This means that banks will have to test whether new borrowers would still be able to afford their mortgage repayments if home loan interest rates rose to be 3% above their current rate.

APRA estimates the 50 basis points increase in the buffer will reduce maximum borrowing capacity for the typical borrower by around 5%.

“The buffer provides an important contingency for rises in interest rates over the life of the loan, as well as for any unforeseen changes in a borrower’s income or expenses,” APRA Chair Wayne Byres wrote in a letter to the banks.

 

Why is APRA increasing the buffer?

This move doesn’t come out of the blue. Federal treasurer Josh Frydenberg flagged tougher lending standards a week prior following a meeting with the Council of Financial Regulators.

And it’s due to a combination of factors.

Firstly, interest rates are at record-low levels, and secondly, the cost of the typical Australian home has increased more than 18% over the past year – the fastest annual pace of growth since the late 1980s.

That combination has made financial regulators a little worried that some homebuyers are starting to stretch themselves too thin and borrow more debt than they can safely afford.

Mr Byres adds that 22% of loans approved in the June quarter were more than six times the borrowers’ annual income. That’s up from 16% a year prior.

As such, APRA did consider limiting high debt-to-income borrowing but believed it would be more operationally complex to deploy consistently.

“And it may lead to higher interest rates for some borrowers as lenders effectively seek to ration credit to this cohort,” APRA adds, but it doesn’t rule out limiting high debt-to-income borrowing in the future.

 

Which borrowers are most likely to be impacted?

The increase in the interest rate buffer will apply to all new borrowers.

However, the impact is likely to be greater for investors than owner-occupiers, according to APRA.

“This is because, on average, investors tend to borrow at higher levels of leverage and may have other existing debts (to which the buffer would also be applied),” APRA adds.

“On the other hand, first home buyers tend to be under-represented as a share of borrowers borrowing a high multiple of their income as they tend to be more constrained by the size of their deposit.”

 

What could this mean for your home loan borrowing hopes?

If you’re worried about how this latest announcement from APRA could impact your upcoming application for a home loan, then get in touch today.

We can apply APRA’s new loan serviceability tests to your personal circumstances to help you determine your borrowing capacity and focus your house hunting.

 

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

The importance of being ready for interest rate hikes

How well prepared are you for a rise in interest rates? While that may seem like an odd prospect for many of us after 18 consecutive cash rate cuts from the RBA, we always need to be prepared.

And when the big banks start showing signs, it’s time to consider what that might look like for you in a practical, month-to-month sense.

What would an interest rate rise look like for you and how much extra would a new mortgage holder expect to pay each month? 

RATE RISE PREDICTION:

While the RBA’s official position has been that it doesn’t expect to lift the lid on the cash rate until 2024, and this month held the rate at 0.10 per cent, there’s healthy speculation that the next rise in rates could arrive as early as 2022.

Westpac and the Commonwealth Bank have earmarked the period between late 2022 and early 2023 as a likely time when rates may start to spring up, with the official cash rate predicted to hit 1.25 per cent in the third quarter of 2023 and peaking in 2024.

Meanwhile, NAB increased its two, three and four-year fixed rates by up to 0.10 per cent for owner-occupiers paying principal and interest.

Banks have the ability to increase fixed rates as a method of heading off potential RBA rate hikes. In overall terms, this means that the shorter the length of term of the fixed rate that is increased, the sooner a bank is expecting the next increase in rates will be.

Generally, the shorter the term of the fixed-rate that’s increased (ie. if two-year fixed rates are raised), the sooner a bank may predict the next rate hike will be. And with economists at the big banks seeing that future in their crystal balls, how should you be planning to make the most of it and how much extra money should you be factoring into your monthly mortgage repayments if the official cash rate starts to rise?

THE HIP-POCKET IMPACT:

You’d have to cast your mind back to 2019 to find the last time that the RBA cash rate target was at 1.25 per cent. Although it wasn’t that long ago, it seems like a completely different world – before the global COVID pandemic appeared like an unwanted neighbour at a backyard barbeque.

So, just how much extra should the average mortgage holder expect to pay?

Modelling provided by Canstar showed that the average variable mortgage rate would jump from 3.21 to 4.36 per cent, based on the current gap between the two rates.

In plain English terms, this means that if you took out a $500,000 loan tomorrow, and the cash rate hit 1.25 per cent in 2024, the modelling estimates your monthly repayments would increase $300 to $2464 per month. Commonwealth Bank’s modelling covers a similar scenario, with repayments up $324 per month.

That’s despite shrinking your remaining loan balance to $468,770 after three years of repayments, and assuming the banks only add on the cash rate increase – and not any extra. On top of that, there’s also the possibility that even more waves of RBA cash rate increases could soon follow.

So if the average variable loan rate increased to 7.04 per cent in 2031, where it was not that long ago back in 2011, Canstar estimates that same borrower who took out a $500,000 loan would pay $900 more in monthly repayments than they do now, even after a full decade’s worth of repayments.

TAKE OUT THE GUESSWORK:

Every household is different, in unique situations and you can’t take a one-size fits all approach. Let us run you through your options and help you find the right mortgage option for you.

It may be difficult to imagine that interest rates could rise from the relaxed position of the current record low cash rate, however it’s vital to pay close attention. We had 18 cash rate reductions before the RBA increased the cash rate to 4.75 per cent back in November 2010.

It pays to look ahead, if you’re worried about what such a scenario could mean for you and your home budget in the coming years, get in touch with us today and we can run you through a number of options that include (but are not limited to) fixing your interest rate for two, three, four or five years, or just fixing part of your mortgage (but not all of it).

Top 5 property investor trends for 2021-22

The 2021 PIPA Property Investor Sentiment Survey, which gathered insights from 800 property investors across the country in August, found more than 76% of investors believed property prices in their state or territory would increase over the next 12 months.

That’s up strongly from 41% this time last year when COVID-19 had some investors a touch nervous.

“When we think back to last year, which was a time of much fear and uncertainty, it’s clear that property investors and the market, in general, has weathered that turbulent period better than anyone dared to hope,” said PIPA Chairman Peter Koulizos. Here are the top five trends the PIPA survey identified.

 

1. Most investors believe it’s a good time to invest

This year’s survey found that nearly 62% of investors believe that now is a good time to invest in residential property, which is a tad down from 67% in 2020.

PIPA says that the dip in confidence may be due to the high property price growth this year as well as significant lockdowns taking place at the time of the survey.

 

2. The sunshine state looks to be the property hotspot

This year’s survey produced the biggest ever margin when it came to the location investors believe offers the best potential over the next year.

“A staggering 58% believe the sunshine state [Queensland] offers the best property investment prospects over the next year – up from 36% last year,” Mr Koulizos says.

New South Wales came a distant second at 16% (down from 21%), and Victoria was third at 10% (significantly down from 27%).

Brisbane also beat its capital city counterparts, with 54% of investors believing it has the rosiest outlook.

Mr Koulizos says the boost could be to do with Brisbane being named host of the 2032 Olympic Games and significant upcoming infrastructure spending.

“All of these factors, as well as the affordability of property in southeast Queensland and strong interstate migration, are some of the reasons why investors are so optimistic about market conditions there,” he adds.

 

3. Regional and coastal markets continue to grow in demand

While investors still believe metropolitan markets offer the best investment prospects at nearly 50% (down from 61% in 2020), regional and coastal markets are closing the gap.

A quarter of property investors now favour regional markets (up from 22%), while 21% of survey respondents have their eye on coastal areas (up strongly from 12% last year).

 

4. Fewer investors looking to sell

The lingering impacts of the global health emergency – as well as robust price growth over the past year no doubt – mean fewer investors (59%) are looking to sell a property this year compared to last year (71%).

“Part of the reason for the uplift in property prices over the past year has been the continued low levels of supply in most locations around the nation,” Mr Koulizos notes.

“With a decrease in the number of investors indicating they intend to sell over the short-term, it seems unlikely that this boom market cycle is going to change anytime soon.”

 

5. Almost three-quarters of property investors use a mortgage broker

Just 17% of respondents secured their last investment loan directly via a bank, while 4% used a non-bank lender.

The vast majority (72%) of respondents secured their loan through a broker, a slight increase on last year’s figure of 71%.

And 72% of respondents said they’d use a broker to finance their next investment loan.

It just goes to show that it doesn’t matter how far you are on your property journey – whether you’re a first home buyer, refinancer or savvy property investor – we can help you every step of the way.

So if you’re looking to add to your property portfolio, looking for a change of scene, or are keen to crack into the market, get in touch today.

 

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