A free home loan health check could end up saving you tens of thousands of dollars

Why it’s important to do a home loan health check

There are a few things you should do every year – get a wellness check from your GP, get a check-up from your dentist and complete an annual home loan health check.

Of course, most of us don’t think of our home loan in those terms. (Instead, we tend to set and forget!) But a home loan review can help you to ensure that you’re getting the most from your money by helping you work out if the products, features, and interest rate of your current mortgage are meeting your needs and circumstances.

If it’s time to break up with your home loan for health reasons, you’ll be able to make an informed decision about which home loan is better for you.

Why Get a Home Loan Health Check

The short answer is that they can save you money! An annual home loan health check could save you tens of thousands of dollars on the total cost of your mortgage. But they also have a few other advantages too.

Improved Finance Fitness

Another benefit of a home loan health check is that you’re more likely to improve your overall financial fitness by getting on top of other loans and assessing your finances. Your review could lead to a mortgage that better suits your financial situation. This could be one that has more flexible repayment options. Or it could mean splitting your loan between fixed and variable interest, or consolidating other loans into your home loan.

How To Do a Home Loan Health Check

To complete a home loan health check, all you need are a few documents, a bit of time to review of your current mortgage and a little research about alternative home loan options. You can DIY these steps or speak to one of our lending specialists. Either way, you’ll need to consider a similar set of information.

A free home loan health check may help you save by getting a better rate
A free home loan health check can save you thousands by getting a better home loan rate and loan features

1. Know Your Current Mortgage Interest Rate

Knowing your current mortgage interest rate is key, as it will potentially be the biggest deciding factor in whether your home loan is healthy or not. If you’re unhappy with your current rate, or if it’s causing your own health to suffer through stress, it’s time to switch to a loan with a lower interest rate.

If your current home loan repayments are manageable and you feel good about them, you may still benefit from switching to a home loan with a more competitive interest rate.

2. Determine If Your Fixed Term Is Coming to an End

If your home loan has a fixed term interest rate – is the term coming to an end? You would most likely then be automatically rolled over to your loan’s set variable rate – which may be higher than market rate. It’s time to review your home loan health and know what other options you have.

3. Are You Paying ‘Unnecessary’ Fees and Charges?

Home loans come with fees and charges for a range of things. Assess whether you’re paying fees and charges for any services, features or products you’re not using. Or whether you’re just paying more fees than you might with another product. Look for home loans with low or even no fees – you could save hundreds of dollars each year.

Be aware that if you do switch loans, there could be a fee for early discharge of your loan.

4. Know Your Repayment Capacity

Looking at your current income and financial commitments, can you increase your home loan repayments or make additional repayment amounts? Can you link an offset account to your mortgage? Any additional payments you make can pay off your home loan more quickly, potentially saving you thousands in interest.

5. What’s your current equity?

How much equity do you have in your home, and has your home increased in value? You may be able to leverage the equity in your home to finance a renovation – or even purchase an investment property. But if you don’t check, you won’t know!

6. Be Honest With Yourself About Your Circumstances

Any significant change in your personal circumstances can impact your home loan health. Marriage, children, divorce or a change in your employment status can all impact your repayment capacity. They might also drive the need for different features in your home loan.

7. Are You Happy With Your Current Lending Institution?

It’s OK to take a close look at your current lending institution and consider your options. If your home loan health check has made you realise you have no particular relationship with your lender, your loan is missing features that are important to you or you’re unhappy with your interest rate – it could be time to think about refinancing with a different lender.

Speak to an Expert About Your Home Loan Health Check

If you feel like it’s time for a home loan health check, we’re ready to help. Our expert team can talk you through a DIY health check – or do it for you. We’re standing ready to do the legwork needed to review your current mortgage and compare competitive alternatives.

Give us a call today at Lending Loop. We’re happy to help you with your home loan health check!

When is it time to consider should I refinance my loan?

Should I refinance my home loan?

Should I refinance my home loan or not? That is the burning question right now in mortgage holders’ minds.

And it’s hardly surprising when fixed-rate loans have already been on the rise for a year while variable loans are now increasing fast as well, in the wake of the Reserve Bank of Australia’s cash rate hike to 0.85% this month.

Amongst a wealth of top-notch refinancing advice we can offer, here are a few extra points to consider.

1.   Do cashback offers really give you cash back?

Aiming to keep further rate hike fears down, lenders are reaching out to mortgage holders with special offers and deals.

A good example of such deals is cashback offers which essentially give refinancers a quick cash splash, often in the form of a gift card or similar, if they choose to take up a refinanced loan with that lender.

Sounds great, right – but is it?

Tempting as these deals may be, it’s important to look at all the aspects of your potential new lender and loan, particularly what happens if and when their initial deal ends.

And with cashback offers in particular, don’t be surprised if, beyond the initial cash, you find high interest rates and other drawbacks, including agreeing to certain terms and conditions.

On the other hand, if you’re short on cash – and who isn’t, these days, particularly when you’ve just bought a home – cashback offers can be helpful.

Just remember that cashback offers may only be available for a certain period, amount, type of property, or loan-to-value ratio (LVR).

2. Short-term benefits or long-term gains?

Again, we recommend that you don’t get caught up in the rush and panic of rising interest rates combined with the frenzied property market that is just only beginning to ease.

Remember that if you are thinking, should I refinance my home loan, refinancing should help you save and not vice versa.

The actual financial cost of both short and long-term benefits with a refinanced loan should far outweigh that of your current mortgage.

So, apart from special deals, does your refinancing opportunity still feature excellent interest rates with reasonable fees, charges and other benefits?

Would you jump at it if didn’t come with a great offer?

Of course, none of this means you shouldn’t talk to lenders offering cashback offers, frequent flyer points and other benefits.

Be honest with them and tell them what you’d like to see in a refinanced loan from them.

Perhaps tell them that while their short-term benefits are great (it always pays to be polite), you’d prefer they take the cost of these benefits out of your mortgage debt or give it back to you in the form of an interest rate discount.

If nothing else, you’ll get a good idea of how easy it is to work with this lender.

Now is the time to ask, should I refinance my home loan? Especially with the RBA cash rate and interest rate rises.
Should I refinance my home loan? If you want to save money with a better interest rate and repay your home loan sooner this could be the option for you.

3. Should I stick with my current lender?

An excellent question!

You may end up staying with the lender you know and pushing for better benefits from them rather than refinancing.

It’s certainly worthwhile talking with your current lender before refinancing, especially if you’ve had a good relationship with them for awhile.

With rates now changing on almost a daily basis, your lender may have much better opportunities on offer for you and never more so than when you tell them you’re thinking of refinancing.

If not, there are spades of other lenders in the sea to choose from.

4. How do I know if I’ve got a good deal?

Yet another good question and much of the answer depends on your personal and financial situation and your mortgage priorities.

Research, explore and make some calls; ask friends, family members and industry experts for recommendations and advice; and spend plenty of time with your calculator and budget before you make your final decision.

NB: don’t forget you may have to pay exit fees to your current lender and application and valuation fees with your new lender.

But if you’ve got a good deal, these fees should soon be wiped out by all the great savings you’re enjoying.

Refinance My Home Loan. We Can Help.

Of course, if you’re wondering should I refinance my home loan, the best people to contact is our Lending Loop team.

We can help you get the hang of the refinancing game including sorting out figures and leading you through the maze of cashback offers and other tempting deals.

We’ve got more than 40 of Australia’s biggest banks and specialist lenders at our fingertips and best of all, we’re free!

Investors and first-home buyers – we’ve got your financial back too so give us a call today at Lending Loop.

 

Not sure how to build your property portfolio? We offer practical tips and information

How to Build Your Property Portfolio

If you’re keen to get more than just a foot in the property market, investment is key. Read on for our best tips on how to build your property portfolio.

Australians have had a long love affair with property. The drive for home ownership seems to be part of our DNA, and many business-minded Australians are keen to develop their financial wealth by building a property portfolio.

But is it really possible?

Yes, it is. And while it’s quite a straightforward process, it’s not necessarily an easy one. However, with the right understanding and approach, it’s very possible to build a robust property portfolio in Australia.

What is a property portfolio?

First things first: what is a property portfolio? Put very simply, it is a collection of properties owned by either an individual or business. These properties can be residential, commercial, mixed-use or a combination of any of these.

In most situations, you will live in one property and own several more which earn rental monies for you. This could be in the form of long-term rentals, holiday homes or even commercial properties.

When it comes to how to build your property portfolio, don’t forget to think outside the box. Car parks, for example, can be an excellent investment – as are vacant lots.

What are the benefits of a property portfolio?

  • Diversification. Owning multiple properties will help to diversify your investments and spread out your financial risk.
  • Passive income. The passive income gained from renting out a property will of course be amplified with several properties in your portfolio.
  • Capital growth. Regardless of whether your properties are generating a positive cash flow (“positive gearing”) or a negative cash flow (“negative gearing”), the ultimate aim is likely to be building capital growth by generating equity in the properties.
  • Financial security. In general, a property portfolio can be a great long-term strategy for offering financial security in your future, particularly after retirement.
We offer helpful information on how to build your property portfolio.
When you know how to build your property portfolio you can benefit from diversification, passive income, capital growth and financial security.

How to build your property portfolio

Building your property portfolio takes commitment and sometimes sacrifice of the short-term for the long-term goals. But the results can lead to exponential financial growth. When it comes to how to build your property portfolio, here are the steps to take:

1. Assess your current situation

You may wish to conduct a Home Loan Health Check to see if there’s a way you can tweak or switch your current home loan/s to free up additional funds for more property purchases. If you’re just starting out on your portfolio-building journey, make sure you check out our tips on how to buy a second home. The equity available in your current property/ies may just be the stepping stone you need to build your portfolio.

2. Get clear on your financial goals and investment strategy

While ultimately most investors will want a balanced portfolio, figuring out your initial plan is crucial to help guide your purchasing decisions. For example, you may choose to focus on a positively-geared property (or one that generates more income than it costs in loan repayments and fees) that will generate a solid rental income as your first investment. Work out what best suits your individual circumstances, and go from there.

3. Know your risks

Of course any purchase or investment comes with inherent risks, and a property portfolio is no exception. Understand the costs involved, as well as any unexpected challenges such as house maintenance costs and time between tenants. Be sure to consult financial professionals and only purchase property you can reasonably afford.

4. Aim for balance

Creating a balanced portfolio can be a clever way to diversify your property investments. By this, we mean selecting properties that offer high rental yields, as well those that are in a good position to generate great capital growth. Choosing properties in a variety of different locations can also help create balance and reduce your risk.

5. Brainstorm ways to generate even more money

Your investment properties might also present extra potential to make even more money. Consider getting creative by adding a granny flat, converting into a duplex or renovating the property to attract higher rental yields and add equity to the property.

6. Stay involved

Building a property portfolio isn’t necessarily a set-and-forget investment. While an excellent property manager can do most of the heavy lifting for you, it’s important to regularly reassess your own financial situation. As part of that, you’ll also want to consider your loan features to understand if they are still serving you well. And you should frequently review your properties to see if your rental rates should be updated or raised.

7. Speak to an Expert

When it comes to how to build your property portfolio, it pays to speak to the experts. At Lending Loop, our team of experienced professionals can share their knowledge and wisdom to help advise you on your best next steps. Give us a call today at Lending Loop, and let’s see how we can help!

What should you do if your home loan is denied? We share some ways you can boost your chances of being approved.

What should you do if your home loan is denied?

What should you do if your home loan is denied? First, don’t panic. There are many steps you can take to fix the situation. And we’re here to help.

If you’re one of the many Australians who have been knocked back on your home loan application, don’t worry. There’s no reason to give up! At this stage we simply need to drill down into the reasons for the home loan denial and then determine what steps we need to take to fix them.

So what should you do if your home loan is denied?

What Should You Do If Your Home Loan is Denied?

As a first step we need to understand the reason your home loan was denied. In many cases it comes down to the lender’s requirements under responsible lending laws. At the end of the day they are responsible for ensuring that each borrower can meet their payment obligations and aren’t stretching themselves too far. And there are many reasons that could play into that decision.

However, for each of these reasons, there are things that you can do to mitigate their impact over time. So, here are the reasons why your loan might be rejected, and what you can do about it.

Reason 1: Repayment Risk

As a first step, lenders need to feel confident that you will be able to comfortably service the loan before approving your application. To get that comfort they’ll look at your income, your savings, your debts and obligations and your spending habits to see whether or not they believe you will be able to make your required repayments. If those numbers don’t add up in a way that the lender likes, they won’t approve the loan.

Tactic for Mitigating Repayment Risk

If your loan has been denied due to repayment risk, the main tactic here is just to take your time, reduce your debt and ramp up your savings. You might also consider a debt consolidation loan, if you have excess debts.

Reason 2: Low Deposit

When you have a low deposit amount (under 20%) – even if you’re planning on purchasing Lender’s Mortgage Insurance – lenders may see you as a high-risk borrower. Having a larger deposit gives lenders more assurance.

Tactic for Mitigating Low Deposit Risk

Consider how you can save more money towards your deposit. Can you give up extra spending and put it towards your deposit? Be sure to check if you’re eligible for any government schemes, such as first home buyer grants as well.

What should you do if your home loan is denied? We share some tips to help you get it approved next time.
What should you do if your home loan is denied? Can you give up extra spending like buying coffee and put it towards your deposit?

Reason 3: Low Credit Score

Each lender in Australia will assign you a credit score, and if this is low, they will be unlikely to approve your loan application. A low credit score might come from defaulting on repayments or having overdue repayments in your credit history.

Tactic for Mitigating a Low Credit Score

The first thing you should do is check with another lender. Unlike the US system, in Australia, every lender creates their own credit score for you. That means that you may have a better score, and a better chance at obtaining your home loan, with a different lender.

To improve your credit score, first obtain a copy and check it for any inaccuracies. Then you can take the following steps:

  • Make sure to be vigilant about making all your repayments strictly on time.
  • Stay in the same job.
  • Avoid making any loan applications for six months or so.

Reason 4: Risky Purchase

Some lenders don’t like financing the purchase of certain types of properties which have resale risk. For example, studio apartments, properties in a flood zone or even rural properties, all may fall into this category.

Tactic for Mitigating Your Risky Purchase

If you are truly committed to buying a property deemed ‘risky’ you should spend time making sure that the rest of your application is strong. Make sure you have a good credit score and a large enough deposit. Lenders may then see you as a good option despite the risk of the property itself.

Reason 5: Incomplete or Inaccurate Application

If your application or supporting documents are incomplete or inaccurate it will be tough for a lender to approve your loan.

Tactic for Mitigating Your Incomplete or Inaccurate Application

In this case you just need to ensure that your application is strictly correct and accurate. Read each line carefully and don’t just throw out numbers that you ‘think’ might be correct. Check and double check everything – your lender certainly will.

Reason 6: Maternity or Paternity Leave or Changing Jobs

If you are about to go on maternity or paternity leave, or are in the midst of changing jobs, lenders may knock back your application. They see you as higher risk because your income status is potentially in flux. Because of that they can’t ensure that you will be in a strong position to make your repayments.

Tactic for Mitigating Your Maternity, Paternity or Job Change Risk

There are many things you can do to prove to a lender that you are still in a strong position to make repayments despite your potential change in situation. Having good savings is an excellent step, as is having a good credit score and a robust career history. If you’re changing jobs, a recommendation from your new employer may help as well.

Reason 7: Retirement Looming

If you are close to retirement age, some lenders may deny your loan application simply because it extends too far into your retirement. The concern is that a retirement-age borrower won’t have enough time in the workforce to pay back the loan before their income begins to diminish.

Tactics for Mitigating Your Retirement Risk

Seek out a lender that understands and accepts mature age borrowers. Then put together an exit strategy – that is a strategy that demonstrates how you will have the loan paid off prior to your retirement.

Speak to an expert

What should you do when your  home loan is denied? Our first and best step is to talk to an expert. Our Lending Loop team can advise you on the right lender for your situation, and help you to get home loan ready so that next time you can get the funding you need.

Give us a call today at Lending Loop, and let’s see how we can help!

Tap into home equity for renovations

Access The Equity In Your Home For Renovating

If you’re like many Australians, you might be considering a home renovation. In the last year, Australians spent $1 billion dollars on renovations to their homes. Even pre-Covid, the average monthly amount spent on home renovations in Queensland alone was $255 million.

Renovating is a fantastic option. It lets your home grow and change as your lifestyle and family does. Maybe you’ve had another child, and want to build another storey to accommodate extra bedrooms and a second living space. Or maybe – like many of us – you’re primarily working from home now, and you need an office to suit your new situation.

Whatever the reason, when you’re ready to renovate, you’ll need the funds to do that.  Access the equity in your home. It’s  a smart way to get those funds.

What is Home Equity

But what is home equity? Home equity is just the difference between your property’s market value and the balance of your mortgage. So, if your home is mortgage-free then it’s the full value of the property. But even if you’ve only owned your home for a few years, you’ll likely have built up a good amount of equity in the home. And this can be accessed for your own needs – such as renovating.

Read more: Equity home loans and how they can help you

Access your home's equity to refinance
Accessing the equity in your home can help you get those renovations done.

How to Calculate the Equity in Your Home

Before you can determine whether you should access the equity in your home, you need to figure out how much you have available for use. And that means first calculating the equity in your home.

Your Home Loan Equity Calculation

  1. First check your records to confirm how much of a mortgage there is on your property.
  2. Next, find the estimated market value of your home. The best way to do this is by getting a real estate agent valuation. The agent will use the particulars of your home and comparable sales in the area to find an appropriate estimated value.
  3. Finally, subtract your mortgage from the estimated value of the home to get the estimated equity in your home.

Example: Your mortgage is $500,000. A real estate valuation shows the value at $900,000. You have $200,000 of estimated equity in your home.

A Note About Accessible Equity

Just because you have $200,000 worth of equity in your home, doesn’t mean that it will all be accessible for renovations. Your ability to service the additional amounts – how much additional repayments you can manage based on your income and expenses – will be taken into consideration as well. Our experts can help you determine how much this will be for you in your specific circumstances.

How to Access the Equity in Your Home

Once you’ve determined how much you have available in terms of home equity, you’ll want to know how to access that equity for your renovation.

Step 1: Work Out a Dollar Amount

Work out the amount of money you need for your renovation project. If you want to use your equity to fund it, ensure that it falls within your accessible equity.

Step 2: Review Your Loan Options

Now is the time to start researching your home loan options. Our Lending Loop experts have access to a vast array of lenders, both bank and non-bank options, with hundreds of different loan products. We can ensure you know what all your options are and help you determine the best one for you.

Step 3: Work Out Costs and Fees

There will be costs and fees associated with each loan product. For example, if you switch from one lender to another, you may need to pay a break fee. And if you access more than 80% of your home loans equity, you may need to pay Lender’s Mortgage Insurance. We can help you find the most cost-effective options for your specific situation.

Step 4: Complete a Loan Application

Once you’ve determined the lender and the loan product you want, as well as the amount of equity you want to access, you will need to complete a loan application. Your Lending Loop broker can help you do that quickly and easily. And it won’t be long until you’re on your way to your ‘new home’.

Speak to an expert

Once you understand how to access the equity in your home, and you’re ready to do so, we’re ready to help. Our expert team can talk to you about how to get refinancing ready, and do the legwork involved in comparing home loans and any relevant fees.

Give us a call today at Lending Loop, and let’s see how we can help!

What are pre-approvals

A Guide To Home Loan Pre-Approvals

It’s a sunny world for you and your finances because after years of dithering, you’re going to buy your own home.

Firstly, congratulations and cheers to you!

Secondly, here’s a good place to start your new journey: pre-approvals.

Read on for our guide to home loan pre-approvals

What are home loan pre-approvals?

Pre-approvals are one of the most important points to consider when applying for a loan as they outline exactly how much a lender is prepared to give you to buy your dream home.

While it’s not a 100% guarantee that your actual mortgage application will be approved, pre-approvals are great indicators of how much you can borrow as compared to what you believe can.

And as they give you a much better idea of how much you can really, truly afford, pre-approvals mean you won’t waste time considering houses far above your financial reach.

In turn, you’ll be more confident when approaching affordable houses and their real estate agents and real estate agents themselves will be far more confident and respectful of you.

What are home loan pre-approvals?
Pre-approvals one of the most important points to consider when applying for a home loan as they outline exactly how much a lender is prepared to give you to buy your home.

Risk of applying for multiple pre-approvals

We considered whether to leave this point until later but we’d prefer to start with it as buyers often don’t know about it, which can have major negative consequences for you.

While we are a great fan of pre-approvals and getting one ASAP, we also want you to know that it’s crucial to get only one – not a stack.

You may think having a stack of pre-approvals from multiple lenders makes you look great to real estate agents but in fact, it’s actually the opposite.

Why?

Every time you apply for a pre-approval, a lender will check your credit score and file, as this will help them discover how financially risky you are.

The multiple “hard enquiries” of a credit score pre-approval check – especially if they’re done in quick succession – can indicate that you’re in financial dire straits and as such, are shopping around aiming to find a lender who can help you.

This can in turn quickly lower your score and make you look far riskier than you actually are.

And did we mention that hard enquiries can stay on your credit file for up to five years?

Trust us when we tell you that you want your credit score to be as un-risky as possible so bottom line: one is best when it comes to pre-approval applications.

How do I apply for a home loan pre-approval?

Firstly, shop around and don’t apply for a pre-approval until you’re 200% sure that your preferred mortgage broker or lender is A-OK for you and your real estate needs.

If you’re still only vaguely hoping to buy a property one day, hold off on pre-approvals for now and stick with online mortgage calculators and similar.

Remember too, that pre-approvals are only valid for around three to six months, although you can sometimes extend them (more about this point later).

Once you’re confident you’ve found your ideal lender opportunity, here’s what you’ll need to give them for your pre-approval application:

  1. Financial details

    Proof of income including recent payslips
    Loan statements (credit cards and other loans)
    Bank statements
    Australian Tax Office notice of assessments
    Liabilities, expenses, assets

  2. Personal identification

    Passport, driver’s licence or birth certificate

    Home loan pre-approval points to consider

    Again, we don’t wish to burst your bubble but there are some other points to think about even after you’ve applied for a pre-approval.

    What if my home loan pre-approval is rejected?

Sadly, this can happen but it doesn’t mean your real estate life is a complete disaster plus you’ll definitely know better if and when you try for a pre-approval again.

It may just be a matter of waiting a little longer so that you can save some more cash for your deposit or pump up your credit history.

Or you or your lender may be going through some big changes.

Whatever the rejection reason is, take heart!

No, it won’t look great on your credit score to have another pre-approval application but worse things have happened.

We recommend that before handing in your application, you talk to several people in your situation who’ve had experience with such details and ensure you’ve done everything right.

Can I extend my home loan pre-approval?

Yes!

As we mentioned above, pre-approvals usually only “last” for up to six months so you may well find you need an approval extension.

And even better: you won’t have to hand in all your financial and ID details this time as you’ve already recently done so (although the lender may need a few extra recent details).

But make sure you talk to your mortgage broker or lender about an extension before your current extension expires – otherwise, you will have to start all over again.

We’re here to help

From mortgage brokers to mortgage calculators, your friendly Lending Loop team can help you get the hang of pre-approvals and every other detail surrounding home buying – including refinancing or investing.

We’ve got more than 40 of Australia’s biggest banks and specialist lenders at our fingertips and best of all, we’re free!

So give us a call today at Lending Loop.

Lending Loop looks at what raising the RBA cash rate by 50 basis points means

RBA cash rate soars to hefty 0.85%

The Reserve Bank of Australia (RBA) cash rate soars to a hefty 0.85%, accelerating it by 50 basis points (bps).

It’s the first time in 22 years that the RBA’s monthly cash rate has increased by more than 0.25% and follows the first increase in 18 months to 0.35% in May.

Last month’s decision was also the first interest rate hike in a decade.

As with the RBA’s May decision, today’s announcement was unsurprising but still a much higher than expected hike.

Economic experts’ opinions were mixed on how far the RBA would continue to increase cash rates this month, but general predictions were for an 0.25-0.4 percentage point hike.

Coupled with dramatic recent increases in petrol and energy prices, today’s decision is expected to make the already tough cost of living become even tougher.

Jumbo interest rate spike will be worth it

In today’s cash rate announcement, RBA governor, Dr Philip Lowe, didn’t shy away from the fact that inflation has increased significantly and is expected to increase further.

However, he maintained that today’s jumbo cash rate hike was necessary given current inflation pressures in the economy and the still very low level of interest rates.

He pointed to both global and domestic factors  as the RBA cash rate soars to 0.85%, including a tight labour market and higher energy and petrol prices.

Dr Lowe also acknowledged the pressure that greater inflation and interest rates would place on household living costs, with just how household spending would evolve being a “source of uncertainty about the economic outlook.”

But he was confident this pressure would be worth it in the long term with a “central scenario” for strong household consumption growth this year while he expected inflation to drop to around 2%-3% next year as global supply issues and commodity prices stabilised.

“Today’s increase in interest rates will assist with the return of inflation to target over time,” Dr Lowe explained.

“Housing prices have declined in some markets over recent months but remain more than 25 per cent higher than prior to the pandemic, supporting household wealth and spending.

“The household saving rate also remains higher than it was before the pandemic and many households have built up large financial buffers.”

Dr Lowe maintained his confidence in Australia’s resilient economy, which he said had grown by 0.8 per cent in the March quarter and 3.3 per cent over the year.

“Household and business balance sheets are generally in good shape, an upswing in business investment is underway and there is a large pipeline of construction work to be completed,” he said.

“The labour market is strong, employment has grown significantly and the unemployment rate is 3.9 per cent, which is the lowest rate in almost 50 years.”

Cash rate heavy lifting = tough double whammy

CoreLogic research director, Tim Lawless, concurred that the RBA would continue to increase interest rates throughout 2022 and into 2023 as underlying inflation moved sharply upwards to 3.5% over the year.

This hike would mean tough times for both prospective borrowers and mortgage holders, Mr Lawless said.

The former group will see their borrowing capacity lowered and their household savings and balance sheets tightening sharply, resulting in a negative effect on serviceability assessments.

Mortgage holders in the meantime should expect variable mortgage rates to increase over the coming week to around 3.16%.

“This will add approximately $200 per month in additional repayments on a $500,000 mortgage, compared with mortgage rates in April,” Mr Lawless explained.

Mr Lawless added that for already indebted or struggling households, today’s jumbo cash rate hike would add to financial woes.

“The additional cost of debt comes as non-discretionary inflation rises at more than twice the pace of prices for discretionary goods,” he said.

“Higher costs for food, fuel and finance are likely to see household savings continue to taper as families funnel more of their income towards servicing their mortgage and funding essential costs of living.”

However, there was some good – or not so bad – news from today’s RBA announcement.

Mr Lawless said the new 0.85% figure is only somewhat to blame for the softening property market.

“Home values were already easing well ahead of the rising cash rate,” he said.

“A combination of higher fixed mortgage rates, lower consumer sentiment, tighter credit conditions and worsening affordability have all played a role in the slowdown to date.”

Mr Lawless also maintained his opinion that the effect of rising rates on the property market would depend on how fast and how high interest rates move and normalise, along with the performance of the broader Australian economy and labour market.

“A stronger economy, along with the tightest labour market conditions in a generation, should help to ensure the ensuing housing downturn remains orderly,” he said.

We’re here to help

Regardless of if the RBA cash rate soars, we encourage you to contact your lender soon to check where your interest rates will trend from here, particularly if you have a variable rate home loan.

Whether you’re a first-home buyer or property investor, you may also want to consider refinancing your loan to achieve the best possible deal.

Rest assured, we’re your biggest supporter and we can find you the best possible deals from more than 40 of Australia’s biggest banks and specialist lenders.

So give us a call today at Lending Loop.

The RBA’s next monthly cash rate announcement will be on Tuesday, July 5 at 2.30pm AEDT.

 

How can I pay off my home loan faster?

How to Pay Off Your Home Loan Faster

As of December 2021, Australian owner-occupiers’ debt in Australia has grown to a whopping $1.3 trillion. And if you’ve got a home loan, you’re carrying some of that burden yourself. But there are some ingenious methods for you to tap into to help you pay off your home loan faster and shift that financial load off your shoulders.

So, whether you are a first homeowner, would like to increase your property equity or simply become mortgage-free as quickly as possible, we have a few tips to share on how to pay off your home loan faster.

How to Pay Off Your Home Loan Faster

Increase Your Repayment Amount or Frequency To Pay Off Your Home Loan Faster

A sure-fire way to pay off your home loan faster is to increase your repayment amount or its frequency. Making increased or additional repayments can not only reduce the life of your home loan, but can also give you a buffer against any interest rate rises in the meantime.

Increase your repayment amount to pay off your home loan faster

There are a few ways you can increase the amount of your regular repayments:

  • Round up. Rounding up to the nearest $10 or $100, depending on what your budget allows. For example, if you pay $820 each fortnight and can increase this to $900, you will add over $2,000 to your home loan repayments in a year.
  • Watch your interest rates. If interest rates drop, or you switch to a home loan with a lower interest rate, keep making repayments as though the rate was still higher.
  • Focus on savings. Look at ways you can make incremental, regular savings in your daily spending habits. Calculate the overall amount and arrange to have that amount automatically paid into your home loan account. For example, cutting out one takeaway coffee each working day could add $1,000 to your home loan repayments in a year.
  • Make annual increases. Much like getting into a cold lake one foot at a time, increasing your repayment amount each year takes the edge off while still allowing you to shave years off your home loan. Consider paying 2% more each year, which will only raise your weekly loan repayment by a nominal amount, but could have a good impact. For example, if your weekly loan repayment is $700, an additional 2% is only $14. But paying $14 more each week will add up to a $728 over the year.

Increase your repayment frequency to pay off your home loan faster

If you can increase the frequency of your mortgage repayments, you can make significant inroads into your home loan balance. For example, if you are currently making monthly repayments, see if you can switch to fortnightly repayments.

Use the 13-month repayment strategy to pay off your home loan faster

Another trick when asking how to pay off home loan faster is to use a simple math adjustment and aim for a 13-month year repayment cycle. With this strategy, rather than paying your home loan once a month, you’ll pay it every week. Simply divide your full monthly payment amount by four, and then pay this amount each week during the year. At the end of the year you will have paid 13 monthly repayments in the 12-month period, which can potentially have you paying off your home loan over three years early.

Pay off your home loan faster
A sure-fire way to pay off your home loan faster is to increase your repayment amount or its frequency

Make additional lump-sum payments to pay off your home loan faster

If you come into any additional income – a bonus at work, tax refund or a monetary birthday gift, for example – consider making an additional lump-sum payment to your home loan. Any additional payments you make will reduce the amount of interest you are paying and shorten the life of your loan.

Be sure to check with your lending institution as to whether there is a fee involved in making additional repayments.

Offset account

An offset account is an account linked to your home loan. It operates like a savings or transaction account, offsetting its balance against the balance of your home loan. You will be charged interest, calculated daily, on the difference between the two.

If you deposit your regular and any additional income into an offset account, it can help to pay off your home loan more quickly and save you money over the life of the loan.

Be aware that offset accounts traditionally come with higher costs, so talk it through with your lending institution.

Refinance for a lower interest rate

Refinancing your existing home loan for one with a lower interest rate is another way for you to pay off your home loan faster. We’ve shared our top tips for refinancing, as it’s important that you are comparing interest rates on loans with similar terms and features.

Avoid interest-only loans

Interest-only loans can offer benefits for those that are struggling to come up with cashflow in the early days of their mortgage. But when you are trying to figure out how to pay off your home loan faster, it’s best to avoid them. You will successfully pay off your home loan faster if you are paying both the principal (the amount borrowed) and the interest.

The attraction of an interest-only loan for many is that the initial repayment amounts are smaller. Avoid the temptation though, as the interest-only period is usually only for the first five years. During that time, your repayments are only for the interest on the amount you borrowed, and you are not paying down this principal at all, so your debt remains.

At the end of the interest-free period, your loan will switch to principal-and-interest, at which time your repayment will be towards the amount borrowed and interest on that amount (which means higher repayments).

Speak to an Expert

Our single best advice when working out how to pay off your home loan faster, is to speak to an expert. At Lending Loop, our experts understand that every additional repayment amount can combine to make a huge difference to the life of your home loan.

Give us a call today at Lending Loop, and let’s see how we can help!

All you need to know about guarantor home loans

Guarantor home loans: you’ve got a friend in me

We’ve all read or heard the news that man, is it hard to save even a 5% deposit for your first home!

Political parties are reaching out to assist first-home buyers, including not making them pay Lender’s Mortgage Insurance (LMI) – that less than 20% deposit necessity.

But now that the Reserve Bank of Australia (RBA) is pushing up the cash rate, finding your dream house at a perfect price has become more challenging.

Here’s where guarantor home loans may help you (and btw: these loans aren’t just for first-home buyers either but can be utilised by refinancers, investors and those considering house construction).

Read on to find out more.

What are guarantor home loans and how do they work?

As the name suggests, guarantor home loans are all about giving a lender a firm guarantee that you are a worthy loan-er.

How?

Your guarantor is a close family member such as a parent or sibling (although some lenders will allow for a friend or colleague) and their house.

Or, more specifically, the lender’s guarantee is a parent or sibling’s equity in their home.

This equity is the security a lender will usually ask from you – the borrower – and as it must cover 20% or more of your new house,  you don’t need to pay LMI.

As a result, this means you don’t need a deposit to buy a home.

Not bad, right?

How do I begin a guarantor home loan?

Firstly, consider who best can be your guarantor – and by this, we mean a family member who has the financial means and business savvy to be your monetary back-up in the long-term.

You may not be super BFF close to your guarantor but in the end, this may work in both people’s favour.

After all, a guarantor home loan is a binding business contract and transaction before anything else – and you know what they say about mixing business with pleasure!

Secondly, sit down with your preferred guarantor and discuss your situation with them.

Don’t be surprised if they immediately say no or express concern and uncertainty – and if they do,  don’t push them to say yes.

Remember your guarantor is putting everything they own – virtually literally – on the line just for you, and for at least the two-three years of the loan’s length, if not more.

Lots of things can go pear-shaped during this time.

So, give them as much information about yourself, your finances, and guarantor loans in general, as you can, plus details on who they can go to for expert legal advice.

What do my guarantor and I need to obtain a loan?

Once your guarantor has given you the green light, the fun really begins.

For starters, you’ll both want to bear in mind that these loans look risky to lenders.

As a result, they’ll come down harder on both of you – and be less inclined to say yes – than if you were merely applying for your average first home loan.

Guarantors, you’ll need to show proof of the following:

  • Very good property equity and assets
  • Ability to repay the borrower’s loan if need be

Borrowers,  here’s what you’ll need to show lenders:

  • Stable employment and income
  • Excellent credit rating and history
  • Ability to pay your entire loan on current income
We break down guarantor home loans
Your guarantor will need to show assets and you will need to provide proof of stable employment

Benefits and disadvantages of guarantor home loans

We don’t wish to burst your guarantor loan bubble, especially if you’ve made it this far, but a loan like this comes with a lot of risks – and benefits too.

Stay with us while we look at them.

Guarantor home loan considerations

  • You’re responsible for your own home’s financial needs as well as that of your guarantee’s
  • As such, you may be required to repay your guarantee’s entire loan including all fees and charges,  and you stand the risk of losing your own property
  • Until the loan is fully paid, you may not be able to borrow against your assets (depending on your lender)
  • As well, you may be unable to get a new home loan
  • Your friendship with your guarantee can be damaged or affected, especially if details go pear-shaped (ie they’re unable to repay the loan long-term)

Guarantee considerations

  • Bottom line: you can buy a home sooner
  • You won’t have to pay LMI
  • There’s added financial security from your guarantor, which could help you secure extra funds for your new home

How long does a guarantor stay on a mortgage?

Your guarantor is legally part of your real estate plans until you’ve repaid your loan or until your property has increased in value to the stage that the Loan to Value Ratio (LVR)  is at least 80%.

Think of it like this: the quicker you pay off your loan, the quicker you can be full-on friends with your guarantor, rather than meeting and talking with them solely about your home loan.

We recommend though that you continue to buy them coffees, to say nothing of wine and dinners, for a very long time to come!

And finally….

As a guarantee/borrower, it’s your responsibility to always make loan repayments on time and have the entire loan paid off ASAP.

On this note: aim to keep the relationship and business transactions between yourself and your guarantor cool, calm and collected.

Don’t allow friendship and loans to interfere with one another if at all possible.

If financial details start to look pear-shaped in any way – such as the chance of losing your job – head straight to your guarantor’s front door and discuss the situation with them.

Ideally, have plans set up for just such a situation before signing off on your guarantor loan.

We’re here to help

Even if you’re BFF with your guarantor, it’s often best to talk to someone objective about your home loan.

This is where your friendly Lending Loop team can help because guess what?

You can vent, worry and cry with us, and all for free!

Not much in the world of home buying and selling is easy, but this is – and so is the help and advice we can give you from more than 40 of Australia’s biggest banks and specialist lenders.

So give us a call to discuss today at Lending Loop.

We’ve always got your property back.

Home loan jargon explained

Home Loan Jargon Explained

Whether you’re new to the home loan scene or a seasoned mortgagor, home loan jargon can be a little bit confronting. But understanding the basic jargon isn’t that difficult, and can help you to feel (and be) confident that you know what’s being said and, most importantly, what it means for you!

We’ve created a home loan jargon guide to walk you through the most used home loan terms and their meanings. To keep it simple, we’ve broken them down (alphabetically) into time periods:

1. Pre-Loan Approval

2. Loan Approval

3. Post Loan Approval

Home Loan Jargon Guide

Pre-Loan Approval

Before you’re approved for your loan it’s important to understand what all this jargon means. You might be new to the lending game, and you’ll need to understand exactly what your potential lending institution means when it uses certain terms.

Application fee

This is the one-off fee charged by some lending institutions to cover the costs of setting up your home loan.

Borrowing capacity

Your borrowing capacity is how much a lending institution is prepared to lend to you, based on a range of financial factors, such as your income, living expenses and credit record. These factors support your capacity to repay the home loan.

Cash rate

The cash rate is the interest rate on unsecured overnight loans between banks. It is set by the Reserve Bank of Australia. The cash rate recently increased for the first time in over a decade.

Conditional pre-approval

Conditional pre-approval is when a lending institution agrees to lend you a specified amount of money to purchase a property. There is not yet a formal, legally binding approval for a home loan, but it helps you to refine your property search to be within your price range.

Home loan jargon explained
Conditional pre-approval helps refine your property search to be within your price range.

Establishment free

This is another name for an application fee, which is defined above.

Fixed interest rate

A fixed interest rate home loan is where the interest rate will not change for the period specified in the home loan, usually between one and five years. The fixed rate will generally revert to a variable rate loan (defined below) at the end of the set period of time.

Interest

The interest is the rate that is charged to you daily by your lending institution. Your interest rate can be fixed or variable.

Lending institution

In terms of home loan jargon, a lending institution is a financial institution able to lend you money to purchase a property and receive repayments for the loan. These include banks, building societies and credit unions.

Principal

The principal is the amount you borrow under your home loan excluding any fees, charges or interest payments, for example $500, 000.

Repayment

Your minimum repayment, mortgage repayment or home loan repayment usually mean the same thing. It’s the agreed amount, set by the lending institution, that you are required to pay each week, fortnight or month.

Security

In a mortgage jargon context, security is the asset that secures your home loan. The security is therefore the property that you will purchase with your home loan funds. If you default on your mortgage repayments, the lending institution has a legal right to sell the asset that secures the loan (your home) and recover their money.

Settlement

Settlement is when the lending institution formally advances  money owed under the contract of sale to the seller. The seller then provides the certificate of title to the lending institution. This  is updated to include you as the new homeowner (mortgagor) and lending institution (mortgagee).

The average settlement period is four to six weeks.

Home loan jargon explained
Settlement is when the certificate of title is updated to include you as the new homeowner.

Variable interest rate

A variable interest rate is subject to change (variation) over time. Lending institutions may raise or lower their home loan interest rates in response to changes to the cash rate or due to the cost of doing business. With a variable interest rate, if rates go down, you will experience lower home loan repayments. If rates increase, it’s likely your repayments will also.

Loan Approval

Your offer to purchase a property has been accepted, and settlement has occurred. Here are another few mortgage jargon terms you may come across.

Certificate of title

A certificate of title is the formal record of a property, like a birth or marriage certificate. It details the property’s identity, such as its ‘lot’ and ‘plan’ number. It also indicates whether the property is security for a home loan. Your lending institution holds the certificate of title to your home as security for the loan.

Default

In home loan jargon, a default is when a repayment is missed for whatever reason. And you must not ignore a default. The mortgage may have penalty fees for defaults, and these can be recorded on your credit record.

Equity

Equity is the dollar amount of ownership you have in a property minus amounts owed to the lender. For example, if your home is worth $800,000 and the balance of your home loan is $500,000, your equity in your property is $300,000.

Mortgage

Lenders use the legal term mortgage to describe a home (or other property) loan. Under the terms of a mortgage, the property is used as security for the amount borrowed. This is what gives the mortgagee (the lending institution) the right to sell the property.

Mortgagee

The mortgagee is the lending institution providing you with a home loan. They ‘hold the mortgage’ over your home and will have the right to recoup their investment should you default on your home loan repayments.

Mortgagor

The mortgagor is someone who takes out a home loan (you).

Post Loan Approval

Discharge

This is the golden moment all homeowners live to see. Discharging your mortgage means you have made your final home loan repayment and you own your home debt-free. A discharge can also occur if you sell your home or refinance your existing loan.

Redraw facility

A redraw facility is a mortgage feature of some loans. Under it,  if you have made additional home loan repayments, you can access those funds down the track. Redraw facilities are more common in variable interest rate loans, rather than in fixed rate loans.

Refinance

A refinance occurs when your change from one lending institution to another, or from one product to another, after your mortgage is in place. The terms of a new loan might be more financially attractive than your existing mortgage. Or it may have a better interest rate or more flexible features.

Speak to an Expert

We created our home loan jargon guide to give you a head start in understanding your home loan. Whether you’re a first home buyer, refinancing or investing, our expert team can talk you through all these mortgage jargon terms and much more.

Give us a call today at Lending Loop, and let’s see how we can help!