A good credit score can help you in your home loan journey

Why is it important to have a good credit score?

A good credit score equals a higher chance of getting a home loan.

While you can arrange a mortgage with a low credit score, you’d be making an already stressful financial period even harder for yourself.

So, let’s jump into the exciting fray of credit scores.

What is a good credit score?

A good credit score is a high score which basically means you’ve always paid your debts – including utility bills, personal loans and credit cards – on time, every time.

As such, you’re a low financial risk to lenders and they will see you as financially reliable and trustworthy with a big mortgage.

What are the benefits of a good credit score?

Lenders will love you so you’re more likely to enjoy – or at least, have a better chance of – the following:

  1. Faster mortgage approval
  2. Potentially lower interest rates
  3. Better loan terms and conditions
  4. More negotiating power
A good credit score helps you in your home loan journey
A good credit score equals a higher chance of getting a home loan. This can help with faster mortgage approval and lower interest rates.

How is a credit score calculated?

  • Repayment history including all loans and credit cards
  • Your ability to pay bills on time
  • Your credit card limit
  • How much you’ve borrowed in the past
  • Your credit applications – including those for raising your credit card limit and applying for mortgages
  • Bankruptcies and court judgments

You want the most accurate score possible so provide as much information as possible when checking your credit score (more on that later), even if it means providing unpleasant information such as that bill you paid late five years ago.

This information will most likely come to the fore at some stage of the mortgage game so it’s best to provide it now, rather than appear as if you’re trying to hide it.

What credit score should I be aiming for?

As we’ve noted, the higher your credit score, the better – but don’t expect much higher than 1,000 or at best 1,200 as that’s the highest you can go (depending on the credit agency or reporting body).

It’s pretty rare to score 100% but don’t be downcast if you receive around 850 as that’s generally considered to be an excellent figure while around 600 is also great and 500 ain’t too bad either.

How do I check my credit score?

Firstly, there are only three credit score companies in Australia:  Experian, Equifax, and Illion (formerly Dun and Bradstreet).

However, there are multiple online websites that can assist to find your score through these companies, and many of them are free to use.

Does checking my score affect my credit file or mortgage?

No, it won’t.

But other similar actions might, particularly multiple credit card or loan applications and especially if these are done in a short period of time.

Multiple pre-approvals also don’t look good on your credit file.

Lenders see such applications as risky financial behaviour ie you’re desperate for credit at short notice.

Raising your credit card limit is also frowned upon by lenders.

How can I improve my credit score?

Firstly, don’t despair if your credit score isn’t brilliant because everything’s definitely not lost.

There are some quick and easy ways to improve your credit score, or at the very least, have lenders like you more than they did before.

  1. Start early and stay ahead: if you’re planning to buy a house in the near future, start working on your credit health now.
  2. Ensure you’re keeping on top of your bills and if you have other personal loans, pay them off – or make extra payments – ASAP.
  3. While you’re organising your budget, think about setting up automatic account transfers towards both bill payments and your savings.
  4. Decrease your credit card limit to as low as it can go because regardless of whether you’ve ever reached your limit, your lender will always assume your limit is a potential debt. And if they’re already wary of your financial reliability, they won’t like a high credit limit.
    Ideally, cut up your card altogether.
    (NB: You may want to look at credit cards with fewer fees and lower rates but don’t be tempted into applying for several other cards at once.)
  5. Look at your income and savings again and do all you can to improve these points in some way, shape or form, even if it’s just going without a regular night out for awhile.

After you’ve ticked all these points, remember to stick with your healthy repayments and savings long-term so that when you check your credit score next, you’ll have no fears.

If you’ve never practised healthy finances before, this can be tricky but better to do it now than when you’ve got a large mortgage loan to repay over the next 25 years.

Even if you’re not thinking of buying a home, it can be a good idea to check your credit score every year just to see where and how you can improve your credit health.

We’re here to help

Whether it’s organising a better budget, or holding your hand while with the other, you cut up your credit card, your friendly Lending Loop team can help you.

We’ve got more than 40 of Australia’s biggest banks and specialist lenders at our fingertips and repayment and borrowing calculators, refinancing and property investing are our bread and butter too.

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.

 

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!

 

are-you-overpaying-on-your-home-loan

Are You Overpaying On Your Home Loan?

In February 2022, the total value of owner-occupier home loans in Australia was $16.91 billion. And the average home loan was nearly $600,000. That’s a lot of dollars. And a lot of financial obligation for most Australian homeowners.

So if you’re one of those homeowners (and you probably are if you’re reading this) it just makes sense to ensure you are making the right choice around home loan payments, to avoid paying excess interest or penalties and move ever-closer to being debt-free.

In this article, we’ll talk through our tips to make sure you are in the home loan repayment sweet spot and are not unnecessarily overpaying your mortgage.

Are you overpaying on your home loan?

Sometimes we get in a loan paying habit, and we forget to really check our numbers. But over time things can change – whether it’s interest rate rises, a fixed rate loan rolling over into a variable, new options for refinancing or something else entirely. So, when it comes to determining whether you might be making mortgage overpayments, here are a few signs to watch out for.

You Have a Fixed Rate Loan

If you have a fixed rate loan, it’s a good idea to revisit your rates at least annually. Fixed rate home loans usually come in terms of one to five years, but often this time can slip by unnoticed. When your fixed rate term expires, you will automatically revert to a variable rate, and this rate can sometimes be higher than what is currently available even with the same lender.

If you don’t follow up on those interest rates you could be paying more than you need to on your home loan.

There’s Been an Interest Rate Rise

When there’s been an interest rate rise, the interest rate on your home loan will rise as well. Most of us are aware when this happens, but occasionally an interest rate rise will slip past. When there has been an interest rate increase it will naturally impact the amount of interest that you’ll pay on your home loan. It’s a good idea to follow these changes closely so that you can investigate any opportunities for rate reductions if you do find your rate has risen.

mortgage-overpayment
It’s a good idea to follow rate rises closely to avoid mortgage overpayment

You Haven’t Investigated Refinancing

If you haven’t refinanced your home loan in a few years, there’s a good chance you’re making mortgage overpayments. This is because home loan interest rates fluctuate, and even a minor reduction can save you thousands over the life of your loan.

It’s a good idea to schedule in an annual review of your mortgage with a view to refinancing regardless of interest rate rises or other factors. We think of this as good loan hygiene and it will ensure you’re not making any unnecessary overpayments.

You Haven’t Explored Competitive Interest Rates

Many lenders offer special (and very competitive) interest rates. Sometimes it’s for certain types of loans, sometimes for new borrowers and sometimes they’re just seasonal. It’s a good idea to periodically check to make sure your current interest rate is on par with what other lenders are offering. And you might not need to do a full refinance to lower your rate. Get in touch with your lender and ask for the same competitive rate that other lenders are offering, or that is on offer to new customers.

Are You Paying For Unnecessary Bells and Whistles

Many loans are packed with secondary features, such as split interest rate, no or low fees, a redraw facility, an offset account, flexible repayments and a repayment holiday. But these often come as part and parcel of a higher interest rate. It’s worth your while to make sure you aren’t making mortgage overpayments because your home loan is packed full of features you aren’t using.

Get in touch with your lender to make sure your mortgage features are exactly what you need for your own circumstances. There’s no need to pay for features you don’t need, such as fees for offset or redraw facilities you aren’t using.

Speak to an Expert

If you really aren’t certain whether you are overpaying on your home loan or are confused by what the recent interest rate rise will mean for your home loan, get in touch with us. At Lending Loop, our experts can help you find the best home loan for your situation. We compare loans from more than 40 lenders to help find the best deal for you, to ensure you are on track to achieving your financial goals.

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

fixed-rate-home-loans-are-they-right-for-me

Fixed rate home loans: are they right for me?

Deciding whether a fixed rate home loan suits your familial and financial situation can be tricky.

However, last week’s Reserve Bank of Australia (RBA) decision to increase the cash rate for the first time in a decade makes it an ideal time to determine what home loan road you’re going to take – or to reconsider a decision you’ve already made.

The cash rate is now set at 0.35% but you’ve got a few weeks up our sleeve before the central bank’s next monthly cash rate announcement on Tuesday, June 7.

So let’s start with the basics of fixed-rate loans and go from there.

Fixed rate home loans but not flexible

As the name suggests, the interest rate on fixed-rate home loans won’t change until the loan period expires, unlike variable rate home loans.

This is the main reason why homeowners love fixed-rate loans as they enable you to always know in advance how much your mortgage repayments will be (instead of waiting in dread for the RBA’s cash rate announcements and then figuring out what’s happening with your lender’s interest rates).

At the same time, if cash rates drop – as they have done for 10 years and particularly in the last two years – you can’t enjoy the benefits of this downscale.

How long does my fixed rate home loan remain fixed?

It all depends on your lender but fixed-rate home loans are generally set for several years, with popular periods being two, three or five years.

After this period ends, watch out for changes.

What happens when my fixed-rate home loan period ends?

Firstly, prepare well in advance for the expiration of your fixed-rate period.

Consider your budget and how much extra (or less, cross fingers!) you’ll pay in mortgage repayments.

You may want to refinance your loan with the same or another lender.

If you like, you can choose to “refix” your fixed-rate loan too.

Either way, this is a great time to consider your short and long-term mortgage future.

What if I change my mind about my fixed-rate decision?

You can but it ain’t financially simple or beneficial because it’s not just interest rates that are fixed with fixed-rate loans.

These loans are also fixed in that you can’t end your loan early for whatever reason.

If you do, your lender will charge you with high costs, known as “break fees“.

This includes whether you decide to repay higher sums than you and your lender originally agreed to.

What are the benefits and disadvantages of fixed-rate loans?

Make no mistake – as with most decisions in this world, there are good and bad sides to the fixed-rate story.

Benefits:

  • Your interest rate will never change during your loan period, regardless of RBA cash rate verdicts
  • This unchangeability ensures you can enjoy home loan stability
  • You can plan your budget well in advance

Risks:

  • Fewer flexible benefits such as offset accounts and redraw facilities (depending on your lender)
  • Very high “break cost” fees for larger repayments or breaking a loan contract, unlike variable rate loans
    NB: Google “how to calculate break costs” for different ways on how to do this

Should I lock into a fixed-rate loan after the RBA’s cash rate hike?

Boom! This is the question virtually every homeowner has been asking themselves this past week!

Unfortunately, there’s no easy answer but saying that, as a general rule of thumb, fixed-rate loans are designed to protect you from rate hikes.

And with real estate experts predicting an RBA rate increase for months already, further upscales in the coming months are almost inevitable.

After the RBA announcement last week, the bank’s governor Dr Phillip Lowe indicated there would be more rate changes with his inflation forecasts “based on an assumption of further increases in interest rates.”

As well, CoreLogic research director Tim Lawless suggested higher cash rates implied higher rates for variable mortgages with fixed-rate home owners in a better place than their variable cousins.

“The recent rise in fixed-term mortgage lending is … helping to insulate homeowners from higher interest rates,” Mr Lawless said.

At the same time, fixed-rate loans have doubled in the last year, according to AMP Capital chief economist Dr Shane Oliver.

In short, we can’t answer this question easily.

But this is definitely a good time to consider refinancing whichever loan you currently hold, or review what loan you’re leaning towards.

Is a fixed-rate home loan right for me?

Again, there is no easy answer to this question.

Variable rates are just that – highly variable.

So, risk-averse home owners who appreciate stability, or who know their employment or other financial factors may change in the near future, may be happy to run with a fixed-rate loan, regardless of where the RBA takes cash rates.

A good compromise can be a split loan – part fixed-rate and part variable rate.

We encourage you to take the time to consider every loan box, do your research and talk to independent advisers.

It doesn’t hurt to talk with your current lender either to see if they can offer you better interest rates or other options, preferably without too many fees and charges involved.

We’re here to help

If you’re becoming overwhelmed by facts, figures and finances or simply need an extra head to help you decide if a fixed-rate loan is for you, your friendly Lending Loop team can help.

We love loans and we love finances and whether you’re a first-home buyer or property investor, no job is too big or too small for us!

We’ve got more than 40 of Australia’s biggest banks and specialist lenders at our fingertips (so to speak) and our service is free to enjoy.

So give us a call today at Lending Loop.

the-real-value-of-a-higher-interest-rate-on-your-home-loan-and-how-to-negotiate-one

The Impact of a Higher Interest Rate on Your Home Loan

Most Australians will be well aware that the RBA has just announced an interest rate jump. And, the impact of a higher interest rate has left many homeowners (and potential homeowners) wondering – how does this really affect me?

The Impact of a Higher Interest Rate on Your Home Loan

Well, if you have (or are considering getting) a $750,000 home loan that is now 1% higher, you might be paying over $140,000 more in interest over the 30-year life of your loan. While this doesn’t sound good, the alternative is also true. If you’re able to secure a home loan that is 1% lower, you could save that $140,000 over the 30 years.

These numbers demonstrate the real, tangible and life-affecting difference that an interest rate rise (or fall) can make to your finances. So, what can you do about it?

Well, you want to make sure that you’re on the right side of the interest rate pendulum. In other words, you need to be negotiating a lower interest rate on your home loan and ensuring you’re saving your hard-earned cash. Here’s how to do that.

How to Negotiate a Lower Interest Rate on Your Home Loan

Do Your Research

Your first step is to do your research. Shop around and see what loans are on offer – and at what rates. You can use online tools, or platforms, or ring our helpful team (1800 674 739) who will be able to help you find some answers.

When doing your research, you’ll want to focus on comparing relevant loans (those that you would qualify for) with the one that you currently have. This will help you see what better rates might be available and arm you for your future negotiating.

the-real-value-of-a-higher-interest-rate-on-your-home-loan-and-how-to-negotiate-one
Shop around and see what loans are on offer and at what rates

Do the Work

If in your research you find that you have developed some habits that mean you are perhaps not the ideal candidate for a loan rate reduction, do the work to get yourself home loan ready. (Yes, even if you already have a home loan.) This includes taking immediate steps to pay off any credit card debt, lower your monthly spending and increase your savings.

While you might have to tighten your belt for a few months, this will pay off in the long run when you’re dancing away with lower debt.

Get on the Phone

The next step is to simply get on the phone and ask for a rate reduction. Start by asking for the introductory rate that new customers are being offered, and negotiate from there. Be sure to talk about your good credit, your payment history and any other elements that showcase you as a great borrower. And don’t forget to flash your loyalty badge. Many lenders are willing to negotiate to retain their best customers.

Remember to be confident. These kinds of negotiations are a normal part of the homeowner / lender interaction. No one will be offended by your request for a loan rate reduction.

Walk the Walk

Once you start negotiating you need to understand what you are willing to accept, and what you are not. If your lender refuses to agree to a rate reduction – and sometimes this will happen regardless of your particular situation – you need to understand whether you’re willing to walk away. Will you be able to live with your current loan rate? Or will you need to leave this lender for a better deal?

Don’t be put off by the idea of refinancing. It’s a fantastic option and one that you should consider at least annually, regardless of interest rate movements. In today’s digital world the entire process can be completed in as little as a week, and the difference it can make to your pocket is well worth it.

Enlist the Help of an Expert

If you’re feeling the impact of a higher interest rate on your home loan and finding that your current lender doesn’t want to budge on interest rates, or you’re ready to understand your options for refinancing, reach out to our team. We’re ready to help you get the best interest rates available. And ensure you’re keeping your money in your own bank account.

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

rba-cash-rate-spikes-to-0-35

RBA cash rate spikes to 0.35%

It’s been a long, long time coming but on Tuesday, it finally happened: an increase in Australia’s 18-month-long, 0.1% RBA cash rate to 0.35% and our first interest rate hike in a decade.

The jump of 25 basis points came as a nasty surprise to many with financial market expectations forecasting only a 0.15 point change this month.

The announcement just a few weeks before a federal election was also seen as a spanner in the economy’s financial works.

Australia’s share market slumped 0.5% almost immediately after the Reserve Bank of Australia (RBA)’s afternoon announcement.

“Appropriate” withdrawal of “extraordinary monetary support”

Since the RBA dropped its cash rate to 0.1% in November 2020, after an eight-month setting at 0.25%, RBA governor, Dr Philip Lowe, has determinedly remained cautious about increases.

However, with headline inflation now 5.1% – well beyond the RBA’s 2%-3% target range – Dr Lowe explained it was an appropriately right time to withdraw some of the “extraordinary monetary support” which had assisted the economy during COVID.

“The economy has proven to be resilient and inflation has picked up more quickly, and to a higher level, than was expected,” Dr Lowe said.

“There is also evidence that wages growth is picking up (and) given this, and the very low level of interest rates, it is appropriate to start the process of normalising monetary conditions.”

Dr Lowe said Australia’s economic growth outlook, including unemployment, and household and business balance sheets was positive.

“The central forecast for 2022 is for headline inflation of around 6% and underlying inflation of around 4.75% and by mid-2024, headline and underlying inflation are forecast to moderate to around 3%,” he said.

Dr Lowe added that the country’s labour force participation has increased to a record high while the unemployment rate had declined over recent months to 4%.

It is expected to decline to around 3.5% by early 2023 and remain around this level long-term.

“This would be the lowest rate of unemployment in almost 50 years,” Dr Lowe said.

rba-cash-rate-spikes-to-0-35
The RBA Governor said that now is the time to withdraw some of the “extraordinary monetary support”.

Good and bad news for already softening property market

The RBA cash rate increase is not a surprise to industry experts and commentators, who have been predicting such a change for months – and Dr Lowe has already predicted future increases in his bid to ensure inflation “returns to target over time”.

CoreLogic research director Tim Lawless said RBA’s spike in interest rates would add further downward pressure to housing growth rates, which were already losing steam as the industry expert’s national monthly Home Value Index (HVI) report this month, released just a day before the cash rate announcement, had noted.

“In the case of Sydney and Melbourne, the trend into negative territory is due to factors including affordability constraints, higher fixed term mortgage rates and lower levels of consumer sentiment,” Mr Lawless said.

He added that any downturn in the housing market would depend on how high and fast rates rise, as well as other factors such as employment.

“A higher  RBA cash rate implies higher variable mortgage rates, a reduction in borrowing capacity and tighter serviceability assessments for prospective borrowers,” Mr Lawless said.

“Under a 100 basis point lift in variable mortgage rates, a new borrower in Sydney could be facing a rise in monthly mortgage costs of $486, while under a 200 basis point rise, monthly mortgage costs could be $1,005 higher than current levels.”

However, Mr Lawless explained that the cash rate shift was not all bad news for current mortgage holders.

“As we enter a period of higher interest rates, borrowers are generally well ahead of their mortgage repayments,” he said.

“The recent rise in fixed-term mortgage lending is another factor helping to insulate homeowners from higher interest rates.

We’re here to help

As Mr Lawless recently explained, a cash rate rise doesn’t necessarily mean overnight changes to your mortgage repayments.

However, we encourage you to contact your lender soon to check where your interest rates will trend from here, particularly if you have a fixed rate home loan.

Whether you’re a first-home buyer or property investor, you may 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, June 7 at 2.30pm AEDT.

What to do when interest rates rise

What Homeowners Should Do When Interest Rates Rise.

As homeowners in Australia, we’ve been on the receiving end of incredibly good interest rates for many years. In fact, the cash rate has been held by the RBA at its record low position for over 16 months.

This might be set to change when interest rates rise.

On 5 April 2022, the RBA made its Monetary Policy Decision announcement. The result is a strong belief that interest rates will soon be on the rise. And all four major banks, Westpac, CBA, ANZ and NAB are predicting a cash rate of 1% or more by the end of 2022.

When Interest Rates Rise How Will This Impact You as a Borrower?

The majority of Australian borrowers have had fantastic interest rates at under 2% for over a year. So many borrowers are wondering how they might be impacted when interest rates rise. Let’s look at an example.

Jane is an average mortgage holder with a $500,000 loan at a major bank. She’s had a fixed interest rate of 1.94% for the last two years, but the term is ending. She could face a revert rate of over 3%, which would see their repayments rise by $300 to $375 per month. Of course, Jane can renegotiation or re-fix her mortgage, but with the RBA’s interest rate rising, she will likely be offered a significantly higher interest rate regardless.

Read more: How much extra will your mortgage cost when interest rates rise?

This example could leave many borrowers worried. And you might be wondering – could I manage an extra $300 or $400 a month on my  home loan? But the first step is not to panic. There are plenty of things we can do to ensure that we ride through any interest rate hikes with barely a blip on our financial radar. So, here’s what to do when interest rates rise.

What to do when interest rates rise
Jane looks to re-negotiate her mortgage

What To Do When Interest Rates Rise

Do a (Financial) Stress Test

Banks stress test your loans (that means they analyse it based on your perceived ability to pay in changing circumstances – like rising interest rates!). In order to feel comfortable and worry less, you need to do the same.

This simply means running the numbers and seeing how you would manage your repayments at a higher rate. If you find that you’re in a position like Jane, and the extra repayments might see you missing out on other fantastic parts of your lifestyle (yoga classes or UberEats, for example), there are things you can do. For example, you could lock in all or part of your mortgage at a fixed rate. This would give you the comfort of knowing precisely what you’ll be paying each month regardless of what interest rates do.

Think About Refinancing

If you’re wondering what to do when interest rates rise, refinancing should definitely be on your radar. For fixed rate borrowers, you should be sure to consider your refinancing options before the end of your fixed rate term. You don’t want to end up slipping into a revert rate that you’re not prepared for. And you might just get a better deal.

If you have a variable rate mortgage, now is a great time to consider moving to a new provider who can offer you more (or less, in terms of interest rates!). Of course, you should re-evaluate your variable rate loan at least once a year anyway. This lets you see how your current loan stacks up against the industry. And it ensures you’re always getting the most for your money.

Read more: Top Tips for Refinancing

Increase Your Repayments

It’s a great idea to increase your repayments now, while your interest rates are lower. This means every dollar is working harder for you, and the more you pay now, the less you have to pay in interest when interest rates rise.

If you’ve reached the extra repayments cap on your fixed loan, consider putting any extra money into a savings account so that you have it available to pay down the loan in the future.

Decrease Your Debts

Now is a great time to look at decreasing any other debts you may have in your household. This might include personal loans or car loans. The sooner you can pay these off, the more cash you’ll have free to service any home loan repayments and ensure you can maintain your lifestyle just the way you like it!

What to do when interest rates rise
Cut up your credit cards. Eliminate debt.

Utilise Your Offset Account and Redraw Facility

If you have an offset account or a redraw facility attached to your loan, consider whether you’re using it to its full advantage. Make sure you’re depositing all your income into your offset account, or making any extra payments directly into your loan if you have a redraw facility. You’ll be paying your home loan down more quickly. And this money will also be available in the future should you need it.

Speak to an Expert

Our single best advice when confronted with the question of what to do when interest rates rise, is to speak to an expert. Our experts can help you to find the best loans for your situation. So, you can stay in your home and in the lifestyle you want.

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

Interest rates remain on hold but hikes are looming.

Interest Rates Remain on Hold But Hikes Expected

The Reserve Bank of Australia (RBA) made its April 2022 Monetary Policy Decision announcement yesterday. And while the information contained can be dense and the policies complicated, they are very important to all Australian mortgage holders, whether investors or owner occupiers. This is especially true when it comes to whether or not interest rates remain on hold or if they are on the rise.

So, we’ve pulled together the information that particularly matters for us as mortgage holders. Let’s dive in.

RBA April 2022 Monetary Policy Decision

The RBA announced this week that interest rates remain on hold but at the record low 0.1% cash rate for the 16th month running. This is a great initial result for mortgagees. However, investors and home owners should be aware – it may not be for long.

RBA governor, Dr Philip Lowe, announced that the RBA would maintain current rates, but emphasised that ongoing global factors would be contributing to upward pressure on interest rates. Importantly, the newest announcement no longer uses the phrase, “the board is prepared to be patient”.

In light of these pressures, and the more urgent language from the RBA, we can expect rate hikes to appear as soon as May or June of this year. The RBA itself says that “expectations of future policy interest rates have increased”, leading us to expect this change is more imminent than ever.

The Impact of Global Factors

Global factors impacting a possible rate hike are wide and varied. They include the sharp increase in inflation around the world and Russia’s invasion of the Ukraine. They also continue to be impacted by continued recovery efforts from pandemic economic conditions and supply chain disruptions worldwide. These impacts continue and will continue for the foreseeable future.

The Australian Economy

The RBA believes, however, that the Australian economy itself remains robust and resilient, and is recovering well from the Omicron variant. Research shows that households and businesses are doing well in terms of cashflow, there is more business investment occurring and macroeconomic policies are supporting more growth and a higher national income. Tellingly, unemployment has also fallen to an extremely low 4%, the lowest it’s been since August 2008.

The RBA also reports that wages growth has finally begun to pick up speed – good news for all Australian employees – though it remains low compared to pre-pandemic levels. A gradual increase is anticipated given the tight labour market though no one is sure precisely how the extremely low unemployment levels will impact this growth.

Australia has also experienced some inflation, though this is low compared to other countries around the globe. It currently sits at 2.6%, a number which will be driven higher as a result of higher prices of petrol and other commodities that are being impacted by supply chain factors, increases in global energy markets and increasing overall labour costs.

The Consumer Price Index

The Consumer Price Index (CPI) (which measures household inflation and expenditures) will come out at the end of April. And the results of this index will inform the rate hike as well. Experts believe that it is likely to have risen quite steeply since last reported. This could push forward possible rate hikes in the middle of the year. Wage growth will contribute to this as well.

The Board’s Policies

The Board continues to report its goals of full employment and targeted inflation. As part of these policies, the Board was focused on finding actual evidence that inflation is sustainably within the 2 to 3% target range. It was only at that point that it would consider increasing interest rates.

Latest numbers fall within those targets, further informing our belief that interest rate rises are on the way.

Property Analysis

The Australian property market is currently facing a slower price growth than what we’ve seen over the last few years. However, this is less to do with the potential for rate increases, and more to do with affordability constraints. In short, we’ve hit the peak of the market. More sellers have put homes up for sale, looking to cash in on incredible sales price opportunities and this has brought supply and demand in line and put pressure on what some have seen as runaway price growth.

Impacts on Mortgage Holders

In terms of lending impacts, most banks will have factored additional interest rate rises into their lending decisions. But many homeowners will never have faced this kind of hike before. This will lead to impacts that are both psychological and monetary.

CBA forecasts that rate hikes for ‘average borrowers’ could see repayments rise by around $300 per month by early 2023. A RateCity survey found that almost a third of borrowers would have to implement cut backs in their spending in order to afford rising interest rates on their current mortgages. A full 14% believed they wouldn’t be able to afford repayments at all.

Steps to Take

With interest rate hikes imminent, it’s time to ensure that your mortgage and financing is well in hand. You may want to take steps to pay off your mortgage, of course. But, if you’re like most Australians, you’ll want to also consider refinancing with a loan that is better suited to your situation, including any changes that could occur in the situation of an interest rate rise.

Whether you’re a first-home buyer or an investor, you want to know, first, that you can afford your repayments, and second, that your lifestyle won’t be impacted too seriously (you don’t want to have to give up that gym membership!). You might want to consider a fixed rate mortgage. Or you might simply find a lender that is offering you a better deal with lower repayments.

While interest rates remain on hold, no one can know for sure what the future holds. But these are steps that you should explore as soon as possible so you’re prepared when changes do occur. Our experts can help keep you in your home and in the lifestyle you want.

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

Song remains the same: RBA immovable on 0.1% cash rate

Not unexpectedly, Australia’s record low 0.1% cash rate figure will continue for the 16th month in a row with the Reserve Bank of Australia (RBA)  announcing Tuesday that the country’s inflation isn’t consistently high enough to warrant an increase.

Instead, RBA governor, Dr Philip Lowe, is holding onto his long-held view that patience is the key to the best possible cash rate outcome for the country –  despite the fact that inflation has picked up more quickly than he had expected.

“However, this inflation remains lower than in many other countries,” Dr Lowe said.

“It’s too early to conclude that it is sustainably within the target range (so) the RBA board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.”

Dr Lowe also admitted that a global COVID recovery had resulted in a far more resilient Australian economy and an increase in spending, even after the latest Omicron variant caused havoc across the country.

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

He added that increasing the country’s positive outlook is the labour market’s 4.2% unemployment rate, which is its lowest rate in 14 years and according to the RBA’s central forecast, could fall to below 4 per cent later in the year and continue at this rate until 2023.

However, these positive points were balanced out by the negativity of Russia’s devastating invasion of Ukraine late last week, which resulted in a major increase in the world’s energy prices and a disruption to supply chains.

“The prices of many commodities have increased further due to the war in Ukraine, Dr Lowe said.

 He added that higher petrol prices from global developments would see consumer price index (CPI) inflation rates surge upwards.

“How long it takes to resolve the disruptions to supply chains is an important source of uncertainty regarding the inflation outlook, as are developments in global energy markets,” he said.

“Wages growth also remains modest and it is likely to be some time yet before growth in labour costs is at a rate consistent with inflation being sustainably at target.”

What’s the outlook for property?

Industry experts across Australia were largely unsurprised about RBA’s immovable decision.

The 0.1% rate hasn’t changed since November 2020 when the RBA slashed it from an eight-month stint of 0.25%.

A growing number of financial experts now believe a rate increase will occur in August or September, or at least sometime this year.

CoreLogic research director Tim Lawless is one such expert, explaining after February’s RBA cash rate announcement that rates could still increase in 2022, despite the RBA consistently confirming this won’t happen before 2023.

After this month’s cash rate announcement, Mr Lawless commented that the enduring 0.1% rate was nonetheless having an effect on the property market.

As Lending Loop mentioned after RBA’s November 2021 rate announcement, lenders are already raising their rates in a bid to head off a cash rate increase, and Mr Lawless concurred this week that this was continuing to happen in a less affordable housing world.

“Credit policy has (also) tightened and lenders are likely to be more cautious in lending decisions,” Mr Lawless said.

At the same time, Mr Lawless explained that while the RBA was “sanguine” about housing market trends, it would certainly welcome less heat in the market.

“A strong housing market has buoyed the household sector and supported the economy through the pandemic,” he said.

“But worsening affordability and higher household debt levels are the downsides to the housing market upswing.”

Mr Lawless said the property market was already slowly beginning to cool down with CoreLogic’s national Home Value Index (HVI) released Tuesday  showing a broad-based slowdown in the rate of value growth.

“While housing values are generally rising, the pace of growth in the national index has trended downwards since April last year,” Mr Lawless explained.

“February’s growth of 0.6% marks the lowest monthly growth reading since October 2020 and is down from 1.1% in January and a cyclical peak of 2.8% in March 2021.

“This is the slowest monthly rate of growth since September 2020.”

Also expected to soften demand in the market are falling household savings while rising advertised inventory is providing more choice and less urgency for buyers, Mr Lawless added.

He said that for now, the cash rate’s forecast depended largely on Australia’s unemployment rate, with the RBA keen to see a more significant lift in wages while also realising this growth would be gradual.

“But this lift is the missing piece of the puzzle,” he said.

“It’s clear the RBA is firmly focussed on inflation outcomes along with labour market conditions and wages growth, to guide their policy decisions.”

What should I expect as a mortgage holder?

Firstly, take a breath and be encouraged that for now at least, the 0.1% cash rate remains the same.

Also, take heed of Mr Lawless’ thoughts on a potential rate increase.

He believes that while there are downside risks to this possibility for the housing sector, other factors should help to offset a significant downturn.

“As the economy strengthens and labour markets tighten, the risks around mortgage stress or default should lessen,” he said.

“Open international borders will help to support demand, initially from a rental perspective, but longer-term for home purchasing as well.”

On the other hand, bear in mind that your interest rates may escalate before an RBA cash rate announcement, particularly so if you have a fixed rate home loan, as we earlier noted.

So, regardless of whether you’re a first-home buyer or property investor, you may want to consider refinancing your loan to achieve the best possible deal, or at least, pay off your mortgage sooner rather than later.

But rest assured, we’re your biggest supporter, so give us a call today at Lending Loop.

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