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.

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.

 

Fixed, variable or split loans. The best option depends on your unique financial situation and the current state of the market.

Fixed, variable or split loans: what works best for you

Fixed, variable or split loans: what works best for you? There are pros and cons of each.  We’ll take you through each option. 

If your calculator has recently become your best friend, come join the party of budget battlers, particularly those in the mortgage war zone.

With the Reserve Bank of Australia (RBA) now hiking interest rates upwards and expected to do so for the short-term future at least, mortgage holders are now wondering which loan is the best to fly with.

Fixed, variable or split loans…let’s look at the pros and cons of each.

Fixed-rate loans

We talked about these loans previously so we suggest you look at this article for more information on them.

But here are some key details to emphasise about fixed-rate loans.

At a time of jumping interest rates, fixed-rate loans can seem like the best way to go, protecting mortgage holders from rapidly changing figures – and they can be fantastic.

They’re a good choice for risk-averse mortgage holders who prefer financial stability and a budget that won’t rise and fall with the RBA’s monthly cash rate announcements.

But there’s more to the story than this.

Interest rates may drop during the period of your fixed-rate loan so you’ll miss out on this choice benefit.

This is the main reason that mortgage holders shy away from these loans and long-term ones in particular.

Don’t be fooled by the “fixed” description

Every lender, from the small-scale lenders to the Big 4 banks, increases their interest rates for longer fixed-rate loans.

The interest you’ll pay for a one-year fixed-rate loan can be almost 1% lower than that of a five-year fixed-rate loan.

The good news is that you can cut and run from a fixed-rate loan – also known as refinancing – when it expires.

Alternatively, you can start over again with another fixed-rate loan with the same lender at this time.

But those who choose to begin again with their fixed-rate loan for another period will find themselves paying an updated rate, that reflects the current cash rates.

This change could be quite surprising – if not to say nasty – if you’re locked into a five-year fixed rate only to start over and find the market has changed considerably in that time.

Expect interest rates for five-year fixed-rate loans to be between 2.97%-4.84%.

These fixed rates were actually spiking well before the national cash rate increase began last month; in fact, they’ve double in the past year alone,  AMP Capital chief economist Dr Shane Oliver recently explained.

So, expect them to hike even higher as interest rates rise in the near future.

Fixed-rate loans usually don’t come with benefits such as offset accounts and redraw facilities, plus it’s harder to pay off your loan earlier or even make larger repayments thanks to high “break” fees.

Fixed, variable or split loans. We guide you through what each of these home loan options mean.
Fixed, variable or split loans: what works best for you depends on your unique financial situation and the current state of the market.

Variable home loans

Many people have now enjoyed variable home loans for so long, particularly in the past few years of record low interest rates, that switching to a fixed loan can be a major question mark.

Saying this, you don’t need to necessarily switch to a fixed rate if you feel the pros of variable loans outweigh the cons.

Here’s what to consider with variable home loans.

Variable loans were a great idea for mortgage-holders during the past decade as interest rates were decreasing – or at least remaining at a steady low point of 1.5% – throughout much of the 2010s.

Variable loan mortgage holders thus benefited from these low rates rather than remaining at the mercy of the higher rates we are now experiencing.

Saying this, variable loans can offer far lower rates than their fixed-rate cousins.

Lenders are offering variable rates of between 2.46%-3.05% and while these rates will probably increase with spiking interest rates, they’re still very attractive when compared to those of a fixed-rate loan.

Another great benefit of variable loans is their fantastic flexibility.

Think extra repayments with no nasty fees involved, benefits such as offset accounts and redraw facilities, and depending on your lender, the possibility to flex your financial muscles with loan agreement alterations and changes.

There is still plenty of general misgiving about when and by how much the RBA will change the cash rate.

Even industry experts aren’t certain about these points so it may well pay to stick with your variable loan.

Split loans

Enter: the (possibly) perfect loan compromise.

Also known as partially-fixed interest loans or combination loan structures, split loans allow mortgage holders to enjoy the best of both loan worlds: the stability of a fixed rate combined with the flexibility of a variable rate.

It’s important to note that you’ll still be applying for just one home loan but with the split of variable and fixed set beneath a single loan umbrella.

Sounds good, doesn’t it?

But everything isn’t exactly what it seems even in a perfect split world so let’s reflect on these points.

You can choose what part of your loan you’d like in your variable and fixed corners, such as a 20% variable component and an 80% fixed component.

In this particular case, 80% of your loan won’t be affected by interest rate hikes but the opposite is also true if rates drop.

Then again, your entire loan won’t have to go into damage control if a rate cut occurs – just 80% of it will.

In the meantime, your 20% variable component is working hard to enjoy potentially lower rates either way than its fixed neighbour and especially so if rates drop.

As well, benefits such as extra repayments and offset accounts can really benefit your variable component – but can’t be done in your fixed sector.

You will probably find yourself paying two very different interest rates within your one split loan, particularly in today’s rapidly changing market.

As a result, organising your budget can be more difficult compared to a 100% variable or fixed loan.

You’re always partially protected while being perpetually at a disadvantage, especially when it comes to interest rate rises and falls.

So the RBA’s monthly cash rate announcement will still be a day of both dread and comfortability.

Can you live with this half-and-half home loan life?

Only you can answer that.

We’re here to help

We know all too well how confusing home loan jargon can be.

Whether you’re leaning towards fixed, variable or split loans, your friendly Lending Loop team can help.

We’ve got access to more than 40 of Australia’s biggest banks and specialist lenders . So, whether you’re a first-home buyer or property investor, give us a call today at Lending Loop.

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!

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!

 

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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.

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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.