Welcome to my
October 2016 newsletter
Spring is here and it’s also the start of the busiest time of year for our property markets! Auction activity is already heating up in our largest capital cities – are you ready for the rush?
At its September, the Reserve Bank of Australia (RBA) decided to keep the official cash rate on hold at 1.50 per cent. The decision came as no surprise to analysts as the RBA cut the cash rate by 25 basis points just last month, bringing it to all-time lows.
Positive economic growth figures for the June quarter of 3% combined with improved jobs and salary growth data, indicate the RBA’s easing measures are starting to have the desired effect. Following the August RBA rate cut, lenders have been reducing interest rates on a wide variety of owner occupier home loan and property investment loan products. However, some have only passed on part of the rate cut, which prompts us to motivate you to check your interest rate with us to see if you still have the most competitive loan product for your needs!
Many of you in the market to purchase a property this Spring have already talked to us about arranging pre-approval on your home loans. If you haven’t called us yet, pick up the phone and get onto it so you don’t risk missing out on the home of your dreams during the Spring rush! Rates are great following last month’s RBA cut so it’s also a good time to discuss your refinancing plans, fix your interest rate or get a home loan health check on your existing loan. Give us a call today!
Or refer a friend - remember the great gift card offer!
5 great reasons to consider refinancing
Getting a mortgage locked in can be a major hurdle when buying a property, whether you’re a home buyer or an investor.
For some, it can be a very anxious time and it’s easy to understand why you might try to avoid the stress of doing it again for as long as you can. However, sticking with the same loan for too long can be a mistake. In this article we talk about some of the benefits of refinancing your mortgage and some of the strategic reasons why you should regularly consider making a switch.
#1. It pays to change with the times.
Mortgage products can become outdated very quickly and it’s important to check regularly to make sure your home loan product hasn’t become a bit of a dinosaur. It really can pay to take the time just to see what’s out there in terms of mortgage features.
Some products offer features that could save you money outside of your mortgage. For example, fee free transaction accounts or low-rate credit cards. Other mortgage products may offer rewards, incentives or even more flexibility. Or perhaps you could be benefiting from more features on your home loan like the ability to make extra repayments and redraw them if you need to, or an offset account that helps you maximise your savings and saves you money on interest.
#2. Minimise your interest bill.
Interest rates also change frequently, with lenders making adjustments in response to economic influences, RBA rate movements and policy directives from industry bodies such as the Australian Prudential Regulation Authority (APRA). And smaller lenders and new lenders in the market place often offer lower interest rates than the big banks, just to attract new business. So it really does pay to compare your interest rate against a range of other options from time to time.
A recent study showed that borrowers who held the same home loan for more than ten years could easily have paid thousands more in interest than borrowers who monitored their interest rate and switched mortgage products every two to three years. You might wonder how that can be true but consider this, if you have a $500,000 mortgage and can manage to reduce the interest by just one percent, over 30 years you could save $100,000 in interest repayments. Switching regularly could potentially help you achieve results like these for yourself.
#3. Capitalise on rises in home values.
The interest rate you may be eligible to receive depends on a number of different criteria and these can change over time. A great example of this is your loan to value ratio (LVR). Your LVR is calculated by dividing the amount of your home loan by the current value of your property(This is effectively a measure of how much equity you have in the property).
Generally speaking, the higher your LVR, the greater the risk to the lender and that’s why they usually apply a higher interest rate to loans with an LVR above 80%. As you make your regular home loan repayments and the value of your property grows over time, your LVR constantly improves. If your property has risen in value or you have made significant headway on paying down your loan, you could find your LVR has improved considerably and you could now be eligible for a better interest rate.
#4. Maximise improvements to your circumstances.
An improvement in your personal circumstances could also make you eligible for a better interest rate. Perhaps your credit score has improved over time. Maybe you have had a significant salary increase since you purchased your home, or you have paid off other debts and loans and your financial commitments have been reduced.
Everyone’s circumstances are different and there are lots of ways that time can cause them to change. A consultation with your mortgage and finance broker will soon reveal how any changes to your personal circumstances may influence your interest rate on a new loan.
#5. Make your investment work harder for you.
Purchasing a home can be a very emotional experience and it’s easy to forget that your home is more than just the cosy haven where you live. It’s a valuable asset and an important investment that can help you build wealth.
When you pay down your mortgage and at the same time, the value of the property increases, you build equity in the property that you may be able to access by refinancing. You can use these funds to invest in another property, make another form of investment such as stocks and shares, or to increase the value of your home through renovation. These are just some of the popular wealth building strategies that refinancing can help you to achieve.
Another way you can use refinancing to save money on interest and improve your financial situation is by consolidating your debts. The interest rate you pay on your mortgage is the lowest interest rate available – much more attractive than the interest rate offered on credit cards, car loans, personal loans and store credit.
If you’re interested in refinancing your home loan, just give us a call. We’ll help you decide if it’s the right move for you and work out the numbers to ensure the costs don’t outweigh the benefits. We’ll also help you to find a new loan that has the right features for your needs and offers you the best interest rate available for you considering your current personal financial circumstances. Call us today.
To fix or not to fix?
Should you switch to a fixed interest rate product?
With the official cash rate at an historical low and the possibility of more RBA rate cuts on the horizon, this is possibly the most frequently asked question of professional mortgage brokers today. Often the question is focused on the timing, with consumers asking if now is a good time to fix their interest rate, or if they should wait to see if interest rates fall even lower.
However, saving money on interest is not necessarily the most important thing to consider if you’re thinking about making the switch to a fixed rate loan. In this article, we talk about the pros and cons of fixed interest rate loans and the real reasons you should consider using one.
What is a fixed rate home loan?
A fixed rate home loan allows you to lock in an interest rate for a fixed term, which means your loan repayments stay the same during the fixed term even if variable interest rates should rise. It allows you to plan exactly how much your repayments will be for the life of the term, making budgeting easier and this is the major benefit of a fixed rate home loan.
Usually you can choose to fix the interest rate on your home loan for a term between 1 to 5 years. After the fixed period ends, the loan usually reverts automatically to the standard variable rate unless you refinance your loan to another product or negotiate another fixed term.
Is switching to a fixed rate product a good interest saving strategy?
For some people, the motivation for switching to a fixed interest rate product is primarily to save money in the event of an interest rate rise. These home owners are looking for ways to save money on interest any way they can over the life of their loan. Their strategy is to go with a variable rate product for now so they can pay the lowest interest possible in the short-term, then switch to a fixed interest rate product to keep their interest rate low when interest rates look as though they are going to rise.
Basically, they are interested in locking their interest at the lowest rate possible when it is most prudent to do so. That’s why we are always being asked if ‘now’ is a good time to fix.
The problem with this interest savings strategy is that no one can accurately predict interest rate movements. That makes it very difficult to know when it might be advantageous to switch, or even if switching will have the desired effect of saving on interest. How do we know when we will save more by using a variable rate product and when we will save more by switching to a fixed interest rate product?
There is really no way to tell. In order to save money on interest by switching to a fixed rate product, variable interest rates would need to rise well above the interest rate you are paying on your fixed rate loan (and fixed rate loans usually carry a higher interest rate than variable rate loans). You also need to consider that if interest rates should fall during the fixed interest term of your loan, you will be missing out on any interest savings you would have received if you had a variable rate loan.
Consider your financial circumstances before making the switch
The decision to switch to a fixed interest rate loan should be influenced by other factors besides the possibility of any substantial saving on interest. The point of a fixed interest rate loan is to help you budget your household expenses more effectively, particularly for the first few years you own a property when your finances may be tight and budgeting may be difficult. As an added bonus, you are temporarily protected from interest rate rises. If interest rates do increase during the fixed interest term of your loan, you will have until the end of the fixed interest term to plan how you will manage to cover the increased payments on your loan when the fixed term ends.
Switching to a fixed interest rate loan may not be a good idea if you need flexibility. If you are planning to sell your home in the near future, increase your loan or redraw from it, make extra repayments or refinance to access equity, staying with a variable rate home loan could actually save you money. Fixed rate home loans usually have sizeable penalties if you need to make changes or pay off the loan during the fixed term of the loan, which could cost you many thousands of dollars.
The split option is designed to help you hedge your bets
Many lenders offer a home loan product that gives you the capacity to split your loan between both the variable and fixed interest rate options. This could give you the advantage of partial protection in the event of interest rate rises, but could also offer you facilities like an offset account which could be very beneficial if you are a good saver, plus the ability to make extra repayments and redraw them if you need to.
It is important to remember that with a split loan, you are still locked into the product for the length of the fixed rate term. If you needed to sell your home or repay the fixed portion of the loan early for any reason, you would still be required to pay a stiff penalty.
To find out if switching to a fixed interest rate loan is the right move for you, it is a good idea to talk to a professional mortgage broker about your personal financial situation and goals. We’re here to help you understand which products are right for your needs and help you to choose an option that saves you the most amount of money possible. Call us today.
How to avoid hard sell sales tactics
Hard selling tactics are used by salespeople in a wide variety of industries, including property and real estate.
They’re designed to get you to make a purchase quickly and deny you the opportunity to evaluate the purchase properly and compare other options.
Hard sell sales tactics often include aggressive or forceful language and usually use strong psychological pressure to convince you to buy. Sometimes it is not immediately obvious that you are being given the hard sell - the salesman will pretend to be your friend and behave as if they are helping you out!
So how do you avoid being pushed into a purchase by a hard selling salesperson? Here are five tips to help you come out on top.
1. Learn to say no.
Saying no is surprisingly difficult for some people. We’re all brought up to be polite and delivering a flat no can seem rude. The hard sell practitioner is fully aware of this and uses your good manners to their advantage to create an opportunity to make their sales pitch. Always be polite, but be firm when saying no or they will continue to pester you until you buy something.
Learning to say no to such people is vitally important. Make the word ‘no’ your default response until you are sure you have all the facts and are in a position to make an informed and considered decision.
2. Beware of people bearing gifts.
Another common tactic, and one that is frequently used by property sellers and developers, is to reinforce your natural tendency to avoid saying no by giving you a ‘free’ gift. They know a gift will make you feel more obligated to say yes because we are all conditioned to reciprocate when given a gift.
For example, time share companies will often offer you a ‘free’ weekend away in return for attending their seminar, then try and pressure you into buying while you’re there. Or a property developer may offer you a ‘free’ furniture voucher to get you to attend an open house, then pressure you into signing a contract on the spot.
Always remember that when you accept a gift that is described as ‘free’, you are placed under absolutely no obligation to make a purchase or return the favour. Say no firmly and take your ‘free’ gift home without feeling guilty about it.
3. Keep your emotions in check.
High pressure sales tactics also take advantage of your negative emotions. They play on feelings such as fear, greed, vanity, guilt, ambition, frustration, anxiety and even loneliness. Gratification of any of these emotions is a strong motivator and makes us very susceptible to impulsive purchasing decisions that we may regret later.
When making any large purchase, it is important to be able to put your emotions aside and think logically and practically. Before you even consider looking at a home or car to purchase, protect the integrity of your decision making process by working out a budget and a buying strategy. Avoid impulse purchases by giving yourself a cooling off period when you can take the time to sit down and calmly consider the pros and cons.
4. See the bigger picture.
When emotions are running high and you’re under pressure to make a decision, it is a good idea to step back and take a wider view of the situation. Resist your impulse to purchase by taking a few deep breaths and asking yourself “What will happen if I don’t make the decision to purchase right now?”
After a few minutes have passed, more sensible considerations will come to the fore. Such as can you afford it? Does it meet your needs? Will it give you the return on your investment that the salesman has promised? Are you paying the right price? Could you get a better price by waiting and negotiating a bit more? These are the bigger picture questions that need to be answered before you make your decision to buy.
5. Do your own research.
Every property developer, real estate agent and car salesman will tell you their deal is fantastic, that buying their product is a ‘no-brainer’. They may even show you data or statistics to back up what they say. Never trust the word of a hard sell salesperson, always verify the facts for yourself. Remember, if it sounds too good to be true, it probably is.
When making any large purchase, particularly a property, the importance of conducting your own thorough research cannot be overstated. It may be time-consuming, but it is not difficult to go online and check you’re paying the right price, how likely it is that the investment will appreciate in value and what are the likely rental yields. If you are buying off the plan, or from a developer, always take the time to verify the value of the property on completion and hire an expert to help you if necessary. Do not take the developer’s word for it.
Remember, the objective of the hard sell salesperson is to make you buy now in order to take away your opportunity to consider things properly and perhaps decide not to make the purchase. The harder the sell, the more reason you have to go away and carefully research their offer.
Talk to a professional finance broker today.
One of the ways unscrupulous salespeople make their money is by selling you expensive finance. No matter how attractive the offer or how insistent the salesperson, you should never sign up for finance on the spot. It is very easy to be distracted by the price of that great car or perfect house and forget to be diligent about your financing deal – this is a major mistake that could end up costing you a lot more than you think.
Finance contracts can often have restrictive terms, unfavourable interest rates and hefty exit fees. Car dealership finance for example, is notorious for failing to take into consideration your complete financial circumstances, so you could end up with financial hardship or may actually find yourself unable to make your car repayments. This could be disastrous for your credit rating and leave you struggling to get any kind of finance in the future.
No matter the urgency, always take the time to talk with a mortgage or finance broker about your finance needs. We will help you to determine exactly how much you can afford to borrow and make sure you obtain the most favourable interest rate and finance product available for you and your needs, taking into consideration your personal financial circumstances and goals. Call us today.
5 things to look for in investment property
Investing in property can be a fantastic means of strengthening your financial position and generating wealth. However, when undertaken without the proper research, knowledge, and general understanding of the property market - the fallout can be disastrous. Thus, we have compiled a list of 5 simple tips, designed to steer you in the direction of the perfect investment property.
1. Desirable location
Location, location, location! As we have been told by countless property shows for years on end, location is everything. When you are purchasing your investment property, you need to ensure it is in a place where people actually want to live. Even though you may adore the peace and solitude of the country side, those in the rental market may not. And its not just the general positioning that matters, you should also take a look at a house's surrounds; are there schools? Shops? Transport options? These are the kinds of things that potential tenants will look for, and the lack of any one of these facilities could polarise a large portion of your target group.
2. Capital growth
Question: What is the ultimate goal when investing in property? If you answered anything other than 'to make money', then perhaps you should go back to the drawing board and rethink your property investment strategy. When searching for an investment property, capital growth should be at the forefront of your mind. Even if cash flow is your short term goal, capital growth is still the best way to build equity fast, and generate more income in the long term. If there is an enormous supply, and little demand (such as a new crop of inner city apartments) then it may be a very long time before you witness any growth. Research historical property data, and suss out median prices in the area. It's also wise to consult a professional, to help you guesstimate the potential for growth - real estate agents can be a handy utility.
3. Cash flow
As mentioned above, cash flow is another important consideration when buying an investment property. If you are cash-poor but asset-rich, you will likely need a positively geared property in order to service your monthly mortgage repayments. With the Australian property market experiencing record highs, positively geared properties can be harder to come by, but they certainly still exist. Look to high yielding suburbs; mining towns or areas with large student populations can be valuable places to consider. Indeed, there are certainly ways to transform negatively geared properties; instead of renting out the whole house, consider renting out individual rooms at a higher rate to generate a positive cash flow. This is an ideal scenario for student share accommodation!
4. Low maintenance
It's effort enough completing all the niggly little weekend jobs on your own home, let alone on any additional investment properties you may have. To avoid excessive weeding, painting, and pest controlling, source a low maintenance property. How do you find one, you ask? Well, it's a matter of weeding out the 'dud' investments - so to speak. Avoid extremely old properties that would require intense upkeep, avoid swimming pools (more burden than benefit), define gardening responsibilities in the tenancy agreement, and, simply, consider the required maintenance on each property you look at. Identifying potential grievances before you buy could save you thousands in maintenance costs in the long run.
"Wow, look at that amazing leopard print splash back!"
"Check out these cool banana yellow bathroom wall tiles!"
"I've always wanted a cowhide built-in bedhead!"
While these may be the exclamations you make, as you walk into what could only be described as a confused hoarder's take on eclecticism, few others will feel the same. Bold, offensive palettes can be alienating, as they ignite feelings of either love or hate, and don't leave much room for the middle ground. While these quirky touches may be perfect for your own home, it's best stick to the 'norm' for rental properties. Neutral tones, soft palettes, and understated textures will appeal to the masses, and give tenants the opportunity to add their own personal styling touches. So, if you're choosing from a pair of almost identical units, and can't decide between the charcoal exterior or the blood orange - please, for Pete's sake, go for the charcoal. You (and your future tenants) will thank us later.
There are many different ingredients needed to concoct the ultimate investment property. While it will prove difficult to find a property that harmoniously coordinates all of the above, these are all certainly things you should consider before placing a winning bid. Decide on your priorities, and compromise when needed. Remember, you have a myriad of specialists at your disposal; your mortgage broker, real estate agent and financial planner will all be happy to impart their wisdom, and guide you towards the perfect property. Good luck, and happy house hunting!