We of course help clients everyday arrange competitive home loans for new homes and renovations and of course one of the outcomes is having to move all of your stuff from one place to the other. Now we have all been there and moved ourselves and our friends many times over and I am pretty sure no one enjoys the joy of getting a four seat couch down a staircase! I for one will never forget dropping my mates grandmothers old piano on the front garden when I was in my late twenties (sorry Simon!!).
Now while you could look up ‘removalist’ online and take your chances an Australian company has come up with a great but simple idea. Muval is a platform that connects removal companies with people and businesses looking to move items locally or interstate. It removes the hassle of calling around for multiple quotes from different companies and removes the uncertainty and dread that is often associated with the moving process.
Given how time poor we all are and how much most of us loath moving why not lookup Muval and give them a go for your next home move – we recommend their services to our clients so give it a go next time for your move.
Over the past 2 weeks we have fielded numerous enquiries from our clients with questions and concerns about how to approach lenders for hardship support relating to COVID19 and the impact this may have on their mortgages, rates, credit histories etc.
To ensure our clients get the most accurate advice, AXTON Finance have been in regular contact with the banks and lending institutions we work with and with whom all of our clients have mortgages.
In our earlier communications we noted that a hardship repayment holiday is not ‘interest free’ and that such a holiday may extend the term of the loan or the interest you pay over the life of the loan. As such, it is important to understand what this means for your long term, and that if you have some capacity to make repayments towards your loans, then it may serve you well to do so.
The encouraging fact to note is that all lenders have in place support for borrowers to receive repayment assistance.
The most important action anyone can take under these trying circumstances is to proactively communicate with your lender, and to do so before any repayments are delayed or missed.
Banks and lenders approach and support to hardship is evolving, and as we write this, most lenders are treating the conversion of a principle loan repayment to interest only as ‘credit critical’ (this means such a change to your loan contract will only be permitted through a full assessment via a loan application). There is some political push from the government towards the banks and lenders to simplify this process, however as it stands a full assessment is usually required.
What is useful to understand, however, is that in applying for and obtaining hardship assistance means whilst it is not necessary for you to make a repayment during the hardship period, you may be permitted to.
The upside here is that in remaining under a P&I agreement, you will be incurring interest at a lower rate (Interest only terms tend to be priced higher for risk). So you may effectively be getting interest only terms at a lower rate without actually needing to go through a full loan assessment (providing you meet the hardship criteria).
There is some inconsistency between lenders as to how they treat the repayment. Some lenders advise these payments will be available for the borrowers during and after the hardship period if they needed to redraw. Others have advised these are not. So it is very important to ask your lender what availability you will have to cash paid into your loan during or after a hardship period. They may even take the view that if you can make a repayment, you may not qualify for hardship…
New loan application, current applications…
Most lenders are quickly updating credit policies to accommodate risk associated with COVID19 and request additional information and explanation around job type/industry to identify is this may impact ability to repay in the near future. Some lenders are asking applicants to provide disclosures and confirmstaions along the following lines:
The COVID-19 crisis is causing significant social and economic disruption. Applicant(s) to advise how they foresee this affecting their current financial position (including income) and how they will financially navigate that affect. This approval is subject to the Lender understanding and acceptance of this affect.
- Be proactive with your communication, ask for assistance before you miss a repayment;
- Understand the impact and accessibility to any payment made during a repayment holiday;
- If there was no loan conduct issues prior to COVID19, any hardship or repayment holidays granted as a result of COVID19 impacts will not effect your credit history;
Impact on Credit History
Borrowers who are granted a six-month deferral on loan repayments will not have their credit rating affected as a result of the holiday, so long as they were up to date with repayments prior to the economic impact of COVID-19.
“If a customer is granted a deferral on their mortgage and other credit products because of COVID-19, banks will report customers as not having missed a repayment, provided they were all up to date when granted relief,” explained ABA CEO Anna Bligh.
As always should you have any questions we are here to help – while we may be working remotely during this time please call the office on 03 9939 7576 and one of our team will be able to help you.
Take care out there!
James Hardiman I General Manager
Firstly our small team at AXTON Finance hope that you, your friends and your family are looking after yourselves during this time. Please listen to government advice on how you can play your part to keep yourself and others safe during this pandemic.
Australian banks and lenders pitch in
On Friday 20th March The Australian Banking Association (The ABA) announced a unified response to assist Australians during this crises.
Below is a summary of COVID19 links available from each lender in the Australian market place.
This page is being updated as more information comes to hand.
Key points to consider – our brief summary
– The term ‘repayment holiday’ SHOULD NOT be interpreted as interest being waived. It is only repayments (interest) being deferred. You still have to pay the capitalised interest added to the loan balance in the future.
– Qualification requirements are likely to apply (eg unemployment, significantly reduced hours, at risk industry etc)
– Our opinion is that the deferred repayment should be used where genuine hardship is being experienced or is expected. In the long term adding (capitalising) interest for six months or more can add a significant amount of interest to your total loan cost.
– Most lenders are offering up to six months relief in repayments. Some are offering up to three months with a checkin at that point for a further three months.
– Credit reporting agencies and lenders have already outlined that the hardship arrangements are typically not reported as defaults, and therefore do not impact a borrower’s credit score, with APRA also stating on Monday 23rd March 2020 that banks need not treat repayment holidays as arrears.
– The very cheap fixed options we are starting to see should be considered carefully. Often you cannot make extra repayment on a fixed rate, there is often no redraw and expensive break costs can also apply should you pay the loan out early.
– It may be economical to consider refinancing to a new lender to take advantage of cheaper rates, a new interest only term or one of the current cash back rebates available before you simply defer your repayments.
Speak to your AXTON broker if you would like a mortgage review (click here for a free review) or to discuss any of the points above.
Useful COVID19 Lender Links
Bank Of Melbourne (click link on main page to COVID Information)
If in doubt or if you just want to chat about your situation please contact your mortgage broker to assist where possible.
Contact details are as follows:
- Adrian Grant – [email protected] – 0415 735 819
- Clint Waters – [email protected] – 0422 464 353
- James Hardiman – [email protected] – 0403 775 558
- Paul Kusli – [email protected] – 0439 337 789
Our office number (03 9939 7576) is still actively being monitored as we run a full VOIP system and can be contacted as per normal.
Your team @ AXTON Finance
Photo by Branimir Balogović on Unsplash
With auction clearance rates slipping below 50% in some markets right now, vendors are much more open to a pre-auction offer. You’ll also find more vendors choosing a private sale over an auction because it allows them to hold out for their price and save on auction costs.
That means, if you’re ready to buy a property in the spring market, you’ll also want to be prepared to drive a hard bargain. Here are some tips on how to make a successful pre-auction offer and negotiate your price like a pro.
Have your finance in place
If you haven’t already done so, ask us to organise pre-approval on your home or investment loan before you put in an offer. That way, you’ll be confident of your finances and have a clear understanding of your upper spending limit. Having pre-approval in place gives you an edge over the competition because the vendor knows the deal will go smoothly.
Offer the right price
Research is always the key to paying the right price for a property. Whether you’re buying at an auction or negotiating directly with the vendor, it pays to know the property’s correct market value before you go in guns blazing.
Research will allow you to make an offer that’s too good for the vendor to pass up, without overpaying. It pays to be realistic – you’ll have a better chance of beating the competition.
Discover the vendor’s motivation
Knowledge is power. Ask the real estate agent why the vendor is selling and use the information to your advantage. For example, if they have already put down their deposit on their next property, the vendor may have time constraints that you could exploit by offering a faster settlement. If they are in a divorce situation, you could provide a more substantial deposit so that both parties will have more money for their next property deposit, which could help the vendor choose your offer over someone else’s.
Play your cards close to your chest
When it comes to liaising with the vendor’s real estate agent, be mindful about giving away too much information. Never tell them your budget in advance, as they could use the information against you. Always indicate that you’re interested in several properties and have other options – if they think you’re too keen on the property they’re selling, then they’ll be less flexible during negotiations.
Time your offer well
Timing is crucial when you do make an offer. Some experts suggest that you go in hard and early, well before the auction – as vendors may be more inclined to accept your offer because of the convenience factor, which may also be a good tactic in a softening market.
Others recommend waiting until right before the deadline to make the offer, to eliminate the possibility that the real estate agent will shop your offer around to other prospective buyers.
Another tactic is to stipulate a time limit – for example, tell them it’s only on the table for 48 hours. Whatever your strategy, be prepared to stay firm on your offer – don’t be too quick to budge from your original offer price as it could make you look comfortable.
Keep your emotions in check
It’s important not to be distracted by your emotions during negotiations. If the price is being pushed up, you may have to walk away if it goes beyond the correct market value you have researched. A common mistake is to be manipulated into paying more than a property is worth because you love the property or don’t want to be the loser in the negotiation process.
Making a winning pre-auction offer comes down to being informed and employing some strategic negotiation tactics. I can help you prepare by organising a pre-approval on your home loan.
Get a buyers advocate
If it is just getting all too hard you might like to consider some professional help.
Utilising the services that buyers advocates offer is becoming more popular across Australia, as buyers recognize the benefits having their own advocate brings to the entire purchasing process.
Buyer’s agents are professionals who specialize in searching, locating, evaluating and negotiating the purchase of property on behalf of buyers. They do not sell real estate. They are engaged independently and paid for by the buyer to act on their behalf. The key difference between a selling agent and buyer’s agent is who they represent as, by law, an agent cannot act for and accept a commission from both parties in the same transaction.
Buyer’s agents offer a number of different service options, ranging from complete searches through to auction bidding and single property reports. Their aim is to ensure that the purchaser is as fully informed as possible and doesn’t overpay for the property. Having an experienced advocate on side who is familiar with suburb values and the purchasing process also assists in maintaining objectivity when it comes to negotiating the best possible outcome.
Give us a call to find out more or for an introduction to one of our preferred buyers advocates.
This article provides general information only and has been prepared without taking into account your objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances and your full financial situation will need to be reviewed before acceptance of any offer or product. It does not constitute legal, tax or financial advice and you should always seek professional advice about your individual circumstances. Subject to lenders terms and conditions, fees and charges and eligibility criteria apply.
How Does Refinancing Your Home Loan Save You Money?
When Australian academics researched the difference between renting for life and investing your hard-earned income into property ownership, the results were clear. Taking the leap into buying your own property gives you a better return in all Australia’s capital cities. The University of Melbourne economists came to their conclusion after studying data from 1983 – 2015 and compared buying a house with renting and investing in a combination of term deposits and shares.
But as house prices increase around the country, shopping around for the best possible home loan deal with a low interest rate is more important than ever.
If you’re already lucky enough to be a property owner, refinancing your existing loan in order to get access to a better deal could be a smart move for your mortgage.
Choosing A Home Loan For Refinancing
The days of signing up for a mortgage with a 30-year repayment term are gone as banks and other lenders scramble to offer great deals that help them win customers. But as today’s workforce habits continue to evolve, flexibility is an important thing for borrowers to enjoy, and it’s important to remember that the best mortgage for you might be about more than just a low interest rate. To help you benefit from refinancing your existing home loan, take a closer look at extras on offer, and weigh up the benefits those extras may offer, in combination with the all-important interest rate.
The three main types of home loans include:
Basic loans: these no-frills frills loans typically have limited added features and a low interest rate. Although many now offer redraw facilities, there can be restrictions and fees, so if you want to make extra repayments at some point in the life of your loan this may not be the best deal for you.
Standard loans: you’ll enjoy greater flexibility that may include the ability to redraw money you have paid in, or the option to switch to a fixed rate, or perhaps split your home loan into both a fixed rate and variable rate home loan. You can also enjoy a 100% offset account but it’s important to shop around to find a loan with a cheaper interest rate and similar features.
Home loan package: this can include a standard loan with an interest rate discount that, depending on your loan amount, might be cheaper than many basic loans. The package can include a free transaction account and a credit card with no annual fee. But be warned of other hidden costs, including high package fees that can add up over the life of your mortgage.
Variable or fixed?
In these times of hefty house prices, low fixed rates can sound tempting.
Keep an eye out for reduced flexibility, including restrictions that may prevent you from making extra payments – something that can see your total interest soar over the life of your mortgage.
With rates always fluctuating, it’s difficult to predict if choosing a fixed rate over the next three or five years will save you money in the long-term. By asking yourself if you can afford a higher interest rate, you can make a well-informed decision about whether fixing the rate for at least part of your loan might be a good option.
A split loan can offer the best of both worlds and it’s something you’ll understand better by talking to an experienced mortgage broker.
Don’t Forget The Loan Fees
To help you choose the best refinancing deal for your mortgage, remember that interest rates are just one of the costs to think about. Always check the ongoing fees and charges that add up over the life of your home loan.
Asking for a better deal might just be the best thing you can do for your mortgage but it’s best to go into any refinancing deal with your eyes wide open.
Some common fees include:
Valuation fees and lender’s legal fees
Lender’s mortgage insurance (LMI)
Monthly or annual fees
Favourite Home Loan Features
Depending on your personal circumstances, there might be some home loan features you’ll love. These include:
- Extra repayments – make accelerated repayments to pay off your home loan sooner
- Redraw facility (some redraw facilities are easier to access than others, so talk to your broker to understand what’s on offer before committing)
- Repayment holidays (with some mortgages allowing you to take a ‘repayment holiday’ for a short period to help you through lifestyle stages – such as having a baby – it’s smart to shop around to find one that suits your individual needs)
- Interest only – although this will be more expensive these days (check out our other blog topic here why this is the case)
- Mortgage offset accounts – the balance of your savings account reduces the interest charged on your mortgage and is usually calculated daily.
To help cut through the confusion and find the best deal to refinance your mortgage, talk to our team today or just call us on 03 9939 7576 to discuss your scenario.
Have you ever had that feeling of frustration that comes from buying an item at a store, then seeing it substantially cheaper at another shop?
It can also happen with your home loan. And if you’re refinancing your mortgage, it’s smart to shop around for a better interest rate.
The reality is that, even though your interest rate might have been fantastic when you first applied for your mortgage, other lenders are competitive and can have better deals on offer.
And if your current interest rate is not ideal, the end result can be many thousands of dollars wasted over the life of your home loan.
The good news, though, is that you can take practical steps to fix the situation.
In the current Australian home loan market, there are always discounted interest rates available and by comparing the different options available to you, there could be valuable savings to enjoy.
To help you refinance your home loan, try these tips to save money on your mortgage by shopping for a better interest rate deal.
1 – Improve Your Credit Rating
Even if you already have a home loan and you are keen to refinance your mortgage for a better deal, improving your overall credit rating can still have an impact.
With a healthy credit rating, you have more choice available – and the more options you can access, the better chance you have of securing a competitive interest rate.
Always pay utility bills on time (or, better yet, pay them well before the due date and save money with the earlybird discount).
When it comes to credit cards, get rid of any unnecessary extras and keep the available balance as low as possible on the one you do keep. By reducing available credit and avoiding late payments and defaults, you give your credit rating the best possible boost that lenders appreciate.
2 – Research The Rates
In these days of the online world, when comparison rate websites put information at our fingertips, shopping around for great interest rates is easier than ever. The days of approaching your bank for a home loan because of some sense of customer loyalty are gone and the truth is that the interest rates deals that can benefit you the most may be found in some unexpected places.
For access to the best interest rate comparison, talking to an experienced mortgage broker is always recommended. Researching available rates is more than just comparing numbers on a screen – it’s about understanding which lenders service which client demographic best and what unique criteria each lender has as a potential barrier to your entry into doing business with them.
By putting some effort into researching a great rate that is actually available to you, you can save tens of thousands of dollars – and years – from your home loan.
3 – Be prepared to switch banks
Switching banks for a better deal on your mortgage payments is not the enormous hassle it once was. Make sure you do your research – checking application fees and other associated costs will reveal the true picture of the complete cost of your mortgage. If crunching the numbers reveal that switching banks really will save you money in the long-term, it is worth making the switch to save money on your interest rate for the life of your loan.
4 – Ask For A Better Interest Rate
Sometimes, it’s possible to access the benefits of these competitive interest rates without even having to change home loans. Depending on your lender and the history of your loan with them, simply letting them know that you are keen to shop around for a better interest rate can be enough to get them to offer you a lower interest rate in an effort to hold on to your business.
Try asking your current lender this question: “I’m shopping around for a better interest rate and I want to know if you can give me a better deal on my mortgage?”
Or, better yet, get an experienced mortgage broker to do it for you. By having a thorough understanding of different interest rates available at a wide variety of lenders, professional mortgage brokers are in a strong position to negotiate a more positive deal.
For more information about refinancing your property, talk to our team today.
Axton Finance is pleased to announce that we have been awarded Mercury Hero in the 2017 Connective Excellence Awards, in the face of some very stiff competition.
This award recognises our innovative use of their Mercury technology platform that drives fast home loan approvals and better client experiences.
Connective Excellence Award Winners are chosen for their expertise, integrity and outstanding customer service standards. Axton Finance is very proud to accept this award and be recognised amongst the best of the best in Australia’s mortgage and finance broking industry.
Connective is one of Australia’s leading mortgage aggregators. Collectively, Connective brokers write one in every 10 Australian home loans.
If the Reserve Bank of Australia (RBA) cash rate is so low, then why is your interest rate going up?
We are asked this question a lot.
The official cash rate, as set by the Reserve Bank of Australia (RBA), has remained at 1.5%pa since August 2016 when it was then cut by 0.25%. The below graph shows the last thirty years of the official cash rate – you would have to go back to the 1950’s to see rates this low.
There are a few simple reasons why some rates are increasing. As you probably know in the past few years, we have experienced a boom in property prices (mainly only in Melbourne and Sydney though). This has resulted in significant growth in investment and interest only lending.
Interest only loans are of course an attractive form of mortgage lending as it reduces your monthly cash flow commitments but it does significantly increase the total cost of a loan over its effective life. You can actually simulate this using one of our online calculators to see for yourself here.
Most accountants and financial planners will rightly recommend that you setup your investment purpose lending as interest only (the theory being do not pay down a debt that gives you a tax deduction first if you have a home loan mortgage that does not). While this structure is in most cases a wise one, it has also seen a significant increase in owner occupied home loans that have been set up as interest only. This of course means that borrowers have had more cash flow available to them to either spend on more investment debt or, more worryingly so, on living and lifestyle expenses – without having to pay off what they owe.
The government has recognised this trend and has been concerned with the level of indebtedness that Australian households have taken on; coupled with low wage growth and rising house prices. When interest rates increase (and they will) and if left unchecked this could create significant economic pain for borrowers and the government alike.
Subsequently APRA (Australian Prudential Regulation Authority), the government body tasked with ensuring sound governance of our banking system, set a speed limit that states that lenders cannot exceed 30% of all new loans being interest only – which has been running at something closer to 40% of all new loans approved.
Until recently, interest only and investment lending has traditionally been priced at the same rates as owner occupied mortgages and even the same as interest only loans – so effectively the rate you paid was the same across the board regardless of what the purpose or structure was.
This has now changed so there are effectively four types of rates on the market (excluding fixed options) They are summarised as follows and ordered cheapest to most expensive;
– Owner Occupied – Principal and Interest (3.7%pa – 4.2%pa)*
– Owner Occupied – Interest Only (3.9%pa – 4.5%pa)*
– Investment – Principal and Interest (3.8pa – 4.5%pa)*
– Investment – Interest Only (4.2%pa – 5.00%pa)*
*Approximate interest rate ranges as at early July 2017
In summary – interest only and investment lending is now more expensive.
Mortgage lending policy is being tightened
As a result of these restrictions we are seeing significant changes in lending policies and rules across all lenders. In combination these rules have a direct effect of reducing demand for interest only and investment lending purposes.
Across the board there have been countless changes which cannot be summarised in this brief blog but at a high level they can be summarised as follows;
Reducing higher lending ratio loans
Generally higher lending ratio loans for investment and interest only lending are being capped at around the 90% loan to valuation (LVR) ratio with strong pricing incentives for borrowers to be at 80% or less.
Increased stress testing of borrowers
While the mainstream media may have made broad brush statements about irresponsible lending by the nation’s banks and lenders, this is simply not quite true. Banks have always maintained rigorous assessment criteria and have always sensitised interest rates in their calculations to account for a ‘what if’ scenario for when, not if, interest rates rise. Most lenders test borrowers for affordability at around 7.0% to 8.0%pa and apply minimum benchmarks to acceptable living allowances to determine affordability.
This latter requirement has come under significant scrutiny recently with most lenders demanding borrowers to summarise their own basic living expenses which will be compared against the banks own standards (some lenders now will also index living expenses according to the amount of income an applicant earns with those on higher incomes having higher minimum living expenses applied.).
Lender rules first, rates second
In this environment, more than ever before, it is important to get quality advice around your finance options. There are significant differences between what one lender’s rules are and anothers. There may be a slight difference in the rate but a huge difference in policies that will affect your ability to be approved, your structure and of course your total borrowing capacity.
What you can do about it
A few recommendations include;
- Consider fixing some of you loan
Some of the lenders are offering some pretty attractive fixed terms that are the same or cheaper than many variable investment and interest only loans. With the likelihood of further increases for this sort of lending, now would seem like a pretty good time to consider your options around locking in a near historical low rate
- Switch to Principal & Interest
Given that the banks are under significant pressure to reign in interest only lending taking a principal and interest repayment is attractive to all lenders these days and they have priced their products accordingly to increase demand for principal and interest repayments. It does of course increase your monthly repayments but you are paying down the loan and ultimately paying much less interest in the long term
- Set up an offset account
If you have some funds sitting in a interest bearing account it can be a suitable option to put the same funds into an offset account. The effect is it reduces the balance of your loan and interest charged on your mortgage by the amount you have in offset (eg $10k in an offset account reduces the balance of a $100k loan to an effective balance of $90k). The rationale being that an interest bearing account may earn you a poultry 2.0%pa currently, less tax, less the effect of inflation and you aren’t really going anywhere. Where an offset account saves you interest at a much higher rate with nil tax payable on the saving. Consider it that saving money is better than making money.
- Ring your current lender
You might be surprised at how a simple phone call may result in you getting a better rate. The recent rate increases have been a pretty broad brush 0.15%pa increase here or a 0.3%pa increase there on top of whatever you are paying. If your product is out of date and hasn’t been looked at recently you could be paying well above what is available currently. It also helps to use the magic words ‘Im looking at refinancing what can you do for me?’
- Refinance to a new lender
There are dozens of lenders out there and you might just be better off refinancing to a new lender. We can of course give you some options around this. Here are two useful tools to help you start that process.
We hope that this helps shine some light on the current situation around why mortgage interest rates have been increasing recently. As mentioned please feel free to contact us here or call the office on 03 9939 7576 to discuss your option tailored to your scenario.