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Tips for planning a property strategy for the new financial year (Part 2)

Posted on Monday July 19th, 2010 by Mortgage Choice
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Posted in Compare Home Loans, First Home Buyers, Home Loans, Property Investment, Top tips for property & home loans, Uncategorized, interest rates | No Comments »

Mortgage tipsIn part 2 of our post, we share some additional  tips for planning a property strategy for the new financial year.

Tip #3: Cash up to cash in

Saving your tax return or bonus, forgoing luxuries and/or selling assets with a high monetary value can help you achieve your goals sooner. Contribute this money into your savings account to increase your deposit for a first, next or investment property purchase. Or, create a financial buffer by depositing it into your home loan account, which takes time off your home loan term and reduces the total interest owed.

Tip #4: Interest in advance

Investors with healthy cash flow and good savings habits might consider the tax advantages of an interest in advance home loan. These let you to pay, in advance, up to a year’s worth of interest, allowing you to claim the tax deduction in the current financial year.

There are limitations to consider:

  • At the end of the interest in advance term the home loan may need to be renegotiated or switched to another type, often at your expense.
  • Also, because these are fixed rate loans, they are usually not as flexible as variable rate loans.

Tip # 5: Fixed repayments are luring

Some lenders have started to reduce their fixed interest rates. However, Mortgage Choice’s May home loan approval data showed just 3% of new borrowers chose to take a fixed rate home loan. These home loans can provide peace of mind, keeping repayments stable over a fixed term. However, there may be fewer features on offer and you may incur significant costs to break and switch from the home loan. Variable rate mortgages tend to be more flexible with features and the interest rate, but you must be prepared for rate rises. If you want to hedge your bets and take advantage of pros from each rate type consider splitting your home loan between fixed and variable.

Tip #6: Think outside the cheapest interest rate

Choosing the mortgage with the cheapest interest rate is not always the best option. You have to take into account your current circumstances and any changes to these in the future. For example, if you plan to renovate your property in the future and the RBA was to raise interest rates and you suddenly needed to refinance your home loan would you have the ability to do so with your home loan plan? Certain home loan features can come at an extra cost but having a flexible home loan could pay off in the long run.

Tip # 7: Match the type of home loan to your goals

Think carefully about interest only versus principal and interest home loans. Although paying only the interest will not reduce the home loan amount, it will result in smaller monthly repayments, allowing you to make greater contributions to your principal place of residence or to invest in another asset, while the property grows in value through capital gains. In comparison, principle and interest home loans help you repay your debt sooner as repayments cover all the interest plus some of the actual loan amount.

Check out Reserve Bank’s accurate decision to keeps cash rate at 4.5% for the recent decision to leave cash rates on hold. Also, have a look at part 1 of tips for planning a property strategy for the new financial year.

If you would like to contribute to the tips then leave us your comments below.


Should you choose a fixed interest rate or variable interest rate mortgage?

Posted on Monday June 7th, 2010 by Mortgage Choice
Posted in Compare Home Loans, Top tips for property & home loans | No Comments »

Fixed vs variable interest rateAs of June 2010, the Reserve Bank has raised interest rates six times at its last eight board meetings. And until recently that trend looked set to continue. But turmoil in Europe has some analysts predicting that interest rates could even fall if there is a knock on effect in the global economy. Other analysts are saying there’s more rate rises on the way, just not yet.

So right now it’s hard to predict the future, which is why locking in a fixed interest rate on your home loan can look attractive, particularly if you own an investment property and want some reassurance on what your monthly expenses will be. However, keep in mind fixed interest rates are, most often than not, higher than variable rates at the moment.

A quick check of the ‘Big 4′ bank websites shows their 3 year fixed interest rates range from 7.39% p.a. to 7.79% p.a., compared to the variable interest rates from 6.86% p.a. to 7.64% p.a. It pays to shop around.

Mortgage Choice has dozens of lenders on our panel, so you may be able to get an even lower rate, like Heritage Building Society’s 1 year fixed rate of 7.09% p.a., against their variable rate of 7.15% p.a..  So you could even get a lower rate when locking in, which is a pretty attractive option. It always pays, though, to talk to a mortgage broker to help you choose what might be best for you.

Also remember that you have less flexibility with fixed rate home loans. Generally, you’re limited as to the amount you can make as extra repayments (if you’re allowed any at all) and you may not be able to take advantage of redraw and offset accounts.

There can also be quite significant costs if you wish to exit (or break) your home loan before the end of the term because lenders generally charge you for “breaking” your home loan contract with them. If the RBA keeps interest rates where they are for the time being then a variable rate with, say, an offset account or redraw facility could be your best option.

Of course you could consider an each way bet, splitting your home loan 50/50 fixed and variable. And some borrowers opt to do just that. Right now though, Mortgage Choice figures show the vast majority of home buyers are choosing variable rate home loans.

So… should you lock in a fixed rate? Or benefit from the extra features that come from a variable loan? To help you decide, we’ll be watching the RBA’s movements with interest over the coming months.

There’s more to a home loan than simply getting the lowest interest rate

Posted on Monday May 31st, 2010 by Mortgage Choice
Posted in Compare Home Loans, First Home Buyers, Home Loans, Mortgage Brokers | No Comments »

Choosey the Beagle“If I hadn’t talked over things in detail with my mortgage broker, I never would have saved almost $10,000 in interest on my home loan,” says Sam Roberts* of Petersham. “Let’s face it, who wants to give the banks any more money than they have to?”

Sam’s broker walked him through a whole lot of options, including a no-frills loan with a 12 month ‘honeymoon’ rate. Sam said, “While it was appealing to pay a bit less each month, I knew I wanted to do some traveling in the next few years, and wanted to get a bit ahead on my loan. Having an offset account meant that I could build up my savings, reduce my home loan interest charges and not pay any tax on the money I had put away.”

Of course, a basic low interest rate home loan CAN make sense in the right circumstances. But don’t make the mistake of thinking that the big banks always have the best interest rates. There are lots of smaller lenders out there who are keen to get your business. They often have lower overheads or different financing arrangements, and so they may be able to shave a few extra points off their home loan interest rates.

The moral of the story? It costs you nothing to talk to a mortgage broker about which types of home loans would work well for you, and it could save you thousands in interest payments and refinancing charges.  What’s not to love?

*Name has been changed.

Is getting the lowest home loan interest rate all that matters?

Posted on Friday May 28th, 2010 by Mortgage Choice
Posted in Compare Home Loans, First Home Buyers, Home Loans, Top tips for property & home loans | No Comments »
Lowest interest rate isn't the full story

Lowest interest rate isn't the full story

If you think the lowest home loan interest rate is the best rate, you might just be backing the wrong horse.

Everyone seems to have an opinion about mortgages. And in today’s climate of rising interest rates, a lot of commentators are suggesting that the best bet is simply to look for the home loan with the lowest rate. While that may seem attractive at first glance, there is a lot more to consider. Like…..

  • Where you are in your life (planning a family?);
  • How disciplined you are about managing your money, and;
  • If you have some projects planned over the coming years, like a renovation, an investment property or even a holiday.

The fact of the matter is that choosing a home loan is a major financial decision, and by seriously evaluating your needs and options, you may save yourself significant amounts of money, time and trouble. Just looking at comparison rates is, quite simply, only some of the story.

Take Anna Cooper*, for example. Anna chose to rent for a number of years before buying. Eventually, she decided to purchase an investment property. When the time came to get married and start a family, she sold her flat to raise the deposit on her new family home.

Knowing that she and her husband were keen to quickly become parents, they chose a home loan with a redraw facility. They paid as much as they could afford into their home loan, so that when the time came for Anna to give up work, they had cash reserves built up to tide them over. They also knew they could arrange a repayment holiday if it took longer than they expected for Anna to get back to work. By putting extra money away in their home loan, they reduced the overall interest owed and avoided paying the tax that would have been attracted to these funds if they’d been put into a savings account.

Sam Roberts* chose to split his home loan on his apartment in Sydney’s inner west. He fixed half of his loan amount, so he had the certainty of knowing what his repayments would be for the next three years, and chose a variable rate for the other 50%. His variable rate loan included an offset facility. Simply by banking his monthly salary into his offset account, using his credit card to pay for everyday expenses and paying off his credit card in full each month via his offset account, he’s saved almost $10,000 in interest on his loan in the last three years.

So how do you know what will be the right choice for you? More in our next post …

*Names have been changed

Show the banks who’s boss

Posted on Tuesday January 19th, 2010 by Mortgage Choice
Posted in Compare Home Loans, First Home Buyers, Home Loans, Mortgage Brokers | No Comments »

With snazzy new advertising campaigns in hand, several lenders are bending over themselves to tell their customers they care. But some of the gloss started to come off their advertising campaigns when they lifted their home loan interest rates ABOVE the recent Reserve Bank cash rate increases.

ANZ lifted their rate on a standard variable mortgage by 0.35 percentage points, CBA increased its mortgage rates by 37 basis points, and Westpac went up 45 basis points. Only NAB kept their rate rise to the RBA’s 25 basis points.

The rate increases seem to be starting to affect the market with the number of total home loans taken out in November dropping by 1.6 per cent compared with October, according to the ABS.

If you’re thinking about moving into the market, shopping around for the home loan that’s best for you is critical. The internet is a good place to start, so you can compare and contrast what’s out there. Have a look at www.ratecity.com.au and www.mozo.com.au for example.

If you have a home loan already, don’t forget you can go back to your lender and try to re-negotiate a better deal. It doesn’t hurt to ask, and by switching to, say, a professional package, you could be better off. Keep in mind there may be costs associated with changing lenders or products, though, so make sure you get a thorough understanding of what those might be, and work out if you will end up ahead.

Your local mortgage broker can also help you find a home loan that’s suitable for your circumstances – not just the best rate – by looking at all the fees and charges associated with taking out a new home loan as well as features such as redraw facilities and offset accounts.

Anyone talked to their lender recently to renegotiate their home loan?

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