How Can Borrowers Benefit, Even When Rates Go Up?

Two of the major banks are forecasting two rate rises in 2018. How will borrowers cope when more of their household budget is needed to pay-off their home loan?

Economists at the NAB and ANZ are now predicting there will be two rate rises next year, the CBA is predicting one rate rise.

It has been 82 months since the Reserve Bank increased its cash rate. When interest rates do rise, borrowers are going to have to consider how they are going to manager when their home loan payment eats into their disposable income.

Borrowers who have investment properties now have extra challenges as regulatory pressure is forcing up investment rates. Yes, they are paying more interest. This can be offset against the income derived from the property, thereby potentially giving them a larger tax rebate due to the increased interest expense they can claim.

Pressure from the Reserve Bank plus the Australian Prudential Regulation Authority (APRA) may well impact adversely on some household budgets.

However, there are some innovative lending policies out there that can significantly reduce loan repayments.

Some lenders will finance investment loans at the lower owner-occupied rates – so long as the borrower cross-collateralises their home with their investment property.

Fixed Rates should be considered as your repayment will stay the same, for the fixed rate period, should variable interest rates rise.

Fixed Rate loans are becoming more flexible with some allowing additional repayments, conditions may apply.

Some also allow the borrower to redraw any additional repayments they has made. 

Be aware, you may incur a penalty should you repay the loan in full during the fixed rate period.

Whilst rates are now low, borrowers should pay extra on their home loan each month. When interest rates do rise, the impact on their disposable income will be lessened.

For an obligation Free review of your home and investment property loans, click here to have a licenced professional give you a call.

RBA leaves Cash Rate on Hold

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

Conditions in the global economy are continuing to improve. Labour markets have tightened further and above-trend growth is expected in a number of advanced economies, although uncertainties remain. Growth in the Chinese economy has picked up a little and is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. Commodity prices have generally risen recently, although Australia’s terms of trade are still expected to decline over the period ahead.

Wage growth remains subdued in most countries, as does core inflation. Headline inflation rates have declined recently, largely reflecting the earlier decline in oil prices. In the United States, the Federal Reserve expects to increase interest rates further and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively and volatility remains low.

The Bank’s forecasts for the Australian economy are largely unchanged. Over the next couple of years, the central forecast is for the economy to grow at an annual rate of around 3 per cent. The transition to lower levels of mining investment following the mining investment boom is almost complete, with some large LNG projects now close to completion. Business conditions have improved and capacity utilisation has increased. Some pick-up in non-mining business investment is expected. The current high level of residential construction is forecast to be maintained for some time, before gradually easing. One source of uncertainty for the domestic economy is the outlook for consumption. Retail sales have picked up recently, but slow growth in real wages and high levels of household debt are likely to constrain growth in spending.

Employment growth has been stronger over recent months, and has increased in all states. The various forward-looking indicators point to continued growth in employment over the period ahead. The unemployment rate is expected to decline a little over the next couple of years. Against this, however, wage growth remains low and this is likely to continue for a while yet.

The recent inflation data were broadly as the Bank expected. Both CPI inflation and measures of underlying inflation are running at a little under 2 per cent. Inflation is expected to pick up gradually as the economy strengthens. Higher prices for electricity and tobacco are expected to boost CPI inflation. A factor working in the other direction is increased competition from new entrants in the retail industry.

The Australian dollar has appreciated recently, partly reflecting a lower US dollar. The higher exchange rate is expected to contribute to subdued price pressures in the economy. It is also weighing on the outlook for output and employment. An appreciating exchange rate would be expected to result in a slower pick-up in economic activity and inflation than currently forecast.

Conditions in the housing market vary considerably around the country. Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. In some other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases remain low in most cities. Investors in residential property are facing higher interest rates. There has also been some tightening of credit conditions following recent supervisory measures to address the risks associated with high and rising levels of household indebtedness. Growth in housing debt has been outpacing the slow growth in household incomes.

The low level of interest rates is continuing to support the Australian economy. Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

RBA leaves Cash Rate on HOLD at 1.5%

Statement by Philip Lowe, Governor:
Monetary Policy Decision

4th July 2017:

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

The broad-based pick-up in the global economy is continuing. Labour markets have tightened further in many countries and forecasts for global growth have been revised up since last year. Above-trend growth is expected in a number of advanced economies, although uncertainties remain. In China, growth is being supported by increased spending on infrastructure and property construction, with the high level of debt continuing to present a medium-term risk. The rise in commodity prices over the past year has boosted Australia’s national income.

Headline inflation rates, having moved higher over the past year, have declined recently in response to lower oil prices. Wage growth remains subdued in most countries, as does core inflation. Further increases in US interest rates are expected and there is no longer an expectation of additional monetary easing in other major economies. Financial markets have been functioning effectively and volatility has been low.

As expected, GDP growth slowed in the March quarter, partly reflecting temporary factors. The Australian economy is expected to strengthen gradually, with the transition to lower levels of mining investment following the mining investment boom almost complete. Business conditions have improved and capacity utilisation has increased. Business investment has picked up in those parts of the country not directly affected by the decline in mining investment. At the same time, consumption growth remains subdued, reflecting slow growth in real wages and high levels of household debt.

Indicators of the labour market remain mixed. Employment growth has been stronger over recent months. The various forward-looking indicators point to continued growth in employment over the period ahead. Wage growth remains low, however, and this is likely to continue for a while yet. Inflation is expected to increase gradually as the economy strengthens.

The outlook continues to be supported by the low level of interest rates. The depreciation of the exchange rate since 2013 has also assisted the economy in its transition following the mining investment boom. An appreciating exchange rate would complicate this adjustment.

Conditions in the housing market vary considerably around the country. Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. In some other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades. Growth in housing debt has outpaced the slow growth in household incomes. The recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness. Lenders have also announced increases in mortgage rates for investor and interest-only loans.

Taking account of the available information, the Board judged that holding the stance of monetary policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Do It Yourself Home Loans

Do it yourself Home Loans

Online Lenders, Are they what they’re cracked up to be?

Can your bank answer these questions?

Does the loan have an Offset Account?

Does the loan have a Redraw facility?

I had a client in need of a home loan. He’d heard about a lender who operates exclusively on line. They have no branches, do not deal with brokers and their rate was lower than mainstream lenders. The only way to get a loan is to do everything yourself online. When he telephoned this online lender he got a call centre in ….  who knows where? The call centre lady spoke with a heavy accent which he found very difficult to understand.

When he asked if the loan had an Offset Account,

“What’s an offset account?” she replied.

When he asked if the rate was a honeymoon rate,

“What’s a honeymoon rate?” came her reply.

As these heavily accented answers did not instil a great deal of confidence in him, he decided it best to engage a Broker, yours truly, who could answer his questions, provide appropriate recommendations and provide advice based on his particular circumstances.

Yes, their rate was a little lower, however the uncertainty created by dealing with people who had no idea about their product and who were difficult to understand was not attractive. What other catches might be hidden in the detail that he needs to be aware of?

A home loan shouldn’t be about price. It should be about value for money. It’s about getting the loan that is right for you. One loan cannot possibly satisfy all borrowers.

By availing himself of my SERVICE, he got the loan that met HIS expectations and satisfied HIS needs, not the lender’s, and at a very competitive rate.

So for YOUR PERSONALISED PROPERTY FINANCE SOLUTION, give Bill at Home Loan Advisers a call.

I saw Suzie Quatro again recently, great live as always. Thought I’d repost my business promo I wrote a couple of years back using her song titles.
IF YOU CAN’T GIVE ME LOVE and you no longer want to be a ROLLING STONE, and you aren’t a MAMMA’s BOY, well THE RACE IS ON to CAN THE CAN and buy that home in DEVIL GATE DRIVE.
If dealing with the bank leaves you ALL SHOOK UP, avoid the 48 CRASH and WAKE UP LITTLE SUZIE cause SHE’S IN LOVE WITH YOU and I’VE NEVER BEEN IN LOVE BEFORE. The GLYCERINE QUEEN wants a home that’s not TOO BIG and the yard is not ROCK HARD.
The DATONA DEMON and THE WILD ONE, well, they MAYBE TOO YOUNG but the ROXY ROLLER will KEEP ON KNOCKIN’ til we get the right home loan. I’ll guide you so you can’t say I BIT OFF MORE THEN I CAN CHEW.
If I stuff up, YOUR MAMMA WON’T LIKE ME and she will TEAR ME APART leaving me SINGING WITH ANGLES.

Bill Pitt - Finance Broker  So for a home loan that really rocks, call,
Bill Pitt
Home Loan Advisers

Conundrum – To Fix or Not To Fix

Conundrum – To Fix or Not to Fix – That is the question.

Depending on who you believe, now may be a good time to fix the rate on your home or investment loan.

Are Rates on the Rise?
According to Yahoo Finance, new data released by financial comparison firm Canstar has revealed 14 lenders have increased fixed-rate loan offers across dozens of products by an average 0.18 percent.
On a typical $300,000 30-year home loan, the average three-year fixed rate is 4.08 percent pa with monthly repayments are $1,446. Compare this to the average variable rate of 4.45 percent pa and monthly repayments are $1511.
Lenders to introduce small hikes include Westpac, ING Direct, Suncorp, ME, Bank of Queensland, Bank of Sydney and RAMS.
Canstar’s group executive of financial services Steve Mickenbecker said he expected more movement in the short term.
The rises to fixed rates have been blamed on the policies of the President-elect Donald Trump which could lead to bigger deficits and result in the US cash rate going up, experts say.

Market Prediction slammed as “fundamentally wrong”.
(Courtesy nestegg.com.au)

After pollsters and media commentators were proved wrong in Brexit and the US election, the consensus on the direction of Australian interest rates has been labelled “absolutely false”.
ABC Bullion chief economist Jordan Eliseo says predictions that the RBA will not make any more cuts to interest rates are incorrect.
“One of the things I think the market has got fundamentally wrong and what a lot of commentators have said is that the Reserve Bank is done and that there won’t be any more interest rate cuts. I think that’s absolutely false,” Mr Eliseo said.
“I think there will at least be a couple more next year, so that again is going to put more pressure on retirees and SMSF trustees.”

Borrowers “extremely concerned” about rate hikes.
(Courtesy: The Adviser)

Following calls from the OECD for the RBA to start increasing interest rates as early as next year, new research from credit bureau Experian found that a quarter of Australian Mortgage holders are “extremely concerned” about the impact of a potential 1.5% rise in interest rates would have on their ability make their repayments.

So, what does it all mean?

As you can see, even the experts can’t agree on whether rates are going to drop further or start to increase in the short term. They are certainly at historic lows. One thing is for sure, they will go up, but when is the question.

If you stay with a variable rate you have much more flexibility. You may choose to have an offset account to save you interest, you can make additional loan repayments and redraw these funds should you them.
A fixed rate is not as flexible. You will be limited as to how much extra you can repay during the fixed rate period and you may or may not be able to redraw these funds. The main benefit is you know what your repayment will be during the fixed rate period. This will not change should rates move up or down. Knowing this, from a budgeting perspective, can help borrowers better manage their finances.

You might even consider splitting your loan, part fixed part variable. You retain the flexibility of a variable rate loan whilst protecting portion of you borrowings from rate rises should rates rise.

To Fix or not to fix?

Why not give us a call. We’d be only to happy to explore your options with you.

Managing Interest Rates

When rates rise, a few simple proven tips can help you keep on top.
A rise in interest rates is an unwelcome announcement to anyone with a mortgage. An increase of a quarter of a percent, for example, means finding around an extra $40 per month for the average mortgage repayment. But can anything be done to mitigate the impact of rising rates? There sure is:

Check your Rate
Start by taking a look at your current interest rate and whether you could be paying less. There are lots of different types of home loans available, with a significant difference in the rates. As a rule of thumb, the more flexible the loan, the higher the rate – so check and see if you’re getting stung for bells and whistles you don’t need.

Line of credit loans, redraw facilities and offset accounts, for instance, generally come at a higher rate. If your loan has features that you’re not using, however, it may be worth switching to a cheaper model. A ‘basic’ or ‘no frills’ loan may not have the flexibility of some of these products, but they could be tens of dollars cheaper each month.

Get help from a professional
New products are hitting the market every month and competition for your business among lenders can be fierce. Your Choice consultant will be able to explore your options, so it’s well worth giving them a call. Should they identify a more appropriate loan to suit your situation, refinancing through them can be quick and easy.

Is it time to fix?
If you’re concerned that rates are going to keep rising, it may be worth looking at fixing your interest rate. With a fixed rate loan you make the same repayment, which can help you with budgeting each month. In a rising market a fixed monthly repayment could also end up lower than the variable rate, however, bear in mind that you’ll be stuck with your fixed rate if interest rates do fall.

Cash Rate on Hold

1st November 2016

At its meeting today, the Board decided to leave the cash rate unchanged at 1.50 per cent.

The global economy is continuing to grow, at a lower than average pace. Labour market conditions in the advanced economies have improved over the past year, but growth in global industrial production and trade remains subdued. Economic conditions in China have steadied recently, supported by growth in infrastructure and property construction, although medium-term risks to growth remain. Inflation remains below most central banks’ targets.

Commodity prices have risen over recent months, following the very substantial declines over the past few years. The higher commodity prices have supported a rise in Australia’s terms of trade, although they remain much lower than they have been in recent years.

Financial markets are functioning effectively. Funding costs for high-quality borrowers remain low and, globally, monetary policy remains remarkably accommodative. Government bond yields have risen, but are still low by historical standards.

In Australia, the economy is growing at a moderate rate. The large decline in mining investment is being offset by growth in other areas, including residential construction, public demand and exports. Household consumption has been growing at a reasonable pace, but appears to have slowed a little recently. Measures of household and business sentiment remain above average.

Labour market indicators continue to be somewhat mixed. The unemployment rate has declined this year, although there is considerable variation in employment growth across the country. Part-time employment has been growing strongly, but employment growth overall has slowed. The forward-looking indicators point to continued expansion in employment in the near term.

Inflation remains quite low. The September quarter inflation data were broadly as expected, with underlying inflation continuing to run at around 1½ per cent. Subdued growth in labour costs and very low cost pressures elsewhere in the world mean that inflation is expected to remain low for some time.

Low interest rates have been supporting domestic demand and the lower exchange rate since 2013 has been helping the traded sector. Financial institutions are in a position to lend for worthwhile purposes. These factors are assisting the economy to make the necessary adjustments, though an appreciating exchange rate could complicate this.

The Bank’s forecasts for output growth and inflation are little changed from those of three months ago. Over the next year, the economy is forecast to grow at close to its potential rate, before gradually strengthening. Inflation is expected to pick up gradually over the next two years.

In the housing market, supervisory measures have strengthened lending standards and some lenders are taking a more cautious attitude to lending in certain segments. Turnover in the housing market and growth in lending for housing have slowed over the past year. The rate of increase in housing prices is also lower than it was a year ago, although prices in some markets have been rising briskly over the past few months. Considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities. Growth in rents is the slowest for some decades.

Taking account of the available information, and having eased monetary policy at its May and August meetings, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time.

Changes to First Home Owner Grant

Queensland Office State Revenue – Changes to First Home Owner Grant

From 1 July 2016 the Great Start Grant will be known as the Queensland First Home Owners’ Grant.

The Queensland Government has also announced a one-off, 12-month boost of $5,000 to the grant, which will be worth $20,000 from 1 July 2016.

An applicant is not eligible for the $20,000 grant if a contract replaces another contract that was made before 1 July 2016. An applicant may still be eligible for the $15,000 grant.

For the $20,000 grant, an eligible transaction is one of the following:
• a contract made on or after 1 July 2016 for the purchase of a new home in Queensland (including purchases of substantially renovated and off-the-plan homes)
• a comprehensive home building contract made on or after 1 July 2016 by the owner of the land in Queensland or a person who will, on completion of the contract, be the owner of land in Queensland on which the new home will be built
• the building of a new home in Queensland by the owner–builder where the foundations are laid on or after 1 July 2016.

Please refer to the OSR website for full details.

RBA leaves Cash Rate unchanged at 1.75%

Statement by Glenn Stevens, Governor:
Monetary Policy Decision
At its meeting today, the Board decided to leave the cash rate unchanged at 1.75 per cent.
The global economy is continuing to grow, at a lower than average pace. Several advanced economies have recorded improved conditions over the past year, but conditions have become more difficult for a number of emerging market economies. China’s growth rate moderated further in the first part of the year, though recent actions by Chinese policymakers are supporting the near-term outlook.
Commodity prices are above recent lows, but this follows very substantial declines over the past couple of years. Australia’s terms of trade remain much lower than they had been in recent years.
In financial markets, conditions have generally been calmer for the past several months following the period of volatility early in the year. Attention is now turning to some particular event risks. Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.
In Australia, recent data suggest overall growth is continuing, despite a very large decline in business investment. Other areas of domestic demand, as well as exports, have been expanding at a pace at or above trend. Labour market indicators have been more mixed of late, but are consistent with continued expansion of employment in the near term.
Inflation has been quite low. Given very subdued growth in labour costs and very low cost pressures elsewhere in the world, this is expected to remain the case for some time.
Low interest rates have been supporting domestic demand and the lower exchange rate overall is helping the traded sector. Over the past year, growth in credit to businesses has picked up, even as that to households has moderated a little. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.
Indications are that the effects of supervisory measures have strengthened lending standards in the housing market. Separately, a number of lenders are also taking a more cautious attitude to lending in certain segments. Dwelling prices have begun to rise again recently. But considerable supply of apartments is scheduled to come on stream over the next couple of years, particularly in the eastern capital cities.
Taking account of the available information, and having eased monetary policy at its May meeting, the Board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and inflation returning to target over time.