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.

Broker association raises ASIC funding concerns

by MPA* | 09 May 2016

Broker association raises ASIC funding concerns
The industry funding model for ASIC confirmed in the Budget this week “makes sense”, according to the Finance Brokers Association of Australia (FBAA), but the broker association is concerned how banks will pass on the cost of regulation.

As a part of the 2016 Federal Budget, the Government announced a $127 million package of reforms to strengthen ASIC. However, the costs of the reforms package will be recovered through a new industry funding model, to commence in the second half of 2017, replacing the current taxpayer funded model.

Switching to an industry funding model was something which was recommended by David Murray’s Financial System Inquiry (FSI) in 2014.

The FBAA’s Peter White agrees an industry funding model is a positive move for the Australian economy, he told MPA’s sister title Australian Broker.

“It is a good thing for the economy and how things impact taxpayers,” White said. “Historically it has been a taxpayer funding model so the new model will put less pressure on the taxpayer and allow taxpayer money to be used for other things.”

Stamp duty, not negative gearing holds housing affordability key
The Property Council of Australia is continuing to push back against proposals by the Labor Party to alter negative gearing and capital gains tax arrangements.

Following Federal Opposition leader Bill Shorten’s Budget reply speech, the PCA has doubled down on its stance that changes to negative gearing and CGT will not improve housing affordability.

“We refute the idea that placing $32 billion in additional taxes on property through changes to negative gearing and capital gains tax arrangements will lead to an improvement in housing affordability. It won’t,” PCA chief executive officer Ken Morrison said.

“Housing affordability is a huge issue in Australia. Housing affordability needs to change, but it won’t change if you prescribe the wrong solution,” Morrison said.

While it appears there is little chance of it ever being removed, Morrison also repeated calls for stamp duty to be addressed if policy makers are serious about addressing affordability.

“The way to tackle housing affordability is to deal with the weaknesses in supply and to undertake meaningful reform of state taxes,” he said.

“Stamp duty adds $35,000 to the cost of buying a typical home in Sydney and $32,000 to a similar home in Melbourne.

“Australia is crying out for government to deal with housing supply imbalances and to reform state property taxes. Stamp duty is an inefficient tax that slugs householders and is a drag on the economy.”

*MPA (Mortgage Professional Australia)

RBA cuts Cast Rate by 0.25% to 1.75%

Statement by Glenn Stevens, Governor: Monetary Policy Decision
At its meeting today, the Board decided to lower the cash rate by 25 basis points to 1.75 per cent, effective 4 May 2016. This follows information showing inflationary pressures are lower than expected.
The global economy is continuing to grow, though at a slightly lower pace than earlier expected, with forecasts having been revised down a little further recently. While several advanced economies have recorded improved conditions over the past year, 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 have firmed noticeably from 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.
Sentiment in financial markets has improved, after a period of heightened volatility early in the year. However, uncertainty about the global economic outlook and policy settings among the major jurisdictions continues. Funding costs for high-quality borrowers remain very low and, globally, monetary policy remains remarkably accommodative.
In Australia, the available information suggests that the economy is continuing to rebalance following the mining investment boom. GDP growth picked up over 2015, particularly in the second half of the year, and the labour market improved. Indications are that growth is continuing in 2016, though probably at a more moderate pace. Labour market indicators have been more mixed of late.
Inflation has been quite low for some time and recent data were unexpectedly low. While the quarterly data contain some temporary factors, these results, together with ongoing very subdued growth in labour costs and very low cost pressures elsewhere in the world, point to a lower outlook for inflation than previously forecast.
Monetary policy has been accommodative for quite some time. Low interest rates have been supporting demand and the lower exchange rate overall has helped the traded sector. Credit growth to households continues at a moderate pace, while that to businesses has picked up over the past year or so. These factors are all assisting the economy to make the necessary economic adjustments, though an appreciating exchange rate could complicate this.
In reaching today’s decision, the Board took careful note of developments in the housing market, where indications are that the effects of supervisory measures are strengthening lending standards and that price pressures have tended to abate. At present, the potential risks of lower interest rates in this area are less than they were a year ago.
Taking all these considerations into account, the Board judged that prospects for sustainable growth in the economy, with inflation returning to target over time, would be improved by easing monetary policy at this meeting.

7 Ways to pay off your Home Loan sooner

You don’t need to win the lottery to pay off your home loan. There are a number of great strategies for reducing your loan balance and saving thousands in interest repayments. It’s never too late to begin, so pick and choose which of the following work for you.

1. Switch to weekly/fortnightly repayments
Pay fortnightly or weekly instead of monthly. Mortgage interest is usually calculated on a daily basis so the more frequently you pay, the more you will save, even if you are not paying any more than you did previously.

2. Make extra repayments
Extra funds have the immediate effect of reducing the loan balance. Every dollar you put on your repayments will reduce the principal and therefore the interest payable next repayment. This saving then compounds, making a significant impact over the life of your loan. Your loan’s redraw facility offers an easy and efficient way to apply these additional payments.

3. Open an offset account
Have your salary paid into an offset account, which is linked to your loan account, and allows you to use your savings account balance to reduce the amount owed towards your loan. The balance is deducted from your loan account before the interest on your home loan is calculated – which means less interest is charged to your loan. As your mortgage broker we can explain the pros and cons of offset accounts or similar products like line of credit.

4. Align your salary and home loan payments
Align your loan repayment period with your salary payment date in order to maximise the amount you have available to pay onto your home loan.

5. Pay your salary into your home loan
An all-in-one loan account allows you to pay your salary directly into your loan, which reduces the principal amount owing and thereby the amount of interest charged. It acts as a combined mortgage, savings and cheque account, allowing you to access the funds you have left over and above the minimum monthly repayment amount to pay monthly expenses. All-in-one accounts often have higher interest rates than some other products so speak to us about their suitability for your individual circumstances.

6. Cut expenses
List your regular weekly/monthly expenses and find a few that you can remove. Put the savings towards your home loan – remember that every dollar counts.

7. Keep repayments up if interest rates fall
When interest rates fall, resist the temptation to reduce your monthly repayments. Maintaining the same repayments is a simple way of helping to pay down your loan.