By Dave Fleming : 20 September, 2017

Have You Ever Heard Of Mortgage Rate Bracket Creep?

What is Your Current Mortgage Rate?

39506709 – bracket creep word highlighted on the white paper

We’ve probably all heard of bracket creep when it comes to our salaries and pay packets, which is where you can end up in a higher tax bracket as your salary or pay increases. That being so, I’m thinking about creating a new description for home loans called mortgage rate bracket creep.

As a mortgage broker I bend over backwards for my new customers and try and get them the best interest rate going based on the features of the loan they are looking for. Keeping in mind, there isn’t a one size fits all when it comes to interest rate quotes on any given loan. Mortgage brokers are attuned to what tolerances most lenders have when it comes to negotiating what interest rate they’re prepared to offer on a specific loan.

Interest Rate Influences
To clarify the above, the rate of interest a lender will offer a borrower commonly depends on the loan amount (higher loan amounts get a better rate), what the loan to value ratio is going to be can also be a factor. Commonly lenders will offer a better rate if the loan to value ratio is 80% or under. In other words the loan amount wanted doesn’t enter into Lenders Mortgage Insurance territory, which for a full doc loan is over 80%. For low doc loans that can be 60%.

The new game for lenders is (especially the majors), now seems to be luring borrowers through the front door with enticing offers and then slowly (without fanfare) gradually increase the rates as time goes by. In May 2016 the Reserve Bank of Australia lowered the official cash rate to 1.5% and since then it hasn’t moved. Nevertheless, many people are finding that their owner occupied principal and interest repayment home loan interest rate is now hovering around the 4.7% to 4.9% interest rate. So, what’s happening here?

Does Your Interest Rate have a 3 in Front of it?
However, you might say, “that wouldn’t be happening to me, when I negotiated my home loan or investment property interest rate I got the best rate going”. Don’t be so sure, typically for owner occupied loans that have principal and interest repayments attached to them we are regularly negotiating rates for customers under the 4% benchmark. If you’re paying more than that for your loan I would suggest you get a mortgage health check at your earliest opportunity.

Are You Better off with a P&I Investment Loan?
Lenders have also been making hay while the sun shines by using the regulatory authority’s edict to reduce their loan book percentage of interest only loans as a facade to increase interest rates for The words Interest Rates on a blacktop road and a percent sign at the top of the street, symbolizing the rising interest rates due to economic factors and conditions those loans. In fact some financial experts are saying that investors should get their calculators out and calculate whether or not it would save them money by switching to a principal and interest loan for their investment property mortgages.

The reasoning for that trade-off is to see if the savings on interest rates by switching to a principal and interest loans is going to be greater than the tax benefits that would received based on the higher tax deduction for the increased interest repayments. Talk to your accountant or mortgage broker on this one as I don’t foresee any lender being enthusiastically helpful with this one.

Lenders Lurking in the Shadows
While all this has been going on lenders have also surreptitiously been slowly edging up interest rates on owner occupied principal and interest rate home loans. My suggestion is, if you don’t know what interest rate you’re being charged by your lender at the moment, go and check your latest statement online and see for yourself. If your rate doesn’t have a 3 in front of it (excluding fixed rates), then it’s time to take action and either call your lender or talk to your broker and ask them what they can do for you.

Break Costs Explained Once and For All
While we’re talking about fixed rates it’s probably worth a small blurb about break cost penalty’s as many people get hung up on the fear of trying to break a fixed rate loan. For years banks tried to keep consumers in the dark with their Boogie Man story of the terrible costs that would be thrown at anyone who ‘Woe Betide’ even thought about breaking their fixed rate contract.

Here are the facts; the only costs that a borrower would have to pay would be the ones that the lender would incur. The lender would only incur costs if they had to relend the loan money you discharged at a lower rate than what they had you contracted to. In other words, if they were able to relend the money from your vacated loan at a higher rate, then they would be making money and would have no basis on which to charge you any fees for breaking your loan contract.

That said, if you have been considering fixing your principal and interest owner occupied home loan now would be a good time to do it. Rates are not going to go any lower, but there’s a chance the banks (not the Reserve Bank of Australia) will find excuses to incrementally start increasing rates. There are a number of other economic indicators that are starting to suggest that rates could increase in the short to medium term.

A Strategy Worthwhile Considering
House shape made out of wads of $100 dollar billsA good strategy is to split your loan, whereby its part fixed rate and part variable rate. This allows you to have the best of both worlds by having the certainty of the fixed rate and the flexibility of the variable rate. Most fixed rate loans have limits on extra repayments over and above the minimum contractual payments they will allow you to make. Also, most fixed rate loans lenders don’t allow you to have offset accounts linked to those loans, although there are a couple of exceptions.

By doing what we’ve just discussed above banks are now opening themselves up to greater competition to second tier banks, non-bank lenders, credit unions and building societies. Additionally, keep in mind that the Government is about to put a levy on five of the biggest banks and we all know what that means. Yes, higher fees, charges and interest rates from those lenders. Therefore, it may pay you handsomely to start devising a strategy on how to save money on your mortgage.

Find a savvy experience mortgage broker who is going to put your interests first who know all the tips and tricks on how to save you money and at the same time enhance your lender experience.

Thanks for reading.

For The Home Page <ahref=”http://www.mastermortgagebrokersydney.com.au>Go Here

By Dave Fleming : 20 September, 2017

Keeping Up With The Daily Mortgage News
Could Save You A Lot Of Money

What's Your Rate in 3d letters sitting on splayed colorfil arrows to asking if you are getting the best percentage optionMany people have to stop and think and even stumble when asked what their current mortgage rate is. That’s interesting, because even though today’s lifestyles are hectic just keeping up with everything, it means a lot of people are letting some serious money slip through their fingers.

One way to save a lot of money is to endeavour to keep up with the daily mortgage news. By making a habit of focusing on the housing industry and the mortgage market and it’s happenings you will have an up to date knowledge of what the market interest rates and trends are prior to walking into any lenders premises. Most Australians don’t have the foggiest about what current interest rates are available when they decide to visit their local bank or talk to a mortgage lender. The Amazing fact is, it occurs a multitude of times every day in Australia.

Most would say, “That’s why I’m going to see the lender, to find out what rates are available.” However, that’s kind of like walking into aused car salesperson with pencil moustache selling old car as brand new signifying with OK hand gesture that it's perfect used car sales yard and telling the salesman that you’ll leave it up to them to find you the right car at the right price.

Even if you previously refinanced your loan and at the time you did, you determined that they had given you the best rate available going at the time. Nonetheless, things do change over time. In recent years the major banks have become emboldened to the point they don’t think twice about increasing interest rates outside of the RBA cycle of increasing or lowering rates. Of course, they glibly come up with all kinds of excuses as to why that is. Nevertheless, their profits continue to go to record highs year after year.

The fact is, lenders will increase existing customer’s interest rates by stealth, but they won’t tell their existing borrowers what rates they have on offer to new borrowers. In fact they don’t even advertise them; they keep them tightly under wraps. They only offer these rates as a last resort if you’re looking like you are going to walk out the door. Kind of like the used car salesman that doesn’t want to lose the sale and says to you, “If I can get it for x price, would you be happy with that?”

Diagram of Quality of LifeWe as humans continually strive to better our quality of life and a major contributor to this being able to happen is having ready access to surplus money. We work hard to impress our employers; we even study to increase our skill levels in order to increase our qualifications, all in an effort to bring home more money. But, we seldom take the effort to see if there are any leaks in our cash boat that we could immediately fix to give us that extra surplus cash.

Keep in mind if you would like to have that extra leverage over your chosen lender or mortgage broker make the effort to keep up with the latest news in the mortgage markets. Because, should you be in the process of purchasing or refinancing a property, whether it is an owner occupied or investment property, lenders will pick it up straight away if you are naive on interest rates as opposed to someone who is knowledgeable.

Per chance you are discussing the finer details of a loan you’re interested in with your lender or broker and you then call them out after Two people shaking hands over a successful property agreementthey quote a too high rate, they are instantly going to be aware that you are well informed and a person who knows what you’re doing. Rather than have you walk out on them they will instantly sharpen their pencil and get down to giving you their best deal.

That said, they will know they’ve got you exactly where they want you when they quote you a 4.65% interest rate and you don’t flinch. The real facts are they can’t quote you a definitive rate until they know more about you in the way of what type of loan you want, is it an owner occupied or investment loan, what the loan amount will be, what the loan to value ratio is going to be and what your credit score is?

There is no shortage of lenders that will try this on in order to increase their profits. Keep in mind that many bank employees as well as mortgage brokers are now incentive based when it comes to their incomes. The ones to be most wary of are the bank employees who are more into short term gain as they frequently change job roles within the industry. Whereas, savvy mortgage brokers are smart enough to look at building long term relationships with their customers.

Interest rates headline printed on an old typewriterSaving 0.5% on a principal and interest $550,000 mortgage will reduce the monthly repayment on the loan by $163.00 a month. The time saved on a 30 year mortgage will be 3 years and 2 months. The interest saved will be a whopping $50,183.

It pays to keep up with the mortgage news. If you don’t have time to do it, make sure you mortgage broker is keeping you well informed. Make a better life for yourself and your family by not inadvertently giving your money away to the bank.

Bio:
About About Dave Fleming

Dave is enthusiastic and fascinated by the digital and social media worlds. He is passionate and enjoys entrepreneurial pursuits, wealth creation financial strategies, health, fitness as well as cooking. Dave is the webmaster at www.mastermortgagebrokersydney.com.au, which is an information website pertaining to loans. He has a deep commitment towards writing about and helping people understand the basics of how the financial world works.

By Dave Fleming : 20 September, 2017

Australia’s Largest Lenders Decided To Charge More From Real Estate Investors And Profited $2.5 Billion

Home Owners aren’t off the Hook Either
 bank sign over entrance door of old style bank building in black and white sepia toneAustralia’s largest lenders have made an additional $2.5 billion simply from charging more for investors for their loans as compared to owner-occupiers. Financial institutions and banks are also keeping up with hammering both groups of consumers with hiking interest rates should they fail to look around for better deals.

Recent analysis provided by RateCity, a financial comparison website, shows that since the beginning of 2015, investors have seen not one but two distinct rate hikes that were definitively out of cycle. On the other hand, owner-occupiers only saw one such rate hike that was clearly out of cycle.

As a result, investors are spending more for their loans. Lenders to investors are now making more than they might have had they simply kept their rates in alignment with the Reserve Bank of Australia.

This is How Much Each Bank Made
RateCity was able to estimate the specific sums that particular institutions made starting from the beginning of 2015, and they did thisModern high rise bank building based on the interest rate changes of the banks as well as APRA home loan figures. The data indicates that Westpac saw an additional $750 million, while Commonwealth Bank netted an extra $740 million. $570 million fell into the hands of National Australia Bank, while $440 million wound up in the lap of Australia and New Zealand Banking Group.

The data and insights director of RateCity, Peter Arnold, has gone on record as to say that borrowers ought to be shrewd so they can find great deals on interest rates. He warns that investors can continue to pay more than owner-occupiers, but notes that a few lenders don’t charge investors as much as others. He advises a minimum of 20 percent equity in either loan case, so that a rate less than 4 percent can be had.

The Banks Reckoned they Could Afford it
real estate growth graph showing arrow across th etop of rising house pricesAustralian Finance Group’s general manager for sales and operations, Mark Hewitt, has pointed out that investor loan market rates are not as sensitive to pricing given that many investment costs can be written off as tax deductions.

Consider a 30-year home loan totaling $300,000. At the time of writing, owner-occupiers were facing an average rate of 5.27 percent, whereas investors were closing in averages around 5.51 percentage points. In practical terms regarding monthly repayments, that meant investors were paying $45 more, with $1705 monthly obligations instead of the $1660 owner-occupiers were facing.

Don’t Despair – Shop Around
Mortgage Choice’s head of corporate affairs, Jessica Darnbrough, claims that even though investors are getting hammered with higher interest rates throughout the marketplace that deals are still very low. She pointed out loans that clocked in at 3.7 percent for owner-occupiers and 3.9 percent for investors.

Bio:
About About Dave Fleming

Dave is enthusiastic and fascinated by the digital and social media worlds. He is passionate and enjoys entrepreneurial pursuits, wealth creation financial strategies, health, fitness as well as cooking. Dave is the webmaster at www.mastermortgagebrokersydney.com.au, which is an information website pertaining to loans. He has a deep commitment towards writing about and helping people understand the basics of how the financial world works.

By Dave Fleming : 20 September, 2017

What Is Going On With Interest Rates?

Did You get Stung?

mortgage brokerExisting and would be investment property investors and homeowners have been stung in recent months with increased interest rates for both investment and owner occupied loans. Most are wondering, what’s really going on?

The reality is that loans for investment properties overheated in the Sydney and Melbourne property markets, so APRA (Australian Prudential Regulatory Authority) stepped in and told lenders to cool it.

Apparently, their rule is that lenders are not allowed to let investment property lending exceed growth of more than 10% per year. It appears that a number of banks had breached that threshold and were warned to rein it in.

Banks Stretch the Limits of Incredulity
Additionally, the banks were told that they needed to increase their cash reserves in order to reduce their risk exposure in the overheated property market. What does that mean? Simply they needed to find extra cash from somewhere to bolster those cash reserves. Of course, they went to their shareholders to achieve that didn’t they?

No they didn’t, why should they, when they could just simply shoot sitting ducks in the barrel? The banks simply put out a few press releases, bemoaning how ‘hard done by’ they were and increased the interest rates on all their existing customers. In some instances not only those with investment property loans, but owner occupier loans also.

My take on that is, they should have gone to their shareholders. Because, now the customer is subsidising the cash reserve increase, are the banks going to refund that money when and if those inflated cash reserves are no longer required? I don’t think so!

How Much Money are They Making?
Prior to the Global Financial Crisis lenders existed on margins of 1.5% and sometimes a little less. The property market was reasonably flat, especially in Sydney and Melbourne. The mortgage market was extremely competitive. In fact we all know if you could have ‘fogged up a mirror’ there was a lender out there ready, willing and able to give you money. Of course that kind of loose monetary environment couldn’t last forever, so it eventually came to a crashing holt.

However, during that time banks have become extremely clever. First, the regulators banned banks from charging exit fees on loans. What did the banks do? They increased interest rates outside of the normal RBA wholesale cycle. Westpac was the first one to try that on and got away with it. Was there a huge exodus of customers from Westpac. Not a chance, most of their customers went along with it with only a slight whimper.

To that end, the four major banks are now enjoying substantially increased margins on all of their home loans.

Are the Banks Guilty of Bait and Switch Tactics?
One thing we can all be sure of is that lenders might give with the one hand, but will always try to find a way to take it back with the other hand. It should be obvious to most by now that the namemortgage brokers of the game with banks is to continuously increase their profits. Hence, we have seen ever increasing record profits declared by the banks over the last few years. So, I would suggest to you to expect more of the same in the coming years.

The other important point that some lenders have been accused of lately is, luring customers in with low interest rates and then increasing those rates outside of normal RBA rate cycle changes. Where are the regulators when this stuff happens (out to lunch I guess)?

So, it’s extremely important to thoroughly research the integrity of the lender you are considering going with in regards to their trust level. It doesn’t matter whether you’re going for a new loan to purchase a property or refinancing an existing loan.

What You Should Know About Current Interest Rates
The current interest rate landscape has changed considerably in recent times to the extent that there are different interest rate levels for the same loan. For example, if you are applying for an owner occupied loan your interest rate with some lenders could be higher should you choose to make the loan ‘interest only’, as opposed to paying principal and interest. The same can apply for investment property loans.

What the rationale is for doing that I don’t know. But being a natural cynic, I can’t for the life of me see how the banks can justify doing that. Other than it’s another way to increase their profits. If you’re trying to slow down investors from taking out investment property loans, why put up interest rates at all. My take on it is, it would be just as effective to reduce the Loan to Value Ratio on investment loans.

Is it Time to Fix?
home loan expertsEven though it’s difficult to predict interest rate movements there are some tempting 3 year fixed interest rates around at the moment. Currently on notable lender is still offering 3.99% for an interest only investment property loan.

Currently Australia is experiencing a two speed economy (no not that one), slow and slower is what it is at the moment. The Aussie dollar is edging back up as did unemployment slightly. My guess is that interest rates will probably stay pretty much where they’re at until after the coming election.

The property markets in both Sydney and Melbourne did slow down a bit over Christmas and just after for a few weeks. However, the property markets now showing that they still have a little bit of steam left in them. So, while that’s going on I don’t see the RBA reducing rates any further.

Should you be in the market for considering home loan options, give us a call and we will be happy to help you explore your possibilities.

Bio:
About About Dave Fleming

Dave is enthusiastic and fascinated by the digital and social media worlds. He is passionate and enjoys entrepreneurial pursuits, wealth creation financial strategies, health, fitness as well as cooking. Dave is the webmaster at www.mastermortgagebrokersydney.com.au, which is an information website pertaining to loans. He has a deep commitment towards writing about and helping people understand the basics of how the financial world works.

Take A Look At The Refinance Page

Look At Pay Off Mortgage Faster

What Is My True Borrowing Power?

What Types Of Home Loans Are Available?

Start your No Obligation

Free quote
Now

Follow Us

Smiley face  Smiley face Smiley face Smiley face

Blog Posts