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Five Personal Development Myths

Personal development is big business. There are plenty of books and workshops that promise to change your life in five quick and easy steps. But before investing your time, money, and energy in programs that promise to give your life a new start, John Vespasian, author of On Becoming Unbreakable: How Normal People Become Extraordinarily Self-Confident, says we need to be aware of the myths and misconceptions about personal development if we want to make real change in our lives.

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Lynx and cameraman develop special bond

When cameraman Sam Ellis started filming wild Lynx ‘Mad Max’, he never thought he’d capture such a rare moment on film. When cameraman Sam Ellis was tasked by CBC to capture footage of wild Canadian lynx, he never thought he’d develop such a special bond in the process. Filming for the documentary ‘Wild Canada’, Sam spent 76 days in the Yukon wilderness, trudging through the snow to capture the lynx in their natural habitat.

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Which countries will be open for travel this year? Here are seven contenders…

It’s taken time, but vaccinations rollouts have finally returned hope to the travel horizon, with news that holidays might be more than a far-off dream. s confidence rebuilds, tour operators are receiving more enquiries, although plenty of question marks still hang in the air. In the UK, Boris Johnson’s traffic light system has sparked speculation about which countries might be safe for travel, and both Scotland and Wales remain cautious about announcing any restart dates.

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Self Employed Tips For Getting A Home Loan

mortgage broker kellyville

Tips for Getting a Home Loan as a Small Business Owner

Starting a business from home is a great way to save on overhead costs and get everything up and running quickly. However, there may come a time when your business outgrows the available space in your home. When this happens, it’s time to move!

Getting a home loan as a business owner isn’t as difficult as you may think. While it’s true that lenders are hesitant about loaning money to self-employed individuals, there are several steps you can take to settle their concerns and reduce the risks involved in lending to you. As long as you maintain accurate and organized financial records, you shouldn’t have any problems.

Here are some tips from Master Mortgage Broker Sydney to help you get your home loan approved so you can keep growing your business!

Make a Bigger Down Payment

One great way to increase your chances of being approved for a mortgage is to make a larger down payment.

Nolo explains that if you can make a down payment of at least 20%, you will be eligible for the most favorable loan rates and you might not have to pay for mortgage insurance.

Keep in mind that making a larger down payment might mean lowering your home-buying budget. Look for ways to save money on your home purchase so you can afford to make a hefty down payment and reduce your loan rate.

For example, you could buy a home listed “as is” if you’re willing to take on a few maintenance projects.

As long as you do your homework and keep an eye out for red flags, this could help you get a great price on a home that just needs a little TLC. Redfin suggests talking to a lawyer, hiring a home inspector, and reviewing property records before purchasing an “as is” property.

Be Prepared for the Future

Inflation is another reason to buy below your budget. Interest rates are likely to rise as things open up again and the economy recovers post-pandemic, which means your mortgage rate could jump unexpectedly.

Keep this in mind during your housing hunt. When it comes to securing a mortgage, consider pursuing a fixed-rate mortgage so you can avoid the threat of rate hikes during a period of steep inflation. If you choose to go with a variable-rate mortgage, make sure your financials will be able to withstand an interest rate increase in the future.

Prepare the Proper Documents

Getting a mortgage as a self-employed individual is all about reducing the perceived risk of lending to you. You must provide sufficient evidence that you can cover your mortgage payments every month. This can be tough to prove when your business income varies from month to month, which is why lenders require additional documents from business owners including profit and loss statements, balance sheets, and tax returns.

Consider Different Loan Options

If you can’t provide all of the required documents to prove your income, you may want to consider alternative “low doc” loans. A low doc loan caters to business owners who cannot verify their income through standard documentation and is ideal for self-employed individuals without sufficient tax or financial records. If you just started your business recently, a low doc loan might be your best bet!

Even with a low doc loan, you will still need to provide certain documents to verify your income. Typically, this involves a credit history report, a declaration of income signed by you, and an Australian business number that has been registered for at least a year. Keep in mind that some lenders may cap your loan amount to 60% of the home value when you opt for a low doc loan, so you may need to put more money aside for a down payment.

Running a home business can be incredibly fulfilling. However, it can become a headache when your business starts to take over your home. Applying for a mortgage, house hunting, and navigating a move takes work, but it will be worth it when you finally have the space you need!

Ready to move?

Master Mortgage Broker Sydney can help you get the self-employment home loan you need. Contact us today! Call 02-8861-1689.

OTHER AREAS WE PROVIDE SPEEDY SERVICE TO

KELLYVILLECASTLE HILLBLACKTOWNPARRAMATTAROUSE HILLBAULKHAM HILLSBELLA VISTATOONGABBIE

Watch Out The Mortgage Monster

mastermortgagebrokersydney.com.au/mortgage-broker-kellyville

Watch Out The Mortgage Monster

Master Mortgage Broker Kellyville

They Laughed When I Said Interest Rates
Were Going To Go Back
Up Again This Year

Is it Time to Fix My Mortgage?
The world is now starting to emerge from a period of enforced restraints into one where the emerging successes around the globe of Covid 19 vaccines are starting to provide cause for renewed optimism.

Everywhere we turn it seems that politicians and the news media are telling us the recovery is underway and our financial futures are going to be much better than anyone was hoping for.

Some though, remain cautious based on the false economy that has been propping the whole show up.

How Long Will this Property Boom Last?
kellyville mortgage brokerInterest rates are at record lows and the housing markets all across the country are going through the roof. In fact, they’re predicting the housing market capital gain increases will surpass those of 2003.

We all know, what goes up eventually comes down. Now I’m not a doom and gloom type of guy (not normally anyway), but all of this debt has to be paid back.

What is going to happen when all of those subsidies that have been freely handed out, cease?

We’re talking about JobKeeper, JobSeeker, Small Business loans and subsidies, housing and renovation grants (I’m sure I’ve missed some).

Remember What They Told Us, “There’s No Free Lunch”?
What it signals to me is a financial threat that is going to skittle quite a few people, it’s called inflation.

One of the most fundamental triggers on rising interest rates is always inflation. It will be wise to keep a close eye on business activity throughout local and world markets and its effect on inflation rates.

Because, if it continues to maintain positive upward momentum all of that fast money (stimulus cash) that has been thrown into markets around the world is without a doubt going to cease.

Financial media outlets are already reporting that many seasoned investors are deserting sovereign bonds. For example the ten year US bond yield has risen to almost a 1.4% yield. Also, the 10 year Australian yield is now upwards of 1.6%.

Who’s Going to Pick the Tomatoes?
Another concern is the current labour market shortfalls we are experiencing. Some personnel of course are never going to be available, because they are happy to just sit on their butts and suck up Government hand outs.

On the other hand there are those much needed individuals that can’t get into Australia, based on border restrictions. There are armies of long term stayers (seasonal workers and foreign students just waiting to jump in) that we need to bring segments of our econiomy back to full power.

How long will it be until internation tourism is back up to speed again?

With all of the border closures we’ve had, both nationally and internationally we are experiencing prevalent material shortages because of continuing transportation delays.

When Will Interest Rates Start Going Up Again?
We all know the law of supply and demand, the greater the demand gets on a limited supply simply means that inflation is just looming around the corner.

As soon as that happens, interest rates will start to rise!!!

Philip Lowe said (he’s the

present Governor of the Reserve Bank of Australia), there’s probably not going to be any official interest rate increases until somewhere into 2024.

However, the financial markets see it differently, as they have their money on it happening in a lot less time, two possibly one years, or god forbid even sooner.

Take note, because there’s some pretty savvy people that hang around the money markets and they’re suggesting interest rate hikes could happen even sooner than that, like before Christmas.

One of my personal indicators is, I watch the banks and what they’re doing with fixed interest rates. There are some great fixed interest rates available in the mortgage market at the moment. When I see those rates start to creep up, then I know we are in for interest rate rate increases across the board.

‘Lock it In’ – Fixed Rates Will Rise Very Soon
When you look back at thewww.mastermortgagebrokersydney.com.au/mortgage-broker-kellyville history of interest rate cycles it’s not difficult to predict that in the next cycle of increases (where else are they going but up) there will be around 10 individual rate rises.

Now when rates change the standard movement is 0.25%, therefore if we include 10 rises into our calculations we end up with a 2.5% official interest rate increase over time.

This will mean that most variable rate owner occupied mortgages are going to end up somewhere between 5-6%. That should set off alarm bells for most who have a variable rate home loan.

Is it time for you to seriously look at fixing all or part of your home loan?

Don’t Expect that, Which You Don’t Inspect
Before you jump in though, it will pay to do a little comparison rate shopping. In other words, understand what a comparison or true rate is and compare that to the common advertised rate.

To give you an example, Westpac is promoting a fixed interest rate of 1.99% over a fixed term of 4 years, but elsewhere on the promotional material you should be able to hunt down what is known as the comparison rate.

What is a comparison rate? That’s the rate after all fees and charges are included. Keep in mind, banks don’t send you an invoice and give you 30 days to pay, no they just immediately add it to your loan account and start charging you interest on the new fee from day one (what a great profit making business model).

By the way, the Westpac comparison rate on the above example comes out at 3.29%.

Is it Time to Talk to a Savvy Mortgage Broker?
A great place to start is with a savvy mortgage broker, where with leading edge software they can access the details of most fixed and variable rate loans and they won’t be shy about letting you see what the comparison rate will be with any given loan.

Although rates change constantly, one of the most attractive appears to be a three-year fixed-rate loan with a 100% offset account (offset accounts can help you pay your mortgage off faster) from Adelaide Bank at 2.05 per cent – comparison rate 2.49 per cent.

Of course, whenever you switch loan types, especially to fixed rate loans, you should fully verse yourself on any terms and conditions (especially restrictions) those types of loans may impose on you.

Should you have a mortgage currently, whether it’s an owner occupied or an investment property loan, as a priority you should undertake doing what I call a stress test on what your future monthly/fortnightly/weekly repayments are going to come out at, once interest rates go back up.

You can go to our website, mastermortgagebrokersydney.com.au, where you will find all kinds of calculators you can play around with.

The first calculation we would suggest is to consider what it would be like if mortgage rates were already at 5%. To many, the number they see will come as a bit of a shock.

Learn How to Become Mortgage Fit
While interest rates are at record lows, a very smart move is to immediately start making repayments as if interest rates were already at 5% (or thereabouts). Doing that will make it all that much easier on your household budget when that day does arrive.

Should you do that, another bonus you will discover is, how much faster you will be paying your mortgage off.

At the moment the property market is going through the roof, mainly courtesy of record low interest rates. But, most of us have seen it all before but, once those mortgage rates start going back up, it’ll potentially stop the property market in its tracks.

If you remember, prior to 2004 and 2005 the market also went through the roof, then it went backward and was flat for the next 10 years after that.

If we can help, give us a call 02 8861 1689

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Line Of Credit Risks and Rewards

Sydney the home of a line of credit

Line Of Credit Risks and Rewards

Beware that your home equity line of credit doesn't get out of hand

What’s the Best Choice, a HELOC or a line of credit?

Essentially they are one and the same. A HELOC is a Home Equity Line of Credit, which basically means the same as a Line of Credit. That said, there is one subtle difference in that a HELOC is secured by the equity in your home.

Whereas a Line of Credit doesn’t necessarily have to be secured by property. Some Lines of Credit can be business LOC’s, much like a business overdraft. However, with this article we’re going to be focusing on the Home Equity Line of Credit.

Essentially, what is a home equity line of credit?

Some call a line of credit a money machineHow can you use one successfully? A line of credit (LOC) is a loan option that allows you to have an upfront approved cash credit limit that you can access at any time. There are no interest charges on the credit limit you are approved for only on the amount you have drawn down on, or the outstanding unpaid balance.

It operates much like your own bank account. Except the money you have access to is not really yours and whatever you use you’ll be charged interest on it. You can spend the money on whatever you like as long as you don’t exceed the approved limit.

You can take money out, pay it back and borrow over and over again, simply making sure you don’t go over the limit.

You get a Grace Period
The differential between a credit card and an LOC is, you get a grace period with credit card interest charges, sometimes up to 55 days. There is no grace period with an LOC. An LOC is a borrowing tool not a payment tool, because much like a home mortgage, the moment you take the money the interest charges start accumulating from day one.

A line of credit provides the borrower with a ready source of cash that people use for various reasons. Typically the limit can be set higher than a regular credit card at a lower rate of interest. You don’t have to take out a personal loan that forces you to make payments on the full amount whether you want to use all of it or not.

In other words it provides flexibility to pay what you need to pay when you want to pay it and only pay fees on the drawn balance. Common purposes for a line of credit are to pay school fees, consolidate other debts, do home renovations, holiday money or any other expenses.

You Could Lose Your Home
These days, if the line of creditA home equity line of credit is not for frivolous spending is secured by your home or other residential property it’s now evolved over time to be tagged as a Home Equity Line of Credit or HELOC.

The major concern associated with home equity lines of credit is you’re putting your home up as security.

Since any type of residential home mortgage lender will want your real estate asset as collateral you’ll want to be very sure that your line of credit doesn’t get out of hand, whereby you become delinquent with your repayments.

Falling behind on repayments and not being able to catch them up will very well put your property in peril of foreclosure.

Don’t Play with Fire Without an Extinguisher
Do your due diligence up front and find out if there are going to be other costs, like settlement costs or loan establishment fees. Some of these products will charge you a fee anytime you make a withdrawal or even a monthly account fee.

Over time these fees can start to add, notably if you’re in the habit of regularly withdrawing cash out.

That said, you really want to avoid using one of these as a personal piggy bank to start paying your everyday living expenses. Should you find yourself with your budget out of whack, then creating more debt isn’t the greatest solution in the world.

No, they’re Really not a Giant Credit Card
A home equity loan can be a disaster for someKeep in mind, one of these is not like a credit card, although they’re sometimes described as a giant credit card. However, as soon as you draw down on it for any given amount you are immediately charged interest on that amount from day one.

You do have to be careful with one of these and be able to manage your cash flow well, as lines of credit come with interest only repayments and some even allow you to capitalise the interest they’re charging you. That means, you don’t have to make any payments at all (until you reach your approved limit, of course) I’ll leave it up to your imagination as to how big a debt hole you could dig with one of these.

Make sure, for whatever debt you clock up you’ve got an effective plan worked out for paying it back.

Managed well, They’re Handy to Have Around
One of it’s benefits is it can remain in place for years, you can pay the balance down to zero and not pay anything until you have a need for it again. Keep in mind, a lot of lenders will charge you a nominal monthly fee for the privilege of having one.

Although, you should be aware that the usual term and conditions of these types of loan products allow the lender at any time to reduce your credit limit or even call on you to pay any outstanding balance in full.

Now, that’s unlikely to happen if you have been managing the loan with good conduct. Nonetheless, keep that point in mind.

Don’t get Caught Going the Wrong Way in a One-Way Street
Most lines of credit productsA home equity loan can be a disaster for some provide a variable interest rate, which is terrific while interest rates are at historical lows. Nevertheless, I’ve had customers in the past tell me that their LOC or HELOC is going the wrong way, in that they’ve been complacent and allowed themselves to use it for the wrong reasons.

Keep in mind if you allow that limit to keep on rising and then all of a sudden your bank increases your interest rate, where will that end up with your ability to repay them.

I don’t mean to be boring, but seriously there are definite risks associated with lines of credit. Whatever you do, don’t use it as an emergency fund, this is the most common frequent trap I see people get themselves into. At any time, the bank can close it down on you.

These May not Be Right for You
There are other choices besides a line of credit for enabling you to get access to extra cash. For example you can apply to your lender to top up your existing loan for the amount you need.

This is a better option if you need a one off cash injection for home remodelling/renovations, purchase a vehicle, pay a tax bill etc. Once the bank approves you they will adjust your regular repayment amount and you will start paying the debt down.

If you’re doing renovations where the money is paid out incrementally over a period of time, have the lender put the amount you borrowed into your offset account so any remaining balance offsets against your mortgage.

Sexy Maybe, but can You Afford to Have One?
How sexy is a home equity line of credit when you have to pay it backDon’t be lured into the roller coaster of a line of credit where you can be exposed to the temptation of using the money over and over again. It takes a strong willed person to resist putting their hand into the biscuit tin again and again

One more final cautionary word: Fast Cash Lenders (Payday Lenders) and some non-bank (secondary) lenders are now in the market place offering LOC’s with credit limits up to $20,000. Run the other way. when it comes to debt traps, this is the bear trap of all traps, they charge interest rates of 60% plus along with actrocious fees that can force you to get another loan to pay the first one off.

Line Of Credit Risks and Rewards

Beware that your home equity line of credit doesn't get out of hand

What’s the Best Choice, a HELOC or a line of credit?

Essentially they are one and the same. A HELOC is a Home Equity Line of Credit, which basically means the same as a Line of Credit. That said, there is one subtle difference in that a HELOC is secured by the equity in your home.

Whereas a Line of Credit doesn’t necessarily have to be secured by property. Some Lines of Credit can be business LOC’s, much like a business overdraft. However, with this article we’re going to be focusing on the Home Equity Line of Credit.

Essentially, what is a home equity line of credit?

Some call a line of credit a money machineHow can you use one successfully? A line of credit (LOC) is a loan option that allows you to have an upfront approved cash credit limit that you can access at any time. There are no interest charges on the credit limit you are approved for only on the amount you have drawn down on, or the outstanding unpaid balance.

It operates much like your own bank account. Except the money you have access to is not really yours and whatever you use you’ll be charged interest on it. You can spend the money on whatever you like as long as you don’t exceed the approved limit.

You can take money out, pay it back and borrow over and over again, simply making sure you don’t go over the limit.

You get a Grace Period
The differential between a credit card and an LOC is, you get a grace period with credit card interest charges, sometimes up to 55 days. There is no grace period with an LOC. An LOC is a borrowing tool not a payment tool, because much like a home mortgage, the moment you take the money the interest charges start accumulating from day one.

A line of credit provides the borrower with a ready source of cash that people use for various reasons. Typically the limit can be set higher than a regular credit card at a lower rate of interest. You don’t have to take out a personal loan that forces you to make payments on the full amount whether you want to use all of it or not.

In other words it provides flexibility to pay what you need to pay when you want to pay it and only pay fees on the drawn balance. Common purposes for a line of credit are to pay school fees, consolidate other debts, do home renovations, holiday money or any other expenses.

You Could Lose Your Home
These days, if the line of creditA home equity line of credit is not for frivolous spending is secured by your home or other residential property it’s now evolved over time to be tagged as a Home Equity Line of Credit or HELOC.

The major concern associated with home equity lines of credit is you’re putting your home up as security.

Since any type of residential home mortgage lender will want your real estate asset as collateral you’ll want to be very sure that your line of credit doesn’t get out of hand, whereby you become delinquent with your repayments.

Falling behind on repayments and not being able to catch them up will very well put your property in peril of foreclosure.

Don’t Play with Fire Without an Extinguisher
Do your due diligence up front and find out if there are going to be other costs, like settlement costs or loan establishment fees. Some of these products will charge you a fee anytime you make a withdrawal or even a monthly account fee.

Over time these fees can start to add, notably if you’re in the habit of regularly withdrawing cash out.

That said, you really want to avoid using one of these as a personal piggy bank to start paying your everyday living expenses. Should you find yourself with your budget out of whack, then creating more debt isn’t the greatest solution in the world.

No, they’re Really not a Giant Credit Card
A home equity loan can be a disaster for someKeep in mind, one of these is not like a credit card, although they’re sometimes described as a giant credit card. However, as soon as you draw down on it for any given amount you are immediately charged interest on that amount from day one.

You do have to be careful with one of these and be able to manage your cash flow well, as lines of credit come with interest only repayments and some even allow you to capitalise the interest they’re charging you. That means, you don’t have to make any payments at all (until you reach your approved limit, of course) I’ll leave it up to your imagination as to how big a debt hole you could dig with one of these.

Make sure, for whatever debt you clock up you’ve got an effective plan worked out for paying it back.

Managed well, They’re Handy to Have Around
One of it’s benefits is it can remain in place for years, you can pay the balance down to zero and not pay anything until you have a need for it again. Keep in mind, a lot of lenders will charge you a nominal monthly fee for the privilege of having one.

Although, you should be aware that the usual term and conditions of these types of loan products allow the lender at any time to reduce your credit limit or even call on you to pay any outstanding balance in full.

Now, that’s unlikely to happen if you have been managing the loan with good conduct. Nonetheless, keep that point in mind.

Don’t get Caught Going the Wrong Way in a One-Way Street
Most lines of credit productsA home equity loan can be a disaster for some provide a variable interest rate, which is terrific while interest rates are at historical lows. Nevertheless, I’ve had customers in the past tell me that their LOC or HELOC is going the wrong way, in that they’ve been complacent and allowed themselves to use it for the wrong reasons.

Keep in mind if you allow that limit to keep on rising and then all of a sudden your bank increases your interest rate, where will that end up with your ability to repay them.

I don’t mean to be boring, but seriously there are definite risks associated with lines of credit. Whatever you do, don’t use it as an emergency fund, this is the most common frequent trap I see people get themselves into. At any time, the bank can close it down on you.

These May not Be Right for You
There are other choices besides a line of credit for enabling you to get access to extra cash. For example you can apply to your lender to top up your existing loan for the amount you need.

This is a better option if you need a one off cash injection for home remodelling/renovations, purchase a vehicle, pay a tax bill etc. Once the bank approves you they will adjust your regular repayment amount and you will start paying the debt down.

If you’re doing renovations where the money is paid out incrementally over a period of time, have the lender put the amount you borrowed into your offset account so any remaining balance offsets against your mortgage.

Sexy Maybe, but can You Afford to Have One?
How sexy is a home equity line of credit when you have to pay it backDon’t be lured into the roller coaster of a line of credit where you can be exposed to the temptation of using the money over and over again. It takes a strong willed person to resist putting their hand into the biscuit tin again and again

One more final cautionary word: Fast Cash Lenders (Payday Lenders) and some non-bank (secondary) lenders are now in the market place offering LOC’s with credit limits up to $20,000. Run the other way. when it comes to debt traps, this is the bear trap of all traps, they charge interest rates of 60% plus along with actrocious fees that can force you to get another loan to pay the first one off.

OTHER AREAS WE PROVIDE SPEEDY SERVICE TO

KELLYVILLECASTLE HILLBLACKTOWNPARRAMATTAROUSE HILLBAULKHAM HILLSBELLA VISTATOONGABBIE



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Do Savings On Fixed Rate Loans Surpass Variable Rate Loans?

Do Savings On Fixed Rate Loans Surpass Variable Rate Loans?

Is Now the best Time to Fix
Your Home Loan Rate?

The interest rates on offer in Australia now are the lowest they’ve ever been, which is sparking a lot of people to not only review what their lender is charging them, but if they don’t get a better deal, refinance to a better rate. Also, a lot of people are looking to take this opportunity to lock in a historically low fixed rate.

Who can Blame Them?

There are any number of lenders offering fixed rates below the 2% benchmark for owner occupied home loans, and any number of lenders offering around the 2.5% mark for interest only investment property loans.

Frankly, I’ve never been a fan of fixed rate mortgages, because I’ve seen too many people get burned by them. You know, the going rates are around the 6-7 percent mark, there’s a lot of media hype (mostly engendered by the lenders themselves) about interest rates going up.

So, like a lot of blind sheep we rush in to our bank and fix our interest rate. Of course, the lender rubs their hands together in glee, quietly thinking to themselves that you’re not going to be going anywhere fast for the whole of the fixed rate term.

Then over the next few months to our horror and anguish we watch interest rates start to fall while we remain stuck up there on the high interest rate shelf.

I agree, that doesn’t necessarily happen all the time, but it does happen. My philosophy has always been that if you maintained a competitive variable rate you would always be ahead of the game.

...

‘However, in this current market you have to start questioning yourself’.

Where are Interest Rates Going to go from Here?

The Reserve Bank of Australia (RBA) has cut the official wholesale rate to 0.15%. Will they cut rates any further? It’s difficult for me and most others to imagine they would.

Additionally, most lenders are not passing the rate cuts on anyway, claiming a variety of excuses. The main one being, any rate cut is going to affect the rates they deliver to their depositer customers.

Before we go any further, let’s be clear and quickly recap what the difference is between a fixed and a variable rate. So a variable rate is going to go up and down, depending on two things: one, what the lender does with their individual policies and two, what the Reserve Bank of Australia does with their official cash rate.

Do You Prefer a Bit of Predictability in Your Life?

A Fixed rate, on the other hand, is going to give you certainty over the interest rate for a given period of time. Now most lenders will allow you to fix for up to a maximum of five years. That means for those five years your interest rate is not going to change, regardless of what the RBA does to the official cash rate.

As with everything in finance, there are pros and there are cons of fixing interest rates, the pros in this case are fairly obvious.

First of all, you’re going to protect yourself against future interest rate increases and also you’re going have better certainty on what your cash flow needs are going to be.

...

There are Restrictions You Should Know About!

However, there are a number of downsides to fix interest rates which we need to consider. In the unlikely event the Reserve Bank decides to lower interest rates, you will not benefit from the reduction in interest.

Plus, most lenders have restrictions on how much extra you can reduce the principal balance of the mortgage by over a given period of time. e.g. pay off an extra $5,000 or $10,000 for each year of the fixed term.

This can be very restrictive for those people who are serious about getting out of debt.

Additionally, most fixed rate lenders won’t allow you to have an offset account against your fixed rate mortgage.

Are You an Offset Account Fan, Listen Up?

If you have been reading some of my previous blog posts you would know that I’m quite a fan of ‘offset accounts’ as they essentially provide a risk-free, tax-free return equal to the interest rate on your mortgage, which is way better than any savings account in today’s market.

The good news is, there are a limited number of lenders out there that do offer an offset account with their fixed rate loan products. To me, that’s an awesome feature if you can also get a low rate to go with it.

Don’t be Fooled!

Although, be aware there are two types of offset accounts. These can be described as non-transactional and transactional.

Non-transactional, allows for any money deposited into the offset account to offset against your mortgage balance and save on interest charges. However, if you want to utilise any of that money to pay bills, B-Pay, ATM withdrawal, etc. you have to transfer the required amount over to a normal bank account.

That can be a hassle for some, not so much an inconvenience for others.

Transactional offset accounts allow you to access any deposited funds freely. They operate like a normal bank checking/savings account. The main benefit being convenience. Because, while you have instant access to your funds, any amount left sitting in the account offsets against your mortgage balance, saving you on interest charges.

The other negative to watch out for are partial offset accounts; For example, the lender might say that you can have an offset account, but only 30 or 40 % of the funds held in the offset account will offset against your mortgage. Substantially reducing any savings you will make.

...

I Heard You can be Slapped with Penalties, Right?

Many people avoid fixed rate loans because they are concerned about penalties they may incur if they break the fixed term contract, in the event they want to sell their property or refinance their mortgage. Therefore, they would only ever consider fixing if they believed their circumstances weren’t going to change for the fixed term of the loan period.

There’s good news here too, as most lenders offering fixed term loans that have the offset account feature have removed those types of restrictions. Meaning, you can pay off as much as you want, whenever you want.

Something to consider that a lot of people haven’t thought about is, when you fix a loan you are essentially betting against the bank. The bank will set the fix rate above or below the variable rate, depending on where they see the official cash rate headed.

Consequently, if they believe that the official cash rate is going up, then they’re going to put the fixed rate above the variable rate, because they anticipate that the variable rate is going to rise. If they think the official cash rate is going to fall, then their fixed rate is going to be below the variable rate, because they believe that the variable rate is going to fall.

Now, I don’t know about you, but the idea of betting against people who have billions of dollars invested in getting this call right is a little daunting to me. Fixed interest rates are currently low, deliciously low and it seems they are going to be staying that way for some time to come.

What are the Experts Saying About Interest Rates?

Or, more accurately in this market, interest rates are going to stay at the current low levels for an extended period. Most financial experts that I monitor seem to be of the same opinion.

Thus, I like the flexibility that you get from a fixed rate loan with an offset account, which you just don’t get from the mainstream fixed rate loans. I like the ability to make extra payments. I like the get out of the contract feature and I especially love the offset account.

You get the best of all worlds, interest rate predictability, cash flow stability, offset savings and possibly a good nights sleep as well.

Not Sure Which Way To Go, Hedge Your Bet?

In as much as you can’t decide what’s better for you fixed or variable, or your preferred lender doesn’t offer a fixed loan with offset feature, then why not take a split approach? This is where you fix a portion of your loan amount and you leave the balance as variable.

(Split Loan Calculator)

By doing this, you’re essentially hedging your bets. You’re going to get the flexibility that comes with a variable loan (with offset) and you’re going to get the certainty that comes with a fixed loan. Over time, one of them is going to work out more beneficial for you. Depending of course, on what the cash rate does and on what happens in your personal circumstances.

For anyone who’s keen on a fixing later approach, I suggest they may want to try the hybrid approach, part variable and part fixed. I’m sure you can tell by now, I’m wasn’t a big fan in the past of fixing a mortgage, but with owner occupied fixed interest rates under 2% I no longer have those reservations, go for it!

Whichever way you do decide to go, don’t just get sucked in by the lowest, interest rate possible, consider the features of the loan and how that ties in with your financial goals.

Retain the services of a seasoned trustworthy mortgage broker who will take the time to explain things to you, do the calculations and candidly tell you what your best options are as opposed to just telling you what you want to hear.

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Discover How To Increase Your Borrowing Power

Discover How To Increase Your Borrowing Power

Do You Know Your Borrowing Power?
Learn How To INCREASE It!

Weightlifting strongman squating with heavy weight

The Essential Borrowing Power Guide

When you’re looking to purchase property, refinance to a better rate or release equity from your home, one of the first steps you should undertake is to find out what your borrowing power is, or how much your lender is willing to lend you.

Here, you’ll learn what is meant by your borrowing capacity, what impacts it and how it’s calculated. Then we’ll provide you with four tips on how to improve it.

By the end of this article, you’ll have a better understanding of what you might be able to borrow and how you can potentially increase your borrowing capacity.

However before we start, if you’re also into getting other savvy home loan tips about Australian mortgage products, you can go to our home website and take a look around. If you’re into saving money and getting ahead financially, it’ll be time well invested.

What is borrowing power?

So, how is borrowing power calculated? Although the exact criteria will differ from lender to lender your borrowing power will be calculated based on the following:

How Does Cash Flow Add Up to Strong Borrowing Power?

Your income is one of the most important factors when calculating your borrowing power. Your current and future income situation indicates to the lender how you are going to be able to meet the ongoing nature of the repayments?

Income used for borrowing capacity purposes can be derived from multiple sources such as employment, rental, income dividends or other investments.

Whatever income is being used, the lender will want to confirm the ongoing and sustainable nature of the income source, your asset and liability position, as well as ongoing and other living expenses.

You can access our free borrowing power calculator here.

Will Your Assets and Liabilities Tip the Scales?

A strong financial position shows your ability to handle money and expenses. If you own enough assets or have sufficient equity in your property, you will be able to use this equity as collateral and can also increase your borrowing power.

If you have little to no existing debt and a high asset position, you’re more likely to have a much higher borrowing power than someone with much more debt and a lower asset position.

E.G Even if you have a credit card with a $0 balance that you pay off each month with a high limit, the lender will still use the limit in order to calculate your borrowing power.

You see, as far as they are concerned your capacity to borrow against that credit card limit is viewed as a liability to them. They’re worried you’re going to jump on a cruise liner tomorrow and run the credit card balance up to the limit in the ships casino (lol).

Are You a Spendaholic?

Expenses are broken down into both discretionary and non discretionary expenses. Discretionary expenses are expenses that can be changed, such as eating out at nice, restaurants and lifestyle expenses.

Non discretionary expenses are the mandatory expenses that need to be paid back each month. For example, a non discretionary expense can be something like insurance or childcare, or even groceries, Something that must be ongoing and paid back each month.

If your lifestyle expenses are high, this could in all likelihood impact your ability to borrow, and in some circumstances you may even need to justify some non-discretionary living expenses and the ongoing nature of these outgoings.

Understanding the Importance of the HEM Protocol

In today’s residential/consumer lending market lenders have to observe and comply with the National Consumer Credit Protection Act (NCCP) or responsible lending act.

The main benchmark for this policy is measured against what is known as the Household Expenditure Method (HEM). This pre-determined benchmark amount will have an impact on your borrowing capacity.

There are varying benchmarks used for the number of people in your immediate family circle. E.G. you’re single, you’re a couple, your single with kids, you’re a couple with kids etc.

The more people that are in the immediate family circle means the higher they will judge your regular living expenses to be. Therefore, the (HEM) has pre established higher benchmark amounts for each size group.

Of course, you can debate whether you fit the mold, but if you’re under the pre-determined benchmark, then you have to come up with a practical explanation.

When Was the Last Time You Saw a Copy of Your Credit Report?

Last but not least, your credit history will also impact your borrowing power significantly. If you want to get an estimate of how much you can borrow use this link to access our free borrowing power calculator.

What can you do to help increase your borrowing power?

The best way to increase your borrowing, power and chances of credit approval are to indicate to the lender that you’re financially sound and can meet your loan repayments.

A simple way is to get rid of unnecessary debt and credit cards. How much debt you currently have will influence your borrowing power to a great extent. Having unnecessary debt, such as credit cards that you don’t even use could significantly deter a lender from the amount they’re willing to lend you.

Another way is to reduce your expenses. Lenders want to know that you can comfortably meet your repayments and if they sense you might be living week to week and could be at risk of mortgage stress, this can significantly affect your borrowing power and even your ability to get approved for any loan.

How Good a Money Manager are You?

Looking up the curved driveway to a nidely restored residential home

It’s smart to regularly review your expenses and see if you can cut back on any non discretionary expenses such as the gym membership you never use.

Be aware, in today’s regulatory mortgage market banks take a very close look at how much net money you have coming in and how much of that you have going out.

They have terms like NSR (net servicing ratio), DTI (debt to income ratio).

The bottom line is, the lender will take close note of what your net income is (after tax and any other compulsory deductions), from that they will subtract your living expenses and your financial liability repayments. Then they will take a hard look at what you have left as well as the ratio of your debt to net income percentage.

Many can be left scratching their head, because even though they have a good income, have never defaulted or have never ever paid late on any loan, but they still get declined.

It’s good idea that you review your financial position and adjust it to your best financial advantage before divulging any of your financial information to a prospective lender. Seek out an experienced mortgage broker to help you with this.

What Does Your Savings Track Record Say About You?

Having a good savings history indicates to the lender that you are financially sound and if your circumstances do change in the future, you have a much higher chance of being able to meet the ongoing nature of the repayments.

At the same time, if you are purchasing property the larger the deposit equals the less amount you’ll need to borrow.

What Importance do Lenders Put on Credit Scores?

Lastly, you want to be aware of and try and improve your credit score. Your credit report is a reflection of your credit history and includes things such as all inquiries you’ve had, for any credit, as well as any hardships such as defaults.

Having an adverse credit history or a bad credit score can significantly reduce your borrowing power, as it indicates to the lender that there’s a much higher risk of default on the loan.

What is considered a Good Credit Score?

You will find that any credit score can vary depending on which credit scoring model you are using. Generally though, if you score between 580 to 669 that’s rated as fair; If you end up between 670 to 739 that’s rated good; from 740 to 799 you’re getting into the very good marker; from 800 and up is rated as excellent.

You can get a free credit score report here

If you want to learn more about credit scores contact a knowledgeable mortgage broker.

There you have it, the essentials you need to know about borrowing power and the four tips you can use to help increase yours. If you’re looking for more great tips click through to our main home website page and fossick around where we talk all things home loans. We hope you have found the above helpful…

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OTHER AREAS WE PROVIDE SPEEDY SERVICE TO

KELLYVILLE - CASTLE HILL - BLACKTOWN - PARRAMATTA - ROUSE HILL - BAULKHAM HILLS - BELLA VISTA - TOONGABBIE

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