Mortgage Blog

Redraw Facility - Paying extra pay’s your loan down:   Not necessarily, if you have a redraw facility attached to you’re home loan and you pay extra funds into it, the extra funds sit in the redraw and are available for you to redraw.

The extra funds paid into the account do impact on the amount of interest you pay but the extra funds are not actually being paid off the principle of the loan. If you want to pay extra off the principle you need to contact your Bank or Lender and increase the actual monthly repayments.

 Assets are the same as income:   No matter the strength of your assets (for instance how much property you own or gold bricks you have hidden under the mattress), what makes the difference is your capacity to repay the loan through ‘regular substantiated income’, such as payslips and group certificates.When it comes down to servicing, a Bank or Lender will only lend as much as people can afford to repay. The amount of income earning capacity you have, will ultimately determine how much you can borrow. It’s the credit card balance, not the limit that counts:  When it comes to credit cards it’s not about the balance on your card or cards, it’s the total credit available that counts. Having a large range of credit does not necessarily equate to a good credit history. The same applies to ‘Lines of Credit’.

A fixed rate is always safer than a variable:  Every home loan is different – so too are the needs of each individual and family. What is important to remember is that fixed rates are calculated by capital markets over the period you sign on for, whether that be for three, five or seven years. If variable rates go down during this fixed period, you could end up paying a higher interest rate compared to the standard variable.  

When making the decision to fix, it is worth reviewing your budget, mortgage plan and strategy. Once a loan is fixed, if you suddenly decided to sell your home and or want to change back to a variable loan, you will be faced with break costs which can amount to thousands of dollars. Making your repayments minimum and monthly is the best strategy:  Not true. In fact, the interest on a home loan is calculated daily and is charged monthly, so the more regularly you make repayments, the less interest you pay over the life of the loan.    

A bad credit history doesn’t matter if you eventually pay it off:  Your credit history, records any missed or defaulted payments on such things such as credit cards, interest free contracts and mobile phone plans. A patchy credit history can haunt you – even if it is very old or just a one off small amount. There are two major credit reporting agencies that record all of these debts and lenders consult these agencies before they complete your loan application.

100 per cent home loans = no money upfront  Most people think that a 100 per cent home loan means that they do not have to pay any money upfront – however, this is not true. A 100 per cent home loan does cover the property purchase price, but does not extend to the additional upfront fees involved in buying a home such as legal fees, Lenders Mortgage Insurance, purchase & mortgage duty. Cheapest is the best:  A ‘cheap as chips’ interest rate may be a good incentive to sign on the dotted line, but beware – in many cases these loans may have higher fees and less flexibility, costing you more money over the life of the loan. A standard variable loan at a slightly higher rate with flexible features, such as the ability to make additional and lump sum repayments, can save you more money in the long run.

Personal debts can be rolled into a new home loan:  So you have a car loan and credit card debts, and you want to roll all of these into your home loan?  Makes sense, as the interest rate on your mortgage will be lower than your current rate.  But, first home buyers are not usually able to just throw all their debts together like this.  Usually you have to build up equity in the property and then use this equity to service the additional debt.

Start by paying just the minimum amount:   Many first home owners pay only the minimum monthly repayment, as they adjust to the new financial commitment.  However, at the start of the loan you are really only paying interest so by paying more than the minimum, you quickly reduce the amount of interest and principle on the loan.  As interest is calculated daily, repaying twice a month instead of once per month can also save you thousands in interest.

Refinancing saves you money:   Perhaps you have just bought your first home, and you are enjoying all the benefits of your own home.  Your first time mortgage is going well, but perhaps you fixed your rate six months ago and now rates are coming down, or maybe you want to switch to a different lender.  Refinancing sometimes costs money. In the way of exit fees for existing home loans, and settlement fees for the new loan.  However, the market is quite competitive currently and some lenders are giving all the power to the home owner.  Shopping around and refinancing your home loan can save you thousands over the life of you loan, but can also end up costing you more, so talk your possible choices through with your mortgage broker before making your decision.  Mortgage Insurance protects the borrower:  More commonly known as Lender’s Mortgage Insurance, this form of insurance protects the lender, not the borrower. The less deposit you are able to pay at application, the higher the premium you pay to compensate risk. Generally if you have more that a 20% deposit you are not required to pay Lender’s Mortgage Insurance.  

 

 

 

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By Terry McCrann

From: Herald Sun  February 25, 2010 12:00AM
THE Reserve Bank will almost certainly lift the official interest rate by 25 points next Tuesday.
Both the governor Glenn Stevens and his deputy Ric Battellino have ‘told us so.’

Not, obviously, in specific words. Indeed they haven’t even yet ‘told’ their fellow board members. The management’s recommendation will be finalised and sent to board members today.

Further, any prediction of what might emerge from Tuesday’s meeting has to carry one big and one small asterisk.

The big one, is that some cataclysmic event doesn’t come out of left field. Like another, heavens forbid, 9/11, a Greek default, or even just a big - very big - fall on Wall St.

The small asterisk is that the actual decision really is made by the board; it doesn’t just rubber stamp what RBA management - Stevens - puts before it. So why only a ’small asterisk?’ Does that deny my very point?

No, it’s only a tiny risk, because the board has clearly signed on to both the overall strategy of lifting rates; and in doing so will, indeed has to, leave the tactical month-to-month (pause or lift) decision to management.

Yesterday’s benign wages - and so, potential future inflation - numbers are essentially irrelevant.
Because the RBA is not lifting rates to target an immediate emerging inflation threat.

Thus for the immediate future any inflation data impacts asymmetrically on the RBA’s tactical rate decisions. Bad data would tend to lock in a rate rise. Good data would be neutral; ‘other’ factors would drive the decision.

This in a sense is what Stevens ‘told us’ last Friday at his public appearance, what Battellino ‘told us’ in his second recent seminal (as in, telling us) speech; and what the whole RBA has ‘told us’ in its latest analysis of the economy a couple of weeks ago.

Simply, broadly, that in this crazy mixed-up world, the RBA has signed on to the China thesis not the Greek one.

That there’s more chance (risk?) of China continuing to boom than Greece causing some sort of financial and then perhaps economic implosion.
If not necessarily something as bad as GFC Mk II. The RBA forecasts in the latest analysis had our growth strengthening to more than 3 per cent through the year and then kicking a little higher next year. And doing so despite the higher interest rates the RBA would deliver.The critical thing to understand is that the RBA believes it has to move rates back to neutral through the course of this year. Indeed, Stevens said that explicitly on Friday.

But also very importantly, it’s doing so not to fight emerging inflation. Again the RBA expects inflation to keep falling back into its 2-3 per cent target ban and stay there through 2011, although edging close to the limit by the end of that year.

So yesterday’s news of benign wages would merely reinforce the RBA confidence. But not divert it from its desire to lift the official rate by between 50 and 100 points. That’s importantly two to four moves.

Why important? Because it goes to the timing.  How many ‘in-a-rows’ increases we could get; how many pauses and of how many months at a time.

Stevens and Co are fully mindful of the uncertainties both ways. China could ‘peter out’ - that probably means growing at ‘only’ 6 per cent rather than 10 per cent. Or the developed world could pick up some pace, backstopping if you like a booming China.

The first would tend to see the RBA only delivering two more rises, if that; with an extended pause after Tuesday’s increase.

The second would tend to see the RBA deliver four rises and do so pretty quickly.

As it would want to get back to a ‘low neutral’ fairly quickly, by say June, and perhaps an ‘upper neutral’ by July-August.

Politics and the budget will also have to be factored in, more to the timing of moves than the aggregate.

The other critical thing to understand about both timing and quantum is that if inflation does start to rear its head, Stevens will want to go above neutral.

In those circumstances, he would end up wanting to deliver, say, six increases over the year. Passing next Tuesday would leave a lot of ground to make up. In those, it needs to be stressed, unexpected circumstances.

Passing next Tuesday would also mean we would go (at least) four months without an official increase.

From the last one in December, to the next (possible) one in April.

That is too long a gap in the context of what the RBA believes is likely to develop over the year and where the official rate is. In three words: still too low.

The RBA wanted time to assess the impact of the initial increases and also the mix of global developments. It has had that time, and the statements all show very clearly how it has decided the balance of risks.

There’s an interesting coincidence around the word ‘four’ and an interesting comment on the psychology of the economentariat.

Three weeks ago, the economentariat unanimously believed the RBA would do ‘four-in-a-row.’ After in December being all-but united in declaiming it wouldn’t possibly contemplate ‘three-in-a-row.’

Not there’s a significant sanguinity that the RBA would sit on its hands for ‘four months.’ It won’t.

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By Nick Gardner

September 07, 2008 12:00am