August Cash rate remains at 4.5%
Steady cash rate warms winter chill
Potential and existing property market participants will be cheering the Reserve Bank of Australia's decision to keep our cash rate steady at 4.5% for a third consecutive month.
The decision is a positive influence on what is sure to be a very active spring selling season.
It is likely the rate will sit at 4.5% until at least the next round of CPI data is released, on 27 October.
This will be a great relief for anyone repaying a variable interest loan or approaching the end of their fixed rate term, just as it will be for those who are looking forward to jumping into the market during spring.
Now, there is another reason to make a move with confidence. The steady cash rate may also encourage some borrowers to utilise equity they have built up in order to update or extend.
Others may be encouraged to visit a mortgage broker such as myself for a home loan health check. The market has changed considerably in recent times, so borrowers should be exploring their options to see if they can take advantage of that and find a more suitable and/or cheaper loan.
Take the stress out of your mortgage
It is estimated that 469,000 households will be suffering some degree of mortgage discomfort by December and the number of those in severe stress (facing a potential sale, foreclosure or forced refinance) could be as high as 267,000*.
How can borrowers at risk of mortgage stress reverse the trend, save money and own the property sooner?
Local franchise owner for Mortgage Choice Robyn Lang said, "There are shortcuts that can help borrowers avoid mortgage stress, reduce their loan term and the interest paid. It's about taking control of their finances by managing their mortgage instead of letting it manage them."
"Avoiding mortgage stress is often a greater challenge for new borrowers, many of whom are adapting to a budget for the first time. Of course, some common causes of mortgage stress are higher interest rates and rising living costs. However, another very common cause is over-indulgence in post-mortgage debt.
"Mortgage Choice's 2010 Recent First Homeowner Survey revealed 15% of respondents had taken on within the first two years what they saw as significant post-mortgage debt. Of those, 70% had spent between $0 and $20,000, 26% had racked up between $21,000 and $50,000, and 4% had really splurged, with extra debt of $51,000 or more.
"If these borrowers and others facing a similar situation want to better their mortgage situation they need to be proactive in their repayment strategy. By maintaining regular repayments above current interest rates, being disciplined in keeping to budget, making extra contributions, fully utilising the loan facilities available and regularly shopping around, borrowers can potentially fast track their way to outright ownership."
Australia's largest independently-owned mortgage broker, Mortgage Choice recommends these top tips:
Contribute to your change
Paying a little extra every month can have a big impact in the long run. Based on a loan of $300,000 at 7% over 30 years, if you round the monthly repayments of $1,996 up to $2,050, the loan will be repaid approximately one year and eight months earlier, saving you over $25,000 in interest.
Make a dent
Making a lump sum payment (big or small) into a loan can make a substantial difference. If you deposited your tax return of, say, $500 into the above mentioned loan, it would reduce the overall term by one month and the total repayments by just over $2,350. Doing so annually would make a significantly larger dent.
Make the most of loan features
Loans with offset accounts enable borrowers to link a savings account with their home loan account and offset or use that amount to reduce the interest accumulated on their mortgage. For example, if a borrower has $5,000 in an offset account, then on a $300,000 loan (at 7% interest pa) the term would be reduced by around 1 year and the borrower would save over $33,000. It's worth enquiring about but be aware there could be an ongoing cost for keeping the account, such as a monthly fee.
Don't settle for second best
If you went for a premium loan you may be repaying at a higher interest rate for facilities and features you don't need or use. Consider refinancing to a more basic product offering a lower interest rate " your repayments will be lower, and therefore you'll be able to afford to pay your loan off quicker. When refinancing to a new loan and/or lender, be aware you may incur exit fees.
Give your loan a check up If you already have a home loan, look at doing a home loan health check regularly because the mortgage market changes all the time. You might be able to get a better package now.
Keep your eye open for bargains
You might also investigate your eligibility for a professional package home loan, where you can receive a reduced interest rate, no application or other fees, gold credit cards, and home insurance and other product discounts and benefits.
To speak to Robyn about any of the information above call (03) 9786 7773.
*Fujitsu Fujitsu March 2010 Mortgage Stress-O-Meter Update
Fixed rate demand dives below 3% once again
Standard variable loan popularity hits 18-month high
Despite the cost difference between fixed and variable interest rates dropping, June saw a higher percentage of Australians turning their backs on locking in their home loan rate.
According to the latest loan approval data from Mortgage Choice, Australia's largest independently-owned mortgage broker, only 2.6% of new borrowers chose a fixed interest rate for their home loan. This compared to 3.3% in May and 1.8% in April.
"Many people in the industry were expecting a rise in fixed rate demand last month but that hasn't happened with our customers. Instead we've seen this product's popularity reduce by one fifth," said local Mortgage Choice franchise owner, Robyn Lang.
"Further, our June data shows fixed rate loans have represented less than 5% of all new approvals for the past 10 months and less than 10% of approvals for two years now.
"It was interesting to note the proportion of fixed loans to new borrowers dropped in all states apart from Western Australia, which was a complete reversal of last month's trend.
"So, although we've seen a swift rise in rates from October through to March and the cost of fixing a loan continues to decrease, demand for variable interest rates remains at near-record highs. Perhaps the price tag is still too high when potential borrowers weigh up the advantages and disadvantages of fixed versus variable.
"Or perhaps whispers of a much steadier cash rate are seeping through and wielding influence over borrowers' decision processes."
Standard variable loan demand reached 50.1% of June loan approvals, which was an increase on 47.8% in the month prior and the highest level reached since October 2008.
One of the key reasons for the popularity of standard over basic variable loans is the plethora of quality professional packages on offer with these products, which attract customers with benefits such as rate discounts, Gold credit cards and other special features.
Other key home loan choice trends for the first month of winter were:
- Basic variable: fell to 41.9% from 43.5%.
- Line of credit (often popular with investors): fell to 5.3% of approvals from 5.4%.
- Bridging (for those selling property while purchasing another): remained well below 1%.
Note: Mortgage Choice's annual loan approvals are approximately 40,000 nationally and therefore provide a clear insight into the product preferences of housing loan borrowers generally.
For further information or to arrange an interview, please contact us on (03) 9786 7773.
Testimonials
"Great Service, friendly staff & most of all made us feel safe & comfortable throughout the whole process. Thanks!"
Ashlee & Aaron - Langwarrin - August 2010
"Robyn, you saved my sanity, I was going through a very stressful time & didn't know if anyone would give me a loan, but you found a way and now I have my own place with a very manageable mortgage, Thank you"
Kathryn - Frankston South - July 2010
"Honest, professional and friendly service, we couldn't have asked for more for our first home buying experience."
Sally - Seaford - June 2010
"Gave good sound advice, your admin staff was fantastic, she did all the work for me. Thanks Robyn for all of your help."
Wendi - Ormond - June 2009
"Quick responses via email, Robyn took something I thought was hard & made it easy, perfect service"
Rachel - Cranbourne - Feb 2010