Australian homeowners are trapped in ‘mortgage prison’

THOUSANDS of Australian homeowners are trapped in “mortgage prison” because of a government rule change. And there is no obvious easy way out unfortunately.

THOUSANDS of Australians are stuck in a “mortgage prison” with newly imposed lending criteria leaving them unable to refinance their loans to get a better rate.

Changes in bank rules around living expenses calculations have effectively wiped huge amounts off the maximum a bank will allow them to lend you.

Many people are now finding they originally borrowed more than a bank would lend them under current conditions, meaning they haven’t got the option of shopping around to get a better interest rate — no bank will approve to them the amount they need.

Lending criteria has been tightened in the past year. The ongoing Financial Services Royal Commission is likely to tighten the criteria even further — meaning people will be able to borrow even less than they once did.

With homeowners unable to shop around, they can be stuck paying a high interest rate, which will leave them potentially paying tens of thousands, even hundreds of thousands more over the life of their loan.

Recently the Bank of Queensland and Auswide Bank announced they will raise variable mortgage rates as their borrowing costs grow. This follows a warning last month from Credit Suisse that out-of-cycle rate rises were on the table.

Precise numbers of Australia’s mortgage prisoners are hard to determine, but Mozo investment and lending expert Steve Jovcevski told news.com.au that he expected most of them are those who have borrowed and bought property in the last five years.

He said the changes in how mortgage eligibility are calculated have made a huge difference for many recent borrowers, particularly as banks start to raise interest rates.

Before lending criteria was changed, a flat rate for living expenses was usually applied, resulting in many hopeful homebuyers borrowing much more than they now could.

Mr Jovcevski gave an example of a couple earning $120,000 between them, who bought a home in 2013, borrowing a total of $800,000 at 5% per annum, and who would be paying $4295 a month on their loan, leaving $3680 for monthly expenses.

Even with a pay raise between them bringing their income up to $129,000 the couple now faces a change in rules around living expenses that raises the bar for any borrower.

Homeowners who have bought in the past few years are most vulnerable, especially if they borrowed 90 per cent of the value of their loan.

Previously banks estimated these expenses, with a buffer of 1.5 per cent to safeguard against rate rises. Now they are looking closer at people’s monthly expenditure, and have increased the buffer to 2 per cent.

Under this new criteria, the couple would only be able to borrow $680,000, even though their income hasn’t changed at all.

And because their mortgage is still more than $680,000, they won’t be able to find another bank to make up the difference — meaning they’re stuck with their original loan paying a high interest rate.

The difference between a 5 per cent home loan and a 3.8 per cent home loan amounts to $149,272 over the life of the loan.

“When a customer is essentially tied to a provider, they are at the mercy of whatever rate rise or conditions the bank chooses to impose. Given the current situation, banks have the power to hold some of their customers prisoners,” Mr Jovcevski said.

“The sad reality is borrowers who need competitive mortgage rates to stay financially afloat are most likely to be mortgage prisoners.”

First Home Buyers Australia director Taj Singh said he was very much aware of the crackdown on borrowing limits and living expenses for borrowers.

The mortgage broker said this was putting many borrowers in a position where they can no longer refinance to get a better interest rate.

He said given many loans were refinanced every four to six years, this issue would continue to be felt for recent first home buyers.

But Grattan Institute fellow Brendan Coates told news.com.au that the impact of any tighter lending conditions would be largely confined to a small section of borrowers as rising house prices had given borrowing room to homeowners who had been in the market for several years.

He predicted the impact would largely be felt in those who’d borrowed more than 90 per cent of the value of their house, a number which had fallen in recent years from 14 per cent in 2014 to 7 per cent in 2018.

But he did say that if house prices in Sydney and Melbourne continue their fall then the pain could spread to more borrowers.

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Henry Sapiecha

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Are you exercising away from a home loan?

To obtain a home loan, many people would know they might have to make some sacrifices – but perhaps they don’t expect their bank to suggest they cut their $15-a-week gym membership.

That’s what happened to Brooke Tassits when she took the plunge into property ownership last year, as her lender demanded to know, in great detail, about her day-to-day living expenses to get the deal through the goal posts.

Brooke Tassits was put through the wringer by her bank.

Photo: Jason South

The 23-year-old marketing professional from Melbourne says her bank wanted to know how often she ate out, went to the movies and topped up her car with fuel.

It questioned her ability to afford her gym membership with a mortgage – so was she going to the gym?

“There was a lot of back and forth, there was a lot of them scrutinising my bank statements and  questioning single items on there and asking what they were,” she says, adding that she did quit the gym.

“I remember I paid one of my grandma’s bills for her one day, and they even questioned that and whether it was a regular occurence.”

At one stage she was tempted just to walk away, because “I felt like I had to prove my entire life to these lenders”, but she was convinced to press ahead by her mother and  ultimately got the loan and bought a unit.

That scrutiny might be surprising to those who have secured loans prior to the credit clamps of recent years but being put under a bank’s microscope is likely to become more common, as the country’s under-siege banks scramble to improve their standards, which they admit became too lax.

After suffering a public pounding for all types of poor behaviour at the royal commission led by former High Court judge Kenneth Hayne, banks say they are going to extra lengths to dot every “i” and cross every “t” in meeting their legal obligations, especially those relating to responsible lending. The squeeze will also likely come on financial planning and business lending to improve standards and reduce conflicts of interest.

Many of us would expect nothing less than this kind of rigour from banks, of course.

But the increasing caution among banks – and the potential for the royal commission to cause “unintended consequences” – is significant nevertheless.

ANZ Bank chief  Shayne Elliott this week said the more risk-averse mood would likely make it more difficult for some consumers to get loans, and Reserve Bank governor Philip Lowe said the RBA was watching the situation “carefully”.

So, what might the ferocious (and justified) scrutiny of banks at the royal commission mean for consumers, if banks try to avoid further damaging revelations by retreating into their shells?

And how could the economy be affected if banks suddenly decide to tighten up their purse-strings?

The Hayne royal commission has only held a month of public hearings, but it is clearly having a powerful impact on the country’s biggest financial institutions. It is only natural there may therefore be flow-on effects for customers: whether they are people taking out loans, businesses  or consumers seeking financial advice.

ANZ’s Elliott this week told investors banks had enjoyed a 20-year golden era, stabilized by strong economic growth and a buoyant housing marketplace, but they now faced a “watershed moment” that would have consequences, including in the $1.6 trillion home loan market.

“People are still going to want to buy and own a home, so it’s not like any of this changes fundamental demand, but it will change the process used and it probably will make it harder for people to be successful in their loan applications,” he said.

Some marginal customers would miss out on loans, Elliott said, while others would need to wait longer and submit more paper work.

While this is not yet apparent in official statistics, there are early indicators of banks becoming more cautious in who they lend money to.

The percentage of people trying to refinance who have been knocked back has doubled to 31 per cent.

Martin North, who runs consultancy Digital Finance Analytics, says monthly surveys he conducts of 1000 people are showing early signs that it’s harder for some clients to get credit. The proportion of people trying to refinance who have been knocked back has doubled to 31 per cent in the past 12 months

“We are seeing evidence that there’s a far higher proportion of people, particularly with higher loan-to-valuation ratios and loan-to-income ratios, who are finding it a lot harder to refinance,” North says.

Mortgage brokers, who arrange more than half of all new home loans, also report banks are taking a much harder look at customers’ living expenses before agreeing to approve a loan.

Australian Banking Association CEO Anna Bligh says tighter government regulations could force effected customers away from the banking sector into the “far riskier world of payday lenders” if it makes credit more expensive, at the AFR B

Otto Dargan, managing director of mortgage broker Home Loan Experts, said in recent months banks had become “extremely conservative” when assessing a customer’s living expenses, as a result of the royal commission.

Home loan affordability indicator – by state

The Home Loan Affordability Indicator is the ratio of median family income to average loan repayments. Higher numbers mean more affordable housing loans.

The Home Loan Affordability Indicator is the ratio of median family income to average loan repayments. Higher numbers mean more affordable housing loans.

Source: Adelaide Bank/Real Estate Institute of Australia Housing Affordability Report September 2017 Quarter

“They are really scrutinising every application at the moment,” he says.  “I can’t remember a deal when we haven’t had a discussion about expenses with a lender.”

Typically, the customers who miss out when banks tighten credit approvals are those with smaller deposits or lower incomes, many of whom are just first home buyers.

But Dargan says the crackdown on expenses is mostly affecting customers with high incomes who also spend large amounts on “discretionary” or non-essential purchases, such as eating out or overseas holidays.

Commission screws cap down further

To be sure, banks were already tightening the screws on borrowers well before the royal commission, in response to regulator fears of a debt-fuelled housing bubble. Since late 2014 there’s been a cap on lending to investors, last year a ceiling was introduced on interest-only loans, and the banking regulator has repeatedly prompted banks to improve loan standards.

But the most recent surge of changes appear to have been triggered by the royal commission, after March hearings raised concern banks were not complying with responsible lending laws, which require them to make “reasonable” enquiries about whether a loan is suitable for the applicant.

The commission has revealed some banks did not actually verify the expenses customers provided in their loan applications, instead relying on statistical indexes such as the Household Expenditure Measure as a proxy for what you need to live on.

Within weeks of the March hearings into consumer lending, Westpac last month started requiring customers to break down their spending into detailed categories including gym memberships, streaming services or pet insurance.

Of course it is prudent for banks to ask questions like this of their applicants.

But as the public pressure on banks shows no signs of abating, some banking veterans and experts believe the change in banks’ behaviour caused by the royal commission could have significant effects on the basic bank business of lending money.

Analysts at investment bank UBS have warned of the risk of a royal commission-induced “credit crunch”, saying that if banks assumed more realistic living expenses, the maximum amount customers would be able to borrow could fall by as much as 30 to 40%

David Murray, chair of the 2014 financial system inquiry and former chief executive of the Commonwealth Bank, says further government intervention in banks’ lending decisions could harm competition and increase prices.

“Tightening of the laws is potentially a bad thing for credit generation in the economy,” Murray tells The Sydney Morning Herald and The Age.

David Murray.

Photo: Karen Maley

Further, Murray warns that extending “responsible lending” laws to place further obligations on banks can raise the risk of “moral hazard” – the idea that borrowers might start to assume they have less onerous obligations to pay back their bank. This was one cause of the United States sub-prime debt crisis, where borrowers could effectively walk away from their loans if they were unable to repay their debt, because banks did not have access to other assets.

Final recommendations from Hayne won’t be known until next February, but Murray also fears that the red-hot political environment means the shocking behaviour of rogue bankers being exposed is not being seen in its broader context.

“I think it’s a significant risk, particularly in this political climate but also because of the way the commission has had to do its work,” Murray, who on Friday was announced as AMP’s new chairman, says. “We’ve seen some important cases, but we don’t yet know the actual size of the problem.”

Murray acknowledges there is a need for further policy action in  financial advice, an arena where the commission last month revealed a litany of problems including consumer rip-offs, bad advice and other misbehaviours.

Chief Executive Officer of the Financial Planning Association, Dante De Gori outside the royal commission

Photo: AAP

But even in advice, where most agree there are serious problems, there are no easy fixes.

Westpac chief Brian Hartzer, who previously worked in England, last week stated the introduction of much tougher advice laws there had caused many banks to desert the sector. That resulted in fewer people receiving advice, he said, despite the accepted wisdom that most of us would benefit from receiving advice on issues such as insurance and retirement structures.

Financial Planning Association chief executive Dante De Gori said it was not yet clear what impacts any recommendations from the royal commission might have on the cost of financial advice for consumers, but there definitely would be an impact.

“It’s very difficult to see how it would not impact the cost factor,” he said.

A suggested “structural” change from the royal commission would be to stop advisers’ pay packets being cross-subsidised through the sale of financial products, and this would be a good thing, De Gori adds.

National Australia Bank’s chief executive Andrew Thorburn this week summed up the banks’ overarching concerns by saying the royal commission’s unrelenting focus was causing banks to become more “timid”.

“I think there is a possible trend towards people being more careful … and culturally maybe becoming more meek & mild,” Thorburn said.

“And I think we have to be mindful of that, because the bank needs to make decisions and to take risk in order to help our clients grow.”

Given some of the startling bad conduct exposed by Hayne, many critics would applaud the idea of more “timid” bankers.

NAB chief executive has warned banks could gravitate to becoming meeker.

Photo: Bloomberg

But the banking structure – for all its flaws – plays a critical role in greasing the wheels of capitalism by pumping credit into the economy. So greater timidity will have some consequences.

Thorburn does not say the royal commission will dampen credit growth, but he makes the case that banks are “crucial” for the economy’s outlook, including their role in importing the foreign capital it needs to move ahead with growth.

“We import 30 per cent of capital, fund the Australian economy,” Thorburn says.

Capital Economics economist Paul Dales argues that how much credit gets pumped into the economy – and the effect of the royal commission on banks – is “one of the most important things will happen to the economy over the next several years”.

The real risk is that house prices fall further and faster than the gradual, fairly modest decline we are currently expecting.

Paul Dales

Some of this effect could occur through banks lending to small businesses, he says, but the main impact would be through the mortgage loan market, which would directly impact house prices.

House prices are already falling in Sydney and Melbourne, with the slump blamed on tougher lending rules for property investors, a surge of new housing units coming onto the market and buyer exhaustion after years of strong growth.

Dales doesn’t see a credit “meltdown”. But he points to the possibility that if Labor wins the next election, the property market would face a “double whammy” – tighter lending conditions as well as negative gearing is curbed and capital gains tax concessions are cut back. Interest rates may just also start to rise, further softening prices.

“The actual risk is that house prices fall further and faster than the gradual, fairly modest decline we are currently expecting,” Dales says.

Tim Lawless, chair of research at property data analysts CoreLogic, also says banks’ credit policies and the outcome of the royal commission will be important factors on what happens in the property market, which he thinks will remain weak.

“I think the most likely outcome is what we’ve seen in recent months, which is values drifting lower in Sydney and Melbourne. But we are not expecting a sort of material acceleration in that rate of decline.”

The risks posed by Australia’s record household debt and very high house prices are well known – would it ractually be a problem if all this were to go slower?

Not at all, says respected independent economist Saul Eslake, who has long highlighted the social equity problems created by Australia’s long-running housing boom.

He says it’s “plausible” tighter lending conditions would further drag down the property market, and “it may well mean slower economic growth, all else being equal”. But Eslake says it is simply not sustainable to fuel growth with ever-increasing debt.

For all the warnings from bankers, there could even be a silver lining from the royal commission’s rigid scrutiny.

Professor Kevin Davis, a member of the 2014 financial system inquiry panel, points out that  curbing some of the more marginal lending by banks could eventually be good for the finance industry, by saving our lenders from the sub-prime debt problem they greatly avoided before the global financial crisis.

“To the extent they’ve been slack, then you might say hopefully we have got in early enough before we got to a situation like the US did,” Davis says.

As for Tassits, she has now rejoined her gym. Yes she has her home loan as well.HAPPY ENDING.

Henry Sapiecha

 

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Home loan rates review – Spring 2017 Compare the rates of 66 different lenders from MOZO

Posted by Henry | BANKS,BORROWING LENDING,HOME LOANS,INTEREST RATES,MORTGAGES,RATE % COMPARISONS,REFINANCE | Monday 6 November 2017 11:56 am

*HOW DOES YOUR LOAN RATE COMPARE? ARE YOU BEING RIPPED OFF?

*DOES YOUR LENDER CONFORM TO THE CREDIT ACT? BE WARNED…..

*DO YOU KNOW THE DIFFERENCE BETWEEN A VULTURE & A LENDER?

*WHY DO SOME LENDERS CHARGE DOUBLE THESE RATES & HAVE ATTITUDE?

Take this information to your lender & ask why you are not getting a good deal.

Key Points

  • Spring home loan season kicks off with fierce rates competition
  • A record 66 lenders are now offering variable rates below 4.00%
  • Average Big 4 bank variable rate now 1.20% higher than lowest on market

Fierce lender competition for prime home loan customers is delivering a rate cut bonanza for owner-occupier borrowers this spring.

23 lenders have already cut variable rates to coincide with the spring property season, and Mozo’s data reveals that a record 66 lenders are now offering variable home loan rates below 4.00%.

Aussie, ING, CommBank and Westpac are among lenders to cut variable rates in recent weeks, with more lenders expected to follow as peak property season heats up.

According to Mozo Director Kirsty Lamont, the level of competition on the home loan rates front is higher than usual this spring.

“Spring is traditionally peak season for home loan offers, and this season we’re seeing intense competition amongst lenders driving owner-occupier variable rates to new record lows”, said Ms Lamont.

Home Loan Rates – October 2017

         www.loans.com.au

          Essentials Variable 80 Homebuyer Special

  • Owner Occupier, Principal & Interest

    interest rate 3.54% p.a. variable

    comparison rate* 3.56% p.a.

    Discounted Variable Home Loan (Premium Plus Package)

    Owner Occupier, Principal & Interest

    interest rate 3.64% p.a. variable

    comparison rate* 4.03% p.a.

    Advance Variable Home Loan

    Owner Occupier, Principal & Interest

    interest rate 3.65% p.a. variable

    comparison rate* 3.66% p.a.

    Discounted Home Value Loan

    Owner Occupier, Principal & Interest

    interest rate 3.65% p.a. variable

    comparison rate* 3.66% p.a.

    Basic Home Loan Special

    LVR<80%, Owner Occupier

    interest rate 3.74% p.a. variable

    comparison rate* 3.75% p.a.

    UHomeLoan – Value Offer

    Owner Occupier, Principal & Interest

    interest rate  3.74% p.a. variable

    comparison rate* 3.74% p.a.

    Low Rate Home Loan with Offset

    LVR<80%, Owner Occupier, Principal & Interest

    interest rate 3.69% p.a. variable

    comparison rate* 3.72% p.a.

    Kickstarter Home Loan

    Owner Occupier, Principal & Interest

    interest rate 3.72% p.a. variable

    comparison rate* 3.75% p.a.

    Base Variable Rate Home Loan

    Owner Occupier, Principal & Interest

    interest rate 4.17% p.a. variable

    comparison rate4.21% p.a.

    Equaliser Home Loan

    Owner Occupier

    interest rate 3.72% p.a.variable for 36 months and then 4.32% p.a. variable

    comparison rate*4.19% p.a.

*The Comparison Rate combines the lender’s interest rate, fees and charges into a single rate to show the true cost of a home loan. The comparison rate displayed is for a secured loan with monthly principal and interest repayments for $150,000 over 25 years, and applies only to this example. Different amounts and terms will result in different comparison rates. Full comparison rate schedules are available from lenders. Costs such as redraw fees or early repayment fees, and savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan.

Look beyond the big banks for the best ratesBorrowers who choose smaller lenders over the big banks can access huge rate savings right now. The average big 4 bank variable rate for a $300,000 owner-occupier loan is 4.64%, a whopping 1.20% higher than the lowest available rate of 3.44%.

“Owner-occupiers looking to buy a home or refinance their current home can secure an incredibly competitive home loan deal this spring if they’re prepared to shop around and consider loans from smaller lenders”, said Ms Lamont.

Rates not so rosy for investors

On the other side of the coin, housing investors are still feeling the pain of APRA’s risky lending regulations.  Australia’s new two-tier home loan interest rate market sees investors continue to pay more for debt and face stricter lending criteria.

Investors are typically paying an interest rate premium of around 27 basis points compared to owner occupier borrowers, according to Mozo’s data.

How to secure the best home loan this Spring:

1. Jump online to compare the best home loan rates on the market

2. Be prepared to look beyond the big banks and go with a smaller lender

3. Go for principal  & interest repayments as interest only loan rates are higher

4. Check for upfront fees, ongoing fees and any exit fees on your current loan if you’re refinancing

5. Consider loan features that can help reduce your interest and pay off your loan faster, like free extra repayments and an offset account

*** Interest rates and home loan data in this article are correct as of time of writing. Average rates based on $300,000 owner-occupier loan with 80% LVR.

Henry Sapiecha

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MORTGAGE LOANS ON OFFER FOR A VARIETY OF PROPERTIES & UNSECURED BUSINESS LOANS

Posted by Henry | BORROWING LENDING,BUSINESS LOANS,HOME LOANS,INTEREST RATES,LENDERS,MORTGAGES,REFINANCE | Tuesday 7 June 2016 9:38 am

Our mortgage & commercial lenders are looking for financing opportunities  in various areas of the property & business arenas.

WE WANT TO LEND YOU MONEY THEY SAY

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Commercial properties as well as industry & construction. Business capital is available with no security & residential finance is available as well. Mining projects are also financed..Whatever your finance needs are just click on any of the banners below that best describe your needs & drop us a line to discuss your needs from $5,000 to $25million

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Or just send an email to us here to describe your requirements >>email4 note moves

www.money-au.com

Henry Sapiecha

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Basic Training: How to have a second bite at your mortgage cherry

Posted by Henry | HOME LOANS,INTEREST RATES,MORTGAGES | Monday 28 September 2015 11:00 am

cherry row image www.foodpassions.net

Cherries, like a better mortgage rate, are always good for the picking.

The task of finding a better home loan deal is not right up there in the excitement stakes.

  • This is the latest in a series of stories for anyone just starting to manage their own financial future.

Sometimes the easiest thing to do is to forget about it, and keep paying too much. Or – as most of us do when buying petrol, milk, or any number of smaller things – you could shop around, and save a bundle.

Refresh your memory Check what your current interest rate is, and what the loan includes. Are you on a fixed or variable loan? If it’s fixed, are there discharge fees?

The fine print “The key to finding the cheapest home loan is that it’s not just about finding the cheapest interest rate – you also need to take into account the fees and charges associated with the loan,” says Shelley Marsh, a former stock market analyst who writes personal finance blog Money Mummy.

“This is why you should look at the comparison rate as well as the interest rate.”

She says the comparison rate reflects the actual cost of the loan as it takes into account fees and charges, plus the interest payment you’ll have to make over the entire life of the loan.

Featuring… If you want to pay your home loan off quickly (who doesn’t?), Marsh suggests looking for three top features: unlimited extra repayments without fees, a redraw facility and a 100 per cent offset account.

Play the field Do your research before tackling your bank. Comparison websites such as Finder, Mozo, Canstar or RateCity can link you directly to lenders.

New website HashChing, “Australia’s first online marketplace for home loans” – advertises special deals, and puts you in touch with a local mortgage broker who can help you get that deal.

Chief executive Mandeep Sodhi says mortgage brokers have access to better rates, and can do the heavy lifting for you.

Negotiate hard. Sodhi says if you’re dealing directly with a bank, dig your heels in, and don’t take the first offer.

Threatening to jump ship remains a smart tactic. “Do you want to stick with the bank that’s not looking after you?” says Sodhi.

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Henry Sapiecha

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SAVING OF $70K OFF YOUR MORTGAGE & NOT PAYING ANY MORE IN PAYMENTS

Posted by Henry | BORROWING LENDING,FACTS,MORTGAGES,SAVING | Friday 1 May 2015 12:01 pm

green dollar sign with red house shape logo image www.australianmortgageloans.com.au

Did you know that if you make repayments fortnightly you can repay a principal and interest loan faster?

A lender will typically calculate your loan repayments monthly. But if you can pay half the required monthly amount each fortnight instead of monthly, you’ll effectively make one extra repayment in every year of your loan. This can be easy to do if you can schedule your payment with your pay cycle, and you can save thousands in interest repayments over the life of your loan.

For example, say over 30 years you pay the principal and interest of $2,197 a month on a $400,000 loan with a variable interest rate of 5.20% pa. If you make fortnightly repayments of $1,098.50 you could save $73,840 in interest1.

Take control of your finances

By creating a budget and understanding your cash flow, you will be able to take control of your finances and put in place the necessary steps to pay your loan off sooner. While making one extra repayment annually may not seem like much now, you will stand to save thousands on the interest you pay towards your home loan in the long run.

ooo

Henry Sapiecha

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BEATING THE BANKS AT THEIR OWN GAME & COMING OUT ON TOP

Posted by Henry | BANKS,BORROWING LENDING,INTEREST RATES,MORTGAGES,REFINANCE | Thursday 23 April 2015 9:47 am

home in hands with money image www.australianmortgageloans.com

Many homeowners and property investors are taking advantage of low interest rates to re-finance, so why shouldn’t people with personal loans and credit cards be doing the same?

The balance of power has tilted back towards borrowers and consumers, and now is the best time in decades to beat the banks at their own game, and pay as little interest as possible.

And less money for the banks is more money for you and your family to spend on the good things in life, such as holidays and entertainment.

With the changing financial services landscape, the banks are being challenged by new market entrants, such as Peer-to-Peer lenders with a completely different way of doing business.

A Good Example: Try our free Credit Score widget now to see what you’re credit score is instantly and whether you should be getting a better deal.

In this environment, it’s possible to beat the banks not just by reducing the amount of interest you pay to them, but not to use a bank at all for key financial services.“

While mortgage rates will always be a highly competitive segment that move with changes in the cash rate-  the major banks continue to offer personal loan interest rates well in the double digits

Pssst. Have you heard of Peer-to-peer lending? 

With the standard credit card rate at the end of last year hovering around 19.75% according to the RBA, non-bank lenders – or peer-to-peer lenders (P2PL) such as SocietyOne – are offering a more competitive rate.

While Australia’s big four banks are enjoy healthy margins, they also have to consider costs, such as national branches, temperamental IT systems and big marketing campaigns. However, new financial technology companies have smaller overheads and can offer a competitive alternative using cutting-edge innovation.

And it’s not just about getting a good rate. Following great success in the US and UK, peer-to-peer lending is gaining popularity in Australia because:

– It brings investors and borrowers together in a secure, online financial marketplace where their identity is protected.

Rates are based on personal credit history – the better your credit, the lower the rate.

Personal loan rates can be up to 4% lower than the average rates of the major banks.

– It’s an online application with a fast approval process – with funding within 72 hours.

So instead of paying the minimum credit card amount every month, an unsecured personal loan can consolidate that expensive card debt into one easy-manage debt facility at a lower interest rate.

Already have a personal loan? Then switch to a better rate 

If you’ve already taken up a personal loan, particularly at a time when rates were significantly higher, you may benefit from switching to a new loan.

Your existing loan may have an early exit penalty fee for repaying the loan in full before the agreed term. But in many cases these exit fees are more than compensated by the savings delivered by locking in lower rates.

Contact your credit provider to find out how much the penalty might be, and then compare market rates with other lenders.

There are better options available

At the most basic of all criteria – price – comparison sites like RateCity and Finder will show that many of the smaller lenders are offering rates well below those of the major banks.

While mortgage rates will always be a highly competitive segment –  the major banks continue to offer personal loan interest rates well in the double digits.

New to bank borrowers also face a tortuous application and approval process, sometimes requiring a personal visit to a branch, confusing and time-consuming paperwork and then a lengthy wait for a decision and funding.

This makes other options such as going directly to investors through peer-to-peer lending so much more appealing.

Beat the banks 

Being aware of these alternatives and evaluating their value proposition is a smart move for people looking for a better deal and to save time and money with their personal finance.

In a more competitive market, being aware of the new choices is one way to beat the banks in 2015.

Courtesy of Abey Malouf

ooo

Henry Sapiecha

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A further $310-a-month extra on home loan shock looms

Posted by Henry | HOME LOANS,INTEREST RATES,MORTGAGES | Tuesday 10 March 2015 9:43 am

Borrowing big while mortgage rates are low could secure your dream home. But when interest payments  move off the bottom you might find you're struggling to stay afloat.

Borrowing big while mortgage rates are low could secure your dream home. But when interest payments move off the bottom you might find you’re struggling to stay afloat. Photo: Louise Kennerley

Heard the trendy social term F.O.M.O, the Fear Of Missing Out? It’s a compulsion now so rife among would-be property buyers they’re giving themselves debt hangovers that will last a lifetime. And I feel compelled to warn them (and you) about the $310 monthly repayment risk.

The apparently intoxicating facts are:

  • Property prices that seem to forge ever upwards,
  • Sky-high auction clearance rates, and;
  • Interest rates at record lows.

That’s all pushed the average loan size to an all-time high of $342,100, says the ABS, 10 per cent above that of two years ago and 7 per cent more in the past four months alone. And for many Sydneysiders or Melburnians that will seem like small change.

More are borrowing it, too.

Both Westpac and ANZ report loan applications are up since the February rate cut and for today’s cheapest lender, loans.com.au, they’ve doubled. Anecdotally, the increased demand has fuelled lender reluctance to discount

Before you join the throng, though, please realise these are abnormally low, once-in-a-lifetime interest rates. And the usual mortgage lasts for 25 years of rate cuts and – you can bet – rises.

Remember the credit crack-up of 2008 and how everything was so dire rates were “never” going up again? Barely more than a year later they rose six times in eight months.

In October, November and December 2009 and again in March, April and May 2010, the RBA raised the cash rate, by 0.25 per cent each time. In a short eight months, the official rate rose from a post GFC-low of 3 per cent to 4.5 per cent.

Were that to happen at today’s average $342,100 loan size, borrowers would need to find an extra $310 a month as their repayment leaps from $2000 to $2310 in just over half a year. That’s more than $3700 extra each year. (Based on the average discounted Big Bank rate moving from 5 per cent to 6.5 per cent.) It’s budget-breaking stuff.

If people thought the 2009, post-crisis rises were painful, the average loan at that point was 16 per cent less at $287,300 so the impact was only $272 extra a month, or $3264 a year (the average rate moved from 6 per cent to 7.5 per cent).

But a rebound all the way to pre-GFC levels would represent a doubling of rates. Today’s borrowers would need to find an extra $1110 every month, or more than $13,000 a year. (Average mortgage rates would double from 5 per cent to 10 per cent).

Loan sizes are now so high that on average two hikes requires more than $100 extra a month, $1200 a year. For each $100,000 you borrow, every rate rise means $15 more out of your pocket. If (or probably when over a 25-year period) rates go back up, could you handle the repayment shock?

Find your safe borrowing ceiling (regardless of what a lender tells you it is) with these two simple steps.

  • 1. Multiply your deposit by five This is what you can afford to pay for a property if you borrow only 80 per cent. For example, if you’ve saved $50,000 you would be looking for property priced at or below $250,000. Remember an 80 per cent loan cap not only means you avoid extortionate lenders’ mortgage insurance, but you have an equity buffer if property prices fall, a big consideration when affordability is back at all-time lows (Barclays research). Weigh up carefully the next equation if you are tempted to borrow more.
  • 2. Multiply your annual before-tax salary by 0.333, then divide by 12 months This shows the monthly repayment you should be able to afford today. Jump on Money’s borrowing power calculator, plug in 5 per cent and check what size loan this would get you. But with rates at never-to-be-repeated lows, you also need to ensure you could afford repayments should they rise. “Stress test” your repayments for eight hikes or a 7 per cent interest rate (post-crisis, mortgagees copped seven rises in just one year), and more. How would you cope?

“Helpful” people will tell you property doesn’t ever go down so it’s OK to borrow a lot – it does and it’s not. Especially at housing highs and interest-rate lows. Don’t be seduced by F.O.M.O’s crazier cousin Y.O.L.O. – You Only Live Once.

The urban dictionary defines this as “The dumbass’s excuse for something stupid that they did.”

You can’t afford this to be you.

NB for all figures I have assumed an average mortgage rate 2.75 per cent above the official rate.

Nicole Pedersen-McKinnon

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Henry Sapiecha

COMPARE YOUR MORTGAGE RATES & PAYMENTS WITH OTHERS HERE

Posted by Henry | INTEREST RATES,MORTGAGES | Saturday 25 October 2014 10:42 am

mortgage_home image www.australianmortgageloans.com.au

Current low rate home loans:

Rates are current as at 16/09/2014

Compare more: Lowest home loan rates in Australia

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How to find low rate home loans

Henry Sapiecha

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CUT YOUR 30 YEAR HOME MORTGAGE TO HALF THE TIME

Posted by Henry | HOME OWNERSHIP,MORTGAGES | Saturday 25 October 2014 10:41 am

halve_your_mortgage arrow chart image www.australianmortgageloans.com.au

Wish you could pay your mortgage off more quickly?

Are you scared by the thought of being stuck on the same repayment schedule for the next three decades?

Whether you have a mortgage, or are just about to sign, it doesn’t have to feel like you are signing your life away. With some smart financial planning, it’s possible to cut your 30-year mortgage in half.

Understanding mortgage refinancing

Mortgage refinancing is when you choose a new home loan plan – which may have a lower rate and greater flexibility – to replace the mortgage you already have. By refinancing your existing home loan you could save money and slash your repayment amount by hundreds, which adds up to huge savings over the years.

Shortening your mortgage’s term

Typically, the best time to refinance your home is when interest rates have fallen, or when your income circumstances have improved enough to make you eligible for a lower interest rate.

Lower rates offer the opportunity to save on the amount of interest you pay over the term of your home loan. By switching to another home loan yet continuing to contribute the same monthly repayment you can cut the life of your home loan drastically. For example, if you decided to refinance on a $200,000 loan that you took out at 9 per cent 5 years ago, to a loan with the rate of 5.5 per cent (based on current averages), you could cut your 30 year term in half.

If you haven’t assessed your mortgage in quite some time it’s worth investigating your loan details and interest rates to see if you can take advantage of current low interest rates.

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Hidden costs of refinancing

There are also a few hidden costs that you need to take into account, such as application or appraisal fees. Your new loan provider may also want your property surveyed for any structural or pest problems before agreeing to refinance your home.

It’s also essential that you check the fine print of your current mortgage, as some loans carry penalties if you decide to pay your loan off early.

The pros and cons of changing your terms

While refinancing your home loan can give you the opportunity to take advantage of low interest rates – and any changes to your personal circumstances that make you a better prospect for lenders – it’s not necessarily the best choice for all home owners.

Refinancing your home comes with costs so it’s important that you assess your financial situation and calculate the total cost of your loan before making any decisions for the long term.

If you can afford to up your monthly payments and have the chance to lower the interest on your loan, refinancing could be a useful option.

Henry Sapiecha

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