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

ONE-HUNDRED-DOLLAR-AUSTRALIAN-BANK-NOTES IMAGE www.australiamortgageloans.com

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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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

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Henry Sapiecha

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HOW TO SAVE BIG DOLLARS ON YOUR HOME MORTGAGE

Posted by Henry | RATE % COMPARISONS,REFINANCE | Sunday 5 October 2014 8:31 am

Paying 0.50% less on your home loan could save you up to $32,500 over the life of the loan*

HOUSE MONEY SUIT

Refinancing Home Loans Comparison

Loans.com.au Dream Home Loan - <90% LVR
Loans.com.au Dream Home Loan – <90% LVR
No application or annual fees with access to a 100% offset account on the loan. 4.54%
4.56%
$0 / $0 90% Go to siteMore info
ME Bank Standard Fixed Rate Home Loan - 3 Year Fixed Rate
ME Bank Standard Fixed Rate Home Loan – 3 Year Fixed Rate
No application fee or ongoing account keeping fees when you lock in a 3 year fixed rate. 4.59%
5.18%
$0 / $0 80% Go to siteMore info
NAB National Choice Package Home Loan - 5 Year Fixed
NAB National Choice Package Home Loan – 5 Year Fixed
Refinance and lock in a low interest rate for 5 years. $1000 eftpos card offer. 4.99%
5.54%
$0 / $395 95% Go to siteMore info
CUA Fresh Start Home Loan
CUA Fresh Start Home Loan
A discounted variable rate home loan with low fees and a 100% offset account. 4.65%
4.66%
$0 / $0 80% Go to siteMore info
Bank of Queensland Clear Path Variable Rate Home Loan
Bank of Queensland Clear Path Variable Rate Home Loan
A low interest rate home loan with no application fee. 4.87%
5.00%
$0 / $120 80% Go to siteMore info
Newcastle Permanent Fixed Rate Home Loan - 2 year fixed
Newcastle Permanent Fixed Rate Home Loan – 2 year fixed
Fixed loans repayments and no ongoing account fees and a limited offer of $1000 cashback. 4.29%
5.35%
$0 / $0 95% Go to siteMore info
NAB National Choice Package Variable Rate - ($250,000 to $499,999)
NAB National Choice Package Variable Rate – ($250,000 to $499,999)
Consider a packaged home loan option with a great interest rate. $1000 eftpos card offer for new applicants. 5.08%
5.46%
$0 / $395 95% Go to siteMore info
Loans.com.au Dream Home Loan​ Fixed - 2 Year Fixed Rate
Loans.com.au Dream Home Loan​ Fixed – 2 Year Fixed Rate
Another low interest rate offer from loans.com.au. No application fee to pay. 4.72%
4.59%
$0 / $0 90% Go to siteMore info
NAB National Choice Package Home Loan - 2 Year Fixed
NAB National Choice Package Home Loan – 2 Year Fixed
A fixed rate package home loan with no application fee. 4.84%
5.58%
$0 / $395 95% Go to siteMore info
IMB Fixed Rate Home Loan - 1 Year Fixed
IMB Fixed Rate Home Loan – 1 Year Fixed
A good deal for 1 year fixed rate terms. 3.99%
5.33%
$445 / $72 90% Go to siteMore info
Newcastle Permanent Premium Plus Package Home Loan - Tier 1: $250k to $499k
Newcastle Permanent Premium Plus Package Home Loan – Tier 1: $250k to $499k
Refinance with this great offer from Newcastle Permanent and pay no application fee. Also enjoy a $1000 cashback. 4.62%
4.67%
$0 / $375 80% Go to siteMore info
ING  DIRECT Orange Advantage Loan - $250K+ (LVR ≤ 80%)
ING DIRECT Orange Advantage Loan – $250K+ (LVR ≤ 80%)
Pay no annual fee for the first year with this packaged variable rate home loan with offset. 4.83%
5.02%
$0 / $199 80% Go to siteMore info
Greater Building Society Discount Ultimate Home Loan - $300K+ or LVR <80%
Greater Building Society Discount Ultimate Home Loan – $300K+ or LVR <80%
A great offer from Greater Building Society with a discounted home loan variable rate package. 4.84%
5.22%
$0 / $375 80% Go to siteMore info
ANZ Breakfree Home Loan Package - $250,000 to $499,999
ANZ Breakfree Home Loan Package – $250,000 to $499,999
No annual fee, no application fee and a discounted variable rate home loan with redraw facility. 5.08% $0 / $375 80% Go to siteMore info
Bankwest Online Home Loan
Bankwest Online Home Loan
A low variable home loan rate with no ongoing fees. No application fee for a limited time. Exclusive online offer only. 4.88%
4.89%
$0 / $0 80% Go to siteMore info
HSBC Premier Home Loan
HSBC Premier Home Loan
A packaged discount loan offer for borrowings over $500 000 and a dedicated relationship manager. 4.78%
5.19%
$0 / $420 80% Go to siteMore info
Resi Home Loans Flexi Options Fixed - 3 Year Fixed Rate
Resi Home Loans Flexi Options Fixed – 3 Year Fixed Rate
An offset feature and 3 year fixed terms. Pay no application fee. 4.94%
5.25%
$150 / $0 95% DetailsMore info
IMB Essentials Home Loan
IMB Essentials Home Loan
100% offset account, unrestricted additional repayments and no monthly account keeping fees 4.98%
4.98%
$0 / $0 90% Go to siteMore info
Greater Building Society Ultimate Fixed Rate Home Loan - 1 Year Fixed
Greater Building Society Ultimate Fixed Rate Home Loan – 1 Year Fixed
A fixed rate package loan with a range of discounts offered for other Greater products. 4.29%
5.25%
$0 / $375 95% Go to siteMore info
Illawarra Home Loans Bank Beater Variable Home Loan - <80% LVR
Illawarra Home Loans Bank Beater Variable Home Loan – <80% LVR
No application fee and a low variable interest rate home loan with offset. 4.72%
5.02%
$0 / $345 80% Go to siteMore info
Bank of Queensland Fixed Rate Home Loan - 3 Year Fixed Rate
Bank of Queensland Fixed Rate Home Loan – 3 Year Fixed Rate
Lock in a fixed interest rate term for repayment certainty. 4.79%
5.81%
$300 / $120 80% Go to siteMore info
Yellow Brick Road Rate Smasher Home Loan
Yellow Brick Road Rate Smasher Home Loan
A low interest rate home loan with a no ongoing fee. 4.63%
4.64%
$0 / $0 70% Go to siteMore info
ANZ Simplicity Plus Basic Home Loan
ANZ Simplicity Plus Basic Home Loan
Refinance with your loan with a low variable rate and no ongoing fees. 5.18%
5.23%
$0 / $0 80% Go to siteMore info
Aussie Mortgage Broker Deal
Aussie Mortgage Broker Deal
Aussie Mortgage Broking deal. Compare from 19 major lenders. 4.69%
4.70%
$0 / $0 95% Go to siteMore info
ANZ Fixed Rate Home Loan - 2 Year Fixed Rate
ANZ Fixed Rate Home Loan – 2 Year Fixed Rate
If you’re looking to fix and interest rate for the next 2 years, ANZ offers this great rate with up to LVR for existing customers. 4.99%
5.77%
$600 / $120 90% Go to siteMore info
AMP Bank Essential Home Loan
AMP Bank Essential Home Loan
A competitive variable home loan offer with no monthly fee. 4.74%
4.76%
$0 / $0 80% DetailsMore info

What is refinancing?

In a nutshell, refinancing the process of switching your home loan, usually to a loan product with a different lender. Over the course of your life as a home owner or investor, there are many reasons why you might want to refinance, including selling your property to buy a new one, or you just want to find a better deal.


How does refinancing work?

Switching your home loan to a new lender involves six main steps.

1. Get a quote of your exit costs

To avoid getting a rude shock when you refinance, it should always follow a period of research. The easiest way to do this is by making a call to your existing lender. Tell them you want to refinance and that you want to know exactly how much it will cost you to exit the loan.

This serves a dual purpose: you’ll get an exact quote on how much it’ll cost you to exit your home loan, and your lender will also have a chance to give you their best deal. Note down the deal they offer, and then tell them you’ll think about it.

2. Compare

Now that you’ve worked out how much it’s going to cost you to leave your loan, you can begin comparing new home loans. Read on below to find out how to do this in more depth, but for now you should consider why you’re refinancing, and then adjust the loans you’re looking at to that.

Different home loans suit different life stages, refer to the diagram below to see what kind of loans may suit you. For example, if you’re looking to secure a competitive fixed rate before rates rise, you’ll want to begin comparing fixed or split rate home loans.

Refinancing lifestages

3. Find out the costs of the new loan

The next step in a refinancing comparison is to work out what upfront fees your new lender will charge you, and add these to your exit costs.

4. Apply for the new loan

Once you’ve worked out if the savings of refinancing outweigh the costs, and you’ve found a loan you want to apply for, you’ll need to lodge an application for the new home loan.

5. Exit your old loan

When this is approved, you or your new lender will need to request that your existing lender discharge your mortgage. After this occurs your new lender will pay out your existing lender and they’ll receive the title deeds for your property.

6. Settlement and repayments

When the settlement of funds occurs you’ll begin making repayments to your new lenders.

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When should you refinance?

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Refinancing can be carried out to help homeowners and investors. Here are a few of the reasons why you might want to refinance:

  • To access the equity you’ve built up in your home for different purposes such as buying an investment property, car, holiday or paying for renovations
  • To get a home loan with a lower interest rate, so that your repayments are lower
  • To get a home loan with a different rate, such as switching from a variable rate to a competitive fixed rate
  • To get a home loan with lower fees, such as no monthly or annual fees, or fees for using features such as offset accounts
  • To get a home loan with better features such as an offset account, the ability to make additional repayments, or redraw facilities
  • To consolidate other debt with higher interest rates such as credit cards and personal loans so you pay less in interest
  • To split assets in the event that you divorce or separate from your partner

If any of the reasons above look good enough to switch right now, remember that your new lender will charge you entry fees for taking out your new loan. And while exit fees are banned for variable rate home loans entered into after 1 July 2011, fixed rate home loans still come with expensive break costs, and most loans will have some kind of discharge fees associated with them to get your title back.

According to the experts, when is it time to refinance your mortgage?

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What is refinancing?

In a nutshell, refinancing the process of switching your home loan, usually to a loan product with a different lender. Over the course of your life as a home owner or investor, there are many reasons why you might want to refinance, including selling your property to buy a new one, or you just want to find a better deal.

How does refinancing work?

Switching your home loan to a new lender involves six main steps.

1. Get a quote of your exit costs

To avoid getting a rude shock when you refinance, it should always follow a period of research. The easiest way to do this is by making a call to your existing lender. Tell them you want to refinance and that you want to know exactly how much it will cost you to exit the loan.

This serves a dual purpose: you’ll get an exact quote on how much it’ll cost you to exit your home loan, and your lender will also have a chance to give you their best deal. Note down the deal they offer, and then tell them you’ll think about it.

2. Compare

Now that you’ve worked out how much it’s going to cost you to leave your loan, you can begin comparing new home loans. Read on below to find out how to do this in more depth, but for now you should consider why you’re refinancing, and then adjust the loans you’re looking at to that.

Different home loans suit different life stages, refer to the diagram below to see what kind of loans may suit you. For example, if you’re looking to secure a competitive fixed rate before rates rise, you’ll want to begin comparing fixed or split rate home loans.

3. Find out the costs of the new loan

The next step in a refinancing comparison is to work out what upfront fees your new lender will charge you, and add these to your exit costs.

4. Apply for the new loan

Once you’ve worked out if the savings of refinancing outweigh the costs, and you’ve found a loan you want to apply for, you’ll need to lodge an application for the new home loan.

5. Exit your old loan

When this is approved, you or your new lender will need to request that your existing lender discharge your mortgage. After this occurs your new lender will pay out your existing lender and they’ll receive the title deeds for your property.

6. Settlement and repayments

When the settlement of funds occurs you’ll begin making repayments to your new lenders.

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When should you refinance?

Refinancing can be carried out to help homeowners and investors. Here are a few of the reasons why you might want to refinance:

  • To access the equity you’ve built up in your home for different purposes such as buying an investment property, car, holiday or paying for renovations
  • To get a home loan with a lower interest rate, so that your repayments are lower
  • To get a home loan with a different rate, such as switching from a variable rate to a competitive fixed rate
  • To get a home loan with lower fees, such as no monthly or annual fees, or fees for using features such as offset accounts
  • To get a home loan with better features such as an offset account, the ability to make additional repayments, or redraw facilities
  • To consolidate other debt with higher interest rates such as credit cards and personal loans so you pay less in interest
  • To split assets in the event that you divorce or separate from your partner

If any of the reasons above look good enough to switch right now, remember that your new lender will charge you entry fees for taking out your new loan. And while exit fees are banned for variable rate home loans entered into after 1 July 2011, fixed rate home loans still come with expensive break costs, and most loans will have some kind of discharge fees associated with them to get your title back.

According to the experts, when is it time to refinance your mortgage?

Stuart Tucker: General Manager Marketing and Products. Aussie Group

Noel Whittaker – Finance Expert at Sydney Morning Herald

“The fact that the banks are urging us to refinance to a fixed rate is probably a good reason not to do it. The problem with fixed rates is the inflexibility – in most cases you can’t make extra repayments if you choose. However, it must be said that there are some fixed rate loans that do allow repayments of a small amount of principal. Also, fixed rate loans can have heavy exit fees – the average house changes hands every seven years and often people’s circumstances change and they are forced to change and incur exit costs. I guess in simple terms you lose if you take a fixed rate and rates fall because you miss out on the lower variable rate and at the same time open yourself to potential heavy exit fees. However, if rates rise, you have locked in the present cheap rate and exit fee should be minimal as the base would be happy to get out of a cheap loan and re-lend the money to someone else a high rate.”

Belinda Williamson – Former Head of Corporate Affairs at Mortgage Choice.

“In an environment of falling interest rates and intense competition between lenders it makes good financial sense for borrowers to regularly check if their existing home loan offers a competitive interest rate, charges minimal fees and value-for-money features suited to their lifestyle and needs. With new products constantly entering the competitive home loan market, borrowers should be taking the time to regularly assess their loan situation at least once a year to ensure it meets their current needs and future investment goals and to see if there are any new deals that they might benefit from.”

Rob Dawson – Representative at Charter Financial Planning

“Your decision to refinance your debts is also affected by your own expectations about your capacity to repay the debt and job security. Typically when interest rates are low, an individual with a secure job may feel more comfortable with the application process to consolidate various loans debts and credit cards into one loan, possibly at a new lower rate and commence an assertive repayment program. On the other hand, if the economy is weak and your perceptions of future job security is low, but your current role seems good for now, then you may still be in a good position to refinance but you may not feel comfortable about doing it. However, consolidating debt ahead of any period of instability can be a good move, if your repayments are more manageable later and it helps to get through that time frame. The most difficult period to refinance is obviously if you cannot show stable income and work patterns to prospective lenders.”

When shouldn’t you refinance?

Even if you have a good reason for refinancing, there are times when it’s just not practical. Here are some of them:

  • You have a fixed rate home loan with a very high exit cost – the cost of fees could outweigh the benefits of switching until the fixed rate period is over.
  • You think you’ll probably sell your property in the near future – you might pay all the associated fees and then not keep the loan long enough to make any decent savings.
  • Your loan amount is small – in this case the savings you’ll get by refinancing might not be worth it as the interest you’ll pay will be small anyway.
  • The saving is small – If you’ve been with a lender for quite some time, enjoy the service you receive, and have other products with them, it might be better off asking your lender for a discount rather than refinancing.
  • Your property value has fallen or your LVR is still over 80% – this could see you pay lender’s mortgage insurance again, and put you seriously behind in savings.

If you don’t think refinancing would be suitable to you, or if you’ve done the sums and it won’t net you any real savings, it’s always a great idea to call your lender anyway. If you tell them you’re thinking of leaving for a new lender, they will usually offer rate discounts. To compare two loans together and find out what your switching costs and potential savings might be, use the calculator below.

How to calculate the costs of refinancing

As mentioned above, you should first find out what the costs are for leaving your old loan.

Your exit costs could include:

  • Discharge fees. $200 – $400. These are usually charged by your old lender to give you back your title deeds.
  • Exit fees. $ varies. If your loan was entered into before 1 July 2011 you may still have to pay mortgage exit fees, even on a variable rate home loan. These can be quite expensive, but you might be able to get a discount from your lender. If you have a fixed rate home loan, you’ll still have to pay exit fees as your lender could be losing out by letting you leave your loan.

 

The upfront costs you could pay include:

    • Application/establishment fees. $200 – $600. These fees cover the initial costs of setting up your home loan.
    • Valuation fees. $100 – $300. Your new lender will want to have your property valued to decide how much to lend you. This fee covers the cost of an independent valuer.
    • Settlement fees. $100 – $300. This fee covers the cost of your lender arranging your funds.
    • Legal fees. $75 – $150. These fees cover the cost of your lenders solicitors which arises out of your application.
    • Stamp duty. $ varies. You may have to pay stamp duty when refinancing, which is charged by the state. We have a stamp duty calculator you can use to get an estimate of how much you might pay.
    • Lender’s Mortgage Insurance (LMI). $ varies. If you’re borrowing over 80% of the property value you could have to pay LMI premiums. This can cost well into the thousands, and depends on how large your loan is and how much equity you have.
    • Ongoing costs. $ varies. A home loan might keep charging you fees even once you’ve settled. Things like redraw fees, monthly fees or annual fees should be taken into account.

You can use our calculator below to help you work out whether or not refinancing is worth it.

How much will it cost you to refinance?

Application fee ?

Lenders Mortgage Insurance (LMI) ?

Legal fee ?

Discharge fee ?

Valuation fee ?

Registration fee

Service fee

Legal fees ?

Settlement fee

Stamp Duty ?

Exit fee

Rate Lock fee ?

Early Termination fee

TOTAL 0

Savings

Cost

Refinance?

 

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What types of loans can you refinance to?

You can refinance to any home loan you’re eligible for. This may include:

Variable rate home loans These loans have an interest rate which can fluctuate depending on economic factors each month. They are usually flexible and can come with a range of features
Fixed rate home loans With a fixed rate home loan you can lock in a rate for a period usually between one to five years and be protected from rate rises. These loans are generally less flexible than variable rate home loans and can come with more expensive exit fees
Split rate home loans Split rate loans allow you to enjoy a mixture of variable and fixed rates. This means you can enjoy the benefits of both
Low doc home loans A low doc loan can be applied for if you’re self employed or can’t prove your income with the usual required documents
Bad credit home loans These loans usually have higher interest rates or fees, but in exchange can be applied for by those with defaults or other negative marks on their credit file
Line of credit home loans These are also known as equity loans, and give you a revolving line of credit much like a credit card. The difference is this type of loan uses your equity to provide funds

Different loan types

There are also different loan types available for most of the loan products above. These include:

Basic home loans – These are home loans which have low rates and fees but come with minimal features as a result.

Standard home loan – These home loans are a step up from basic home loans, and includes an array of features that help you pay off your home loan faster such as offset accounts, redraw facilities and additional repayments. However, they often come with a higher annual fee.

Package home loans – These loans generally come with the full range of features, as well as rate discounts and discounts on other products the lender offers. Some fees are also waived. In return for this you’ll generally pay an annual fee which can range between $300 – $500.

Green home loans – These home loans reward those with environmentally friendly homes with lower rates.

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How to compare loans when refinancing

How you should compare home loans when refinancing will depend on the reason why you’re refinancing. Regardless, there are some factors you should always add to your comparison no matter if you’re refinancing for a better rate or to get access to a feature like an offset account.

Interest rates – The advertised interest rate has a large impact on how much your repayments are each month. Be sure that if you do compare home loans based on their rate that you also take into account the comparison rate. This is a rate which takes into account some of the fees the loan charges. Also if the interest rate you’ll receive is an introductory offer, you should be sure that the revert rate is still competitive.

Fees – Fees should always feature in a home loan comparison. Compare the application or establishment fees, ongoing fees, valuation fees, monthly or annual fees, and any other fees for using features such redraw facilities or 100% offset accounts. Just because a home loan has an annual fee or application fee it doesn’t mean it should be avoided. Take the time to look at it in depth and find out whether the fees are worth it for the benefits.

Features – Many borrowers will want to refinance in order to get access to money saving features. Ensure that the features you’re looking for don’t come with any hidden costs, such as offset accounts with monthly service fees. If you’re after an offset account, ensure that it’s a 100% offset account and not a partial offset account. If you’re looking for a fixed home loan which allows additional repayments for example, ensure that the limit of additional repayments that can be made is suitable for your needs.

Incentives – Many home loans will offer those refinancing cash incentives during ‘mortgage season’ which is usually around Spring. These are usually around the $1,000 mark, but can be as high as $2,000. These can be a great way to minimise the costs of refinancing, but be sure that the loan you’re applying for still has a competitive rate, fees and features so that once the cash back is gone you’re not left with an uncompetitive loan.

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The pros and cons of refinancing

There are advantages and disadvantages to refinancing, so be sure to do your research before switching.

  • Pros
  • The opportunity to get a home loan with lower rates, lower fees, or more useful features
  • The ability to unlock equity in your home to renovate, go on a holiday, or make a purchase
  • The opportunity to consolidate other debts into your home loan and pay a lower interest rate on them
  • Cons
  • Can be expensive depending on your old home loan, in some cases the costs can outweigh the savings
  • If you refinance to a longer loan term you could pay more interest over the life of your loan

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Things to avoid when refinancing

When you’re refinancing, be sure to select a home loan which is right for you. Home loan lenders will reserve some of their most competitive offers and bonuses for those refinancing, so ensure that the loan you apply for is competitive once the bonus offers end. The last thing you want is to be stuck with a home loan which is worse than the one you had before switching.

Also take into account fees when comparing home loans. You don’t want to switch home loans if the costs of switching far outweigh the benefit of any savings you’ll receive from lower rates.

Remember too that if you refinance to a term which is longer than the term you currently have, you could end up paying more in the long run as you’ll be paying interest for longer.

Also keep in mind that if your LVR is over 80% when refinancing you could have to pay Lender’s Mortgage Insurance (LMI). If you’ve had your loan for less than two years you could be eligible for a refund on your original LMI premium, so be sure to contact your original lender if you decide to refinance.

Before applying for the new home loan, make one last quick call to your existing lender. See if they can offer you any last discounts to keep your business.

Here are some other quick tips and things to avoid when refinancing:

      • Don’t apply for numerous home loan products when refinancing – each of these applications will be recorded on your credit file, and too many can make it harder to qualify for new forms of credit in the future
      • Use a borrowing calculator to help you decide if you’d be eligible for the loan size you want
      • Ensure you can make additional repayments on your home loan – you never know when you might run into extra cash which you might want to sink into your home loan

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Frequently asked questions about refinancing

I’m struggling with my debts, should I refinance?

It’s always best to contact your lender before refinancing, as they may be able to help you temporarily if you’re experiencing financial difficulties.

You can also get into contact with a free financial counsellor to get help managing your difficulties.

Should I consolidate my credit card or other debts into my home loan?

You should always seek the advice of an accountant or financial advisor before considering refinancing and adding in other debts to your home loan.

While it may seem like a good idea to roll other high interest debts into your home loan and pay a lower interest rate, you should be aware that these debts will take much longer to pay off because a home loan is generally taken over much longer periods of time. This means what was once a small debt could become much bigger due to interest.

Can I refinance if I have bad credit?

Some lenders will accept bad credit borrowers, but might charge higher interest rates and fees. It’s a good idea to get a copy of your credit file before making any applications. Also note that some services like those of a credit repair company, can in some cases help to remove some negative listings on your file.

I don’t have the time to compare home loans, what should I do?

If you’d like to refinance but don’t have the time, you could consider the services of a mortgage broker. They can help find you a loan which suits you and your financial status.

What is equity?

Equity refers to the amount of your property that you own outright. As you pay your loan down, and your property increases in value this amount can increase.

Are there any tax implications when refinancing?

Henry Sapiecha

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