Phone: 0408 671 524

Rates are rising so should I consider fixing my loan?

 

Unless you are a bit of a Home Loan geek such as myself you probably haven’t got your head around why interest rates are trending upwards at the moment. The pithy summary is that Australian banks have increasingly sourced their funds from overseas including the USA. In this case where they may be sourcing funds from companies such as Google and Amazon (who have spare Billions they don’t know what to do with) the bond rates have increased and have pushed short term funding costs up by as much as 60 basis points (0.6%). The Banks are balancing their desire to maintain their profit margins without upsetting consumers too much or appearing to (ab)use their rather excessive clout. Some rates are trending up however there are still some very attractive discounts for the right type of borrower.

Given the upward trend in rates many consumers are now considering fixing their rates. This can be a good move however several considerations need to be made:

  • Understand potential break costs if your circumstances change and you want to end the loan term early
  • You may not be able to benefit from the use of Offset accounts or make additional repayments during the fixed term – conditions differ from lender to lender
  • Check the revert rate at the end of the term to ensure that discounts available are applicable. The cost to refinance at the end of the term may consume the benefits of fixing in the first place
  • You may consider Rate Lock options when fixing your loan to ensure the rate you sign onto is still the rate at settlement. Big changes can happen in the short period of time between application and settlement.

There are many benefits of Fixing as well such as certainty in repayments over the period in which it is fixed. If your income is steady you may prefer to avoid the volatility of variable rate loans. It is best to chat through the pros and cons with your Broker before you make your decision.

 

Douglas Piening is a Mortgage and Finance Broker with Piening Financial Solutions and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

You can contact Doug at douglas@pieningfs.com.au or (m) 0408 671 524.

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

I choose to see the glass as half full

Douglas Piening 27/6/2018

Amid talk of a Credit Squeeze and predictions that house prices will fall, especially in the major cities of Melbourne and Sydney you could be mistaken for thinking it was all doom and gloom. I would prefer to focus on a few of the positives in the current environment!

Read More

Smart tips for paying off your home loan sooner!

Douglas Piening 31/5/2018

 

Wondering how to pay off your home loan sooner? We look at some things you could do.

Australian home loan interest rates remain at historic lows, and the opportunities for paying off a mortgage early are better than ever. Used in conjunction with low rates, here are some extra steps that can speed up loan repayments and reduce your loan balance.

Make higher repayments

One of the easiest ways to quickly reduce the balance of your mortgage is to make larger loan repayments. The minimum repayments required on a loan are calculated on the amount owing and the prevailing home loan interest rate. Repaying more than the minimum can cut the overall term of the loan and save you thousands of dollars in interest. A mortgage repayments calculator will quickly show what savings can be achieved.

Some lenders may charge you an early payment cost for paying your loan in advance. This is particularly the case with fixed-interest loans, so it’s always best to check up-front. These costs can be large.

Make more frequent repayments

Home loans are often structured so that you make monthly repayments. But making fortnightly repayments instead can reduce the term of a loan and save interest. By making fortnightly repayments, you are paying the equivalent of half of your monthly repayment every two weeks. This allows you to make the equivalent of one extra monthly repayment per year. Extra repayments will ensure the loan balance is lower at the time of the month the interest is calculated.

Use an interest offset account

Most lenders allow you to package a mortgage with an interest offset account. An offset account allows you to reduce the amount of interest paid on your loan by offsetting the amount in the (offset) account against your loan balance. Wages and other income can be deposited into your offset account. Note that you don’t earn interest on the funds in the offset account, and that offset is usually only available on variable rate loans. 

Seek out lower rates

Although obvious, many borrowers take out a mortgage and then stop following the home loan market. With interest rates constantly changing, it pays to monitor the latest rates. If rates go down, contact your lender or broker and ask if they can reduce the rate on your loan.

Don’t take the rate cut

When a lender reduces the interest rate on its home loans, usually in line with a cut in official interest rates, your first thought may be to reduce your loan repayments accordingly. However, by maintaining your loan repayments, you effectively repay more than the minimum loan repayment. If it’s possible to do so, this will help you cut the term of the loan and save on interest. 

Pay both principal and interest

While you can make lower repayments by choosing an interest-only loan, doing so means the principal component of the loan will not be repaid while you are only paying interest.

 

Pay fees upfront

When initially taking out a mortgage, lenders will often roll the establishment costs and charges into the loan. While this may help the short-term budget, it’s worth paying these costs separately to lower the overall balance of the loan from the start.

Use your home equity

As home prices rise, you build more equity in your property. Redrawing funds from a home loan to pay for renovations and other costs can be a much cheaper source of funds than others.

Set up a split loan

A split loan, sometimes referred to as a combination loan, enables borrowers to divide their mortgage into both variable and fixed components. By doing this, you can not only make extra payments on the variable component, but also lock in a lower fixed rate. Extra payments can often be made on the fixed loan too, up to a limit specified by the lender.

Get a financial package

You can often lock in a discounted loan rate with a financial package and also find special rates on other products and services. Putting those savings into your mortgage is a great way to get the best of both worlds.

With just a few easy steps, borrowers can significantly reduce the length of their mortgage and save thousands of dollars in the process. A mortgage broker can assist you in setting everything up.

 

Douglas Piening is a Mortgage and Finance Broker with Piening Financial Solutions and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

You can contact Doug at douglas@pieningfs.com.au or (m) 0408 671 524.

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

Why can’t I borrow as much as I want?

Douglas Piening 23/4/2018

Contrary to some in the media it is not Brokers who insist that consumers “max out” their borrowing. Many clients first question is “How much can I borrow?” and their preference is to extend themselves as close to their limit as possible.

Read More