‘Times they are a changin’ is the 1964 Bob Dylan classic but 54 years later those words have never been more relevant. We have a change of Prime Minister almost annually now and of course we have the ongoing reality of climate change (unless you’re a climate denier of course). In the world of home loan finance, it has also never been more complicated with regulatory focus and policy change a daily feature of our inbox. People’s lives change too, whether it be through job loss or a relationship breakdown.
What can you do, to best manage your lending in this constant state of flux?
Douglas Piening 23/8/2018
Genuine savings or equity are generally needed in the application process. If you apply for a home loan, particularly if the loan is for more than 80 per cent of a property’s value, you’ll more than likely have to prove to lenders that you have a satisfactory amount of savings. This is to demonstrate your ability to funnel a portion of your income into repayments. Read More
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!
Buying a home can be stressful. It can be more stressful if you have uncertainty around your financial situation when you are looking to buy a home.
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 firstname.lastname@example.org 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.
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.
Douglas Piening 23/3/2018
I get clients all the time asking me this question. The answers are varied and will depend on considerations such as:
Douglas Piening 26/2/2018
Interest Only borrowers are paying a huge premium compared to Principal and Interest loans and there are many reasons why this is the case.
Interesting Article here in the AFR yesterday from Duncan Hughes about the changes in lending practices. Banks are under regulatory pressure to tighten lending standards which will have flow on effects to applications.