Is It Time To Fix Your Interest Rate?

As your local mortgage broker, one of our most frequently asked questions is about timing the market to fix interest rates. We’re often asked “Should I fix now, or should I wait and see if interest rates get even lower?” It might sound like a simple question, but giving you an answer is not as easy as you may think. And that’s not just because it’s difficult to predict what interest rates will do – it’s because you need to consider the question: “Is fixing my interest rate the right strategy for me?”.

Fixed interest rate loans – the pros
Many people, particularly first home buyers, find it difficult to decide whether to fix their interest rate or go with a variable rate when they first take out their mortgage. They’re both good options, and deciding which one to take very much depends on your personal financial circumstances and future property investment goals. But let’s just look at fixed interest rate loans.

Fixed rate home loans are designed to help you lock in your interest rate for a set period of time – usually 1, 3 or 5 years. The two main advantages of fixing your mortgage interest rate are:

• Fixing your interest rate makes budgeting easier. By fixing your interest rate, you will know exactly what your mortgage repayments will be as long as your mortgage remains fixed. This is a distinct advantage for those on a tight budget.

• You are insulated from interest rate rises for the length of your fixed interest rate period. With a variable rate mortgage, your repayment amount could increase without notice if interest rates go up. If you have a fixed interest rate this cannot happen. When variable rates go up, you continue to pay the same amount for as long as your mortgage remains fixed.

Fixing your loan? What to be cautious of.
Fixed interest rate home loans are usually no frills products that don’t come with any extras. Variable rate home loans usually come with extra features – like the capacity to make extra repayments, redraw facilities, credit cards and mortgage offset facilities, for example. 

These variable loan features may have the capacity to save you money, and you should talk to us about how these savings might add up for you if you decide to choose a variable rate over a fixed interest rate home loan. 

Additionally, fixed rate home loans can often charge you a slightly higher interest rate to start with than a variable rate home loan. Having said that, there are some very competitive fixed rate home loans around at the moment, but you still need to carefully weigh up how much you could save on a variable rate home loan and compare that to the cost of a fixed interest rate home loan. 

Another disadvantage with fixed rate home loans is what happens if interest rates should fall. With a variable rate home loan, any drop in interest rates will reduce your home loan repayments. If you have a fixed rate home loan and interest rates fall, your interest rate remains at the higher level and your repayments will still stay the same. This can be very frustrating for some – particularly if your major reason for fixing your interest rate is to save money. 

The final thing to consider with regard to fixed rate home loans is your plans for the future. Fixed rate loans usually carry a substantial break fee if you wish to change or pay off your mortgage before the end of your fixed rate term. That means you could be penalised if you need to sell your home for any reason, or if you want to refinance your home to access equity for another investment. 

What are my alternatives?
What do you do if you want the flexibility and cost-savings of a variable rate home loan, but are worried about interest rate rises making your mortgage repayments unaffordable? In this situation, many people opt for splitting their home loan between a variable and fixed rate.

With this option, you may be able to arrange for 50% of your home loan to be at a fixed interest rate and the other 50% to be at a variable interest rate, for example. This option offers some protection against the risk of interest rate rises, whilst still giving you the capacity to make extra repayments and take advantage of other facilities that variable rate home loans have on offer.

So is now a good time to fix my interest rate?
The Reserve Bank of Australia have had 2 official interest rate cuts this year. This has brought interest rates to new historical lows – we’re seeing some of the lowest interest rates on record. However, if you’re waiting for interest rates to hit absolute rock-bottom before you fix your home loan interest rate, there’s simply no way of telling if they will fall even further this year. 

There’s also no way of telling how long it will be before interest rates go back up again. It’s important to remember that you will only be saving money by locking in a fixed rate if variable interest rates go up to a point above the fixed interest rate you’re paying.  Ie. If you have a fixed rate home loan at 4.50%, variable interest rates would have to go up above that level before you would see any saving. And it may be quite some time before that happens.

We recommend that you talk to us before you make the decision to fix, or not to fix. We’re here to help you choose the right home loan product to suit your current needs, your future aspirations and your personal financial circumstances and budget. Whether you decide to choose a fixed or variable rate home loan (or a combination of both), there are some excellent deals available on the market right now – just give us a call to find out more today.

Do I Need Mortgage Protection Insurance?

Your home loan is the biggest financial commitment you’ll ever make and taking the time to ensure you can always meet your repayments – no matter what – is very important to your future financial security, your lifestyle and your family too! In this article we take a look at mortgage protection insurance to see if it could be the right option for you.

 What is mortgage protection insurance?

Your mortgage is a commitment that won’t wait for anything – you always need to make those repayments no matter what happens. The consequences of not being able to meet your repayments can be quite severe, including the bank foreclosing on your home loan and selling your property to recoup the debt.

Mortgage protection insurance – sometimes called loan protection insurance – is a policy that you can take out in order to protect your capacity to make your mortgage repayments. Policies can usually be arranged to cover your mortgage repayments in the event you lose your job, or suffer a serious illness, injury or even death.

How is mortgage protection insurance different to LMI?

Mortgage protection insurance is very different from Lenders Mortgage Insurance (LMI). LMI is designed to cover your lender (the institute providing your loan) – not you. In the event that you cannot make your repayments and the lender needs to foreclose on your loan, LMI covers the lender for any losses they may make when the property is eventually sold. Even though your lender may require you to take out LMI as a condition of granting your loan, it is important to note that LMI does not cover you if you cannot make your home loan repayments for any reason.

Do I really need mortgage protection insurance? Is it just another expense?

It is important that you think about how you would meet your loan repayments if something should go wrong. Some people have income protection insurance that covers their income in the event they cannot work for a while or lose their job.  This is fine as long as it will be enough to cover both your living expenses as well as your loan repayments – but it doesn’t necessarily cover serious illnesses, permanent disability or death.

Others may have a life insurance policy which could pay out a lump sum in the event of death or permanent injury or disability. However, life insurance policies do not cover you for eventualities like unemployment or less serious illnesses.

It is important that you have insurance cover for every eventuality. And it’s also important to make sure that you’re not under-insured. We recommend that you give yourself an insurance health check to be sure that any insurance you have will be enough to cover your loan repayments and other expenses, no matter what happens. 

We can help you to assess whether or not your existing insurance is enough to cover your loan repayments as well as your living expenses. This is not only important in terms of making your home loan repayments, it could be very important to the well-being of your family as well.

It is also important to note that in some instances, mortgage protection insurance may be tax deductible, particularly if you’re taking it out for an investment property. You should check with your accountant to see if you can claim mortgage protection insurance as a tax deductible expense.

How do I organise cover?

Talking about your financial situation and commitments is part of the process we undertake when helping you to apply for a home loan, so going one step further to help you assess your insurance requirements at the same time is easy. We have a reliable, cost-effective insurance partner, so we can also help you to organise an affordable mortgage protection insurance policy if you need one.

Simply discuss your situation with us and we will organise a free quote that is tailored to your requirements, or refer you to one of our partners. 

Remember, as your mortgage broker, we’re here to help you get the home loan that’s right for your requirements and suited to your personal financial situation. Making sure you have adequate insurance cover for your needs at the same time you take out your home loan is part of our service. We genuinely care about your financial future and your well-being, so please don’t hesitate to talk to us about your insurance requirements today.

Your Essential Guide To Property Research

When you’re buying a property, careful research is the key to success. From making the initial decision about how much you can afford to spend, right down to locating the right property and making your purchase, doing your research to make sure you’re fully informed will help to ensure you make a profitable investment that will be a real financial asset for you now and into the future. But where do you start? In this article we outline the research steps you need to take when climbing on to the property ladder.

Step 1 – Financial research

The first step in buying a property is setting your budget and organising financial approval for a home loan. Researching how much you can afford to spend is as simple as listing all of your assets – including the cash you may have on hand for a deposit – and working out your expenses. This will show you how much you can afford to spend on a deposit and home loan repayments.

Once you’ve completed this basic research of your financial position and decided your budget, it’s time to talk to us – your local mortgage broker. We’ll sit down with you to discuss your financial position, your goals for the future and then help you choose a mortgage product that’s right for you. We’ll then research the home loan market for you and select the loan options that best suit your objectives and give you the best rate.

Step 2 – What type of property do you want to buy?

Once you have your budget firmly in mind, it’s time to decide what type of property you can purchase. Obviously the amount of money you have to spend will influence what type of property you look at purchasing, but there’s a lengthy list of options and you need to do some research to help you choose the one that’s right for you.

Are you interested in buying an apartment, a unit, a house or perhaps a commercial property? If you are purchasing the property as your own home the decision will be influenced by your personal needs. But if you are purchasing the property as an investment, then you may consider all property types as suitable – as long as they give you the return on your investment that you need for it to be financially viable and profitable.

Step 3 – Where do you want to invest?

If you’re buying a property as your own home, this step will be about researching a suburb that best suits your personal lifestyle and the future needs of your family. But if you’re buying an investment property, it pays to look further afield and consider the locations that have good capital growth potential and will give you the best return on your investment. 

savvy investors spend time researching to find areas with capital growth potential and then focus on finding properties in these areas that are within budget. This requires access to good property market data that gives you figures on the latest trends. If you need help accessing this kind of information, then just ask us.

Research suburbs that are showing steady capital growth, and suburbs adjacent to ones that are already popular. Don’t be afraid to consider properties in other capital cities that may have better capital growth potential than the city in which you live. If you are buying an investment property, consider locations that will be popular with tenants – suburbs with good schools, public transport links, shopping centres, amenities and access to the CBD.

Step 4 – Locate the property and research its viability

Once you have an idea of your budget, the type of property you want to buy and general locations you may want to invest in, you can start researching to find suitable properties to inspect. 

If you’re purchasing an investment, you will need to research each property very thoroughly before you decide on one to purchase. First you’ll need to determine the right price for the property so that you don’t pay too much. You can do this by researching the sale prices of comparable homes in the area to see how yours stacks up.

Next you’ll need to do some research with real estate agents to determine what kind of rental return you can expect on the property you have chosen. It’s important to determine whether or not the rental return will cover all the expenses – including the mortgage – so that you can work out if it is a financially viable investment for you and suits your budget and investment goals. 

If you’re looking to purchase a property soon, this guide will help you get started on your essential research. Of course, you can get started on the first step of researching your budget and organising pre-approval for your home loan right away, just by talking to us.

We’re here to make sure you get the best home loan product and rate available for you, considering your personal financial situation and goals. There are many competitive home loan products available on the market right now, so it’s a good time to get started. Give us a call today 5561 8618.