![How RBA Rate Changes Affect Your Interest Rate]()
10 Aug 2015 | News
With the RBA setting the official cash rate at all-time lows, it’s a good time to work out how this impacts the interest rate on your home loan and whether you are getting a good deal or not.
When the interest rate on your home loan fluctuates, it can feel as though you don’t have control of your debt. Despite being frustrating, interest rate changes are a part of every loan’s lifespan and warrant your consideration.
The interest rates that banks charge on their home loans are influenced by the Reserve Bank of Australia’s (RBA) cash rate.
The cash rate is reviewed by the RBA on a monthly basis in order to safeguard Australia’s economic stability. The cash rate is the rate charged on loans made between the RBA and your lender. This, in turn, has a very strong impact on the interest rates your lender charges you.
“The RBA supports the banks with liquidity facility,” explains Advantedge General Manager Brett Halliwell. “The RBA is a bank to the banks. The cash rate is effectively the rate at which the RBA will lend to the banks, and what the banks effectively use as a reference rate for other things.”
When the cash rate is changed by the RBA, lenders decide whether or not to mirror the new rate in the interest they charge their mortgagees.
This is entirely up to the lender in question and depends on the market and how the lender is performing at the time of the cash rate change.
“If you look at the mortgage market, specifically by itself, it is very competitive,” Halliwell says. “It is about the lender trying to get the right outcome on the deposit side of the balance sheet within the context of a very, very competitive marketplace, but recognising that a reference rate has changed and, therefore, looking at where they stand.”
Some lenders choose to shift their interest rate changes higher than the RBA’s cash rate change and, in these instances, other lenders may be offering lower interest rates than the one you currently have.
Keeping track of how your lender manages cash rate changes and where that leaves you as the person paying the interest can be time consuming, and is made more difficult by fees, charges and the flexibility offered by different loan products, which all need to be weighed alongside the interest rate.
A simple way to regain control of your interest rate is to lock it in for a period, if you believe rates are not likely to fall further. Fixed rates offer less flexibility, but more certainty.
To discuss what changes to interest rates that lenders have made recently and how that may affect you contact us on 07 3911 1190 or use our contact form.
![How RBA Rate Changes Affect Your Interest Rate]()
6 Aug 2015 | Home Loans, Investor Loans
When you consider that a small flat in Sydney could set you back half a million dollars at the moment, saving a 20% deposit to buy that flat – $100,000 – can seem an insurmountable task. That’s where insurance can help.
Lenders mortgage insurance (LMI) may be an added expense, but it offers buyers the opportunity to dive into the property market earlier, without saving up an entire 20 per cent of the property’s purchase price as a deposit.
What is it?
LMI protects the bank or lender, should a home loan go into default, guaranteeing that the lender will get its money back if the property needs to be sold and there is a shortfall in repaying the loan.
While a 20% deposit generally provides a good buffer against any drops in property value over the life of a loan, LMI can also provide the same protection, meaning borrowers can purchase property with a smaller deposit.
What’s in it for you?
For the borrower, it may seem LMI is just another expense to cover. But insurance can mean that some buyers will be able to enter the property market with, for example, only a five per cent deposit saved. In the example above, a $500,000 property, this brings the deposit down from $100,000 to just $25,000.
And, if the market is hot and prices are rising rapidly, paying LMI so that you can buy now could be cheaper than taking the time to save a bigger deposit. In the time it takes to save a higher deposit amount, property prices may well have surged by more than cost of the insurance so, for some properties and purchasers, it can make good financial sense to purchase earlier even with the added cost of LMI, especially when you consider the rent that you would pay while you’re saving.
What you need to know
The insurance premium is generally a one-off payment, but you may be able to roll it into the loan amount so that you are paying for it month-by-month along with your mortgage.
There can be a big difference between premiums paid if you have, for example, a 10 per cent deposit saved compared with a five per cent deposit, so it may well be worth trying to gather together some extra funds, even if you despair of reaching the full 20 per cent.
Remember, the first thing you need to do is understand what your options are and that starts with your finance broker. So why not give us a call on 07 3911 1190 to chat about your plans today?
30 Jul 2015 | Home Loans, Investor Loans
Getting your mortgage application together can require quite a bit of financial scrutiny. In order to figure out your serviceability, your potential lender will look deeply into your finances.
It’s a no brainer to take your credit card debts into consideration when applying for a mortgage. But what many people do not realise is that high credit card limits will not bode well for a home loan application.
If you have a high credit limit, you also have a high debt risk in the eyes of your lender. As the logic goes, there is no stopping you from boosting your credit card limit the day after your loan is approved.
“We have to take account of 3% of the total credit card limit, regardless of what the applicant owes,” says Homeloans Ltd Business Development Manager Sally Carmichael.
“If they had a $10,000 limit but they only owe $1000, we still have to assess $300 a month and that comes directly out of their liability. It does make quite a difference.”
Even if you haven’t put a cent on your credit card for the past five years, a high credit limit will negatively affect your serviceability. The best thing you can do is lower your credit limit, or cancel that credit account entirely.
“You need to pay out your credit cards and avoid having any other debt,” says Carmichael. “You need to be able to use your full amount of income.”
For those that have to pay off their credit account before dreaming of cancelling their liability, it is imperative that you pay your debt on time, according to your minimum repayments.
To discuss how your credit card limits may affect your maximum borrowing capacity contact us on 07 3911 1190 or use our contact form.
