Fixed or Variable? Which Way Should I Go?

WITH the major lenders all dropping their fixed rates in the last few weeks, it’s a good time to consider whether locking in a rate is the way to go.

There have been many studies which have shown that over time, it’s better to stick with a variable rate and ride the rollercoaster those rates can sometimes travel on.

Which is exactly what interest rates have done in the last few years here in Australia. In August 2007, the official cash rate set by the Reserve Bank was 6.5 per cent. By December that year it was slashed to 4.25 per cent at the start of the GFC and by the following February it was 3.25 per cent.

With more global uncertainty and unemployment numbers up here locally, the banks dropping their fixed rates, there’s speculation that the RBA will cut the cash rate from 4.75 per cent when they next meet on September 6.

However, Aussie’s Executive Chairman and founder John Symond said while there is a chance variable rates will also drop in the upcoming months, a fixed rate can be useful for homeowners, particularly if they are planning a change in their circumstances.

“Fixed rates are good when you’re planning to start a family, or a work situation is changing as it gives the homeowner some security over the level of the repayments,” he said.

Mr Symond said fixed rate loans have conditions such as the amount of the extra repayments which can be made each year, break costs if the house is sold or the loan is paid out early and a lack of extra features which might be associated with variable loans, such as redraw.

“Personally I believe it’s better to go with a variable rate as you can pay as much as you like off the loan, reducing the term and the level of interest payments,” he said.

“However, if homeowners are concerned about interest rates going up the perhaps splitting the loan into a fixed and variable component may be a good option.

“It’s an each-way bet, which gives some peace of mind over the repayment amount while still allowing them to repay the variable component as fast as they want.”

To discuss how each option could benefit you, call Mike Cormack from Aussie Home Loans Joondalup and claim your free 60 minute consultation on 0403 144822 or visit Aussie Joondalup

Why Smart Shoppers are Using Mortgage Brokers

Most people understand that a mortgage broker can help take the work and potential headache out of comparing literally thousands of loans from dozens of different lenders for you. Most brokers do not charge a fee for their service and have obtain a variety of industry qualifications. All brokers at Aussie Joondalup have obtained Certificate IV in Finance, Mortgage Broking and are a member of Mortgage Finance Association of Australia, the peak governing body of professional mortgage brokers in Australia. Currently, all Aussie Joondalup brokers have a minimum of 6 years individual experience writing new home loans.

Check out what local online news source WAToday.com.au had to say about broker in a recent informative article: WAToday

7 First Home Buyer Mistakes to Avoid

Higher levels of savings, increasing rents, stable interest rates, a softer housing market and the banks relaxing their lending criteria have all combined to create a unique opportunity for first home buyers looking to get on the property ladder. There are some common mistakes that first home buyers make, however. Make sure you don’t fall into these traps:

1. Changing jobs or making a major purchase at the same time as applying for finance.
2. Not getting your finance pre-approved, and leaving everything ‘too late’ when the ‘right’ property is found.
3. Borrowing right up to the amount the lender is prepared to loan you, and then being financially over-stretched.
4. Letting emotions take over in the negotiation process, and paying too much for the property—or missing an opportunity to negotiate more favourable purchase conditions.
5. Not doing your diligence and checking out things such as council zoning, building approvals and restrictive covenants.
6. Buying a ‘do-up’ and then running out of money. Renovation is not a cast-iron route to riches, and if it turns out to cost more than you bargained for, you could be living in squalid circumstances for too long.
7. Forgetting to sort out property insurance well before you move in, and forgetting to tell the utility companies!

Aussie Joondalup broker Mike Cormack has been a first home buyer himself and has 6 years home lending experience to draw on. He regularly successfully guides local first home buyers to their first home. Email Mike for a free copy of his Aussie First Home Buyer Guide and see how he can help you too.

Fixed or Variable Rate - Why Not Have Both?

Annoyed that you may have missed the opportunity to take out a fixed mortgage with rates set to move higher? Well, why not create your own?
It’s not such a crazy idea. You can simply turn your current variable home loan into a pseudo fixed loan by raising your repayments to match the current fixed term loan amount. And by doing so, you will not only be more likely to pay off your mortgage faster but at the same time you can enjoy all the flexibility a variable loan can offer.
So how do you go about it? In the first instance find out what the current repayments would be for a fixed loan. According to ratings house Canstar Cannex, the current average three year fixed rate of 6.94 per cent on a loan of $250,000 means a monthly payment of $1757.39. The average fixed rate for a five-year fixed loan is 7.65 per cent requiring a monthly repayment of $1871.94 on a $250,000 loan.
These repayments compare with $1552.80 a month on a current average variable rate of 5.62 per cent so by adopting this strategy you will either pay an extra $204.82 (with a three year fixed) or an extra $319.14 (with a five year fixed) a month.
If you choose to pay the equivalent of a three year fixed rate then assuming all things were to stay the same (which they are unlikely to do in reality) then you would save $52,398 in interest and pay off a 25 year loan five years and five months faster.
Clearly with the Reserve Bank governor Glenn Stevens current take on the outlook for rates, the variable is not going to stay the same, whereas for example the three year term of a fixed loan guarantees you that the rate will remain the same. Stevens recently hinted again that rates would probably start to rise again before Christmas.
But since the variable rate probably won’t jump 1.3 per cent in one hit (the difference between the standard variable and the three year fixed), there will still be some room to benefit for a few months yet. Indeed, the longer the average variable rate stays below the current fixed rate of 6.94 per cent, the better off you will be.
And the other good news is that you can maintain all the flexibility that traditionally comes with a standard variable loan – lump sum repayments, redraw facility and the ability to split your loan.
Peter Arnold of Canstar Cannex says: “You may well come out on top as long as the variable does not shoot up too quickly. While you may end up paying more after 18 months, by making the extra payments on your variable home loan that money is going towards paying off your principal. If you just had a fixed loan, this may not be the case.”
So having a do-it-yourself fixed interest loan through your variable is a bit like the old Claytons joke. It’s the fixed interest loan you have when you’re not having a fixed interest loan!
Key points:

• Repayments on variable loans are currently lower


• Use the difference to pay off your principal


• Reduce your loan term by years by paying off your loan faster


• Retain the flexibility of a variable loan

If you enjoyed this post or found it useful, please consider posting a comment or 'Sharing' it using the button on the top left of the page.
0403 144 822
(08) 9300 0686
michael.cormack@aussie.com.au
Mike Cormack
Aussie Joondalup

Fixed vs Variable Choice Gets Tougher

www.smh.com.au

Fixed interest rates continue to edge up as the world economic outlook improves, official interest rates rise in the US and expectations firm of further rate rises in Australia.

The best 3-year rates currently range from 6.70 to 6.99 per cent but the number of rates below 7 per cent is dwindling. This compares with the bank standard variable rate of 7.07 per cent and an overall market-average standard variable rate of 6.80 per cent. The best four and five-year rates start around 7 per cent with quite a few up to 7.20 per cent.

The bulk of one-year rates are currently between 6.6 and 7.0 per cent. The best two-year rates range from 6.69 up to 7 per cent. The fixed rates currently on offer are not nearly as attractive as they have been last year and earlier this year. But if official interest rates move up as many expect over the next 12 months, the best fixed rates locked into now may then look quite good.

The current choice between fixed and variable will depend on a borrower's circumstances but fixing at least part of your loan now below 7 per cent may be a good option for some borrowers. Some of the issues to consider are outlined below.

There is high competition in fixed rates these days which means there is significant variation in the market. It certainly pays to shop around with up to 1 whole percentage point difference at any one time between rates for a given fixed period. Consider bank, non-bank and credit union loans.

Does fixing really suit?

It's important to consider that fixed rate loans won't suit many borrowers. The cheapest home loan is not necessarily the one with the lowest rate, it's the one that allows you to pay it off soonest. The restrictions on extra repayments and early payout attached to fixed rate loans can make them very expensive in the long run. Every extra dollar paid off the loan early on saves $2 in interest by the end.

There is also the cost of switching to consider - charges vary but they can outweigh any savings on the rate.

Above all, remember fixed rates are always a gamble, especially over the longer terms of three to five years. You are committing to an interest rate for a period far beyond anyone's ability to predict rate movements. Trying to pick whether fixed or variable rate borrowers are going to come out ahead over this time period is always a matter of chance. A decision to fix should be considered as insurance against variable rises that might extend repayments beyond the limit of your finances.

So for those who value the certainty of knowing just what their repayments are going to be over the next couple of years, it may well be better to lock in now. Property investors and owner-occupiers on a tight budget, for example. And for those borrowers not in a position to make extra repayments or not likely to pay out their loan during the fixed term, fixed rates can be attractive.

A good alternative for many will be to fix part of your borrowings and keep the rest on a variable rate. But weigh up the costs of switching to this or any fixed arrangement with what you might save in interest.

If you enjoyed this post or found it useful, please consider posting a comment or 'Sharing' it using the button on the top left of the page.

0403 144 822
(08) 9300 0686
michael.cormack@aussie.com.au
Mike Cormack
Aussie Joondalup

What is 'Genuine Savings'? Do I Need It?

Turn the clock back 24 months. The economy was booming, jobs were secure and house prices were growing faster than ever. Banks were lending up to 90%, 100%, even as much as 120% of the property value. The deposit was commonly the First Home Owners Grant or a gift from the parents or even a seperate loan. Then boom-time finished.

Banks started releasing statements like "Due to the increasingly volatile economic climate and rising unemployment levels the Bank is taking further steps to ensure it continues lending responsibly to customers. In particular, we are ensuring customers who are entering into more highly geared borrowings have a demonstrated savings pattern over time."

Instead of lending up to 120%, banks will generally now lend only 90% of the property value. Instead of allowing the deposit to be from almost any source, the lenders need evidence it is 'Genuine Savings'. But what is genuine savings? How do you prove you have it? And when will it be needed?

As a very general rule, when you borrow over 80% of your property's value you will need to have Genuine Savings - and proof of it. The Genuine Savings must normally be at least 5% of the property value. So how do the lenders ensure you have Genuine Savings and haven't just hocked your X-Box at Cash Converters? They generally require 3 months statements as evidence of one or more of the following:

• A demonstrated saving pattern established over a 3-month period
• Gift – must be held in an account for a minimum of 3 months
• Term deposit – must have been held for a minimum of 3 months
• Cash – acceptable only if placed in an account for a minimum of 3 months
• Shares – must have been held for a minimum of 3 months
• Equity in existing property
  However, be aware they probably will not accept the following as Genuine Savings:
• First Home Owners Grant (FHOG)
• Additional borrowed funds i.e. personal loan
• Proposed sale of an asset (other than property) i.e. sale of car

To wrap up, in most cases now when you borrow more than 80% of your property value, you need to show evidence of 5% Genuine Savings. Please bear in mind these are the most common guidelines, however every lender is different and they may be a way for you to buy sooner. Speak to your broker or mortgage professional for information specific to you circumstances.

0403 144 822
(08) 9300 0686
michael.cormack@aussie.com.au
Mike Cormack
Aussie Joondalup

Tips to Sell You House For More

If you are thinking of selling your home, or if you already have it on the market, of course you want to get the best price possible and you don't want to see it sitting on the market for longer than necessary. Making some small subtle changes to your property can mean a huge difference in the selling price and time on the market. Read through and see. Please add any other tips or experiences you may have for other readers.

INSIDE PRESENTATION

Ensure your house is clean and tidy
Remove any clutter.
Make sure windows are sparkling clean.
Check that all doors work well and doors don’t jam.
Think about how you arrange your furniture.
Consider obtaining advice of an interior designer.
Rub lavender oil into door jambs to provide a clean smell.
Shower screens, bathrooms and ovens should all be immaculate.

OUTSIDE PRESENTATION

Check gutters and remove any rust spots or debris
Mulch gardens and mow lawns, weed and prune shrubs
Replace any broken fences or missing pailings.
Ensure all gates are working properly
Clean paving to courtyards or pool areas.
Check all pool equipment is in working order.
Pool water should look inviting and well cared for.
Garages and carports should not be cluttered.
Try and store things away neatly.
Water features should be operational and well presented.

INSPECTIONS & HOME OPEN

Buyers will feel more comfortable when they inspect the house if the owner is not home.
Ensure the house is a comfortable temperature.
Brewing coffee creates a pleasant aroma throughout the house.
Open windows and blinds to create natural light.
Fresh flowers always add colour and are a must
Switch on your answering machine, phone ringing can be off putting for potential buyers.
If you are selling, or thinking about selling, with the intention of buying a new home you should speak with a mortgage broker sooner rather than later. Did you know you don't always have to sell your current home before buying the new one? I am a mortgage broker at Aussie Joondalup and am experienced with these loans. Contact me today to see how I could help.
0403 144 822
(08) 9300 0686
michael.cormack@aussie.com.au

Mike Cormack
Aussie Joondalup

Tips on Signing Real Estate Contracts

Before you agree to a contract make sure you understand it. This will prevent any problems and you will get the right home. Generally speaking, the law assumes that if you have signed something, you have read and understood it. Below are a few tips to consider:

• Carefully check that all the figures are correct
• Take your time and don’t be in a rush
• Read all the fine print
• Never sign a blank contract or allow someone to fill in the details later
• If you are unsure of something, ask
• If you are still unclear, get some independent advice
• Ensure that verbal agreements or claims made by the seller/or seller’s agent are written into the contract
• Be very clear about your own inclusion of conditions and requirements
• The agent should sign the contract in your presence
• Have any mistakes or omissions corrected before you sign
• Feel free to ask for an unsigned copy to take away and read in your time when you are not under any pressure
• Make sure you have a copy of the contract

These tips come courtesy of Rodney DeVille at Principle Property. If you are in the Northern suburbs and would like an honest appraisal of your properties potential sale value or if your looking to sell your house with someone who has fresh ideas and has the motivation to get the job done, Rodney's your guy!

0422 579 553
rodney.deville@principleproperty.com.au

Are we on the verge of a property market recovery?

Current data and market trends could certainly be interpreted this way. International Monetary Fund are now expecting higher growth for our economy. Strong exports, a strengthening finance sector and "significant macro policy response" are all contributing to the IMF outlook. Residential homes are selling quicker and for closer to the listed price. Auction clearance rates are trending up, as is overall Consumer Sentiment.

Are you thinking about buying? How long will you wait?

Why You Need to Re-Check Your Pre-Approval Now

Pre-approvals are extremely valuable. They let the bearer know exactly what their lender will lend them. They streamline the process of getting the 'full approval' once a property is found. They can help in negotiating a deal with the Real Estate Agent too. But beware!

Pre-approvals will generally last between 3 - 12 months before expiring. It is important to remember they are not a guarantee of finance. If the lender changes their policy, if your circumstances change or if the property you choose doesn't meet the lenders guidelines, you may receive a decline.

What can you do to help safeguard yourself against these situations?

1. Check with your mortgage broker or bank regularly to see how their policies may have changed, especially right before making an offer on a home.
2. Don't make any dramatic changes to your own circumstances between the time you get your pre-approval and finding your dream house. I have had clients in the past who have quit their jobs, spent their deposit on a new LCD TV etc, taken out large car loans and had a child! Seriously! These sort of things could cause your pre-approval to become invalid. Again, check with your broker or lender if your circumstances change.
3. If you are borrowing money to buy a house always, always, always make the contract "subject to finance". Even if you have been pre-approved, there are too many things that could cause the bank not to approve your loan and you may find yourself in an unpleasant situation.
   
   So if it has been more than a few weeks since you obtained you pre-approval, or if you are about to put an offer on a new home, call your broker.
   
   Mike Cormack

Welcome to Perth's Real Estate & Finance Blog

I am a Mortgage Broker. I need to keep up to date with changes in banks' policies, new loan options for my clients, changes in market conditions, FHOG updates, government announcements and so much more. Its my job to do this. I know where to get this information from and I know what information to trust. If you are not in the industry you may not have access to this information or may not know where to find it.

Not anymore.

I will be cutting through the growing forest of repetitive, dated online information and only posting a concentrated injection of information you need to know. Most importantly, it will be relevant - only current information pertinent to Perth citizens will make the cut.

So stay tuned Perth. Consumer Guides, client anecdotes, up-to-date changes, and local events will all be posted here. Updates will be regular. Stay in the loop and check back regularly.

Mike Cormack