Is your home loan not up to scratch? Are you looking for a better rate? Do you want to unlock equity? Then refinancing could be for you, but there are some important questions to ask first.
If you are considering refinancing your mortgage, you are not alone. With the rising cost of living and interest rates hitting the hip pockets of many Australians, it is a popular move. According to ABS data, November 2022 saw refinancing values reach a record high of $13.4 billion.
Refinancing may offer you opportunities to unlock equity, land a better rate and avoid what is known as “loyalty tax.” Sticking to the same loan could see you missing out on favourable rates and features that lenders like to use to use to gain new customers. Or maybe you are about to come off a fixed loan period and are bracing for a potential rate hike.
Whatever the reasons for refinancing, we have some questions you help you through the process.
What Is Your Financial Picture?
Banks want to look at your financial profile before lending you money, so check that your credit score is healthy to avoid disappointment.
Look at your budget to see how much you can afford to pay towards a mortgage. Include interest, repayments, and service fees, and factor in possible additional refinancing costs such as application and valuation fees. You can also consider how the length of your loan impacts you budget.
A longer-term loan usually comes with lower repayments but more interest over the lifetime of your loan. A shorter-term loan on the other hand would usually mean you make higher repayments now, but you could save on total interest payments.
Whichever way are you are leaning, we can help you crunch the numbers.
Do You Have Equity?
Having 20% equity in your home is typically a lender requirement when refinancing. But what is equity?
It is the difference between the market value of your property and the balance of your mortgage. With the recent decline in property values, it is an important thing to check.
The 20% equity typically acts as a deposit. Not having 20% may mean you have to pay lenders’ mortgage insurance, which may make refinancing not worth it. And negative equity, when your mortgage balance exceeds your property’s value, would most likely put the brakes on any refinancing plans. But if you have additional equity, you may be able to unlock it when refinancing.
Here is an example. Say your house is now worth $1 million, but you bought it for $800,000 a few years back with a $600,000 loan that you have paid down to $500,000. Banks will typically allow a loan for 80% of a property’s market value (depending on your financial position and other factors). So, if you refinanced your $500,000 loan to an $800,000 loan, you could unlock $300,000 for things like renovation projects or investments.
What Are You Looking For?
Now it is time to think about what you want from a loan.
A better interest rate is usually at the top of the list, but what other features could benefit you? An offset account may be something you want to reduce interest, or the ability to make additional repayments without incurring penalties.
Depending on what you are after, you may not need to move to another lender. We can always talk to your current lender first to see if they will offer something better. If not, then we can explore other options.
Frequently Asked Questions
Why is refinancing a popular option?
Refinancing has gained popularity due to the rising cost of living and fluctuating interest rates. According to ABS data, refinancing values reached a record high of $13.4 billion in November 2022.
What is “loyalty tax” and how can refinancing help avoid it?
Loyalty tax refers to the disadvantage you may face by sticking to the same loan for an extended period. By refinancing, you can take advantage of better rates and features that lenders offer to attract new customers.
What factors should I consider before refinancing?
Before refinancing, you should check your credit score and budget to see how much you can afford in mortgage repayments. Also, consider any additional costs like application and valuation fees.
How does equity play a role in refinancing?
Having at least 20% equity in your home is typically a lender requirement for refinancing. Equity is the difference between the market value of your property and the balance of your mortgage.
What loan features should I look for when refinancing?
Apart from a better interest rate, you may also want features like an offset account or the ability to make additional repayments without penalties.
Can I negotiate with my current lender before switching?
Yes, it’s always a good idea to talk to your current lender to see if they can offer a better deal before deciding to switch to another lender.
Get in touch
Do you want to refinance to unlock a better interest rate, features and benefits or equity in your home? Then give us a call. We can help assess your situation to see what is possible and locate loans and lenders that would be a great fit for you.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
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Refinancing Your Mortgage: When It Makes Sense and How to Navigate the Process
With the interest rates increasing rapidly, many borrowers are now paying close attention to the rate they are paying for the mortgage.
Some people are keen to refinance to a better deal, but they are worried they will not qualify for loan approval. Others figure that the potential savings on offer won’t be significant enough to compensate for the time, hassle and fees involved with getting a new home loan.
So, how can you work out what your options are and whether you will be approved for finance? And when is it worthwhile refinancing your current mortgage?
There is nothing to lose by review your current loan, but there is potentially a lot to gain.
Where Do I Start When Refinancing?
First, call your bank and ask what your current interest rate is, then ask if this is the very best rate that they can offer you. You will be surprised at how much flexibility and discretion they have to offer you a rate discount if you threaten to refinance and take your loan elsewhere.
Once you have spoken to your bank, whether they give you a discount or not, it is time to review the other options out there.
After you have gone straight to your bank to get the best possible deal that they can offer, it is time to shop around and see what other loans you could be eligible for.
There is a big difference in interest rates between various banks, which is why refinancing can be a powerful way to save money.
If you have a $750,000 loan and you find a mortgage you can refinance to, and the rate is just 0.5% less than what you are paying, you could save around $220 per month or $2,640 per year. The more properties you own and loans you have, the more you stand to save.
Are there any hidden finance costs to watch out for?
Yes, there can be a few fees to look out for. These include:
Application fees. Lenders often run promotions to wave application fees for new borrowers.
Rate lock fees. If you want to take out a fixed rate loan, some banks charge an optional ‘rate lock’ fee to secure the advertised rate at the time of applying (as it can change by the time your loan settles).
Monthly or annual account keeping fees.
Government fees and charges to register the mortgage. These vary between states and territories, but often they amount to a few hundred dollars.
An annual ‘package’ fee of up to $400. Keep in mind this package comes with an interest rate discount, credit card fee waiver and other benefits, which can more than offset the cost of this fee.
Loan settlement fees.
Break fees, which may be applicable if you end a fixed rate loan to take out a new loan (even if the new loan is with the same bank). In the current environment, these break fees are likely to be low.
We know what you are thinking… this seems like a lot of fees, and it is! But if you work with a mortgage broker, we can help you find a bank or lender that offers value for money when it comes to both the interest rate and the fees and charges that apply.
We may also be able to find you a suitable loan with a cashback offer of up to $5,000. A home loan cashback promotion is exactly what it sounds like – it means that once the loan settles, you will get a lump sum payment in your nominated bank account. It can be a great way to offset some of the interest rate rises we have seen.
With mortgages climbing and putting plenty of pressure on household budgets, we are likely to see more mortgage stress in the year ahead. Refinancing can be a relatively low-effort way of reducing your costs and saving potentially thousands of dollars per year, especially if you engage a mortgage broker to do all the work on your behalf.
If you are keen to learn more about your refinancing options, contact us.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
The landscape for first home buyers has undergone significant changes recently. With a notable decrease in the number of first home buyers entering the market, potential opportunities have emerged for those looking to purchase their first home.
Current State of the Property Market
Recent trends indicate a shift in the property market dynamics. Factors such as rising interest rates and economic uncertainties have contributed to a decrease in first home buyer activity. This change has been reflected in property prices and buyer demographics, reshaping the market in several ways.
Impact of Economic Changes on First Home Buyers
The halving of first home buyer numbers can be attributed to various economic factors. Changes in lending criteria, increased interest rates, and the overall economic climate have made it challenging for first home buyers to enter the market. This has led to a decrease in first home buyer loan applications and approvals. Exploring alternative financing options such as personal loans may be considered by those facing challenges in the current lending environment.
Opportunities for Prospective Buyers
With fewer first home buyers in the market, there is now less competition for properties. This situation presents a unique opportunity for those still looking to purchase their first home. Potential buyers may find more room for negotiation, potentially leading to better deals and more favorable terms.
Strategies for Capitalizing on Current Market Conditions
For those looking to take advantage of the current market conditions, several strategies can be employed:
Conduct thorough market research to understand local trends and identify undervalued properties.
Negotiate aggressively, leveraging the reduced competition in the market.
Explore various first home buyer loan options to find the best fit for your financial situation.
Government Incentives and Support Programs
Despite the challenges, there are still government incentives and support programs available to assist first home buyers. These programs can provide significant support, making homeownership more accessible despite the current market conditions.
Eligibility Criteria and Application Guidance
Understanding Eligibility Criteria: Clarify common requirements like income thresholds, property value limits, and residency conditions.
Navigating the Application Process: Provide guidance on documentation, timelines, and submission procedures for a smooth application process.
Professional Assistance for Applications: Recommend seeking guidance from professionals like mortgage brokers for informed decision-making.
Maximizing the Benefits of Government Initiatives
Strategic Integration with Financial Plans: Encourage aligning government incentives with long-term financial goals, contributing to a robust financial strategy.
Continuous Monitoring for Updates: Stress the importance of staying informed about policy changes for adapting strategies and maximizing benefits.
Educational Resources and Workshops: Suggest leveraging workshops and resources provided by government agencies for in-depth understanding and navigation.
Long-Term Market Outlook
The long-term outlook for the property market remains positive, with expectations of stabilization and growth. Prospective first home buyers should consider this outlook in their planning, balancing immediate challenges with future opportunities.
Expert Financial Advice for Navigating the Market
Navigating the current property market can be complex, especially for first home buyers. Seeking expert financial advice from a mortgage broker can provide clarity and guidance, helping you to make informed decisions and find the best path to homeownership.
The decrease in first home buyer numbers presents both challenges and opportunities in the property investment market. For those considering purchasing their first home, now may be an opportune time to explore your options and potentially secure a favorable deal.
FAQ
A: The number of first home buyers has decreased due to repeated cash rate hikes by the Reserve Bank of Australia (RBA). From May to December, the RBA lifted the cash rate from 0.10% to 3.10%, making it more challenging for first-time buyers to enter the market.
A: The decrease in first home buyers means less competition in the property market. This gives potential buyers more bargaining power and a better chance to negotiate favorable prices.
A: Property prices have softened in most parts of the country over the past three months, except for regional South Australia and regional Western Australia.
A: National median weekly rental prices rose by 4.3% in September 2022, making it potentially cheaper to buy than rent in some areas.
A: Yes, the government’s First Home Guarantee can offer mortgage insurance waivers and low deposits of 5% to eligible first home buyers.
A: If you’re ready to buy, it’s advisable to consult with a mortgage broker to understand your borrowing capacity and mortgage options. This will help you make an informed decision and potentially get a better deal.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilizes her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
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Demystifying First-Time Home Buying: Debunking Common Myths
Data from the lending watchdog reveals that almost one in four new mortgages are risky. How are they deemed risky? It’s got something to do with your debt-to-income ratio or DTI.
Your DTI might sound complicated, but it is simple to work out. Your DTI is a measurement used by lenders that compares your total debt to your gross household income.
The formula is… total debt / gross income = debt-to-income ratio
Here is an example:
If you are seeking a $700,000 home loan (and have no other debt), and you have $160,000 in gross household income, then your DTI is 4.375 – a ratio that most lenders would be comfortable with.
Why Do Lenders Care About Your DTI?
The December quarter data released by the Australian Prudential Regulation Authority (APRA) shows 24.4$ of new mortgages have a DTI ration of 6 or higher. At the 6+ ratio, APRA (the banking watchdog) deems these loans as risky, and they are keen to see the percentages of these loans that lenders approve to start to come down. That is because they have been steadily rising for a while now.
For example, in the September 2021 quarter, new mortgages with a DTI of 6 or higher were at 23.8% while in the December 2020 quarter, it was just 17.3%.
Why Has the Percentage of Risky Loans Risen?
The recent rise in high DTIs has most likely got a lot do with the phenomenal price growth (and resulting FOMO) we have seen across the country over the past 18 months.
Data released by the Australian Bureau of Statistics shows that in the 12 months to December 2021, residential property prices rose 23.7% – the strongest annual growth ever recorded.
So, with the property prices increasing at such a sharp rate and people stretching themselves to their limits to buy into the market, it has resulted in upwards pressure on high DTI percentages. The good news is that as the property market starts to cool, so too should the growth rate of risky DTIs.
How Much Can You Safely Afford to Borrow?
There is a fine line between maximising your investment opportunities and stretching yourself beyond your limits. It is important to stress-test what you can borrow in the current financial landscape and also against any upcoming headwinds that are tipped to hit borrowers, such as interest rate rises and possible tightening lending standards.
Everyone’s financial situation is different. Some lenders will consider your circumstances and accept a loan application where a DTI is higher than 6.
Frequently Asked Questions
What is Debt-To-Income Ratio (DTI)?
The Debt-To-Income (DTI) ratio is a measurement used by lenders to compare your total debt to your gross household income. The formula for calculating DTI is: total debt / gross income.
Why Do Lenders Care About DTI?
Lenders use the DTI ratio to assess the risk associated with a mortgage application. A high DTI ratio is considered risky, and lenders are keen to see the percentage of such loans come down.
What is Considered a Risky DTI Ratio?
According to the Australian Prudential Regulation Authority (APRA), loans with a DTI ratio of 6 or higher are considered risky.
Why Has the Percentage of Risky Loans Increased?
The rise in high DTI ratios is likely due to the significant growth in property prices, causing people to stretch their financial limits to buy into the market.
How Can I Safely Afford to Borrow?
It’s crucial to stress-test your borrowing capacity against current financial conditions and upcoming changes like interest rate rises. Some lenders may accept a loan application where the DTI is higher than 6, depending on your circumstances.
How Can Zippy Financial Help Me Understand My DTI?
Zippy Financial can help you find out your borrowing capacity and options, and map out a financial plan tailored to your needs.
If you’d like to find out your borrowing capacity and options, get in touch with us today. We would love to sit down with you and help you map out a plan.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
Your Mortgage Broker and Real Estate Agent Working Together
In today’s dynamic real estate market, the collaboration between your mortgage broker and real estate agent is more crucial than ever. This partnership is pivotal in navigating the complexities of home buying, especially for first-time buyers who may be unfamiliar with the nuances of real estate transactions and mortgage processes.
Understanding the Current Real Estate Landscape
The current real estate market is characterized by rapid changes in property values, interest rates, and buyer preferences. Local real estate agents, with their finger on the pulse of neighborhood trends, play a key role in helping buyers find their ideal homes. However, understanding real estate agent fees and the value they bring is essential in making informed decisions.
The Evolving Roles in Home Buying
Mortgage brokers and real estate agents have seen their roles evolve significantly. Brokers are no longer just facilitators of loan transactions; they are advisors who help buyers navigate the financial maze of purchasing a home. Real estate agents, on the other hand, have become more than just sellers of property; they are consultants who guide buyers through the entire home buying journey.
Collaboration Benefits for First-Time Homebuyers
First-time homebuyers stand to benefit immensely from this collaboration. Mortgage brokers can demystify the complexities of loans and finances like asset finance, while real estate agents can provide invaluable insights into the local market, property values, and negotiation tactics. Together, they ensure that buyers are making well-informed decisions.
Navigating Financial Complexities
The financial landscape of buying a home can be daunting. Mortgage brokers play a critical role in explaining different loan options, the implications of interest rates, and the process of getting loan approval. Incorporating financial planning strategies alongside their expertise can be the key to securing a mortgage that aligns with the buyer’s financial situation and goals.
The Dual Role: A One-Stop Solution
Some professionals have begun to merge the roles of mortgage broker and real estate agent, offering a one-stop solution to buyers. This dual role can streamline the buying process, although it’s important to understand how these combined services can impact the advice and options presented to buyers.
Market Dynamics Impacting Homeowner Trends
Property Value Escalation: Understand the dynamics of rising property values. Analyze the factors contributing to the escalation, such as demand-supply imbalances, economic conditions, and regional growth. This awareness provides insight into the broader market trends influencing homeowners’ decisions to renovate rather than buy.
Competitive Real Estate Landscape: Explore the competitive landscape of the real estate market. High demand and limited inventory often create a competitive environment for homebuyers. This intensification prompts existing homeowners to consider renovations as a strategic alternative to navigating the challenges of purchasing in a fiercely competitive market.
Interest Rate Fluctuations: Consider the impact of interest rate fluctuations on homeowner decisions. Periods of low-interest rates may incentivize homeowners to invest in renovations, leveraging favorable financing conditions to enhance their properties without the financial burden associated with a new mortgage.
Motivations Behind Home Renovations
Value Addition Perspective: Examine the motivation of homeowners, especially first-time buyers, in choosing renovations. Many see renovations as an opportunity to add substantial value to their initial property investment. This approach aligns with a long-term strategy of building equity and creating a personalized living space.
Avoiding Property Purchase Challenges: Acknowledge the challenges associated with property purchases in a competitive market. High prices, limited inventory, and bidding wars can be deterrents for potential homebuyers. Opting for renovations allows homeowners to circumvent these challenges while still achieving the desired upgrades or expansions.
Customization and Personalization: Recognize the desire for customization and personalization. Renovations offer homeowners the chance to tailor their living spaces to specific preferences, meeting lifestyle needs without the compromises that might come with purchasing an existing property.
Technology Enhancing Collaboration
Technological advancements have significantly improved the collaboration between mortgage brokers and real estate agents. Digital platforms and tools are now enabling smoother communication, faster processing of documents, and more efficient handling of transactions, benefiting all parties involved.
Building Long-Term Relationships
The relationship between a mortgage broker and a real estate agent shouldn’t be transactional but rather a long-term partnership. This enduring collaboration can lead to better service for clients and a deeper understanding of each client’s unique needs and aspirations.
The synergy between your mortgage broker and real estate agent is a powerful force in the real estate world. Their combined expertise, market knowledge, and commitment to your interests can make the journey of buying a home less stressful and more successful.
Frequently Asked Questions
Why is collaboration between a mortgage broker and real estate agent important?
Collaboration ensures a smoother home buying process, as each professional brings their expertise to assist the buyer in different aspects of the transaction – financing and property search, respectively.
How does a mortgage broker assist in the home buying process?
A mortgage broker helps buyers understand and secure the best financing options for their needs, navigate loan applications, and understand the implications of different mortgage products.
What role does a real estate agent play in buying a home?
Real estate agents provide invaluable market insights, assist in finding the right property, negotiate deals, and guide buyers through the property purchase process.
How do mortgage brokers and real estate agents communicate during the buying process?
They maintain regular communication to ensure that the financial and property search aspects of the buying process are aligned and progressing smoothly.
What are the benefits of using both a mortgage broker and a real estate agent?
Using both professionals can save time, reduce stress, and provide access to a wider range of property and financing options, leading to a more efficient and tailored home buying experience.
How do I choose the right mortgage broker and real estate agent?
Look for professionals with strong track records, positive client testimonials, and who demonstrate a clear understanding of your needs and the local market.
If you’re interested in learning more about Zippy Financial and how we can help you gain finance approval and realise your property dreams, contact us today.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
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Some of Australia’s biggest banks have tightened their mortgage lending criteria, meaning you might not be able to borrow as much from them. How might this affect your next purchase?
ANZ has lowered a key lending cap, indicating it will no longer lend to borrowers with a (DTI) ratio above 7.5 (meaning people can borrow up to seven and a half times their gross annual income). NAB have reduced its cap to eight times a borrower’s income.
Up until June, both banks had been willing to lend up to nine times a borrower’s income.
In effect, the changes mean the maximum amount you can borrow with them to buy a property will be reduced.
CBA and Westpac have said they’re already applying together lending rules to borrowers seeking loans with high DTI ratios.
Why Are Banks Tightening Lending?
The increased focus on lending caps comes as financial institutions and the industry regulator, the Australian Prudential Regulation Authority (APRA), prepare for the impact of higher interest rates.
APRA started making moves as early as late 2021, when it announced new borrowers would need to be tested to see if they could cope with interest rates at least 3% above what was the current rate. Then APRA Chair Wayne Byers indicated the regulator was concerned about the rise in high DTI loans being issued by some banks.
How Do DTI Ratios Work?
A DTI ration is simple to work out. The formula is total debt / gross income = debt-to-income ratio.
For example, if you are seeking a $700,000 home loan (and have no other debt) and you have $160,000 in gross household income, your DTI is 4.375 – a ratio most lenders would be comfortable with. However, a household in the same financial position seeking to borrow $1.4 million for a home would have a DTI of 8.75, which puts it above the caps being imposed by the banks.
How Much Can You Safely Afford to Borrow?
There is a fine line between maximising your investment opportunities and stretching yourself beyond your limits, especially with interest rates rising.
It is not only important to stress-test what you can borrow in the current financial landscape, but also against any upcoming headwinds that are tipped to hit borrowers.
FAQ
A: The banks are tightening lending criteria to prepare for the impact of higher interest rates. Regulatory bodies like the Australian Prudential Regulation Authority (APRA) are also focusing on lending caps to ensure financial stability.
A: ANZ has lowered its lending cap to a Debt-to-Income (DTI) ratio of 7.5, while NAB has reduced its cap to eight times a borrower’s income. Previously, both banks were willing to lend up to nine times a borrower’s income.
A: The DTI ratio is calculated by dividing the total debt by the gross income. For example, if you are seeking a $700,000 home loan and have a gross household income of $160,000, your DTI would be 4.375.
A: The changes mean that the maximum amount you can borrow to buy a property will be reduced. This could affect your purchasing power and investment opportunities.
A: You can consult with financial advisors or mortgage brokers to understand your borrowing capacity. They can help you map out a plan based on your financial situation and the current lending landscape.
A: It’s crucial to stress-test your borrowing capacity not just based on the current financial landscape but also against any upcoming economic changes, especially with interest rates on the rise.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilizes her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
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Why Refinancing Numbers are Surging Across the Country?
Has rising interest rates got you feeling a bit vulnerable? It may be time to take some control back by refinancing or asking for a rate review. Why are we seeing refinancing numbers surge across the country?
In just a couple of months we have seen the Reserve Bank of Australia (RBA) increase the cash rate from a record low of 0.10% to 0.85% and it has not taken long for most lenders to pass those rate increases onto customers. Unfortunately, the RBA has warned us that more rate hikes are on the way.
There are ways you can make yourself feel more in control, including by doing what tens of thousands of mortgage holders around the country have done – refinancing or asking their current lender for a better rate.
Homeowners are Refinancing in Droves
According to PEXA’s largest refinancing insights, refinancing increased by more than 20% in May (from April) across each of Australia’s most populous states.
Here is a breakdown:
NSW: 10,823 refinances – May up 20.8% on April, and up 15.6% year on year.
VIC: 11,500 refinances – May up 26.7% on April, and up 23.3% year on year.
QLD: 6,699 refinances – May up 21.8% on April, and up 49.6% year on year.
WA: 3,244 refinances – May up 25% on April, and up 46.1% year on year.
Why the Big Increase in Refinancing?
Lenders now, more than ever, need to attract and retain borrowers.
Just because rates are going up, does not mean you can’t scope out a better deal, especially if you have a decent amount of equity and strong track record of meeting your mortgage repayments. If that sounds like you, then you are a good customer, and lenders want good customers.
The other big reason for the recent surge in refinancing is that smaller lenders are stealing more and more borrowers away from the major banks with super-competitive rates.
In fact, according to PEXA, in NSW, VIC, QLD and WA combined, the major banks and their subsidiaries had a net loss of more than 5,000 borrowers to non-major lenders in May.
Competition is fierce!
Why Work with a Broker Now?
The amount of loans being written by brokers continue to grow. Brokers are currently writing 70% of all new home loans in the country – which is the biggest market share ever. And as you know, brokers are loyal to you, not to any lender.
This means, that if we think you can get a better deal elsewhere, we will encourage and help you to do so, not hope that you will stay put on your current rate.
Frequently Asked Questions
Why are refinancing numbers surging across Australia?
The Reserve Bank of Australia (RBA) has recently increased the cash rate, leading most lenders to pass on the rate hikes to customers. This has prompted many homeowners to seek better rates through refinancing.
What are the statistics on refinancing in different states?
According to PEXA’s largest refinancing insights, refinancing increased by more than 20% in May across Australia’s most populous states, including NSW, VIC, QLD, and WA.
Can I still get a better deal even if rates are rising?
Yes, especially if you have a good amount of equity and a strong track record of meeting your mortgage repayments. Lenders are keen to attract and retain good customers.
Are smaller lenders offering better rates?
Smaller lenders are increasingly attracting borrowers away from major banks with super-competitive rates. In May, major banks and their subsidiaries had a net loss of more than 5,000 borrowers to non-major lenders.
Why should I consider working with a broker?
Brokers are currently writing 70% of all new home loans in the country. They are loyal to you, not any lender, and can help you find a better deal or negotiate with your current lender.
What should I do if I don’t want to refinance with another lender?
You can ask your current bank to review your rate and indicate that you are prepared to refinance if they don’t offer a better deal.
And even if you do not want to refinance with another lender, there is always the option of asking your current bank to review your rate (and indicating that you have prepared to refinance if they don’t come to the table). If you would like to find out more about what options are available to you, get in touch with us today. We would love to help you feel like you have some agency in the period ahead.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial.
With interest rates on the way back up, there is no doubt that some households are starting to do it a big tough. Coincidentally, some big changes have kicked in from 1st of July when it comes to recording financial hardship arrangements.
In the past, if you were unable to meet your loan repayments, you could enter a financial hardship arrangement with your lender, and it couldn’t be reported in official credit reporting systems. In many cases, the repayment history in your credit report would show a blank month or possibility a missed payment during the hardship arrangement period.
Neither of these two approaches told the full story about the credit history and that a financial arrangement had been agreed upon with the lender.
What Has Changed from 1st of July 2022?
From 1st of July, the credit reporting system has introduced financial hardship information into credit reports. This means that if you enter a financial hardship arrangement that reduces monthly loan repayments, then for the next 12 months the credit report will show:
That you were current and up to date with repayments for that hardship month, provided you made the reduced payments on time
A flag alongside the repayment history information for the hardship month, indicating a special payment arrangement was in place.
The flag in the credit report will be referred to as ‘financial hardship information’ and can take two forms (A or V) depending on the type of arrangement:
A – indicates there was an arrangement for the month that temporarily deferred the repayments (which will need to be repaid later or be subject to a further arrangement).
V – means the loan was varied that month to reduce the repayments.
The good news is that the financial hardship information flag will only stay on the credit report for 12 months, whereas regular repayment history information stays for 24 months.
Is All This Good or Bad News?
It comes with pros and cons:
The changes are intended to give the ability to ‘protect’ your credit report if you experience financial hardship. In no way are they designed to exclude you from applying for credit. However, a financial hardship arrangement flag may prompt prospective lenders to make further inquiries to better understand the situation.
If the hardship arose because of a temporary reduction in work hours, but you are now back in stable employment, in most cases it should not cause any major issues for a loan application, especially if proof can be provided to the lender.
Hardship arrangements can stem from a natural disaster that’s completely outside of your control, such as flood or bushfire, which can be explained to a lender.
The financial hardship information cannot be used by a credit reporting body to calculate the credit score, whereas regular repayments that are missed outside a hardship arrangement will impact your credit score.
Are You Having Trouble Meeting Your Repayments? Get in Touch!
The Reserve Bank of Australia has been aggressively raising the official cash rate in recent months, which means monthly repayments would most certainly have gone up if you are on a variable loan rate.
If you are on a fixed loan rate, you also need to think ahead to where your monthly repayments might be when the fixed-rate period ends and reverts to a variable rate.
If you think more rate rises may soon strain your monthly budget, now is a good time to start putting extra money away into an offset or savings account to build up a buffer.
Other options that can help include refinancing and debt consolidation, both of which can help reduce monthly repayments.
Whatever the circumstances, we are here to support you however we can.
Phone: 1300 855 022
Email: clientservices@zippyfinancial.com.au
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial. r-less normal distribution of letters. making it look like readable English.
We have seen interest rates bounce back up over the past three months and it is predicted that more increases are to come. If you are starting to worry about your finances, there are a few things you can do.
Check out this Reserve Bank of Australia (RBA) graph. It shows interest rates are currently lower, as of July 2022, than they were prior to May 2019. The current cash rate is nothing extraordinary, although it might come as a shock to newer borrowers, as we previously had not had a cash rate hike since November 2010.
There is no denying that some households are starting to feel the squeeze, and if you put yourself in that category
Consider Implementing Some of These Measures
Start Building a Buffer
Interest rates will go up over the next few months. Economists from the big four banks are predicting it could increase to anywhere between 2.60% (Commbank) and 3.35% (ANZ) by November.
Therefore, it is important to start planning ahead now, if you can, by building up a buffer. This usually includes putting extra money into an offset account, redraw facility or savings account, that’s attached to your mortgage or easy to access.
Reduce Expenses
Stan, Netflix, Spotify, Amazon, Audible, Apple TV, Disney, Paramount+, Kayo, Binge… the list goes on. How much do you spend on subscriptions each month?
Next on the list is takeaway coffees. Six takeaway coffees a week cost about $27, which is about $120 per month or $240 per month for a couple. Instead, you can brew your own barista quality coffee at home for $30-$70 per month.
There is Uber Eats, Menulog, DoorDash, Deliveroo… if you are making a habit of it then it will really start adding up. And the best part about home-cooked meals is the leftovers for lunch the next day – making it two meals for the price of one.
Shop Around
A recent study from Choice found that Aldi is the cheapest supermarket. So that is a start when it comes to your weekly food bill, which is going up each month thanks to inflation.
Furthermore, an ING survey found that the average Australian family saves $114 a month by doing their shopping online.
But… it is not just the groceries that you can shop around for a lower price. Car insurance, home insurance, utilities, phone, and internet are all other monthly expenses that you can usually find a better deal on.
Refinance
If you have not refinanced for a while, there is a decent chance you could get a better rate on your home loan.
But why refinance now if interest rates will just keep rising? Let’s say you refinance your variable rate home loan this month from 3.50% to 3%. Then if the RBA raises the cash rate by 0.50% next month, and your bank follows, your interest rate will then be 3.50%. But if you choose not to refinance and your bank follows the RBA, it will be 4%. This 0.5% gap would remain for all subsequent upcoming interest rate rises, so long as the banks increase their interest rates in line with the RBA.
Another option is to consolidate multiple loans such as car or personal loan into your mortgage to reduce your monthly expenses. It is important to note that if you do this you will pay more in interest on the car and/or personal loan over the lifetime of those loans, but if you need cash flow now, this could be a possible solution.
You can also consider refinancing to extend the term of your home loan, which could help reduce monthly repayments. Again, you will end up paying more interest over the life of the loan, but it can give you more breathing space if you need it.
Frequently Asked Questions
What is the current trend in interest rates?
The article discusses how interest rates have been rising over the past three months and are expected to continue increasing. The Reserve Bank of Australia (RBA) has indicated that rates are currently lower than they were before May 2019, but they are expected to rise.
How can I prepare for upcoming interest rate hikes?
The article suggests building a financial buffer by putting extra money into an offset account, redraw facility, or savings account that’s easy to access or attached to your mortgage.
What are some ways to reduce my monthly expenses?
The article recommends cutting down on subscription services like Netflix, Spotify, and takeaway coffees. It also suggests cooking at home to save on food delivery services like Uber Eats and DoorDash.
How can shopping smartly help me manage rising interest rates?
According to a study from Choice, shopping at Aldi can save you money on your weekly food bill. An ING survey also found that online shopping can save the average Australian family $114 a month.
Is refinancing a good option to manage rising interest rates?
Yes, refinancing can help you get a better rate on your home loan, which can be beneficial even if interest rates are rising. The article explains that if you refinance now, you could potentially save on interest payments in the long run.
What should I do if I’m concerned about meeting my home loan repayments?
The article suggests reaching out for professional advice if you’re worried about how interest rate rises will affect your ability to meet your home loan repayments. It’s important to consult with experts to tailor a plan that suits your financial situation.
Come and Speak to Us
If you are concerned about what is going on with interest rates, inflation and/or how you will meet your home loan repayments, please don’t hesitate to get in touch.
Everyone’s situation is different, and we understand many of the ideas we have listed might not suit your financial or personal situation.
If you are worried about how you will meet your repayments in the months ahead, give us a call. We would love to speak to you and help you work out a plan moving forward.
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial. r-less normal distribution of letters. making it look like readable English.
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Are you thinking about refinancing? As interest rates rise, so do the hurdles that you need to clear. Here is why you might want to look at refinancing soon to avoid missing out.
When was the last time that you refinanced? If the answer is never or you can’t remember, then there is a good chance you are paying a higher interest rate than you could be due to the “loyalty tax”.
The banks don’t think you are paying attention and as such only offer their lowest rates to new customers in a bid to win them over, as proven by the RBA.
A recent RateCity analysis found that customers who stay loyal to their bank could be hit with an extra $5,101 in interest over the next three years alone on their personal loan, based on a $500,00 loan taken out with CBA in 2019. For a $750,000 loan that would be an extra $7,652 in interest and for a $1 million loan that is an extra $10,202 in interest.
This is a big reason why owner-occupier refinancing across the country rose 9.7% in June to a new record high of $12.7 bullion, according to the Australian Bureau of Statistics.
Why is Refinancing Now So Important?
When you refinance, the new lender must assess something called “home loan serviceability.” It is the ability to meet your home loan repayments at an interest rate that is at least 3% above the rate you are being offered.
The big four banks are tipping the RBA’s official cash rate to increase from 1.85% to anywhere between 2.60% (Commbank forecast) to 3.35% (ANZ forecast) by November. That means that as interest rates go up, so too will the hurdle you will need to clear for home loan serviceability when refinancing.
So… the sooner that you refinance, the lower hurdle you will need to clear to ensure you are not stuck with your current rate and lender.
Frequently Asked Questions
What is the “Loyalty Tax” and how does it affect me?
The “loyalty tax” refers to the higher interest rates that banks charge existing customers compared to new ones. If you haven’t refinanced recently, you could be paying thousands of extra dollars in interest over the next few years.
Why is it important to consider refinancing now?
As interest rates rise, the requirements for home loan serviceability also increase. Refinancing sooner could mean you’ll face a lower hurdle for home loan serviceability, allowing you to secure a better rate.
How do rising interest rates affect home loan serviceability?
Home loan serviceability is assessed based on your ability to meet repayments at an interest rate that is at least 3% above the rate you are being offered. As interest rates rise, this “hurdle” also goes up, making it more challenging to refinance.
What can I do if I don’t want to switch lenders?
You can request your current lender to review your rate. Indicating that you are prepared to refinance if they do not offer a better rate can sometimes lead to a more favorable outcome.
How can Zippy Financial assist me with refinancing?
Zippy Financial can help you explore your refinancing options and guide you through the process. They can also assist in negotiating with your current lender for a better rate.
What are the financial implications of not refinancing?
According to a recent RateCity analysis, customers who stay loyal to their bank could be hit with an extra $5,101 in interest over the next three years alone, based on a $500,000 loan taken out with CBA in 2019.
How Do You Explore Your Refinancing Options?
Simply get in touch today and we will help you get the ball rolling. And even if you don’t want to refinance with another lender, there is always the option of asking your current lender to review your rate, indicating that you are prepared to refinance if they do not come to the table. After all, loyalty should be a two-way street!
If you’d like to find out more about what options are available to you, get in touch. We want to help you through the period ahead as much as possible!
Zippy Financial is an award-winning mortgage brokerage specialising in home loans, property investment, commercial lending, and vehicle & asset finance. Whether you are looking to buy your first home, refinance or build your property investment portfolio, the team at Zippy Financial can help find and secure the right loan for you and your business.
About the Author:
Louisa Sanghera is an award-winning mortgage broker and Director at Zippy Financial. Louisa founded Zippy Financial with the goal of helping clients grow their wealth through smart property and business financing. Louisa utilises her expert financial knowledge, vision for exceptional customer service and passion for property to help her clients achieve their lifestyle and financial goals. Louisa is an experienced speaker, financial commentator, mortgage broker industry representative and small business advocate.
Louisa Sanghera is a Credit Representative (437236) of Mortgage Specialists Pty Ltd (Australian Credit Licence No. 387025).
Disclaimer:This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. This article is not to be used in place of professional advice, whether business, health or financial. r-less normal distribution of letters. making it look like readable English.
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Deciding When to Refinance: Key Factors and Current Trends
Comparison Rate calculated on a secured loan amount of $150,000 for a term of 25 years. WARNING: This Comparison Rate is true only for the example given and may not include all fees and charges. Different terms, fees and other loan amounts might result in a different Comparison Rate. Fees and Charges Apply. Terms and Conditions are available on request.
