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mortgage ratesAussies are gamblers historically, its said we will bet on two flies walking up a wall if given the chance. There’s a hell of a lot of flies in a Australia, so the opportunities for gambling are numerous! People ask me all the time, “Should I fix my interest rate? I want to minimise my payments over the next 3 years or so!” Careful! This is dangerous territory! Its a little like gambling with your $400,000 mortgage! If you win, you are the smartest and happiest person alive, if you lose… well… Ouch! read more

 Why Fix Your Mortgage Rate

Let me start by stating the worst reason to fix your mortgage rate.

Don’t Fix your Interest Rate to beat the Bank

I know the temptation is there and i’m sure you know lots of people who beat the bank and saved on their interest mortgage rates. They love to tell you whilst cooking sausages on their BBQ, chests puffed out at how they won. I bet you haven’t heard of many people who lost. Who fixed their rates at 8.5% when rates dropped to 5.5%. They are out there! I promise you. The problem is that they have their mouths closed out of embarrassment. They won’t tell you, but they are on the phone to me saying “GET ME OUT OF HERE!!!” I can get them out, but the bank will charge them penalty interest.

 

The first question I ask is for these people to ring their lender and ask what the break cost will be. This can be nasty, very nasty! One client of mine would have had to pay $45,000 to exit his loan. This is the downside risk! Scary? Yes indeed!

 

The crux of the issue is this. Bank make huge profits by being good at what they do. Sure, some people lock in their mortgage rates at the right time and win, but the majority don’t. Most times the Banks win. Their Billion dollar profits are part of the proof.

 

So what are the right reasons fix your mortgage rate?

Fix to guarantee your Cash Flow

You should look at the repayment, say $2,000 per month, and say to yourself, “I would like to guarantee that my repayment will be $2000 per month for the next 3 years. This means that based on my income I can afford to pay it and no increase in rates will affect me for 3 years.”

 

This is more of a defensive move than an offensive move. You are defending against possible rises rather than trying to beat the market.

Fix your Investment Property

Your investment property is probably the area where you will want the most stability. Particularly if its your first investment property. No surprises please! Your investment loan gives you tax deductions. For this you will be trying to pay off your home first. Fixed loans usually have restrictions on how much extra you can pay off, so leaving your home variable, or at least partly variable is usually a good plan.

Fix when Mortgage Rates are Historically Low

In the past 10 years interest rates have been as high as 10% and as low as 5%. However, they have spent most of their time around the 6.5% – 7% mark. If the rate is around this mark then fixing is historically safe. There is no real way to predict what will happen, but history is usually a strong indicator.

Part Fixed Part Variable

If you were betting on the Melbourne Cup this is like having a bit each way. Follow all of the rules above, but if you are undecided perhaps fix half your loan and leave the other half variable.

Article by James Parnwell

If you would like some further information on anything related to Investment Property or Investment Finance please contact us

One of our team of experienced Investment Property coaches or Investment Finance Mortgage Brokers will be happy to reply to you with some helpful advice…

Investment FinanceIf I were to ask you the question. Can you afford to have a multi-million dollar company? I think the almost automatic answer would be Yes! However, if you stopped to think about it there would be some deeper questions to ask. Can I cope with problem employees? Can I deal with the stress of business deals falling over? How will I cope with a much higher income? In a very similar way owning an investment property will cost you money, time and mental/emotional energy. You will need to improve yourself in order to operate at a higher level. Here’s some thoughts… read more

 

Owning an Investment Property will cost you Money

Assuming you don’t have the cash to go and buy one, you will need a lender. I could answer the question of whether you can afford an investment property within about 30 minutes. To get a loan we need to satisfy the four C’s of Credit.

Investment Finance : 4 C’s of Credit

Capacity – What is your income? This is the one everyone thinks of first.

Capital – What is the size of your deposit? This can be in cash or equity in a home, a gift or even in the form of a family member going Guarantor. Typically, you will need a minimum 5% deposit plus costs. So to buy a $400,000 property you would need $20,000 deposit plus costs. In NSW one of these costs is Stamp Duty of approximately $13,500, unless the property is brand new.

Collateral – What do you own and what do you owe?  If you own a car and have some super and some house contents, you are telling the bank that you have spent your money on something and have something to show for it. If you have some debts, say a credit card and a personal loan it won’t stop you getting a loan but it will decrease the size of it. The more kids you have the less you can borrow! I should know I have 4 kids!

Character – This refers to your credit rating. If you have had credit problems with a telephone company or been made bankrupt or similar it will make it more difficult to qualify for a loan. Not always impossible, but more hurdles will be placed in your way. If you are concerned about your credit history go to Veda and get your report ordered.

Common Sense – I know I said there were only 4 C’s but I have added a 5th one for good measure. The only thing common about common sense is that it isn’t very common. If you are about to have a baby and will be out of work for a while, or have a major operation or are moving to Tibet to become a monk, perhaps you should reconsider the timing of buying an investment property!

 

Owning an Investment Property will cost you Time

If you are smart you will use a good reputable property manager who will charge 7%-8% of your rent, but will save you hours of time. However, you will still need to make decisions about new tenants, pay the bills, make sure the repayments are made and complete a larger tax return. You will need to find time in your already busy schedule to do this.

 

Owning an Investment Property will cost you Mental and Emotional Energy

You are going to have to deal with real estate agents, tenants, banks and property managers amongst many others. You are going to have to deal with people. People come in all sorts of shapes and sizes with their personalities and you are guaranteed to have some conflict along the way. How are your conflict management skills? If they are poor there is a good chance that your behaviour will bring you to a place of failure, either by missing a golden opportunity or by messing one up. Improving your people skills is a never ending but immensely important skill across your entire life.

 

How do you cope with stress? If you own a property for more than a couple of years you are going to have to change tenants. Are you going to lose sleep every night it is vacant? If the process of building your property takes longer because of rain, how will you cope with that? Your capacity to deal with bad news or problems in a level way will count highly in how successful you are in making an investment portfolio of properties.

 

It’s important to remember that in order to become a successful property investor you will need to grow your skill, your knowledge and your emotional capacity to deal with difficulties. Frank Lowy who owns Westfields didn’t become one of the wealthiest people on earth over night. He has ridden out the highs and lows of the world’s economies of decades and decades.

 

Article by James Parnwell

 

If you would like some further information on anything related to Investment Property or Investment Finance please contact us

One of our team of experienced Investment Property coaches or Investment Finance Mortgage Brokers will be happy to reply to you with some helpful advice…

Investment Property How To is dedicated to helping you learn all about the process of investing in property and investment finance. With a little twist of fun!

interest rate

There is this funny psychology that makes us feel fantastic when we get a win. An unexpected interest rate drop, a winning horse in the office sweepstakes or even an extra M&M out of the vending machine. We must get a rush of some chemical to the head that makes us feel like Bill Gates all of a sudden. read more

What does an interest rate drop really mean to your monthly budget?

Precious little, I’m afraid, especially if you are a NAB customer. If you have a mortgage of $300,000 you will only have an extra $50 bucks. You will need more interest rate drops to really make a meaningful difference!

Loan Amount Monthly Saving

$100,000.00

$16.79

$150,000.00

$25.18

$200,000.00

$33.57

$250,000.00

$41.96

$300,000.00

$50.36

$350,000.00

$58.75

$400,000.00

$67.14

$450,000.00

$75.53

$500,000.00

$83.93

$550,000.00

$92.32

$600,000.00

$100.71

 

Honestly, the best advice I can give you is to put the Champagne back into the cupboard and leave the $50 in the loan as an extra repayment.

Are you sitting down? No really! You need to be sitting down for this! The extra $50 a month on your $300,000 mortgage over 30 years  will save you up to 2 years, 3 months from your loan and $35,000. That’s right 35 thousand big ones!

NOW IT’S TIME GET OUT THAT CHAMPAGNE!!!

Article by James Parnwell

If you would like some further information on anything related to Investment Property or Investment Finance please click here

One of our team of experienced Investment Property coaches or Investment Finance Mortgage Brokers will be happy to reply to you with some helpful advice…

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Interest rates

Interest rates going down?

In mid-September I predicted that we would get a rate cut. I got it right! Hooray! I would love to claim that I am extraordinarily clever that I can peer into the future and divine the mysteries of the universe. However, I am not and I can’t! I just follow a simple rule about watching where fixed mortgage rates are going. Read my article on how to tell where interest rates are headed to understand just how simple this is. read more

So, the question you are all asking is, “Where are interest rates headed now?”

Well, with variable rates at around 6.75% (if you are paying more than this you are paying too much) and three year fixed mortgage rates as low as 6.21% there can only be one answer. Down!

The gurus in the back offices of the major lenders have factored in a rate dropped of another 0.5%! This is certainly good news for the Australian Economy, small business and the masses of mums and dads shouldering a mortgage!

Will I be right this time? Who knows, I’ll just keep watching the fixed rates and let you know!

Article by James Parnwell

If you would like some further information on anything related to Investment Property or Investment Finance please click here

One of our team of experienced Investment Property coaches or Investment Finance Mortgage Brokers will be happy to reply to you with some helpful advice…

off
Interest Rates

Interest Rates Going Down?

Nothing makes the heart flutter and the knees quiver quite like the news that interest rates might be headed down again. We have bright imaginings of more money in the bank and spending it on having loads of fun. It would indeed be lovely if we got a rate drop by Christmas. So what is my one reason why I believe interest rates are on the slide? read more

Interest Rates

  1. Fixed Rates are Going Down

Huh? What does that have to do with variable rates going down? Well, I won’t confuse the issue too much by boring you with information about money markets and the like. However, every bank in Australia has a team of people in a little room (my kids love Charlie and the Chocolate Factory, whilst it is inaccurate to describe these people as Oompa Loompas, it is mildly amusing) placing all the variables that could possibly indicate where the future of interest rates lie into a magic cauldron and coming up with an answer. At the moment, as a mortgage broker, I am getting flooded with emails from all the lenders I deal with saying, FIXED RATES DROPPED! The little people standing around the cauldron are looking into the future and have decided where mortgage rates are going. Down!

But the news says otherwise! I hear you say. To be honest, I trust the little people in the back rooms more than the news. Why? Firstly, because they are paid large amounts of money to work full-time on getting these things right. The news people are paid to give you interesting information so you watch them and not the competitors. News readers are great at news, Bankers are great at money! Secondly, and most importantly, if they are right they make loads of money for their company, if they are wrong they lose loads of money for their company. Every year we hear the profit news from CBA and ANZ and the others and we all fall about in shock at the new multi-billion dollar record profit they made. Given that these guys are pulling in the big bucks from you and me, I am going with the fact that they usually get it right!

Now, before you crack out the champagne and start dancing in the streets. Here are my 3 reasons why I might be wrong.

1.       My Crystal Ball is Broken

Ok, I am being slightly silly. But the truth is there is no inside information, no back room data that exists that can tell us what is going to happen in the future. We have enormous wads of information that the banks are sifting and using to provide us with fixed rates.

In the middle of 2008. Interest rates were at about 9.5% and all the news reporters were saying that rates were going higher. People were anticipating interest rates hitting 11%-12%. Then, out of nowhere, the Global Financial Crisis hit and within a few short months I was doing loans for people at 4.9%. I might add that fixed mortgage rates were at about 8.5% at the time. The experts in the back rooms were right about the direction of the next rate change. However, they could never have predicted how quickly rates dropped.

Beware! Things can change overnight!

2.      I’m Not Sitting On My Yacht On Sydney Harbour Sipping Champagne

Correct! I am being silly again. The point I am trying to make is that if I really knew where rates were headed I would be like Biff from “Back to the Future” who gets given a book with every sporting outcome for the next 50 years. I would immediately invest everything I had and turn into a Billionaire very quickly and subsequently wind up sitting on my Yacht sipping Champagne spending time with my family and generally enjoying life. I would not be writing this article and I would not be spending time working as a mortgage broker.

Again, there is no inside information or tricks to knowing the future and never will be.

3.      We Live in Difficult Financial Times

In the past 100 years we have seen depressions and recessions, stock market crashes, Two World Wars and all sorts of other things happen to mess up our economy. At this point in time we have countries on the verge of bankruptcy such as Greece, The USA managing their finances poorly and being downgraded in the credit ratings. We also have over one billion Chinese and another billion Indians ramping up their standard of living and joining the middle classes. They are purchasing lots of things they have never had before such as cars and mobile phones.

In the midst of this Australia has one of the strongest financial systems in the world. We can pat ourselves on the back for putting pressure on Governments to manage the books well.

What does this all mean? Who knows!!! These are all factors the experts use to calculate where interest rates are going, but none of us have any control over them. Spain could go bankrupt tomorrow and send every financial market in the world into a spin. Every prediction every expert made could be wrong.

I hope I am giving you a sense of the complexity and unpredictability of the situation!

Having said all of that, I will continue to watch the fixed interest rates as the best indication of where variable mortgage rates are heading. My Mortgage Broking experience tells me this is the most important metric to watch!

Article by James Parnwell

If you would like some further information on anything related to Investment Property or Investment Finance please click here

One of our team of experienced Investment Property coaches or Investment Finance Mortgage Brokers will be happy to reply to you with some helpful advice…