Australia

Tired of feeling like your loan is holding you hostage?

repayments - stress about money

Well, it’s time to break free and unleash the power of refinancing!

Picture this: lower interest rates, reduced monthly payments, and newfound financial freedom.

Refinancing your current loan is like hitting the reset button on your financial journey.

It’s your ticket to escape the clutches of high interest rates and embrace a brighter future.

So, why settle for a burden when you can seize the opportunity to save money, pay off debts faster, and maybe even treat yourself to that well-deserved vacation?

Get ready to embark on a thrilling adventure towards a happier, more prosperous tomorrow.

Buckle up and let the refinancing roller coaster ride begin!

#1 of 13 Save money on your interest, fees and charges

FACT: The ACCC has shown most borrowers are paying thousands of dollars more than they could.

And, the longer you have had your loan, the higher this cost will be.

#2 of 13 Lower your repayments

FACT: The rate increases since May 2022 have added over $1,050 in repayments to a $500,000 mortgage – an increase of almost 50% in monthly repayments.

#3 of 13 Your Fixed Rate loan period is about to expire

FACT: Most of the 2% Fixed Rate loans are about to revert to their lender’s Variable Rate.

This will lead to significantly higher monthly repayments.

A $500,000 loan’s monthly repayments will increase by over $1,300 per month, a 71% increase in monthly repayments.

#4 of 13 You want to reduce your financial stress by decreasing your loan repayments

FACT: If you extend your current home loan term, you can significantly reduce your monthly repayments.

#5 of 13 You want to consolidate your various loans

FACT: If you have a property, you can use the equity in your property to reduce your overall current monthly interest you are paying on credit cards and personal loans.

#6 of 13 You want to take advantage of the current attractive Cashback offers

FACT: A Cashback can turn many higher interest and repayment loans into a better alternative for the first 2 years of your loan (and we recommend you look at your refinancing options every 2 years to keep your rates sharp)

#7 of 13 Your equity in your property has increased

FACT: Many lenders offer better rates as your Loan to Value Ratio (LVR) decreases. Your LVR decreases when your property goes up in value and also when you pay off some of your Principal.

#8 of 13 You have personal goals you need to fund

FACT: Whilst rates have gone up, home loan rates are still way cheaper than a personal loan or credit card.

#9 of 13 You want to build your wealth

FACT: Most Australians do not use the equity in their property to increase their wealth.

#10 of 13 You want a more suitable loan product

FACT: Many loans are advertised on price, ignoring potentially added-value features.

These features may actually save you more than their cost.

#11 of 13 You want financial freedom

FACT: Paying more than your normal monthly repayments or, paying your monthly amount weekly or fortnightly, can reduce your loan term by years.

#12 of 13 You are part of a family break-up

FACT: Many couples who separate or divorce want to keep their family home so their kids have stability.

#13 of 13 You owe the tax man (and you want to save your business)

FACT: The ATO is currently blitzing businesses and demanding repayment of the unpaid Covid-period tax debts.

If you want to avail our free property report, click here: Free Property Report

Book a call with me using this link: Find out more!

Hi,

March has been one of those months in which the media has been filled with property and finance news. These four stories really stood out:

– First home buyer update

– Property price surprise

– New vehicle sales climb 1.8%

– RBA hints at rate relief

Read more below.

But first….

Some things you might like to know!

– The results of our new poll are out! Our question was: As a property purchaser, would you consider using a buyer’s advocate?

– We have more updates for our regional property reports which cover the capital cities and in total, 30+ regions. The last 3 months of updates are set out below.

– Our 5 suburb comparison report is great for buyers looking to buy in a specific area when they are not 100% sure which suburb to buy in. And as we know, property prices and trends can often vary significantly between neighbouring suburbs. Click the link below to find out what you might not know.

5 suburb comparison report

#1 Our survey results are in!

Our question was: As a property purchaser, would you consider using a buyer’s advocate?

Some observations:

– Wow! Almost 30% said they would use a buyer’s advocate with a similar percentage saying they would not; with the balance ‘swinging in the middle!

– These days, I always recommend to my clients to consider using a buyer’s advocate. For me, the reasons are clear. Let me list some of the things which I think about when I am buying a property:

Property is an expensive purchase

Buying a property is like buying a business. It costs a LOT of money. And, when you are borrowing a lot of that money from someone who wants you to pay it back, you better make sure you are making the right decision! Your Return on Investment (ROI) should always be a prominent consideration.

What due diligence would you do if you were buying a business?

To take the above point to the next level, if I am buying a business, I will do all sorts of due diligence to make sure it is the right business opportunity for me. And if I am new to the industry, I will probably spend more $$$ having my legal and financial experts run their eyes over it to make sure I don’t miss the bleeding obvious.

I am a ‘part-time’ property expert.

I don’t buy properties for a living. I know (from experience unfortunately!), that there is a lot about buying a property which I don’t know. And to double down on this point, you only find out what you don’t know when things don’t turn out the way you expected they would. At which point, it is too late to fix.

Experience converts to $$$

When you pick the right expert, and when what is at stake is significant, you will do two things:

– save money on those things which cost you

– make more money by increasing your return on investment

If someone who has expertise in property due diligence can stop me from buying the wrong property, then that is worth its weight in gold.

But if this experienced person can leverage their knowledge so I can get a 1% to 2% better return per annum, I will be WAY AHEAD ahead after 5 to 10 years. (The maths says I will be 16% to 34% better off if the annual growth rate is 5% pa and they can improve my ROI by 1% to 2% pa).

My time is expensive

I am not just talking about what else I can spend my time doing to make more money, although that of course is important. I am also talking about the time I could be spending with my wife and kids at their soccer training or helping them at home.

Picking the right expert is important

There are a lot of excellent buyer advocates out there. However, like any industry, there are also a few you should avoid.

I know a few buyer’s advocates. I make it my business to have a chat with them so I can understand what sort of people they are and what processes they follow to ensure they make the best decisions for their clients.

If you want some names, just let me know and I would be happy to make an introduction.

Book a time for a chat!

#2 Updates to our Regional Property Market Reports

These Reports are a great resource for those looking to buy in a new region or just to get a feel for what is happening in that region. Each Report also includes a suggested recommendation to Buy / Hold / Sell.

Updated Regional Property Reports

Here are the last 3 months’ updates of these detailed regional reports (including the property clock: Buy / Hold / Sell).

There are 30+ regions analysed and they are updated regularly.

Get your Free Property & Regional Reports!

Whether you want to buy a house or unit as your first home, you now need less time to save a deposit.

Domain research found that between April 2022 and February 2023, the time required for an average couple aged between 25-34 years to save a 20% deposit for an entry-level home fell from:

– Houses – 5 years 7 months to 4 years 11 months.

– Units – 3 years 10 months to 3 years 7 months.

Domain said there were three reasons first home buyers were now saving their 20% deposit faster.

First, property prices have fallen over the past year, which means first home buyers now need to save less money to enter the market.

Second, interest rates have increased, which means first home buyers are earning higher returns on their savings accounts.

Third, wages have also grown during that time.

Sooner or later, property prices are likely to start rising again*, so if you want to buy your first home, now may be the right time for you. Contact me if you’d like help. I can explain how the buying process works, compare home loans for you and help you secure finance.

* And if you are not sure about this, have you seen the recent media reports on our ‘soon to be record immigration levels’? When our migration ramps up, property prices will only go one way…..

See how much you can borrow now!

With all the talk of a housing downturn, you may be surprised to learn that prices have been going up in some markets.

Over the four weeks to March 15, the median property price rose by 0.8% in Sydney, 0.2% in Melbourne and 0.1% in Perth, according to CoreLogic. Values were unchanged in Brisbane and fell by 0.4% in Adelaide.

CoreLogic executive research director Tim Lawless identified two factors that have contributed to the change in market conditions.

First, relatively few properties are being listed for sale. “Such low advertised supply is likely to be a central factor keeping a floor under housing prices despite a clear drop in demand,” he said.

Second, increasing migration is bolstering demand. “While most of the housing demand from overseas migration is likely to flow into the rental market, with vacancy rates so tight, we may be seeing a higher than normal portion of long-term or permanent migrants choosing to buy rather than rent,” he said.

Mr Lawless said it’s too early to call the bottom of the market, because prices may fall further if interest rates keep rising or a lot of new stock gets listed for sale.

Australians are buying an increasing number of cars, SUVs, vans and trucks, with ‘green’ vehicles now representing about one in every seven purchases.

Consumers bought 86,878 new vehicles in February, which was 1.8% higher than the year before, according to the Federal Chamber of Automotive Industries (FCAI).

“This is the best February result since 2019,” FCAI chief executive Tony Weber said. “It is particularly pleasing given global and domestic supply constraints.”

Zero- and low-emission vehicles – which include battery electric, hybrid and plug-in hybrid vehicles – accounted for 13.9% of all sales in February.

“The number of low emission vehicle sales demonstrates that there is an appetite among Australians for environmentally friendly vehicles. However, if we wish to accelerate this transition to a broader range of consumers in all parts of the country, Australia needs to adopt a fuel efficiency standard,” Mr Weber said.

The five most popular brands in February were:

– Toyota – 16% of all new vehicle sales.

– Mazda – 9%.

– Ford – 7%.

– Kia – 7%.

– Hyundai – 6%.

Need a car loan? Let’s talk!

The governor of the Reserve Bank of Australia (RBA) has signalled that while the RBA is likely to raise the cash rate further, there may not be much more monetary policy tightening to come.

Speaking after the RBA raised the cash rate for the 10th consecutive time, Philip Lowe said the RBA board had to strike a balance between tightening too much (which might damage the economy) or tightening too little (which might allow inflation to persist).

“Our judgement, though, remains that further tightening of monetary policy is likely to be required to bring inflation back to target within a reasonable timeframe. Inflation is still too high [7.4%] and while it looks to be on a declining path it is likely to remain higher than target [2-3%] for a few years,” he said.

However, Governor Lowe also said the RBA board was aware that interest rates had risen significantly since 2022 and that those rate rises had caused pain for many households.

“We also discussed that, with monetary policy now in restrictive territory, we are closer to the point where it will be appropriate to pause interest rate increases to allow more time to assess the state of the economy,” he said.

PS in the media recently, economists for some of the major financial institutions have had their say as well. One said there is unlikely to be any more rate increases while another doubled down on the RBA’s view of further rate increases. In other words, nobody really knows for certain!

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Introduction

When you apply for a loan, you often have the opportunity to select a loan with a variable interest rate or one with a fixed interest rate, either in part or in full.

A variable interest rate can change over time as determined by the lender.

With a Fixed Rate, the rate of interest is set for a period of time, often from one to five years.

A lender will often offer a borrower the opportunity to have part of their loan balance at a Variable Rate and the remainder at a Fixed Rate.

This is known as a Hybrid Rate Loan.

What causes a lender to change their Variable Rate?

Most often, a change to the Variable Rate will follow a change by the Reserve Bank’s Official Cash Rate (OCR).

More recently, lenders are often seen to be taking into account other factors such as the cost of the funds a lender pays to borrow from overseas institutions.

Unfortunately, for this reason, lenders (led by some of the Big 4) sometimes do not pass on the full rate reduction suggested by the downward movement of the OCR.

Do Variable Rates and Fixed Rates ‘follow’ each other up and down?

Generally, variable and Fixed Rates tend to mimic each other in terms of overall movement but many factors can lead to variations between the two.

And to make it even more confusing, sometimes Fixed Rates are higher than Variable Rates and sometimes they are lower.

The factors which come into play include expectations of future interest rate movements (both locally and overseas) plus movements in the wholesale interest rates market, both locally but often overseas, from where a lot of a lender’s funds may be sourced.

So, the discrepancy between the two rates and whether Variable Rates are lower or higher than Fixed Rates is not a simple equation.

In fact, it is quite complicated and convoluted and certainly not transparent!

Variable Rates

Features

– The interest rate may go up and/or down during the term of your loan. Generally, it will not vary more than once a month, if at all.

Pros of Variable Rate loans

– More loan features which may give you greater flexibility.

– You can make early repayments or pay off your loan sooner (including refinancing with another lender) without paying break costs.

As noted earlier, break costs are those costs charged by a lender to a borrower when the borrower wishes to terminate a Fixed Rate loan before the expiry date of the loan term (often arising when the borrower wishes to sell their home).

– Some Variable Rate loans act as a continuous line of credit. This means you can access any available funds if you need money for something else later on (but there may be fees for this).

Cons of Variable Rate Loans

– Your repayments fluctuate with the current Variable Rate, so you don’t have as much certainty and may end up paying more interest than you planned (but also note: ‘the rate may go down as well so you save money’).

And, as noted above, the movement in the rate is based on conditions outside your control.

– The uncertainty over repayments can make budgeting harder. This can be particularly relevant in the first few years of your loan as your income is unlikely to change significantly during this time.

– The flexibility and extra loan features can come at the cost of a higher interest rate. For example, some ‘low rate’ loans have limited features and may even have restrictions as to what you can do and when you can do it.

Fixed Rates

Features

– Fixed rate loans are generally fixed for a period, typically years.

– Most Fixed Rate terms are from one to five years.

Not all lenders and not every lender’s products will offer every variability within this timeframe.

– At the end of the Fixed Rate term, your rate reverts to the current variable loan rate from your lender.

Pros of Fixed Rate Loans

– They make budgeting easier as you know how much you need to pay every month for the term of the Fixed Rate loan.

– The cost (interest rate) may be less as there are fewer features (e.g. redraw and offset may be non-existent or significantly reduced).

– You can set up automatic repayments for the term of the loan as the payments are fixed each month at the same amount.

– You can lock in a Fixed Rate when applying through a ‘rate lock’.

This means if interest rates move up after you apply, but before settlement, you get the benefit of the Fixed Rate at the time you submit your application.

Cons of Fixed Rate Loans

– If rates go down, you won’t benefit from the rate reduction during the term of your loan.

– If you wish to pay off your loan sooner or refinance, there may be break costs or early repayment fees.

Hybrid rate loans

Features

– Part of your total loan is a Variable Rate loan with the balance being a Fixed Rate loan.

– You may choose to have part of your Fixed Rate loans for different time periods.

For example: your total loan you apply for is $500,000. You choose to have $300,000 on a Variable Rate loan, $100,000 on a Fixed Rate loan, fixed for 1 year and $100,000 on a Fixed Rate loan, fixed for 3 years.

Our take

– No matter what the forecasters say about the future of interest rates, the reality is no one knows what is going to happen in the future.

Even with all the known information available, there are still a number of unknown factors which can influence the amount and timing of any change in interest rates.

– So, all forecasters (and you) can do is make educated guesses as to the direction and timing of any changes.

Other than any educated guess, the decision to either take a variable interest rate product or a fixed interest rate product is often a matter of 2 things to do with your feelings:

1. Your feelings around adversity Vs missing out on something good:

Are you the sort of person who stresses if something adverse happens or are you the sort of person who stresses if you miss out on something good?

2. Your feelings around cashflow stress:

Are you the sort of person who stresses if your cashflow gets tight due to higher payments?

– Everyone is different and everyone’s appetite for risk is different so there is no ‘one answer is correct’ advice.

And, when you are dealing with joint applicants, you need to take into account the risk profile of each applicant.

Just because one applicant might be comfortable with a higher level of perceived risk, the other applicant might be a little bit more conservative; so you need to balance the attitudes of both applicants.

As part of our due diligence when we assist you in identifying a suitable loan, we undertake a Needs Analysis for each person applying.

On a scale from 1 to 10, we inquire about your level of worry regarding the escalation of interest rates.

Additionally, we discuss with you the benefits and drawbacks of considering a Fixed Rate loan, either partially or entirely.

Lastly, we always ask about the members of your team.

What we want to know is, have you got a great team of advisors to assist you in making important decisions?

Because when you are dealing with loans of hundreds of thousands of dollars, you need knowledgeable, ethical professionals advising you of your risks.

Check our Financial Calculators!

Book a time here with me to know more about each rate: Calendly

The marketplace

– The consumer lending marketplace, especially in home loans and residential lending, is vast and perplexing.

– Apart from the big 4 retail banks (CBA, Westpac, NAB and ANZ), there are regional banks which operate in each State, credit unions and mutual lenders (which are ‘owned’ by consumers) plus the growing range of online ‘fintech’ lenders who only offer consumers loans via their website.

Brokers have access to many of these lenders plus even more as they can obtain loans from lenders who only lend money to consumers via a broker distribution channel.

– Research by KPMG[1] in 2019 indicates that the big 4 banks have a share of over 81% of the residential property mortgage market. And, as over 55% of borrowers use a broker[2], brokers also place a lot of their clients’ loans with the major lenders.

So, whether you use a broker or whether you walk down to your local high street bank, the big 4 dominate the lending landscape.

Most borrowers probably feel that if they have a choice of 4 (or 5 or 6 if you include regional banks which are available in most States) of largest lenders, they would be getting an ‘ok’ deal – and that the options they are being offered by the big 4 represent what is available across the lending industry.

And for many borrowers, this might well be true – but it is not necessarily true.

The reason this approach of walking down your local high street is appealing to many borrowers who have not used a broker is because research has shown we don’t like too much choice.

We do like choice, but not too much. And more than 4 or 5 to choose from quickly becomes ‘too much choice’.

So, with over 40 lenders which most brokers deal with, the choice is far too large to consider for most borrowers.

That is one of the main reasons why borrowers use a broker – to sort through the ‘too much choice’ factor quickly and efficiently so the borrower can approach a lender whose product is suitable for the borrower.

How do we shop for home loans?

The KPMG research shows a number of interesting facets in obtaining a loan:

– We prefer to research online (87% use and prefer the internet) but when it comes to the application, we are more likely to opt for face to face (56%) – but then, we prefer to revert to online service (80%). And, we really don’t like call centres and we try to avoid them whenever possible!!!

– 44% of those who have previously taken out a loan preferred to apply via a broker Vs 41% using their existing financier and 15% preferring to use a new financial institution.

– And of those who use a broker, 67% renegotiate their interest rates at least once every 5 years compared to 53% for those who applied directly to a lender.

At BIR Finance we do this every year with your existing lender and every 2 years with other lenders.

– The older we are, the more likely we are to use our existing lender.

– Roughly two thirds of respondents have 2 or more financiers.

– Reasons we choose brokers or new financial institutions – or decide to stay with our existing financier:

> Interest rate or price related data: 51% of those borrowers who used a broker channel and 59% of those who went to a new financial institution, did so for interest rate related reasons.

– and this was regarded as a significantly important reason.

Only 19% of those who used their existing financier prioritized interest rate related reasons and they did not rank this reason as being an important reason for choosing their existing financier.

> Convenience: 35% of those borrowers who used a broker related channel and 65% of those who used their existing financier did so for convenience related reasons.

> Trust: was the third main area identified as reasons borrowers chose brokers (14%) or new financial institutions (27%) or they decided to stay with their existing financier (16%).

Based upon my exposure to borrowers, lenders and the broker channel, this research makes intuitive sense.

Major Bank Market Share Falls 2019

Broker Market Share Bounces Back

Ibid To Sell is Human, Dan Pink p. 234

Ibid, KPMG

Subject to your consent – of course!

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