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Welcome to our May newsletter
The Australian economy continues to surge as employment and consumer confidence rises, but rates are also marching upwards.
A period of robust growth for the economy in conjunction with rising inflation prompted the RBA to move rates up by a quarter of a per cent once again this month.
China’s growing demand for our natural resources has been a major contributor to recent economic growth and there are clear indications that there are legs in the resources sector.
At its current level of 4.5 per cent the cash rate is now nearing its historical average however there may still be further rate rises in the pipeline if the RBA remains concerned about the impact of rising inflation.
Despite the fall in mortgage lending, house prices have continued to climb.
RP Data-Rismark reported that house prices jumped 1.4 per cent nationally in February.
What remains to be seen is to what extent the RBA pushes the cash rate up over the coming months.
According to NAB’s group chief economist Alan Oster, the RBA will take the cash rate to 5.25 per cent by year’s end.
Mr Oster says the Australian economy is now in a state of solid upswing and can therefore withstand the RBA’s upward rate movements.
While there are no guarantees rates will continue to rise, borrowers should think carefully about what impact a further one or two percent rise would have on their repayments.
If you don’t already have a budget in place there has never been a better time to look at tightening up on your finances. Even a few extra dollars saved each month can soon add up, and remember that every dollar knocked off your mortgage will save as much as two dollars in interest over the life of your loan.
If you’d like to review your current commitments – or to simply chat through current market conditions – please feel free to give us a call.
Sincerely,
Patrick O'Brien
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Lender News & Specials
- Suncorp are offering a 1.2% p.a. discount off their standard variable rate for the first 12 months to new loans of $250k or more that don't require lenders mortgage insurance. $0 application fee, $0 package fee for the first year, 0.70% p.a. discount after 12 months and $0 switch fee after 12 months.
- Existing mortgage holders with ANZ now may be able to borrow up to 95% of the purchase price on new home loans.
- There are now a few more lenders that are lending up to 95% of the purchase price. Suncorp, Bankwest, Australian First Mortgage, The Rock Building Society, Wide Bay Australia, Liberty & Paramount will now consider 95% LVR loan applications. In addition current account holders at CBA, St.George, AMP & Westpac may also be considered for loans of up to 97% of the purchase price, including mortgage insurance.
- Some non bank lenders on our panel such as Choicelend, Australian First Mortgage and Homeloans Ltd have become very competitive with their interest rates. All of these lenders are currently offering a 0.10% p.a. discount off their already competitive interest rates to borrowers borrowing less than 65% of the property value.
- Choicelend are waiving their normal $700 application fee until the end of May. With very competitive rates as low as 6.45% p.a. variable (6.51% p.a. comparison rate) this is an attractive offer.
- Homeside are still offering a 0.80% p.a. discount off the standard variable rate if the loan is greater than $250k and the Loan to Valuation Ratio (LVR) is 75% or less. The loan comes with a 100% offset account. This is a very attractive offer so if you are purchasing a property and you have a 25% deposit or if you are looking to refinance and your loan balance is less than 75% of your property value this is well worth considering.
- If you want a full valuation carried out on your home but don't want to pay the $300-500 most valuers will charge you then up until 30th June 2010 CBA are offering customer ordered valuations for $150. This is only available on standard residential properties. Please contact me if you would like to arrange a valuation and to find out if this offer is available for your property.
Best Interest Rates (includes recent rate rise)
| Loan type |
Interest rate |
Comparison rate |
| Basic Variable |
6.55% p.a. |
6.61% p.a. |
| Basic Variable & <=65% LVR |
6.45% p.a. |
6.51% p.a. |
| 100% offset >$250k & <=75% LVR |
6.47% p.a. |
6.57% p.a. |
| 100% offset >$250k & >75% LVR |
6.57% p.a. |
6.67% p.a. |
| 3 year fixed |
7.45% p.a. |
6.85% p.a. |
| 5 year fixed |
7.80% p.a. |
7.16% p.a. |
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Mortgage reduction strategy: paying fortnightly
The small step of switching from monthly to fortnightly repayments can put a big dent in your mortgage.
With so many mortgage reduction techniques available, one of the simplest and lowest risk tactics is also surprisingly effective.
Most lenders will give you the option of making fortnightly repayments, but why is this so effective in reducing your mortgage? The concept is really very simple: there are 52 weeks in a year and therefore there are 26 fortnights.
By paying fortnightly you are effectively making a total of 13 monthly payments (26 divided by 2) rather than 12 calendar months – giving you one month’s extra repayment every year.
It’s a simple concept but a potent one when it comes to driving down the amount you owe on your loan.
By paying your mortgage in fortnightly installments you could essentially wipe more than 4 years off the life of a 25 year loan term and save tens of thousands of dollars into the bargain.
And the best part is that once you factor the extra repayment into your budget you’ll hardly feel the pinch. Unlike other mortgage reduction methods that carry the burden of having to actively manage your mortgage on a monthly – even daily – basis, the fortnightly payment plan can be set up as a direct debit so you can simply ‘set and forget’.
It’s also less risky than other mortgage reduction methods.
Line of credit mortgages, for example, work only for the diligent, and not everyone likes living off their credit card. As soon as you start using your personal savings to buy essentials, the line of credit mortgage loses its effect as a loan reduction tool.
Just be sure to check with your lender that your loan facility allows you to make fortnightly repayments without any extra fees.
And if you’d like to put an even bigger dent in your loan, set up your fortnightly repayments over and above the minimum repayment, while keeping it manageable.
Not only will you better absorb the impact of interest rate movements, the extra dollars you invest will help knock down the remaining principal balance. This will ultimately reduce the interest you will have to pay and the term of your loan.
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Strategies for driving down the asking price
If you find your heart set on a property that is just outside your price range don’t despair: with the right strategy you might be able to drive down the price and buy that home of your dreams.
Buying a property can be an emotionally turbulent time.
Beyond the stress of arranging finance, trawling the web for bargains and attending a plethora of inspections, there’s the added drama when you discover a place that is perfect in all respects... except for the price.
So what happens when the home of your dreams is just beyond your price range?
With a few savvy techniques, you may be able to talk the seller down to level that you can afford.
- Cash on the hip: Make sure you have pre-approved finance with a reputable lender, complete with a letter of approval, before making your price offer. If the seller is aware that you are financially ready-to-go, a reasonable lower offer will be taken seriously.
- Make it snappy: If you have pre-approved finance, you can ‘sweeten the deal’ by offering a short settlement. So rather than the standard six-week settlement period, be ready to settle in 3 or 4 weeks, for example. For most vendors the faster the settlement the better and this may make them more open to accepting a lower offer.
- Lose your ‘cool’: Tell the agent you will agree to waive the normal five-day contract cooling-off period and you’ll give the seller more confidence a deal will be done, offering greater leverage to negotiate on price. Just make sure you have written finance approval first and seek legal advice prior to making an offer.
- Critical eye: Don’t be afraid to tell the agent of any defects you see upon inspection. Use the fact that you will need to spend extra money rectifying those defects as leverage when negotiating the purchase price.
- Land tax and GST: Get a draft contract from the agent – it will say whether the seller will require you to pay land tax and/or GST on top of the purchase price. Use these factors in your price negotiations. If you’re a first home buyer, it will be easier to talk your way out of paying these – and a saving is a saving.
- Dangle a carrot: There are several ways you can use your deposit to sweeten the deal, however as each have their own benefits and risks, it’s best to make a quick call to your solicitor or conveyancer first:
– Consider offering a higher deposit up front to assure the seller of your seriousness to buy in return for a slightly lower purchase price.
– Consider agreeing to release an amount of your deposit (say 5 per cent) to the seller before completion; this is a useful tactic if the seller is buying another property.
– If the settlement is to be for a normal or longer period, consider allowing the deposit to be invested from the date of exchange to completion, with any interest gained on the deposit to be shared equally between the parties. The seller may accept your offer knowing they will get more money the longer settlement is dragged out.
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Lawyer vs. conveyancer
Finding someone to represent you in a sale or purchase is not just about considering who will offer the cheapest deal. It’s about who can provide the best service value – and that’s where lawyers and conveyancers differ.
When you are selling or buying a property, you need someone to represent you in the deal. But with so many lawyers and conveyancers servicing the property market, who stands out as the winner?
Before making a decision, you must first consider what you’re looking for: a full service or budget option. Conveyancers and lawyers provide a similar service however if things get complicated there will be differences in how they are equipped to deal with the situation.
ON COST
Winner: Conveyancer
In terms of cost, conveyancers are generally cheaper.
Unlike lawyers, who normally charge by the hour and generate their revenue from a number of sources, conveyancers work exclusively in property.
A conveyancer understands the legal requirements to take your property through to settlement, ensuring that the process moves through smoothly and all parties are working in unison. It’s essentially a no frills legal service, dealing with the basics of settling a loan.
And with so many conveyancers in the market, their pricing is pretty competitive. You’ll also get someone who is a specialist in their field.
ON SERVICE VALUE
Winner: Lawyer
Lawyers are fully armed to represent your interests in most legal situations.
And while you might only be involved in a simple buy/sell transaction, even the most straightforward sales can lead the parties into difficulties.
Financing issues, delayed settlements, premises damage, and a myriad of other factors can crop up during a transaction. Often these problems, if improperly resolved, can throw off the whole deal and result in a draining and costly legal battle.
A good lawyer can anticipate problems often before they arise and can put them to rest quickly.
A lawyer is also an essential tool to have if the deal is more complex than usual. For example, if the seller is a trustee, or if the buyer wants possession before completion, there’s going to be a number of factors to consider, and a lawyer is typically the best person to advise you on them.
For more complex contracts, extra provisions may be required in the contract to protect each party’s interest. It is far better to have a lawyer draft and review the special conditions of a contract as they are aware of the legal impact each condition can have.
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Wine review
Climbing’s Sauvignon Blanc 2009
This Sauvignon Blanc from Orange NSW boasts a medium body and tight crisp acidity that is well complemented by the soft textural nature of the palate. A delightful balance of citrus and lemon flavours, this wine is an ideal meal accompaniment.
RRP $21.99
www.cumuluswines.com.au |
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Book review
Talking about Detective Fiction
With more than 18 bestsellers under her belt, P.D. James is widely regarded as one of the greatest crime writers of all time. Now, after more than 50 years of turning out gripping copy, James has penned a book about her contribution and commitment to the crime genre. From the tenant of 221B Baker Street to the village priest from Cubhole in Essex, James explores the development of a writing style that has gripped and entertained the popular imagination like no other genre.
Author:P.D. James
Publisher:Faber and Faber Ltd
RRP: $26.99 |
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