To Mortgage Refinance or not to Mortgage Refinance – that is the question on the minds of many borrowers. 

If you are feeling a little disgruntled about your mortgage rates or if your lender is simply not providing you with the service you desire it may be that you are thinking about a mortgage refinance. The reality today is that while mortgage rates llook attractive for new loans the majority of borrowers who are with the banks are paying the standard variable rate which is currently sitting at around 5.80% p.a. This could be you. It would seem to be a sensible move to weigh up your mortgage refinance options. What do you need to consider in this process?

 

Most borrowers simply jump into a mortgage refinance and are often well down the track before they realise that the move may not be a viable proposition. Before you spend too much time or any money look at the costs involved in your mortgage refinance. If you are dealing with a mortgage broker in the mortgage refinance process and he or she does not ask you to ascertain your exit costs on the existing home loan you have then quite frankly you should look for someone else to take care of your mortgage refinance. Many mortgage brokers only alert you to the costs of a mortgage refinance in so far as they relate to the cost of the new lender. They do not want to make you too aware of the costs that you will incur if you are exiting your existing loan early. As a general rule if you are paying out your mortgage within 5 years of its inception then the mortgage refinance costs will include early penalties.

 

Exit costs on a mortgage refinance will vary depending on whether you are in a variable or fixed rate loan. If you are in a fixed rate loan then you will incur “break costs” which as a rule of thumb equate to the difference between your fixed interest rate to maturity of your fixed period and the rate that the lender can currently reinvest its funds for that same duration. Recently many borrowers have commenced a mortgage refinance process not realising that their break costs are significant because of the dramatic rate reductions we have experienced in Australia over the past 12 months. The amount of these break costs may be such that the amount actually required to complete the mortgage refinance is such that the security value will not support the loan or the loan amount represents say 90% of the value and as a result the borrower incurs additional lenders mortgage insurance costs which can also be quite high.

 

If there are high early repayment penalties on your loan then you need to make sure that the interest rate differential between the existing mortgage and the new loan is such that you will recoup these costs within a 6 month period and thereafter be ahead as a result of your mortgage refinance.

 

Too often borrowers are ill-advised or embark on a mortgage refinance before doing the sums – as a result the interest saving they think the mortgage refinance will deliver is wiped out by the costs of the exercise.

 

Check all your costs first – for both the outgoing and in-coming lender before you proceed down the path of a mortgage refinance. It must be a viable proposition to make the mortgage refinance option a worthwhile exercise.

The reality is that the best mortgage is the one that meets all your requirements in a mortgage loan. These obviously differ from one borrower to the next. For a first home buyer the best mortgage is likely to be a basic variable rate loan with redraw and the option to fix your interest rate. No matter what mortgage you are looking for these are the 2 features which are critical to have as part of your “best mortgage” package. Generally basic variable rate mortgages are priced very competitively – you are not paying a higher interest rate for features that you may have no need for.

 

Some mortgage consultants have pushed the line of credit as being the best mortgage available in the market for those purchasing their own home. The benefit attributed to a line of credit is that it can be an all-in-one style of loan account. You use your line of credit for all your financial transactions. Under this so-called best mortgage deal your salary is credited to the line of credit each month. You use a 55 day interest free credit card to purchase your monthly groceries etc. On the due date for payment on the credit card you draw down against the line of credit to pay off the full outstanding balance on the credit card. In this way your salary is working for you to reduce the interest on your home loan while it remains undrawn. This is because interest is calculated on the daily balance of your loan.

But is a line of credit really the best mortgage for a home buyer? It can certainly reduce the interest but claims by some banks that you can repay your loan faster without making extra repayments is misleading. You may not physically make an extra repayment but the surplus from your salary is exactly the same thing. So be careful if a line of credit is touted to you as the best mortgage for you – it can be a trap in that borrowers fail to make any dent in their mortgage over a long period of time because often there is no minimum monthly principal and interest repayment required. Not the best mortgage after all!

 

If you are an investor with a home loan, then a line of credit may well make for the best mortgage package for you. By having a line of credit in place you are able to draw on this to meet any shortfall on interest or maintenance costs in relation to your investment property. Instead of using your personal income to subsidise or meet these costs you should apply as much as possible of your salary to repay the home loan faster and use the line of credit for all your investment costs. Including a line of credit in any investment loan arrangement is a sound idea and you can be confident that by doing so you will have the best mortgage structure for your needs.

 

The best mortgage is not always the one with the lowest interest rates. You must be careful to check out a product carefully particularly if the interest rate is well below the market. You might initially think the low interest rate makes it the best mortgage for you but if you are not able to fix the rate down the track or there are other limitations that could prove costly in the future then this is not the best mortgage for you.

fAll of us have some financial goals, including some investment goals, though it can be quite difficult to find cash to invest and we start thinking about an investment loan to buy that property. Investment properties generate income, build long term wealth and have lots of benefits. We just all need to remember that such wealth cannot always be predictable and guaranteed, as we take out a larger investment loan and invest it all at once.  By taking an investment loan you can leverage into an investment property - this allows you to purchase a much higher value investment to grow during the full investment period, which allows a larger amount to grow for longer which can generate a much larger long-term return.  When you make interest payments on your investment loan instead of making additional repayments or even any repayments of principal you are better to take an interest only investment loan facility. Interest charged on an investment loan is generally tax-deductible. This reduces your cost for the investment loan.  

By reducing the cost of investing and increasing the chance that such investing will perform much better than any traditional investing by deducting loan interest.

So, the loan aspect is absolutely critical to generating continuous business for the investor. Property investment can turn into a huge profit generating business.

Among all types of investments, property investment is typically less inconstant than shares in stock and, therefore, had a reputation of being an "investor's haven" in the past. Even now intelligent property investing is still a part of an investment portfolio and has many attractions. Investment loans can help us to increase our current assets, grow our equity in the property as long as our real estate property continues to improve in value and if at all possible brings in more money than our repayments on the loan are. Using investment loans, enables the purchase of an investment property with plenty of options and great flexibility, much greater than we have ever thought would be possible.   There are many types of investment loans and different investors may require different loan features. Actual loan assessment for an investment loan will take into account the individuals personal income as well as around 80% of the expected rental return on the investment property. Many investment loans are based on such things as location, and whether or not the property will qualify for a particular investment loan.  

There are also an increased amount of lenders available for various investment loans. All lenders wish to establish that the property has a sound profit prospect. It will give assurance to the lender of a safe and timely return for the investor as well as limiting the lender’s risk over the investment loan term. All lenders would like to escape the very costly repossession scenarios and prefer instead the safe payback of the loan.

 We need to put our money to work for us in an investment property. It is an ideal time to invest in real estate, especially with today’s low mortgage rates so research the investment loan market and negotiate a flexible and well-featured investment loan package to maximise the return on your property.

Many investors are so caught up with researching the investment market to find a property they believe will show a good return that they forget about the benefits derived when they also check out the investment loan market with equal diligence. By far the majority of investors simply approach their bank when looking for an investment loan and accept the suggestions of the bank manager or mobile consultant without giving it a second thought. Rather than taking this route, which may be easy and convenient, the astute investor will check out the investment loan options available in the market before committing to the first investment loan suggested to him or her.By researching the investment loan properly an investor will soon discover that it is not just the interest rate on a mortgage that can deliver cost savings and consequently a better overall return on the investment property. While most Australians have a mindset of paying down principal on a home loan so that over a 25 or 30 year term the debt is repaid in full – this approach is not appropriate for an investment loan situation.The difference between your home loan and an investment loan is that the interest that is paid on the latter facility is tax deductible. The interest on the investment loan (as well as other maintenance and real estate agency costs) is generally deductible against the rental income you receive on the investment property. If the investment loan interest plus these other costs exceed the rental income then you have a shortfall or loss on that investment. That shortfall or loss is deductible against you personal income so that if for example you earn $60,000 p.a. from paid employment and you have a loss of $5000 on your property investment (having paid investment loan interest etc) then your taxable income will reduce to $55,000 p.a. and the tax payable will be re-calculated against that reduced income. This is what is commonly known as negative gearing on an investment.Because, unlike home loan debt, the interest on an investment loan is tax deductible it is preferable to leave the principal debt as it is as opposed to paying it down by way of principal and interest instalments over the life of the loan (as you would normally do for a home loan facility). By not making any principal repayments on the investment loan you achieve a two-fold benefit:

1. you maximise the amount of deductible interest on your investment loan (the interest on your investment loan does not reduce because you are not reducing the principal amount).
2. you conserve the money you would otherwise be applying to the investment loan to use to either repay your home loan non-deductible debt or save for the purchase or other personal items e.g. a car, refrigerator etc) rather than taking a lease or purchasing on your credit card – in both instances you will be paying a relatively high interest rate and the interest repayments will not be deductible against your income.

As a general rule any investment loan should be taken on an interest only basis and any surplus cash that results from this interest only investment loan structure should be applied to repay non-deductible personal loans or put aside as savings for future personal use.

A Mortgage Calculator is an invaluable tool when you are in the market looking for a home loan or an investment mortgage. There are many different types of mortgage calculators but probably the most accessed by home loan borrowers is the mortgage calculator that works out how much you can borrower.

 

You do not need to feel daunted by a mortgage calculator – they are simple to use and will automatically estimate how much you can borrow. If you have a property in mind that you would like to purchase then these are the steps you need to take to ensure that the mortgage calculator gives you assistance in your property purchase decision.

Step One: Think of a purchase price that you believe is within your reach.

Step Two: Add approximately 5% to the price to cover off expected costs of the purchase.

Step Three: Calculate your expected savings. To keep your costs to a minimum it is best to try and put at least 20% towards the purchase price. This way you avoid the costly exercise of Lenders Mortgage Insurance (lenders will ensure against loss if you borrow more that 80% of the value of the property.)

Step Four: Subtract the 20% cash (or whatever equity you do have) from the purchase price.

This gives you your loan amount.

 

By making use of a mortgage calculator you now get an idea of whether you can afford the loan amount you require to purchase that dream home.

The mortgage calculator only needs minimal data.

Obviously the first thing you will be asked to input into the mortgage calculator is your income and the income of anyone else purchasing and borrowing with you.

The mortgage calculator will also ask for other income you might be earning such as overtime, second job, share dividends etc.

Once you have inputted all your income details into the mortgage calculator you will then be asked to input the monthly repayments you are making on any other loan as well as the credit card limit on all credit cards you hold. If you hold a number of credit cards you might find that when the mortgage calculator assesses your income, you are not able to borrow as much as you might have expected. In this case simply remove one or two of the credit cards you rarely use and work on the basis  that you will cancel these credit cards before you apply for a loan. The mortgage calculator will show you how much difference fewer credit cards will make to your borrowing capacity.

This is all the data that is required by the mortgage calculator to work out how much you can borrow. If you an investor then when you use the mortgage calculator you will also include the gross rental income you expect to receive from the property you re buying. The mortgage calculator will automatically calculate between 70% and 80% of the gross rental figure and use this as additional income when working out how much you can borrow.

The mortgage calculator is a very useful tool especially when used in the early stages of the potential purchase process. The mortgage calculator immediately provides you with your purchase price range and you can go out and start looking for a property knowing that from a financial perspective you will qualify for a loan. You must remember though that other factors beyond the mortgage calculator figures are also involved in the loan approval process so it is best to speak with a mortgage broker to get his input and expertise.

Prior to the early 1980s a borrower applying for a mortgage would have no option but to apply to their local bank branch manager for that mortgage. At this time in the mortgage industry the banking branch network was wide and serviced many communities throughout Australia.

A mortgage in the 70s was pretty simple in its structure. As a general rule a mortgage was always a standard variable rate principal and interest mortgage. If you were an investor there were private clients who would give you a mortgage on a 3 or 5 year interest only basis. The banks were not in the investor mortgage segment as aggressively as they were in the home mortgage market. Borrowers looked elsewhere for their investment mortgage because the banks charged higher interest rates on a mortgage that was for investment purposes. Even today it is incredulous that banks can charge much higher rates to small business even though they have a mortgage over the business person’s home or other property. The risk on the “business’ mortgage is no greater than for a mortgage where the purpose is to purchase property. At the end of the day the mortgage is secured by property and as such there should be little if any difference between the interest rate on a home mortgage as opposed to the interest on an investment or business mortgage.

 

In the early 1980s the government had imposed a cap or ceiling on the interest rate a lender could charge a borrower on its mortgage. Many mortgage rates were capped at 13.5% p.a. This seems an incredibly high interest rate when compared to what is on offer with mortgage rates today but during the 1980s interest rates on a first mortgage escalated to over 17.5% p.a. It is amazing that today mortgage rates for first home buyers have dropped to below 5% p.a. There have even been some mortgage rate specials as low as 2.99% p.a. variable.

 

In the USA the official rates are down to 0.25%. In Australia our Official Cash Rate is at 3.25% p.a. the lowest it has been since 1964! Governments are hoping that these low rates governments will translate into lower mortgage rates and rates for business as well. The lower mortgage rates will hopefully free up the cash flow of many mortgage borrowers with the result that they will spend more on consumable items. This spending is needed in the current dire economic climate because without the demand for goods, factories and manufacturers close down and unemployment rates increase.

 

Mortgage rates have an important role to play in the economy. When mortgage rates are high, people tighten their belts and do not spend – inflation is kept in check. When mortgage rates are low, people spend more and the economy is stimulated, people are kept in work.

 

In Australia we have seen fixed mortgage rates increase recently (June 2009) and this is because the banks are endeavouring to capture higher margin (read greater profits) through their fixed rate lending. Nevertheless it makes sense for borrowers to fix their mortgage rates in that fixed mortgage rates are still low by comparison to where they have been over the past few years. The lenders are happy and for the short term at least so are borrowers.

A First Home Buyer is in the box seat with the Federal Government’s increase in the first home owners grant from $7000 to $14,000 (for a first home buyer purchasing an existing dwelling ) and to $21,000 (for a first home buyer buying a newly constructed property.)

In its November 2008 mini budget, the NSW State Government provided another “kicker” by making a further $3000 available as a grant to

Most investors in Australia have a home loan. Most investors use the equity in their home property to help them on the road to wealth with their first investment property or share acquisition. In the past most investment loans were standard long term facilities with an initial interest only period of say 5 -10 years after which they converted to principal and interest. Most properties are

In the current economic environment where people are concerned about their job security and often their high level of debt, then one option to immediately consider is debt consolidation. If you are in a secure job and managing your debt well then there is no need to consider debt consolidation because over the long term it often result in your paying more interest. Why is this? Basically, people

Most investors in Australia have a home loan. Most investors use the equity in their home property to help them on the road to wealth with their first investment property or share acquisition. In the past most investment loans were standard long term facilities with an initial interest only period of say 5 -10 years after which they converted to principal and interest. Most properties are