Archive for December 10th, 2008
Wizard home loans have produced a list of 12 mortgage myths that are of concern to Australian home buyers, here are the first six:
Myth 1
A bad credit history doesn’t matter if you eventually pay it off
Your credit history records any missed or defaulted payments on things such as credit cards, interest free contracts, and mobile phone plans. A patchy credit history can haunt you – even if it is very old or just a one off small amount. There are two major credit reporting agencies that record all of these debts and lenders consult these agencies before they complete your loan application.
Myth 2
Assets are the same as income
No matter the strength of your assets, what really makes the difference is your capacity to repay the loan through a regular income. When it comes down to servicing, a lender will only lend as much as people can afford to repay. The amount of income earning capacity you have will ultimately determine how much you are able to borrow.
Myth 3
It’s the credit card balance, not the limit that counts
When it comes to credit cards it’s not all about the balance on your card, or cards, it’s the total available credit that counts. Having a large range of credit does not necessarily equate to a good credit history.
Myth 4
You need a 20 per cent deposit to get started
Not true. These days, you can borrow up to 97 to 100 per cent of the property value, which is proving to be an attractive option for many cashed up first home buyers who often wonder whether they’ll ever get their feet onto the property ladder. What’s important to remember is a lower deposit may mean a higher interest rate and fees.
Myth 5
Cheapest is the best
A ‘cheap as chips’ interest rate may be a good incentive to sign the dotted line, but beware – in many cases these loans may have higher fees and less flexibility, costing you more money over the life of your loan. A standard variable loan at a slightly higher rate with flexible features, such as the ability to make additional and lump sum repayments, can save you more money in the long run.
Myth 6
A fixed rate is always safer than a variable rate
Every home loan is different – so too are your home loan needs. What’s important to remember is that fixed rates are calculated by the capital markets over the period you sign-on for, whether that be for three, five, or seven years. If variable interest rates go down during this fixed period, you could end up paying a higher interest rate than compared to the standard variable rate.
Get the full 12 mortgage myths here:
http://www.realestate.com.au/doc/Resources/Buy/fhbg/mortgage-myths.htm
Paul Castran
Two of Australia’s biggest residential developers have called the bottom of the housing market, saying some life should return to the troubled sector next year.
Billionaire apartment developer Harry Triguboff and the listed Mirvac Group said signs of growth in demand were emerging.
It runs counter to a report this week from AMP chief economist Shane Oliver, who said Australia’s overvalued house prices could fall 10-15 per cent next year.
Mr Triguboff, founder and owner of the country’s biggest apartment builder Meriton, completed and sold 1000 apartments this year, well down on the 3000 a year built during the boom in 2002, The Weekend Australian reports.
Next year, he hopes to build 1500.
While Mr Triguboff said he "always met the market" when conditions cooled, he expected Meriton’s prices to rise 10 per cent next year underpinned by the government stimulus of rising rents and the lack of supply.
"I don’t think we have to worry, we have such help from the Government," he said, referring to Canberra’s $14,000 grant for established homes and $21,000 for newly constructed homes announced in October.
"Petrol has come down, income tax has come down. Some people will lose their jobs, sure, but let’s talk about the ones who won’t."
AMP’s Mr Oliver said an increase in unemployment posed a significant threat to house prices. AMP forecasts the jobless rate will rise from 4.3 per cent to 6.5 per cent in 2010.
Mirvac Group chairman James MacKenzie said the company was starting to see "what we hope are early signs that the residential market, and consequent demand for Mirvac product, being stimulated", though he was cautious, given the state of the market.
He also cited the Federal Government’s boost to the first home-buyers grant, the cuts in interest rates and measures in the NSW Government’s mini-budget as factors.
Read the full article from Jessica Irvine and Turi Condon of Perth Now here:
http://www.realestate.com.au/doc/Resources/News/market-going-up.htm
Paul Castran
More than 40,000 unlucky people have been caught out in a fixed mortgage rate trap, having taken out their loan at the highest fixed interest rates in a decade, denied any saving from the recent cuts and confronting costly break fees if they decide to refinance.
Figures from the Bureau of Statistics show 43,632 borrowers signed on to new fixed home loans between March and September, when lending rates were at a decade high. The official cash rate has since fallen by a full 3 percentage points.
According to the research group Infochoice, someone who took out a fixed loan of $500,000 in March would now be paying $800 more a month than if they had opted for a variable rate.
But borrowers looking to refinance face a difficult choice: continue to pay a higher interest rate, or incur thousands of dollars in penalty fees for breaking their fixed contract.
"It’s not just all about the rate," the head of Infochoice, Shaun Cornelius, said. "There are all sorts of conditions attached to the exit fees. They can be quite expensive."
While fees vary, borrowers who cancel their loan within the fixed period are typically forced to compensate their lender for the "economic cost" of breaking their contract. This is the difference between the interest the borrower would have paid the lender and the prevailing interest rate. As interest rates fall, this gap is becoming ever wider, meaning it may already be too late for fixed borrowers to save by refinancing.
On top of the economic cost fee, all four major banks also charge an upfront fee, ranging between $300 from ANZ and $900 from NAB, for breaking a fixed loan. Administrative and establishment fees are also charged by the new lender.
Read the full article from Jessica Irvine and Ehssan Veiszadeh of the Sydney Morning Herald here:
Paul Castran
This week’s interest rate cut is expected to lead to an investor resurgence.
With the arrival of spring, they started emerging from their winter bunkers, scouring every neighbourhood, on the prowl for the easy kill. As December broke and interest rates fell again this week, they became bolder and began pacing, waiting and watching for their weakened prey.
And now, finally, they’ve begun to pounce. "Yes, at last we’re seeing evidence of investors returning to the apartments market," says John Edwards, managing director of residential property researchers Residex. "There’s real activity now from the investment community and we’re predicting we’ll soon see that translated into a lot more sales."
The latest rate drop in the cash rate this week, a further 1 percentage point to 4.25 per cent, is expected to further lure the investment hunters. "It will have an effect over time, especially if the rates stay permanently down," says Australian Property Monitors’ senior economist Liam O’Hara.
It’s amazing to see them stalk in terrain that otherwise looks so parched and barren but the experts are adamant: with falling interest rates, rising rents and the continuing sharemarket volatility, the conditions are perfect for the lean and mean to make an absolute killing.
Read the full article from Susan Wellings of the Sydney Morning Herald here:
Paul Castran
Many mortgage holders may be "oblivious" to the fact they have to ask their bank for an upfront interest rate saving, according to consumer group Choice.
When interest rates go up, banks automatically reset repayment levels higher. But when rates come down, borrowers need to contact their bank to instruct them to reduce repayments.
"You have to notify them for the [repayment] rates to fall, otherwise they keep charging it at the old rate," a spokesman for Choice, Christopher Zinn, said.
Read the full article from Jessica Irvine of the Herald Sun here:
Paul Castran
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Paul Castrans views on the Australian real estate market