With the RBA lifting interest rates over 3 consecutive months and the likelihood of further rate hikes, the average Aussie with a mortgage, along with many would-be homeowners, are quite rightly feeling unsure about what lies ahead
Have the rate rises dashed my hopes of owning a home or investment property? How does my interest rate compare to other lenders and should I be refinancing or fixing my loan?
These are the times you need an experienced mortgage broker to help guide you through the myriad of challenges faced with current market conditions. Your property goals don’t need to be put on hold. Below are the answers to common questions asked by borrowers:
Why should I use a mortgage broker?
A mortgage broker not only gives you access to a wider range of lenders than you might be aware of, they also act as your mouthpiece when dealing with these same lenders to help secure your loan. An experienced mortgage broker should be able to:
- provide you with the latest lender mortgage options,with the best features that allow you to significantly cut the cost of your loan, helping you save thousands of dollars in the long run;
- give you guidance if you’re a first-time buyer about what government assistance, grants or concessions you may be eligible for (like the First Home Owner Grant or the Albanese government’s Help to Buy shared equity scheme);
- be able to explain clearly, what is in your best interest when making your borrowing decisions.
Mortgage brokers can also provide a health check for borrowers when looking to determine their borrowing capacity. They can compare product offerings in the market place and explain whether refinancing is an option to consider.
Want to use your equity to buy an investment property? Need finance for a renovation, so that you can potentially add value to your property and/or create your dream home? Well they can assist you with that too.
How much can I afford to borrow?
The answer to this question depends largely on things like your deposit, income, expenses, savings history, equity, time in employment in your current role and credit rating.
Recently some banks have moved to curb high-risk lending, changing the debt-to-income limit. Below is an overview of what the major lenders are using as a guide.
- Non-bank lenders: Non-Australian Deposit-taking Institutions (ADIs) do not always apply DTI limits, because they are unregulated by the Australian Prudential Regulation Authority (APRA). However, they will often take DTI ratio limits into consideration when assessing loans. Capital Mortgage Group have all the tools regarding our large panel of lenders.
- ANZ: Applications where the DTI ratio is greater than 7.5 will no longer be considered home loans by ANZ. Previously this figure was 9 times DTIR.
- Commonwealth Bank: They monitor applications with a DTI higher than 4.5, while applications that are 7 DTI or higher need to be manually approved by their credit department.
- National Australia Bank: Their DTI ratio cap is 8 for all home loan applications.
- Westpac: For DTI ratio of 7 or greater, your application will be referred to their credit department for further review.
- Other lenders: Other major and smaller banks and lenders set their own DTI ratio benchmarks, and are broadly in line with major banks.
These changes could affect how much you can borrow. It’s important to your broker to get an accurate indication of your borrowing capacity.
With interest rates going up, is now a good time to buy?
Our big prediction…The downturn in the market will ultimately turn into a boom, I’m confident of that. But this downturn will be around for a bit longer yet, as the Reserve bank attempts to get inflation under control. But this outcome is not in question, as the RBA has all the tools at their disposal to make this happen. The problem is how quickly they engage these measures and at what cost to the markets in the short to medium term.
Whatever the outcome of the RBA’s inflation tackling exercise, whether you should buy right now depends on your specific financial situation and goals. If you are in a solid financial situation with regular employment, you may be in a position to take advantage of declining property prices.
But if you’re already feeling the pinch with rising cost-of-living pressures, it may be worthwhile holding off or talking to us about how to buy with a buffer, should interest rates continue to climb.
Should I fix my loan, given the current market conditions?
The decision to fix your loan really comes down to your individual circumstances and goals. The benefits of securing a fixed interest rate means you know your repayment amount will never change for the term of the loan period, which can be a huge advantage when it comes to budgeting and peace of mind. Especially during a period of market instability which could likely see variable rates surpass your fixed rate.
However, you also run the risk of variable rates being reduced over the term of your loan to the point where they are lower than interest rate you had fixed. Borrowers can then find themselves paying more for their mortgage repayments, and depending on the length of time remaining on their fixed rate term, can end up being quite costly. It is possible to exit this predicament, but it will come at a price as break costs can be considerable.
How do I use my equity to buy an investment property?
With property prices going through the roof over the past 12 months, many homeowners are now sitting on a small fortune in accumulated equity. Added to this, if you’ve also been diligent in paying down your mortgage over the years, especially during lockdown, you may be able to refinance and use your equity to buy an investment property, a home renovation or a new car. Usually, banks will lend you 80% of the value of your home, less the debt you still owe against it (this is your “useable equity”). You may be able to borrow more if you take out Lenders’ Mortgage Insurance.
Like to know more?
So, if you want to look at getting yourself into the best possible position to manage your mortgage repayments, your family budget and minimise your financial risks, get in touch with us today so we can explore all your finance options.
Our experienced brokers have access to the latest loan facilities being offered by lenders and can assist you with making the right decision to suit your personal situation. From new loans to refinancing and fixing the best rates, to private lenders for your property development deals, we have the knowledge and expertise to help you find the right loan.
To find out more about what we can do for you give us a call on 1300 758 379 to discuss the next steps in your loan application!
You can also reach us via our online contact form – leave us a few of your details and someone will be in touch with you soon.
