Christianity without Hell

How often are you actually right?

Well, it seems we simple humans believe we are right way more often than we actually are.

 

So much so, there is a term coined the “Illusory truth effect” where we have a tendency to believe false information to be correct after repeated exposure.

So if you say the same thing over and over in your head to yourself, guess what? You start to believe it.

 

After almost 30 years working in investment markets, I have learned to be very cautious in listening to what I believe. As I really have been wrong many more times than right…..as my wife keeps reminding me.

 

Instead, I have learned to listen to the market, because the market is never wrong. But at this point in history, unlike any time before, I really think the market is WRONG.

 

I can confidently say this because the market is no longer a “market” in any meaningful sense. So much intervention for so long has turned it into something else.

 

Flash back to the GFC, when on the 15th of September 2008, Lehman Brothers files for Chapter 11 bankruptcy protection. What was about to follow was the collapse of the entire Western Banking system.

But thankfully in their wisdom, Central Banks around the world decided they would do “what ever it takes” (Thank you Mario Draghi-President of the European Central Bank) and turn on those printing presses and print baby print.

 

The global quantitative easing and bond buying by Reserve Banks around the world absolutely saved the financial system from collapse at that time, however it was only ever meant to be an emergency measure.

And 10 years later just as it looked like things were going to start moving back to normal levels, we get sent a gift from Wuhan and BOOM, the party is back on.

 

All this free money and government support of businesses that would normally have been left to fail reminds me of one of my favourite quotes:

 

“Capitalism without bankruptcy is like Christianity without hell”

And so here we are today. Money was printed and mailed out to every single household to spend. And so spend they did. And now that spending has created a bunch of inflation.

 

So whilst the doomsayers are calling for interest rates of 8%-10% to return, and warning of an impending depression, I have a sense that Reserve Banks will do “what ever it takes”, to keep us out of hell.

 

Kiril Ruvinsky

Home loan acronyms explained: LVR & DTI

If you are buying your first home, getting your head around home loan terminology can be tricky.

Two acronyms you may come across are loan-to-value ratios (LVR) and debt-to-income ratios (DTI). Recently there have been important changes to DTI ratios that could affect your borrowing capacity.

Here, we’ll run through what these terms mean and how they could affect you as a borrower.

What is Loan-to-Value Ratio (LVR)?

In simple terms, the loan-to-value ratio (LVR) is the amount you’re borrowing, represented as a percentage of the property’s value (as assessed by the lender). The bigger your deposit, the lower the LVR.

Here’s an example. Let’s say you’re borrowing $450,000 and the cost of the property is $600,000.

Why is LVR important?

Lenders will take into consideration the LVR when assessing your loan application. Different lenders have different maximum  limits – generally they consider LVRs of above 80% to be riskier.

What if my LVR is more than 80%?

You may need to pay Lenders’ Mortgage Insurance (LMI) if your LVR is more than 80%. This can be paid upfront or added to your home loan.

The amount you pay will depend on the lender, where you borrow and the size of your deposit.

Bottom line: if you save a bigger deposit, you can avoid paying LMI and put that cash to use on other costs associated with the property purchase.

What is Debt-to-Income Ratio (DTI)?

Debt-to-income ratio (DTI) is one of the ways lenders assess your ability to repay a loan.

It’s defined as the ratio of the credit limit of all debts held by the borrower, to the borrower’s gross income.

The credit limit of all debts includes:

  • Mortgages
  • Personal loans
  • Credit cards
  • Consumer finance
  • Margin lending
  • Buy now pay later debt (from September, 2022)
  • Higher Education Loan Program (HELP) or Higher Education Contribution Scheme (HECS) debt (from September, 2022)
  • Any other debts held by the borrower to any party.

Say you wanted to take out a mortgage of $400,000, and you and your partner had combined gross earnings of $160,000, plus a credit card with a monthly limit of $2,000.

Essentially your total debt would be 2.51 times your total income – which would be acceptable to most lenders.

Generally speaking, DTIs of over six times a borrower’s income are considered higher risk.

 

What were the recent changes to DTIs?

Against the backdrop of rising interest rates, earlier this year some of the major banks adjusted their DTI ratio limits to curb higher-risk lending .

Meanwhile, the Australian Prudential Regulation Authority (APRA) has been on a mission to rein in risky home loans to highly indebted customers for some time.

As part of APRA’s recent amendments to its prudential framework, lenders will have to include buy now pay later and higher education debts when reporting DTI ratios from September 2022.

What if I have a high DTI or LVR?

If you have a high DTI ratio, there may be ways we can help. We may be able to suggest different lenders or other options for you to work towards your home ownership goals.

Likewise, if this is higher, we can run through how much LMI you may be up for or run through other scenarios where you don’t have to pay LMI.

Get in touch today.

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What to look for in an investment property

Interest rates have been going up in recent months. But on the flip side, property prices have been falling in many markets.

That means there could be some great opportunities out there for aspiring property investors. It all comes down to finding the right property in the right location.

Here’s what to look for in an investment property. Our business focuses on building wealth through property. This is something we have done over the years and continue to focus on – find out more about what we do here 

Capital growth potential

Optimally, you’ll want to find a property that’s likely to increase in value over time. But how?

Look for areas that are experiencing economic growth. Economic growth creates jobs. Jobs bring people to an area. More people equates to more demand for housing. And more demand can lead to capital growth.

You’ll also want to choose a property that has good access to amenities like hospitals, shops, and transport. Check the school zoning too, as this can be a big drawcard for families.

Rental yield

Rental yield is the rate of income return compared to the costs involved in owning an investment property. It’s typically expressed as a percentage and may be calculated as a gross or net figure.

High rental yields can be attractive to investors, as it means the property will generally generate a steady cash flow.

Low vacancy rates

The rental vacancy rate gives you an indication of the percentage of rental properties that are unoccupied. For example, if a suburb has a vacancy rate of 4%, it means 4% of rental housing is not tenanted.

Higher vacancy rates might mean more properties than renters, so your property could sit vacant longer and rent for less.

Lower vacancy rates could imply a tight market, more competition amongst renters for available properties and potentially higher rent.

Proposed planning changes

When researching a suburb, it’s important to investigate any proposed planning changes that could affect your investment.

Say planning laws and density limits change, allowing an area to be flooded with townhouses and apartments. The increased housing supply could make property prices and rents fall.

Features and lifestyle factors

Think about the kinds of features that may resonate with future tenants. It might be a second bathroom. Storage space. A garage.

Also, weigh up the lifestyle appeal of a suburb. Are there parks nearby? A beach within walking distance? Cafes or entertainment? All of these offerings can make a property more appealing to tenants.

Low maintenance costs

You don’t want to be forking out massive coin for maintenance and repairs that eats into your profit potential. Instead, opt for a property that is low maintenance.

An older property might require more upkeep than a newly constructed property. Think ageing hot water systems, old plumbing or electricals.

Likewise, a property on a bigger block might mean more garden maintenance – something your future tenants might not have time for.

Ways to add value

Look for properties where you can add value easily. You might be able to give the property a facelift with a fresh coat of paint, for instance, or a cosmetic makeover at some point.

Doing a simple renovation can accelerate capital growth, as well as boost rental returns.

Ready to get started?

Buying an investment property can be a clever way to build wealth. However, before diving in, it’s a good idea to seek independent financial advice from a professional advisor and/or your tax accountant.

If you do decide it’s the right move for you, we can support you with:

  • Free property reports to guide you in your property hunt
  • Tips on how to budget for an investment property
  • Pre-approval on your investment loan
  • The loan application and approval process
  • Finance to renovate your investment property
  • Advice about your investment loan in the future.

We’re here to help. Get in touch today.

You can also follow us on our socials if you want to get regular updates, You can also follow us on our socials if you want to get regular updates

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What should I do when my fixed term expires?

If you’re currently playing the waiting game wondering what will happen when your fixed rate term ends, we understand what a stressful time it might be.

We have a process in place to contact our existing clients within 60 days of your fixed rate expiring to give us have enough time to explore options.

Fixed rate borrowers have been temporarily shielded from the Reserve Bank’s cash rate increases, but for how long?

It’s estimated that almost 40 per cent of Aussies on low fixed rate loans will roll off them next year. This could result in a considerable increase in mortgage repayments for households that are already stretched with rising cost-of-living pressures.

If your fixed rate is expiring soon, now is the time to review your home loan and make a game plan.

Questions to ask when reviewing your home loan

As a first step, think about your current loan, your personal circumstances and goals.

  • Is your loan working for you?
  • Are you using any features such as offset accounts or redraw facilities effectively?
  • Has your financial or family situation changed, and could this affect the type of loan that’s right for you?
  • What are your intentions for the property (hold, sell, use the equity to renovate or buy an investment property)?

The answers to these kinds of questions may ultimately drive what you decide to do when your fixed rate expires.

What happens when my fixed rate ends?

Your lender will likely get in touch with a new offer to re-fix your loan closer to when the loan term ends. If you do nothing, your home loan will usually revert to your lender’s variable rate.

Remember, as an existing of Strategic Investor Group, we will contact you within 60 days of your fixed rate expiring, this will give us enough time to review all your options.

What are my options?

Once your fixed term ends, you can stay with your current lender or refinance to a new one. You could:

  1. Re-fix your home loan. With this option, you’ll know exactly what your repayments will be during the fixed term and can budget accordingly. However, you may be up for break costs if you end your fixed term early.
  2. Switch to variable. Variable rates may be lower than the proposed new fixed rates and there may be advantages such as loan features and unlimited repayment options to help you get ahead. But if the cash rate increases, your interest rate may rise too.
  3. Split your loan. This is when a portion of your loan is fixed and the remainder is variable, potentially allowing you to benefit from both loan types.

Can I extend my current fixed rate mortgage?

Unfortunately not. However, you can fix your home loan at a new rate. Most lenders offer fixed terms of 1 to 5 years.

What if I re-fix then need to sell or refinance?

If you do fix your interest rate and need to sell or refinance, you may have to pay break fees to the lender.

Break costs can be expensive. The amount you’ll be up for depends on a range of factors, including the lender, the loan amount and the time left on the fixed term.

Usually, there are no penalties associated with refinancing from a variable rate.

What can I do if interest rates have gone up when my fixed rate ends?

The most important thing is to shop around to ensure you find a competitive loan that suits your financial circumstances and goals.

Consider all aspects of a loan product – not just the interest rate. What features can save you interest? How does one lender’s fees compare to others?

Remember, you may be able to find a more suitable loan with another lender.

We’re here to help

With so much uncertainty around how much higher interest rates may climb, you have every right to be concerned. Rest assured we’re here to help you through this difficult time.

We can review your mortgage and explain whether it still meets your needs. Get in touch today.

You can also follow us on our socials if you want to get regular updates, you can also follow us on our socials if you want to get regular updates, check them out below:

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Questions to ask your Mortgage Broker

In the wake of three consecutive cash rate rises, many aspiring homeowners and current mortgage holders have been left feeling uncertain.

You may be concerned about whether the cash rate hikes have temporarily derailed your home ownership dreams. Perhaps you’re questioning how your current interest rate compares to others or how to reach your investment goals.

It’s times like these you need a professional on your team. As your mortgage broker, we can help you navigate your property goals, given the current market conditions.

Here are some examples of the kinds of questions you can ask us.

Why should I use a mortgage broker?

Mortgage brokers act as the intermediary between borrowers and lenders, but we can also provide advice about all sorts of things.

If you’re a first-time buyer, we can explain the kinds of 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).

For those needing a home loan health check, we can compare the market and explain whether refinancing may be financially worthwhile.

Want to use your equity to buy an investment property? We can assist with that too.

We can even arrange finance for things like renovations, so that you can potentially add value to your property and/or create your dream home.

How much can I afford to borrow?

How much you can borrow will depend on factors such as your deposit, savings history, income, expenses, equity and credit rating.

Recently some banks have moved to curb high-risk lending, changing the debt-to-income limit. For example, ANZ will no longer lend to borrowers who owe more than 7.5 times their annual income (previously 9 times).

These changes could affect how much you can borrow. It’s important to speak to us to get an accurate indication of your borrowing capacity.

With interest rates going up, is now a good time to buy?

In recent times, we’ve seen a lot of changes in the property market. As mentioned, interest rates have gone up and some lenders have tightened lending standards.

Whether you should buy right now depends on your specific financial situation and goals. For example, if you’ve saved hard during COVID and are in a solid financial situation with a steady job, 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?

Interest rates on both fixed and variable loans have increased in recent months. The decision as to whether to fix really comes down to your individual circumstances and goals.

If you think you could benefit from locking in your interest rate (usually for one to five years) and knowing exactly what your repayments will be, it may be worthwhile asking us to explain what fixed rates are available.

However, you’ll need to keep in mind there may be limits on making extra repayments on fixed-rate loans and fees involved if you break the fixed-rate term (if you sell, for example).

How do I use my equity to buy an investment property?

If your property has increased in value or you’ve paid down the mortgage somewhat, you may be able to refinance and use your equity to buy an investment property.

For example, say your home is worth $400,000 and you owe $220,000. Your equity is $180,000.

You can use this equity as security to fund purchases such as 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.

How does bridging finance work?

If you’re buying your next property, you may need finance while the sale of your existing home is finalised. In this scenario, bridging finance may be an option. Bridging loans can also provide finance to build a new home while you live in your current one.

These types of short-term loans are taken out in addition to your regular loan. Typically, bridging loans are interest-only until your property is sold and the principal can be repaid in full.

Bridging finance could help you secure the property you want without having to worry about matching up settlement dates. However, you’ll need to weigh up the costs involved, so talk to us about whether this option is right for you (we can suggest alternatives if need be).

Like to know more?

All the recent changes in the market may have left you feeling nervous, but you don’t have to go it alone.

We’re here to answer all your questions. Get in touch today.