Fairway HomeLoans

Mortgage Brokers are the ‘most popular first point of initial contact’ for First Home Buyers, according to a recent industry survey.

Up by 9% over last years survey, the increase in broker popularity is the result of borrowers searching for a reputable point of advice in a constantly changing, uncertain environment.

Indeed, the ability to make a choice from a wide range of lenders and loan products, before being led through the mortgage process, should appeal to all borrowers, not just First Home Buyers.

Leading this increase in popularity is also the previous experience of many clients that have lost confidence in what mainstream lenders offer them, perceiving them as greedy, untrustworthy and self-serving, therefore preferring to seek the independant, non bias advice and wide loan choice of brokers. 

For all your First Home Buyers questions please do not hesitate to call in for your free  ‘17 costly mistakes most first time home buyers make and the ways to avoid them’ special report, or call us on 1300 736 664 to make an appointment.

With an interest-only loan, your regular repayments are comprised of nothing other than interest charges. You do not repay any of the principal (or ‘capital’) at all.  Interest Only loans are not advisable to the average home-buyer because at the end of the loan period you still have all of the principal to repay.

Interest Only loans, which have smaller repayments than principal and interest loans, are really designed for investment purposes. They enable you to hang on to a property which, during the term of the loan, hopefully generates some rental income and undergoes capital gain.

Interest Only loans often involve selling the property to repay the principal - which is not what the average home owner has in mind.

If you are buying a property with the intention of turning it into your home and living in it for some years, you should take out a principle and interest mortgage. This way you are repaying the debt and, at the same time, increasing your equity in the property. At the end of the loan period you will own the property outright.

The RBA has cut rates dramatically since September in a bid to stimulate Australia’s weak property market but despite sales volumes picking up slightly in the past month, agents and analysts have ruled out any recovery, despite the recent 4 percentage point cuts since September, saying buyers are preferring to hold off until they see more signs of economic stability.

Job fears and economic insecurity are expected to offset any faint inkling home buyers might have to rush out and purchase property in the belief that rates and prices won’t go any lower. People are concentrating on their job security and general sentiment of the economy.

The recent rate falls have helped buyers in the more affordable markets and has eased the burden of those who were previously highly geared or suffering mortgage stress.

* Enter into a fixed-price contract so you know from the start what cost’s you’re up for.

* If you buy through a project home builder, only include the bare minimum of upgrades in the contract.  When construction starts you can negotiate with tradesmen for upgrades - for example, downlights, tap ware and extra power points.  Usually the builder will make you pay a premium for extras whereas you will be able to get it cheaper by going through the tradesmen directly.

* Keep onto the building supervisor throughout the whole process to make sure you’re happy with the result.

* Stick to a builder you know - if you build in an area you’re not familiar with, try to find a reputiable builder you can trust.

This year is going to be a very interesting year. Along with the rest of the world, we are currently experiencing one of the worst financial crises in our modern history. The bad news is that some people will lose their jobs and business investment has decreased significantly, but the good news is that interest rates are currently at an historical low and are set to drop further.

If you sift through all the doom and gloom stories, there are currently some good opportunities available to all of us.

Firstly property prices around most of the country dropped slightly last year which now provides investors and home buyers with some possible “bargain buying” opportunities.

Secondly, rents are on the increase which results in a higher yield for the investor but also encourages tenants to start looking at buying a property, rather than renting.  With the federal governments First Home Owners Boost greatly assisting with getting more people get into the property market.

Finally, and most importantly, mortgage repayments have almost halved over the past year which makes buying multiple properties (and some of them positively geared) a reality.

“There has never been a better time to buy property” - How many times have you heard this catch phrase from property spruikers and slick sales people?

Well, this time its true!

With interest rates at a 45 year low, and with a current housing shortage in Australia, more incentives for First Home Owners to enter the property market, more positively geared investment properties avaliable and a property market that will see prices once again boom over the coming years - Why wouldn’t you want to buy.

Bleak forecasts for the global economy from the IMF and the biggest quarterly decline in domestic inflation in more than ten years have paved the way for a substantial rate cut when the Reserve Bank meets next week.

In its World Economic Outlook released overnight The International Monetary Fund (IMF) said the global economy would grow by just 0.5 per cent this year and warned that the financial crisis could intensify should governments not take appropriate action to mediate its effects.

“Unless financial strains and uncertainties are forcefully addressed the pernicious feedback loop between real activity and financial markets will intensify, leading to even more toxic effects on global growth.”

Official data from the ABS yesterday also revealed that the CPI fell 0.3 per cent in the December quarter, the biggest fall since 1997. This brings the annual inflation rate to 3.7 per cent, compared to five per cent in just the previous quarter.

Shane Oliver, chief economist at AMP Capital said the December quarter CPI confirmed inflation was “yesterday’s story” and gave the green light to substantial rate cuts in the coming months.

AMP expects the RBA to cut the cash rate by 0.75 per cent when it meets next week and to reach 2.5 per cent by mid-2009.

Prospective buyers looking to purchase property by the water could snap up a bargain if they act now.

According to RP Data the global financial crisis, which has seen many highly geared individuals suffer, has resulted in heavy discounting and a sky-rocketing of listings in waterfront properties.

Cameron Kusher, RP Data senior research analyst, said cashed-up buyers looking to snare a bargain may now find many idyllic waterfront properties – particularly in regional coast areas – within their grasp.

RP Data has identified Port Pirie West in South Australia as the cheapest oceanfront suburb in the country where the median house price is just $140,000.

Not far behind is Victoria’s Loch Sport where the median house price is $149,250.

Cheapest waterfront suburbs (median price)

NSW: Corindi Beach (Mid-North Coast) $272,500, Sandy Beach (Mid-North coast) $279,500, Dalmeny (South Eastern) $280,000, Diamond Beach (Mid-North Coast) $282,000, Nambucca Heads (Mid-North Coast) $283,750

VIC: Loch Sport (East Gippsland) $149,250, Toora (Gippsland) $163,750, Golden Beach (East Gippsland) $165,000, Seaspray (East Gippsland) $185,000, Port Albert (Gippsland) $190,000

QLD: Halifax (Northern) $200,000, Rocky Point (Far North) $238,130, Burnett Heads (Wide Bay-Burnett) $271,500, Elliott Heads (Wide Bay-Burnett) $285,000, Cardwell (Far North) $290,000

SA: Port Pirie West (Northern) $140,000, Ceduna (Eyre) $164,250, Port Macdonnell (South East) $165,750, Clinton (Yorke and Lower North) $198,750, Cape Jervis (Outer Adelaide) $206,000

WA: Withers (South West) $270,000, Geraldton (Central) $339,000, Derby (Kimberley) $365,000, Sunset Beach (Central) $370,000, Mandurah (South West) $382,500

TAS: Beechford (Northern) $158,500, White Beach (Southern) $167,000, George Town (Northern) $167,750, Strahan (Mersey-Lyell) $187,500, East Devonport (Mersey-Lyell) $188,500

This is one example of the Banks Questions in regards to breaking a fixed loan

Paying out some or the entire loan earlier than the contracted term:
• You may have to pay an early termination fee or break cost and a fixed rate break administration fee if you pay out some or the entire loan earlier than the end of the agreed fixed period

How does the early termination fee work?
• The early termination fee covers the difference between the Bank’s funding rate (borrowing swap rate) for the agreed fixed term at the time your loan was disbursed and the rate that the bank is guaranteed to earn over the period remaining of the original fixed term (investing swap rate), at the time your loan is repaid in full.
How is it calculated?
• The fee is not calculated on the rate you pay under the contract. The early termination fee can change substantially on a daily basis due to constant changes in money market interest rates. If you pay out the loan early and the rate that the bank is guaranteed to earn is higher than the original funding rate, you may receive a benefit.
• The following approximate calculation can be made to determine the likely cost/benefit of terminating a fixed interest rate home loan, either in part or in full, earlier than the scheduled expiry date of the fixed rate period.
The following is a real example only and will vary day to day:
• The Bank lent a customer $470,000 at 7.8% for a term of three years from 10 February 2000 to 10 February 2003.
• To fund the loan the Bank borrowed these funds on the money market at 7.18%.
• The Bank would therefore have made a profit/margin of 0.62% over the period of the fixed
term.
• When the customer repaid the loan on 20 August 2001, the money market interest rate was 5.17%.
• The Bank therefore would have faced an interest loss of 2.01% on the balance of the loan over the remaining term (i.e., we still have to pay 7.18% but to re-lend to the money market we will only receive a margin over 5.17%).
• In this instance, the actual monetary loss amounted to $15,318.57, (to calculate roughly: $470,000 x 16 months x 2.01% = $15,110. The real calculation however uses days).
• However, we do receive a lump sum of $470,000 which we can reinvest so the penalty is adjusted to a present value (in this instance $14,674.20)
• A fixed rate break administration fee will also apply.
* The swap rates referred to in the examples (determined by “the Lender” based on prevailing market swap rates) are the rates used by “the Lender” to estimate the cost of providing the loan - not the rates at which loans are fixed.
EARLY TERMINATION FEE
The following approximate calculation can be made to determine the likely cost/benefit of terminating a fixed interest rate home loan, either in part or in full, earlier than the scheduled expiry date of the fixed rate period.
(A - B) x C x D = early termination fee cost / benefit to borrower

Example
A Borrowing swap rates (Original cost of funds) * 6.50% pa
B Investing swap rates (Rate at early termination date) *4.50% pa
C Remaining fixed period of loan 2 years
D Current loan principal $100,000
E Original fixed period of loan 5 years
(6.50%p.a. – 4.50% p.a.) x 2 x $100,000 = $4,000 early termination fee cost to borrower

The Reserve Bank of Australia (RBA) has cut official interest rates by 100 basis points to the lowest level in six and a half years, amid signs of a significant moderation in domestic demand.

The central bank on Tuesday lowered the cash rate to 4.25 per cent, from 5.25 per cent, for the first time since May 7, 2002.

It is the fourth month in a row the RBA has cut interest rates in a bid to head off the impact of slower world economic growth on an already soft Australian economy.

The reduction was more than financial market economists had been expected. Most were looking for a 75 basis point reduction.

However, debt futures markets were more optimistic and had factored in a 100 basis point cut.

RBA governor Glenn Stevens said the bank’s board had judged that a further significant fall in the cash rate was warranted this month to create a more expansionary setting for the economy.

“As a result of today’s decision, the cash rate will be at its previous cyclical low point,” he said in a statement.

“Given trends in money market yields, most lending rates should fall significantly and will also reach below-average levels.”

Commonwealth Bank of Australia Ltd (CBA) and Westpac Banking Corp and National Australia Bank Ltd moved quickly to cut their variable home loan rates within minutes of the RBA move.

CBA and NAB each lowered their standard variable rates by 100 basis points.

Westpac cut its rate by 80 basis points.

MORE klm

“There has now been a major easing in monetary policy over the past few months,” Mr Stevens said.

“Together with the spending measures announced by the government, and a large fall in the Australian dollar exchange rate, significant policy stimulus will be supporting demand over the year ahead.

“The board will continue to monitor developments and make adjustments as needed to promote sustainable growth consistent with achieving the two to three per cent inflation target over time.”

Mr Steven said Australia’s inflation rate was likely to start to fall soon.

“Global disinflationary forces will assist in this regard, though the depreciation of the exchange rate means that the decline of inflation to the target could take longer than would otherwise have been the case,” he added.

Mr Stevens said the Australian economy had been more resilient than the economies of other countries, some of which had already fallen into recession.

But recent domestic economic data show a significant moderation in domestic demand is occurring.

“With confidence affected by the financial turbulence and a decline in the terms of trade now under way, more cautious behaviour by both households and businesses is likely to see private demand remain subdued in the near term,” Mr Stevens said.

“With that outlook, and with capacity pressures now easing, it is likely that inflation in Australia will soon start to fall.”

Mr Stevens also noted recent falls in global commodity prices and that financial market sentiment remained fragile.

Macquarie Group interest rate strategist Rory Robertson said the RBA had, with its latest cut, reversed some six years of monetary policy tightening in just four board meetings.

“The RBA has reversed some six years worth of monetary tightening - from 7.25 per cent - in just four board meetings over just three months,” he said.

Economists believe rates still have a way to fall, with some looking for a cash rate of 3.25 per cent next year.
(AAP klm)

Last month’s one per cent rate cut and the government’s tripling of the First Home Owners Grant in mid-October has hit the mark as new house sales leaped 6.7 per cent in October.

Victoria and Queensland saw the biggest impact where new house sales jumped more than 20 per cent in October.

The result saw an increase in new home sales among Australia’s largest builders and developers for the first time since June.

Activity in the multi-unit sector failed to spark, with sales down by more than 8 per cent, indicating that investors remain on the sidelines.

HIA’s New Home Sales Report showed a 4.5 per cent increase in total sales volumes in October 2008.

Detached house sales increased by 6.7 per cent and were responsible for the aggregate lift in sales. Multi-units sales dropped by 8.6 per cent in October and have now only risen in three out of the last ten months.

HIA Chief Economist, Harley Dale, hoped that an improvement in new home sales in October could mark the beginning of a stabilisation, however he warned “it will be a long road back”.