Variable Rate Loans

The standard variable loan is the most popular Australian loan option because it offers low prices when interest rates are low. With a variable rate, if interest rates fall again, your rate also falls. This allows you to keep up with market trends and to benefit from lower rates later without having to pay for a refinance. This saves on refinancing costs and time spent shopping and applying for a new mortgage. You may also be offered a much lower, introductory rate during the first year of the loan.

The downside to this arrangement is that rates can also rise. Many people who begin a variable mortgage when rates are low find themselves struggling to pay when the rates go up later. It is difficult to predict when rates may change, making it difficult to budget for your mortgage payment amount with this arrangement. Waiting for a low market rate to buy into a variable mortgage can also keep you from buying a home when you need to.

Fixed Rate Loans

An Australian fixed rate loan sets your fixed rate for a specific period of time. Depending on how the loan is negotiated, this period can be as short as a year or as long as five years or longer. During this period, the initial rate that you agreed on is the only interest rate you will pay. This insulates you from any rises in market interest rates and keeps your mortgage payments constant over the entire period. Once that period is over, the loan becomes a variable rate loan.

Borrowers generally have the option to renegotiate the loan at the end of the fixed rate to create a new fixed rate period. Your rate may be a higher one when it is renegotiated, but the new fixed period will allow for a steady monthly payment again. If you believe that interest rates will rise over the next few years, a fixed rate loan may be the best option.

Though they offer some security against changing rates, some fixed rate loans come with inflexible terms that don’t allow for early payments or for the loan to be ended early without a penalty. If you anticipate moving in the next few years, a fixed rate loan may be a costly choice. However, these loans are increasingly becoming more flexible in order to make lenders more competitive. It may be possible to negotiate some flexibility into the loan terms.

How Does An Offset Home Loan Work?

An offset home loan is a mortgage that has a savings account linked to it. The savings account works just as any other savings account does with the added bonus of offering the loan holder a reduction in the interest that they pay on their home loan. The higher the balance in your savings account, the less you pay in interest. For every dollar you have in your account that amount is subtracted from your current loan balance. You then only pay interest on the difference. For example if your home loan has a balance of $250,000 and you have a balance in your savings account of $25,000 then you only pay interest on $225,000 of your loan. This means a lower monthly mortgage payment.

Are There Different Types of Offset Home Loans?

The answer is yes. There are two types of offset home loans. The 100% offset loan gives you a reduction against 100% of the funds in your savings account as described above. The partial offset home loan only gives you a reduced savings at a certain percentage rate. For example if your partial account offers a 50% reduction and your savings account balance is $20,000, you would be able to use $10,000 of that balance to offset your loan interest payment.

Are There Any Special Requirements?

There typically are special requirements for offset accounts. Some lenders require additional fees for the offset option and while most variable rate loans offer an offset account many fixed rate mortgage packages do not. You may also be required to pay a higher interest rate on your loan. Finally, you may additionally need to carry a minimum balance in your savings account in order to receive the discount.

How Will I Benefit From An Offset Account?

There are some great benefits that you will be privileged too when you choose an offset Australian home loan. The top benefit is the savings that you will see in your mortgage payment each month. Additionally, you may be able to pay your loan off early and the overall interest you pay towards your loan can be greatly reduced.

Where Can I Find a Lender That Offers Offset Home loan Packages?

Most Australian lenders offer a variety of offset home loan options. This includes big banks like NAB and ANZ and smaller banks like AMP and Bank West. Additionally, small private lenders also offer offset home loans. If you have decided to go with an offset loan, proceed with caution. When comparing different loan packages make sure you carefully read the fine print so you will know what additional fees may be required, what percentage will count towards your interest reduction and if there are any account minimums. Finally, before choosing an Offset home loan package make sure it makes sense for you. Bottom line, do a cost analysis to ensure the loan package you have chosen will indeed save you money.

Know What You Are Looking For In an Australian Home Loan

First, spend some time deciding what it is you are looking for in a home loan. There is a lot to consider and you will need to determine how much of a loan you are going to need and then think about whether or not you want to finance using a variable or fixed rate mortgage. While variable rate loans have been the norm, recently fixed rate loans are on the rise. Both have their advantages and disadvantages and only you can decide which one will be financially beneficial to you. Additionally, you need to carefully consider whether an introductory or honeymoon loan package would be a good option to save you money.

Establish Good Credit and Save For A Down Payment

Next, make sure you establish good credit before applying for a home loan and additionally have a sizeable amount saved for your down payment. The better your credit the easier it will be to secure a home loan. Plus a high credit score will help you secure a lower interest rate. Finally, the more money you have saved for a down payment, the more you will save over time. A larger down payment will mean paying considerably less in interest and may also offer you a break on home loan insurance premium fees.

Know the Fees You Could Be Charged

Make sure you know and understand what fees you could be charged when you set up your loan package. Fees can vary greatly from one lender to the next and you will want to make sure you are not paying more than you need to when you secure your home loan. Fees can include an application fee, a loan start up fee, administrative fees, lawyer fees, a monthly insurance premium fee, and fees for paying off your loan early.

Compare a Variety of Lenders and Loan Packages

Finally, when it comes to choosing a home loan, there are numerous lenders and loan packages to consider. While the big banks have always held the majority of Australian mortgages, smaller lenders today are offering competitive loan packages that are definitely worth considering. It is advisable to look at several different lenders and see what they have to offer. For example, one lender may offer more loan perks, but for additional fees. Unless what they have to offer is something you need, paying extra is probably not worth it. In the end, you should make sure you choose a lender that offers a great rate with a competitive low fee home loan package.

There are certain things that home owners can do when faced with the prospect of defaulting on their home loans, three of which are outlined in the following paragraphs.

Inquire about refinancing options

The best home loan providers are willing to work with their customers in order to help them make the necessary payments on their home. After all, banks and lenders are in position to lose a lot of money if the home owner defaults on their mortgage, so it behoves all parties involved to reach a mutually beneficial resolution. This is why any home owner who is in threat of default should arrange to meet with their provider in order to consider refinancing options. These options may include restructuring in to a fixed rate loan, segueing in to a variable rate loan (if interest rates are currently lower than the owner’s projected fixed rate) or extending the term of the mortgage. Extending the term can help the owner stretch their outstanding balance over a greater number of months, thereby reducing their monthly obligations. This can have the positive effect of making their mortgage more affordable and increasing the chances that they will not default on their loan.

Rent space in the home or on the land

Renting space in the home or on the land may not work for all home owners. The success of this option depends on how much space is going unused, and not all home owners have a lot of extra space that can be taken advantage of. For instance, a condominium owner may have a bedroom they can rent out, but if they own a one-bedroom unit then they will have few rental options available. A home owner in a crowded suburb may have a basement, attic, spare bedroom or garage to lease, but they will probably have no extra land. But what they do have can make them extra money if they are willing to receive tenants in to the unoccupied space. Many home owners may be reluctant to follow this course of action as it means taking strangers in to their home, but with a proper vetting process in place they can minimise their worry about undesirable tenants. They may also keep their home in their possession at the same time.

Move to shortsell the property

If the owner’s attempts to refinance or rent out open space in their home fail to bear fruit, they can always move to shortsell the property. A short sell is the process of putting one’s house on the market for less than it is worth in order to motivate buyers to purchase it and accelerate the transfer of property. Banks prefer shortsells because they will make back more of their money than they would with an outright foreclosure. Owners benefit from shortsells because they get out from under their mortgage responsibility and ding their credit scores considerably less than they would through default. One other advantage to a short sale is that they tend to move much faster than a regular sale since the house is priced below value. This works in favour of both the seller by allowing them to be absolved of their repayment duties sooner.

The deregulation will bring Queensland up to speed with the rest of the country, where real estate commissions have been free from government oversight. The Queensland regulation was initiated by the Property Agents and Motor Dealers Act and Regulation of 2000 and 2001, respectively.

The law in Queensland states that all real estate commissions are to be maxed at 5 per cent of the initial $18,000 with 2.5 per cent commission applied to the remainder of the closing price. The transition away from a commission cap is part of the Queensland government’s efforts to modernise the state with the rest of Australia, according to Paul Lucas, the Deputy Premier and Attorney General of Queensland.

Mr. Lucas cited the analysis, critiquing Queensland’s supervision of agent commissions, as well as the backing of the industry as a whole in contributing to the decision. Pamela Bennett, Chairman of the Real Estate Industry Queensland, lauded the move and noted that REIQ has championed just such a cause for a number of years.

Ms. Bennett pointed out that residential properties struggled with commissions, which were well below the industry average due to the regulation. The unintended consequence of the governmental oversight produced few advantages for those purchasing real estate.

The current commission structure is not expected to change in practice, Ms. Bennett noted. She did cite the exception of premium service resulting in higher-priced commissions as agreed upon by the parties involved. The market will also have an influence on price, whereas before it was trumped by the government.

A further benefit to property buyers will come in the form of an expanded customisation in the services provided by real estate agents. The customisation can be adjusted according to variables of the buyer’s choosing, resulting in higher commissions for agents and a greater level of customer service for buyers.

Should a dispute arise between agent and customer regarding the price of a commission, Mr. Lucas explained, the Queensland Civil and Administrative Tribunal has the right to step in and adjudicate the matter accordingly. He also clarified that QCAT’s services will operate fairly and equally with agents, sellers and buyers.

In 2007, rentals of $400 per week comprised no more than 20 per cent of the entire rental sector. Since that time, however, the cost of renting has continued to soar upwards. As a result, more than 40 per cent of prospective tenants now say that they have no choice but to consider the more expensive rent class.

Tenants are also looking for living space in the range of $300 to $400 per week more than ever before, posting a 25 per cent increase in the last four years. Research on these figures was conducted by realestate.com.au.

Realestate.com.au polled nearly 3000 people during the months of January and February of 2011. Their findings showed a struggling rental community where 80 per cent of people had to shop around for at least eight weeks before landing a place to live. If customers were looking to buy, most choose to compare home loans.

The anaemic supply of rental properties has extended into the suburbs as well. In fact, the findings by realestate.com.au show that the suburbs are even harder hit than Sydney proper. In Bondi, for instance, rental properties posted by RUN Property, a real estate agency local to the city, revealed a paltry four properties available out of a complete listing of 1100.

Kogarah recorded the largest increases in rent for new contracts, according to RUN, coming in at 15 per cent. On Kogarah’s heels was Rose Bay at 13 per cent and Glebe with a 12 per cent spike.

Out of desperation to find a home, nearly one-third of applicants have begun volunteering to pay more rent. Others were willing to post money in advance, including the first month’s rent as a guaranteed deposit.

The make-up of the available pool of tenants has also moved away from tradition. Residents aged 35 to 49 have taken to renting more now than before, claiming at least 31 per cent of the market. Renting has offered this demographic the opportunity to save money on a monthly basis that can then be funnelled in to investments. Young people between 18 and 24 years old are leaving the rental game, choosing their parent’s houses in an effort to save money and build up for a down payment on a home of their own.

Another telling number symptomatic of the Sydney crisis is the increase in one of the priciest rental market. Properties of $100,000 and beyond increased 10 per cent, an addition that has led to a total market share of over 30 per cent of rentals.

Reason #1: The property needs repair

A buyer can be pre-approved for a home loan only to have it come to a halt if it is learned that the property that they intend to buy is in need of major repairs. This does not apply simply to loose shingles on the roof, old and unsightly siding or an interior that could use a fresh coat of paint. Rather, this has to do with foundational and structural deficiencies in the house itself or major problem areas in the property around the liveable space. If a bank or lender finds any reason why the home buyer might vacate the property before their loan contract is fulfilled, they will reject the application.

Reason #2: The buyer’s debt

If the home buyer has too many open lines of credit, there is a very good chance their lender will void their home loan application. This is standard practice with the best home loan providers, but it may confuse a buyer when they have already been pre-approved. Pre-approval is based on a limited amount of information at the lender’s disposal prior to receiving a formal mortgage application. Once the buyer has been pre-approved, they then proceed to furnish detailed documentation, complete with financial history. If there are any big surprises in the new information provided by the buyer that the lender does not like, such as carrying too much debt, then they will refuse the loan.

Reason #3: Being late to supply documentation

Mountains of paperwork are involved in applying for a home loan to begin with, and it is very common for lenders to request additional documentation that the buyer did not anticipate. Occasionally, such a request can come when the buyer does not have a lot of time to do the research or the organisation necessary to send the paperwork to the lender in a timely manner. As long as the buyer makes a concerted effort to furnish the appropriate documentation, most lenders will work with the buyer in keeping their loan application alive. However, some buyers do not place a priority on getting extra paperwork to their lenders, and if the lender is made to wait too long, they can cancel the buyer’s loan as a result.

Reason #4: Lost or reduced income

If the buyer loses their income or has it reduced at any time during the home loan application process, most banks and lenders will either temporarily suspend their mortgage application or reject it outright. This especially applies to self-employed home buyers whose income experiences peaks and valleys throughout the year. Even a lay-off that promises a return to one’s job later in the year can disqualify a buyer from obtaining a mortgage. Regardless of the reason why or the field in which the home buyer works, losing one’s income, either in part or in whole, is cause enough for a lender to refuse the buyer’s application.

Rising Rates and Concern

There has been some concern by Australian banks because of the increase in late mortgage payment and default loans. There are many factors that may contribute to this growing trend of late or default mortgages. The increase in insurance premiums and the cost of policies does contribute heavily to the difficulty paying for the home. Interest rates on loans are expected to rise for the second time in a 12 month time frame. This puts additional financial pressure on home owners.

Interestingly enough, despite the unpredictable economy there was an increase in first time home buyers in late 2010 and early 2011. The down side is that these new home buyers who accepted grants and first time home buyer incentives are most vulnerable to the change in payment arrangements that are sure to come. Some will realize that their loans are more than they can afford as the rates continue to rise. Some home owners will turn to the credit card when money gets tight.

There is an anticipated change in the official cash rate in Australia which in turn may increase the number of default mortgages in upcoming months. Given all of these looming issues economists are still hopeful that the mortgage loans that are in trouble will not be significant enough to cause extensive damage to the market. All too often people look to the quickest easiest fix to make that mortgage calculator payment. This quick fix can prove to be dangerous especially if it comes in plastic form.

Pros and Cons of the Plastic

It is true that desperate times call for desperate measures. The last thing people want is to default on their mortgage so in times of need such as illness, job loss or piling debt many people take short cuts to pay the bills for this month and worry about next month later. The danger in that is that next month usually comes all too quickly and people still find that they are in the same situation. Eventually the debt piles up and leads to a downward spiral. For some using the plastic is the quickest path to default, for others using the card can be money saving plan.

Pulling out the plastic to pay for this month’s mortgage is an option but not always the best option unless you are very careful about how you do it. If you do use a card you will want to ensure that you have the money to pay your credit card bill in full when it is due or you can rack up countless fees and charges that will result in more debt.

There are certain credit cards that do allow you to set up a plan to pay your monthly mortgage using your credit card without fee, interest or credit card reward points. Some have found the perfect card that lets you make a payment a month in advance without racking up additional charges. For those individuals, using the card is like money in the bank. Using a credit card is a viable option but the catch is to be deliberate about using your card rather than using it out of desperation.

In the last three months of 2010, at least half of all commercial real estate purchases for Australia took place in Victoria. The state compiled more than $2 billion in real estate transactions for the industrial, office and retail markets, representing a $900 million increase since 2009. Both New South Wales and Queensland seized 15 per cent of commercial property sales for a grand sum of $1.3 billion. In a distant third was the Northern Territory at $300 million, or roughly 7 per cent.

These figures came about concurrent with the overall 11 per cent decrease in commercial real estate purchases for the same period. Across all states, the $4.5 billion sale total was, nevertheless, two-thirds greater than the numbers from the last quarter of 2009. In fact, the commercial property sector throughout the country for 2010 was robust compared to the previous year. The total for 2010 revealed a 74 per cent jump, or more than $16 billion in commercial real estate sales, according to DTZ. [To work out your repayments, use our home loan calculator]

David Green Morgan, head of research in the Asia-Pacific division of DTZ, noted that many market experts are now considering the commercial real estate sector to have bounced back from its slump, becoming one of the elite markets in the Asia Pacific region. This success has been spurred on by many international investors who like what they see in the Australian economy.

DTZ is also predicting that Victoria will continue to claim the top spot in Australian commercial property sales throughout the year, with Melbourne retaining its position as the most sought after location. Western Australia and Queensland are projected to have an increase in investment as well, according to DTZ.

Additionally, the industrial sector for 2010 saw Melbourne become its most popular market. DTZ believes that total returns for the industrial sector in Melbourne over the next five years will amount to roughly 11 per cent annually.

Many market experts feel that a similar collapse could happen in Australia, or that it is only a matter of time before it does. With employment at nearly 100 per cent and trade doing better than ever, the opportunity for a housing market bubble to take shape in Australia is minimal for at least the foreseeable future.

The latest figures on home loan applications reveal a caution and a hesitation that has led to choosiness with regards to the home loans which are now deemed worthy of consumers’ time and money. It also shows that the slumping housing market is turning people away from assuming debt on loans with higher interest rates.

Market experts expected an increase in home loan approvals for March in the neighbourhood of 2.3 per cent. The latest statistics for March, however, pointed to a drop of 1.5 per cent, the lowest percentage in ten years.

If real estate continues to decelerate at its current rate, not only would it upturn the Australian economy on its head, but it will also likely wreak havoc on the four major banks. The four majors are extremely dependent on the residential housing market, with some estimates putting at least 60 per cent of their profits off of mortgages.

An acute plunge in home loan applications and mortgage delinquencies could ravage the banks’ bottom lines and send them into a financial free-fall of their own. This led the chief executives from each of the four major banks to advise the Reserve Bank on how further increases in interest rates could negatively affect their business.

Some financial pundits are projecting anywhere from one to three more interest rate hikes by end of year 2011. The Australian real estate market could be a ticking time bomb waiting to explode, especially if two or more hikes are realised.