mortgage loan

Using your rental history to get a home loan

by Chris Lang on January 7, 2011
Using your rental history to get a home loan

If you’ve ever applied for a home loan, you know that the lender always requires evidence of genuine savings. Which means that people, who are unable to save, often will be turned down. The turning down part is not limited to just the big spenders or shopaholics, but includes everyday folk struggling to make the […]

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Is lenders mortgage insurance a necessary evil for homebuyers?

by Chris Lang on November 7, 2010
Is lenders mortgage insurance a necessary evil for homebuyers?

Today, thanks to our guest poster Kristy Sheppard from Mortgage Choice, I have an article for you that will explain how lenders mortgage insurance works and how it allows you to borrow more than you normally would be able to. Personally, I am against borrowing more than 80% of the house value, but we all […]

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Dealing with rising interest rates

by Chris Lang on November 4, 2010
Dealing with rising interest rates

The RBA decision to lift interest rates by 25 basis points from 4.50 to 4.75 didn’t come as a surprise – in fact many of us thought it was only a matter of time. But when the Commonwealth Bank decided to lift the home loan rates by 45 basis points, now THAT was a nasty […]

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Could refinancing make your mortgage easier to live with?

by Chris Lang on October 21, 2010
Could refinancing make your mortgage easier to live with?

First, just a short reminder – our free IKEA Family giveaway is ending today at midnight, so hurry up and add your comment on this post to win a free gift delivered to your door. And now, to continue our discussion about mortgages, I have another useful article for you today, that will be an […]

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Steps To Slash Your Mortgage

by Chris Lang on October 19, 2010
Steps To Slash Your Mortgage

Ever since the beginning of the rumors last month how RBA may begin a rate hike, mortgages are on everyone’s mind. The reason why is quite obvious – the higher the cash rate, the more people with variable mortgage rate will pay every week, every fortnight, every month. This is why I declared this week […]

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Do you know your credit score?

by Chris Lang on September 14, 2010
Do you know your credit score?

As you may have noticed from my last post, one of the things first home buyers should know is their credit score. But as it turns out, not many people know what a credit score is. Even less people know what score is considered good, average or poor. And quite a small group of people […]

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Want To Buy a Home – What do Banks and Lenders Consider?

by Chris Lang on July 24, 2010
Want To Buy a Home - What do Banks and Lenders Consider?

There are a number of factors a lender will consider when you ask for a home loan. Knowing what they are looking for can increase your chances of being approved. To qualify for any home loan you must have a deposit. Some Banks and Lenders will consider borrowers with a 5 per cent deposit, a […]

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People are in mortgage pain, yet interest rates are pushed higher

by Chris Lang on December 9, 2009
People are in mortgage pain, yet interest rates are pushed higher

High rise building

There I was, reading the latest headlines to see what’s on in the property world – after all this is the busiest season – when I found these interesting articles, definitely worth sharing. This is not just news, but definitely is food for thought.

We’ve heard a lot about foreclosures in the USA, but not so much here, in Australia. Nonetheless, apparently we’re not doing too well on that front – Port Melbourne was identified as an area where people are experiencing a pretty strong mortgage pain. According to ratings agency Fitch, 4% of households are behind on their payments.

Port Melbourne is not the only spot – the mortgage defaults rate in Oak Park, Mornington, Hoppers Crossing, Melton and Boronia is over 2%. Read the full article in The Age here.

Do not assume that people who default on loans are owner occupiers – there are investors as well that can’t keep servicing their mortgages. This article in Sydney Morning Herald puts this in a totally different light – when an investor defaults on a loan, what happens to the tenants? Do they become homeless? The article speaks about Sydney, but I wonder how many people in Melbourne are being forced to look for another home – and the rental market is tight as it is already.

Economists expect the interest rates to go up in 2010, to be more precise they expect a raise of 1% in 2010 and a raise of another 0.75% in 2011. This would mean that on a mortgage of 300K the increase of monthly repayment will be $190 in 2010 and $340 in 2011. As if people didn’t have a hard enough time already, with all the financial crisis, unemployment and unaffordable housing. Read the full article here.

And this last article is on entirely different topic. Did you know that Aussie homes are the biggest in the world? Australian Bureau of Statistics says that the average floor area of a new Aussie home is now 215 square meters.

Ironically, although the houses are becoming bigger, blocks of land are getting smaller. If you think of it, this is exactly the opposite of what you’d want – you have now more of a depreciating asset and less of an appreciating asset. Go figure :) Read the full article in Australian Property Investor magazine here.

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Mortgages: Fixed or Flexible Interest?

by Chris Lang on November 18, 2009
Mortgages: Fixed or Flexible Interest?

Best MortgageThe following is an article by Jessica Bennet. Jessica is a contributing Financial Writer, Moderator and Community Mentor of MortgageFit. She has been an active participant in the forums wherein she offers mortgage advice and suggestions to people in loan problems. If you have a query on mortgage related issues, you can simply discuss it with her in the Mortgage Forum.

The home buying process needs a lot of cool-headed calculations and a failure to do so can jeopardize your chances of getting a good deal, the most important aspect being your mortgage payments. The mortgage rates determine how much you will shell out each month. The main objective of taking out a mortgage is the same everywhere whether you are residing in the US or Australia. Whether you will opt for adjustable-rate mortgage (ARM) or fixed-rate mortgage (FRM) is something you need to decide well in advance so that you can figure out your monthly payments on mortgage. Let us consider the scenario in Australia.

Flexible-rate mortgage versus fixed-rate mortgage

When you opt for fixed-rate mortgage, your monthly payments are fixed throughout the term of your loan. So, you can plan out your finances accordingly. On the other hand if you take out adjustable-rate mortgage or variable rate mortgage, your payments will change depending on the prevailing rates in the market. If the mortgage rate escalates (in case of variable mortgage rate), so will your payments and if they drop your mortgage payments will drop too.

Variable rate mortgages are good if you plan to move within a short time period (for instance 3 to 7 years), it is a good option. This is because in case of ARM, the interest rate is fixed initially for a period 3, 5 or 7 years and escalates thereafter and rates start to fluctuate.

In Australia, the banks are the biggest lenders of mortgage extending approximately 92% of all originating loans, Commonwealth as well as Westpac constituting the mortgage bulk (as of August 2009). Reports suggest that as of December 2008, when sale of variable-rate mortgages was dropping, FRM or fixed-rate mortgage almost came to a standstill as there were no takers.

Studies reveal that the adjustable-rate mortgage or variable-rate mortgage in Australia stood at 8.87% for the last 59 years. This data is provided by Reserve Bank of Australia’s standard variable mortgage rates between January 1959 and February 2008. Surprisingly, the same rate exceeded 9% between July 1974 and August 1993. The mortgage rate slid back to 8.75% for a year and didn’t return below 9% until 1996 November.

Australian real estate market and recession

Recession has hurt investor sentiments of consumers to a great extent. However, the policy stimulus extended by the Central Bank and Federal Government has injected some confidence among the consumers. There was remarkable increase in consumer confidence that went up to a whopping 109.4% from 9.3% in July 2009.

In addition to this the $20 billion “cash handouts” have also added to the soaring confidence among consumers. So, if the rates are affordable for you, take the opportunity to own your dream home. However, it is important that you weigh the pros and cons of taking out a variable or fixed rate mortgage in Australia so that your mortgage payments are affordable and predictable.

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Reverse mortgage – the good, the bad and the ugly

by Chris Lang on November 2, 2009
Reverse mortgage - the good, the bad and the ugly

Old coupleEver heard of reverse mortgage? Have heard of it, but unsure how it works? Kind of understand that it’s something retirees do, but not sure why? Here is what you need to know about reverse mortgages.

What’s a reverse mortgage?

Normally younger people need to borrow money to buy a house. Reverse mortgage is exactly the opposite – it’s a loan that people over 60 get against the value of their paid off house. There are no repayments with a reverse mortgage – this loan needs to be repaid at once when people sell their house, move to a retirement village / a nursing home or pass away. Instead of reducing the interest and the principle amount by making a repayment, the debt on a reverse mortgage keeps on growing.

The amount a person is allowed to borrow is nowhere near a 100% of their property – it floats between 15 and 35 percent, depending on their age. The younger the borrower is, the less they are allowed to borrow.

The good

Reverse mortgage gives you instant access to money. Imagine a pensioner with bad spending habits, who has credit card debt (or whatever else debt for that matter) and is living on a fixed income. There are many people out there who fit this description, and they would be facing difficulties when asked to repay the debt at once. One solution for that problem is to borrow money against the value of their house.

You can choose whether you want the reverse mortgage to complement your income (by receiving monthly payments) or to get a one-off amount and “have a party”, go on a holiday, buy a car, treat yourself to something you always wanted, but never could afford.

The bad

A person with a reverse mortgage is “spending their kids’ inheritance”. Personally I don’t think there’s anything wrong with it, but many people from my parent’s generation make a big deal of leaving inheritance to the children.

Also, anyone who’s got a reverse mortgage first and then decided to move to a retirement village may find out that they don’t have enough money left in their house. This is especially likely to happen during a period when the property prices weren’t going up.

People who are getting payments from Centrelink that are subjects to income test may lose their eligibility, because they’ve got the money of the reverse mortgage sitting in their bank account.

The ugly

If there’s no unconditional guarantee of ‘no negative equity’ in your contract – you’re in trouble. This guarantee is to make sure you never owe more than your house’ worth. Otherwise they may come and take it away and you will still owe money, which is exactly the opposite of enjoyable retirement.

Not many people know that anyone with a reverse mortgage has to pay for regular property valuations. At present they cost anywhere between $400 and $1000, a considerable amount that you can expect to be paying every three years.

Not many people know that a person with a reverse mortgage enters a contract with an obligation to do regular maintenance to the house and to get a building insurance, which otherwise are a completely voluntary things.

Any couple that doesn’t own the house jointly should know that reverse mortgage will be in one name only – so that when the home owner moves to a nursing home or dies, the house must be sold to repay the mortgage and the other partner can potentially be left homeless.

Do you have any experience with reverse mortgages? Are there more traps we need to know about?

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Property and money: 20 tips any married woman must read (part 1).

by Chris Lang on October 26, 2009
Property and money: 20 tips any married woman must read (part 1).

Failing MarriageI have recently met a very nice lady, Rachel. Unfortunately bad things tend to happen (especially) to the nice people and Rachel had a bad experience relating to her marriage, finances and property. As a result she wised up to a lot of issues and learned about the right way to handle finances and property in a marriage.

Here are Rachel’s best tips for married women – and I say, whatever state your marriage is in, these are very important matters to think about. Many women effectively pass the reins of their life and property ownership in the hands of someone else, which leaves them vulnerable and exposed to financial difficulties in case something goes wrong.

The first part – Life Tips in a Marriage – will open your eyes to things that need to be done to keep you safe, whatever happens. The second part – Life Tips in a Failing Marriage – will help you go through the tough times, if and when they come.

Life Tips in a Marriage

1. ALWAYS ensure the marital home is in joint names. If hubby is against this, ask why, but do not take no for an answer.

2. ALWAYS be involved in your joint financial affairs. Know exactly what bills, loans and mortgages you both have and keep an eye on joint credit card debt. Hubby’s debt becomes yours and vice versa.

3. NEVER agree to allow the drawing down of extra mortgage payments without both signatures, and never let this be accessed via internet banking.

4. Try to keep a finger in the employment pie, no matter how small it is. Try working from home when the babies are little.

5. NEVER let anyone access your superannuation fund, even if it is ‘just to look’. Keep it password protected.

6. Build a small nest egg for a rainy day that can only be accessed by you. Be open and honest about it. Call it what you want, but it’s your insurance policy. If you don’t have an income and you are a full time Mum, this nest egg is an absolute necessity.

7. Always be involved in compiling taxation returns, yours and your partners, ESPECIALLY if he is self employed. Never let yourself be used as a Partner or Director in hubby’s own business unless you really are drawing a salary of your own and have your own bank account to put it in.

8. If you have a car, make sure it is registered in your name.

To be continued – coming up next Life Tips in a Failing Marriage, stay tuned.

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