mortgage repayments

Real Estate Review: Four Questions to Ask Before Purchasing a Home

by Greg on November 7, 2016
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Purchasing a property, like getting married, is one of the biggest commitments you will ever make. The average home buyer in Australia will sign on the dotted line and commit the following 20 to 30 years of their lives into their purchase. With property prices on average doubling every 10 years, making an astute property […]

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Interest Rates Impact Your Monthly Mortgage Repayments – But How Much?

by Greg on February 10, 2016
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Many people worry about how fluctuations in interest rates can impact their monthly mortgage repayments. The world of finance is forever changing, so increases and decreases in interest rates are important to consider when looking for a new mortgage. What Happens If Interest Rates Increase? While usually a good sign for the wider economy, rising […]

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10 Simple Ways to Pay Off Your Home Loan Quicker

by Chris Lang on January 20, 2012
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Home loans are inevitably one of the biggest single household investments. We might complain about school fees, car registration costs or the price of milk going up … but in the end, a little lapse of attention to your home loan and the consequences will be far bigger than all of these extra bills put […]

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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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Another interest rates rise and how it translates into our money

by Chris Lang on May 4, 2010
Another interest rates rise and how it translates into our money

Interest Rates RiseToday RBA has lifted the interest rates again, for the 6th consecutive time. I didn’t mention any of the previous rate rises on Homeiown (why bother when the mainstream media is covering it well anyway), but this time is different.

What is so different about it?

Well, firstly, this interest rates rise will push the Standard Variable Rate above the 10 years average, and this is kind of big deal. The 10 years average is 7.5% and after today’s RBA decision the new Standard Variable Rate goes up above that number. Of course all the banks are quick to pass that on.

Percentages, percentages… look all too small and insignificant, aren’t they?

How about a real life example. Take a typical 30 year housing loan of $300,000. Today, with the same loan, you would be paying $317 more a month compared to September last year.

You know what, forget September last year, and compare it to last month. From May on, assuming that interest rates are not going anywhere (which is probably unreasonable) you will be paying $51 a month more, that’s $612 a year. Which means that average first home buyer is now around $600 a year poorer.

“Today’s rate rise is tough for families and small businesses”, Federal Treasurer Wayne Swan admits, and as a consolation reminds us that the rates are still significantly lower than they were at their peak. What a joke. Let’s just hope that that we all get a pay rise to cover this extra expense – otherwise it could just wipe out that holiday we were planning off the calendar.

Ironic, isn’t it.

First we get stung by forever rising housing prices. Then, after we’ve paid whatever it takes to secure ourselves a home and got into a mortgage for the next 30 years, they say that the rise in house prices pushes inflation up and that deserves another interest rates rise. So there we are, having overpaid for the house, we now have to overpay for the mortgage as well.

And renters amongst us are in no better situation – they don’t even own an “asset” that appreciates with the housing market, but are paying higher rents because their landlords with mortgages are passing on the difference in their mortgage repayments.

What are higher interest rates doing to your family budget?

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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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What mortgage stress is and why should we care

by Chris Lang on September 3, 2009
What mortgage stress is and why should we care

Mortgage stress
If you watch or listen to or follow the news in whatever way, you couldn’t have missed this bit – on Tuesday this week the interest rates were left on hold by the RBA.

Phew… that was close.

What was close, you say? Mortgage stress, that’s what. For the folks who only heard about the mortgage part, but never about the stress part, here the exact definition of a mortgage stress: when people are paying above 30 percent of their income on mortgage repayments, they are under mortgage stress. In basic human language it means that they find it much harder to make the ends meet.

If this article catches you before you made a decision to take a mortgage, good. Because there is something you need to know: Reserve Bank of Australia (RBA) governor Glenn Stevens said that anyone taking on a new mortgage should allow for at least a two percentage-point increase in interest rates. Translation: they are going to increase the rates in the nearest future. To avoid getting into a loan that is too heavy for you, see what your repayments will be if the interest rates raise 2% and then see if that number is still less than 30% of your income.

Of course they won’t raise the interest rates 2% overnight, but it is possible – and even likely – that by the middle of 2010 the rates will rise 1%. I’ve never liked percentages because they can look deceivingly small and insignificant, but if you look at the real numbers – they never lie.

Let’s take the average standard variable mortgage of 270K (according to Australian Bureau of statistics). Let’s assume you’re currently paying 5% interest on that kind of loan over 15 years. Your monthly repayments would be around $2,135. This means that if you are earning anything less than $7116 a month, you’re in a mortgage stress already.

If they raise the interest rates 1%, your monthly repayments will become $2,278. That would mean that to not be in mortgage stress you’ll need to earn over $7593 a month. Do you expect a pay rise of over $5700 in the next 6 months? If you’re not, mortgage stress looks very likely to occur.

You can do this little exercise on any numbers using this helpful calculator here, and my message is loud and clear: please don’t bite more than you can chew, even if the banks let you.

Have you ever experienced a mortgage stress? How did you solve this problem?

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