November 2007 Newsletter PO Box 319 Toongabbie NSW 2146 Tel: 1300 66 12 11 Mob: 0404 037 663 Fax: 02 8214 6592 Email: admin@powerport.com.au Web: www.mortgageworldaustralia.com.au Hello, Summer has arrived and it is a time when many of us are thinking about installing a pool or extending the family home. To achieve these goals your options are to sell your current home, and buy elsewhere, or to renovate your existing home. We discuss the pros and cons of each method in this edition. The issue of whether or not to fix your interest rate is also covered given the current speculation on interest rate movements. If you are interested in evaluating your options, we look forward to recommending the most suitable finance available to you. If you decide to buy a property you may be purchasing via the auction process. This can be a great way to purchase but also a little daunting for those who have not experienced it before. To ensure that you can bid with confidence, please read our tips in this issue and contact us so we can organise your finance prior to auction day. If you have friends or family members who are buying a property, and may find this newsletter of interest, please forward it to them as we would be happy to assist them with our professional advice. Patrick O'Brien Mortgage Broker In This Issue: 1. Renovate or Sell/Buy 2. Minimise Interest Rise Exposure 3. Auctions - The finance musts! 4. Sub Prime crisis - Is it likely in Australia? Renovate or Sell/Buy If your present home is where you want to be, meaning it is a great neighbourhood, amenities are just right, transport is handy and the family and kids love the school and friends, but you need more room, you have a tough decision to make. There are a number of vital facts you must consider: What is the cost of renovation to meet your current as well as future needs? Don't just assess your immediate needs as you are likely to want more in the future. Also add 10% to 15% to quotes as you will want to change as you renovate? Is this expenditure going to over capitalise your property, meaning will you be able to sell it in the future and recover your costs? When looking at purchasing as an alternative, allow for costs you will not recover such as commission on the sale of your property, Stamp duty and legal fees and cost of moving. These add up. How much disruption will the renovation produce? Will you need to rent somewhere while the renovation takes place? How will you match your financing between selling your place and purchasing another? Will you need additional funding until your house is sold? Last but not least, budget for new household items. Don't believe that all your existing furniture and appliances will simply be used in your new home. Never happens. There are some very exciting loan solutions available and we can seek out the best financing alternatives to suit your needs. Minimise Interest Rise Exposure Variable or fixed: Which is best for you? For most of this year commentators have been saying there is likely to be another rate rise by Christmas. A few months ago they were predicting this as if it were an absolute certainty. Just recently however many have changed their tone and are now saying that the Reserve Bank may leave interest rates on hold or even drop them. Interestingly, one of the unexpected consequences of the sub prime crisis in the USA is that it may create a downward pressure for the Reserve Bank when setting Australian rates. In the current uncertainty about the future direction of rates, it may be worthwhile for you to review if your existing loan is the best one to minimise your exposure. Interest on a home loan can be charged at the standard variable rate and the second is a fixed rate. Under the standard variable arrangement the rate can vary up or down according to decisions of the Reserve Bank. When the Reserve Bank lifts the overnight cash rate your home loan rate will also lift. With a standard variable loan your rate will also drop when the cash rate drops. With a fixed rate the interest rate is locked-in for an agreed term. Terms of 1, 2, 3, 4, 5, 7, 10, 15 years are common. This lock-in period is guaranteed and your interest rate remains 'fixed' for the duration of the term despite what the Reserve Bank does. Fixing not only means that the rate is fixed, it also means that the term is fixed. Hence you are committed to the arrangement for 1, 2, 3 etc, years. There are however many new variations to the old variable vs. fixed options. You can arrange part of your loan on a fixed term and rate, part on variable and a whole lot of various combinations to minimise your exposure and minimise your repayments and costs. Please contact us if you would like to review your possible exposure to rise or falls in the Reserve's cash rate. We can work through the benefits of spreading your loan between fixed and variable and explore other alternatives and lender offerings. Book Review Dream Backyards, From Planters to Decks, Over 30 Projects to Create a Beautiful Outdoor Living Space Author: Family Handyman Magazine Backyards are important to all of us for various reasons including a place for the kids to play safely and a place for us adults to play and entertain or simply to unwind and have a glass or two of red. Because of the amount of time we spend in our backyard, it is a very important part of a buyers scrutiny of your home. Often buying decisions are made because of the layout of a backyard. This book provides designs, pictures and ideas from water gardens to decks to patios and paths. "Dream Backyards"--from the editors of "The Family Handyman" magazine--presents stylistic concepts and hundreds of full-color photos--plus at-a-glance information on skill levels, tools needed, and approximate project costs. It is a recommended book to buy whether if you are thinking about redesigning your backyard for yourself or as an investment in optimising the house sales value. Price: $49.95 Publisher: Reader's Digest Association Source: http://www.theaustralian.seekbooks.com.au Auctions - The finance musts! From time to time we are asked how people can make sure that finance will be available if they make a successful bid at an auction. When the hammer goes down on the final bid at an auction, the offer is final and there is no cooling off period. This contrasts with the situation where you purchase a property 'through the Real Estate Agent's window' because the offer in this type of purchase can be made 'subject to finance' and it also includes a cooling off period (except in WA). In an auction you cannot afford to bid more at than you can borrow. It is good to attend an auction in the security that you know your borrowing limits. The process of acquiring the comfort of knowing how much you can borrow is called pre-approval and we can help you with this. At its simplest level pre-approval means the lender will assess your income and calculate the size of loan you can service. The lender will issue you with a conditional approval to borrow that amount of money subject to the valuation. We recommend you go one step further and have the property valued by your lender prior to the auction to obtain your unconditional approval. This will involve a small cost whether or not you are successful at auction but we believe it is worth it for the peace of mind. With these two aspects of your purchase guaranteed, you can then attend the auction and bid to your limit with a confidence that the lender will advance you the amount you require to purchase the asset. Pre-approval means that you can be sure the finance package will be there when you need it. A condition of the auction process is that a deposit - usually 10% of the successful bid - is payable at the completion of the auction. As this amount can be as much as $50,000 it is essential that you have pre-arranged this finance and this can all be a part of the pre-approval process. We are well experienced in arranging pre-approvals for prospective buyers attending auctions. If you are considering buying at an auction, please call us so we can help you with a pre-approval. Did you know? In most auctions a non-refundable deposit is payable at the fall of the hammer. This is usually 10% of the full bid. The meaning of the term non-refundable is that if you fail to go through with the remainder of the purchase, you will forfeit the deposit. In the purchase of an ordinary suburban home the deposit may be from $30,000 to over $100,000. The common settlement terms in auction contracts vary between 42 days and 65 days. It is important to read the contract prior to the auction to ensure you can arrange finance within the settlement period. If you fail to settle the full purchase price by the end of the time period, the vendor usually have options which may result in loss of your deposit or he may proceed with another sale and attempt to recover any losses he may incur if he sells the property for less than you bid for. To ensure your pre-approval finance is processed as a priority, please contact us early if you are looking at purchase at auction. Sub Prime crisis - Is it likely in Australia? RBA concludes a low risk of sub prime meltdown in Australia The subject of the sub prime credit crisis in the United States is coming up regularly on the evening news and some television reporters are implying terrible flow-on effects in Australia. Many home owners and property investors are wondering how the sub prime crisis may affect their financial arrangements. Briefly, the sub prime crisis has arisen in the United States because the lending practices for home and investment property purchases were lax when compared with Australian standards. The inevitable result of this is a far higher level of defaults in the United States and this has recently peaked causing a meltdown in some of the lenders working in this market. It is unlikely however that this meltdown will be mirrored in Australia. In the United States about 15% of all housing loans are within the sub prime market. The direct equivalent in Australia is that only about 1% of all housing loans are within what could be considered the sub prime market. The total number of defaults in Australia is unlikely to get anywhere near the number of defaults that are occurring in the United States. In turn this means that there is unlikely to be a vast rush of defaulting houses come onto the market with the effect of crashing the property market in Australia and creating problems for lenders. The Reserve Bank of Australia issued a financial stability report in September of this year in which it concluded that the financial stability of the Australian economy was extremely strong. The RBA considers that "the Australian banking system remains highly profitable and is well capitalised", the Australian economy continues to "grow at a strong pace" and that household and business balance sheets are "in good shape". The RBA concludes that Australian banks have "very limited exposure" to the US sub prime market, the Australian sub prime housing sector is "very small", that there are low arrears and that households are benefiting "from strong income growth and low unemployment, with household wealth rising solidly recently." Mortgage & Finance Association of Australia Mortgage World Australia is a full member of the MFAA. As a member we must adhere to an Industry Code of Practice, which requires professionalism, ethical behaviour, transparency and a commitment to you, the borrower. This helps to ensure that your best interests are at heart whenever we make a finance recommendation. News & Specials Bankwest have brought back their Rate Tracker Home Loan which offers a 0.90% p.a. discount off the average standard variable rate of the big 4 banks for the first 3 years of the loan. There is also no early repayment penalty on this loan which means you can refinance after 3 years without being charged a hefty exit fees. As of Monday 13th July RAMS are offering a FlexiFix product where up to a maximum of 50% of the loan amount can be fixed for 2 years at 4.99% p.a. rolling over to the Smartway Variable rate after 2 years. Variable portion can only be taken as a Smartway Variable loan which currently offers an interest rate of 5.49% p.a. St.George are offering a 0.15% p.a. discount off their fixed rate home loans if taken under their Advantage Package. Westpac are offering a 0.20% p.a. discount off their fixed rates under their Premier Advantage Package. Although most lenders are no longer offering cheap low doc interest rates RAMS are still very competitive in this market. Go into the draw to win $10,000 in Cold Hard Cash by either booking an appointment with us, using our services to take out a home loan or by referring a friend. Competition ends on 31st July 2009. Disclaimer Disclaimer: This newsletter is intended to provide general news and information only. Readers should rely on their own enquiries before making any decisions regarding their own interests. Please do not rely on any part of this newsletter as a substitute for specific legal or financial advice. All material is copyright 2010.