Your Comprehensive Guide to Navigating Home Financing
Find answers to common questions about mortgages and home buying.
5 Tips To Consider Before You Get Your Mortgage.
One of the not so awesome truths about homeownership is that over lifetime of your mortgage, on a Australian house, it’s not uncommon to fork out almost as much in interest payments as towards paying off the house itself.
Makes you feel a bit sick if you think about it too hard, doesn’t it? You can’t control interest rates, unfortunately, but there are *lots* of things you can control – about how you structure and manage your mortgage – that can save you thousands.
If you’re heading towards a fixed rate rollover any time soon, now’s the perfect time to start thinking about our top tips that could help you get your mortgage working better for you.
1. When you’re choosing a term to fix for, the lowest rate isn’t always best.
It might feel counterintuitive, but it all comes down to where we’re at the interest rate cycle.
When interest rates are high, you sometimes see longer-term fixed rates (three years and up) drop below shorter-term ones. This sort of curve is usually a good sign that the market thinks interest rates have peaked – and that the next move in rates will be downwards.
So, when you’re feeling the squeeze and every dollar counts, why you wouldn’t you want to fix long-term in this scenario to get a slightly better rate? Because when rates do start to fall again (and it usually happens fast), you’ll still be stuck on that old, higher rate for years to come. And getting out of it is going to be expensive.
The best time to lock in long-term is at the bottom of an interest rate cycle – although picking that is easier said than done, we’re afraid. That’s why it helps to have a friendly broker at hand who can help you make sense of what the market is doing and where interest rates are likely to head next.
2. Beware the risk of break fees.
And on the topic of why you shouldn’t fix long-term when interest rates are high – and likely to start falling soon – let’s take a second to talk about break fees.
Break fees are the hefty penalty the banks will sting you with for “breaking” your fixed-term mortgage early, if rates have fallen since you fixed. The calculation goes like:
[The amount interest rates have fallen since you fixed] x [Loan balance] x [Years until the fixed rate matures].
They can set you back tens of thousands of dollars – and the risk (and potential financial pain) is greater the longer you fix for.
3. As a general rule, short-term fixed rates are usually the way to go.
One- and two-year fixed terms are key battlegrounds for the banks when it comes to winning new customers.
That means they're usually taking a smaller margin on these rates, and so (generally speaking) you’re getting a better deal than you would on anything three years and over.
In fact, I did the hard yards to work out the “best” term – based on 30 years of historical interest rate data – and found that fixing for a year is pretty much always your best bet.
4. You can make thousands back just by refinancing – and tap into a whole heap of other benefits.
If you’ve had your mortgage with your current bank for three or four years (depending on the bank) you’re likely eligible to refinance.
Taking out a fresh loan with another bank is also a chance to change up other aspects of your loan structure (like extending your loan term or combining a few different loans) to make sure it’s working as well as it can for you.It’s a bit of a process.
You’ll need to go through a full loan application with your new bank, and usually costs a fee of about $350, but it’s worth the effort.
5. Remember: every extra dollar above the minimum repayment is going to make a difference.
The trick here is to start out small – set your repayments slightly above the minimum to begin with – and then make it a habit to increase what you’re paying whenever you can.
That could look like upping your mortgage repayments by a few percent whenever you get a pay increase at work. Or, when interest rates drop, sticking at (or close to) your old, higher repayments even when you manage to score a better rate.
How you do it doesn’t really matter, but this trick is a powerful one if you stick with it, potentially shaving years off your mortgage and saving you tens of thousands in interest.
Some Tips Before You Get Started
We’ve been around the block a few times, here’s our advice to get you prepped:
Get ahead of the game by tackling the legal and financial stuff early. When you're prepared, you’ll snag the best properties while others are still warming up. It helps reduce stress later too.
Engage with good professionals who will have your back. You’ll need a conveyancer and a solicitor. We have some state-wide lists to help if you need help.
A mortgage might just be the biggest financial decision you'll make, so treat it like one. Squeezing what feels like loose change out of your bank can save you thousands of bucks in the long run. Seriously. Get your mortgage right and it’s the easiest money you’ll make. Let's nail down the right mortgage, and you'll be laughing all the way to the bank.
This is why 71.8% of all home loans are written by brokers. I don’t receive any incentive to put one provider’s product in front of another, so my only motivation they have is to make you better off. I am bound to be independent and impartial and am here to get you the best deal.
If you’re looking to find out how much you can borrow or what your stamp duty costs might be, you’ve come to the right place.
Stamp duty calculator
Basically, banks won’t lend the full amount for a house – you need to be able to put down a deposit, and the more the better. You may be familiar with 20% as the magic number, but the reality is if you’re in a strong financial position we can work with as little as 5% deposit. Most people will need around 10% deposit, and if you can fork out a whopping 20%, you’ll access the banks’ most competitive rates and avoid low equity fees.
Basically, governments protect banks. Lenders Mortgage Insurance (LMI) is insurance that a lender takes out to insure itself against the risk of not recovering the outstanding loan balance. It's expensive and there ways to avoid it. Generally speaking it comes into play on a sliding scale when the deposit is below 20%.
LMI calculator
Turnaround can be very fast, but we need information when requested.
While we are based in Sydney’s Northern Beaches we are proud to offer our services Australia-wide as well as for expats and foreign residents looking to purchase or refinance property in Australia.
We work for you, not the lender. The Best interest duty for mortgage brokers is a statutory obligation for mortgage brokers to act in the best interests of consumers (best interests duty) and to prioritise consumers’ interests when providing credit assistance (conflict priority rule). This same legal requirement does not govern banks or lenders.
For residential home loans we receive commission from the lender after settlement which is disclosed in our compliance documentation prior to lodging an application. The reason we are paid a fee is because the work we do to assess arrange administrate and manage a home loan is work that would otherwise be completed internally by the lender’s staff. The fee we receive for a residential home loan has no bearing whatsoever on the borrower’s negotiated rate. For commercial or business loans our fee is agreed and disclosed prior to settlement and is generally comes out of the loan proceeds.
Get Your Mortgage Questions Answered
A mortgage might just be the biggest financial decision you'll make, so treat it like one. There’s no such thing as a silly question so reach out and get in touch - we’ve got your back.
