Should you use a mortgage broker to refinance your home loan?

Using a mortgage broker to refinance your home loan - Salt Finance
Whether you choose to use a broker or not, it’s worth checking to see if you’re getting a good deal on your home loan. (Source: Unsplash)

With interest rates at record lows, you might be wondering if it’s time to shop around for a better deal on your home loan.

If you ask Patrick Veyret, a banking expert at consumer group Choice, the answer is yes.

“Refinancing can seem like a daunting process, but right now consumers have all the power,” he says.

“Banks are really scrambling to offer lower interest rates to consumers.”

So if you are going to look for a better deal, is it worth using a mortgage broker to save yourself a bunch of legwork?

We looked at the pros and cons to help you make an informed decision.

 

Mortgage brokers are convenient, but they aren’t free

The first thing to be aware of is how brokers are paid.

Typically, customers don’t have to pay directly for a broker’s services. Instead, most brokers rely on upfront and trailing commissions paid by lenders.

There is an obvious potential conflict of interest here, because the broker’s incentive to maximise their commission may be at odds with your desire to get the best deal possible.

So how does this play out? Here’s a simple example.

“Every lending officer in a bank, and every mortgage broker, is going to come from an initial starting point of, ‘Of course you should refinance’,” says Craig Morgan, an independent mortgage broker who chooses to refund trailing commissions to his clients in return for an upfront fee.

“That’s how they meet their KPIs or in the case or mortgage brokers, how they make their living.”

Another issue to be aware of is that some lenders have products they sell directly that don’t provide commissions to brokers.

In practice, Mr Morgan says this means these loans won’t be recommended by brokers — even if they are cheaper than the alternatives.

Some bank officers are also rewarded for signing up new customers.

However, following the banking royal commission, the major banks have committed to banning incentives for retail staff based directly on sales targets.

 

If you’re using a mortgage broker, ask these questions

There are still good reasons why you might want to use a broker.

Good brokers can bring you options you might not have thought about, or that would be otherwise unavailable.

Using a broker is also going to be more convenient than having to do the research and deal with the banks yourself.

To get the best outcome with a broker, it’s important you come prepared.

Independent financial adviser Jacie Taylor suggests coming along with competitive rates from different lenders.

On top of that, it helps to ask your broker to explain how they operate and why they are recommending certain products.

Here are some good questions for your broker, suggested by ASIC’s MoneySmart.

  • Do you offer loans from a range of different lenders?
  • How do you get paid for the advice you’re giving me? Does this differ between lenders?
  • Why did you recommend this loan to me?
  • What fees will I have to pay when taking out this loan?
  • What features (options) come with this loan? Can you show me how they work?
  • Can you show me a couple more options, including one with the lowest cost?
  • What is the threshold for lender’s mortgage insurance (LMI) and how can I avoid it?
  • What information do I need to provide for the loan application?

You should also check to see that the broker has a proper credit licence using ASIC Connect’s Professional Register. Your broker should appear in searches under one of the three “credit” categories.

If they’re not on the list, they may be operating illegally.

 

The fees you pay to refinance

Lenders charge a range of fees to people refinancing their mortgage.

Common ones are discharge fees (paid when you close a loan), application fees (paid when applying for a new loan) and switching fees (if you are staying with the same lender).

If you are on a fixed-rate loan, keep in mind you are also going to be liable for a break fee, which can be significant.

Even with these fees, it can still be worthwhile to refinance if that means you’re paying less interest over the course of the loan.

But as a general rule, you should aim to make up any fees you pay in saved interest within 18 months.

“If you’re not [in front after 18 months], it’s probably a mug’s game to change your loan,” Mr Morgan says.

 

You can always do it yourself

If you don’t want to use a broker, you can always refinance yourself.

And even before you think about going to see a broker, it’s worth giving your current a lender a call to see if you can get a better deal.

It doesn’t cost anything, and it can save you money. And if you do choose to use a broker later, it sets a higher target for them to beat.

Here are some tips for talking to your lender, from Ms Taylor.

  1. Do your research first, so that you know what other rates are available, including knowing what your current lender is offering to new clients.
  2. Be courteous and confident when dealing with the staff involved.
  3. Ask major banks to beat what other major banks are offering, or if a small lender, ask them to match what’s on offer on the market. Or if appropriate, ask for their rate for new clients.
  4. If you are given a no, ask nicely to speak to someone higher up.
  5. To make it clear you are serious, request a mortgage discharge form. This can sometimes be the tipping point.
  6. For some people who have a lot of equity in their home, it may be worthwhile refinancing for a bigger sum (higher loaned amounts can often secure lower interest rates) and then opting to repay the additional funds after settlement.

 

Repost from: Source

Federal Government extends Homebuilder cash handout, increases cap for NSW and Victoria

The grant for home builders ruled out most buyers in Sydney and Melbourne but the government has made a crucial change.

The Morrison Government’s cash handout to stimulate property construction has been extended with a tweak to cap amounts for New South Wales and Victoria.

The Homebuilder scheme currently offers $25,000 to Australians committing to new builds or undertaking significant renovations and was due to expire on New Year’s Eve.

This will now be extended to March 31 but at a lower rate of $15,000.

Another crucial amendment to the scheme will be the increased cap size for eligible home values in Sydney and Melbourne.

Housebuilder scheme extended to 31 March 2021 - Salt Finance
The scheme has been a major boost for jobs in the property sector

The handout was only offered to property owners whose homes were worth $750,000 or less, which meant a major portion of those in the country’s two largest cities were excluded considering comparatively high house prices.

But the cap size has been increased in New South Wales and Victoria to $950,000 and $850,000 respectively for new builds.

The government has also extended the commencement window of the program from three months to six, meaning those waiting in line to get projects off the ground won’t miss out on the $25,000.

Homeowners committing to a substantial renovation will continue to be eligible if their property is worth $1.5 million or less.

“One of the key drivers behind this extension is the Homebuilder program has been so successful,” Housing Minister Michael Sukkar told reporters on Sunday.

“Builders were saying to us ‘we might have to close off our books because there are so many customers and we can’t guarantee them that we can start in another three month period’.

“So this extension today, obviously, gives builders additional time, which means they will be able to take on more contracts and put more people into homes.”

Mr Sukkar said the uptake of the scheme had caught the government by surprise, meaning the initial $688 million uncapped scheme will blow out to an estimated $921 million.

But he said the initiative had delivered on its promise to support thousands of construction jobs during the coronavirus-induced economic crisis.

The Housing Minister said the scheme had been a $15 billion boon for the sector and another $6 billion was expected from its extension.

 

Federal government has decided to extend the Homebuilder cash handout - Salt Finance
Housing Minister Michael Sukkar made the announcement alongside Treasurer Josh Frydenberg. Picture: NCA NewsWire / David Geraghty (Source: News Corp Australia)

The update was welcomed by the property industry’s peak body which hailed the stimulus as the most successful of its kind in two decades.

It claimed hundreds of thousands of Australians were able to keep their jobs because of the handout.

“Its extension will provide thousands more homes and tens of thousands more jobs while Australia prepares for a COVID safe restart to immigration and population growth,” Property Council chief executive Ken Morrison said.

“Homebuilder saved the construction industry from falling off a cliff earlier this year. But with no substantial immigration likely next year, it makes sense to extend this economic bridge further.”

Labor’s housing spokesman Jason Clare said the Morrison Government should have committed to extending the program months ago.

“These changes will help, but they are still not enough to stop the housing construction industry shrinking,” he said, according to The Sydney Morning Herald.

“The Morrison spin machine says they are extending the Homebuilder scheme because it has been so successful. The fact is they have to extend it because the original scheme was too small and was badly designed.”

 

Repost from: Source

Property prices hang in balance as pandemic fears rise

With a renewed outbreak of COVID-19 cases in Melbourne and NSW, experts are expecting substantial property price falls; though the risk to Melbourne prices is greater because of the city’s return to a full, six-week lockdown.

So far, property markets overall have proven relatively resilient. For the three months to June 30, Melbourne dwelling prices fell by 2.3 per cent and Sydney prices by 0.8 per cent. However, prices are still up by more than 10 per cent in the past year, figures from CoreLogic show.

Property Prices - Salt Finance
ABS figures show a record fall in new lending for housing in May.

Nevertheless, average price changes can mask big differences in various property market sectors.

For example, one-in-three of Melbourne CBD apartments that were sold in the first three months of the year – even before the pandemic hit – changed hands for less than their purchase price. Almost 70 per cent were owned by investors. Vacancy rates for apartments in Melbourne’s CBD and for Southbank, in particular, and in Sydney’s CBD, remain persistently high.

AMP Capital chief economist Shane Oliver says high unemployment, a pause in immigration and rent payment “holidays” pose major threats to property prices over the next year.

He expects home prices to fall by 5-10 per cent nationally, with price dips in Sydney and Melbourne at the top end of that range.

“[There is a] risk of much bigger falls if the renewed rise in coronavirus cases leads to an Australia-wide lockdown,” Oliver says.

“Melbourne, particularly, is at risk as its renewed lockdown pushes more businesses and households to the brink,” he says.

Economists at NAB, led by Alan Oster, expect the COVID-19-induced recession to result in peak-to-trough price declines of 10-15 per cent.

NAB economists are forecasting Sydney prices to fall by just under 10 per cent from the start of this year to the end of 2021. For Melbourne, they expect a dip of about 14 per cent over the same period.

Tim Lawless, Asia-Pacific research director at CoreLogic, says “stay at home” rules would likely mean the market is significantly disrupted again, after an improvement in sales numbers since Easter.

A variety of factors have helped protect home resale values from more significant damage, including lower stock levels and significant government stimulus, Lawless says. That is in addition to record-low interest rates and lenders’ mortgage repayment pauses that have helped keep forced sales off the market.

Figures released last week by the Australian Bureau of Statistics show national demand for new home loans plunged 11.6 per cent in May.

“This was the largest fall in history, driven by strong declines in the value of loan commitments for housing in NSW and Victoria,” said Bruce Hockman, ABS chief economist.

The value of new loan commitments for owner-occupier housing fell 10.2 per cent, while investor housing loan applications plummeted 15.6 per cent.

The number of owner-occupier first-home-buyer loan commitments fell 9.3 per cent.

The figures for May reflect COVID-19 restrictions in April, as home loans can some time to settle.

Simon Pressley, managing director and head of market research at buyer’s agency Propertyology, says the May data was expected, as it was the month when the lockdowns were at their tightest.

“Since then, Australia has opened up considerably, with the exception of Melbourne,” Pressley says.

Melbourne and Sydney have the most exposed property markets as both cities are disproportionately affected by a freeze on international tourism, international students and overseas migration, he says.

Still, Pressley maintains price declines in the two cities would not likely be in the double digits.

“Record-low interest rates, many mortgage holders having cash reserves in redraw, low supply of real estate sales listings, empathic banks, and government support packages provide a safe cushion for property markets,” he says.

Source

RBA rate cut: Reserve Bank interest rates held at 0.25 per cent

The Reserve Bank has kept Australia’s official cash rate at the historic low of 0.25 per cent, with experts predicting it will remain at that level “for some time”.

At its April meeting this afternoon, the RBA voted to keep interest rates on hold just weeks after it was cut from 0.5 per cent to 0.25 per cent during an unscheduled meeting in mid-March as a result of the escalating coronavirus crisis.

It was the first time a rate cut has been announced outside a regular meeting since 1997, and is a glaring sign of just how severe the situation is becoming.

In a statement, Governor Philip Lowe said the Board had reaffirmed the targets for the cash rate and the yield on three-year Australian government bonds of 25 basis points, as well as the other elements of the package announced on March 19.

“The coronavirus remains first and foremost a very major public health issue, but it is also having very significant effects on economies and financial systems around the world,” he said.

“Many countries are expected to experience large economic contractions as a consequence of the public health response. Large increases in unemployment are also expected.

“Once the virus is contained, a recovery in the global economy is expected, with the recovery supported by both the large fiscal packages and the significant easing in monetary policy that has taken place.”

But he said there were “some signs that markets are working more effectively than they were a few weeks ago” which “partly reflects the substantial measures undertaken by central banks”.

“The co-ordinated monetary and fiscal response, together with complementary measures taken by Australia’s banks, will soften the expected contraction and help ensure that the economy is well placed to recover once the health crisis has passed and restrictions are removed,” he said.

“These various responses are providing considerable support to Australian households and businesses through what is a very difficult period. The Australian financial system is resilient. “It is well capitalised and in a strong liquidity position, with these financial buffers available to be drawn down if required to support the economy.”

He said the Board was committed to doing what it could to “support jobs, incomes and businesses” as Australia deals with the coronavirus.

“The comprehensive policy package announced last month will also support the expected recovery,” he said.

“The Board will not increase the cash rate target until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2–3 per cent target band.

“The Board wishes the best to all Australians as our country deals with this very difficult situation.”

Most experts had predicted the cash rate would remain untouched today, as board members had already signalled it will likely remain lower bound at 0.25 per cent “for some time”.

“As such, the focus of RBA meetings will be on how the board assesses its QE measures and whether they may require adjusting,” Westpac said in a note on Monday.

CoreLogic’s Head of Research, Eliza Owen, said it was no surprise the RBA had left the cash rate on hold after an “extraordinary March period” in which the cash rate was reduced twice and unconventional monetary policy was introduced.

“The record-low rate of 0.25 per cent may be in place for years to come. No doubt the RBA will be closely monitoring the impact of record low interest rates and other stimulus measures on the economy,” she said.

“To date, the policy announcements from the RBA and other sectors of government have been well received with the overall level of stimulus now getting close to 17 per cent of Australian GDP.”

The RBA Shadow Board, based at The Australian National University, said it was “94 per cent confident that keeping the cash rate on hold is the right policy”.

It said the extraordinary events surrounding the COVID-19 pandemic were “certain to push Australia into recession” for the first time in 28 years, and that efforts by the government and the RBA to stem the economic downturn were “unprecedented”.

But Shadow Board member Dr Timo Henckel said it was tough to determine the impact of those efforts given how quickly the situation was unfolding.

“For example, while the latest official ABS figures show an unemployment rate in Australia of 5.1 per cent, this may well double within a couple of months due to the COVID-19 crisis,” he said.

“It is unclear to what extent the Government’s JobSeeker program will help workers remain attached to their employers.

“Looking ahead six months, the Shadow Board’s vote in favour of keeping the cash rate steady at 0.25 per cent is still very high – 88 per cent.”

Meanwhile, all 23 economists and experts surveyed in the Finder RBA Cash Rate Survey correctly predicted the RBA would hold the cash rate at 0.25 per cent today, after the board indicated it had no appetite to cut further.

RBA rate cut

John Rolfe of Elders Home Loans said not enough time has passed since the latest round of announcements.

“The recent financial support from the Federal and State Governments needs to flow through. The RBA needs to keep its powder dry in case this gets worse,” Mr Rolfe said.

Finder insights manager Graham Cooke said the unfolding coronavirus situation and its impact on the economy would likely have a huge impact on the Australian housing market.

“Many economists tell us they expect property price drops of 10 to 20 per cent,” he said.

“The biggest impact, however, is likely to be on sales volume. With auctioneers forced to allow only one-on-one home visits and virtual auctions, and with many Aussies losing their jobs, it is likely that the housing market will hit the breaks fairly quickly.

“Also, the announcement from banks that many homeowners will be allowed a repayment holiday means that the inevitable glut of homes due to hit the market may not do so all at once.

“The big question is – how long will this last, and how quickly can the market pick up after?

“For would-be first-time buyers with a deposit saved and a secure job – this could be a great opportunity for those who missed out on the property dips in 2019.”

 

Source

Banks to help commercial landlords who help tenants through COVID19

Australia’s banks will extend the six month deferral of loans, building on the ABA’s Small Business Relief Package, to 30,000 more businesses across the country. 

This support now extends to 98% of all businesses with a loan from an Australian bank.

covid19

 

Businesses with total business loan facilities of up to $10 million (up from the $3 million small business threshold) will now be able to defer repayments for loans attached to their business for six months. These businesses are generally much larger and employ a greater number of people.  

This extension of support will apply to an additional $100 billion of business loans. Combined with measures already announced, it will mean a six-month deferral of loan payments will apply to up to $250 billion worth of loans, with extra cash available to 425,000 businesses to cope with the crisis during the COVID-19 pandemic.  

During this period banks have also agreed to not enforce business loans for non-financial breaches of the loan contract (such as changes in valuations).  

The new measures will apply in all sectors of the economy, and on an opt-in basis, under the conditions that:  

  • For commercial property landlords, they provide an undertaking to the bank that for the period of the interest capitalisation, they will not terminate leases or evict current tenants for rent arrears as a result of COVID19 
  • the customer has advised that its business is affected by COVID-19  
  • the customer was current in terms of existing facilities 90 days prior to applying 
  • interest is capitalised – meaning either the term of the loan is extended or payments are increased after the deferral period. 

“This will help protect many more thousands of small businesses from being evicted if they are struggling to pay the rent as it covers approximately 90% of commercial property owners who have loans with an Australian bank.”   

ABA CEO Anna Bligh

Australian Banking Association CEO, Anna Bligh said “as this crisis has deepened and more businesses are affected we are building on the Small Business Relief package to ensure more businesses are given a lifeline to help them survive through the coronavirus pandemic ,” Ms Bligh said.  

“Banks are expanding their support to an extra 30,000 thousand businesses by raising the threshold of those who qualify for the six month deferral of loan repayments from $3 million to up to $10 million in total loan facilities.  

“The type of businesses this applies to includes commercial landlords of properties such as local shopping centres, pubs, clubs and restaurants, who must agree not to terminate leases or evict current tenants for rent arrears due to COVID19 in order to access support.  

“This will help protect many more thousands of small businesses from being evicted if they are struggling to pay the rent as it covers approximately 90% of commercial property owners who have loans with an Australian bank.   

“Where landlords within this threshold do the right thing by their tenants, banks will do the right thing by them. 

“When combined with the previous small business assistance announced just over a week ago, this means $250 billion worth of loans covered are able to access a six month deferral of payments, which means dollars staying in the pockets of businesses throughout this crisis,” Ms Bligh said.   

Businesses with total loans of more than $10 million may also be eligible for relief, but this will need to be considered on a case by case basis as they are often much more complex in their structure. 

Banks have developed this relief package following discussions with APRA and ASIC to provide the appropriate regulatory treatment. 

This measure is announced subject to authorisation from the ACCC. 

Source

RBA slashes interest rates to 0.25pc in emergency cut amid coronavirus pandemic

The Reserve Bank has cut interest rates to a record low 0.25 per cent and announced extraordinary measures to help prevent a coronavirus-driven recession.

Key points:

  • Australia’s economy continues to deteriorate as panicked investors wipe billions of dollars of value off local stock market
  • The RBA will buy Australian government bonds as part of its first-ever quantitative easing program
  • The Government also announces investment of up to $15 billion to enable smaller lenders to support consumers and small businesses

The RBA will buy Australian government bonds as part of its first-ever quantitative easing program, and provide a three-year funding facility to provide cheap loans for Australian banks.

Australia’s economy continues to rapidly deteriorate, and panicked investors have wiped billions of dollars of value off the local stock market.

In turning to quantitative easing, the central bank is using a lever that it has not used even during some of the worst catastrophes in recent history, including the global financial crisis and the 9/11 terrorist attacks.

Just before the announcement, the Australian dollar plunged to its lowest level since October 2002, trading at 55.08 US cents.

The currency has lost 20 per cent so far this year.

Reserve Bank governor Philip Lowe said the bank would hold the cash rate at 0.25 per cent “until progress is being made towards full employment and it is confident that inflation will be sustainably within the 2-3 per cent target band”.

Dr Lowe said the cash rate could be at this level for some years as it was expecting significant job losses.

The latest rate cut was “a substantial easing of monetary policy” and brought the cash rate in line with a number of other countries as a result of actions by the US Federal Reserve, the Bank of England and the Reserve Bank of New Zealand.

“Before the coronavirus hit, we were expecting to make progress towards full employment and the inflation target, although that progress was expected to be only very gradual,” he said.

“Recent events have obviously changed the situation.”

“We are likely to be at this level of interest rates for an extended period.”

Dr Lowe said he was not able to provide an updated set of economic forecasts because “the situation is just too fluid”.

“But we are expecting a major hit to economic activity and incomes in Australia that will last for a number of months,” he said.

“We are also expecting significant job losses.”

RBA to also provide $90 billion in funding to SMEs

The Reserve Bank board typically only meets on the first Tuesday of every month, but with global stock markets in panic because of the COVID-19 pandemic, it held an emergency meeting on Wednesday.

The RBA said it would also provide at least $90 billion at 0.25 per cent over three years to banks if they lend that cash to small and medium-sized businesses. This is similar to an initiative announced by the Bank of England last week.

It came as the Morrison Government announced an investment of up to $15 billion to enable smaller lenders to continue supporting Australian consumers and small businesses.

Treasurer Josh Frydenberg said it would “enable customers of smaller lenders to continue to access affordable credit” and would complement the RBA’s $90 billion term funding facility.

Mr Frydenberg said the Government’s debt agency, the Australian Office of Financial Management, would provide the $15 billion through wholesale funding markets used by small banks and non-bank lenders.

Enabling legislation would be introduced into Parliament next week.

The RBA is moving in the footsteps of other world central banks, including the US Federal Reserve, in buying up government bonds and encouraging consumer spending by printing more money and pumping it into the economy.

Scale of job losses to depend on how flexible employers are

Dr Lowe said the scale of job losses would depend on the ability of businesses to keep workers on.

“We saw during the global financial crisis how flexibility in working arrangements limited job losses and this benefited the entire community,” he said.

It could take time for employment to rise but getting to a 4.5 per cent unemployment rate was a “reasonable estimate” of what he saw as full employment in Australia.

The Reserve Bank would want to see that rate, and be within its inflation target, before changing its position on interest rates, he said.

“I’m really looking forward to those days,” he said.

Dr Lowe hoped that by the end of the year anyone who had lost their job during this crisis would get that job back.

“We are clearly living in extraordinary and challenging times,” he said.

“As our country manages this difficult situation, it is important that we do not lose sight of the fact that we will come through this.”

“At some point, the virus will be contained and our economy and our financial markets will recover.”

RBA willing to do ‘whatever it takes’

Some economists have called on the RBA to do more to save the economy.

Dr Lowe said he would not speculate on other measures, but “nothing’s off the table”.

“We are in extraordinary times, and we are prepared to do whatever is necessary to make sure … the supply of credit is there for Australian businesses and households,” he said.

“We feel like at the moment we’ve done enough. If it turns out not be the case, there are other measures we can consider.

“We will do whatever is necessary … to get us through this difficult period.”

He said the Australian dollar had been the great shock absorber for the economy.

The RBA would not, for the time being, intervene in the foreign exchange market, but would be prepared to if the situation worsened.

In the meantime, there was very close policy coordination between the Australian Government, the Australian Treasury, the Reserve Bank and Australia’s financial regulators.

APRA and ASIC both stand ready to assist institutions to work through regulatory issues arising from the virus, he said.

The Council of Financial Regulators was meeting again on Friday, and would also meet with the largest lenders to discuss how they could support their customers.

Lowe wants Australia ‘well placed’ when pandemic is over

Reserve Bank Governor Philip Lowe delivers an address to the National Press Club in Sydney.

 

Dr Lowe said for now the RBA would not be purchasing bonds directly from the Government, but operating in the secondary market.

The RBA was not seeking to have the three-year yield identically at 25 basis points each and every day.

“How much we need to purchase, and when we need to enter the market, will depend upon market conditions and prices,” he said.

“It may also take some time for yields to fall from their current level to 25 basis points.”

All this was so that “when the health crisis recedes, the country is well placed to recover strongly”.

The bank had already slashed the rate to 0.5 per cent earlier this month.

Commonwealth Bank chief executive Matt Comyn said the bank had expanded support for small businesses and households in response to the RBA announcements.

“We recognise that this is a very concerning time for our customers and the community,” he said.

“These are unprecedented times, and they call for unprecedented measures.”

Source

 

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