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Those who haven’t switched home loans are missing out

Those who haven’t switched home loans are missing out

Josh Freedenberg (treasurer) ordered to inquire into the pricing schemes of home loans in Australia. This responsibility was given to the Australian Competition and Consumer Commission (ACCC). Now the ACCC has released its report on this matter. As per that report, the ACCC urges all the homeowners in Australia to review their home loan rates.

The report says that there is a vast difference between the ones who have new home loan schemes compared to those who have slightly older home loans. Those who haven’t refinanced their home loans in a while are paying thousands of dollars of extra interest.

Many people switch lenders instead of loans, and this is not a good thing. Why take the burden to switch lenders when you can easily switch loans and save thousands of dollars?

Take a look at the difference in the interest rates:

As per the latest regulations of ACCC, the average interest rate is 2.62% right now. Taking a look at the data of previous years, you will understand the importance of renewing your home loan:

  • The loans that are less than a year old – 2.91%
  • That is 1-3 years old – 3.09%
  • 3-5 years old – 3.20%
  • 5-10 years old – 3.33%
  • More than 10 years old – 3.66%

The difference mentioned above may not seem significant enough. But if you calculate the impact of this difference over a long period, there is a vast difference.

The latest trend about refinancing home loans

As per the latest report, about $15 billion of home loans have been refinanced in May only. The number of people refinancing home loan schemes is increasing significantly.

Some other reports suggest only 6% of total mortgage holders have refinanced in the last 12 months before June 2020. There are some suggestions from ACCC regarding those who find it difficult to switch their loans. Take a look at this list:

  • The lenders should provide borrowers with the latest information about the best interest rates in the market. This way, they can encourage people to switch to a better option.
  • Reduce the time taken in the discharge process. Most of the borrowers find it hard to switch because the discharge process takes too long.
  • Monitoring should be done regularly to check whether the rate in the market.

All such information will help the existing borrowers get the best home loan interest available in the market.

This is the best time to buy a home as per RBA

In this time of crisis, we have finally got some good news. As per the statements of Philip Lowe (governor of RBA), this is the best time to buy a home, especially for the first home buyers. The market has come to such a situation that seems most favorable for first home buyers.

All of this information came to the public when the discussion was going on in parliament. There, the governor urged all the first home buyers to buy a new home. The number of first homeowners is increasing day by day. So, the demand for first homeowners is very strong.

The interest rates are at a record low, and several other financial aids are also there. Some of the best government programs include First Home Owner Grant and First Home Loan Deposit Scheme. The First Home Owner Grant is a subsidy for the first home buyers.

In that speech, Lowe didn’t address the other concerns well enough. A country like Australia that has such a small population growth can face difficulties because the international borders are not free.

There are going to be several changes in lending policies. The government is trying hard to help the banks get rid of credit.

What about the Australian economy?

To explain the Australian Economy situation, Lowe said that he is very optimistic about the recovery of the Australian economy. He also said that the Australian economy is recovering at a rate that is higher than expected.

The latest financial department data says that the economy is expected to grow by 5% in 2021 while with 4% in 2022.

But there is undoubtedly some bad news about the laborers. The unemployment rate is currently 7% and it will remain above 6% for the upcoming two years.

When someone asked about the vaccine’s status, Lowe said that the vaccine would be available for common people till the last of 2021.

Amidst such chaos, if you plan to have a home loan, you can visit our site for more information about it.

The reason behind fixed home loans being so cheap

As an effect of the COVID-19, the interest rates have fallen too low. But the home loans having a fixed rate are far cheaper as compared to the ones having variable rates. We are going to talk about the reasons behind this issue in detail.

How the government affects fixed-rate loans?

After the COVID-19, the RBA cut variable rates home loans by 0.5% in March 2020. Not all the lenders agreed to it but the government’s overall effects succeeded in getting this rate cut by 0.25%. But the fixed rate interests have fallen by 0.8%. This has happened because the government issued bonds of 3 years to those banks which will significantly cut their rates.

Are the rates falling as a result of it?

Historical data suggests if the fixed-rates fall significantly, the interest rates are about to fall. As unemployment is also at its highest, the rates are supposed to below now. The RBA has said that these rates will remain so until the market comes to a normal state ad fills the buyers with enough confidence.

What about the break fees risks?

The fee that you must pay when you exit your fixed-rate loan is called a break fee. This may happen when you refinance, sell your property, etc. This fee is needed to compensate the lender’s economic loss because you have borrowed the money at a fixed rate.

This time the Australian government has already given the banks cheap rate loans; there is hardly any loss that the banks would suffer if the borrowers break the loan. Even if the borrower repays the loan too early, there is no loss that the bank may suffer.

Should you fix in such a situation?

If you are stuck with this fundamental question of whether you should fix it or not, you may talk to our experts about it. They will give you a clear idea to get the best deal out of it.

The number of first home buyer’s doubles in Australia

New research has revealed that the number of Australian first home buyers has got doubled. The number of such new people was merely 7% in 2019, but it has got up to 16% in 2020.

What are the favorite spots of the first home buyers in Australia?

Work from home has become a norm, but a large portion of these first home buyers is seeking a place near cities. Most of them are searching for homes in the 10-20 km range of the city. This shows that the majority of such people from the new generation want to live a metropolitan life.

People want to live in such locations to maintain the lifestyle that they want. But they should also consider the prices of the property in a suburb area. This is a necessary point to consider as the property rates vary based on the distance in such cases.

What are the ways to help first home buyers reduce their home loan cost?

No matter what you will buy at this time, there is always some support from the government. Take a look at such options from the list given below:

  1. The First Home Super Saver Scheme: This scheme can help you save as much as $30,000 in two years. It is really helpful for couples who are buying homes together. They can use this money to purchase a property within 12 months of withdrawal.
  2. The First Home Loan Deposit Scheme: This scheme enables you to buy a new property by depositing only 5% of the total cost. The government acts as a guarantor for the rest of the money.
  3. The First Home Owner Grants: You can get some money from the Australian government based on where you are buying money, the type of property, and other such factors. This scheme can also get you exemptions from paying stamp duties, etc.

Can I get approval for my home loan amidst this COVID-19 crisis?

The quick answer to this question is Yes. Based on the data published by the federal government, more than 1 million people will be unemployed in the coming time. We are about to see such time only because COVID-19 has affected the economy very badly. The effects of this virus are widespread, but here, we will talk about home loan borrowers in particular.

The people seeking home loans are concerned about it because the lenders are coming with strict rules for approving a home loan. The policies governing home loan approval have changed so much because whole new factors are now considered for it. Take a look at the new conditions to get a home loan approved.

Income types

The main deciding factor is the income type nowadays. Due to the dwindling situation of the economy, the lenders are quite worried about whether the borrowers will be able to repay the loan or not. All those whose income is not stable as per the laws by the lenders have a higher risk of getting their loans approved. Here are the types of incomes that are considered unstable income:

  • Bonus income
  • Casual income
  • Workers on probation
  • Overtime income
  • Commission income
  • Contract income

Any employee whose income type falls in one of the categories mentioned above can face problems in getting his/her loan approved.

Living expenses

Living expenses will also be considered in the approval process. They will check your living expenses in the last 3-6 months. Many people started purchasing new things as they feared the shortage of materials in the market. And if you are also the one who spent money in the same way that we are talking about, getting approval will be difficult for you.

Rental income

The rental market is completely unstable at this time. Anyone who is relying on income from rent should know, this kind of income will not be considered as income anymore.

JobKeeper payments

In case you are getting any financial aid from the government, such a source will not be considered as ongoing income. Mentioning JobKeeper payments as a source of your income is not good.

As the JobKeeper was provided to only those whose income fell by at least 30% due to COVID-19. Such a significant fall in your income is not going to help you in getting approval.

Important questions that you can expect from them

Lenders are looking for security in terms of your income. They are going to ask you a lot of questions. All these questions are to check the status of your income amidst this pandemic. Such questions help them a lot in knowing your repayment capabilities. Here are some of the most probable questions.

  • Have you got any message from your employer about reduced hours as an impact of COVID-19?
  • What’s your job status, and is it affected by COVID-19? If Yes, then how?
  • What are the impacts of COVID-19 on your business?
  • Have you lowered the rent income from any of your properties?
  • Are there any plans that you think would affect your financial situation?
  • What do you think about returning to your normal financial situation?

Employment check

The process to check your employment is done just a few days before the approval of your loan. It is done to check whether you are still having your job as you described in the form. You are going to be in trouble if you fail in this employment check. Here are some questions that you can expect from it.

  • They may ask if you are still employed, and they can also call your employer.
  • You will also be required to fill a form about it and produce the last payslip.

How can you get this approved?

Based on the things mentioned above, you must have known that your income is a thing that matters the most here. If you want to grab the safe spot, you should submit several documents for it. Take a look at the documents you should submit:

  • Submitting only payslips is not enough. You should submit your PAYG income summaries.
  • If you are self-employed, you need to submit even more documents about your income.
  • For those who rely on rents as their sources of income, you need to provide at least three years of your rental income history.

The time involved in this process

This is one of the most important things to know when you are getting your loan approved. In most cases, this process can get up to 20 business days.

Conclusion

After considering all the factors mentioned above, if you think getting approval is almost impossible, you are wrong. This can be one of the greatest times to get a loan. Right now, you can find fixed-rate home loans at the lowest interest rates. The government has also given several incentives and financial aids for the first home buyers.

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