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According to a recent news report, more than 900,000 interest only (IO) home loans will come up for refinance during the first quarter of 2019. This kind of loan is very popular with property investors, however, the recent tightening of lending conditions in this area of the market may make it difficult for some people to refinance to another interest only period on their loan.

So, what are IO home loans, what are they used for and how can your broker help you if the IO period on your home loan is about to come to an end?

What is an IO home loan?

An IO mortgage is where your repayments only cover the interest on the amount you have borrowed during the interest only period. That means the principal (the amount you have borrowed) does not reduce. This IO period can be from 1 – 10 years and after it has ended, the loan reverts to a principal and interest loan unless you refinance it.

What are IO home loans used for?

IO home loans are not recommended if you plan to live in the home you purchase, as they only provide short-term benefits and could cost you more in interest over the long run. This kind of home loan offers benefits for property investors because the interest is usually tax deductible. (Always consult an accountant to be sure this applies to you.) It also helps to lower the amount of the repayments in the short-term, which may help property investors to maximise the income from the property.

It should be noted that the principal (amount borrowed) will need to be repaid at some point. There is a risk that the property’s value could fall during the IO period, which could potentially cause a you to make a loss if you were to sell it. It could also make it difficult to refinance the loan at the end of the IO period without topping up the equity in the loan.

Why could it be difficult to refinance for some?

In 2016, the Australian Prudential Regulation Authority (APRA) – which is the regulator for the home loan industry – imposed a cap restricting IO home loans to 30 per cent of bank’s new mortgages and at the same time, imposed a 10 per cent annual growth cap on lending to property investors. These restrictions mostly applied to the big banks, as APRA felt they were over-exposed to risk if the property market should suffer a down-turn. This has caused a general tightening of lending criteria for property investors across the board.

In December last year, APRA lifted their restrictions. However, the tighter lending criteria for property investors and IO loans are still in place with the big banks, which could make it difficult for some to refinance or extend their IO period on their loan.

What if your IO period is about to end?

As your mortgage broker, I can help you access a wider variety of lenders, which could give you more options if you are looking to refinance your IO loan this year. We have access to Australia’s leading lenders, including the usual big banks and credit unions, as well as smaller, private lenders you can only access through a broker. Not all mortgage brokers can offer you such a comprehensive variety of loan options, so you can be sure that we will be able to access loan products that suit your needs and give you value for money.

Refinancing could potentially be of benefit to you in a variety of different ways in your personal situation, so please talk with us about your needs and goals. Your consultation is complimentary, so please just give us a call at Element Finance if you’d like to talk about your options.

Did your Christmas spending get out of hand this year? You are not alone! According to a recent news report, our 2018 Christmas spending binge is expected to leave us with a $29.7 billion credit card debt – that’s equivalent to $1,863 per credit card!

The good news is that mortgage and finance brokers don’t just organise home loans – we’re also fully qualified credit advisors. If you need help to get your debts under control, here’s some info that may help.

What is debt consolidation?

Pay day loans, credit cards, store cards and credit facilities like after-pay accounts often carry high interest rates that can eat up your income and make it difficult to pay off the debt.

Debt consolidation is a way of potentially reducing the amount of interest you pay, making your debts more manageable. Put very simply, the idea is that you take out a low-interest loan and use it to pay off all your high-interest debts, rolling everything into one loan.

What are the options?

There are a couple of ways to consolidate debt. You can:

Refinance your home loan

Refinancing your home loan could help you to access the equity in your home to pay off your debts. Basically, you take out a new home loan that is larger and you keep some of the money to pay off your debts.

Take out a personal loan

This involves using the funds from the personal loan to pay off all your other debts. This is a good option if you want to pay off your debts in a shorter time frame (which could potentially save you much more interest than refinancing your home loan).

What are the benefits of debt consolidation?

It makes debts easier to manage

Instead of having to get keep on track with multiple repayments to multiple parties, debt consolidation means you’ll only have to make one convenient repayment.

Potentially save money on interest

Different types of debt come with different interest rates. For example, credit cards usually have sky-high interest rates, as they are a form of unsecured debt. Home loans and personal loans, on the other hand, usually come with lower interest rates. That potentially means less of your money will be gobbled up by interest payments.

Repayment flexibility

Debt consolidation gives you the option to spread your loan repayments out over time, which could make personal budgeting and repaying your debt easier. You may even be able to get a loan that allows you to make extra repayments and pay off your debt sooner.

To consolidate or not to consolidate?

Using your home loan for debt consolidation purposes is not necessarily right for everyone – it all comes down to your financial situation and goals. Some people, for example, may end up paying more interest on their debt over the life of the loan (25 to 30 years), even though the home loan interest rate is lower than a credit card.

What’s more, by turning your unsecured debt into secured debt (i.e. your home loan), you could lose your home if you default on the repayments. For these reasons, it’s important to speak to a professional credit advisor before proceeding.

Are there other options?

Absolutely! If debt consolidation isn’t right for you, we may be able to suggest other ways to manage your debt – like creating a budget and repayment plan, for example.

If you’ve blown the budget this Christmas, it’s important not to panic. There are many ways to regain control of your finances, so get in touch. If you think your debt levels may affect your capacity to make your home loan repayments – don’t wait! It’s important to get things under control before you miss any repayments. Please call us at Element Finance today.

We hope you enjoyed some quality time with family and friends over the Christmas and New Year break.

Welcome to our first newsletter for 2019. As many people are still on their summer holidays, there’s not much happening in our property markets this month. Few auctions have been listed around the country and most property movements are occurring through private sales.

Property market activity

Declines in property listings are quite typical in summer, however the drop in national property listings in December 2018 was higher than expected at 9.2%. In Sydney property listings declined by a huge 17.7%, Melbourne 17.2% and Canberra 15.5%. Hobart experienced a decline in property listings of 5.8%, Adelaide 4.1%, Darwin 2.9% and Perth 9%.

Home value movements

In 2018, there was a general softening in property values, for both units and houses across the country. Sydney experienced a year on year decline of 8.88%. Melbourne experienced a year on year drop in values of 7.04%. Perth’s home value decline for the year was more moderate at 4.73%. Darwin experienced a year on year decline of 1.54% with most of this fall occurring in December when prices dropped 1.84%.

Other markets experienced year on year growth. Canberra’s yearly home values were up by 3.27%. Brisbane/Gold Coast’s prices were up 0.02% year on year, while Adelaide’s yearly growth was 1.33%. The outstanding performer was Hobart, with an annual home value increase of 8.66%.

Interest rates and lending news

Interest rates have remained stable during the holiday period and we can expect the RBA to keep the official cash rate at 1.5% for some time. The next RBA board meeting will happen on February 5. Some market analysts predict an improvement in economic conditions which may prompt an RBA cash rate rise later this year, whilst others are predicting a cash rate cut. It’s a game of wait and see!

From January 1 the Australian Prudential Regulatory Authority (APRA) removed its 30% limit on interest-only residential property lending. This may prove to be a big bonus for property investors, as it will likely prompt an improvement in lending conditions for them across the board.

What are your plans for 2019?

Did you overspend during Christmas? If you are experiencing a Christmas debt hangover, read our article about how we can help if you’re struggling to organise your finances. We’ve also provided some guidance for those needing to refinance an interest-only loan and ideas for achieving your property goals in 2019. Remember, we’re always happy to chat about your needs and goals so please don’t hesitate to give us a call.

Sincerely,
Mike & the Element Finance Team

 

Everyone looks forward to Christmas and the summer holiday season. After all, ‘tis the season to be jolly. To indulge in festive fare. To get out in the great outdoors and enjoy quality time with family and friends. But this year, it could also be the right time to buy a home. Here are 5 reasons why clever property buyers are considering making a purchase this holiday season.

Motivated sellers

Spring is one of the busiest times of year in Australia’s property markets. That’s when all the buyers are out in force and vendors have the best chance of getting their price. If a vendor is still trying to sell come summer, they’re often highly motivated – or even desperate – to get a sold sticker on that notice board.

This year, spring auction clearance rates were lower than they’ve been for a while. Now summer has arrived, there are many more properties on the market than usual. Motivated sellers are good news for you – they may be more willing to negotiate.

Less competition

Looking for a property during spring can be a nightmare. Open home inspections are packed and by the time you decide you might be interested in a property, there’s usually several offers already on the table. This can be frustrating and detrimental to your capacity to negotiate.

If you start your property hunt when others are away on holidays, you can avoid all the hassle and drama. Again, fewer buyers means vendors may be more willing to negotiate.

Lower prices

Traditionally, property prices fall in December. Last year, the average national home price fell by 0.3%. This year, we can expect this drop to be larger than usual – particularly as there was still a lot of properties left on the market at the end of spring. Prices are already starting to drop in our bigger property markets like Brisbane, Sydney and Melbourne.

The moral of the story? Summer could be the time to buy property – it’s a buyer’s market right now and it probably won’t last for long. CoreLogic are predicting home values are likely to move back into growth territory in most markets by June 2019.

More time

There’s no getting around it. Buying a property takes time and energy. It takes considerable research and a lot of time travelling around to open home inspections.

If you’re working full-time, it can be hard to make time to do it right. You’ll likely be devoting weekends and evenings to your property hunt. The solution? Do your research and inspections while you’re off work and on holidays. That way you’ll get it done faster.

Smoother settlements

Nothing motivates people to wrap up a deal quickly like the idea of taking a break. That goes for real estate agents, lenders, vendors and buyers! Things tend to go much more smoothly when demand is less, so you’re more likely to see a hassle-free settlement during summer than a busier time of year. There are also more special home loan offers available during the off-season, so talk to us to find out more.

So, why not put beach life on hold for a while, and spend the holiday season looking for a bargain on a fantastic new home? If you’re in the market to buy, talk to us at Element Finance about getting pre-approval on your home loan now. It could be a great way to start the new year off with a bang!

Juggling several debts can be stressful. If you’re struggling to keep on top of your debts or you simply want to save money on interest, we can help you solve the problem and get some peace of mind. Here are 3 ways your mortgage and finance broker can help you deal with your debts so you remain in control.

1) We can help you consolidate your debt

With debt consolidation, the idea is you take out a new low-interest loan and use it to pay off all your high-interest debts. We usually recommend one of two debt consolidation options.

Option 1: Refinance your home loan

In this scenario, you would refinance your mortgage and access some of your equity to pay off your debts.

Pros

  • Home loan interest rates are lower than those for most other types of credit.
  • One convenient repayment that’s easier to manage.
  • You can spread your repayments out over time to make them more affordable.
  • You may be able to make extra repayments and pay off your debt quicker, thereby saving money on interest.

Cons

  • Home loan terms can be 25 or 30 years. If you’re not careful, you may end up paying much more interest on your debts, even though the home loan interest rate is lower. Ask us to crunch the numbers for you.
  • If you use the equity in your home to pay off your debts, you will have less money when you sell your home.
  • If you turn all your unsecured debts (like credit cards) into secured debt (like your home loan), in a worst case scenario, you could lose your home if you get into debt again and can’t meet the repayments.

Option 2: Take out a personal loan

You could consolidate by taking out a personal loan with a competitive interest rate and using it to pay off all your other debts.

Pros

  • Interest rates for personal loans are generally lower than those on credit cards.
  • One convenient repayment.
  • Spread the repayments out over time to make them more manageable.
  • At the end of the loan term, all your debt will be paid off.

Cons

  • Personal loans come with higher interest rates than home loans (you may be better off by refinancing your home loan – ask us to crunch the numbers for you).
  • If you are struggling financially, it may be more difficult to secure a competitive interest rate.

2) We can compare interest rates on any kind of loan

We can help you find competitive interest rates on other kinds of loans, besides your home loan. Want us to compare interest rates on your personal loan? Not a problem. How about your car loan? We can access a wide variety of lenders to help with that too.

To help you manage your debts, we may be able to refinance your existing loans to a more competitive interest rate, or a longer loan term that reduces the size of your repayments. Bottom line is you have nothing to lose and everything to gain by checking in with us.

3) We can help you create a budget and savings plan 

Having a solid understanding of your income and expenses will help you remain in control of your finances. We can help you set up a budget to pay off your debts and create a savings plan to reach your goals. We’ll also give you tips, like how eliminating credit cards could save you money, or how budgeting apps work.

The last thing you want is for your debt to spiral out of control. As your mortgage and finance broker, we can explain whether debt consolidation is financially worthwhile, compare the market to find you the most competitive interest rates and help you find ways to budget and save. Please get in touch with us at Element Finance today.


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