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Should I Lock In My Home Loan Rate?

Should I Lock In My Home Loan Rate?

Feb 14, 2022 | Interest rates

With interest rates at a record low and the threat of rates rising, there’s lots of talk about whether or not you should or shouldn’t lock in your interest rate.

As with every loan, there’s no hard or fast answer – but you may be interested to learn the pros and cons of fixed and variable rates to decide what is best for you.

What is a fixed rate?

A fixed rate loan is exactly that – a fixed rate. Once your rate is locked in, it stays that way for a certain period.

What are the benefits of a fixed rate home loan?

  • Rate rises won’t impact you
    If you expect interest rates to rise during your fixed rate period, you could save money on future repayments
  • Set and forget
    With a fixed rate you know exactly what your repayments will be for the loan period (usually 1-5 years)
  • Easier budgeting
    Because you know exactly what your repayment will be, budgeting and managing your cash flow is easier, giving you peace of mind.

What are the downsides of a fixed rate home loan?

  • The rate you apply for may not be what you get
    When approaching a lender for a fixed rate loan, remember that the rate you apply for may not be the rate you get when you settle on the loan. Some lenders will guarantee a certain fixed rate before settlement but a “rate lock fee” may apply.
  • Less flexibility
    Fixed rate loans limit your ability to pay off the loan faster by restricting additional repayments or capping them at a certain amount per year. Significant break fees may also apply if you want to refinance, sell your property or pay off your loan in full before the fixed term has ended.
  • Fewer features
    Many of the desirable features that come with a variable rate home loan aren’t available for fixed rate loan holders. Typically borrowers will not be able to redraw funds over the fixed period or link an offset account to their loan.
  • Rate cuts won’t impact you
    You won’t be impacted by rate rises, but you also won’t benefit from any cuts the lender makes to their home loan rates over the fixed term.

What is a variable rate home loan?

The most common home loan option, variable rate loans allow the lender to change their rates at any time – meaning your repayments may increase or decrease depending on what is happening.

What are the benefits of a variable rate home loan?

  • Repayment flexibility
    Variable rate loans allow for a wider range of repayment options, including the ability to pay off your loan faster without incurring interest rate break costs. Some variable rate loans also offer features like offset accounts or redraw facilities that work to reduce the loan balance you pay interest on, whilst still allowing you to access surplus funds
  • Easier to refinance
    If you find a better deal elsewhere, it’s easier to switch to a different lender or home loan product as you are unlikely to attract break costs.
  • If rates fall, you pay less
    Lenders will cut rates for a variety of reasons, mainly in response to reduced funding costs. If you’re on a variable rate, you’ll reap the benefits of lower repayments.

What are the downsides of a variable rate home loan?

  • If rates rise, you pay more
    Just as you pay less if rates fall, you’ll pay more when the rates rise. Lenders can change a variable interest rate at any time, meaning the rate will likely fluctuate over the life of your loan. If your bank raises rates, your repayments will also rise.
  • Less cash flow predictability
    With your repayments able to increase or decrease at any time, it’s harder to budget and predict your cash flow over the long run.

What is a split rate home loan?

Another option is to opt for a split rate loan. This allows you to hedge your bets on interest rates by splitting your home loan rate.

Many lenders offer the option to divide your home loan into multiple accounts, allowing you to take advantage of both fixed and variable rates.

What are the benefits of a split rate home loan?

  • Peace of mind
    Allocating a percentage of your loan to a fixed rate may give you more peace of mind that when the variable rates fluctuate you can still afford your monthly repayments.
  • More flexibility
    By keeping a proportion of your loan on a variable rate, you have the flexibility to benefit from offset or redraw capabilities on that portion of your loan. You can also take advantage of falling rates when they happen.

What is the best option for me?

A home loan is a long-term commitment – so it’s important to choose the right one for your needs. As your personal circumstances are likely to change throughout the life of your loan, it’s important to revisit the rate you pay at various points to ensure you’re getting a good deal and using your loan features or rate splits effectively.

Not sure what is right for you? That’s why we’re here. Our team will talk you through the different options and find the loan that best suits your unique needs.

Contact us today to find out how we could help.

Why the banks won’t give you back your title deeds

Why the banks won’t give you back your title deeds

Sep 15, 2021 | Uncategorized

NSW Government Cancels Certificates of Title – What does that mean for you?

From October 11th, 2021, the NSW Government will no longer be issuing paper Certificates of Title and all existing Certificates of Title will be cancelled as the government transitions conveyancing from paper to digital.

But what does this all mean and how does it affect you?

How will title deed changes affect home owners?

The good news is, not much changes!

As a current property owner, you do not need to do anything as legal ownership details for your property are already in the Torrens Title Register.

This register will continue to be the single source of truth for land ownership in NSW, removing the need for paper certificates of property to settle a property purchase.

When you pay off your mortgage, you will no longer receive a Certificate of Title as you did previously, however, the Torrens Title Register will reflect your ownership of the property.

How will title deed changes affect home buyers?

The process just became a little bit easier. Whilst previously your conveyancer would need to obtain a physical certificate of property to settle your property purchase, it’s now completely digital.

These changes make the process simpler and reduce the risk of settlement delays, errors and fraud in the conveyancing process – however, it does mean that you can no longer act for yourself and will need a lawyer or conveyancer to complete property transactions.

Looking to purchase property?

Whilst now a conveyancer or property lawyer is a necessity, we have always advised our clients to work with a qualified professional when purchasing their property.

If you’re looking to purchase a property, we’re here to help with all of your finance needs and can put you in touch with a number of professional conveyancers and property lawyers who can help you secure your next property.

What is the Family Home Guarantee and who can use it?

What is the Family Home Guarantee and who can use it?

Jul 7, 2021 | Family Guarantee, First Home Buyers, Purchase

You may have heard that, as of July 1st 2021, Family Home Guarantees are now available for buyers to purchase a property with as little as a 2% deposit. But who is eligible, how can this guarantee be used and what are the benefits?

What is the Family Home Guarantee?

The Family Home Guarantee is a new program from the Australian Government which provides eligible single parents with dependents the chance to build a new home or purchase an existing home with a deposit of 2%, subject to the individual’s ability to service the loan.

These guarantees will only be available to 10,000 individuals over the next four financial years and are only available to single parents with dependents who meet certain criteria.

Who is eligible for the Family Home Guarantee?

  • Only single parents with at least one dependent child
  • Applicants must have an income of less than $125,000 as declared in their FY21 (ending 30 June 2021) income tax return
  • Applicants must be Australian citizens aged 18 or over
  • Applicants must not currently own a home (however there are no restrictions on prior homeownership)
  • The property purchased must be occupied by the borrower and must be their primary place of residence
  • The scheme can be used for both new builds or existing properties under specific price caps
  • Contracts must be dated on or after July 1st 2021, except land contracts which may be dated at any time
  • Loans taken out through the scheme cannot be longer than 30 years
  • Borrowers must have a genuine deposit between 2-20% and be able to service their loan

What are the benefits of the Family Home Guarantee?

It’s no secret that saving to buy a home is hard work. The cost of living is high and the deposits needed for most properties seem out of reach, especially on a single income – and that’s exactly what this scheme is trying to address.

The Family Home Guarantee scheme is designed to make it easier and faster for single parents to purchase a home.

This is achieved by allowing applicants to purchase a property with a lower deposit. Instead of the typical 20% deposit, the government will guarantee home loans taken out under the Family Home Guarantee scheme for buyers with deposits between 2-20%. For these borrowers, that guarantee means they will avoid having to take out lenders mortgage insurance (LMI) which can add thousands of dollars to the cost of your home.

The Potential Negatives of the Family Home Guarantee

As with any scheme, there are always pros and cons – but here are the things you need to consider.

  • Interest rates will rise
    With interest rates at a record low, the question is not if they will rise but when. Interest rate rises are something all borrowers have to take into consideration, however, as participants in this scheme will be paying down a larger loan (due to a smaller deposit) it’s important to make sure you will still be able to make repayments when interest rates rise.
  • Negative Equity
    Negative equity occurs when the value of a property falls below the balanced owed on a mortgage. Loans with higher loan to value ratios (LVRs) are likely to be more susceptible to this as your loan amount is higher.
  • Lender limits
    This scheme is currently only available through selected lenders. With a limited number of lenders available, it’s possible that the loan options are less competitive or lacking the features you need. This is why it’s important to consider all of your options and compare multiple loans.
  • Other schemes may be better suited
    The Family Home Guarantee isn’t the only scheme currently available to buyers, so it’s important that you look at your options. Current schemes include the First Home Loan Deposit Scheme (FHLDS) that allows first home buyers to purchase with a lower deposit, the First Home Super Saver Scheme that allows young Australians to make additional contributions to the superannuation to put towards a home deposit and Stamp Duty Rebates.

Is the Family Home Guarantee scheme right for me?

This isn’t a simple answer, however, it’s one we’re here to help with. If you’re wondering what your options are for purchasing a property, get in touch so we can chat about your personal circumstances, your property goals and the best steps.