Property prices in Sydney, Adelaide and Perth are set to leave southeast Queensland for dead in the next three years, with the Gold Coast among the country’s worst-performing regions.
goldcoast.com.au
Dramatic fall in interstate migration hits home prices
June 15, 2010 By
Aust property firm buys over 530 residential lots near Brisbane
June 4, 2010 By
Australia’s second biggest real estate company Stockland has bought residential development land near Brisbane for $23.5 million.
businessspectator.com.au
Grow food between new urban centres
June 2, 2010 By
Food should be grown on “green wedges” the Queensland government wants to preserve between urban centres in the southeast, a farming lobby group says.
foodweek.com.au
Collapsed Ark Homes left owing $30m
June 2, 2010 By
creditors and employees are owed more than $30 million following the collapse of Townsville-based home builder Ark Homes on Monday.
townsvillebulletin.com.au
$1 billion cotton land sale
May 31, 2010 By
More than $1 billion worth of cotton property is currently listed for sale in southern Queensland and northern NSW, but unlike during the past five years, the properties now have water and are likely to attract buyers
farmonline.com.au
Good debt bad debt
May 28, 2010 By
Is there a difference between good and bad debt? Debt is debt isn’t it? Some might say that any debt is bad debt, especially our grandparents and great grandparents who preferred to save up for what they wanted rather than borrow. Their thinking being if you can’t afford it, don’t buy it.
How times have changed. We are a nation that lives with and on debt. We especially like our credit cards and store cards because it means we don’t have to save for what we want. We can buy it now and worry about paying for it later. The credit card companies love that and so do the retailers who sell more products.
OK, perhaps I’m being a bit hard here. After all, credit cards do offer convenience and an element of safety (for example, there’s no need to carry around wads of cash) but with the average Australian carrying over $3,000 of credit card debt at interest rates of 15% to 20%+, it raises the need for more of us to be smart with our money.
So let’s explore what being smart means. Let’s look at the difference between good debt and bad debt.
Good debt is debt that produces wealth and cash flow. For example, a home loan is good debt because over time your home should generate a good tax free capital gain. Plus, we’ve got to live somewhere and it is often more cost effective to buy rather than rent over the long term.
Really good debt would include borrowing to buy assets like an investment property or shares – not only could you generate a capital gain on sale, but you’ll also get an income stream (rent or dividends) and a tax deduction for interest payments.
Another example of good debt would be debt consolidation, say into your home loan where you could save a significant amount on interest costs, especially if you consolidated higher cost unsecured debt. But remember, if you continue to borrow after consolidation you may end up considerably worse off with higher debt and less equity in your home.
Bad debt typically involves borrowing to pay for your lifestyle. It often involves buying things you don’t really need that will decrease in value as soon as you walk out of the shop, using expensive store cards or credit cards.
This is the easiest way to over extend yourself as you can quickly lose track of your purchases. It can include items like an expensive holiday, clothes, and electronics. It’s OK to treat ourselves once in a while but when this becomes the norm, and when bad debt is not paid off in full, financial problems may start to surface.
More often that not, it is bad debt that gets people into financial trouble. Defaults on your credit cards and other forms of unsecured borrowing are recorded by credit reference agencies like Veda Advantage and Dun and Bradstreet. Once your credit rating is affected in a negative way it can hurt your chances of qualifying for cheaper finance or finance at all.
To work out if your debt is good or bad you need to ask yourself whether the asset you’re going to buy will increase in value or provide cash flow advantages. If the answer is no, then you should think very carefully about borrowing to buy. If you do borrow, then look to pay the debt off in full very quickly, if not immediately on receipt of your statement.
Saving before you buy might not be the way things are done these days but it may be the best way to avoid consequences of bad debt.
Pete Boehm is co-founder of Our Home Sweet Home – a home buyer and property investor resource where you’ll find home loans, mortgage calculators, guides and more. If you’re looking to buy your first home sign up to Our Home Sweet Home’s free seven week e-mail course 7 Steps to Home Ownership. Follow Pete on Twitter or join the conversation at the Our Home Sweet Home Blog. You can also ask Pete a question.
How to choose an investment property loan
May 21, 2010 By
I’ve often been asked whether taking out a loan for an investment property is the same as taking out a loan for a house to live in. The answer is no, it is not.
Buying an investment property is about identifying a residential property asset that provides you with the right mix of rental return, capital growth and profit. If you choose the wrong property your investment strategy could go up in smoke. The same applies to choosing the right investment property loan. You want a loan that helps, not hinders your investment objectives.
This means that a loan that might be suitable for your home and lifestyle needs may be totally unsuitable for your investment property needs.
You need to ask yourself a number of key questions which include:
- How long do you want to hold on to the property before selling it? For example, if you intend to hold it for three years, it’s no good taking a five year fixed rate mortgage. You’ll be up for some hefty early settlement penalties which will eat into any capital profits you may make
- How much of your own funds will you contribute to the purchase price? There may be limitations on the amount your lender is willing to lend against meaning you’ll either contribute more of your own funds or look for other forms of security – like your existing home.
- What loan type do you need to maximise your tax strategy? For example, would you be better off with an interest only or amortising loan?
- Do you want to be positively or negatively geared? You may need to sacrifice flexibility for a low interest rate/low cost loan product.
- Do you want to pay the loan down quickly? In which case you should look at loans that allow lump sum and extra payments without penalty.
- What will your investment/ownership structure be? Will you own the property in your name or through a company or trust? You’ll need to make sure your lender is prepared to lend via these types of vehicles and whether they may require director or other types of guarantee.
So there’s a lot to think about before taking out an investment property loan.
My tip
The key is to make sure the loan supports your investment structure, goals and objectives. Be clear about what you are trying to achieve and when you want to achieve it.
Pete Boehm is co-founder of Our Home Sweet Home – a home buyer and property investor resource where you’ll find home loans, mortgage calculators, guides and more. If you’re looking to buy your first home sign up to Our Home Sweet Home’s free seven week e-mail course 7 Steps to Home Ownership. Follow Pete on Twitter or join the conversation at the Our Home Sweet Home Blog. You can also ask Pete a question.
How to save thousands off your home loan
May 14, 2010 By
Last week we looked at how a typical variable rate amortising or principal and interest mortgage worked and in particular how the amount borrowed, the interest rate and loan term combined to determine the minimum monthly repayment, the total interest paid and the speed at which the loan balance was paid off.
Today we’ll explore how you can pay off your home loan faster and save thousands on your interest costs.
Start early
The most amount of interest is charged and paid during the early years of your loan. It follows that the earlier you can reduce your loan balance, the better off you’ll be. This may be a bit of a challenge, particularly during the first five years, but you’ll be surprised at what you can achieve and what a difference can be made to your financial position.
Lump sum payments*
You may find yourself in the fortunate position to be in receipt of a lump sum of cash. Perhaps you received a bonus from work, a gift or an inheritance from a long lost relative. What should you do with it? You have a choice of spending it, investing it or paying off debt.
To decide the best way forward, you should compare the benefits (financial and non-financial) of your options. Here we are looking at the financial benefits in relation to your debt. Normally, it’s probably a good idea to pay down high cost debt, like credit cards or personal loans.
But what about your home loan – is it worth paying off a lump sum and if so, when? Let’s look at a situation where you receive an after tax $5,000 lump sum and are wondering whether to use it to reduce your home loan. Let’s look at some different loan balances and some different time frames in which the lump sum is paid.
Interest saving made on paying a $5,000 lump sum off a 25 year mortgage at 6 percent:
| Loan\when | 1st year | 5th year | 10th year | 15th year | 20th year |
| $200,000 | $15,265 | $11,081 | $7,017 | $3,962 | $1,674 |
| $250,000 | $15,420 | $11,180 | $7,072 | $3,993 | $1,691 |
| $300,000 | $15,527 | $11,247 | $7,110 | $4,014 | $1,703 |
| $350,000 | $15,603 | $11,295 | $7,137 | $4,028 | $1,711 |
Time saving made on paying a $5,000 lump sum off a 25 year mortgage at 6 percent:
| Loan\when | 1st year | 5th year | 10th year | 15th year | 20th year |
| $200,000 | 1 year 4 mths | 1 year | 9 months | 7 months | 5 months |
| $250,000 | 1 year 1 month | 10 months | 7 months | 6 months | 4 months |
| $300,000 | 11 months | 8 months | 6 months | 5 months | 3 months |
| $350,000 | 9 months | 7 months | 5 months | 4 months | 3 months |
As you can see, the earlier you pay a lump sum off your loan, the more it saves you in time and money and the quicker you pay off your debt. If you can regularly pay lump sums off your mortgage, you’ll pay your loan off even sooner and save yourself a lot more in interest cost.
Extra payments*
Say you have some extra cash and can make additional payments on top of your minimum monthly loan repayments. Is it worth doing and how much will you save?
Let’s look at an example of making extra repayments on a $250,000 25 year loan at a variable rate 6 percent. The minimum monthly repayment would be $1,610.75. What would happen if you could, from the very beginning, repay more than the minimum?
Saving on your loan by paying more than the monthly minimum:
| Savings\extra payment | $10 extra per month | $20 extra per month | $50 extra per month | $100 extra per month | $200 extra per month | $500 extra per month |
| Interest saved | $3,874 | $7,607 | $18,041 | $33,262 | $57,646 | $103,614 |
| Time saved | 4 months | 8 months | 1 year 7 mths | 3 years | 5 years 4 mths | 10 years |
The first five years of paying off your home loan are usually the toughest. So let’s look at what would happen if you started making the same extra repayments five years into your loan.
Saving on your loan by paying more than the monthly minimum after five years:
| Savings\extra payment | $10 extra per month | $20 extra per month | $50 extra per month | $100 extra per month | $200 extra per month | $500 extra per month |
| Money saved | $2,199 | $4,355 | $10,389 | $19,447 | $34,511 | $64,719 |
| Time saved | 2 months | 5 months | 1 year 1 month | 2 years 1 month | 3 years 9 month | 7 years 3 months |
You can see making extra repayments, no matter how small, can save you thousands and reduce the amount of time it takes to repay your loan.
Tips
Here are some easy to follow tips to help you save time and money on your mortgage:
1) Check and make sure its OK to make extra repayments without penalty. If there is a penalty, weigh this up against any savings;
2) Try to make extra or lump sum payments as early on in your loan term as possible – that way you’ll save more interest and be able to pay off your loan more quickly;
3) Even small extra repayments can make a big difference – look for little savings and use these to increase your monthly repayments;
4) If your lender reduces your interest rate and your monthly repayments, think about maintaining your current repayments which will help pay your loan off sooner
5) Use online tools and mortgage calculators to help manage your home loan and work out the savings in time and money you can make through making extra or lump sum payments.
* Note: Always check to make sure whether there are any costs or penalties in making lump sum or extra repayments.
Pete Boehm is co-founder of Our Home Sweet Home – a home buyer and property investor resource where you’ll find home loans, mortgage calculators, guides and more. If you’re looking to buy your first home sign up to Our Home Sweet Home’s free seven week e-mail course 7 Steps to Home Ownership. Follow Pete on Twitter or join the conversation at the Our Home Sweet Home Blog. You can also ask Pete a question.
How to manage your home loan
May 7, 2010 By
The best way to manage your home loan is to understand how it works. To do this you need to understand the linkages between the interest rate, the term, how much you borrow and how much you repay each month. Once you’ve mastered this, you’re on your way to being better able to assess your loan and being able to apply money saving techniques.
The basics
The most common type of home loan is an amortising or capital and interest loan, where a proportion of your monthly repayment pays off some principal (the amount you borrowed) and the remainder pays off the interest charged by your lender. The interest rate can be variable, fixed, or a combination of both.
To explore this further, let’s use an example of a home loan for $250,000 at a variable interest rate of 6 percent for 25 years. What would you be committing to under this loan?
| Amount borrowed | Monthly repayment | Total interest | Total repayments |
|
$250,000 |
$1,610.75* |
$233,226 |
$483,226 |
* This assumes interest rates stay the same over the term of the loan
As the table shows, over the term of the loan you would be paying back your lender $483,226 at $1,610.75 per month, where the interest component is a whopping 93 percent of the amount borrowed. You might be surprised at how much interest you’re paying, but if you really want a shock, if the interest rate was 8%, total interest paid would be $328,862 or 132 percent of the amount borrowed!
Why is the interest figure so high? Apart from the amount you borrow, there are two key factors. Firstly cost – the interest rate charged. Secondly term – the period over which the loan is borrowed.
The length of your loan
Most people understand the concept that the more you borrow, or the higher the interest cost, the more you’ll pay. What many don’t realise is that the longer the term, the more you’ll pay (and conversely, the shorter the term, the less you’ll pay).
Let’s compare our example loan above over different terms:
|
Term of loan |
Monthly repayments |
Total interest |
Total repayments |
|
15 years |
$2,109.64 |
$129,735 |
$379,735 |
|
20 years |
$1,791.08 |
$179,858 |
$429,858 |
|
25 years |
$1,610.75 |
$233,226 |
$483,226 |
|
30 years |
$1,498.88 |
$289,595 |
$539,595 |
As you can see, the length of time you choose to repay your loan effects greatly how much interest you’ll have to repay. It’s really about balancing affordability and cost. On the one hand, a longer term reduces your monthly repayments, but you pay a lot more in interest. On the other hand, a shorter term means you pay less interest, but your monthly repayments can be significantly higher.
Paying off your loan
The way in which your monthly repayment is applied to reducing the amount borrowed may come as a bit of a shock. In the early years of an amortising loan, most of the repayment goes to paying interest, and only a small proportion goes to repaying capital. This is because the interest component is much higher in the early years and decreases significantly further down the track once the amount borrowed starts to reduce.
Let’s look at how the principal outstanding changes for our example loan:
|
Period |
Cumulative repayments |
Cumulative interest |
Principal outstanding |
Interest for period
|
Principal reduction |
% principal remaining |
| 1 year |
$19,329 |
$14,879 |
$245,550 |
$14,879 |
$4,450 |
98% |
| 2-5 years |
$96,645 |
$71,475 |
$224,830 |
$56,596 |
$20,720 |
90% |
| 6-10 years |
$193,290 |
$134,170 |
$190,880 |
$62,695 |
$33,950 |
76% |
| 11-15 years |
$289,935 |
$185,022 |
$145,086 |
$50,852 |
$45,794 |
58% |
| 16-20 years |
$386,580 |
$219,898 |
$83,317 |
$34,876 |
$61,769 |
33% |
| 21-25 years | $483,226 |
$233,226 |
$0 |
$13,328 |
$83,317 |
0% |
Some would think that after five years of a twenty five year loan, being 20 percent of the way through the term, 20 percent of the loan balance would have been repaid. Wrong! In this case, only 10 percent of the principal is repaid. Why? The reason for this is interest cost.
Let’s look at how much of your monthly repayment goes towards interest:
| Period |
Total repayments |
Total interest |
Interest as a % or repayments |
| 1- 5 years |
$96,645 |
$71,475 |
74% |
| 6 – 10 years |
$96,645 |
$62,695 |
65% |
| 11 – 15 years |
$96,645 |
$50,852 |
53% |
| 16 – 20 years |
$96,645 |
$34,876 |
36% |
| 21 – 25 years |
$96,645 |
$13,328 |
14% |
The above table gives a good illustration of where your repayments go – particularly during the first ten years. After that, more of your repayments go to paying off the loan balance. The early years are always the toughest and your repayments pretty much go towards paying the lender’s interest.
Tips
Armed with this knowledge, here are some easy to follow tips to help you manage your mortgage:
1) Interest rate is important – the lower the rate the better. Make sure you check for any additional fees and charges a lender may try to impose to counteract a low rate;
2) Think carefully about how much you borrow. The more you borrow the more interest you’ll pay. Do a budget and make sure you can afford to meet the minimum monthly repayments;
3) By very mindful of being offered longer term loans. While it may be tempting to take a longer term loan in order to reduce your monthly repayments, remember the longer the term, the more interest you’ll pay and the longer it will take you to build equity in your home;
4) Really focus on your home loan during the first ten years because most of your repayments are going towards interest. Make sure you meet all your repayments on time;
5) The speed at which you build equity in your home through reducing your loan balance depends on things like loan term, amount borrowed, interest rate and monthly repayment. You can use online tools and calculators to run scenarios on how your financial position or equity in your home would change if any of these key factors varied;
Next week we’ll look at some simple techniques you can use to pay off your home loan more quickly and save thousands off your interest bill.
Pete Boehm is co-founder of Our Home Sweet Home – a home buyer and property investor resource where you’ll find home loans, mortgage calculators, guides and more. If you’re looking to buy your first home sign up to Our Home Sweet Home’s free seven week e-mail course 7 Steps to Home Ownership. Follow Pete on Twitter or join the conversation at the Our Home Sweet Home Blog. You can also ask Pete a question.
Making yourself attractive to your lender
April 30, 2010 By
While you’re out looking for the best mortgage, your mortgage company is out looking for the best borrowers.
When you both meet for the first time, impressions count. Home lending requirements are becoming tighter, and mortgages are by no means guaranteed. But the better impression you can make, the more likely your chosen mortgage company will be to grant you a home loan.
So how can you present yourself in the best light? Here are my top ten tips:
1. Approach the mortgage company directly
There are a variety of ways to contact a home lender – through a branch (if the lender happens to be a bank), a mobile lending manager, or even via a mortgage broker. Whichever path you think is the most suitable is fine.
However, while the big banks and major lenders support all types of approaches, the introduction they typically prefer is the direct one – an enquiry that goes straight to their business.
This is because they prefer to be involved from the outset. For borrowers, one advantage is that you’ll deal directly with someone who can approve the loan.
2. Be honest
Honesty is the best policy. If you keep information from your home lender or tell them something that’s not true, you’re very likely to be discovered.
When you are, your loan application will probably fail. The best practice is to be open and honest – your lender will be happier to write a loan if they believe you’re trustworthy.
3. Never ‘play the field’
Mortgage companies get wary when they see multiple loan applications on your credit file. A long list of applications often leads them to presume that you’re desperate or that something is wrong.
For this reason, don’t play the field by applying to lots of lenders at once. Be selective and approach as few lenders as possible. (Read more about credit files and Australia’s new credit reporting system).
4. Save a big deposit
Mortgage companies get excited by equity. Your ability to meet your mortgage repayments is always their primary consideration, but the bigger your deposit (and the bigger your unencumbered equity) the higher your chances of receiving a loan.
Try to have a 10 per cent deposit as a minimum. If you can save 20 per cent or more, you can avoid stricter underwriting guidelines and the added expense of Lenders Mortgage Insurance.
5. Be an existing customer
Home lenders like to know you before they give you a loan, but often the first time they meet you is when you’re requesting a loan.
If you have a pre-existing relationship with a home lender through other products such as credit cards or savings accounts, they can be more familiar with and comfortable about you and the way you conduct your finances.
If you know the lender you’d like to deal with and you have some time up your sleeve, consider becoming their customer for six months or so before requesting a home loan.
6. Demonstrate a stable work history
Home lenders prefer borrowers who’ve been employed on a continuous basis. Switching jobs is fine, especially in the same field, but if there are sizable gaps in your employment history home lenders may ask why.
If you’re self-employed, you may not be as attractive to a home lender as someone who earns a salary. You will need to provide a good deal of documentation that shows your ability to pay back the loan. Tax returns for at least the last two years will be required.
7. Show a good savings history
Mortgage companies are interested in your ability to manage your financial commitments. One way to prove you can is to demonstrate a record of savings that shows sound financial control. If possible, try to demonstrate a six-month savings history and explain to your mortgage company how you achieved your aims.
8. Pay your bills
Mortgage companies like to know that you’re on top of your day to day finances.
Let them know that you can meet your financial commitments, including your regular utility, phone and other charges, on time.
9. Manage your credit card
Showing that you can manage a credit card will help to persuade a home lender that you can manage debt.
Show that you pay your credit card off (in full) each month, and that you’re not funding your living expenses on credit. At the very least, home lenders will want to see that you’re making above the minimum repayments on your debts.
10. Detail your past relationships
History often repeats and your lender will probably want to know how your previous loans have worked out.
They’ll ask your past lending partners first hand, requesting credit checks through organisations like Dun & Bradstreet.
For this reason, it’s important to have a clean credit history – even small imperfections such as missed power bills can affect your application. Be certain to pay your bills on time and ensure that any disputes you have are resolved quickly.
Summing up
Getting a home loan requires preparation, planning and a good first impression.
To understand what your lender or mortgage company is looking for, the above list is a good start. See how you measure up. If there are any gaps start working to improve them now. Remember that the stronger your loan request, the more opportunity there will be to negotiate for lower interest rates and better features on your mortgage.
Pete Boehm is co-founder of Our Home Sweet Home – a home buyer and property investor resource where you’ll find home loans, mortgage calculators, guides and more. If you’re looking to buy your first home sign up to Our Home Sweet Home’s free seven week e-mail course 7 Steps to Home Ownership. Follow Pete on Twitter or join the conversation at the Our Home Sweet Home Blog. You can also ask Pete a question.
