Is it Time to Refinance Your Investment Loan?
In the ever-evolving landscape of finance, the question of how interest rates and loans are expected to change looms on mortgagees every month. As we navigate through unpredictable economic shifts, our recent interview with Ocean Edge Finance sheds light on the dynamic nature of interest rate predictions.
Here’s what they had to say:
How are interest rates expected to change?
The goal posts are changing daily in regard to the crystal ball on interest rate predictions. It’s been doom & gloom since May last year with a volley of 13 interest rate rises due to inflationary pressure. But, hot off the press, is October’s monthly inflation rate, which saw inflation come in at 4.9%* over the last 12 months. Experts predicted 5.2%. Further, this result is well down on its peak of 8.4% in December, last year. So this is exciting news for mortgage holders.
And, in more good news, Paris-based think tank, the Organisation for Economic Co-operation and Development (or OECD)** is predicting that not only has the cash rate peaked in Australia, but rates will fall and probably stop around 3.6% (currently 4.65%) in the third quarter (July to September), next year.
What type of loans are offering the most favourable terms?
The most favourable home loans continue to be loans seen as low-risk by the banks. So any loan equal to, or less than, 80 per-cent of the value of the property enjoy the most favourable terms, known as ‘Loan to Value Ratio’ (LVR). The most favourable of those terms is the lowest interest rate the bank has to offer, particularly for owner/occupied home loans. As a rule of thumb, add 50 basis points to the rate for investment home loans. Interest only loans attract a further premium again. If you would like to know your LVR, and therefore the equity in your home, Ocean Edge can order you a valuation via a bank’s panel of independent licenced valuers. It’s free and no obligation.
When purchasing a property, you can still get a loan if the loan amount is greater than 80% LVR, generally up to 90% – 95%, but expect to pay a premium on the interest rate and you will be charged Lenders Mortgage Insurance (LMI). Nearly all variable rate home loans now enjoy the ability to pay extra and redraw. An offset account is also widely available, however usually with a fee. This fee generally pays for itself as a result of interest savings the offset can generate. The gravy train days of super-low fixed rates during COVID are now a relic of the past.
Finally, there are a number of excellent government schemes available for first home owners and single parents, provided you qualify.
What factor should individuals consider in their financial planning next year?
You can not avoid paying government taxes, but you can avoid paying a loyalty tax to a bank. The average loan size in Australia is $600,000***. The average full-time income in Australia pays $95,000 per year****. For loans paying 50 basis points above the market there is a very easy way to save $3,000 per year in interest by refinancing (that’s $57.70 per week). The average Australian would need a pay rise from $95,000 per year up to $99,500 per year before tax, which is a 4.7% increase, in order to achieve the same cash-flow-positive result. And refinancing is a far easier prospect than pleading with your boss for a pay rise. Because that $57.70 per week is far better in your pocket than the bank’s. In short, one easy financial planning goal for next year should be to check your home loan interest rate.
For rule of thumb, simply add 2.0% to the RBA cash rate, currently 4.35%. If you’re paying more than 6.35% on your home loan call Ocean Edge. You never know, you might get your easiest pay rise ever.
How can Ocean Edge Finance help investors?
Ocean Edge Finance takes the pain out of lending. Predominantly owner/occupied and investment home loans, whether purchasing a property or refinancing, Ocean Edge can also assist with:
– Personal loans
– Car loans
– Asset finance
– Self managed super fund loans
– Commercial loans
– Reverse mortgages
– Debt consolidation
Call Cher at Ocean Edge Finance on 0418 947 910 to find out more.
**https://www.afr.com/policy/economy/rba-won-t-lift-rates-again-oecd-20231129-p5enql
***https://mozo.com.au/home-loans/articles/what-is-the-average-mortgage-in-australia