Tumbling Interest Rates

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Tumbling interest rates make mortgages affordable for First home buyers

Mortgage rates are set to come down a bit further and the banks seem to be easing their qualifying rates. They are looking for a clean credit rating and a strong, secure income. Property prices are buoyant but the amount of stock available fluctuates.

If you’re not sure how much you qualify for then contact us for a free consultation. There are a number of ways to help you into homeownership with a small deposit plus the government’s first homeowners grant.

At the moment it is often cheaper to pay a mortgage than rent. Rents can and will increase as property investors need to upgrade their properties into alignment with the new rules that are coming through and inevitably the rent will need to cover those costs.

For instance. A home worth $600,000 on which you have borrowed $540,000 (10%) at (say) 2.55%Would cost $500 per week over 30 years. The rent you’d pay wouldn’t be much less than this.

Property prices don’t look like they are coming down any time soon and there is a big demand for property as they come on the market. The best way to be prepared is to have a pre approval in place so that you know your affordability. Don’t be among the hopefuls but be ready to give a strong offer with the bank approval in place and you will be more likely to purchase.

Things to consider

  • Could you have someone as a flatmate for a while to help with mortgage payments?
  • Don’t look for your dream home, this is a start into the property market and the property could well become a rental property in the future or be the stepping stone to a better home
  • Everyone has to start somewhere so don’t overstretch yourself. There’s not much fun owning a property and having to sacrifice your social life. However, there are ways you can save money on a day to day basis e.g. limit the number of coffee’s you buy for a while
  • Do your homework regarding the area you are looking to purchase in. Would you be happy living in that area? Is it close to work, schools, shops etc?
  • If you’re living cheaply at the moment, e.g. in the family home. You could consider purchasing an investment property to start your property portfolio. Once you have sufficient equity in that property and if the price has gone up then either sell or leverage to buy a home for yourself.

Things to consider

There is some talk of the Reserve bank possibly going into negative rates which will mean another reduction in rates. Does that mean mortgages will be easier to qualify for? No. not necessarily since the banks are really cautious at the moment and under the responsible lending act they, and us as brokers, need to make sure we’re not putting you in a position that might be untenable in the future if rates increase. That’s why they use a higher servicing rate to qualify new applications.

At this stage, most economists cannot see the rates going up for quite a considerable time but then again, last year none of us could have foreseen us being in this COVID situation.

Revolving Credit

With the lower rates, it is a good time to reduce your mortgage but I personally do that through using a revolving credit facility. That way it’s possible to reduce your mortgage costs yet leave the funds available in case you need them in the future.

I am always amazed at how many people have savings sitting in a bank account and earning virtually no interest but still paying tax on any interest earned. Much smarter to either have an offset account- where the money in that account reduces the interest you pay on your mortgage OR to put the money into a revolving credit facility so that you only pay interest on the balance yet leave the money available if needed

Want to know if this will work for you or just some more information? Call us on 021 667 212