Tag: loan

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RENO ADDICT

To fix or not to fix (your loan)

Credit

If you’re planning a renovation, just finished one, or you’re right in the thick of one, you may well be re-evaluating your mortgage options. And if you are, you are also probably asking yourself the question: “Should I fix my loan rate?”

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Credit: Three Birds Renovations

There are always questions around fixed and variable rates, because people really want to know what they should do!

Some people take the crystal ball perspective – they try and predict what’s going to happen in the future, but to be honest, it’s a bit like being at the casino table and trying to figure out whether the ball is going to drop on a red or black number. Banks employ rooms full of economists who try to figure this out every day and they still get it wrong!

After: backyard
Credit: Three Birds Renovations

The most accurate (and there’s still plenty of room for error) approach is probably the rear vision mirror view, which is to look backwards at what has happened with rates historically.

At the moment, interest rates are at an almost-60-year interest rate low, which is great for buyers right now. But if you speak to people who were buying houses in the ’80s, they’ll be able to talk to you about the pain of borrowing on rates of 18%. I’m 35 and in my ten-year borrowing life I’ve seen a big fluctuation with rates. One of my first loans sat in the 8 or 9% range and now we are seeing them halve to sit in the 4% range.

With all of that in mind, what looking in the rear vision mirror tells us is that right now interest rates are incredibly low and if it suits you, it is probably a great time to lock in a fixed low rate.

Credit: The Block Shay and Dean's kitchen
Credit: The Block Shay and Dean’s kitchen

The third approach to take is to have a good look at your plans for the next few years and see what is on the radar that may dictate or limit the choices you make about whether or not to fix your rates.

Statistics show that every three years people adjust their home loan. And that’s usually because they are doing something in their life that requires them to make changes to their loan – they are renovating, getting married, divorced, having a baby, moving house etc.

For some people, the certainty of knowing what they will be paying out for their loan every month and that their rates won’t change over the term of their loan suits them perfectly. But for others – especially when you bear in mind the three-year average loan adjustment – locking into a loan may not be the way to go.

You might be planning on flipping the house and buying again, you may want to renovate, you may be planning on having another baby. For whatever reason, locking into a fixed loan might not suit your life at the moment.

Credit: The Block Caro and Kingi's kitchen
Credit: The Block Caro and Kingi’s kitchen

If you do settle on a fixed rate and then decide to change things, the bank will charge you for breaking the contract of your loan. This is called a fixed-rate break cost and it is set at a rate that covers what the bank will lose out on by you breaking the contract.

Something else to keep in mind when thinking about a fixed rate is while you do have the certainty of knowing what you’ll be paying on your mortgage for the term of your loan, a fixed rate means that you will not have the flexibility of a variable loan.

And that means you cannot pay extra off the loan. You can only make the scheduled payments over the life of the loan (although some do give you a capped additional amount, usually around $10,000).

So if you get a bonus at work, or you come in to an inheritance etc, you will be penalised with a fixed-rate break cost if you pay a lump sum into your loan.

BecJudd02
Credit: Rebecca Judd

But the good news is, you can have your cake and eat it too!

You can do this by fixing a proportion of your loan and leaving the balance on a variable rate. That way, whichever way rates move, one half of your loan is always winning. If you are going to do this, have a really good look at what you have planned in the next few years to ascertain the best proportion of fixed to variable.

The final thing to consider once you have decided to fix all of your loan – or just a proportion – is how long you want to fix it for. This is the million-dollar question. Different terms will have different costs – sometimes the longer the term, the cheaper the rate, while at other times, the shorter the term, the cheaper the rate.

Your plans will be a good guide to the length of your term as well. If you plan on flipping your property and buying again, you don’t want to be locked in to a loan and incur a break cost when you sell.

On the other hand, if you plan on renovating and holding on to the property as an investment or as an owner-occupier for a few years, now is probably a great time to lock down a loan at historic low rates, keep your repayments low and maybe even use some of the extra cash you are saving to buy yourself a second property.

— Paul is the director of CVG Finance, a leading brokerage offering financial services across all areas. 

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Competitions Styling

Launch your floristry career with this money can’t buy prize

Budding florists listen up… there’s a blooming beautiful (I know, I went there!) future awaiting you.

bay 10 florist prize

Introducing Project Rosie, a money can’t buy prize that will see one talented florist receive mentoring, financial assistance and free rent for nine months at Bay 9, an incredible heritage warehouse office space located under the iconic Harbour Bridge at Lavender Bay.

As with all good things, this amazing launch pad comes with some conditions. If you want the space and the chance to be part of a community of like-minded creative entrepreneurs, you have to show Bay 9 in words and pictures your creative and business plan. And promise to keep the herb garden alive at Bay Ten Espresso, the super cool cafe that’s right next door!

bay 10 florist

Entrants will be whittled down to a short list of six who’ll be given $200 each to refine their business plan. There’ll be a chance to pitch your proposal before the winner is selected on 18 March 2016, ready for an early 2016 start-up. There’s a low-interest $10,000 loan available to get the business up and running and to buy stock, plus free mentoring and assistance with getting the business plan right.

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Bay 9 is a funky as anything concept for start-up and up-start businesses who want a flexible creative space in a cool environment with the bonus of seriously good coffee at Bay 10 Espresso next door. Bay 9 host Mark Davidson, knows a thing or two about start-ups and he wants to give a leg-up to a florist with creativity and entrepreneurial flair. Why? Because he believes in the Hindu idea that every day should begin with immersion in something of beauty. And because he believes that talent needs to be supported.

“What we’re doing at Bay 9 is all about providing a place where people with good ideas can make them happen,” says Mark. “We’re signing up tenants at the moment and what they all have in common is a dream that can become real given the right environment and encouragement. This is the coolest work address this side of the Harbour Bridge and possibly the other side too and would be an amazing place for a florist to launch their career and business.”

bay 10 florist 2

For florists who think they’ve got what it takes to put their petal to the metal this is the stuff you need to know. Bay 9 on Middlemiss St, Lavender Bay, is located in one of the heritage listed warehouses under the Harbour Bridge. It will be occupied by start-up and entrepreneurial businesses who want flexible, creative space in an address that is iconic and memorable. It is walking distance to Milsons Point and North Sydney train station and 1,500 cyclists ride past each day with foot traffic of 300 and growing. There are 300,000 people working in North Sydney making it the fourth largest CBD in the country and there is a resident population of 25,000. That’s potential for a whole bunch of flowers needed to say thank you, sorry, I love you and have a happy day.

Expression of interests need to be in by 19 February 2016. The shortlist will be notified on 25 February and invited to a Pitch Day on 14 March. Winner will be notified on 18 March.

To be in with a chance send an expression of interest, which you can find here.

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RENO ADDICT

What’s the deal with recent rate hikes?

Home Loans Adelaide

Just when you were pulling your hair out over the impending spending of Christmas, the banks come along and hike home loan rates, effectively jacking up your monthly expenses for the next 30 years. But why have they come now, will they cause fewer presents under the tree and, if possible, how can you avoid them?

Home Loans Adelaide
Credit: My Investment Plan

The banks need to hold more money – and you may too

Financial institutions have pushed up their variable rates out of cycle after being told by financial regulator group APRA that they need to hold more risk weight capital against their loans. But what does a rate hike look like in terms of your wallet?

If you had a $400,000 home loan and experienced a hike, say from 5.45% to 5.6%, the extra monthly amount you’d have to fork out would be $37.69 a month. While this means the number of presents under the Christmas tree this year may not be affected too severely, it does mean that over 30 years you can expect to shell out an additional $13,569.23. When painted in this light, unsuspecting rate hikes can bludgeon your bank account.

Credit: Aspire Wealth Services
Credit: Aspire Wealth Services

Unlike your last new year’s resolution, you can make a positive change

Home loans, like all financial products, should be treated as a strategic agreement. The laws of probability state that, for the multitude of loans on the market, there’s probably one with a lower rate than your own. There’s also a key process to follow when looking for a better rate.

Firstly, you’re going to want to approach your lender’s customer retention team with a calm, civil smile. These are the people who are directly responsible for keeping customers happy, so it’s in their best interests to make sure you’re content with your home loan. Have an understanding of the lowest rates in the market (so you know your bargaining power) and ask for a price match – or at least a significant decrease. If you have the stats of lower rates handy, you have an informed and weighted request they’ll need to take seriously.

If your provider won’t listen, find someone who will

They may not have capacity to offer you the best deal on the market – or they may simply not want to.

Whatever the case, some providers will turn a firm, cold shoulder to your rate requests, and there’s usually not much you can do in this case. Or, at least, not much within the same loan. It could be time to refinance.

First, find the lowest possible variable rate in the market – that’s currently 3.79 percent. Then, work your way backwards until you’ve found a loan with the home loan features and LVR levels that you consider essential. You can beat the banks and even find a cushier home loan – you just won’t see the full benefits until Christmas in 30 years time.

— Bessie writes for finder.com.au, one of Australia’s largest comparison websites. She’s passionate about real estate, renovating, and helping Australians find better.  

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DIY RENO ADDICT

How much should I spend on my reno? Part one: valuations

Kitchen with Island, Sink, Cabinetrs, and Hardwood Floors

Number crunching is one of the less exciting parts of renovating – but unfortunately it’s also one of the most important. Whether you are turning over an investment property or renovating your home as a long-term nest for your family, it makes sense to know you are not overcapitalising and the money you are spending is adding value in the long-term. What’s more, the scope of the work can often determine the best type of finance you need to put in place.

Kitchen with Island, Sink, Cabinetrs, and Hardwood Floors

This is the first part in a series about steps to take to ensure the hard work you put into your renovation pays off financially.

Know where you stand – valuations matter!

Start with the end in mind – is the work you are planning going to add more value to your property?

Even if you plan to stay in your home for the foreseeable future, it’s important the work you undertake not only improves your lifestyle, but that it’s work that actually adds to the value of the house and you know where you stand financially up front.

In my work as a broker, I always advise clients to get two valuations. Having your house valued by both a real estate agent and a registered valuer is one of the most beneficial steps you can take. It’s best to have valuations from both, because the two tend to look at property values differently. Real estate agents look forward to what people will pay in the future, while valuers look in the rear vision mirror at what people have already paid for similar properties.

Show them your plans and ask them what they think your property will be worth when the work is completed. A good rule of thumb with valuations from real estate agents and valuers is to work with a number somewhere in the middle of both estimations – agents tend to be optimistic and valuers conservative.

Once you have an idea of what your home is currently worth, what it’s estimated to be worth on completion and how much the work you are planning is actually going to cost, it will become apparent whether or not your renovation is going to add value.

Swimming pool

Ask the real estate agent what buyers are looking for in your area and how your house compares. For example, if they tell you swimming pools are turning people off buying, you may need to reconsider your plans to install one, especially if your budget is going to be tight. It may make more sense to use your pool money to install another bathroom or an extra bedroom.

As well as obtaining professional valuations, make sure you do some legwork yourself. Go to as many open houses in your area as you can to get a feel for what’s on the market and how much it’s fetching.

Use your valuations to guide your design choices. If your house has already significantly increased in value thanks to its location, it is less likely you will spend more than the value you’ll add in the long-term and you would probably do well to upgrade the finishes you install. Look at the kitchens and bathrooms in similar houses that are on the market and use them as a guide as to what buyers are expecting. Similarly with floor plans and soft furnishings.

Your valuations can also steer you in the right direction when it comes to how you are going to finance the work. If you are planning a major renovation that’s going to add significantly to the value of your home, you may choose to leave more of the work in the hands of a builder and take out a construction loan that is paid directly to your contractor.

For a smaller DIY reno that is going to enhance your lifestyle more than the value of your home, a personal loan could be the way to go, while a renovation you plan to complete in a few stages may be best serviced by leveraging the value of your home as work progresses.

Arming yourself with a thorough knowledge of the market before you begin is a solid foundation for any reno, especially one that’s close to your heart!

— Paul is the Director of CVG Finance, a leading brokerage offering financial services across all areas. 

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RENO ADDICT

How to finance your reno: part one

Renovating a house – for lifestyle or profit – is a big financial commitment. And for most of us, that means borrowing the money to do the work. There are lots of different ways to finance a renovation but the key to optimising your success is to find the one that best suits your situation.

Screen Shot 2015-07-01 at 12.38.30 pm

This article is the first in a series outlining the different ways a renovation can be funded and how you can navigate the huge range of financial products to find out which is the best option for you. Renovating can be a stressful undertaking, so knowing you have made the right decision about funding your project from the beginning is a great way to start.

Option one: leveraging equity

One of the cheapest and simplest ways to finance a renovation is to release the existing equity in your home and make use of cheap home loan rates, with most banks offering a range of options when it comes to terms and conditions.

Josh and Penny were a young couple who came to see me to find out how they could finance a renovation they had planned for their first home. The couple were newlyweds when they bought their first house about four years ago. It was a basic two-bedroom, one-bathroom home with a combined living-dining space and an original kitchen.

Since buying the home with a loan of $300,000, the couple had not done any work on it besides maintaining it and keeping it neat and tidy. But in that time, their family had grown to include a new baby and they wanted to update the kitchen and redo the bathroom.

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Josh and Penny had bought their home in an up-and-coming area, so we decided that releasing the equity in their home was the best way to go in terms of funding the renovation. A new valuation on their home came in at $500,000; and because they were able to borrow up to 80% of its value, they now had access to finances of up to $400,000.

Since their original loan was only at $300,000, it released another $100,000 for them to complete the work. This was far and away more than they needed to do the kitchen and bathroom, so they decided that while they were in reno mode, they would build an outdoor entertaining space as well.

We found the best loan available for them – which happened to be with their existing financial institution – and the money was made available to them in their redraw account. The valuation was free and the whole process was a stress-free way of financing their renovation, which finally cost $80,000, leaving them with a mortgage of $380,000.

Once the work was complete, we had the home valued again and that came in at $600,000, which was a great result for Josh and Penny, who had not only enhanced their lifestyle, but had also made a wise move in terms of investment.

— Paul is the Director of CVG Finance, a leading brokerage offering financial services across all areas.