Mortgage Loans, Home Loans, Bad Credit Home Loans

Should I fix my home loan? We hear this question on a daily basis. The decision to go with a fixed home loan is a very personal one and will depend on:

- your risk profile;

- where you believe interest rates are heading;

- what you intend to do with your property.

Most Australian economists believe that while the rates are unlikely to be put up tomorrow, RBA will increase interest rates by anywhere from 75 to 100 basis points over the next 12 months.

More borrowers are choosing to fix their home loans.

According to recent statistics provided by Mortgage Choice, new home loan customers are fixing their mortgages at the fastest pace in more than two-and-a-half years.

More than 15 per cent of the mortgage broker’s new clients fixed at least part of their home loan last month, with November’s rate rises fresh in their minds.

That compares with an average 4.6 per cent through last year – and a low in January last year of 0.9 per cent, or just one in about every 110 customers.

It seems that Australia is experiencing a real surge in demand for fixed home loans.

Despite the surge in popularity for fixed interest rates recently, variable rate mortgages continue to dominate the market.

Majority of people applying for a mortgage today are still applying for one with a variable interest rate. One of the biggest reasons for this is the cheaper rates available with discounted variable mortgages.

Variable loans tend to also offer more loan features and more flexibility. They are easier to refinance and offer access to a redraw facility.

Why Fix?

Borrowers who fix their rates are taking something of a bet on future official interest rate movements.

If the base rate goes up – and particularly if banks lift their variable mortgage rates even higher – the decision to lock in rates can pay handsome dividends.

If it goes down, they potentially lose out.

Reserve Bank data shows that the average standard variable rate tumbled from 9.6 per cent in August 2008 to 5.75 per cent by April the next year.

Homebuyers with a typical $300,000 variable loan abruptly found themselves with an extra $755 every month to spend, save or deposit as an extra repayment into their mortgage accounts.

Similarly, variable loan customers who borrowed at the bottom of the rates curve are out of pocket by an extra $390 every month.

There is a lot to be said for certainty and knowing that no matter what happens to the interest rate , you will be able to afford your mortgage repayments.

According to a leading economic forecaster, home loan borrowers with an average size mortgage will find themselves paying an extra $200 in monthly mortgage repayments by the end of 2011.

While at this stage the interest rates are expected to stay on hold in February, Access Economics expects the variable mortgage rates to go up by up to 1% by late 2011 or early 2012.

There is an expectation that the standard variable rate will increase to 8.8 per cent, with the monthly repayments on a  typical $300,000 home loan going up to $2476 from $2275.

RBA had introduced several rate rises in 2010 all of which were quite effective at combating inflationary pressures.

While the inflation rate is “smack in the middle of the Reserve Bank target band”, Access Economics warns “that good news will soon pass”.

While nothing may be done to the rates in February, before long the bad news will come.

In a recent poll of Mortgage holders, 65% confirmed that their main reason for not refinancing their mortgage is the exist fees.

The findings come amid attempts by the Federal Government to bolster competition in the banking sector, with a ban on exit fees among proposed measures.

More than 1000 households took part in the survey – and almost a third said there were insufficient differences between lenders to make switching worthwhile.

Consumer disputes with their lender over the break fees levied on early repayment of fixed home loans are on the increase.  A large number of borrowers are complaining of inadequate disclosure about the break costs involved in discharging their mortgage earlier.

The Credit Ombudsman Service has written to its members advising them there has been an increase in the number of complaints from borrowers who had fixed their home loan rates.

In March 2008, cash rate reached 7.25%  following a period of rate increases that started in 2002.

At that time many borrowers panicked and decided to fixd their home loans. Some of the fixed rates were as high as 9%.

Today many borrowers still in the fixed loans are complaining that they were not advised of the break costs when they entered into the loan.

According to a survey of mortgage holders by Mortgage Choice, men are 10% more likely to look for a mortgage refinance alternative during 2011 then women.

In a survey conducted in late 2010, Mortgage choice found that 51% of Women mortgage holders surveyed were not intending to make changes to their financial situation in 2011 or were unsure if they would.

While, 61% of men included in the survey were looking to make changes in the new year.

Men are often seen as being more proactive than females in matters of money – this could be an illustration of this.

Overall, males and females together were more likely to review their finances during 2011 than in 2010, when just over one third indicated they would do so.

The Commonwealth Bank has decided to remove home loan fees across several mortgage products in an effort  to redeem themselves in front of customers still unhappy over the bank’s November rate hike.

CBA bore the full brunt of consumer anger toward major Australian banks when it was the first to raise its interest rates way beyond the RBA increase of 25 points. In November CBA put up its rates by 45 basis points .  The November survey into bank customer satisfaction by Roy Morgan Research showed CBA became the target of public outrage over out-of-cycle rate moves, dropping to its lowest home loan customer satisfaction rating in five years.

The changes to the bank’s home loan products includes the temporary removal of loan establishment fees, similar to what Westpac introduced late last year.

According to Mark Flack, the executive director of Firstfolio, the business is expecting to see a massive surge in online mortgage sales over in the next 12-18 months.

Flack told the Australian BrokerNews Firstfolio currently sells more than$50m home loans per month through its online channel, and expects this number to double in the next year to year-and-a-half.

This should not alarm mortgage brokers working through traditional channels.

In most cases borrowers who apply online would be more likely to have gone direct to a bank. They tend to be pro-active  having typically researched the market for products and are looking for a better deal.

Certainly borrowers who require assistance and are less informed/confident will continue to seek out mortgage brokers.

“Brokers will continue to service clients who are looking for product assistance, or need help putting in place the right loan structure.”

While direct channels offer a great opportunity for borrowers to who are well informed and are looking for the cheapest mortgage deal.

According to recent data provided by Loan Market mortgage brokers – over a quarter of home loan inquiries the brokerage receives from First home buyers are looking for 100% home loan. Unfortunately 100% home loans simply do not exist and are unlikely to become available in the near future.

Borrowers are often confused by the advertising of 100% home loans expecting that there will be no other fees other security requirements or additional conditions.

In fact mortgage brokers regularly receive home loan inquiries from first home buyers without a deposit looking to borrow 100%  plus money towards consolidation of debts.  Borrowers simply to do understand the concept of secured lending.

While  St George and Bank SA are accepting rent payments as a form of savings for a home deposit if there was evidence of at least 12 months’ continuous rental history and the property is leased through a licensed property manager, there will still be some costs required to be covered by the borrower – for example mortgage insurance premium.

First Home Buyers also have family equity options available to help those needing a home loan deposit.

Under the family equity guarantor’s support policy, parents or another immediate family member or even a friend can help with loan servicing and security support.

Queensland house prices may suffer as a consequence of the recent floods, further straining the household budgets and affecting the  banks’ willingness to lend.

Credit ratings agency Fitch said today that while the full impact of the Queensland floods is impossible to gauge for the moment, however the agency believes that in the near future we will see a negative impact on house prices, borrowers and banks.

Property damage may have either a short term or an on-going impact on borrowers‘ ability to repay home loans thereby increasing the rates of default.

Losses for banks could also mount if people can’t fully repay loans. Fitch said lenders’ mortgage insurance – insurance held by the banks themselves – does not cover flood damage.

Defaults on home loans may force Fitch to reconsider assumptions it made about recoveries on losses when it initially rated the mortgage-backed securities linked to Queensland’s real estate, the agency said.

They will also adjust up the risk on any property located in a flood prone zone.

Queensland Premier Anna Bligh said yesterday 28,000 homes would need to be completely rebuilt following the floods, while many houses would be uninhabitable for weeks, months or even years. The median price of a Brisbane home already dropped by around 1 per cent in November, seasonally adjusted, to $432,900 based on info provided by RP Data.

Nationwide, house prices started to plateau last year as the Reserve Bank raised interest rates and commercial banks added additional increases of their own.

Floods may affect Queensland Home Prices

SQM Research director Louis Christopher also believes the impact of the floods will negatively impact on home prices.

There will be fewer people wanting to purchase in flood affected areas and therefore valuations will drop as will prices.

Of all the securitised mortgages in the state, 1.5 per cent of them are flooded, according to Fitch’s estimates.

Home Loan payments on hold

Australia’s major lenders have announced mortgage payments are on hold for affected households and have increased lines of credit for customers.

The full impact of the floods is yet unknown in terms of exact losses.

Credit Union Australia has suffered 2 days of restricted processing functionality because it’s central data centre ,based in Brisbane – was evacuated due to threat of floods.

Four hundred thousand Credit Union customers across Australia did not have access to most of their banking services for two days. Today these services were returned to normal.

The Credit Union also has a large number of it’s branches across Queensland shut because of flooding.  Ipswich, Indooroopilly and Brisbane’s Eagle Street and Broadway on the Mall were closed again yesterday and are likely to be closed again today.

Chief executive Chris Whitehead said the crisis management centre at Eight Mile Plains was managing the situation well and was not under threat from either power failure or the floods.

Bank of Queensland was also affected by the floods. For most of the day yesterday the bank suspended internet banking services to customers  because of a number of  issues arising from the flooding along the Brisbane River. Internet banking should be back to normal today.

According to recent data from the ABS, the number of home loans taken up by Australians during December 2010 is at a 12 month high.

Despite the increasing interest rates and slowing down property market people are still looking around at good deals and are still borrowing.

The total value of housing commitments increased by 1.2 per cent, pushed along by a 2.9 per cent rise in the value of owner occupied housing loans.

First home buyer Home Loan numbers were also on the increase, reaching 15.6 per cent of owner occupied housing finance commitments for November 2010 after a fall to 15.4 per cent in October.

The fact that housing commitments are on the increase is certainly a positive trend for the Australian economy.

While housing price growth has slowed down alongside our continued strong population growth and healthy employment situation, it is fair to say that there are plenty of opportunities out there for buyers who do their research, are confident of their finances and can withstand possible future interest rates rises.