Mortgage Loans, Home Loans, Bad Credit Home Loans

Even though your lender will run a series of checks to make sure that you are able to afford the home loan you are applying for, you yourself need to also make sure that you are happy with the level of repayment obligations you are taking upon yourself.

Your home loan provider or mortgage broker will ask you for proof of income and information about your current repayment obligations before qualifying you for the home loan. It is important that you yourself consider personal plans such as :

- family planning;

- change of jobs;

- extended leave;

- business expansion etc. before deciding on the level of loan repayment that you are comfortable with.

One of the biggest disasters for any property owner would be defaulting on their home loan repayments and having the property repossessed by a lender. If you take the right precautions before making a commitment for a home loan, then this problem can be avoided.

Demand for fixed home loans continues to stay high despite the Reserve Bank’s decision to cut the official cash rate two months in a row in late 2011.

According to new data from Mortgage Choice, fixed rate home loans made up 24 per cent of all new home loans during the month of December 2011, an increase from 21 per cent in November and well above the 12-month average of 15 per cent.

Demand for fixed home loans has been going up for seven consecutive months in a row, increasing 13 percentage points since May 2011.

“Consecutive cash rate cuts in November and December 2011 have not swayed Australian borrowers’ desire for the stability of a fixed rate home loan.

During the last 2 months of 2011, fixed home loans were still substantially cheaper than the variable home loans even after taking rate cuts into account.

According to the latest report from the Fitch Ratings agency, fewer Australians are defaulting on their home loans.

The latest Fitch Ratings report on residential mortgages shows that home loan arrears have dropped by nearly a quarter in September 2011, down to 1.42 per cent of loans from a high in March of 1.77 per cent.

All the states and territories of Australia had experienced lower rates of home loan arrears as a result of stable or falling interest rates.

Fairfield-Liverpool in Sydney’s west remain the worst performing region in Australia in terms of mortgage arrears, however  the number of borrowers who are one month or more behind in their home loans has declined.

Melbourne’s northern suburbs were the most reliable home loan payers with only 0.54 per cent of borrowers in arrears of 30 days or more.

‘‘Sydney’s south-western suburbs and the Central Coast; the Gold Coast in Queensland and the south west region of Western Australia continue to experience above-average arrears,’’ Mr Zanesi said.

Queensland was still the worst-performing state in Australia in terms of mortgage performance, the result of last year’s Christmas spending, socio-economic variables and natural disasters, Fitch said.

The ratings agency did note that tourist type destinations tend to have a worse home loan repayment track record than regular residential suburbs.

Mortgage stress has been a problem for many Australian families for quite some time now. In recent times this problem has been aggravated by the declining property prices and poor economic conditions.

Borrowers holding large home loans, investments loans as well as credit cards, car loans etc – are caving in under the pressure of huge debts. Unfortunately property values are down and those who would like to seek stress relief through debt consolidation, find that they are unable to qualify for a mortgage refinance because they no longer hold the equity in their property that they did some years earlier.

A popular definition of mortgage stress is when your home loan repayments take up more than a third of your disposable income, although some financial experts see things differently.

Over the first 10 months of 2011, there was little movement on interest rates, however economic conditions were poor with many borrowers loosing employment and consequently being unable to pay their mortgages.

Australian Bankers’ Association chief executive Steven Munchenberg disagrees with the third of disposable income theory.

“At some levels it may be appropriate, but a lot of high-income earners will have more than 33 per cent of their disposable income paying for their big fancy houses, but they’re certainly not in mortgage stress and not doing it tough,” he says.

Measuring mortgage stress and defining it is difficult because individual circumstances vary so much, Munchenberg says.

“Someone whose mortgage is fine may be going out getting a pile of credit cards and not telling everybody the full story. They can be carrying a huge credit card debt, so their total debt is a problem.” Therefore sometimes debt position overall is a bigger problem than just the home loan.

The Australian Bankers’ Association has just launched a website, doingittough.info, which helps people who feel they are losing control of their finances. It has information about dealing with financial hardship, legal rights, a budgeting tool, a financial health check and details about applying for help from your bank if the debts become too much.

According to figures released by Australian Bureau of Statistics the number of home loans approved during the month of September rose 2.2 per cent to 51,821 from a downwardly revised 50,706 in August. Much of the additional volume can be attributed to the cheaper home loans made available by most lenders through their  fixed rate products.

Economists’ expectations were for an 1.5 per cent increase in home loans taken up by borrowers for the month.

The Australian Bureau of Statistics (ABS) said on Wednesday that total value of home loans had increased by 1.0 per cent in September, seasonally adjusted, to $21.104 billion.

There are reasons to believe that with the drop in variable home loan interest rates announced by most lenders in November, the future demand expectations for home loans are positive.

This is an inquiry that we receive several times a day. While in the past no deposit home loans were a possibility for the very few with a high stable income and a spanking clean credit history – ie. premium borrowers, today no deposit home loans simply do not exist in Australia.

Some players in the finance industry continue to attract new customers by promoting no deposit home loans. However when you contact them the best that they are able to do are loans with a small deposit of 3%-5%. In some cases this still means a deposit of at least $20,000.

Home loan deposit requirements changed with the coming of the Global Financial Crisis. Many lenders had left the market during that time. Those that remained had to implement more prudent lending practices. Lending 100% or more of the purchase price is simply not going to happen. At least not unless you will be offering an additional security property for the home loan.

While this news may destroy many home ownership dreams, these dreams were never really meant to be.

In today’s times of uncertainty with property prices heading south, you cant really blame the banks for not wanting to lend more than 95% of your purchase price. They need to have a margin of security in the even that you default on your home loan.

Borrowers with some history of bad credit can only count on a loan of between 80%-90% and in some cases even lower. The balance of deposit funds must unfortunately come from the borrower.

Home Loans underlying Australian prime residential mortgage-backed securities that are beyond 30 days in arrears have increased to a near all time high.

According to the latest data from Standard & Poor’s Ratings Services, Home Loan Arrears went up to 1.83 per cent in April, from 1.81 per cent in March 2011.

This is just below the all-time peak of 1.84 per cent reached in January 2009.

Meanwhile, the non conforming home loan arrears jumped by 83 basis points to 12.05 per cent during the same period.

The actual number of borrowers who had home loan arrears older than 90 days increased by 4 basis points to 0.75 per cent, largely contributing to the increase in the proportion of home loans that are more-than-30 days in arrears for April 2011,” Standard & Poor’s credit analyst Vera Chaplin said.

Most people believe that being employed and having a deposit is enough to qualify for a home loan with most lenders – however this is not quite true.

Lenders in Australia are required by law to take into account a lot more than just your income and deposit. In fact lenders could lose their license if they fail to also take the following into account:

- Credit History of the Applicants – if borrowers have any arrears or even paid defaults, this will affect their abiliity to qualify for a home loan with mainstream lenders.

- Age of borrowers – those who are in their late forties and are looking for their first home loan may be in for a rude shock when they find out that they are now too old to borrow over a 25 year term and need to take a loan over a 15-20 years – making it far less affordable for most and therefore requiring a far higher income to pass the loan affordability test.

- Existing repayment obligations as well as recent credit inquiries are all taken into account.

- Size of the property as well as its location is also important to the home loan qualification rules.

Lenders are very keen to avoid the kind of risky home loans that precipitated the global financial crisis and comply with new responsible lending practices.

People do not understand how much their credit history impacts their ability to qualify for a loan – it will even affect the rate you will be quoted and the fees you may be required to pay.

Certainly lender  discriminate on postcodes as well, with more remote postcodes and certain areas presenting a higher risk for the bank.

Smartmove professional mortgage adviser Simon Orbell says potential home-loan borrowers need to take action now to ensure there are no skeletons lurking in their financial closets.

“Get a copy of your credit report from Veda Advantage (mycreditfile.com.au) if you suspect there may be some previous misdemeanours on your file,” he says.

“Knowing about them up front allows you to overcome any issues that may arise in the credit-application process. Take up a My Veda Alert subscription from the website to maintain and take measures to keep your credit file clear.”

However just because you bank declined you for a home loan it does not mean that you will not qualify with any other lender…do your home work and this will pay off in the long run.

Fitch Ratings survey of home owners  identified that home loan affordability is rapidly dropping with one in 80 home owners being unable to afford to make their loan repayments.

Queensland was the worst hit state with the proportion of home loans in arrears jumping up from 1.54 per cent to 2 per cent between November and March.

Given that the Australian property market has seen some serious drops in values, many property owners may find themselves with the additional problem of negative equity.

Melbourne home values have already come down by 2.4 per cent since April 2010.

In a note to clients, Merrill Lynch analyst Matthew Davison said prices would fall further as it became clear interest rates would climb with “recent reports suggesting this is occurring now”.

Victoria is the best-performing state in the Fitch Ratings survey with home loan arrears and defaults of just 1.34 per cent.

NSW and Queensland dominate the worst performing regions and postcodes with the worst, Nelson Bay, north of Newcastle in NSW, having a delinquency rate of 5.6 per cent, meaning one in 18 of its mortgages are overdue.