At Chapters Retirement Partners we help our clients over 50 to put plans in place to retire in financial comfort and to ‘Finish Strong’.
Many Australians have property debt in their 50’s and managing and repaying this debt is an important financial consideration.
We recently asked the mortgage broking experts at Amani Finance the following questions and their insights (in italics) are below:
- What are some tips for borrowers to manage rising mortgage rates?
Budgeting is key, looking at monthly expenses, and seeing where discretionary spending can be reduced. Debt consolidation is another option, where you can use your equity to clear credit card and/or personal debts, to improve cash flow position.
Please also refer to our tip on the question below on making larger payments on your current variable loan.
- What if you have a fixed rate until next year and are concerned with your home loan rate?
You should consider the pros and cons and conduct a cost vs benefit analysis with your broker of breaking your current fixed rate and refinancing to a longer term fixed rate, which may be higher in the short term, but cheaper in the long run.
Another tip is to start making larger repayments on a variable loan (as if the loan was on a higher fixed rate) while remaining on a variable rate. This allows for a buffer to be built in redraw as well as the family budget being adjusted to cater for future increases while still on a lower rate than the fixed rate and hence paying less interest.
- Are some home loan customers paying a ‘loyalty tax’ by staying with their existing lender?
Agreed – some lenders make it very clear that they will offer new business a lower rate than their existing customers, so being a customer of the lender (according to our experience), does not necessarily correlate with receiving a higher discount. Some customers also believe that being loyal to their lender will count towards a better rate or outcome for them which is very rarely the case.
- What is a ‘mortgage prisoner’ and what can people in this situation best do?
This is when customers do not have the ability to refinance their mortgage to a lower rate, due to lack of equity or serviceability. If serviceability is an issue, then customers should consider debt consolidation or budgeting to better manage their cash flows, and demonstrate serviceability to the banks.
If serviceability remains an issue, then customers should consider selling their property, and downsizing or moving to a more affordable suburb. Every time a rate rises through the RBA and consequently through the bank, the ‘assessment rate’ on the lender’s servicing calculator also rises. This means that with each rate rise the customer’s borrowing capacity decreases and with the recent succession of rate rises, customers can borrow on average $200K less which greatly impacts their ability to refinance and increases the probability of becoming a ‘mortgage prisoner’.
Fortunately there are many lenders and their servicing criteria can differ enough for some lenders to lend significantly more than others which can be a possible solution for customers willing to use brokers rather than their own bank.
- What is happening with loan terms for mature borrowers over 50?
Banks are happy to offer 30 year loan terms for customers over 50, provided they have a solid exit strategy, and will not fall into a debt trap at retirement. The Exit Strategy should address the repayment of the balance of the loan after the borrower retires e.g. if the borrow retires at the age of 70 but the loan term at that age still has a further 10 years in minimum repayments to be paid off, how will the borrower pay the final balance with no income? A solid exit strategy could include solutions such as the sale of other investments, use of surplus superannuation to clear debt or downsizing to a smaller property (with nil or minimal debt) after selling the current larger property. A broker is experienced with assisting with the strategy.
- Are interest only home loans still available for property investors?
Yes, they are still available, but they are becoming less and less popular, due to the fact that they are more expensive (higher rates) than P&I loans, and also because the banks are wary of extending the interest only term beyond the initial 5 year term due to new legislative changes that discourage interest only loans due to no principle being paid down and hence higher risk to the customer in an unpredictable economic environment.
- Are principal and interest home loans still offering a discounted rate vs interest only loans?
Yes, P&I are significantly cheaper than interest only loans.
- How can mortgage brokers improve a property purchase experience requiring a home loan?
The following helps to create a smooth process for all parties:
- Providing a holistic and a comprehensive checklist of all documents required for the application upfront.
- Asking all the right questions to the customers during the interview, to ensure their requirements and objectives are accurately captured, and leave no room for miscommunication or disappointment.
- Setting the right expectations with customers regarding the process and timeframes – (under promising and over delivering).
- Assisting the customer with access and referrals to supporting services such as settlement agents/conveyancers, building and pest inspectors, building insurance, land lord insurance
- How can mortgage brokers assist clients with a review of their existing property loans?
We can conduct a ‘rate pricing review’ by approaching the existing lender (using competitive offers from other lenders) every 6 months with special pricing tools to access rates that are not always available if the customer tried to contact the lender for a lower rate. We can diarise and do this regularly to ensure continuous low interest rates during the life of the loan (at no cost to the customer).
Other factors to consider is how well customers are using their offset account, and whether this can be used to minimize interest in the mortgage, which would allow them to clear their mortgage quicker. The pricing review process at the current lender is very simple for customers, as it does not require any applications or supporting documents or refinance to another lender. We would just need to know the customers’ current loan balance, current interest rate, and loan account number, to conduct this exercise.
It is also a relatively quick process, with 2-3 days turnaround from the existing lender. We are happy to offer this service at no cost and even to customers who are not on our current trail book.
For a review of your property loans with a mortgage broking expert- please consider contacting Amani Finance directly on the following details:
T 1300 363 342
