Tips for Home Loan Refinance – Costs of Switching Mortgages

Before you refinance your home loan in Australia it is important to find out the true cost of switching lenders. You will need to take into account exit and entry fees.  It is only when the lower cost in interest rate offsets the fees paid is when you may consider switching lenders.

Below  are costs you should look out for.

Exit Fees

The best way to find out the total exit fees from your current lender is to contact them directly. They shoudl be able to give you the exact pay out figure.

Some of the exit fees to consider when refinancing;

Early Exit Fee – usually payable if you close out the loan within the first 5 years, Can range anything from hundreds to thousands of dollars. Check with your lender if these fees apply

Discharge of Mortgage Fee – this is the legal cost for discharging the mortgage. Can range between $100 and $600. Contact your lender

Break Fees – is the economic cost to the lender passed onto the borrower if a fixed rate is exited before the term has expired. This can sometimes be in the tens of thousands of dollars. Each lender has different formulas and it is advised you contact them directly for the exact figure.

Entry Fees

Loan Application Fee – Depending on the lender they can charge a loan establishment fee for a new loan

Lenders Mortgage Insurance – if you borrow more than 80% of the properties value regular loans or 60% for low doc loans lenders mortgage insurance will need to be paid.

Discharge & Registration of Mortgage Documents – approximately $200 depending on the State Government

Solicitor Costs – if you use a solicitor to refinance your loan then there will be a fee. Generally, most people act for themselves when refinancing their mortgage

Try our refinance mortgage calculator to see is it is worth refinancing your home and or investment loan.


Fixed Interest Rates Are Dropping

The Reserve Bank of Australia meets in the first week of September to assess whether interest rates remain on hold or increase. Many economists are predicting that rates are likely to remain on hold.

While the variable mortgage rates are likely to rise or remain on hold, fixed rate loans are currently falling. Some of the deals you can find out there are the moment are as follows;

  • 2 Year Fixed Rate – 6.79%
  • 3 year Fixed Rate – 6.75%
  • 5 Year Fixed Rate – 7.29%
  • 10 Year Fixed Rate – 8.09%

Note that these rates are only valid for September 1st 2010. Please go to Smart Search Finance to find you the latest fixed and variable rate discounts.

Warning About Fixed Rates

It is important to discuss with your credit provider whether fixed rates are suitable for your lending needs. You will also need to consider that fixed rate loans may have the following restrictions;

  • Most fixed loans do not allow unlimited repayments
  • Extra payments beyond the annual limit are likely to incur a fee
  • Break fees may apply if you exit the loan before the contract date
  • Offset accounts and redraw may not be available

Low Doc Loans – Could this be the end?

Low doc lending over the last 18 months has tightened significantly. Lenders are increasingly making it harder for self employed borrowers who do not have full financials to borrow. Some of the new changes of low doc loans are as follows;

  • 1 year BAS statements required for loans that borrow between 60 and 80 percent of the properties value (LVR 60 to 80%)
  • Cash out restrictions apply between the 60 and 80% LVR bracket and can also apply for loans less that 60% which is at the lenders discretion
  • The lender may want to look at trading and banking statements
  • Variety of product has decreased and interest rates are higher for LVRs between 60 and 80%

The new National Consumer Credit Protection (NCCP) laws require that mortgage brokers, banks and non banks will have to prove that  the borrow is suitable for a loan. This applies to both home loans for the principle place of residence and investment property loans.

Therefore, both brokers and lenders will require added documentation to ensure the borrower is suitable for a loan.

This does not mean that tax returns need to be completed but a broker or lender may need some or all of the following documents to ensure the borrower can afford to make the repayments regardless of loan to value ratio (LVR);

  • Minimum 1 year BAS statement
  • Bank trading statements for at least 12 months
  • Accountants letter
  • Projected income
  • A declared statement

No doc loans will no longer be available as the NCCP laws make it impossible to legally accept a loan application with out making financial checks.

However, the NCCP Act does not apply to low doc loans that apply to credit of a commercial nature. Low  doc commercial loans and no doc will still operate in this space


Latest Home and Investment Loan News

It seems the election has slowed things down and the Reserve Bank are in a holding frame of mind. All the economic indicators are showing that growth may be slowing and interest rates are likely to remain on hold for a little while.

Fear in the US of a double dip recession could be on the cards but most econimists are predicting a slower economic recovery rather than another dip.

As mentioned in a earlier post, it seems the Banks are determined to increase interest rates beyond the RBA’s recommendations. Commonwealth Bank after reporting a record profit announced that future rate rises are likely and other banks have not counted themselves out. I am not sure why they have to slug their customers for increased profit; however, one major lender has committed to keeping rates in line with the Reserve Bank.


Surprise, Surprise, Surprise – Interest Rates On Hold

The Reserve Bank of Australia announced that it is leaving interest rates on hold at 3.75%. In a surprise move that stunned most economists the RBA wants to see if the effects of earlier rate rises.

More to come…


Low Doc Loans – Significant Changes That May Affect Your Application

The credit crisis has had a profound effect on how lenders look at their lending policy. Most lenders are making it tougher for borrowers to borrow funds and the case is no different for low doc loans. For those looking to borrow between 60 and 80 percent of the proeprties value they will find that interest rates will be higher and they will need to provide more documentation than ever before.

The main reason for this is that the mortgage insurers have dramatically changed their policy when it comes to low documentation lending.  The new criteria is a follows;

– No Upfront Cash Out (up to $20,000 for some lenders)

No Refinancing Investment Loans

No Debt Consolidation

– 12 Months’ BAS Statements from ATO Mandatory

– GST Registration for at least 12 Months

Previously, when applying for a low doc loan it was a simple matter of signing a declaration stating how much you earn, you are self employed, the low doc applicant is the primary income earner, have an ABN for 1 or 2 years and if you earned over $75,000 be GST registered.

There is some good news and that is not all lenders are governed by the mortgage insurers. At the moment there is only one major bank that is still offering low doc home and investment loans under the old policy. Other lenders that work outside the mortgage insurers policy charge higher than normal rates and fees.

Time will tell if and when these lenders will change their policy in the future but for now it is more of a wait and see approach. I expect that the policy will tighten more as the economy tightens to reduce the risk of borrowers defaulting on their loans.

To find out more about low doc home and investment loans feel free to contact us

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