Rate Cut Has Put a Serious Impact on Those Retirees Who Rely On Returns for Funding Their Expenses

It is really unfortunate for the self funded retirees that the initial interest rate has been decreased to 2%. They are feeling the impact of low interest rates. It can be great news for those who are looking to borrow money, but it is not good for those who are relying on returns to fund their daily expenses.

A lot of people either completely or partially fund their own retirement. Such retirees are forced to switch to much risky investments to obtain better returns.

Many retirees have planned to keep their income in a good portion by producing assets in investments so that they can prevent the risk to their money. They are struggling hard to obtain good returns on their retirement benefits and simultaneously, they also want to access their money in case of any unexpected issues. But the lowering of interest rate has not made it easier for the retirees to achieve their goals.

Due to this low interest rate, some retirees are even forced to go for welfare payments earlier in their life. They are considering coming out of safer zones of bank deposits and bonds and going for more risky options like share market.

There are certain reasons due to which the interest rate has been reduced which are:

• Good monsoon: It is highly significant as good monsoon might pull down both afflation and inflation.

• High lending rates: These are a great concern as these are actually delaying the economic recovery. It has really affected the loan demand.

Thus, the news of low interest rates is generally not great for the retirees. It just does not matter how they strategize, their investments will have to suffer. They are sitting just with a hope that the interest rates in Australia will recover at some point.

A Short Guide to Understand Fixed Rate Break Costs

If you are breaking a fixed rate home loan, you can expect some additional costs in the form of ‘break costs’. However, break costs vary from lender to lender and are usually not so easy to figure out. If you are someone with an existing fixed rate loan, here is everything you need to learn about break costs, what they are and how they can be calculated.

The Break Costs

Break costs is there to assist the lender when a borrower discontinues their fixed rate home loan and to provide sufficient coverage to the lender to cope up from any possible loss. Break costs is an estimate of the loss a lender might suffer in the event of a loan break. Moreover, in case of refinancing, break costs may only be applicable if the variable rate is lower than the fixed rate product.

Breaking a Fixed Loan – What does it mean.

There are scenarios and situations that dictates breaking a fixed loan, such as -

• If making additional home loan repayments beyond the agreed amounts

• If the loan is in default or if the repayment is not done

• In case the loan is refinanced to a new product or from a new lender

• When the loan is repaid in full much before the end of the loan term

Calculating Break Costs

One thing you must be well aware of is that calculating the break costs in not an easy thing to do, as there are numerous things to be considered. Thus, it’s best to ask the lender directly what to expect in case of a break.

Let’s try to understand the break costs through an example intended for explanation purposes onlyhere -

Kevinbuys a home with a $500,000 loan with a fixed rate of 4.5% for 5 years and he makes interest only repayments. After 3 years, he decides to sell the property and repay the outstanding loan amount in full.

The variable rate at the time of sale is 3%, a difference of 1.5% from the fixed rate.

Thus, to calculate break costs –

Break cost = (loan amount outstanding) x (wholesale rate change) x (term remaining on loan)

Break cost = ($500,000) x (1.5%) x (2)

Break Cost = $15,000

Remember that different lenders will calculate break costs in a different way. So if you have any doubts or queries about break costs, it’s better to speak with the bank directly. If you need any assistance in fixed rate or variable rate home loans Australia, talk to the experts at Loans Direct.

Expecting Housing Surplus by 2017 – says Goldman Sachs

This is an excerpt from a news post published in Australian Financial Review - http://www.afr.com/real-estate/goldman-sachs-tips-housing-surplus-by-2017-20150416-1mm941

The one who predicted the current surge in housing activity, Tim Toohey - Goldman Sachs head of macro-research in Australia said – “Australia will have a housing surplus by 2017”.

He added - The challenge from 2017 onwards will be to "normalise interest rates" - in other words raise interest rates - just as underlying housing demand is weakening.

In a recent report of Goldman Sachs, Mr Toohey argued that - Australia's population growth is slowing, more than most us realise. By 2017, the population will be 530,000 less than estimated, based on widely used Australian Bureau of Statistics Series B projections.

The birth rate is at historic low, deaths are at historic highs and net migration is "falling fast." Instead of population growth of 1.7 - 1.8 per cent a year in 2015-17, the growth is more likely to be 1.25 per cent a year – as estimated by Mr Toohey. He strongly advocate and support household formation as a key driver of housing demand.

On the other hand, Mr Toohey estimated that - migration, which accounts for two thirds of the population growth since 2008, is falling faster than official estimates.

He wrote - "The primary determinant of net migration to Australia is not the number of illegal immigrants or the number of tourist arrivals, it is the relative strength of onshore versus offshore labour markets; so would you move to a country where you can't get a job?"

Earlier in 2012, Goldman Sachs upgraded its outlook for residential construction because of the emerging undersupply, the largest since the 1970s, as well as the need for a significant cut in interest rates Australia.

Today, Goldman Sachs has estimated, based on the ABS series B projection that - the current housing shortage would remain till the end of 2017 before deteriorating again with rising interest rates. In fact, the downturn is already happening. Goldman Sachs' proxy for net migration predicting just 160,000 extra people in 2014, which is 40,000 below the official figure for the first nine months.

Although, Sydney's rental prices are likely to climb up further before levelling out - according to Domain Group economist Andrew Wilson.

Here’s how to get a Home Loan in Australia

Applying for your first home loan is a little uneasy and often time consuming. If you know what the lenders will look for in your loan application, you can take some hassles out of the process and make it convenient.

The Five C’s of Credit
To assess your capability to repay home loans in Australia, lenders use the five C’s of credit -

• Credibility 
• Credit History
• Capital for Deposit
• Capacity to Pay Back
• Collateral as a Security

The Five Tips to get that Approval

1. Submit only the Authentic and Verifiable Information - The paperwork is important, thus, get all the letters and statements that shows your income, savings, and all the different sources of earnings or anything that is specifically required by the lender you wish to apply.  
2. Check your Credit History - Ensure that your credit standing is all good and if you aren’t sure then ask your mortgage broker to get a copy of your credit report. Flags or black marks on it may prevent from getting the final approval on your loan application. 
3. Improve or Fix Your Credit Ratings - Being a first time homebuyer, it is important that you have a clean credit history before you apply for a loan. If your credit ratings are compromised then seek help from a professional credit repair expert who can help you in fixing the issues as well as to improve the score. 
4. No Extravagant Purchases and No Frequent Job Changes -Take control of your buying habit before you buy a home. Making expensive purchases will hinder the borrowing power. Also, do not frequently change jobs within 6 to 8 months of applying for a home loan. 
5. Seek Pre-approval and then Start your Property Search - Instead of selecting a property that exceeds the amount you can borrow, the wiser option is to first seek a pre-approval on the amount and the home loan interest rates Australia and then search for a home to buy as per the affordability.

Always Avail A Home Loan Only After Comparing Several Home Loans And Interest Rates

There is an old belief that home is where the heart is and heart lies in wise and realistic visions. While buying or constructing a house, the most essential thing is generating the funds and this is where home loans come into picture.

Home loans are easily available in market at the Best Home Loan rates. The general belief of the home loan seekers is the staggering interest rate on the loan policy. However, this problem can be resolved easily if we compare Home loan offers available on the internet. This means that all the sources providing loans are mentioned on the internet and can be compared with other loan rates for the best and safest option.

Every person in Australia draws a comparison to get the best and affordable home loan interest rates in Australia.

There are designated guidelines to get a loan:

• Firstly, it is very important to go with a flexible plan. If you preplan your intensions of a loan, there will be nothing satisfactory enough for you. Loans Direct offers a great option to find flexible and agreeable range of loans to avoid any form of rigidity in a loan seekers mind.
• It is very important for you as a loan seeker to calculate your financial stability and the amount of loan you can bear. This is a very crucial step and free online interest rate and loan calculators help loan seekers save a lot of time while looking for a suitable deal.
• It is also very important for the loan seeker to choose from the range of Secured or Unsecured loan. The secured loan is the one wherein bank holds one of your personal possessions, which are collateral and are lawfully seized in case the loan is not repaid in time. Unsecured holds nothing collateral and is defined by the clause of rate of interest that is pre-planned and fixed.

Hence, gone are the days when seeking a loan was a gruesome task but these days loans are readily available with full financial security of the loan seeker.