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Hello,
It has been a while since weve been able to bring you the good news story that interest rates are heading down. Read our lead article to find out why rates are predicted to be cut and what our economists predict will happen in the coming year.
We also cover another important trend - the fall in housing prices. In this increasingly strong buyers market, we look at the issues involved with both buying and selling your home.
Our article, "Steps to Home Ownership", walks you through the process of buying a home from start-to-finish for those just entering the home ownership market.
"Renovating to sell" outlines how renovation can be used as an option for increasing the value of your home and maximising its saleable potential.
Lastly we review the topic of interest-only loans and how they can be useful for a variety of applications.
Enjoy the newsletter and as always, please contact me on 9955 0090 if you have any questions or need assistance. If you have family and friends who could benefit from this newsletter, please feel free to forward it to them with our compliments.
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Level 7, 44 Miller Street
North Sydney NSW 2060| Tel: | (02) 9955 0090 | | Fax: | (02) 9955 4021 |
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Rates Heading Down
Interest rates could sink as low as 8 per cent within a year. It's the sort of news that just a few months ago would have been inconceivable, yet now economists believe rates will be cut repeatedly until they are at 2006 levels.
A Reuters survey of 20 financial institutions found virtually all expect the Reserve Bank to make between three and six rate cuts over the next year.
The U-turn on interest rates comes as the domestic economy continues to cool, bringing about a reduction in inflation over time and opening the door for interest rate cuts.
Many experts now say that a big rate cut is needed to kick-start economic activity and avoid a further slowdown.
The Westpac-Melbourne Institute leading index of economic activity points to growth being well below trend and at its slowest pace since mid-2001.
The Reserve Bank forecast for economic growth has also been revised down to just two per cent. Weaker consumer spending and home-building activity, higher fuel costs and deteriorating global conditions are all believed to have played a role.
Of course interest rate reductions spell good news for borrowers. Now may be the right time to review your mortgage and finance options, and as your Mortgage Broker we can advise you how best to benefit from these changes now occurring in the marketplace.
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Steps To Home Ownership
As Australian house prices start to fall, more people are being encouraged into home ownership. The market conditions make the decision to buy a lot easier - now you just need the right house, at the right price with the right finance. Follow these steps and you should be able to achieve all three!
Step 1: Set a realistic budget
Being realistic about what you can afford to buy is an important place to start. Even if you have to compromise on the area or type of property, at least you'll have your foot in the door of the property market.
When calculating your budget, remember to include the costs involved in buying a property like stamp duty, mortgage and establishment fees, conveyancing, valuations and building inspections.
Also keep in mind that when lenders evaluate your borrowing capacity they look at your credit rating and your income earning ability. The way you've managed your credit arrangements and your capacity to repay the loan through a regular income will count for more than the strength of your assets.
Step 2: Find the right loan
By researching your mortgage before you shop for a house, you'll be in a better position to know how much you can borrow.
We can save you a lot of time and effort by doing the hard work for you. By researching the type of loans that would suit your lifestyle and financial position, we can provide you with the details necessary for you to make an informed decision.
We can also discuss getting preapproval for your borrowing capacity before you begin your search.
Step 3: Make use of government rebates
The Federal Government's $7,000 First Home Owner Grant can go a long way to reducing the amount of deposit you need to save. There are also additional incentives provided by state governments where stamp duty or transfer duty is waived or reduced for first home buyers.
Not everyone is eligible for these grants so check this out before you start looking.
Step 4: Do your research
Be prepared to look at a lot of houses to get an idea of quality and price. Research the three Ps -position, price and potential - by subscribing to property research reports and checking out property guides.
When you find a property you're serious about, make sure you commission a building and pest inspection. It also makes good sense to hire a professional valuer to provide their opinion on whether the asking price is in keeping with the value of the home.
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Book Review
100 Great Extensions & Renovations
This book looks exclusively at extensions and renovations. There could hardly be a more topical subject in contemporary architecture. A colourful new book showing that the trend today is towards extensions that are modern but not aggressively different from their 'parent' structures. Making spaces work together, and making old spaces seem new, the examples selected in this exceptional book vary intentionally, from the modest to the spectacular, from the purely contextual to the willfully contradictory. More precisely, there is a taste for making the past new, for celebrating the juncture between old and the modern, yesterday and today.
100 Great Extensions & Renovations is a must have for all those currently
renovating or planning to do so.
By Philip Jodidio RRP $ 85.00 Publisher: The Images Publishing Group
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Renovating To Sell
Renovating your home can put it ahead of the competition in today's buyers' market. The secret to success is to make sure your renovations are realistic, achievable and ultimately add value. Don't fall into the trap of over-capitalising and ending up with a home that costs substantially more than its market price.
Establish a budget and stick to it
Take the time upfront to work out the costs in detail and you are less likely to run out of cash mid-way through the project. Your budget should take into account labour, materials, council fees, design fees and inspection costs, plus include up to 20 per cent as a contingency fund.
Make a commitment to stick to your budget and stay true to what you originally planned.
Spend your money wisely
Bathrooms, kitchens and backyards are the top three areas of your property to focus on when renovating as these will usually give you the best return on your investment. A modern kitchen, a large functional bathroom and a landscaped garden with outdoor entertaining area are all saleable improvements.
Other in-demand features include accommodation for the car (garage preferable) and additional living areas like home theatres. Most experts agree that natural light, open spaces, fresh air and noise control will maximise resale value.
Always take into account the tastes of potential buyers - renovate to your target market, not to your personal tastes.
Protect your investment
Make sure your builder has a licence number that is current and adequate for the type of work being carried out (check online through the Department of Fair Trading or equivalent). They should also have building insurance that will cover you for defective or incomplete work.
Sign a contract before you start that outlines what the job entails, how much it will cost and the payment schedule. Ensure it covers all potential requirements and leaves no room for builders to claim for variations.
Get the right financial advice
There are lending products that suit most renovation situations, whether it's a small project like upgrading your kitchen, or a larger job like an upstairs extension. As your mortgage broker we can talk you through the options - such as using the equity in your home, making use of a revolving line of credit or applying for a construction loan.
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Did You Know?
Spending too much on renovation carries the risk that you'll never recoup these costs when you sell.
Avoid over-capitalising by calculating your costs backwards. First research what sale price you think you could achieve by looking at the sale prices of other similar sized renovated homes in your area. Then work out the maximum you can spend to make a return on your investment.
For example, if $600,000 seemed a common selling price and you calculate the renovation costs to improve your property would be $60,000 - plus purchasing and selling costs of $40,000 - then every dollar below $500,000 down to what you purchased would be your profit.
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Paying Interest Only
You may have heard of an interest-only loan and wondered if it is as good as it sounds. As its name suggests, an interest-only loan is a type of loan in which you pay only the interest on the principle balance. This doesn't mean you will never pay the principle, it simply means that for a set term - usually 5, 10 or 15 years - you can make interest-only payments.
As you are only repaying the interest component, these loans have lower repayments than principle and interest loans. They offer most of the same features as standard loans and their interest rate is dependant on whether your loan is fixed or variable.
Interest-only loans are suitable for any number of applications - from buying a new home or refinancing an existing loan to paying for home renovations or obtaining bridging finance.
Reducing your loan commitments has the advantage of generating cash flow and freeing up your disposable income for other family commitments or alternative investment opportunities.
If you are looking at maximising the tax benefits of property investment you may want to consider taking an interest-only loan, as only the interest portion of your payment is tax deductible.
This type of loan also allows you to buy investment properties with a lower loan commitment. However, you need to consider the risk that the property could decrease in value over the interest only term.
During the interest-only years of the loan, the loan balance will not decrease unless you make additional payments towards the principle. This means at the end of the interest-only period you must repay the principle in full or refinance to another loan.
Keep in mind that interest-only loans require careful management, so are best suited to investors and borrowers with a good head for money. They should only ever be considered a short term option that can be used to your financial advantage.
Contact us if you wish to talk through the pros and cons to work out whether it's the right loan type for your situation.
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Mortgage & Finance Association of Australia
We are members of the MFAA, the peak industry body. All members are bound by a strict code of ethics to ensure the highest levels of service, integrity and professionalism.
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About Us
PAX Mortgages was established in 2002 by Duncan Johnston. Duncan has spent his entire career in the banking and finance industry, having spent 12 years at the Commonwealth Bank working with all aspects of consumer and commercial lending solutions. Duncan's last role at the Commonwealth Bank was as a Senior Relationship Executive where he managed a portfolio of private clients requiring lending facilities of up to $20 million.
No two loans are the same. Duncan's experience gives him the capability to offer you the best advice and tailor a mortgage solution for your individual needs.
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Disclaimer: This newsletter is intended to provide general news and information only. Readers should rely on their own enquiries before making any decisions regarding their own interests. Please do not rely on any part of this newsletter as a substitute for specific legal or financial advice. All material is copyright 2010.
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