Home Loan Rate – Australia

One of the most essential and important information to a bank or lender would be your credit score.  The credit score is important because it is made the basis for most of your loan transactions with any bank or lender.  Depending on your credit score, it is either you will have access to a good loan if your score is pleasing to the banks and on the other hand your loan may be disapproved , or  you might have to turn to a non-conforming lender and pay an extremely high interest rate because of a very low credit score.

Thus, if you want to get a good and reasonable loan, you should try to get a good score.  However,  the problem is that there are times when you don’t know what information is used in your credit score in the first place.  The most basic items that would come to mind are how well you pay off all your loans, how well you pay off your bills, whether or not you pay your credit card bills.

Assuming that you do fairly well in paying those items just enumerated?  Do you immediately get a good credit score.  Not necessarily.  There are a lot of other items that banks and lenders look into.  Some of these other items are the amount of savings, are you self-employed, are you a regular or casual employee, do you have other jobs, and the list goes on and on.  With so many factors to consider it can be difficult to determine your credit score on your own.  You may be factoring in certain items that should not be included, and are often not considered by banks in the first place.  You may also be leaving out vital information that banks look for that could improve your credit score.

Fortunately there is a team of experts who can provide you with vital information on loans and your credit score.  With a free credit score test that they have provided you can get a good idea of what your credit score is, and try to improve on that score before any actual loan applications are filed.  With their experience in the loan industry they have a clearer and better idea as to what banks tend to look for and consider in any loan that they would like to grant.

Mortgage lenders in Australia rarely deal with brokers that cannot submit a high volume of successful home loan applications to them each month. For example, a particular bank or non-bank lending institution might refuse to deal with an entity that cannot close at least one million dollars worth of mortgages with them on a monthly basis.

For most mortgage brokers this may not seem like a daunting task. One million dollars worth or home loans may constitute anywhere between one and five successful applications. Most brokers would be able to close at least that much business each month and would therefore be able to do business with the particular lender.

However a problem arises when the scope of the mortgage broker business model is considered in full. Brokers are in business to offer choice to their customers. In Australia, brokers offer mortgage products to their clients from up to around thirty different lenders. It is this choice that attracts customers to brokers instead of applying directly with a lender. A problem arises when each of the thirty lenders demand that at least one million dollars worth of business is closed with them each month. This would mean that in order for the broker to maintain a business relationship with all thirty lenders, they would need to close over thirty million dollars worth of home loans each month, evenly spread between each lender. This is an impossible task for even the best mortgage broker to achieve.

Aggregators solve this problem by acting as an entity between the lenders and brokers. An aggregator will have several brokers working for them – perhaps hundreds – and will allow them to submit their home loan applications through them. The aggregator will in turn send the applications on to the lenders. This business model ensures that more than enough applications are sent to each lender each month to maintain the relationships. The final result is that each broker working for the aggregator will be able to offer home loan products from the full range of lenders.

Mortgage aggregators are often found in the form of franchisors. The franchisor can have up to several hundred franchisees working for them. The franchisees will use the brand name of the master franchise and will often receive benefits such as training and software. It should be noted that while the franchise model is popular with mortgage brokers in Australia, not all aggregators are master franchises.

Because mortgage brokers receive their income by way of commissions awarded by lenders for successful home loan applications, it follows that aggregators receive a portion of the commissions for all loan applications put through them. Brokers therefore surrender part of their commission in return for the benefit of using an aggregator. There may be additional franchise fees payable if the broker is a franchisee, although this arrangement will vary from franchise to franchise.

Rising housing prices in recent years have made it very difficult for many home buyers to save the deposit. Lenders have recognized this and have created the no deposit loan product.

No deposit loans are generally available for new and established buildings, owner occupied, as well as for investors. To qualify for a no deposit loan you need to be an Australian Citizen or permanent resident and currently living in Australia.
Borrowers often need to acquire lender’s mortgage insurance where the Loan to Value Ratio (LVR) exceeds 80%. Generally, the higher the LVR, the higher the premiums. Hence the premiums on a no deposit loan can be large.

Combining stamp duty exemptions and First Home Owners Grant, no deposit loans allow borrowers to gain a foothold in the market based on their ability to service the mortgage rather than having the savings required to qualify for a more mainstream loan with deposit.

No deposit loans can also be a useful tool for investors wanting to take maximum advantage of leveraging.

While no deposit loans can be secured for similar rates to standard home loans, you should be aware that there is the risk of ending up in negative equity. For example, you purchase a house for $300,000 borrowing the full amount and the property market falls by 10%, you now owe $300,000 for a property that is worth $270,000 – that’s a shortfall of $30,000 you need to recover.

As with all loans, make sure that you borrow within your means. Work out a budget, stick to it, and do not borrow more than you planned just because it is available. Also, consider the property market that you are buying into: Are the prices rising or falling?

Do All Mortgage Holders Benefit?

Australia’s Reserve Bank, like so many around the world, has been cutting interest rates for months and in December 2008, the country’s official interest rate was reduced to its lowest level since May 2002.

It is understandable that mortgage holders might rejoice at the news, but not all of the big banks pass on the full cuts to their variable mortgage rates. And just a very few of the top non-bank lenders pass on the full rate cuts.

Such actions by the banks are not restricted to Australia and mortgage owners throughout the western world struggle to grasp with their banks unwillingness to give them a break. Each time the Reserve Bank makes an interest rate cut announcement, Australia’s politicians implore the banks to allow struggling home owners to benefit by passing on the rate cuts in full.

Home Loans

The rate cuts are welcomed, understandably, by housing lobby groups. They say that a 1% or 100 basis point cut reduces by around $220, the monthly repayment on a $350,000 mortgage – a big saving for young Australian families.

Housing industry experts believe that rate cuts not only provide mortgage relief to existing home owners, but importantly they help more first home buyers purchase a home of their own.

Substantial drops in interest rates increase the borrowing capacity of entry level buyers.

Refinancing

Borrowers who are locked in to a fixed-rate mortgage however, may not be celebrating during times of lowering interest rates. When looking to refinance, they face a difficult choice: continue to pay a higher interest rate, or incur what is often thousands of dollars in penalty fees in order to break their current fixed contract.

They need to consider more than the interest rate – there can be a plethora of conditions attached to exit fees. For instance major banks charge upfront exit fees ranging from hundreds to over a thousand dollars. Charges can also be levied by the new lender.

While fees vary, a borrower who cancels his loan within the fixed period will usually be forced to compensate their mortgage provider for the “economic cost” of breaking their contract. As interest rates fall, this cost becomes greater, and it may already be too late for fixed borrowers to save by refinancing.

Such fees can often come as a shock to people who are on a fixed-term mortgage. They can be very are surprised when they hear what the break free cost is – often it can be far higher than people expect.

When you are getting a loan to buy a home, there are many things you need to learn. With many different types of loans programs with various fees, terms, conditions, and guidelines that are require in order to obtain a loan. You need to be a well informed shopper.

Your Loan officer has many things to do, there is much paperwork involved. Appraisals, title search, and closing documents to be prepared. Ask your lender to tell you about each and every loan you qualify for. After you know all the options, and programs available you can make a well informed decision, and obtain the loan that is right for you. Do you want a fixed rate or an adjustable interest rate mortgage? Do you want a 15 or 30 year term? Once you learn about the different types of loans, these will be a few of the many questions you will be able to answer.

Purchasing a home is a big decision, and getting a mortgage to pay for it is a long term commitment. So a welled informed home buyer is a happy home buyer. Before you go out looking for that new home, go see a loan officer and get a preapproval.

This will give you a guideline of much money you will be able to borrow, and what type of home you can afford. Many Real estate agents, and sellers, will not show you a home for sale unless you are prequalified. Everyone time is very valuable so you don’t want to waste it by looking at homes you can’t buy. That is like window shopping it’s no fun. When looking at homes ask about any special financing that may be available for that home. Some sellers may have special arrangements with a particular mortgage company that can save you a lot of your hard earned dollars. Everyone needs a place to live so after you find your dream, and make your purchase using a knowledgeable and helpful loan company. And you have the perfect financing in place you can then turn your new house into a home and make your dreams come true.

Panic struck on Wall Street, as the Dow Jones Industrial Average plunged a thousand points between July and August, and commentators warned of a 1929-style crash. To prevent that dire result, the U.S. Federal Reserve, along with the central banks of Europe, Canada, Australia and Japan, extended a 315 billion dollar lifeline to troubled banks and investment firms.

The hemorrhage stopped, the markets turned around, and investors breathed a sigh of relief. All was well again in Stepfordville. Or was it? And if it was, at what cost? Three hundred billion dollars is about a third of the total paid by U.S. taxpayers in personal income taxes annually. A mere $188 billion would have been enough to repair all of the 74,000 U.S. bridges known to be defective, preventing another disaster like that in Minneapolis in July. But the central banks’ $300 billion was poured instead into the black hole of rescuing the very banks and hedge funds blamed for the ‘liquidity’ crisis (the dried up well of investment money), encouraging loan sharks and speculators in their profligate ways.

Where did the central banks find the $300 billion? Central banks are lenders of last resort. According to the Federal Reserve Bank of Atlanta’s Economic Review, “to function as a lender of last resort [a central bank] must have authority to create money”, i.e., provide unlimited liquidity on demand.

1. In short, central banks can create money out of thin air. Increasing the money supply (demand) without increasing goods and services (supply) is highly inflationary; but this money-creating power is said to be necessary to correct the periodic market failures to which the banking system is inherently prone.
2. Busts have followed boom so regularly and predictably in the last 300 years that the phenomenon has been dubbed the business cycle, as if it were an immutable trait of free markets like the weather. But in fact it is an immutable trait only of a banking system based on the sleight of hand known as fractional-reserve lending. The banks themselves routinely create money out of thin air, and they need a lender of last resort to bail them out whenever they get caught short in this sleight of hand.

Running through this whole drama is a larger theme, one that nobody is talking about and that can’t be cured by fiddling with interest rates or throwing liquidity at banks making too-risky loans. The reason the modern banking system is prone to periodic market failures is that it is a Ponzi scheme, one that is basically a fraud on the people. Like all Ponzi schemes, it can go on only so long before it reaches its mathematical limits; and there is good evidence that we are there now. If we are to avoid the greatest market crash in history, we must eliminate the underlying fraud; and to do that we need to understand what is really going on.

Fractional-Reserve Lending

A Ponzi scheme is a form of pyramid scheme in which earlier players are paid with the money of later players, until no more unwary investors are available to be sucked in at the bottom and the pyramid collapses, leaving the last investors holding the bag. Our economic Ponzi scheme dates back to Oliver Cromwell’s revolt in seventeenth century England. Before that, the power to issue money was the sovereign right of the King, and for anyone else to do it was considered treason. But Cromwell did not have access to this money-creating power. He had to borrow from foreign moneylenders to fund his revolt; and they agreed to lend only on condition that they be allowed back into England, from which they had been banned centuries earlier. In 1694, the Bank of England was chartered to a group of private moneylenders, who were allowed to print banknotes and lend them to the government at interest; and these private banknotes became the national money supply. They were ostensibly backed by gold; but under the fractional-reserve lending scheme, the amount of gold kept in reserve was only a fraction of the value of the notes actually printed and lent. This practice grew out of the discovery of goldsmiths, that customers who left their gold and silver for safekeeping would come for it only about 10 percent of the time. Thus ten paper banknotes backed by a pound of silver could safely be printed and lent for every pound of silver the goldsmiths held in reserve. Nine of the notes were essentially counterfeits.

The Bank of England became the pattern for the system known today as central banking. A single bank, usually privately owned, is given a monopoly over issuing the nation’s currency, which is then lent to the government, usurping the government’s sovereign power to create money itself. In the United States, formal adoption of this system dates to the Federal Reserve Act of 1913; but private banks have created the national money supply ever since the country was founded. Before 1913, multiple private banks issued banknotes with their own names on them; and as in England, the banks issued notes for much more gold than was in their vaults. The scheme worked until the customers got suspicious and all demanded their gold at once, when there would be a run on the banks and they would have to close their doors. The Federal Reserve (or Fed) was instituted to rescue the banks from these crises by creating and lending money on demand. The banks themselves were already creating money out of nothing, but the Fed served as a backup source, generating the customer confidence necessary to carry on the fractional-reserve lending scheme.

Today, coins are the only money issued by the U.S. government, and they compose only about one one-thousandth of the money supply. Federal Reserve Notes (dollar bills) are issued by the privately-owned Federal Reserve and lent to the government and to commercial banks. Coins and Federal Reserve Notes together, however, compose less than 3 percent of the money supply. The rest is created by commercial banks as loans. The notion that virtually all of our money has been created by private banks is so foreign to what we have been taught that it can be difficult to grasp, but many reputable authorities have attested to it. (See E. Brown, Dollar Deception: How Banks Secretly Create Money, www.webofdebt.com/articles, July 3, 2007.)

Among other problems with this system of money creation is that banks create the principal but not the interest necessary to pay back their loans; and that is where the Ponzi scheme comes in. Since loans from the Federal Reserve or commercial banks are the only source of new money in the economy, additional borrowers must continually be found to take out new loans to expand the money supply, in order to pay the interest creamed off by the bankers. New sources of debt are fanned into bubbles (rapidly rising asset prices), which expand until they pop when new bubbles are devised, until no more borrowers can be found and the pyramid finally collapses.

Before 1933, when the dollar went off the gold standard, the tether of gold served to limit the expansion of the money supply; but since then, the Fed’s solution to collapsed bubbles has been to pump ever more newly-created money into the system. When the savings and loan associations collapsed, precipitating a recession in the 1980s, the Fed lowered interest rates and fanned the 1990s stock market bubble. When that bubble collapsed in 2000, the Fed dropped interest rates even further, creating the housing bubble of the current decade. When lenders ran out of prime borrowers, they turned to sub-prime borrowers – those who would not have qualified under the older, tougher standards. It was all part of the structural imperative of all Ponzi schemes, that the inflow of cash must continually expand to pay the people at the top. This expansion, however, has mathematical limits. In 2004, the Fed had to begin raising rates to tame inflation and to support the burgeoning federal debt by making government bonds more attractive to investors. The housing bubble was then punctured, and many subprime borrowers went into default.

The Subprime Mess and the Derivatives Scam

In the ever-growing need to find new borrowers, lending standards were relaxed. Adjustable rate mortgages, interest-only loans, no- or low-down-payment loans, and no-documentation loans made home ownership available to nearly anyone willing to take the bait. The risks of these loans were then minimized by off-loading them onto unsuspecting investors. The loans were sliced up, bundled with less risky mortgages, and sold as mortgage-backed securities called collateralized debt obligations (CDOs). To induce rating agencies to give CDOs triple-A ratings, derivatives were thrown into the mix, ostensibly protecting investors from loss.

Derivatives are basically side bets that some investment (a stock, commodity, etc.) will go up or down in value. The simplest form is a put that pays the investor if an asset he owns goes down, neutralizing his risk. But most derivatives today are far more difficult to understand than that. Some critics say they are impossible to understand, because they were intentionally designed to mislead investors. By December 2006, according to the Bank for International Settlements, the derivatives trade had grown to $415 trillion. This is a Ponzi scheme on its face, since the sum is nearly nine times the size of the entire world economy. A thing is worth only what it will fetch in the market, and there is no market anywhere on the planet that can afford to pay up on these speculative bets.

The current market implosion began when investment bank Bear Stearns, which had been buying CDOs through its hedge funds, closed two of those funds in June 2007. When the creditors tried to get their money back, the CDOs were put up for sale, and there were no takers at anywhere near their stated valuations. Panic spread, as increasing numbers of investment banks had to prevent runs on their hedge funds by refusing withdrawals by investors concerned about fraudulent CDO valuations. When the problem became too big for the investment banks to handle, the central banks stepped in with their $300 billion lifeline.

Among those institutions rescued was Countrywide Financial, the largest U.S. mortgage lender. Countrywide was being called the next Enron, not only because it was facing bankruptcy but because it was guilty of some quite shady practices. It underwrote and sold hundreds of thousands of mortgages containing false and misleading information, which were then sold in the market as securities. The lack of liquidity was blamed directly on these corrupt practices, which frightened investors away from the markets. But that did not deter the Fed from sending in a lifeboat. Countrywide was saved when Bank of America bought $2 billion of its stock with a loan made available by the Fed at newly-reduced interest rates. Bank of America also got a nice windfall, since when investors learned that Countrywide was being rescued, the stock it just purchased shot up.

Where did the Fed itself get the money? Chris Powell of GATA (the Gold Anti-Trust Action Committee) commented, In central banking, if you need money for anything, you just sit down and type some up and click it over to someone who is ready to do as you ask with it. He added:

“If it works for the Federal Reserve, Bank of America, and Countrywide, it can work for everyone else. For it is no more difficult for the Fed to conjure $2 billion for Bank of America and its friends to invest in Countrywide than it would be for the Fed to wire a few thousand dollars into your checking account, calling it, say, an advance on your next tax cut or a mortgage interest rebate awarded to you because some big, bad lender encouraged you to buy a McMansion with no money down in the expectation that you could flip it in a few months for enough profit to buy a regular house.”

Which brings us to the point here: if somebody is going to be reflating the economy by typing up money on a computer screen, it should be Congress itself, the publicly accountable entity that alone is authorized to create money under the Constitution.

The Way Out

Economic collapse has been the predictable end of all Ponzi schemes ever since the Mississippi bubble of the eighteenth century. The only way out of this fix is to reverse the sleight of hand that got us into it. If new money must be pumped into the economy, it should be done, not by private banks for private profit, but by the people collectively through their representative government; and the money should be spent, not on bailing out banks and hedge funds that have lost speculative market gambles, but on socially productive services such as rebuilding infrastructure.

When deflation is tackled by creating new money in the form of debt to private banks, the result is a spiraling vortex of debt and price inflation. The better solution is to put debt-free money into consumers’ pockets in the form of wages earned. Workers are increasingly losing their jobs to outsourcing. A government exercising its sovereign right to issue money could pay those workers to build power plants using clean energy, high-speed trains, and other needed infrastructure. The government could then charge users a fee for these services, recycling the money from the government to the economy and back again, avoiding inflation.

Other considerations aside, we simply cannot afford the bank bailouts coming down the pike. If it takes $300 billion to avert a market collapse precipitated by a few failing hedge funds, what will the price tag be when the $400-plus trillion derivatives bubble collapses? Rather than bailing out banks that have usurped our sovereign right to create money, we the people should skip the middlemen and create our own money, debt- and interest-free. As William Jennings Bryan said in a historic speech a century ago:

“The bankers tell us that the issue of paper money is a function of the bank and that the government ought to go out of the banking business. I stand with Jefferson… and tell them, as he did, that the issue of money is a function of the government and that the banks should go out of the governing business… When we have restored the money of the Constitution, all other necessary reforms will be possible, and… until that is done there is no reform that can be accomplished.”

Let’s take a closer look at this phenomena and how and why it affects millions of people worldwide. An interest is accumulated when you borrow money from a bank, a lending institution or a building society. The amount you borrow is called the principal. But because you are using somebody else’s money to grow your assets, you will incur interest on the lending amount.

The rule of 72, often used in periodic compounding calculations, can also indicate of when our principal amount gets doubled by interest rates. Let’s say that (k) is the number of years it takes for your principal loan amount to double. Then take (m) to be the interest rate per annum. K * m = 72. Therefore if the annual interest rate is 3% it will take 24 years for your principal loan amount to double.

Interest Rates are calculated daily, but every first Wednesday of the month the board of the Federal Reserve Bank of Australia (RBA) is deciding on whether we are due for a rise. Sometimes they will also lower the interest rates.

These decisions are influenced by our markets and the economy. Huge events like a stock market crash can significantly influence interest rates. However the main economic factor which decides on our interest rates is the inflation. The definition of inflation means the rise in the cost of our goods and services. The RBA is generally aiming at an inflation target of between 2% and 3 %. In recent months we have touched the 3% barrier and therefore the interest rates have increased. Another key influence on the inflation is our labour market. This means the cost of wages and the employment situation in the market place.

When you borrow money, you are entering a contract with your borrowing institution. You can then elect the length of your loan and whether you desire to pay back the interest only or principal and interest. This will greatly influence the length of your loan and the amount of money you have for play. The longer you are paying interest only, the more your loan will grow. Over a 30-year period this will most likely double your initial loan amount. At present the interest rates are at 7.37% p.a.

The type of loan you choose, when borrowing, greatly influences the amount of interest you will have to pay back during the course of the loan. Some loans allow you to pay any extra monies into your loan without penalties. This in turn will lower the term of your loan and therefore the interest rates paid in total.

If you don’t want to be caught short when choosing a loan, make sure you look closely at the product you are considering. It pays to shop around, as different loans affect the amount of interest rates you are set to pay. If you are not sure about it, don’t be afraid to consult a mortgage broker / financial advisor. They can point you in the right direction depending on your financial position. Interest rates will continue to influence many people’s lives and can make the difference of whether you are able to keep up your repayments or not.

Although it’s only been in the American market for a few years, the equity accelerator is poised to take the U.S. mortgage industry by storm. It may be hard to believe, but the equity accelerator can reduce the interest paid and term of a loan by 50% or greater.

The Problem

Traditionally, lenders focus borrower attention on keeping their monthly payment “comfortable.” They are careful not to mention the long-term payoff amount for a 30-year, fixed mortgage loan. The fact that total payout on a house held to term is between two and three times the original purchase price is never mentioned.

Americans move on average about every seven years. Therefore, lenders have structured their mortgage repayment plans so that almost all of the first seven years’ payments go toward interest. Very little of each payment goes toward principle.

The financial industry has also laid onerous pre-payment penalties in the $5,000 to $15,000 range on the back of borrowers. And in the past decade or so, even more creative ways have been devised to place the consumer at a disadvantage.

The notorious Adjustable Rate Mortgage, or ARM, is one of the worst. But as of mid-2008, many of these have been coming back to haunt the mortgage industry as homeowners default when ARMs adjust upward.

Consumers without question, have been foolish and gullible during the first decade of the 21st Century. But the financial industry has not hesitated to take full advantage of consumer ignorance and vulnerability.

Adding to the burden is the high level of taxation in the United States. Small business owners in particular are sometimes forced to borrow to keep them paid. Government induced inflation adds to the burden.

The Solution

The equity accelerator, also known as the mortgage accelerator, offers great potential for relieving these tensions to the benefit of both consumer and lender. There is great opportunity for creating a financial environment in which both lender and borrower may prosper.

Exactly how does the equity accelerator work its magic? The handful of companies pioneering this market each has their own unique configuration.

The bi-weekly payment plan is the forerunner of the equity accelerator. Under this system half payments are made every two weeks instead of monthly. This gives you an extra half payment every year, and shaves about 16% off your mortgage.

This is good, but it comes nowhere near the power of the equity accelerator to cut a mortgage down to size. The best plans do not require refinancing and are thus consumer oriented.

The most powerful equity accelerator plans involve setting up a money merge account in conjunction with the mortgage. The money merge account is simply a standard home equity line of credit into which the homeowner deposits all of their monthly income.

This account operates similar to a traditional interest bearing checking account with an open-end interest calculation. In addition to the monthly mortgage payment, all bills and obligations are paid from the account.

As reported in Personal Real Estate Investor magazine (March-April, 2008) the power lies in fluid movement of funds between the line of credit and the mortgage to maximize the advantage. According to Thomas Chester, CEO of United First Financial,

“the secret is repositioning regular income that is effectively idle money…The repositioning occurs when income is applied in a lump sum to the balance owing on your line of credit. This keeps the credit line balance as low as possible and significantly reduces interest charges… This means that more money goes toward paying the principal…each month and the mortgage is paid years ahead of a standard mortgage schedule.”

The beauty of the concept is that it impacts all debts in the same positive fashion, not just the home mortgage. The pay-off for credit cards, student loans, car loans and virtually all other loans can be reduced by about 50% on average.

The equity accelerator concept has been in play in Australia and other countries for about 20 years. As noted earlier it is poised to sweep the U.S. mortgage industry in the next 3-5 years. This truly is a turning point — a paradigm shift — in mortgage history. As usual, the United States is the late-adopter, but better late than never.