Let’s face it; interest rates are cyclical. While they might be at historic lows right now, there are always points in the economic cycle when they may start to rise again. The threat of being caught in a series of interest rate hikes is often enough to prompt many home owners to jump over to a fixed loan.

Before you make a decision either way, take some time to weigh up the pros and cons of each option. Here is a quick look at the benefits and disadvantages of both fixed and variable interest rate mortgages: 

Variable Rate Loan

A variable interest rate mortgage is a loan where the interest rates can fluctuate in line with the cash rate. Of course, there are also occasions when banks can raise or lower the interest rates even when there are no changes from the Reserve Bank.

Benefits of a variable loan

When your mortgage is on a variable interest rate, the interest you pay can fluctuate at any time. If interest rates go down, your repayments will also reduce. However, if interest rates start to climb, you can expect your repayments to increase accordingly.

Many variable rate mortgages are quite flexible. You have the freedom to make additional payments, which helps to repay your mortgage faster. There are also no penalty fees for paying extra off your home loan balance.   Some banks also offer a redraw facility, which allows you to redraw any additional payments you’ve made.

You may also choose to link an offset account to your variable rate mortgage. An offset account gives you the opportunity to reduce the amount of interest that can be charged on your remaining balance.

Disadvantages of a variable loan

While variable loans offer lots of flexibility, there are also some disadvantages to consider. Perhaps the biggest drawback is that your repayments will increase if interest rates go up. If you’re on a tight budget, it can be challenging trying to keep up with payments when they start to rise.

Fixed Interest Rate Loan

A fixed rate loan allows you to lock in your interest rate for a predetermined period of time. Most banks offer fixed interest rates for varying terms. You can choose to fix your loan for 1, 2, 3, 4, or 5 years, although there are some banks out there that may let you fix for up to 10 years.

While locking in your interest rate can be a good idea for some people, always take into account the benefits and drawbacks before you make a decision.

Benefits of a fixed loan

During the fixed rate term, your interest rate can’t be affected by any fluctuations in the market. This means your payments also won’t change during the fixed term. You’ll know exactly what your monthly payments are, which can make your budgeting easier.

It can be tricky to know how long to lock in your mortgage for. Most banks offer very competitive interest rates for 2 and 3 year terms. However, the 5 year fixed rates tend to be a little higher in comparison, simply because the banks tend to hedge their bets against future increases in the cash rate.

Many first home buyers and families can find it reassuring to know that repayments won’t change for a certain period of time. If the variable rates start to rise, you have the peace of mind that you won’t be affected while you’re protected by your fixed rate loan.

Some investors may also find the certainty of a fixed rate reassuring. Locking in the interest rate for a period of 2 or 3 years can mean knowing the payments remain the same. However, the rental income may increase over the same period of time, which could help to improve your cash flow.

Disadvantages of a fixed loan

While the advantages of locking your mortgage into a fixed rate might be tempting, it’s a good idea to remember there are also some disadvantages to take into account.

When you agree to lock your mortgage into a fixed rate term, you may need to pay hefty break fees if you choose to change the loan before the end of the term. For example, if you switch back to a variable rate, refinance your mortgage, or sell your home during the fixed rate term, break fees may apply.

In some cases, the bank may also charge you break fees if you make substantial additional payments throughout the fixed term. Many banks will place limits on the maximum extra repayments you can make each year. In many cases, the limit is between $5,000 and $20,000.

It’s also worth noting that the fixed rate offered by many banks is often higher than the variable rate. If the variable rate drops, you’ll miss out on reaping the benefits of reduced payments.

In most cases, an offset account is not available to fixed loans, but there are some lenders who will offer a partial offset during the fixed term. Some banks may also not allow you to redraw any extra payments you’ve made until after the fixed term has ended.

Split Loan

If you’re unsure whether to choose a fixed or variable loan, it is possible to split your mortgage and take advantage of both options. You can keep a part of your mortgage variable to take advantage of the flexible options and fix the remaining part to take advantage of locking in a low interest rate.

No one can accurately predict how interest rates will move. Likewise, your individual financial situation isn’t the same as anyone else’s, so what works well for one person might not suit your financial goals.

The best way to check which option might work best for your financial circumstances, your budget, and your goals is to discuss your home loan type and structure with a mortgage specialist. 

Call us today on 1300 832 554 or click here to request a FREE Home Loan & Finance Structure Health Check.

MORE INFO:
Karyn Reddick
Loan Manager
e: karyn@nieuvision.com.au

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Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in our articles and newsletters. They contain general information only and have been prepared without taking into account your personal objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.

The post Fixed vs Variable Interest Rates: Which is the Best Option for You? appeared first on Nieuvision.

Step One: Ask for Advice

Your local bank might be a good starting point, but how will you know you’re getting the most competitive interest rate or the right loan type to suit your needs? It pays to ask a mortgage specialist for advice about the different interest rates and loan types on offer from a variety of banks and other lenders.

Be sure to ask plenty of questions. After all, it’s your home loan so it’s in your interest to be sure you get the answers you need.

Step Two: Get Your Documentation Together

Before you rush into your local bank branch, take the time to get your documentation together. Remember, the bank assesses your ability to repay the money you borrow based on the information you provide them.

You’ll need to provide at least two current payslips and last year’s tax assessment notice to verify how much you earn. If you earn any other types of income, you’ll need to provide evidence of that too.

If you’re buying your first home, the bank may ask to see bank statements proving your savings history. Alternatively, if you’re refinancing an existing home loan from another bank, the new lender may want to see statements showing that you’ve kept up with all of your repayments.

Step Three: Choose the Right Loan Type

Once your documentation is in order, it’s time to check that you have the right loan type to suit your financial goals and your individual circumstances.

If you’ve taken the time to ask for advice from a mortgage specialist, you’ll already know whether you want a fixed rate home loan or whether you’d prefer a variable interest rate with a linked offset account.

You should also have a fair idea whether you’re getting a competitive interest rate compared to what else is available from other lenders. There’s also the decision of whether you want your mortgage repayments on principle and interest payments each fortnight or on interest only payments once a month.

Step Four: Check Your Borrowing Capacity

Before you submit your loan application, it’s a good idea to check how much you can borrow. Just as different banks offer a range of differing home loan options, they also have varying policies for how they work out your borrowing capacity.

Your mortgage broker will use the income documentation you provide to work out how much you can borrow from a range of different lenders. Some may allow you to borrow more than others, so it’s worth checking whether the bank you want to use will give you the loan amount you need.

Step Five: Choose the Right Lender

Aside from using different policies to work out how much you can borrow, different banks also have varying home loan options, so it pays to choose the right one to suit your needs. For example, some banks may require you to put down a larger deposit on your home purchase than others. Some may not offer all of the home loan features you want, while others may have additional fees and charges you didn’t expect.

Step Six: Apply for Pre-Approval

Submitting an application for a pre-approval is a great way to make the process a little easier for you. The lender you choose will assess your application and let you know that you’ve been conditionally approved to borrow a specified amount of money.

Once you receive your pre-approval, you can go house hunting with confidence.

If you’re ready to start the home loan process, why not call us and speak to a good mortgage broker about your options today on 1300 832 554 or click here.

MORE INFO:
Rick Nieuwenhoven
CEO
E: rick@nieuvision.com.au

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Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in our articles and newsletters. They contain general information only and have been prepared without taking into account your personal objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.

The post Demystifying the Home Loan Process appeared first on Nieuvision.

What many people don’t realise is that car dealers often have the discretion to set their own interest rates unfairly just to boost the commissions they earn.

Recently, the Australian Securities and Investment Commission (ASIC) decided to ban flex commissions in the car finance market in an effort to stop car dealers charging unfair interest rates on car loans in order to increase their profits.

The term ‘flex commissions’ refers to car dealers setting higher interest rates than the actual rate offered by the lender. In some cases, the finance officer within the car dealership could set an interest rate as much as 7% higher than the standard interest rate offered by the lender.

The result is that the car dealer earns higher commissions, while the customer ends up paying potentially thousands of dollars more in interest charges over the term of the loan than they needed to pay.

In an effort to stop shady car dealers from overcharging consumers to line their pockets, ASIC has now prohibited flex commissions, using its power to modify various sections of the National Credit Act. Car dealers will no longer be able to increase their profits unfairly by using flex commissions.

Instead, the lender will determine the rate charged to the customer. Lenders will also pay a standard commission to the car dealer based on the loan amount.

It still pays to shop around for car loans

While the ban on flex commissions may help keep interest rates in line for many customers, it doesn’t automatically mean that getting your car finance from the dealership will mean getting the best deal.

It’s true that the lender will set the rates offered by the finance officer at the car dealer. However, it’s important to remember that car dealers may only have affiliations with one or two preferred lenders.

It’s also worth keeping in mind that the loan terms offered at the dealership may not always be in your best interests. Steep exit fees, early repayment penalties, or other hidden terms and conditions may apply, so it pays to read the fine print before signing on the dotted line.

By comparison, a good mortgage broker or financial consultant may have access to a panel of multiple lenders with broader financing options to choose from.

If you’re serious about getting the best deal on your car finance, it still pays to shop around. It may be possible to locate a lender willing to offer a reduced interest rate or better loan terms to suit your individual needs.

Take the time to discuss your needs with a mortgage broker before submitting a finance application.

MORE INFO:
Kym Russell
Finance & Property Consultant
e: krussell@nieuvision.com.au

– – – – – –

Disclaimer: We recommend that you seek independent financial and taxation advice before acting on any information in our articles and newsletters. They contain general information only and have been prepared without taking into account your personal objectives, financial situation or needs. We recommend that you consider whether it is appropriate for your circumstances. Your full financial situation will need to be reviewed prior to acceptance of any offer or product. Interest rates are subject to change without notice. Lenders terms, conditions, fees & charges apply.

The post Car Buyers Benefit from Ban on Unfair Commissions for Car Loans appeared first on Nieuvision.

Can I use a home renovation loan or can I get a home loan to include renovation costs?

Yeah, well of course you can. We’ve got to be careful that you’re not classed as an Owner Builder.

The banks aren’t particularly fond of lending to Owner Builders.

So we’ll take that out of the equation, and let’s just assume that you are a normal purchaser, got a new house, but you want to put some add-ons

Yes, you can get a loan that includes renovation costs.

The banks may ask to see invoices for the works that you are going to do, and also have that work reflected in evaluation for improvement in the cost or the value of the property.

Another option is to get a home renovation loan Australia that includes a little extra for renovations and have a component of that loan sitting there for renovations, that might be an easier way.

All this is dependent on the equity that you do have.

If you’re under an 80% LVR, most banks will allow you to take your loan to that, and really not ask any questions about the nature of why you want that additional money.

Another loan structure you could do is have that additional money sitting in an offset account and that way, it’s just waiting there for when you want home improvement loan.

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How Much Does It Cost To Refinance A Loan & How Much Does It Cost To Refinance Your Home

What does it cost to refinance a new home loan? It can vary between bank to bank. The bigger banks generally may have a fractionally cheaper cost to you in refinancing compared to the smaller banks, but you may be able to get better interest rates at the smaller banks, which means over the longer term, you will benefit more. Obviously, the lower the interest rate the better.

So, some of the costs, to give you an example of refinancing, would be the production of contracts, which every bank uses a solicitor. One of those as an example is Galilee. Another cost can be a fee that the bank charges for producing the home loan as well, and they’re the two primary costs. Then you’ve got these other costs like valuations. Some banks have free valuations, other banks have discounted valuations and some just have to pass on the cost of the valuation, but most entities, if not all, don’t make a mark up and profit from the valuation cost itself. They just pass on that cost to you. It’s usually the small ones that do that.

The other two costs we need to consider is mortgage insurance. So if we go over 80% loan to value ratio, we have to pay mortgage insurance. So sometimes people don’t take that into account. And the other cost that we need to think about is if you’re in a fixed loan and there may be potential for break costs on that fixed loan. If you’re variable, there is no more break costs anymore so the bank can’t penalize you with ridiculously high costs for break costs.

How Much Does It Cost To Refinance Your Home And How Much Does Refinancing Cost

So, an example of some of those costs’ figures for you. I know some banks charge between $250 and $500 for creating the application, so to speak. Then you have the production of the documents by the solicitor. That’s generally around $350. The variations can vary between zero and $305 normally, depending on which bank you are using. Lenders and mortgage insurance is scaled above 80%, so if you have a 95% loan, for example, generally mortgage insurance will be about 3% of the transaction price. And then it can go down. So on a $400,000 loan, if you were on a 95% lend, you could be looking at $12,000 in mortgage insurance. And I’ve spoken before about mortgage insurance and my philosophy on it, so please feel free to check out that video.

They’re pretty much most of the costs, and break costs, that can be a big one. I’ll give you an example. Client contacted me. They went direct to the bank instead of speaking to me and fixed their loan in for 700,000 until 2022. We’re at 2020 now, in April 2020. The break cost for that client was going to be $22,000 to terminate that fixed loan early. Crazy. One of the advantages of variable loans, therefore, is you don’t get charged those high break costs.

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Best Time To Refinance Home And The Best Time To Refinance A Home Loan

Is it good to refinance your home loan? Absolutely it is. Is it good to refinance your home loan every six months? Probably not. We have to do the mathematical formula on it, right. Because obviously there is that cost to moving your home loan. So if you move too frequently, the interest rate benefit and saving that you may be receiving through lower interest rates may be offset by the cost of the fees that you’re being charged each time you need to refinance. Plus the time cost of yourself going through that whole process as well.
I know certain people that may be looking every six months to refinance. Again, I think that’s probably too quick. I’ve definitely recommend an annual review of your loan just to see where you’re at and what the situation is. Doesn’t mean that you have to move every year.

What are we looking at? We’re definitely looking at the interest rates. What’s available to you? If you’re fixed, when’s it coming out? If you’re variable, what’s your variable rate? The other thing we need to think about is some banks charge a fee, an annual package fee or a wealth fee to get discounted interest rates. So we need to factor that in as well.

And those fees can vary bank to bank from $250 to $495. So we need to think about that when we’re talking about refinancing because $495 offsets some of the interest rate saving that you will receive through refinancing with the bank. So it’s not a clear black and white answer. But what I would always recommend is, if you’re loyal to the bank, it doesn’t hurt you to ask a broker the question of, “Am I going to benefit from refinancing from this bank?”

And in the past, I’ve recommended clients to stay where they are because their deal that they’ve got is pretty much unbeatable. So not worth moving. And then there’s others where there’s definitely a strong benefit to moving.

And the one little bit of information that I’d like to remind everybody is a lot of Australians what I’ve seen, were a bit relaxed or too relaxed when it comes to our home loans. And we don’t probably assess them enough. And we get too loyal to a bank to the point where we don’t want to move, and it’s costing us financially.

And banks won’t give you the best offer sometimes until you say you’re going to move. And then their best offer isn’t still the best offer that’s in the market.

Get in touch to know more about when is it a good time to refinance or best time to refinance home

The post When Is The Best Time To Refinance? (2020 Guide) appeared first on Nieuvision.

How To Pay Off Your Home Loan In 5 Years

Get in touch with us to get an update about how to pay off home loan faster or how to pay off home loan early

I’m here to talk about how you can pay your home loan off in five years. It’s a question that people ask where they say, “It sounds like it’s too good to be true.” For some, it might be. It’s not a hard and fast rule. But for a lot of you, it is a possibility. And generally, all it takes is just rejigging your figures and a little bit of discipline, and we can get an outcome which is amazing for you, to own that main residence, your main asset, free-hold, as quickly as possible. Which is great if I put my accountant hat on because it’s a non-taxable asset, which means we can’t claim a tax deduction on it. Therefore, we want to get rid of it as quickly as we can.

So I wanted to give you a real case study that we’ve had, where we’ve had a client that’s had a $200,000 mortgage. And with that $200,000 mortgage, they had a combined income of $150,000 per annum. So it was around $75,000 each, just to keep the math pretty simple. From that, on 75,000 each, the tax ends up, I’m going to round it up and let’s say it’s about 18,000. So the tax is 36,000, so therefore they’re walking away with 114K a week.

How To Pay Off Your Home In 5 Years?

Now, the trick is most people just pay the repayments that the bank tells them to pay. So, in this example, they were paying 400 a week and they had 15 years left on their term. The other interesting thing, I can’t bring up the graph for it, but if you go onto a calculator, a loan repayment calculator, you will find that the first half of your loan, you’re paying more interest and less principal than the second half. It’s funny how that works out. So anyway, 400 a week, 15 years left on their term, works out on average it’s about 10K in interest that these people are paying per annum.

So when we went through the numbers with this client, we worked out that they actually had the capacity to pay $1,000 a week. It’s just that they weren’t using their money properly. So that equates to 52,000 per annum that they could actually put into their mortgage. Now, they’ve still got to pay 10,000 a year in interest even if they do pay extra, right, as they’re paying this loan down under the old arrangement. But one of the products that we’ve got, the interest rate is 0.75%. So that means on a $200,000 loan, the interest that they’re paying for the year is only $1500. If they’re paying $52,000 per annum, well then they’re putting in $50,500 per annum into that mortgage. This means straight away, bang, their home loan was paid off in four years.

Now how do you get this interest rate? Well, generally we have to do it with property investors. So if you’re not a property investor, it’s okay. We’ve got a whole structure here where we can help you buy an investment property, which is cash flow neutral, which isn’t going to cost you anything. You get a nine-year rent guarantee, so therefore you don’t have to worry about not having income from rent, and we’ll also get the house painted for you at the end as well. And it’s in suburban locations.

So it’s pretty much as risk-free as possible. But you’ve got your house with the 200,000, and let’s say you buy an investment property because you do want to get that 0.75% interest rate. And let’s say, on this house, it’s in suburbia and it’s going to cost you zero to run. The advantage of it costing you zero to run means that all your surplus money can go into paying this off. And again, we’ve got our specialized product which allows you to have a zero-to-run, or sometimes even a cash flow-positive property, which means it’s going to make you money, which in addition can then help pay this off even foster.

Now, if we did this over, let’s say five years. Not four years, but five years. Let’s say this property grew, conservatively, by, I don’t know, 50,000. So not only has it cost you nothing to hold, it’s generated another 50,000 which grows to your bottom line. Now, the general rule of thumb is you need a rate of return of 7.2% year on year for 10 years for this $400,000 property to be 800,000 in ten years’ time. Right? So I’m being very conservative with this figure of 50,000 only beings at 1, 1.5%. So when you bundle all of this together, it’s quite simplistic. It just needs a bit of trust, a bit of confidence, a bit of courage, and this is accessible to anyone that has those attributes.

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Lenders Mortgage Insurance on an investment property is also known as LMI. And I have a bad habit when I talk to clients and I say LMI, and they look at me with a glazed face, “What are you talking about?” We’re talking about Lenders Mortgage Insurance.

What is Lenders Mortgage Insurance? It’s a cost to borrowing money. That’s all it is. People are terrified by it because people don’t like paying the fees. However, I don’t mind it. I’ve actually bought investment properties before and I’ve paid Lenders Mortgage Insurance. Why? Because I look at it as a [fade 00:00:31] to hold more of my own money. If I don’t want to pay Lenders Mortgage Insurance, I need to borrow 80% and no more. I need to have a 20% deposit, which means I could have a 90% lend and only made 10% deposit, but that I have to contribute more money to do the 80%. So having mortgage insurance, allows me more flexibility to make future decisions and investment opportunities, will become available to me.

So it’s generally around 3% of the transaction or if we go below 90%, say 85 or 83% as a loan to value ratio, well then the mortgage insurance will decrease a quarter leaving as well. Might it be 1% or one and a half percent of the transaction.

You don’t have to physically pay it out of your own pocket, it can get being added to the line, now some banks are different. Some banks, you can do 90% plus mortgage insurance, other banks are 90% including mortgage insurance. And that fee is charged on settlement. You don’t have to come up with the money beforehand, it’s just charged on settlement.

From a tax perspective, we can claim it in our tax. So if you have a mortgage insurance cost of $5,000 and you’re in a 34% tax bracket, well, you’re going to get about $1,650 back. So really the mortgage insurance is only costing you under $3,500 to hold an extra 10% cash, in either equity or cash to be used for a future investment decision.

Do you pay LMI on Investment Properties?

If you’re applying for a mortgage, it’s likely that you’ll need to be mindful of two important terms: Loan-to-Value Ratio (LVR) and Lender’s Mortgage Insurance (LMI).

Your LVR and the LMI premium are two things that go hand in hand. In fact, they each have the potential to affect what fees you get charged when applying for a home loan. In some instances, your LVR can even determine what interest rate you’ll be charged by your bank.

Here is a quick explanation of each of the terms and how they could affect you:

Loan-to-Value Ratio (LVR)

Your Loan-to-Value Ratio, or LVR, is calculated on the loan amount you’re applying for and the valuation of the property you’re using as collateral security. So if you’re looking to buy an owner occupied home to live in, the amount of deposit you intend to put towards the purchase will determine your LVR.

For example, if you want to buy a home valued at $400,000 and you have a $20,000 deposit, then you’ll need to borrow $380,000. If you divide your loan amount by the value of the property and multiply the result by 100, you’ll see that your LVR will be 95%. If your deposit amount is $40,000 on the same purchase price, then you’ll borrow $360,000 and your LVR will be 90%.

Most Lenders will allow you to borrow up to 95% for an owner occupied property and up to 90% for an investment property. If you are purchasing an investment property, it’s possible you might have access to equity in your own home to lower the LVR for your purchase.

However, keep in mind that if you borrow more than 80% of the property value, you’ll need to pay a Lender’s Mortgage Insurance premium.

There are some lenders who will give discounted interest rates for loans under 80% LVR. So not only will you save on interest by having a larger deposit or more available equity to use, but you also won’t be charged an LMI premium. Always look at the fine print as some Credit Unions will only give a discounted interest rate for LVR’s of 70% or less.

Lender’s Mortgage Insurance (LMI)

It’s common for many borrowers to assume that the Lender’s Mortgage Insurance (LMI) premium provides them with some type of insurance coverage on their loan.

In reality, the LMI premium you pay actually protects the lender – not you.

If your mortgage application shows a loan amount that takes your LVR over 80%, your application will be assessed by the lender’s credit assessment team as well as the Mortgage Insurer’s assessment team.

While the bank may view your mortgage application favourably, there’s a chance the mortgage insurer’s assessors might not. If this happens, the mortgage insurer can reject your application.

Calculating the amount you’ll pay on your LMI premium can be tricky, as it can vary depending on the lender and which mortgage insurance company they use. The premiums are also calculated on a sliding scale, so if you have a higher LVR you’ll pay a larger LMI premium.

Mortgage brokers strive to ensure you use the best loan structure for your individual financial situation so you can potentially avoid, or at least minimise, the amount of LMI you pay.

In order to avoid paying an LMI premium, you’ll need to keep your LVR below 80%. If you don’t have sufficient equity or you don’t have a large enough deposit, ask your mortgage broker if there are any ways you might minimise the amount you pay on your LMI premium.

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All right, one of my great discussion topics at the moment, I call it the interest rate track. I’m going to explain it to you, but this is all about fixing your loan versus a variable loan in this current market. I’m very strong with my opinion on staying variable. I understand that fixed is very attractive with the low interest rates at the moment. But you need to think about it why the bank’s offering you as the consumer really low fixed rates, much more competitive than the variable rates. Because it’s one way that they can guarantee to keep you as a client, but it may not be in your best interests and this is why.

So I’m going to do my fantastic truck drawing that I do. This is the interest rates in a rising environment. What is a rising environment for interest rates? We have wage growth. These are all inflationary measures. So we have wage growth, CPI growth, which is the basket of goods and prices increasing. Our GDP is increasing. Now I could ask you, I’m going to timestamp this video. We’re in peak Corona at the moment, we’re in the beginning of April, so 2020. None of this is actually happening at the moment.

So we’re over here in present time and we’re choosing between variable or fixed. My first degree was an economics degree, I put my economics degree hat on. When do I think this is going to happen? When are we going to have inflationary effects? Most economists in the market, professional economists are saying probably two, three years. At this current time here, there’s even forecasts of maybe more interest rate decreases. So interest rates could go further down.

So why are we fixing? There’s no reason to fix at the moment. To give you an example with our mortgage manage product with the loan guides, I can get a variable rate of 2.39%, right? If you’re willing to refinance your investment properties or willing to consider talking about an investment property, I can even get you a variable rate of 0.75%. That is correct, 0.75%. Who would have thought we’d even be talking those numbers at any stage? But anyway, so there’s competitive variable rates on the market, that’s what I’m trying to say.

So what we’re better off doing is playing a game of chicken with the rising interest rates scenario, whenever that will be. So let’s say it’s in three years time, right? So what we’re doing is we’re running variable until we get to this point here. Where we start hearing the media talking about wage growth, inflation, GDP, all improving. That’s the indication for us to then look at fixing. What that will then do, will give us the greatest potential to try and jump over that rising interest rate environment and come out the other side.

Where we could maybe fix at 2.5% for five years for example. And then get over that rising interest rate period. Because what we have to remember is certain banks limit the contributions that we can make on a fixed loan as well. Some banks don’t allow us anything. Zero. Some banks are ten, some banks are 20,000. There’s not many. I can think of one off the top of my head that will do 100% offset account and gets a fixed loan. But there’s not many, right?

But if we fix here, and I know people are jumping into the fixed rates, they’re not thinking through it logically. If we fix here, we might come out here where we get splattered with rising interest rates. We might come out with a three to four percent, right? But over here it could be 0.75%, right? This is the risk we’re playing. So we need to take off the fear factor and use the logic factor.

Now I’m happy if people want to disagree with me. I’ve had arguments with other brokers who disagree with me, but this is my logic and most of the clients that I deal with they agree with this logic. So this is the logical way to approach our mortgages at this point in time to maximize our mortgage reduction, which is the aim of the game. So what we want to do now, is if we still got our jobs, nothing’s changed, we want to be putting as much money into our mortgage as possible. Building up that equity as fast as possible, and then looking at mechanisms how we could increase in paying off the mortgage.

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Question, how much deposit for an investment property? Great question. Do we need 20%, do we need 30%, do we need 10%, do we need nothing? All good questions and where it comes from is the standard is a 20% deposit is required to buy an investment property, but that’s primarily if we want to not pay mortgage insurance, which is also an acronym of LMI. However, my view on mortgage insurance is, mortgage insurance is just a cost to borrow with allowing us to borrow more and therefore having to use less of our cash or equity to do a transaction.

It is tax-deductible. So if I had a multiple property strategy, I have no problem paying mortgage insurance, which means we need as little as 10%. It used to be 5% we can do 95% later for investment properties. Very, very difficult to find now. Crackdown a few years ago. So we’re really now looking at a minimum of a 10% deposit which will incur some mortgage insurance, but primarily 20%. So it depends on how much equity we’re setting off because we can use cash or we can use equity to buy an investment property. And the difference is cash, we’re physically, we’re drawing cash out of our home or out of our bank account and laying it down to purchase which means we’re only getting a 10 or a 20% or 90 or 80% loan instead using the 10 or 20% deposit. Or equity we’re not taking any cash out and then what we might be doing is just decreasing the amount of available funds we have on a loan on our occupier to actually fund the investment property transaction.

Are they loans where we make no deposit for investment properties? Well, the simple answer to that is no. There is no such thing as a 100% loan. But where the confusion can come in is what we can do is actually just use the equity in our property, as I said before, to go towards purchasing the investment property, which means we have 100% lend or maybe even 105% lend on the investment property to maximize tax deductions. But the cost of that is we’re reducing our balance available in our owner occupier.

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