Uncategorized – Melbourne Loans & Finance

Let’s go shopping: is now the time to refinance?

Mimma De Luca — Mon, 21 Sep 2020 05:39:53 +0000

Australia’s cash rate is at its lowest level in history. Does that mean the time is right to make the most of the low cash rate environment and refinance your mortgage?
When discussing the Reserve Bank of Australia’s February decision to hold rates, Governor Philip Lowe was unambiguous in his take. If you took your loan out a while ago, he explained, it is worth shopping around and checking in with your lender to see if it can now give you a bigger discount. It may pay to listen.
While we were already at record lows, the decision by the RBA this month to lower the cash rate even further to 0.5% sets a new low. With unemployment rising 0.2% to 5.3% in January, and the effects of coronavirus and bushfires becoming more apparent, the RBA is using what it has at its disposal – monetary policy – to try and boost the economy.

With this decision in mind, it’s worth looking at the market and seeing if you can take advantage of the low-interest-rate environment as an existing home loan customer.
Refinancing your mortgage can be beneficial in several ways. It can give you a better interest rate saving you money, allow you to access improved loan features, or be used as a way to consolidate several debts into one mortgage.
“If you are a responsible borrower, your current bank will be keen to retain your business … it can be as simple as just asking.”
When rates have dropped, the big four banks haven’t always passed on the rate cut in full. But neo-banks, for example, Athena, make a point of passing on the rate cuts in full, and regional banks, credit unions and other some lenders passed on the October 0.25% cut in full. All of which have lead to a very competitive market for home loans. The upshot is your bank might be eager to keep your business if you show signs of leaving. Or you could find a better deal somewhere else.
How much could you save?
As the RBA says in its February statement, Australians with older variable rate home loans have higher interest rates than those with newer loans. They found if your loan is more than four years old, that could mean an interest rate 40 basis points higher than a new loan. And your loan is older than that, your situation could be even more disadvantageous.
Also, banks are offering even greater discounts to their advertised standard variable rates, the statement said. These cuts can be as high as 1.5 per cent, compared to one per cent five years ago.
“Most individual borrowers are offered, or may be able to negotiate, further discounts on the interest rate applied to their loan,” the RBA noted.
Should I stay or should I go?
With increased competition comes the choice of whether to move to a new lender with a better rate or to use that better rate as leverage to refinance with your current bank. APRA’s home loan rule relaxation has reduced the barriers for borrowers to switch lenders, and if you are a responsible borrower, your current bank will be keen to retain your business. They may offer discounts to increase customer retention and save on marketing and promotional costs. It can be as simple as just asking, and although as recently as November the total value of home loans switched was down by two per cent to $9.63 billion it seems the lower cash rate will spur more refinancing.
Conversely, there are advantages to staying at your current bank. You can avoid fees, like discharge fees or early exit fees. A new lender might charge fees too, such as application, settlement and valuation fees.
If you can’t negotiate a new rate, switching to a new bank may be the answer. One advantage of that process is that your new bank will often take care of the exchange for you, paying out the existing loan and instructing the other bank to release the security and title without you having to be part of the process.
How to refinance
You’ll need to have all the documentation and competitor knowledge necessary to negotiate a refinance. Find your loan details, including the interest rate, mortgage balance, monthly repayment and discharge fee, and compare it to the market. How long does it take to recoup the switching costs? Can you pay off the loan faster? Be honest about the financial realities, and whether your credit score is attractive to a new lender.
For documentation, ensure you have 100 points of identification, such as an Australian passport and driver’s licence. You will also need evidence of where you live, and payslips from the past two months and six months’ worth of bank statements, or two years of profit and loss statements and personal income tax returns if you are self-employed.
When you are fully prepared, you can negotiate confidently with your bank or a new lender.
Alternatively, a good broker will be able to provide advice about the best loan and features for you, and how much you can borrow. They can also help with assessing the different loans in the market and guide you through the refinancing process towards the best outcome.

Not so taxing: making the most of your investment property at tax time

Mimma De Luca — Mon, 21 Sep 2020 05:36:52 +0000

Come July 1 the annual tax window opens again. Property investors may have access to a wide range of tax benefits, but tax is a complicated matter. It pays to be across the details. Here’s how you could maximise your return, and what to watch out for.
Over two million Australians own at least one investment property. And that has implications for their income and tax. When it’s time for them to lodge their tax returns, they must declare any income made from those properties – both rental and non rental.
However, many types of expenses from investment properties can be considered as deductions. From reducing your tax bill to negative gearing, it pays to know how the tax regulations could help you.
Deductions
There are many property-related deductions that can reduce your taxable income. The interest on a mortgage for an investment is tax deductible. So too is mortgage insurance, which is claimable over the term of the loan, or for five years (whichever is shorter).
Investment expenses can be claimed if they are used on parts of the house that are treated as an investment property – and these include:
Fees: Real estate agent fees, secretarial and bookkeeping fees, bank charges on the account used to receive rent and pay expenses, council rates and land tax, building, contents or public liability insurance, credit checks, strata title and owners’ corporation fees, and water supply charges, if the onus is on the landlord to pay for water.
Services: Advertising for tenants, fees for safeguarding title documents, taxation advice, legal expenses to eject a defaulting tenant, depreciation surveys, security patrols and security system monitoring and maintenance, and debt collection for rent arrears.
Property Costs: Repairs to the property, gardening and lawn mowing, pest control, key cutting, servicing hot water heaters, smoke alarms, air conditioning systems and garage door mechanisms, and cleaning at the end of a tenancy, including rubbish removal.
Remember, you can only claim deductions on the property during periods in which it was tenanted or available for rent. You also need to keep records to prove these expenses.
“If expenses related to your investment property exceed the income it brings, then the loss can be deducted from your taxable income including salary and wages.”
Depreciation
As your investment property suffers wear and tear, its value decreases. This depreciation is also tax deductible, at a rate of 2.5% for each year until the property is 40 years old. This is a “non-cash” deduction. It’s distinct from, say, fees, where you are paying out of your pocket and deducting it later. Fittings like lights, fans, sinks, and showers can also depreciate. Qualified building surveyors can advise how much the value of these assets will decrease over time.
Capital Gains Tax
Income from the sale of a property – a capital gain – may attract capital gains tax. The taxable amount is the total sale price less the original purchase price, and any expenses. Expenses include stamp duty, broker fees, loan application fees, legal expenses, auctioneer’s fees and capital improvement outlay. Again, keep a detailed record of those.
In addition, if you bought the property over a year before you sold it, you will only pay 50% of the CGT. Your primary residence is exempt, but you can vacate your primary residence and rent it out in your absence – say, during a temporary overseas posting – for up to six years and the exemption will still apply.
Negative gearing
If expenses related to your investment property exceed the income it brings, then the loss can be deducted from your taxable income including salary and wages. This is known as ‘negative gearing’ – and it can apply to any type of investment, not just housing.
What to watch out for
Firstly, in order to claim investment property tax deductions, the property must be a rental. It needs to be tenanted or genuinely made available for rent. It should be liveable, appropriately priced and actively listed. Holiday homes that sit empty for months in between family trips or dilapidated buildings won’t satisfy this test. Keeping records or screenshots of rental website listings can help you establish this.
If you own a property jointly with someone else, or with a group of people, then you must share the rental income and deductions proportionally. For example, a couple owning a house together in equal shares would each claim 50% of the rental income and 50% of the deductions. The owner with the higher taxable income cannot claim more of the share.
Each year at tax time, the ATO announces specific areas it will be investigating. It has been suggested that excessive expense claims and holiday homes could be two of the areas focused on this year.
As with all matters of financial planning, it’s worth talking to an expert about how the tax system can work for you.

As low as it could go: is now the moment to fix your mortgage rate?

Mimma De Luca — Mon, 21 Sep 2020 04:59:14 +0000

Australia’s cash rate is now the lowest it has been in 23 years, a reaction initially to stunted economic growth and now to the impact of COVID-19 on the local and global economic landscape. As the uncharted negative interest rate zone looms, is it worth fixing your rate? Here’s what to weigh up when making your decision.
The RBA has stood by its promise to keep the current rate of 0.25%, which still represents a historic low. RBA governor Philip Lowe has said that it’s highly unlikely that Australia will adopt negative interest rates, and would not lift the rate unless progress is being made towards full employment. Given it took more than a decade to get to full employment after the early 1990s recession, this could be the cash rate for some time.
There was a time when fixed rates were higher, as they were more stable, and variable rates were seen as riskier and were priced lower. Only 15% of Australian mortgages are fixed. Currently, the lowest fixed owner-occupier rate offered by bank and non-bank lenders is 2.09%, compared to the lowest variable rate at 2.39%.
“In these uncertain times, the reassurance of a fixed rate might be preferable. Certainty on your interest rate means you can budget accordingly – and you can remove potential interest rate hikes from your list of anxieties.”
In March, amid the rapidly escalating COVID-19 pandemic, the RBA made an emergency cash rate cut to 0.25%, which most banks have passed on to fixed rate loans – but not variable loans. If you’re considering whether to fix your mortgage rate, here are some things to take into account.
To fix…
Given these are the lowest rates in history, and negative interest rates have been all but ruled out, the RBA is unlikely to provide any more relief to homeowners – concentrating instead on monetary policy like quantitative easing. Many banks passed on the early-March rate cut, but fewer did so in mid-March – and as discussed above, it was for fixed rate mortgages only.
In these uncertain times, the reassurance of a fixed rate might be preferable. Certainty on your interest rate means you can budget accordingly – and you can remove potential interest rate hikes from your list of anxieties.
… or not to fix
While fixed rates may be more predictable when it comes to making a budget – and most likely lower – they do come with some significant drawbacks.
Variable rates are more flexible. They tend not to come with break costs, which are incurred if you want to exit your fixed loan during the fixed period. If future rate cuts were to occur, you’d be unable to take advantage of them. If your circumstances change, you might not be able to change your investment plans or move lenders.
In addition, there might be limitations to how you can pay back the loan. Additional repayments might be capped, so you can’t make bulk or lump sum payments. And Redraw facilities might not be available.
Fixed loans also tend not to offer the option of an offset account, which allows the borrower to use their savings to pay more of the principal amount off their loan. If building up savings or having cash on hand is important while you pay off your mortgage, perhaps you’d rather a variable mortgage with an offset.
In times when work isn’t guaranteed, you might want to stay flexible with your mortgage, in case your financial situation is impacted. The extra flexibility afforded by a variable loan might be more important to you than a lower rate.
A little of both
Many lenders offer the option to split your home loan into two separate loans, one fixed and one variable. One caveat is that having two loans may mean you end up paying more in fees. You can also tailor the length of the fixed period – most commonly between one and five years, although 10 and 15-year options exist.
Ultimately, it’s always most important to make decisions based on your circumstances, not just the conditions of the market. For more information on which loan is right for you, contact your broker.

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