English

How the American stimulus package can affect the Australian housing market

This week, the US President is set to sign off on a $US1.9 trillion (2.5 trillion AUD) coronavirus relief package. If signed, the legislation will authorise the delivery of cheques worth $US1,400 to millions of low-and-middle-income Americans, as well as the unemployed. Unexpectedly, this policy will have profound impact upon the Australian borrowers.

With the stimulus package now on the horizon, the global forex market is beginning to price it in. The stimulus package is expected to significantly increase growth in the US economy, with some sources predicting 6-7% GDP increase in 2021 alone. There are two main consequences of a stronger US economy, firstly USD will rise causing AUD to fall in relation and accompanying economic growth is always inflation as households are now able to pay more for the same good. Consequently to combat the rising inflation and the inflow of foreign investment in response to a recovering US economy, US interest rates must rise accordingly.

These factors all impact upon the Australian housing market through both direct and indirect channels. The aforementioned comparative weakening of the AUD will also introduce inflationary pressure in the local economy through a different mechanism called cost push inflation, whereby the relative increase in price of import goods and production inputs are passed onto consumers through higher prices, thereby contributing further pressure on the RBA to increase the interest rate.

The global money market is a key channel for transmitting the impacts of the US stimulus package to the Australian economy. Money market participants examine two keys aspects when pricing assets and securities, especially bonds, the future value and the opportunity cost. The US stimulus package affects both of these, with the predicted higher growth driving up future value and makes lending in the US economy more profitable in comparison to the Australian economy.

The RBA is currently employing two forms of monetary policy control with the key one being yield curve control. RBA’s implementation of this policy specifically targets the three-year government borrowing by buying bonds in order keep borrowing costs within a target range. Whilst this strategy has been successful in suppressing rates towards the target, the longer term rates has been rising significantly. For example, in the past six weeks, the cost of the Federal Government borrowing money for a 10-year fixed term has effectively increased by 79 per cent, with interest rates rising from 0.94 per cent to 1.68 per cent.

However with the global market continuing to price in future growth, the cost for the RBA to maintain their targets and promises for the next three years will become more and more difficult, especially considering that the local big banks need to finance some of their loans by borrowing from overseas markets. With the interest rate on US bonds expected to rise significantly, this will pose a huge cost on local commercial banks which will likely be passed on to mortgage holders through increased fixed mortgage rates. Thereby demonstrating how in current times the rates in the Australian housing market isn’t solely controlled by the RBA.

In conclusion, borrowers may need to look towards alternate sources of funds for financing. Despite having comparatively smaller source of funds, private lenders such as KBRZ have more stable funding pools making them comparatively less susceptible to changing rates posed by shifts within the global money market. To find out more about refinancing check this previous blog, to find out how we can help you in a world of higher rates contact us through our website

English

What are First and Second Mortgages ?

What is a First Mortgage?

When most people purchase a home or property, they take out a home loan from a lending institution that uses the property as collateral. This home loan is called a mortgage, or more specifically, a first mortgage.

This can be formally defined as a primary lien (a legal claim against assets that are used as collateral to satisfy a debt) on a property that secures the mortgage in case of default or non-repayment of the loan. In case of default by the borrower, the lender can sell the property in order to recover the amount along with the interest, and has priority over all other liens or claims.

What is a Second Mortgage?

A second mortgage, also called a home equity loan – is money borrowed against home equity for refinancing purposes or to fund other projects and expenditures. The second mortgage and any other subsequent mortgages taken out on the same property are subordinate to the first mortgage and are made while an original mortgage (first mortgage) is still in effect. This means the first mortgage must be fully paid off in order for the secondary mortgage to receive payments in the event of default. As a result, the interest rate charged on the second mortgage tends to be higher and the amount borrowed will be lower compared to the first mortgage.

Example of First and Second Mortgages

Let us say, you purchase a home with a $300,000 mortgage. This is your first mortgage on the property. Over the next few years, you pay down your mortgage. You now owe $210,000 on the first mortgage. You also want to do some remodeling, so you take out a home equity loan for $20,000. This is a second mortgage.

If you decide to stop making your house payments, your first mortgage lender would force a sale of the house to recoup their $210,000 before the second lender is entitled to try to get back their $20,000.

Extra things to note about First and Second Mortgages

The first mortgage holder does not obtain ownership over the property.

The borrower does not usually need the first mortgage lender’s consent for obtaining the secondary mortgage. However, it is required for the borrower to have enough equity in the property so that, in case of default or non-repayment, the interest of the second mortgage lender will be protected.

English

I have Equity in my Property! But what do I do with it?

Home equity is the difference between your property’s market value and the balance of your mortgage. For example, if your house is valued at $600,000 and the current debt is $250,000, the equity in the home would be $350,000. If you’ve owned your home for a few years, there’s a good chance that you’ve built up some reasonable equity in your property. This can be an extremely valuable resource in regard with property investment.

Here are some strategies that our team at KBZR commonly advise our clients to best optimize their accumulated equity.

1. Renovate

This is one of the most effective strategies used by property owners in the current economy. As a homeowner, you can capitalise on the increase in property value to borrow money against home equity for refinancing purposes or to fund other expenditures. If the new value of your property has increased and your borrowing capacity can support it, our team at KBRZ can support you with our wide range of loan solutions that are specifically tailored for each of our clients.

2. Purchase an investment property

With the current state of the housing market in Australia, property owners can reap numerous benefits. When investing, you should always be aware of the risks. When purchasing a second property you are concentrating your wealth instead of diversifying your assets. Indicating if the property market declines, so does the value of your home. Consider your own knowledge of property investment, especially the particular market you’re looking to buy into, it is always helpful to seek advice from a financial consultant. Finding the cheapest investment home loan on the market can also help in the long run. It enables you to save more by paying less interest. Whenever you are looking for property investing, KBRZ is an experienced expert which will help you get the best deal in the market.

3. Refinance to a better rate

Lenders heavily favor borrows with equity as it lowers their risk of losing money. As a result, clients can expect to be rewarded with discounts when borrowing against their equity. It is worthwhile to consolidate with our team at KBRZ in order to find the most optimal solution for you that will allow you to save a good portion of your wealth.

4. Consolidate other loans

If you have other personal loans, car loans, or credit cards with high-interest rates, it may be a chance to consolidate this debt onto the low home loan rates today. This greatly simplifies your banking by requiring one payment instead of making multiple payments through accounts. Doing this generally means your monthly commitment is less, so it may be optimal to reallocate these extra funds into the loan to reduce the loan term.

5. Leave it alone

Given the current financial situation, it may be best to take advantage of the historically low rates and make a good dent in the loan. If you are in a position where you can comfortably make payments, then this could be the perfect opportunity to increase payments and pay off a good portion of the loan.

English

Five Tips For Mortgage Application

It is exciting to buy your own house but when it comes to apply for a mortgage, there are a few things to be aware of.

1. Don’t apply too many credit cards.

When applying for a mortgage, lenders will check your credit relationships to decide weather they will lend you the loan or not. So it is better to use one or two credit cards consistently and pay your bills on time.

2. Avoid unnecessary spending.

Most lenders will check your recent living expenses and what they want to see is that you have a nice budget planning. To improve the chance of being approved, it is better for you to cut some unnecessary spending three to six months before applying for a loan.

3. Choose the correct mortgage product.

There are many types of mortgage products, such as fixed or floating interest rate, principle and interest or interest only, 15 years or 30 years and so on. When choosing your home loan, it is important for you know what are your actual needs and which features are suitable according to your situation.

Again, KBRZ offers a wide variety of solutions and you can learn more about them here.

4. Have a stable career.

Lenders want to see your ability to repay the loan, one important factor they assess is your income. Generally speaking, lenders like to see a stable full-time job with the same employer for more than six months. If you just start a new business or get a new job, they might find it risky due to the potential inconsistent cash flow or the lack of standard documents,

If you’re having trouble getting because of your type of employment, contact us on info@kbrz.com.au, we will do our best to help you.

5. Prepare documents in advance.

Lenders have to check several documents before they can offer a mortgage, so to speed up the process, it is reasonable to sort your paperwork together in advance and remember to keep them up to date. Here are some documents your lender may want to see:

  • Your latest statement for your credit cards
  • Your latest bank statements
  • Your last three months’ pay slips
  • Your latest tax form
  • Your recent tax return
  • Your savings (proof of deposits)
  • Your ID documents
  • Your utility bills (proof of living address)

English

The impacts of low interest rate on the housing market

Super low interest rates that will remain for at least another three years, has sustained the rise in house prices across NSW. On Tuesday’s monthly policy meeting, RBA decided to have rates remain at the historic low of 0.1%, with its governor remaining firm on the strategy of keeping rates low until actual inflation returns to being between 2-3%, which is unlikely to occur until 2024. However such a decision is being questioned especially following the Monday’s data release revealing that Australian home values have risen by 2.1 percent across the board just in February alone with cities like Sydney and Hobart leading by 2.5%. This growth is also reflected in how home loans have risen by 10.5 percent reaching $29 billion which represents a 44.3% since February 2020.

In response to such growth, many economists are forecasting a faster than expected recovery of the market forcing the RBA to accelerate their first rate hike to sometime in 2023 or even late next year. Another factor contributing to the pessimistic outlook of these analysts is the Government’s recently proposed plan to loosen responsible lending to aid COVID recovery. This would remove lender responsibility regarding borrower repayment capability and place it entirely upon borrower. Half of the experts on Finder’s interest rate panel believe such changes to the lending law will pose problems to the greater economy, with some citing this causing a repetition of the 2008 housing bubble. They posit the eventual recovery of rates will trigger a mortgage arrears time bomb.

However, there is a significant difference between the two circumstances as the 2008 housing bubble were driven by investors comparatively the current price surge is driven by owner-occupiers, especially first home buyers, evident from the figures released by ABS this week, where the total value of owner-occupier loans rose 10.9% in January to $22.11bn, which is a rise of 52% on the same time last year. The amount of borrowing arranged by investors did not rise as much but it was still up 9.4% to $6.54bn. That is a 22.7% increase compared with last January and nearly all of that gain has come in the last three months, according to analysis by Westpac.

Overall future outlook for the housing market remains optimistic, until owner occupier are overtaken by investors, likely followed by RBA beginning to step down on the brakes. However, buyers should remain cautious as commonly used methods of assessing home loans regarding interest coverage ratio may be inaccurate as rates increase in the future. KBRZ offers a potential solution to this problem through our refinancing services, by enabling our clients to better respond to the changing economic environment through our tailored products and fast approval process to ensure the long term profitability of their investments.

English

Rate Cuts & Quantitative Easing: A Golden Time to Invest

The Interest Rate Cut

On the 3rd of November, the Reserve Bank of Australia announced its decision to cut the interest rate to a historical low of 0.1%. Although the decision did not come as a surprise, the rate cut still brought a wave of excitement among the economy as the record low interest rate will have far-flung impacts on the Australian economy. 

Why is the rate cut so important? 

The RBA has always been cautious about expansionary monetary policy due to the far-flung ramifications of an interest rate cut. However, given the dire economic conditions over the past few months, a rate cut would be necessary to save the Australian economy. 

The Australian government has invested in unemployment benefits and rolled out several new subsidy schemes. However, despite the large dollar amounts of these initiatives, they do little in enhancing consumer confidence, which is the actual core of the problem. Lower interest rates would be the solution. 

Quantitive Easing

Another piece of good news for the Australian economy is the RBA’s decision to expand its bond-buying program to purchase $100 billion of government bonds over the next six months. The purchase of government bonds signals the implementation of quantitative easing policy, which means a direct injection of money into the economy. In short, the purchase of $100 billion bonds is equivalent to printing $100 billion worth of money for the economy. This sends a strong signal to all Australian consumers that the government is dedicating all means to revive the economy. 

Such a progressive scheme of economic stimulation will bring impacts to the financial industry. Low rates are the simplest yet strongest incentive for borrowing and spending. According to the Sydney Morning Herald, the RBA is planning to reduce its lending rates to commercial banks. This includes the $200 billion lending credit given to commercial lenders to stimulate lending. In such a low interest rate environment, the value of your savings is going to decrease overtime. This is further enforced by the fact that savings may not define your wealth anymore. Spending is wisdom. 

Economic performance follows a cyclical behaviour of boom and bust. After being hit hard by the pandemic, it is time for the Australian economy to step into the next business cycle. Do not miss out on the opportunities that arise from these critical times of the economy. In fact, there are already signs of revival as we can see from the increases in the number of home loans taken out. From September till now, residential loans have grown by 5.9%, Personal fixed loans increased 8.5% and commercial building loans by 57.2%. 

Smart investors are showing courage to invest and seizing the new opportunities to make gains.

As one of Australia’s fastest growing real estate and finance solutions companies, KBRZ has professional background in property sales, loans as well as investment funds. KBRZ has years of experience in mortgage services, allowing the company to establish mature financing channels and customer networks, as well as accreditations with multiple reliable Australian financial institutions.

Feel free to visit our office and have a chat from 9a.m.- 5p.m. Monday to Friday. Or call us at 1300 588 978 and book a free consultation now!

English

2020 Australian Lending Policy Breakdown

2020 has been quite an unusual year. Due to the impact of covid-19 during the first half of the year, Australian businesses especially the hospitality, tourism and construction industries have greatly/somewhat suffered the consequences. Coincidentally, these are the sectors which most Chinese professionals pursue as their careers.

Australia’s banking industry is led by the big four banks consisting of Commonwealth Bank, Westpac, ANZ and nab. As a response to support companies which are struggling in the midst of the pandemic, they have offered six-month suspensions on their loans. They also established relatively low fixed interest rates for commercial loans. Hence, many small businesses were saved from liquidation or bankruptcy.

According to the CEO of the Australian Banking Association – Anna Bligh, implementing this change could potentially initiate an inflow of more than 8 billion dollars into the small businesses sector. As a result, it would help resolve short term cash flow issues. Bligh also stated that “Small businesses can rest assured that if they need help, they will get it,”

Banks and financial institutions are to speed up their process of reviewing and accepting applications on claims for the six-month suspension period on loans, whilst simultaneously adjusting both the fixed and floating interest rates. This decision has resulted in a notable increase in stock value for large firms, in particular concerning the recent fixed interest rate, which has fallen to its lowest since the last two to three years. The rise in share prices could indicate market confidence towards the emergency protocols put in place by commercial banks due to Covid-19. Such prominent support towards maintaining the economy ultimately reflects the integrity and strength of the crisis management policies imposed by Australian financial institutions. Through an extensive investigation spanning three years conducted by the Royal Commission, it is evident that a well developed and rigorous financial system played a crucial role in administering an efficient response to this pandemic.

KBRZ would like to remind consumers to regularly monitor the current interest rates on their loans, because interest expense is likely a significant part of daily expenditure. Adequate reformation of loan structure under complex interest rate conditions could assist with savings. It is recommended for an individual to maintain active communications with their brokers and lenders to determine the most suitable lending solution.

As one of Australia’s fastest growing real estate and finance solutions companies, KBRZ has professional background in property sales, loans as well as investment funds. KBRZ has years of experience in mortgage services, allowing the company to establish mature financing channels and customer networks, as well as accreditations with multiple reliable Australian financial institutions.

Feel free to visit our office and have a chat from 9a.m.- 5p.m. Monday to Friday. Or call us at 1300 588 978 and book a free consultation now!

English

The 2020 Budget

This budget overview is a crucial document of Australian government’s response to the pandemic, demonstrating changes in policies in hope to stimulate the economy. Following are some significant policy changes and budget allocation.

Tax Cuts

The Australian government has announced its acceleration with their stage 2 tax cut plan, and has injected 17.8 billion dollars into tax relief, which is reflected upon the increased income amount for each tax bracket. Note that there is also a slight adjustment to the fixed-component for each tax bracket, but on average there is a tax relief of $510 up to $2745 annually per person.

Stage 2 tax cut is certainly to decrease the burden for employees and to support the recovery of the economy. Furthermore, stage 3 tax cut which is planned to take place during financial year 2024 will cut taxes further by an additional 30%.

Visas

The amount of Permanent Resident (PR) granted is fixed at 160,000 annually, however, the Australian government now prioritizes applicants from following categories: 

  • Family-stream permanent residence visas (from 47732 to 77300)
  • Investment-stream permanent residence visas (from 6862 to 13500)
  • Global Talent Independent (GTI) program (from 5000 to 15000)

These are in hope to attract individuals with specific background and knowledge, and to assist economic recovery from the pandemic.

Other benefits

Housing Benefits:

From 10th June to 30th June 2021, first home buyers only require a 5% deposit, where 15% is guaranteed by the National Housing Finance and Investment Corporation (NHFIC). At the same time, the property value eligible for the exemption has been increased from 700k to 950k (for Sydney region). 

Business Benefits: 

Australian government has also allocated budgets and implemented a series of policies for Small and medium-sized enterprises (SMEs), attempt to ease damages caused by the pandemic, these include but are not limited to: 

  • Eligibility for Instant asset write-off has been expanded to cover businesses with aggregate turnover of less than $500m
  • Simplifying access to credit for consumers and small business
  • Encouraging re-employability, subsidising 50% of wages cost for employing new apprentices.

Aged Care:

  • Allocation of 1.6 billion in additional home care services
  • Along with 3.9 billion in National Disability Insurance Scheme (NDIS)

Future Development: 

  • 1.5 billion to the manufacture industry, prioritizing in following area of production:
  • Mineral processing
  • Food
  • Medical equipments
  • Sustainable energy
  • 14 billion to infrastructure development, especially traffic construction

As one of Australia’s fastest growing real estate and finance solutions companies, KBRZ has professional background in property sales, loans as well as investment funds. KBRZ has years of experience in mortgage services, allowing the company to establish mature financing channels and customer networks, as well as accreditations with multiple reliable Australian financial institutions.

Feel free to visit our office and have a chat from 9a.m.- 5p.m. Monday to Friday. Or call us at 1300 588 978 and book a free consultation now!

English

Offset Accounts and Redraw Facilities

What is an offset account?

An offset account is a savings account related to your home loan. It ‘offsets’ the principal of your loan so that the interest payable on the loan is reduced. For example, if the balance on your home loan is $250,000 and at the same time you have $10,000 on your offset account. Assuming an interest rate of 6%, then you would only need to pay interest of (250,000-10,000)*6% = $14,400. In other words, you only pay interest for the $240,000 borrowed.

Note that mortgage interest is accumulated on a daily basis, so that as long as there are funds in an offset account, those funds can contribute to interest savings. The ultimate implication is that you will be better able to pay back your loan.

From a bank’s perspective, providing offset accounts to customers would enhance their competitiveness because they gain more customers to deposit with them.

What are the benefits of an offset account?

1 Reduction in interest payments

This is the first and foremost benefit of an offset account. Continuing with our previous example, if there is $250,000 in your offset account, then the interest payable become (250,000-250,000)*6% = $0. You do not need to pay any interest!

2 Functions of a normal savings account

An offset account can be used to make transactions and it allows transfer of funds. You can easily redraw funds from your offset account when you need money.

3 Ease of financial management with multiple offset accounts

Some lenders offer multiple offset accounts which are linked to your mortgage. This provides convenience for financial management.

4 More benefits compared to a savings account

An offset account is even better than a savings account since the interest reduction on your loan from an offset account is greater than the interest earned on a savings account.

Some precautions about offset accounts

There are many types of offset accounts. Some can offset 100% of loan servicing while others may only offset a portion. Remember to chose the type of offset account based on your own circumstances and preferences.

Offset account are usually only available for floating rate loans. Most fixed rate loans offered by banks do not have an offset option.

Although there is no administration fee for an offset account, there is an annual fee. The annual fee does not increase with the number of loans in a package. Also, there is no need to pay the loan application fee if the annual fee for the offset account is paid.

What is a redraw facility?

A redraw facility is usually attached to flexible rate loans and some fixed rate loans. The redraw facility allowsaccess to the extra repayments that you have made on your loan above the required minimum repayments.

For instance, if the monthly minimum repayment on your loan is $700, but your actual monthly repayment amounted to $900, then after 12 months your additional repayments will sum to (900-700)*12 = $2,400. The redraw facility allows you to access the $2,400.

Benefits of the redraw facility

1 Accelerated repayment of loan

Since using the redraw facility requires the borrower to make additional payments over and above the minimum repayment, this shortens the loan period. This is beneficial for those who have idle cash in hand.

2 Tax Benefits

The interest saved from using the redraw facility is not taxed. In contrast, the interest earned on a normal savings account would be taxed.

Some precautions about the redraw facility

The redraw facility needs to be applied when you apply for your mortgage. A fee will be involved.

Some lenders may charge a fee each time you redraw cash. Fees vary depending on the lending institution. Some lenders provide an amount of free redraw opportunities and charge a fee after that amount is exceeded.

Offset account vs redraw facility

In terms of interest savings, both an offset account and a redraw facility reduces the amount of interest you need to pay for your home loan. An offset account ‘offsets’ the interest payments and does not change the principal on the loan; while a redraw facility reduces the principal on the loan by accelerating repayments.

An offset account is a separate savings account that is controlled by yourself – withdrawal or injection of funds are your own decisions. While the redraw facility is an additional feature of your loan product, and is in essence a form of borrowing from the bank. This is because the additional repayments you make are in effect the bank’s money already, so using the redraw facility to access the funds would be to borrow from the bank.

The choice between an offset account and redraw facility depends on your own needs and circumstances. If you wish to benefit from tax reductions, you could choose the redraw facility; while if you want the flexibility of accessing funds, you could opt for an offset account.

Want to know more?

If you would like to inquire more about your home loan, or you are in the process of trying to secure a loan, feel free to visit the KBRZ office and have a chat from 9a.m.- 5p.m. Monday to Friday. Our address is 1-5 Railway Street Suite 805 Level 8 Chatswood Central South Tower, Chatswood NSW 2067.

Or call us at 1300 588 978 and talk to our home loan experts.

About KBRZ

KBRZ is one of Australia’s fastest-growing real estate and finance solutions companies. We have professional background in property sales, loans, as well as investment funds. We are located in Sydney, Australia. We also have offices in Melbourne, Beijing and Shanghai. We speak Mandarin and English.

With advanced investment strategy and strict risk control methodology, KBRZ endeavours to provide steady and solid wealth accumulation for our valued customers.

English

Why your mortgage needs refinancing

What is mortgage refinancing? 

What does it mean to refinance a mortgage? Basically, you take out a new mortgage to repay an existing loan. The new borrowing can be with the same lender for your existing loan, or it can be with a different lender, depending on your needs and purpose to refinance.

Refinancing is a smart way to manage your money. See below for the top reasons that people refinance their mortgages.

Why do people refinance? 

Cash out 

The logic behind this is simple. The higher the value of a house, the more you can lend out for a mortgage. Therefore, if your property has grown in value, you could take out a new mortgage of a greater amount at the same leverage rate. After repaying the old loan, you are left with the excess cash. This is equivalent ot unlocking equity in your current property.

  • Consolidate your debts 

You may have multiple loans with different repayment requirements and timing. A refinancing action makes repayments simpler and can reduce interest rates owing each month.

  • Enjoy a lower interest rate 

This is probably the most straightforward reason to refinance your mortgage.Some research may be required to find the product with a more attractive rate and also suited to your circumstances and needs.If an optimal product is found,why not get a better deal when market rates fall?

How does it work? 

Refinancing usually involves the below steps:

  1. Check in with current lender
  2. Compare home loan products and identify ideal new lender
  3. Apply to refinance
  4. Provide relevant documentation
  5. Receive Letter of Offer from new lender and arrange settlement

What should I do now?

The pre-requisite for finding the right refinancing product is to understand your own needs. Consider your current portfolio and why you want to refinance. Also take into account your financial and investment plans for the future.Having known your motives,start researching! There is a multitude of home loan products out there, from different lenders, with different rates and requirements.Lenders’ websites usually contain detailed information caabout their products.

However, locating that right product for refinancing may be a time-consuming process for individuals who do not work in the real estate finance industry. The vast number of available lenders coupled with the information asymmetry between borrowers and lenders make it difficult for ordinary individuals to efficiently find the optimal loan for refinancing.In this case, KBRZ can help you out. As one of Australia’s fastest growing real estate and finance solutions companies, KBRZ has professional backgrond in property sales, loans as well as investment funds. KBRZ has years of experience in mortgage services, allowing the company to establish mature financing channels and customer networks, as well as accreditations with multiple reliable Australian financial institutions.

Feel free to visit our office and have a chat from 9a.m.- 5p.m. Monday to Friday. Or call us at 1300 588 978 and book a free consultation now!

Call Now Button