Intro: Welcome to the monthly podcast of Australian Property Investor, Australia’s most trusted and widely-read property investment magazine. For information on how to subscribe to either our print or online magazine, as well as other great property investing information, please visit our website, www.apimagazine.com.au
Shannon Molloy (SM): Hello, I’m Shannon Molloy – deputy editor of Australian Property Investor magazine – and in this episode we’re talking all things home loans.
There’s no doubt it’s been a while since the going was this good for borrowers. For one, banks are sharing a smaller pool of potential customers, thanks to the GFC. So, needless to say, they’re increasingly keen to be competitive. Plus, the Reserve Bank has slashed interest rates several times in the past year or so. It looks like there’ll be a few more reductions across 2013.
But are you taking advantage of these ideal conditions? Could you be saving even more on your home loan? To find out, I’m joined by Loan Market mortgage broker Josh Bartlett. Josh, thanks for your time.
Josh Bartlet (JB): No problem at all.
SM: Tell me, how competitive is the mortgage market at the moment?
JB: As far as a broker’s concerned, there are a lot of people out there looking at the moment. I’d suggest as far as brokers and bankers competing, we’re all starting to up our game as far as professionalism is concerned. We’re now realising we’re not back in 2009 or 2010 anymore. Our service levels need to jump to the next level to give customers what they need.
SM: What’s the best way a borrower can nab the lowest possible rate with a lender? Is it simply a case of asking for a better deal?
JB: It’s a very interesting question. I often speak to a lot of clients who say they’re going to a CBA, Westpac of NAB. If they walk into a bank, I think they’re doing themselves an injustice. A lot of clients probably don’t realise what a broker does enough, to an extent.
As soon as I sit down and go through what we have on our panel – 30 to 40 different lenders, a whole lot of different packages and finding the best structure and rate for them – they start realising how beneficial we really are.
We can start looking at whether they want an offset account, a no-frills kind of product, interest only, principal and interest… that’s when we can start playing the banks off against each other.
It’s important to look at what banks are doing with discounts at the time. A lot of customers wouldn’t realise that at any one time some banks are discounting heavily because they’re trying to build their book.
Sitting down with a broker, it’s a great opportunity to find out which banks are discounting the highest.
SM: There’s plenty to consider when it comes to loan features. What are some of the frills and are they worth it?
JB: It depends on each client’s situation. If you’ve got a high disposable income, sometimes I like to sit down and talk about possibly having a package. A lot of banks charge an annual fee to have a package but sometimes it can benefit the client, depending on their income.
When you get a package you might get an offset account, credit cards available to you and different little niches available. A lot of the time, people don’t use it. If you’re not an investor or have a few different loans, sometimes it’s not worth it at all.
SM: Opting to pay interest-only is popular with some investors. What are the risks and is it for everyone?
JB: Look, definitely not. It sometimes comes down to chatting to your accountant to see if it’s beneficial. It comes down to each individual’s circumstances to see if there’s a negative gearing benefit there.
Other times, it comes down to generational preferences. Everyone has an opinion about what you should do. Old school investors, the older generation, they probably like to make sure their loan is being paid down all the time.
If you’re looking for a taxable advantage, I believe it might be better off to go down the interest-only path. Every single person’s situation is totally different. I like to go through options for customers…
SM: And finally, it’s a hot topic at the moment – fixed or variable. Which would you suggest?
JB: It’s one of those things. As a broker or a banker, anywhere you are, you should never tell people what to do. It’s a hot topic with clients, they always want to know what I’d do.
I always talk about where rates are now, what variables are, the fixed rates and what repayments would be with adjustments. It comes down to options.
At the moment, I’d suggest a 4.9 (per cent) fixed rate is pretty cheap; that’s cheap money. There are a lot of people in the market at least splitting their loans and fixing part of it. It’s kind of hedging your bets.
I mean, 4.99 (per cent) is quite cheap. A lot of people are liking the idea of a fixed rate.
SM: Sounds very tempting. Thanks for joining me, Josh.
JB: Not a problem at all.
SM: Check out the March issue of Australian Property Investor for a special look at fixed versus variable interest rates. Plus, in our cover story, we find out how three young gun investors have amassed more than $1 million in equity.
We also reveal 60 property hotspots where prices are set to shoot up. And, in a special API exclusive, property bear Steve Keen and property bull Christopher Joye face off over the future of house prices.
All of that and more in the new issue of API magazine, on sale now. For subscriptions and more information, visit our website – www.apimagazine.com.au. I’m Shannon Molloy, thanks for listening.