Mortgages – Fixed Or Variable?

As property investment consultants and builders of wealth, one of the most common questions we get asked is what sort of mortgage should I go for? Fixed or variable? In fact it is the number one question mortgage brokers around the world get asked by every single one of their clients.

Whilst the crew at Fountain Property Group don’t have a crystal ball and cannot predict the future we can offer a fountain of information when it comes to historical data and information on these two forms of mortgage. All loans, including personal loans, credit cards and mortgages, have their interest rate set according to the prime interest rate that is set by our country’s governing body.

In Australia, this governing body is the Reserve Bank of Australia (RBA). The RBA will assess a complicated variety of indicators and trends to establish this rate. These factors may include, but are not limited to:

  • the employment rate
  • consumer spending
  • commodity pricing
  • labour costs and availability
  • inflation
  • and the Australian Dollar value
  • Variable Loans

The variable loan will be based on the rate that is set down by the RBA. Lending institutions will then add their operating costs and of course profit to the deal. This market is fairly competitive with many options to choose from. Whatever the market is doing, the variable interest rate will follow. If rates increase – so will you repayments. If the rates decrease, so will your payments.

Fixed Loans

A fixed rate loan means that you will know exactly what you are paying from the moment the loan is taken. Whatever the market is doing, the fixed interest rate will remain static for the term of that agreement. This means that whether rates increase or decrease your payments will remain the same. This is a great way for people who need to maintain a budget.

Which is Better?

Back to that magic question. Which is better? Both styles of loan have their advantages and disadvantages. We offer the classic answer, being that it depends on your own personal situation.
Things that you can assess to help you make this decision will include:

  • How much can you afford to pay?
  • If the interest rates were to rise could you afford it?
  • How long do you intend to hold this mortgage for?
  • Does the fixed rate have any controlling factors such as no extra payments allowed or penalties for paying out early?
  • Which way is the market trending?

For more information, have a chat with one of our consultants.

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SQM Research: Interest Rate Cuts A Certainty

The official cash rate is currently at record low levels and has remained at 2.5% since 2013. Since then, more market analysts are convinced that interest rate cuts are ahead for 2015.

SQM Research recently forecasted interest rate cuts as a “dead certainty” if the Australian Prudential Regulation Authority pushes forward with their lending restriction plans. 2 of the big 4 banks, Westpac and NAB have also forecasted a rate cut for 2015, with the official cash rate dropping at least 2% this year.

The underperforming economy has been pointed out as a major factor in the rate reduction. It is expected that rate cuts as early as April will help boost the housing market.

Read more about this on the Adviser website.

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Unemployment Hits 14 Year High

The Unemployment Rate is continuing its stead climb, finishing at a 14 year high at 6.3%, even as the country produced around 43,000 jobs from October to November.

The generated jobs were twice than what was expected, but only 5% of these numbers are full time positions.  Despite the increase in jobs – currently at 11.64 million, the number of unemployed Australians increased by 4,700 to 777,700, five times more than advertised jobs throughout the country. The last time unemployment was this high was in September 2002.

Read more about this on the Australian website.

Pressure Growing For Interest Rate Cuts

The economy has taken another hit as the Australian dollar dips below US83¢, mounting pressure on the Reserve Bank to consider dropping the interest rates below 2.5%.

Economists have been pushing for monetary easing after GDP figures showed a soft economy as income growth has grown by a snail’s pace. The economy has expanded by a measly 0.3% for the third quarter – below the standard of 0.7%, taking the annual growth rate to a disappointing 2.7%.

Read more about this on the Zee News website.

Shift In Interest Rate Predictions For 2015

Economists have been nearly unanimous in predicting interest rate hikes for 2015 earlier this year – but that is about to change, as the slow growing economy might force the RBA to go the other way around.

With the Australian dollar plummeting to a four and a half year low and a slow gross domestic product growth, more bank economists are convinced that down is the way to go. Goldman Sachs recently changed their stance for next year, becoming the latest bank to shift their monetary predictions. Deutsche Bank recently predicted a 50 basis point reduction, dropping the interest rate to 2% for 2015.

Read more about this on the Sydney Morning Herald website.

What You Need To Know About Interest Rates And Loan Types

At Fountain Property Group we do our best to help our clients create wealth for themselves by investing in property. We are experts in our field and property investment is by far one of the most effective ways to move toward taking financial control of your future.

When you buy a property it pays to be well educated about your decisions in choosing the right investment as well as which is the best lender, amongst others. It also pays well to understand interest rates. While many home buyers know there are interest rates to be paid, some don’t know more than it affects their back pocket.

If you would like to know more about how interest rates work then keep reading in order to make a more informed choice about your home loan.

Decisions by the Reserve Bank of Australia

The board of the Reserve Bank of Australia (RBA), meet the first Tuesday of every month. In this meeting the official cash rate is discussed and what it should be. As a general rule, the rate will increase if the economy is possibly going to heat up or it will lower when the economy slows down.

When the rate of inflation is at the higher end of the scale it is not likely that there will be a cut to cash rates.

How the decision affects banks

If the RBA raises the cash rate the banks tend to follow suit and raise their interest rates, this rise will then flow down the line to affect your mortgage repayments.

A savvy investment property owner will pay close attention to the rates so that they can possibly negotiate with their bank for a better rate or consider looking elsewhere with another bank to re-finance. The rates will also affect your mortgage differently, depending on your loan type.

Standard variable home loan

Standard variable home loans can have features such as an offset account; a redraw facility, the option to make payments sooner if needed and flexible payment terms. This is the more common of the mortgage types although the one used most by first-home buyers is the basic variable loan.

Basic variable loan

The basic variable loan is just as the name states—basic. There are no features offered but it is cheaper than the standard variable loan. The payments on the basic variable are scheduled, so if you wish to close the loan early there may be a penalty to pay.

Fixed interest rates

The fixed interest rate is an option to take where the rate will be fixed or locked in for approximately one to five years. There is a gamble on this type of mortgage that means you may miss out on any cuts to rates but it also means you win if the rates are raised higher than your fixed rate.

At Fountain Property Group we are able to provide outstanding financial advice on top of our investment property sourcing services. To learn more about what we do and why you can put your faith in us, click here

Property Growth Despite Mediocre Results For September

Three capital cities posted a property value growth despite flat results for the month of September, finishing at a 0.1% value increase according to RP Data.

Five capital city values fell, with the exception of three capital cities led by Adelaide, which finished at a 0.9% increase, followed by Sydney and Brisbane at 0.8% and 0.7% respectively. Despite the poor performance for September, capital city values are still 9.3% higher than the same time last year.

Capital gains for the quarter are still impressive, with Sydney leading all capital cities at a 4.1% gain, followed by Melbourne at 3.7%

Read more about this on the Property Wire website.

Interest Rate Stability: Until When?

The Reserve Bank has kept the cash rate at a record low 2.5% for the 12th consecutive meeting, the longest period of stability since 2006. The interest rate was most stable 18 years ago, when the RBA kept the interest rates at 7.5% for 17 consecutive meetings between February 1995 and July 1996. To match this feat, the interest rates should be on hold until April next year – matching majority of analyst forecasts.

Forecasts vary as to when the interest rate changes will occur, but all major players are unanimously expecting a rate hike as early as February next year to as late as the first quarter of 2016.

Read more about this on the Sydney Morning Herald website.

First Home Buyers Trigger Home Loan Drop

Home loans have dropped for the first time this year. Is this a reason to worry?

The Bureau of Statistics data shows that home loans have dropped by 3.9% in August. This is greatly affected by the decrease in first home buyer loans at 13.7%. Even with these changes, there is still optimism among home investors as the value of loans to property remained unchanged.

These changes are attributed as a “post election” effect, as analysts forecast a surge of home loans with the record low-interest rate. The decrease of first home buyers also correlates with rising house prices and housing shortages.

To address this shortage, home buyer and investor loans to build new homes have increased by 2.2%, an indication that these changes in loans are not a cause for concern. As first home buyers have decreased, the value of loans and new home construction has kept the property sector in balance.

Read more on the Yahoo Australia Finance website.

Interest Rate Cuts on Hold as Unemployment Rate Falls

The unemployment rate has fallen to a low of 5.6%, halting the possibility of interest rate cuts from the Reserved Bank of Australia. Expectations on these rate cuts in November have decreased to 11% from 18% yesterday, according to a Credit Suisse report. The Australian economy has seen an increase in jobs, as 9,100 jobs were added last September of this year, 5,000 of which are full time positions, with 4,100 part time positions.

The RBA’s interest rates have been directly affected by inflation and employment. The interest rate has been pegged at a record low 2.5% for the past several months.

Read more on the Sydney Morning Herald website.