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Video: Record low interest rates hold! September RBA Wrap

Video: Record low interest rates hold! September RBA Wrap

The Reserve Bank has left interest rates on hold at 2.5% at its September meeting, which marks the longest period in over seven years since interest rates have moved.

To talk more about what that means for consumers, Laine Lister is joined by RateCity product director Peter Arnold.

Q: Pete, thanks for joining me. As I said, rates on hold again for a very long time now. What does that mean for consumers and variable borrowers?

So it’s been a year since the last cut, it’s been four years since the last rate rise. Good news is, there’s still very low rates out there, lots of deals out there. We’re seeing increased competition in the fixed rate space – 4.99% for five years, that’s a long time at a low rate. Everyone’s got to get out there and make sure they’re on one of these hot deals.

Q: On one hand interest rates are coming down – they’re at record lows. On the other hand some institutions are making it a little harder for people to get a loan at the moment. So can you tell me what that means?

That’s right. We’re seeing really low rates. But banks using another lever called LVR.

Q: Can you explain in simple terms, what is LVR.

LVR is the banks’ term for how much they are willing to lend you relative to your loan size. So for those at home, that means for a given loan size if you’ve got a lower LVR you need a bigger deposit. For example, on a $400,000 loan if you’ve got a 95% maximum LVR that means you need a 5% deposit – that would be $20,000 you need as a minimum.

Q: So tightening lending rules. Is it necessarily a bad thing?

Actually no. The RBA has been very vocal throughout this long, low part of the rate cycle that it’s not a ticket to go and borrow up big. It’s actually an opportunity to pay down some of your loans. Use it as an opportunity to reduce your debts, get any big mortgages under control. Don’t go and borrow the most you can, don’t rely on the bank to tell you how much you can borrow – do your own sums; consider every expense you’ve got and borrow within your means.

Great, thanks Pete. As we said again, interest rates on hold at 2.5% in September and thanks very much to Pete for all of the tips and advice for consumers and we’ll catch up again with him next month.

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Learn more about home loans

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.