Many borrowers shy away from interest only home loans, fearing that they’ll never make headway with their mortgage. But the beauty of this product is that you really can get the best of both worlds – provided you know how to work it.
An interest only (IO) loan is one that requires the borrower to repay only the interest charged each period, rather than making repayments towards the principal and interest.
These types of loans are very popular with property investors, but they can be useful to owner/occupiers as well.
IO loan repayments will always be lower than standard principal and interest (P & I) loan repayments, because you are only obliged to repay the interest component.
For example, if you have an IO loan of $200,000, you will only be required to pay the amount of interest charged each month. If the home loan rate is 7%, this equates to $14,000 per year, or $1,165 per month.
This is far less than what you would be required to pay on a standard principal and interest loan, which a mortgage calculator estimates would be around $1,415 per month. This equates to a saving of $250 each month.
The pros
You can use this freed-up cash to help pay for other living expenses, or to boost your savings so you have a cash buffer to help deal with emergencies.
But here’s the really good news: if the thought of making no progress on your loan makes you anxious, don’t stress. You are free to make extra repayments as often as you like!
You could convert your mortgage to an IO loan and continue to make payments of $1415 per month – even though you only need to pay $1,165.
That’s the main benefit of an interest only loan: your minimum obligation is lower, but you have the flexibility to pay as much or as little off the principal amount as you wish.
This makes IO loans a great option for those who need some financial flexibility. For instance, you may be experiencing a lower income cycle when you have small children and you’re not working.
In a few years time when the kids are at school, and your income improves because you’re once again earning a regular income, you can transfer the loan back to a standard principal and interest product. But in the meantime, you’re under less pressure when making your mortgage repayments each month.
The cons
Interest only loans are primarily aimed at property investors and as such, they are usually only available for terms of up to five years. This is because the bank wants to see you make some headway with your outstanding principal amount eventually, so they put a limit on the interest only timeframe.
At the end of the interest only period your loan will generally revert to a standard principal and interest loan, with repayments calculated over a 25-30 year timeframe.
For those borrowers that are not very disciplined with spending and saving, they may find themselves five years down the road without having made a single payment off their principal. The benefits of having lower mortgage repayments throughout those five years may make it worthwhile, but this will depend on your personal situation.
As always, when making decisions to do with large sums of money, make sure you consult a trusted and experienced mortgage broker or financial specialist to discuss your needs.
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A desire by some federal Independents for more population growth in rural areas could have an effect on future housing policy, says CommSec chief economist Craig James.
"We do need more migrants and where these people end up settling may be a matter for the Independents," he said.
James said no key differences existed between Labor and the Coalition on housing but Independents could help drive housing policy in the event of a minority Federal Government.
"If you have an Independent member representing rural areas, such as Tony Windsor or Bob Katter, seeking greater population growth in rural areas, we may see more policies directed to this measure," James said.
"There is a desire by them to have greater population growth in rural areas."
"But at the end of the day, it does get down to supply and demand where the investor is looking, and these fundamentals don’t change too much."
James said political uncertainty typically led property buyers to "sit on their hands" in the short term.
"In a practical sense, it's clearly stupid because life goes on," he said.
"With property, a big role is played by state governments with stamp duty and the like – and that’s not going to change."
James said regardless of whether Labor or the Coalition formed a minority Government, the big picture for the Australian economy was also unchanged.
"The public service is still providing the same policy advice; the Reserve Bank still sets monetary policy and financial markets determine the value of the Australian dollar and both bill and bond yields," he said.
The Reserve Bank would still set interest rates "and there's no need for the Reserve Bank to be touching interest rates at this stage".
James said the election result was not a worst-case scenario.
"Financial markets, investors and business loathe uncertainty, so the election result is clearly undesirable, but it's not the worst possible outcome," he said.
"If a major party had to water down its economic credentials to form government, then that would clearly be a negative outcome for markets – and that doesn't appear the case with three to four well-regarded Independents likely to hold the balance of power."
"Both Labor and the Coalition have worked hard over time to advance their economic credentials, and neither would sacrifice them for short-term political gain."
James said some people believed a minority government could be negative for business but in fact it could turn out to be a positive.
"Any measures that are enacted would have to be well-debated and well thought out," he said.
"And changes will be hard to come by, meaning that business could see a period of stability over the term of the government – whatever period that turns out to be."
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Sydney's rental market remains tight, with average rents rising by $10 a week in the past three months, and by $20 a week in the past year, new figures indicate.
Real Estate Institute quarterly figures show the rental vacancy rate in Sydney was 1.2 per cent in May.
In Newcastle it was 1.6 per cent and in Wollongong, 1.1 per cent.
"Compared to 12 months ago, the all-dwellings median rent increased in the Sydney statistical division by $20, in the inner ring by $30 and in the middle and outer rings by $20," Housing Minister Frank Terenzini said in a statement today.
Average Sydney rents are $20 higher than what they were a year ago, and $10 higher than three months ago.
The most expensive one-bedroom apartments can be found in Sydney's inner east and on the north shore.
One-bedroom homes in Willoughby, North Sydney and Mosman set tenants back around $400 a week.
In Waverley and Woollahra, in Sydney's east, one-bedroom homes cost an average $420 a week.
Four-bedroom homes in Woollahra are about $1800 a week, while in Willoughby, they set tenants back about $995 a week.
The cheapest one-bedroom homes can be found on the central coast and in Sydney's outer west.
One-bedroom homes at Wyong and Gosford are an average $190 a week, while in the Blue Mountains the average one-bedroom home is $210 a week.
The cheapest four-bedroom homes are at Wyong, where they cost an average $385 a week.
At Penrith, a four-bedroom home typically costs $428 a week.
Publication: www.smh.com.au Date: August 17, 2010
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When it comes to refinancing, almost half of borrowers turn to a mortgage broker for advice, the latest research shows.
According to Mortgage Choice’s 2010 Refinancers Survey almost half (45 per cent) of the 1,028 respondents surveyed said they had used a mortgage broker to help them refinance.
South Australians were most likely to enlist the help of a mortgage broker with one in two South Australians opting for a broker.
The survey also found that borrowers are motivated primarily by interest rates and bank fees when it comes to making a refinancing decision.
Almost one quarter of respondents said their main motivation for refinancing was to switch to a cheaper loan.
With the recent spate of rate rises and the possibility of more before 2011, as well as a renewed focus on mortgage exit fees Mortgage Choice spokesperson Kristy Sheppard said this was “no surprise”.
According to the survey the majority of borrowers – almost nine in 10 - who did refinance were saving at least $50 per month with just under one quarter (23 per cent) reporting savings of more than $300 per month.
Publication: www.theadvisor.com.au Author: staff reporter
Date: Wednesday, 11 August 2010
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La Banque in Melbourne is looking to complete and settle by October this year - over 50 of our clients purchased in this fantastic development in the heart of Melbourne's CBD.
Here are some video's that we took whilst we were in Melbourne on our Property Investor Roadshow in July 2010.
Video One
Video Two
Video Three
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It has been my opinion all year that interest rates would remain as they are till the end of 2010. Please read on and form your own informed opinion.
Inflation rose by only 0.6 per cent in the June quarter, pulling the annual rate down to 2.7 per cent from three per cent, according to CommSec chief economist Craig James.
This three-year record low is well below economists’ forecasts, said James.
“We expect that the strong job market and record wealth levels would entice consumers to spend again later in the year, meaning that rates are still more likely to rise in the next six to 12 months rather than fall,” he said.
Homebuyers will be relieved with this result, said James, as it means interest rates are likely to remain on hold until November or December, at least while inflation remains between the two to three per cent target band.
Now is the time to find out if you can invest and change your financial outlook for the better.
Happy investing...
Anthony Simon
Co-Founder
APS Growth Pty Ltd
"Sourcing Investment Property"
ph 02 9905 8878
www.apsgrowth.com
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''Big Sydney'' will be viable only if all levels of government commit to creating a twin city in the west with Parramatta as its CBD, a conference on population heard yesterday.
An expanding business district, major new public art gallery, radial light rail network and upgraded sporting facilities are just some of the infrastructure required to draw the pressure away from the existing CBD and towards the western population boom, the managing director of the industry group Tourism and Transport Forum, Christopher Brown, told the National Population Summit in Casula.
''We have to fundamentally change the way we think about our city; that every event has to be on the harbour, that every job has to be based in Martin Place, that every train line has to feed into Central, that every festival has to use the Opera House,'' he said.
The Prime Minister, Julia Gillard, made a surprise appearance at the summit, hosted by the Western Sydney Regional Organisation of Councils, to spruik her government's sustainable population policy.
Western Sydney's population will more than double in the next four decades, as Sydney grows to 7 million by 2050.
Making Sydney and Parramatta the first places with twin-city status in Australia, like Minneapolis and Saint Paul in the US, could alleviate congestion, employment and housing problems, Mr Brown said.
''Parramatta has been considered the CBD of the west for so long but it has never really grown into the reality of that.''
New infrastructure to attract business and the ''managerial class'', Mr Brown said, should include a second branch of the Art Gallery of NSW, upgrades to the sporting stadiums at Parramatta and Blacktown, cycleways and a radial light rail network, and a strategic plan to attract more big business.
The local government area - the geographical centre of the city - had been the focus of government attention in the 1990s and early 2000s, said the lord mayor of Parramatta, Paul Garrard.
In this period, he said, public infrastructure such as the justice precinct, the NSW police headquarters and the Sydney Water Corporation had relocated there.
But, he said, the state government had ''walked away from Parramatta'', citing the missing Epping to Parramatta rail link as an example.
''Western Sydney already has a bigger population than the eastern side, and it could hold many more, but it only has half the infrastructure,'' he said.
The area is home to several key marginal seats in the coming federal election. The former opposition leader Malcolm Turnbull also spoke at the conference, where he made the case for high density living outside the inner city when it can be matched with the right infrastructure.
''The inner east of Sydney is densely settled but not generally regarded as congested because its residents have access to reasonably reliable and frequent public transport,'' Mr Turnbull said. ''Density, if accompanied with the necessary infrastructure including public transport and public open space, in fact offers great amenity.''
The Tourism and Transport Forum has called for a new planning authority to manage growth in Parramatta, similar to the state-run Redfern Waterloo Authority. The Greater Parramatta Renewal Authority would devise a 40-year master plan for the region.
Josephine Tovey from the Sydney Morning Herald has hit this nail head-on regarding Parramatta and its future ability for growth and its ripple effect onto surrounding suburbs.
Author: Josephine Tovey Date: July 2010
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"When technology changes, power shifts to the ones who accept the technology"
Robert Kyosaki
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A new survey confirms high-income property investors have returned to the Australian property market with the intention to buy, a considerable shift from the same time last year. There has been a nine per cent increase in demand by investors looking to buy a property at the upper end of the market, according to the realestate.com.au’s Consumer Insights Report (Buy).
Twenty-five per cent of investors were searching for properties to buy in the $500,000 or more price range, up from 16 per cent in April 2009.
General manager of sales and operations for realestate.com.au Peter Wright says the research findings paint a promising picture of the property market.
“The report revealed one in two property seekers now believe the market is rising – a result not observed for two years,” he says. “Of those who believe the market is rising, the perceived reasons for growth include a seven per cent increase in investors returning to the market (35 per cent), a shortage of properties (54 per cent) and a growing economy (40 per cent).
“Investors were also one of the top three homebuyer groups (39 per cent) that have sought pre-approval for finance with the intention to buy or build. First homebuyers and investors were also more likely to say they had thoroughly researched the market – up by 16 per cent and eight per cent from the last wave respectively,” Wright says.
The report also showed that investors were more likely to be male, aged 50 to 64 and living in high income households, while female investors were more likely to be younger, aged 25 to 34 years (30 per cent), compared to males (21 per cent). Both male and female investors were more inclined to come from double income households (54 and 50 per cent respectively).
The report is an in-depth survey that delves into the psyche of the Australian property buyer, covering topics such as buy, rent and share. The survey ran from May 31 to June 3 with 4082 Australians taking part.
Publication: www.apimagazine.com.au Date: 28 July, 2010
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Hi Everyone,
It was great to hear yesterday that Julia Gillard has given the green light to one of southeast Queensland's major infrastructure missing links - the $1.15 billion Redcliffe rail connection.
In the first significant election pledge targeting the must-win state, the Prime Minister will pledge to deliver the 12.6km Petrie to Kippa-Ring rail line by 2016.
The long-awaited project would ease congestion in one of the nation's fastest-growing and most car-dependant regions.
Ms Gillard said the rail link would ease gridlock for about 84,000 people and each express train trip would take 600 cars off the road.
"The project is about making sure the growth of the Moreton Bay corridor is sustainable with high-quality public transport that cuts congestion, travel times and carbon dioxide emissions,'' Ms Gillard told The Courier-Mail.
It also would reduce traffic congestion on the Bruce Highway in places such as Caboolture and Bribie Island, which fall within the marginal Labor-held seat of Longman.
The rapid population growth on Brisbane's outskirts is putting a drain on services including transport.
More than half of the people who live in the Moreton Bay Regional Council area leave the region for work each day and almost nine out of 10 travel by car.
Read more: http://www.news.com.au/features/federal-election/gillard-fast-tracks-the-115-billion-redcliffe-rail-connection-linking-petrie-to-kippa-ring/story-e6frfllr-1225897291327#ixzz0uqVRk9mz
Kind regards,
Anthony
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