Hello and welcome to another year!
I hope this email message finds you well and safe, and happy New Year from all the team at AAP Finance Brokers.
Despite COVID restrictions and general business impacts in 2020, we saw a mix of historically low interest rates, and a property bounce as Australian home values rose by an average 3%.*
Last week, I caught up with a friend of a friend who asked about interest rates and how happy they were on a current variable rate of 3.70%. I said I could get them anywhere from 1.89% upwards on a fixed rate, and they were shocked that in this current market that could still save thousands of dollars. To put this in more perspective, if you had a mortgage of $400,000, and locked in at 1.89%, the interest cost savings alone would work out to be $139.23 per week.
To add to this story, I made a decision to lock in my loans, saving over $100 per week, giving some comfort that for the next 2 or 3 years I will be making some of the lowest principal and interest repayments I have ever seen, and as a business owner providing extra security in managing cashflow.
As fixed rates fall below 2% it begs the question, is it time to fix? If you aren’t looking at selling your property, paying down the loan quickly, or moving in the next 2-3 years, you may want to consider fixing some or all of your loan. I am seeing 0.75% – 2.40% in differences between higher variable rates and lower fixed rates. A recommendation I have been making to clients is splitting your loans between part variable and the remainder fixed, with a focus of paying down as much as you can on the variable rate and making minimum loan repayments on the fixed portion.
For businesses, there are some very good interest rates in the market for both property purchases and motor vehicle leases. Property loans and motor vehicle leases are in the high 2’s to low 3’s. Commercial SMSF loans are starting from 5.09%.
Whilst interest rates are low there are some other hurdles to consider when applying for finance, particularly for residential purchases. Since the Royal Commission into Banking was finalised we are seeing delays in compliance processing and higher amounts allocated to your day to day living expenses (refer to my interview below on liar loans). We may see some relief this year to free up some of these areas but for the time being it is a bumpy ride for borrowers.
Secondly, for business owners, lenders are not including job keeper and cash flow boost incentives into servicing calculations, whilst there are a number of COVID impact questions to be asked and addressed when submitting a loan application. Lenders are also now requiring 2020 financial accounts which in the past would not be required until March/April.
If you have any questions on whether to proceed or not with a purchase, please call us to determine if you can get finance and the timeframes for approvals. Most lenders are impacted by their staff working from home and processing times are lengthy.
We are here to help if you need it and talk through your particular circumstances. I hope you and your families keep safe during this time.