Stamp duty rated as the most inefficient tax in Australia

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Across all levels of government, whether federal, state or local, the current stamp duty regime is the most inefficient and should be abolished, according to Housing Industry Association chief economist Tim Reardon.

HIA recently joined a chorus of industry groups calling for the abolition of stamp duty after the NSW treasury proposed replacing the longstanding regime with an annual property tax.

Reardon pointed to the Henry tax review published in 2010 which found that the cost of stamp duty equated to 70 cents out of every dollar raised, making it, not only inequitable, but, the most inefficient tax in Australia.

“Almost any other form of tax will achieve a more efficient outcome,” he told MPA. While he wouldn’t comment on whether the annual property tax proposed by the NSW government would be the best solution, he said the abolition of stamp duty in the state was a good thing.

“The objective is to abolish stamp duty, and this certainly moves towards that outcome,” he said.

Stamp duty as it currently stands is both inequitable and unreliable, he explained. Those who were required to move last year to seek new education or employment opportunities because of the pandemic incurred a punitive rate of tax if they purchased a new home.

“With retirees or elderly Australians that might like to move to be closer to family or to be closer to medical services, they likewise would be penalised if they were to buy a home to locate to,” he said. “It’s unreliable – as we saw both in 2018 and again last year, at a time when the government needed a reliable source of revenue, stamp duty revenue fell away very quickly. It particularly happened in NSW in 2018 where a small slowdown in house prices led to around a $500 million reduction in stamp duty revenues.”

While not reviewed by the Henry tax review, an annual property tax could potentially reduce the efficiency costs that are currently involved through a number of factors, he said.

“Because it doesn’t distort household behaviour, such as influencing your propensity to move, the efficiency costs are significantly lower,” said Reardon. “Because it encourages efficient use of land, its efficiency costs are much lower. Because it then means for other factors, such as allocation of public health resources and the allocation of expenditure on infrastructure, because those two also become more efficient, you get a significant efficiency improvement over and above the stamp duty regime that currently exists.”

REINSW CEO Tim McKibbin recently commented that an annual property tax wouldn’t benefit all segments of the market, especially cash-poor retirees who may not be able to afford the extra yearly cost.

“We have people in properties that don’t respond to their current needs, but they are going to stay there,” he said. “Stamp duty or property tax is not providing any incentive to move.”

Reardon said the transition from stamp duty to any other form of tax would be difficult, but that the benefits of abolishing the current regime were clear.

“I think all political parties, governments and economists certainly agree that abolishing stamp duty is a good outcome, but it is that transition that is the difficult part,” he said. “The community benefit, the economy-wide benefit, from abolishing stamp duty is sufficient that any individual households that are worse off can be appropriately compensated.

“The ACT have provided the slow transition model and they are doing it over a course of 20 years. NSW are looking at an opt-in model, which would mean that only those households that elected to defer that payment would incur that ongoing annual cost – which would mean that the impact on retirees that are asset rich and cash poor would be minimised.”

by Kate McIntyre

hundred Australian dollar notes

Do You Have a Reason to Refinance Your Mortgage: Find out Here

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If you own a home with a mortgage, you have probably heard about refinancing many times, and now you’re thinking whether or not it’s something that you should do.

Refinancing is basically switching from your original loan to a new one. There are many reasons homeowners would want to do this. Here are some of them so that you can determine whether or not they apply to you:

You want to lower your monthly payment

If you notice that the prevailing rates are significantly lower than when you got your mortgage, you may opt to refinance your mortgage into a loan with a lower rate. You will pay less over the life of the loan because refinancing can reduce the interest rate and lower your monthly repayments. 

In the case that there is no significant drop in the rates, but you expect a decrease in your income, you may refinance your loan to lengthen it. This will allow you to pay off the loan gradually with possibly lower monthly payments.

Another instance you may want to refinance your mortgage is when your property’s value has gone up or you have paid off a considerable chunk of your loan. The additional home equity will make your Loan-To-Security (LVR) ratio smaller, which will help you get lower your monthly payment and perhaps a lower rate.

Your credit score has improved

Has your credit score significantly improved since the loan was first taken out? Consider refinancing your mortgage to get a better rate. That’s why it pays to make an effort to build and monitor your credit score, as it may save you a lot of money in the future. 

Your fixed period is almost up

If your fixed interest rate is maturing, it is worth comparing what rate your current lender will be offering you (fixed or variable) with what othe lenders may be offering.

Unfortunately, too often your lender is more focused on attracting new customers rather than looking after existing ones that have been loyal and making regular repayments as required.

You can afford to pay more

If you have recently received a boost in your finances that now allows you to pay more off your mortgage, you can refinance it into a shorter loan so that you can pay it off faster. That way, you get to save a lot of money in interest payments. 

You need cash

If you need extra money for other expenses and you don’t have access to other funds, you can refinance your mortgage. It works by refinancing your existing home equity into cash and you will get a new larger loan. However, this is riskier, which is why it has higher interest rates. 

Conclusion

Refinancing your mortgage to reduce monthly payments and lower interest rates is worth exploring. It’s a viable option for homeowners who have good credit, but it can be risky for homeowners who don’t. Consider consulting a finance professional to help you make the right decision for your mortgage refinance. 

Do you need help with your home loans in North Sydney? Our team at Brickhill can help you select and arrange the funding of your home. Contact us today!

5 Practical Reasons to Consider Refinancing During COVID-19 Outbreak

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Whilst refinancing during the COVID-19 outbreak may not be possible for all homeowners and borrowers due their current circumstances, replacing your existing home loan with a new loan is usually a viable option to consider. 

Refinancing your loan allows you to reduce your monthly payments, lower the interest rate, consolidate debt, and alter the loan term and agreement. Here are five good reasons to refinance your home loan in North Sydney while in the face of a global pandemic.

1. Lower interest rate

The official cash rate is now at 0.25 per cent, the lowest in the last 60 years. Lenders are now offering incredibly low-interest rates as they are struggling to find new customers while competing hard with the rest of the financial institutions. For this reason, now is the right time to refinance and take advantage of a lower interest rate from a prospective lender.

2. Access to more flexible loan features

Another good reason to refinance is that many lenders are now offering flexible and attractive features on various loans. A few examples of these features include an offset account, additional repayment, an interest-only option, or a split-interest option. If your current loan doesn’t have certain features that you have long wanted to benefit from, then you might as well consider the refinancing option now.

3. Significant reduction in your loan term

Borrowers can have extra savings with steadily decreasing interest rates. If this is the case for you, then it can be a good idea to make additional payments on your loan. That way, you can pay off your loan more quickly amid the current COVID-19 crisis. However, if your current lender doesn’t allow you to make additional repayments, then consider refinancing.

4. Borrowing against your equity to renovate

Refinancing allows you to release some equity. For the uninitiated, equity is the difference between the value of your property and the balance of your mortgage. You can have access to this by up to 80 per cent, where you can use the money to renovate your house. In fact, now is the best time to have a home renovation, whether it’s a kitchen or bathroom remodeling.

5. Help with your cash flow

A lot of people have lost their jobs or businesses were shut down due to the global pandemic. If that’s the case, you may be in a difficult financial situation right now. You may want to seek financial assistance from your lender. Apart from having a payment deferment or repayment, you may consider refinancing as well.

Conclusion

If you’re completely decided, you might as well take the plunge into refinancing your loan now. As outlined above, you can take advantage of securing a lower interest rate, having more flexible loan features, reducing your loan term, borrowing against your equity to renovate, and getting help with your cash flow through refinancing. With these benefits, now is a great time to consider refinancing.

If you are looking to refinance your home loans in North Sydney amid the COVID-19 outbreak, get in touch with our mortgage brokers at BrickHill today to see how we can help!

Refinancing: Should you or should you not?

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Banks are currently offering attractive rates to entice new customers. Is it time to change lenders?

Refinancing is the process of replacing an existing mortgage with a new loan. Typically, people refinance their mortgage in order to reduce their monthly payments, lower their interest rate, or change their loan program from an adjustable rate mortgage to a fixed-rate mortgage. Additionally, some people need access to cash in order to fund home renovation projects or paying off various debts and will leverage the equity in their house to obtain a cash-out refinance.

Regardless of your goal, the actual process of refinancing works much in the same way as when you applied for your first mortgage: you’ll need to take the time to research your loan options, collect the right financial documents and submit a mortgage refinancing application before you can be approved.

Benefits of a Home Refinance

There are several reasons to refinance your mortgage. Some of the potential advantages include:

Lowering your monthly payment. With a lower monthly payment, you are free to put the savings toward other debts and other expenditures or apply that savings towards your monthly mortgage payment and pay off your loan sooner.

Reducing the length of your loan. For homeowners who took out a mortgage in the early stages of their career, a 30-year mortgage may have made the most financial sense. But for those who want to pay off their mortgage sooner, reducing the loan term can be an attractive option.

Switching from a variable rate mortgage to a fixed-rate loan. When you have a variable-rate mortgage, your payment can move up or down as interest rates change. Switching to a fixed-rate loan with reliable and stable monthly payments can give homeowners the security of knowing that their payment will never change for the term selected.

Using the equity in your home to take out cash. Depending upon the value of your house you may have enough equity to take out cash. This money can be used to finance home improvements, pay off debts or to fund large purchases.

Risks of Loan Refinancing

Depending on your goals and financial situation, refinancing may not always be your best option. While refinancing offers a lot of benefits, you’ll also have to weigh the risks.

For example, refinancing your mortgage usually restarts the amortisation process. So, if you are five years into paying on a 30-year loan and you decide to take out a new 30-year mortgage, you’ll be making mortgage payments for 35 years. For some homeowners this is a good plan, but if you’re already, say, 10 or 20 years into your mortgage then the lifetime interest may not be worth the extra costs. In these instances, homeowners may re-finance into a shorter-term loan that won’t extend the time they will make mortgage payments, such as a 20- or 15-year mortgage.

Generally, refinancing is a good option if the new interest rate is lower than the interest rate on your current mortgage, and the total savings amount outweighs the cost to refinance.

PennymacUSA

How to refinance to renovate

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Refinancing your assets to renovate a property is a significant decision that will hopefully improve your standard of living or add substantial value to your property.

Refinancing isn’t as straightforward as you might expect. The type of renovation proposed goes a long way to dictating the loan required. If the wrong loan is chosen, you could be left with a pile of unexpected debt.

Know your budget

Before considering refinancing, you need to have a clear idea of your budget.

If you underestimate your budget, you run the risk of getting knocked back from your lender if there has been a cost blow out.

Be conservative with your projection. If you think you need $100,000, allow for contingencies and apply for an additional 10% -20% just in case, if you can afford it. The key is stick to your budget. What you don’t need can be cancelled once the building works are completed.

Line of credit loan (Home equity loan)

Also known as an equity loan, to be eligible, one must be looking to make upgrades to the cosmetic domain of their property.

Installing a new bathroom or kitchen, painting the interior or exterior of the house and other basic construction falls under a line of credit loan.

These renovations, often, do not supersede the costs of structural changes, so homeowners can call on up to 80 per cent of their Loan-to-Value Ratio (LVR).

A line of credit loan is a “revolving door” of credit that combines your home loan, daily spending and savings into one loan.

If you choose a line of credit home loan, it essentially works as a large credit card. You can use it to purchase cars, cosmetic renovations and other investments. However, the interest-only charge starts when the equity is drawn down.

Keep in mind, line of credit loans provide you with money that can gather interest quickly, so if you are ill disciplined with repayments or money, speak to that matches your unique circumstances.

Construction loans

Construction loans are suitable for structural work in your home, for example, if you’re adding a new room or making changes to the roof.

 Construction loans give homeowners the opportunity to access larger sums of money, with the amount dependent upon the expected value of the property after renovations are completed.

The advantage of a construction loan is that the interest is calculated on the outstanding amount, not the maximum amount borrowed. This means you have more money available in your kitty, but only pay interest on the money you choose to spend. For this reason, the broker may recommend that you apply for just one loan, but leave some leeway in your borrowed kitty.

When applying for a construction loan, council approval and a fixed price-building contract are required.

Your lender will appoint an assessor to value your construction at each stage of the renovation. This will happen before you pay your instalment. When construction is complete, speak to your mortgage broker as you may be able to refinance back to the loan of your choice.

When looking at both these loans, consumers can call on other property they own to boost their overall borrowing amount if they wish.

Broker advice

If you speak to a broker, they will be able to determine which loan will give you the options you seek.  This advice is essential, as a poorly planned construction loan could cost you more down the road.

Consumers should ask their broker, ‘What type of loan am I eligible for?’, because if you don’t get your construction loan right, you may be jeopardising your bank security.

 

What happens when your fixed rate expires

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Do you know when your fixed rate term is coming to an end? Once it finishes, the bank is free to quietly switch you to a higher interest rate – unless you act fast! Think of how costly it could be if you simply let the bank choose your interest rate. If your bank charges you just 0.5% more than the competitive interest rates, this adds up to a significant amount over the term of your loan. You can save yourself a great deal of money and perhaps even cut years of your loan, if you are proactive about monitoring your interest rates and choosing the right option for you.

Switching to a variable rate

A variable rate can be a great option if you want to take advantage of low interest rates, or if you want the flexibility to redraw or make extra payments. When your fixed rate term expires, the bank will automatically switch your loan to the Bank Standard Variable Rate (BSVR). Do some research to find out whether this is a competitive rate; if not, you can talk to your bank and try negotiating a better deal. And if they do not offer you a competitive rate, you can switch lenders.

Lenders generally prefer to negotiate rather than lose a customer, while they don’t generally make their best offers to customers with a proven history of loyalty. So when it comes to your interest rate, stay alert and ask questions – keep your lender busy, trying to keep you happy!

Extend your fixed rate

One option is to ask the bank to re-fix your home loan, extending it for another one, three, five to ten years. The fixed rate is a good option for you, if you are planning to pay off your loan steadily over a long period of time, and you want each mortgage payment to be a regular amount, so you can budget your money precisely. Fixed rate protects you from rate rises and you could be paying less than the variable rate. However, there is also the risk that you could end up paying higher than the market rate if you are locked into an outdated fixed interest term. There may also be a break fee if you change or pay off your loan within the fixed period; this means the fixed rate is not a good option for anyone planning to sell their home.

Call us if you need assistance pinpointing the best and most competitive option for you.

 

How to speed up your home loan approval

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Asking how long it takes to get a loan approved is like asking how long a piece of string is. Every application is unique, so the time between your first contact with your bank or broker and approval can never be predetermined. There are, however, some things you can do to help hurry your application along.

Although very rare, same-day loan approvals are possible depending on the lender’s criteria, the complexity of the deal and turnaround time.

If you’re not prepared, it could take up to a month. The most common reason for a delay is a lender’s turnaround time to assessment, especially when some lenders have competitive offerings and experience larger application volumes, but a lack of preparation can cause this delay to snowball.

Whilst a finance broker will help you take all the necessary steps to ensure a fast home loan approval, there are simple ways you can help hurry the process along before your first meeting with your broker.

Disclose all information

To avoid back and forth requests, which can delay your application, ensure your lender has a thorough understanding of you as an applicant including appropriate identification of all borrowers. Provide all the supporting and necessary documents upfront to your broker, and convey as much detail as possible in relation to your requirements and objectives and have good, current information on your financial position. The broker will need to not only have your full financial details but will also need to take reasonable steps to verify it.

Skip the valuation queue

Not all applications require a valuation, depending on the property and lending institution, and forgoing this step can save a considerable amount of time. You can also save time by having a valuation completed prior to your application, as long as it’s accepted by your chosen lender – but check with your broker first.

To ensure your application avoids any unnecessary delays, give us a call to discuss your requirements and objectives.

Interest only loans- What’s happening?

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Interest rates are a hot topic right now.  Up until recent times, home loan rates were identical to investment loan rates It’s not as easy as it once was to apply for an interest only loan. Over the last few months lending for this type of loan has been tightened by the banks in an effort to slow the pace of record growth in investment home loans and encourage borrowers to start paying down their debt.

Lenders are under pressure by APRA (the government regulatory body) to make it less attractive to borrow interest only loans, a strategy intended to protect investors and achieve sustainable growth in the home loan market.

Lenders have responded to the crackdown in different ways. Some now ask for larger deposits for investor loans or have scraped discounts they previously offered. Others have begun to price loans with principle and interest repayments cheaper than interest only loans. Still others now offer better discounts on owner occupied loans or restrict investors to borrow less than owner occupiers.

As these changes vary from lender to lender, it has been difficult for investors to know which way to turn. Many borrowers are worried about whether the changes affect their existing loans or what they should do when they make a change or try to restructure their loan.

As your mortgage broker, we keep up to date with these industry changes and can assist you to assess the best options to suit your needs.

Interest-only loans can be a tax-effective way to invest in property, but they are most effective when accompanied by advice and tax planning.

Because the monthly repayments are minimal for a specified amount of time (usually between 1-5 years), it offers a method to free up funds in the short term for other investments, renovations or to pay off other non-tax-deductible debt.

Problems may however arise when the interest only period ends and borrowers who haven’t planned their finances carefully are unable to pay off the increased instalments, now including principle along with the interest.

Another drawback is that because you are only paying off interest, your original loan amount doesn’t reduce, which equates to a considerably higher cost over the full term of the loan.

 

Tips that will help you slash your mortgage payments

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Your mortgage is one of the biggest financial commitments you’ll ever make—and it’s one that will last years.

Ill-informed decisions can easily cost you hundreds of thousands of dollars over the lifespan of your home loan. This translates to less money for savings, your children’s education, retirement, and living expenses.

Most borrowers are surprised to find out that a low interest rate is not the most significant factor in reducing the overall mortgage cost and payment period.

 

If you want to be debt-free sooner, then check out these tips:

  1. Review your home loan at least once a year.

Home loans generally become uncompetitive after a few years. With new products being added to the market regularly, it pays to do a review of your home loan at least once a year to determine if your current loan still meets your priorities. You may discover that there is a better product out there that would help you save on interest charges, gain access to better services, and increase your home loan amount.

2. Overpay your mortgage.

Making payments weekly or fortnightly can help you clear your home loan much faster. This tactic can also save you thousands of dollars in interest charges.

 

Use the calculator https://brickhill.com.au/extra-repayment-calculator/ to see how much interest you could save by making extra payments.

        3. Don’t focus solely on interest rates.

The interest rate isn’t the only factor that influences the total cost of your home loan. In fact, going for the lender that offers the best initial interest rate doesn’t mean you’ll get a cheaper loan.

Interest rates can change soon after your loan starts, and you can quickly end up with a very expensive and uncompetitive rate. Moreover, there are additional fees that can make a loan more expensive than it seems.

Additional fees might include:

  • application fees
  • valuation fees
  • establishment fees
  • legal and settlement fees
  • rate lock fees
  • lenders mortgage insurance
  • early pay out fees
  • discharge fees

In other words, if you want to objectively assess the overall cost of your loan, you’ll need to look at the bigger picture.

4.        Avoid going directly to a lender.

Lenders like it when you walk into their doors without being referred to by a broker, as they can pocket the commission they would normally have given to the broker. There is no financial saving to you by going direct to a lender as the broker’s services to you are at no cost to you.

If you deal directly with a bank, you won’t be able to ask a mortgage broker for more in-depth and comprehensive advice. Other lenders may provide loan products that are better suited to your finances and priorities, and you close yourself to these possibilities by going to just one lender.
By consulting an experienced mortgage broker with a wide range of lender contacts, you could gain access to better deals than are currently available on the market.

 

-Your Mortgage (Michael Mata)

Refinancing traps to avoid

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Whether you’re after lower repayments or want to tap into the equity sitting in your home, refinancing can offer a world of benefits. Here are some things to be aware of so that you don’t find yourself hooked into a bad deal.

Don’t be fooled by the interest rate

Finding a lower interest rate doesn’t necessarily mean you’ve scored yourself a better deal. In fact, a product with more features may cost you a bit more in fees or interest, but could save you more in the long run. Including features such as an offset account will prove valuable as it will allow you to make larger repayments or put any extra cash against the loan. Products without this feature may charge a fee for early repayments.

Honeymoon rates are just that

Don’t be lured by offers with discounted introductory rates unless you’ve calculated the savings over the life of the loan. While a loan with a discounted interest rate seems a tempting offer, it’s only temporary. Once the introductory period is over, the interest will revert to a higher standard variable for the rest of the loan term. It may be more beneficial financially to negotiate a lower interest rate without an introductory discount.

Be aware of the fees

One of the main purposes of refinancing is to lighten the financial burden, however, that doesn’t mean that it’s not going to cost you. There are many fees involved, which may include discharge and application fees, a valuation fee, land registration fee, and mortgage insurance. You may also be subject to stamp duty depending on what state your property is located in. While these cannot be avoided, you must ensure that the costs involved are not higher than the savings, to make the process worthwhile.

While there are traps to avoid, a little expertise can take the stress out of refinancing to save you thousands, fund that renovation, or simply find a loan that suits your life a little better.

 

Give us a call on 1300 252 088 so that we can assist you through the process.