Mortgage & Finance Broker - I help Business Owners & Professionals confidently secure finance on the most competitive terms possible | Managing Director at SF Capital | MBA, University of Chicago Booth School of Business
So what does this all mean for��
households and the economy? Well,���� this is happening to every household and��
every lender. You're not alone in this,���� but it does mean that there's nowhere to hide��
and the era of historically cheap money is���� well behind us. Looking ahead, we're set to��
enter a season of uncertainty and discomfort,���� especially for lower income households, first home��
buyers and homeowners who bought at the top of the���� market during the mid pandemic liquidity boom.
To navigate this time ahead, you have to be���� proactive, you need to move the levers within��
your control to boost cash flow and create���� savings buffers either by increasing income��
or lowering expenditures. And for the savvy���� investors or households who've been waiting on��
the sidelines watching interest rates go up,���� there may actually be some buying opportunities.��
So now more than ever you must keep an eye on the���� economic data and understand the movements of the��
RBA and the Australian banks. In terms of where���� we stand right now, most of Anonymous predict��
the cash rate to hit 4.85% by the end of 2023���� which means you can expect your principal��
and interest home loan rates to hit around���� 6.5% and interest only rates comfortably with��
a 7 in front. So how can you manage this jump?�� To be very practical about this, we've split our��
responses into 5 courses of action. These are:���� negotiating with your current lender, exploring��
basic and advanced refinancing strategies,���� proactive budgeting and income generation and what��
to do if you're experiencing financial distress.�� We'll start with negotiating with your current��
lender which is the quickest and easiest way���� to lower the cost of your home loan once it��
switches to variable. It may surprise you,���� but most lenders will be willing to shave off up��
to 0.5% from your default variable rate, simply���� because they don't want to lose you as a client.��
And if we're talking about a $1 million loan,���� you're probably looking at a jump from a fixed��
rate of 1.95% to 6.5% variable which translates���� to a $2,476 increase in repayments. But if you can��
negotiate that variable rate to 6%, you could take���� repayments down to $5,844 from $6,147 saving you��
$303 per month I know that doesn't seem like a���� lot, but it's a saving you could achieve just��
from a simple phone call or email. It may also���� be the only step you can take if you don't pass��
the serviceability requirements to refinance.�� If you are able to refinance, that would be��
your next course of action with the most basic���� of switches being what brokers call a "dollar��
for dollar" refinancing. This is where a loan���� is switched over to a new lender for the same��
loan amount, for the same remaining loan term���� and for the same repayment type. So the main��
goal with this strategy is to solely achieve���� a better interest rate and reduce your interest��
costs. And in some circumstances refinancing���� may help you achieve more meaningful savings��
than with rate negotiation alone. If I refer���� back to the previous example, in evaluating��
refinance opportunities we typically aim for���� further rate saving of at least another 0.2%.
This is something a rate negotiation alone���� cannot achieve. As you can see here we��
were able to bring the rate down from���� the negotiated 6% to 5.8%. Just keep in mind��
that there are costs involved with refinancing,���� so you need to make sure that the rate savings��
outweigh the transaction costs. You also need to���� personally weigh up whether the savings are worth��
the inconvenience of moving your personal banking���� which involves setting up new accounts, applying��
for new cards and instructing new direct debits.�� The third course of action involves more��
advanced refinancing strategies and will���� generally benefit people who need to dramatically��
boost their cash flow, not just lower costs, and���� especially those with a portfolio of loans. But��
these strategies are a little more complex than���� dollar to dollar refinancing, because they involve��
restructuring the repayment type and potentially���� shuffling things around with your loans. Now the��
steepest rate shocks would hit those rolling from���� fixed interest only to variable principal and��
interest loans. Usually investors will set up���� fixed interest only repayments in the initial��
stages of their loans, because it allows them���� to maximise their tax deductible debt while paying��
down their owner occupied loan as fast as possible���� which is not tax deductible. We can see the impact��
of the cliff in these types of situations is much���� more dramatic. If the interest rate goes up from��
2.49% fixed to 6.6% variable, and repayments go���� from interest only to principal and interest,��
repayments increase from $2,075 to $6,535. The���� only way to mitigate this is to refinance the loan��
back to interest only reducing the repayment shock���� to $533 dollars per month. But this is still a��
1.5 times increase to the previous fixed rate���� repayment. The other option would be to keep the��
loan on a principal and interest repayment but to���� re-extend the loan term to 30 years. In this case��
repayments would go to $6,060. The repayments are���� still high but definitely more manageable.
Now moving on to the fourth course of action���� which would be applicable in any of��
the three strategies we just mentioned,���� and that's proactive budgeting and income��
generation. With the prospect of recession���� around the corner, households need to look at how��
they can boost their cash flow and where possible���� create savings buffers. There are two sides of the��
equation: how can you increase your income and how���� can you cut your expenditures? On the income��
side, ask yourself: can you work more hours,���� take on a second job or a side hustle, earn a��
promotion or switch to performance-based income?���� Maybe you can rent out a spare room in your house��
or convert eligible properties to short-term���� rentals. On the expenditure side, it's time to��
take a hard look at your spending. Are you using���� credit cards beyond your means? Can you stretch��
the life of your positions or buy second hand?���� Can you cut back on discretionary expenses like��
eating out, holidays or unused subscriptions?���� Maybe it's time to consider public schools for��
your kids or renting out your home and living���� somewhere cheaper. Remember every little bit��
helps. Boosting your income and cutting back on���� expenses might just be the trick to get you out of��
mortgage jail if you're struggling to refinance.�� Now, let's talk about the reality that��
some households may face. For some,���� the shock of transitioning from fixed to a��
variable rate will be just too much. This is���� particularly true for lower income households��
with higher loan-to-value ratios and newer���� mortgages. They simply haven't had enough time to��
build up savings and equity buffers to weather a���� period of higher repayments. And of course,��
this could apply to anyone not just those on���� lower income levels. Sometimes life throws us��
curveballs that are beyond our control. The���� death or illness of a primary income earner, job��
loss or having to care for a sick family member���� can all drastically impact household cash flow.
So our fifth set of actions is for those already���� experiencing or preempting financial distress. In��
these situations the choices are tough but clear.���� You could firstly call a bank's hardship line or��
speak to your banker about setting up a financial���� arrangement. For example, making partial loan��
repayments or at least paying the interest of���� a loan can buy you some time. Another option��
could be selling property or assets. This is���� a last resort, but it's something that lenders��
may enforce if you default on a secured loan���� and show an inability to repay. For business��
owners, switching from a bank to a non-bank���� or a private lender may help you achieve more��
runway. You can also switch loans to interest���� only or have interest capitalised to preserve your��
cash flow while you trade out of the downturn or���� undertake a measured sale of assets. In all��
these situations, it's crucial to seek help���� early before you run out of cash or are forced to��
sell a property on terms you cannot control. The���� national debt helpline and the mob strong debt��
helpline are great resources for free advice.���� And remember - you're not alone in this. There��
are resources and strategies available to help���� you navigate these challenging times.
So here are my final thoughts on all of���� this. There's no doubt that the shock from the��
fixed rate cliff will shape Australia's macro���� economic landscape over the next few years��
impacting household budgets, property prices���� and economic stability as a whole. And so, you're��
going to have to find ways to manage the impact,���� be it through negotiating on your loans,��
refinancing, boosting income or cutting expenses.�� But I don't think that the mass expiry of fixed��
rate loans is going to destabilise the economy and���� be a sole driver of a recession, nor is the��
fixed rate cliff going to crash the housing���� market. So I'm confident that our clients and��
followers will have the resilience, creativity���� and street smarts to come out on the other side��
more financially savvy and prosperous than ever.�� Thanks for watching! If you enjoyed this video��
make sure to subscribe to our Channel and follow���� SF Capital on our socials to stay in the loop��
on all things finance. See you next time!
Mortgage & Finance Broker - I help Business Owners & Professionals confidently secure finance on the most competitive terms possible | Managing Director at SF Capital | MBA, University of Chicago Booth School of Business
Mortgage & Finance Broker - I help Business Owners & Professionals confidently secure finance on the most competitive terms possible | Managing Director at SF Capital | MBA, University of Chicago Booth School of Business
Mortgage & Finance Broker - I help Business Owners & Professionals confidently secure finance on the most competitive terms possible | Managing Director at SF Capital | MBA, University of Chicago Booth School of Business
Mortgage & Finance Broker - I help Business Owners & Professionals confidently secure finance on the most competitive terms possible | Managing Director at SF Capital | MBA, University of Chicago Booth School of Business
Mortgage & Finance Broker - I help Business Owners & Professionals confidently secure finance on the most competitive terms possible | Managing Director at SF Capital | MBA, University of Chicago Booth School of Business
In what has been the most widely anticipated interest rate decision since the RBA’s rate hiking cycle began, the board decided today to leave the cash rate on hold at 4.35% ⏸️ Of course, the big driver of this decision was last week’s underlying inflation or “Trimmed Mean” for June coming in at 3.9% - slightly above the RBA’s forecasts, but below the market’s expectations of 4% 📉 allowing mortgage and other debt holders to breathe a collective sigh of relief.
The RBA has said it's going to be a “slow and bumpy” road to return inflation back to target 🎢 Other key takeaways from today as follows:
📉 Inflation has fallen substantially, but is still above target and proving persistent – “Underlying inflation has now been above… target for 11 consecutive quarters… and fallen very little over the past year
📊 Inflation is forecast to return to 2-3% by late 2025, and approach the midpoint by 2026 – this is slower than originally forecast, reflecting updated forecasts of higher demand but also tighter supply, as can be seen in the labour market
There are several sources of uncertainty:
⬆️ High services costs, high unit labour costs, and wages growth not matched by productivity growth are “upside risks” to inflation
⬇️ However, slower household consumption, a rise in unemployment and “many businesses under pressure” may lead to weaker economic growth and more “downside risks”
🌏 Overseas outlook also is highly uncertain – weaker Chinese growth, geopolitical risks and while some central banks have lowered interest rates, they remain alert to the risks of inflation
📈 All in all the board made it’s stance clear that we are in a policy stance of higher for longer:
“Inflation in underlying terms remains too high, and… it will be some time yet before inflation is sustainable in the target range.
Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.”
I hope you find this update useful, and if you have any questions during this time of volatility and change, please do not hesitate to contact me 📞📩💬
SF CapitalReserve Bank of Australia#rba#reservebank#reservebankofaustralia#centralbank#monetarypolicy#interestrates#australia#australianeconomy#inflation#inflationexpectations#economy#globaleconomy#economy2024#employment#unemployment#gdp#cpi#underlyinginflation#headlineinflation#cashrate#sfcapital#mortgagebroker#mortgagebrokersydney#morethanabroker#successfactors#accesstocredit
Mortgage & Finance Broker - I help Business Owners & Professionals confidently secure finance on the most competitive terms possible | Managing Director at SF Capital | MBA, University of Chicago Booth School of Business
Over the years, I have been repositioning SF Capital as THE mortgage broking firm that helps Business Owners with financial certainty for their life's most important transactions - playing to our strenghts in financial analysis, problem solving and understanding the unique needs of self-employed, business and entrepreneurial clients. Here is a neat summary of what we're about! 🎤
Thanks once again for hosting Byron Patching and Mushiny Intelligence!
Mortgage & Finance Broker - I help Business Owners & Professionals confidently secure finance on the most competitive terms possible | Managing Director at SF Capital | MBA, University of Chicago Booth School of Business
A big thank you to everyone who came to our event, as well as to Byron Patching and the Mushiny Intelligence team for hosting! We all had a great time, and learned a lot! 🤖⚡️💡
Mortgage & Finance Broker - I help Business Owners & Professionals confidently secure finance on the most competitive terms possible | Managing Director at SF Capital | MBA, University of Chicago Booth School of Business
Mortgage & Finance Broker - I help Business Owners & Professionals confidently secure finance on the most competitive terms possible | Managing Director at SF Capital | MBA, University of Chicago Booth School of Business
Mortgage & Finance Broker - I help Business Owners & Professionals confidently secure finance on the most competitive terms possible | Managing Director at SF Capital | MBA, University of Chicago Booth School of Business
1yIf you missed Part 1 & 2 or would like to watch the whole explainer video in one go, please go here 👉 https://www.youtube.com/watch?v=vyyUIfcappE