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Case Study: Selling a property with a fixed rate loan

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First Point Group always work to find the best possible outcome for our clients. In this case study, Kate had a $300,000 fixed rate home loan, and a $400,000 variable home loan ($700,000 total).

Kate sold her home, but had not yet found a new property to buy. She was happy to rent for a little while, and the sale amount was sufficient to repay all debts.

In most cases, a variable rate loan can be repaid without any significant fees or penalties. The key issue for Kate is that repaying / closing a fixed rate loan can be extremely expensive due to Lender “break costs”.

The break cost associated with a fixed rate loan is essentially the Lender’s way of passing their “future losses” onto you if you break the fixed rate contract early.

In this case study, Kate’s fixed rate still had 2 years left to run, and since interest rates had fallen since the loan was taken out, the Lender was set to effectively lose X% interest for those remaining 2 years. That cost would normally be passed onto the Borrower if/when the loan is paid out. In this case the amount was just over $8,000.

Therefore it was imperative that we find a way to enable Kate to sell the property BUT keep the fixed rate loan open, to avoid that break cost.

Despite Kate’s lender not being a regular “big 4 bank” or even a deposit taking bank, First Point Group were able to negotiate for Kate to offer $300,000 of the “cash” from the property sale to secure the fixed loan for a short period of time until her next property purchase occurs.

As a result, the fixed rate loan remains open, and Kate did not have to pay the $8,000 break fee.

When Kate purchases her new property, the $300,000 cash will be released and put towards the purchase. At the same time, the new property will become the security against the $300,000 fixed rate loan.

Changes to investment loans

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In the past couple of months we have seen significant changes in the Australian investment loan market.

As you may have seen recently in the media, the Australian Prudential Regulation Authority (APRA) – the prudential regulator of the Australian financial services industry – is concerned about the recent strong growth of lending to property investors, particularly in Melbourne and Sydney. APRA’s concern is that a real estate market slow-down could see a dramatic increase in loan defaults.

Accordingly, APRA has strongly recommended that lenders benchmark the growth in their investment loan portfolios at no more than 10% per annum and, additionally, directed the five major Banks to increase the amount of capital they hold against their residential loan portfolios.

As a result, interest rates on investment loans (in particular interest only and Line of Credit facilities) have increased across all major lenders. There has also been a host of changes to lending policies; all aimed at ensuring a sustainable growth in the home loan investment sector and improving the strength of Australia’s financial services industry. Many changes have already been implemented, but we feel there are plenty more to come.

Should I Refinance?

If you have noticed an increase to your investment loan rate, please be assured that your lender is not the only lender making these changes. Our recommendation is not to make any quick decisions, as any potential refinance could end up costing more, but to contact us by email or phone (03) 9882 2500 so as we can discuss your individual financial position.

First Home Buyers

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First Home Buyers

First Point Group has helped hundreds of first home buyers to take that next step and buy their first home. There is so much to think about when buying your first home – from how much you can afford, to what type of property you want and where. We can help you to understand all of these things, and the whole process will become much easier by discussing your needs with your First Point Group Consultant.

We make it easy for you by:

  • Helping you choose a suitable home loan from hundreds of different loans from our wide panel of lenders
  • Completing all the necessary documentation for you
  • Showing you what all of the costs are including stamp duty, conveyancing fees and bank fees
  • Helping you apply for the First Home Buyer’s Grant if you are eligible

At your first meeting we will discuss all of your needs, goals and objectives. We also gather your personal information so that we can make a comprehensive recommendation on the most suitable loan for you. From there, we will handle all of the lender conversations and phone calls, to ensure you receive your loan approval as soon as possible.

Pre approval for a loan really should be “Step 1” for any first home buyer. We can arrange this for you. A pre approval offers the lender a chance to review your situation (including income / employment, assets, liabilities and credit history) and provide you with a written approval BEFORE you sign a contract to buy a property!