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A Successful & Complex Refinance

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Background

First Point Group takes pride in being able to offer our clients solutions for all their finance needs, no matter how simple or complex. We love a good challenge and this article shows how we overcame exactly that for one of our many valued customers!

Recently, First Point Group was faced with a complex refinance application for a client with multiple loans; both investment and owner occupied, as well as an application for additional finance at the same time. The client’s ultimate plan was to borrow to demolish their property and build their dream family home.

The Challenges

Borrowing Power – Our first hurdle was our clients’ existing lender would not lend sufficient funds to finance the construction. As we do for all of our clients, we then widened our focus to include a range of competitive Lenders who could potentially provide more flexibility.

Best Interest Rate – In order to achieve the best possible interest rate, it was beneficial to have all of the clients’ loans with the same lender, including the existing loans as well as the construction loan. In a way this is like “buying anything in bulk” – you would expect a better discount.

Refinancing Costs – Importantly, we found that several of the existing loans were locked into fixed interest rate contracts, so there were going to be significant “break costs” if we chose to refinance these loans. In order to go through the cost of refinancing to another lender, it had to be worth it. The interest savings would need to repay these costs within a relatively short period (ie. 12-18 months).

To meet the needs of the client, and overcome all of the above mentioned issue, we had to:

  • Research for a suitable lender based on product features, Lender policy and serviceability limitations
  • Calculate the refinance savings achievable by switching to each potential lender
  • Calculate how long it would take for our client to recover the “break costs” if they were to break their fixed interest rate contracts. Depending on the size of the loan, and length of time remaining for a loan with a fixed rate of interest, the costs of breaking the contract can be tens of thousands of dollars!

The Solution

We were successful in working with the client and negotiating with the right Lenders to enable a complete refinance of all loans, which provided the capacity to fund the construction, and also recover the break costs within a 12-18-month period. The client was moved to loans with far superior interest rates, and the construction of their home is currently underway!

This is one of the many loans First Point Group have had approved where persistence is the key to achieving that final approval. Our highly experienced team will always anticipate (where possible) and overcome any challenges to meet the needs of our clients.

If you would like to talk to the team regarding your next purchase, review or refinance whether you are seeking residential, commercial or asset finance, please contact us to find out how we can help you.

Interest Rate Update – August 2016

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Cash Rate – Reduced to 1.5%

The Reserve Bank of Australia (RBA) has just announced it will reduce the official cash rate to 1.5%.

In a finely balanced decision the RBA would have been particularly influenced by the results of the June quarter inflation rising only 0.4% and hence only 1.0% over the twelve months to the June quarter 2016. This compares with a rise of 1.3% over the twelve months to the March quarter 2016.

With inflation running well below the RBA target band of 2.0%-3.0% and the labour market having lost momentum over recent months the RBA felt it was time to move rates down again.

The RBA will update its forecast outlook in the Statement of Monetary Policy on Friday 5th August which will provide some reasoning behind their “cut” decision and paint a picture of the near future.

As we see interest rates continue to fall, the next 12 months will be very interesting times. Despite three cash rate cuts of 25 basis points each since March 2015 there has been little benefit to the economy and other macro tools are likely required to refire the economy. Two things are for sure:

Interest rates are historically low so borrowing is very cost effective

There is not much left for the RBA to play with…

For more information, or if you would like a free review of your residential, commercial or SMSF loans against other competitive products in the market please contact Peter, David or Simon via this email, our phone: (03) 9882 2500, or visit https://www.firstpointgroup.com.au/

Interest Rate Update – July 2016

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Cash Rate – No Change

The Reserve Bank of Australia (RBA) has just announced it will maintain the official cash rate at 1.75%.

Notwithstanding the uncertainty surrounding both the Australian election outcome and the aftermath of Brexit the RBA has a preference to await the results of the June quarter inflation figures (due later this month) before considering its next move. The majority of Economists are currently predicting the RBA’s next move to be a reduction to the Cash Rate in August.

Interest Rate Update – June 2016

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Cash Rate – No Change

The Reserve Bank of Australia (RBA) has just announced it will maintain the official cash rate at 1.75%.

This follows last week’s better than expected GDP figures which showed annualised economic growth at 3.1 per cent.

It is interesting to note that business lending has been growing at a slightly higher rate than housing lending, the first time this has occurred since early 2009. The reasons for this have been the current low interest rate environment, an improvement in overall business confidence together with the influence from the regulatory body, APRA, as they continue to push the Lenders to reduce their growth in mortgage investment lending.

We see no change to the Cash Rate in the short term, although many Economists are expecting another reduction before the end of the year.

Interest Rate Update – May 2016

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Cash Rate – Reduced to 0.25%

The Reserve Bank of Australia (RBA) has just announced it will reduce the official cash rate to 1.75%.

The weakness of the March quarter’s inflation figure (-0.2%) shocked many Economists. This was the first time the headline inflation rate has fallen since December 2008 and the resultant annual inflation of 1.3% is the lowest since June 2012. Fuel and fruit prices were the main influences however slower price rises in the regulated sectors such as utilities, health insurance and rates together with low wage growth have contributed.

Low interest rates have been supporting demand and hopefully a lower exchange rate as a result of this reduction will further assist the economy.

 

Interest Rate Update – April 2016

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Cash Rate – No Change

The Reserve Bank of Australia (RBA) has just announced it will maintain the official cash rate at 2.00%.

Notwithstanding a strong Australian dollar the RBA remains comfortable with a contained inflation rate and a slowly improving labour market. Business credit has expanded (0.7% for the month of February) resulting in an annual growth rate of 6.5% (up from 5.5% for the year to February 2015). Housing credit remained at 0.5% for February (7.3% for the year compared to 7.1% for the prior year). The Australian Industry Group manufacturing index also delivered positive news last Friday morning showing an improvement of 4.6 points to 58.1 – the highest level since 2004.

Whilst we remain confident the cash rate will be left untouched for the remainder of 2016 the RBA will keep a close eye on a strengthening Australian dollar.

 

Interest Rate Update – March 2015

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Cash Rate – No change

The Reserve Bank of Australia (RBA) has announced it will maintain the official cash rate at 2.25%.

Following last month’s RBA decision to reduce the cash rate by 0.25% for the first time since August 2013, the RBA decided to defer any action so as to better understand the effects of the decrease before it again reduces the cash rate in another month or two . The RBA is hoping last month’s drop was a clear message to Australian businesses that it is time to improve their appetite for risk and invest more in new staff and equipment.

Interest Rate Update – March 2016

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The Reserve Bank of Australia (RBA) has just announced it will maintain the official cash rate at 2.00%.

It may be Super Tuesday in the United States but it is also a huge week for local financial data, including the GDP figures for our last quarter. The Bank will prefer to assess this information to see just how the domestic economy is performing in the early stages of this year.  Whilst the market is currently forecasting a 60% chance of an interest rate reduction by May we remain confident the RBA will leave the cash rate untouched for the remainder of 2016.

 

Changes to Interest Rates

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We recently wrote regarding significant changes in the Australian residential investment loan market over the past couple of months. This intervention by APRA (Financial System Regulator) sparked the beginning of a process for Australian Lenders to not only reduce the volume of investment lending, but just as importantly, to bolster the amount of capital Lenders hold in their balance sheets to ensure we have a stronger financial system.

The first round of capital raising for several lending institutions was achieved by issuing more shares to investors. On 14th October 2015 Westpac announced an increase of 0.20% to home loan interest rates, which was outside of any Reserve Bank movements. The increase in capital requirements by APRA is one of the core reasons for this increase.

Other lenders may stall this process however, we feel it is only a matter of time before all mainstream Lenders increase home loan and investment loan interest rates in the very near future. This will likely unfold in the next few weeks.

What should I do?

As we mentioned in our previous posts, our recommendation is not to make any quick decisions, as any potential refinance could end up costing more. Instead, should you wish to discuss your loan please feel free to contact us by email or phone (03) 9882 2500 so we can discuss your individual financial position.

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Interest Rate Update – October 2015

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Cash Rate – No Change

The Reserve Bank of Australia (RBA) has just announced it will maintain the official cash rate at 2.00%.

The RBA remains comfortable to provide a period of stability, to allow business and consumers some certainty over the coming months particularly following the recent change of political leadership. The financial markets are currently pricing in the next change in the cash rate for December with a 0.25% reduction. Unless there is significant untoward domestic and global economic data it is our view the RBA will hold the cash rate at 2.00% for some time.