Hey guys, Andrew Malcolm from mortgagehq.
Today we're going to talk about two things.
Borrowing power and how long you should refix.
So with the changing interest rates, they're are going up
quickly a lot quicker than they have in the past.
What's happening at the moment is banks are actually pricing quite differently.
And and what you might see is even 1% difference between banks.
That's the first thing.
The second thing is test rates have been changing quickly as well.
So some banks have test rates where they're stress testing
one, even 1% higher than other banks.
That's the second thing.
The third thing is debt to income ratio, as banks are looking at
capping borrowing power based on how much money you earn.
And they're doing it in different ways.
That's the third thing.
The fourth thing is just other random variables that banks
calculate borrowing power based on that's different from each other.
So what does all this mean?
It means borrowing power across the different banks at the moment
is is vastly different between the banks.
So what you're going to do if you're looking at
getting your first home or getting a second property
for investment, to borrow money in any way.
Don't just go to one bank and ask them, What's your borrowing power?
Jump on the the borrowing power calculators at all the banks.
Enter your details.
Get a high level
indication of how much you can borrow from each of the different banks.
And I bet you it's very different numbers now.
One bank might be saying $500,000.
Another bank, 600 another bank, 700, even another bank $800,000.
There's like a big difference in borrowing power at the moment,
with all the variables on play between the different banks
and your safest bet to make sure that you actually can
maximise your borrowing power if that's where you want to go,
is to work with a mortgage adviser that's accredited with all of the banks.
And when they're doing the calculations, they're assessing based on your number
of dependents, number of cars, income type, age,
all of the variables that the banks look at.
What you want is a mortgage adviser that's going to tell you:
''Hey, this bank is going to lend you the most.''
And these are the reasons why and you especially want to get an early
in case you need a switch to that bank three
to six months before you intend on borrowing the money.
Second thing is because interest rates are changing so quickly,
there's kind of a panic in the market for mortgage holders
and potential borrowers at the moment that interest rates are going to skyrocket up
and that people should be looking to fix for longer terms.
Now what this does is people start looking at 3-4-5 year rates
and locking in their repayments at 1-2%
higher than is available for their one year term.
So you might be able to get, say, 3.5 percent for one year
and you have to pay 5% for five year.
That's a very, very, very big difference in your repayment amount from day one.
Now, instead of time in the market or trying to figure out
what's going to be cheaper,
or trying to predict, you know, predicting what's going to happen.
Interest rate averaging is your safer way
to make sure you're not exposed to massive swings.
If rates go up or down.
How annoyed would you be in three years time
if interest rates are still 3.5 percent, you could lock in 3.5 percent.
But you had fixed for five years.
You'd be annoyed that you'd be paying 1.5 percent more than you could of
for all that time. In the same flip side.
Say there's 3.5 percent now, and they end up being 3 percent in twelve months
time.
You're going to be quite annoyed if you if you miss out on that.
So interest rate averaging is: Let's
say you've got a $600,000 loan, you might put 200,000
on one year, $200,000 on two year $200,000 on a three year
and have your loan terms for your portions coming up each year.
And then you've got the ability to do lump sums.
You've got the ability
to adjust repayments, you're not exposed to those big swings.
So talk to your mortgage advisers, bankers about revolving credit, about offsets,
about interest rate averaging and don't try and time the market.
You'll read an economists newsletter saying fixed for five years,
rates are going up and then the next week that same economists will be saying split
for some for two years, some for three years,
and they'll be saying, sorry, I got it wrong or things changed.
Don't get sucked in by what's going on that week.
Don't let that draw you away from the main
principle
of not trying to time the market and to focus on
the bigger things that you can control, which is your repayment,
controlling your repayment amounts and focus on buying the right property
and earning more money and focus on having the correct structures.
Try not to time the market because what I've seen
as a lot of people have fixed for five years.
Over the last
six years, I've been talking to people about mortgages.
Most people that have fixed for five years have come to regret it
during that five year term because change of circumstances.
Income, health,
divorce, selling the property.
There's all these things that can come up.
And what often happens is a big, break fee is created
and you know, it's generally something you can avoid.
So interest rate averaging and borrowing power calculations, mortgage advisers
definitely going to help you understand and guide you through the process.
So if you have any questions, comments
below, and please subscribe.
Cheers.