Home Loan Archives - Frontrow Financials

What happens to my home loan if interest rates fall?

Great news for home owners – plenty of economists are tipping an RBA rate cut for February. Assuming it happens, once the celebrations have died down, what next? We explain what to expect when rates head south.

It’s been a long time between drinks for home owners celebrating a rate cut.

The last time the Reserve Bank of Australia (RBA) gave rates a chop was back in 2020.

But the tide may be about to turn.

A growing chorus of economists – plus banks including NAB and Westpac – are expecting a rate cut of 0.25% when the RBA board next meets on February 17-18.

Of course, nothing is set in stone.

If we do see rates head lower though, it’s worth knowing how your home loan and repayments could be impacted.

What will happen to my loan rate?

If you have a fixed-rate home loan, it’s business as usual no matter what happens to the cash rate.

Your fixed rate won’t change and neither will your required monthly repayments.

That said, if you’re coming to the end of a fixed term, it’s worth having a chat with us about your next moves once the fixed rate expires.

The real action occurs if you have a variable rate home loan.

If the RBA cuts the cash rate, your variable home loan rate should fall too.

By how much? Well, banks don’t have to follow the cash rate. And history has shown that lenders haven’t always passed on rate cuts in full.

But banks may want to avoid potential backlash, especially given the current cost-of-living climate.

That would hopefully see most lenders pass on 100% of any rate cut. So, if the RBA cuts rates by 0.25%, your home loan rate should hopefully drop by 0.25% also.

How do you find out the new rate? Your lender will get in touch to let you know.

Will my repayments change if rates fall?

Not necessarily.

Some lenders automatically reduce home loan repayments in line with rate cuts.

Other banks, however, simply maintain your repayments at the old level. It’s just that more of your money goes towards paying off the principal (rather than the interest) each month.

This can be frustrating if you’re hankering for some extra money for your family budget each month.

However, some banks take the view that by maintaining your old repayments, they’re helping you pay more off the loan and get ahead with your mortgage.

To find out if your bank is automatically dropping your monthly repayments, or if you need to request for it to happen instead, get in touch with us and we can let you know.

How much might your mortgage repayments decrease?

For an owner-occupier with a 25-year loan of $500,000 paying principal and interest, a 25 basis point rate cut means your monthly repayments could decrease by about $77 a month.

That would put $924 a year back into your family budget.

If you have a $750,000 loan, your monthly repayments would likely decrease by about $115 a month – or $1380 per year.

Meanwhile, a $1 million loan would decrease by about $154 a month – or $1848 a year.

Worried about your mortgage? Get in touch

Despite a potential rate cut on the horizon, there are still plenty of households around the country feeling the pinch of cost of living pressures and high interest rates.

If you fall into that category and haven’t had a home loan health check in a while, get in touch to see if you could be doing better on your home loan.

Some options we can help you explore include renegotiating with your current lender, refinancing to another lender, or debt consolidation.

Every household is different – we’d be more than happy to help you come up with a tailored plan for yours.

Disclaimer: The content of this article is general in nature and is presented for informative purposes. It is not intended to constitute tax or financial advice, whether general or personal nor is it intended to imply any recommendation or opinion about a financial product. It does not take into consideration your personal situation and may not be relevant to circumstances. Before taking any action, consider your own particular circumstances and seek professional advice. This content is protected by copyright laws and various other intellectual property laws. It is not to be modified, reproduced or republished without prior written consent.

How to finance your 2025 home renovation

Spending on home renovations has boomed over the past five years, and it seems we’re not done yet.

The Housing Industry Association says high property values are giving Australians more home equity – and confidence – to go ahead with home improvements at near-record levels.

It’s exciting stuff, especially as home improvements can boost your lifestyle and your home’s value.

Here are some of the renovation loan options that could help transform your place into your dream home.

Use your offset account or redraw

You may have cash stashed in a home loan offset account. Or, perhaps you’ve been paying more than the minimum loan repayments, providing a source of funds via redraw.

Both could provide money to help fund your renovations.

But be sure to talk to us first about the possible impact on your home loan.

Savings held in an offset account, or those extra loan repayments, can help you save on loan interest.

So you’ll want to crunch the numbers before you dip into an offset account or redraw facility.

Top up your existing home loan

If you have sufficient home equity, you may be able to borrow a bit extra with your existing home loan through a loan top-up.

While this option may be more straightforward than switching to a new lender, it’s worth noting that some lenders can charge fees to top up a home loan.

Refinance to a new loan

Another possible source of reno funds could be refinancing to a new loan.

Your old loan may no longer have a competitive interest rate or the features you need.

The beauty of refinancing is that it can put any additional home equity you’ve recently acquired to work, which could provide the funds needed to pay for renovations.

The added sweetener could be interest rate savings and/or more flexible loan features.

Consider a construction loan

If you’re planning a major project, such as a new extension or a knock-down-and-rebuild, a construction loan could be worth a look.

A construction loan is purpose-built for renovation and building projects.

The funds are drip-fed to you as each stage of your project is completed. You only pay interest on the funds drawn down, and during the building phase you will typically only need to make interest-only repayments. This can help you save money on interest costs.

As an added plus, some lenders may provide pre-approval for construction loans even before you’ve chosen your builder.

Getting pre-approval can be a good way to know how much you can spend on your renovations, helping you set a project budget.

Understand the options available for your project

It’s difficult to start planning a renovation until you know just how much you can afford to spend.

So if you’d like to get a clearer idea of what’s possible for your 2025 renovation plans, contact us today and we’ll work hard to help you get rolling on your project.

Decisions decisions… Fixed-rate vs variable home loan rate

Home loans come in all shapes and sizes. A common thread is that you’ll likely be given the choice of a variable or fixed interest rate.

It’s an important decision, as fixed rates can be very different from variable rates – and right now, some lender’s fixed rates are lower than their variable rates.

Let’s take a closer look at both options.

Variable-rate home loans

With a variable-rate loan, the rate you pay can move up or down in line with market interest rates.

If the Reserve Bank of Australia (RBA) raises the official cash rate, for example, your loan rate will almost certainly rise, which in turn increases your repayments.

Conversely, if the cash rate falls, your variable rate should also drop, which would result in lower monthly repayments.

The upshot is that you need to be prepared for your home loan interest rate (and repayments) to rise or fall during the course of your mortgage.

In exchange for this uncertainty, variable rate loans tend to offer more flexibility and features.

These can include a redraw facility, linked offset accounts, and being able to make fee-free extra repayments, all of which can make your home loan easier to live with and help you pay off the balance sooner.

Fixed-rate home loans

When you fix your home loan rate, the interest rate stays the same regardless of changes to market rates.

This means you know exactly what your repayments will be throughout the term of the fixed rate period (usually one to five years), which can help make household budgeting easier.

If market rates rise, you’re in front because your fixed rate won’t be affected.

The downside is that if interest rates fall, you won’t get the benefit of lower repayments.

The good news is that today’s fixed-rate home loans are generally more flexible than in the past.

Some allow extra repayments (often up to an annual limit) plus redraw. Others even provide offset accounts.

Even so, one issue to be aware of is ‘break’ fees.

These can apply if you bail out of a fixed-rate loan before the fixed term ends – something that may happen if you want to refinance to a lower interest rate loan sooner than you originally planned.

Break fees can be complex. But if interest rates have dropped since you fixed, you could be up for significant costs, potentially running into tens of thousands of dollars, which could wipe out any savings from refinancing.

This highlights the need to talk to us before locking in a fixed rate so you can make an informed choice.

Do fixed-rate loans come with higher interest rates?

This is where things get interesting.

Right now, fixed rates can actually be lower than variable rates, depending on the lender.

This is likely because some banks believe that the RBA may cut the official cash rate (perhaps several times) over the next couple of years, so they’re pricing this into their fixed rate options to make them more enticing.

Macquarie Bank, for instance, has a 2-year fixed rate of 5.69%, well below its 6.14% variable rate.

Whether the RBA cuts the cash rate, how many times it cuts it, and how soon all determine whether or not you come out ahead by fixing now.

A split rate loan – have your cake and eat it too

There is one possible way to enjoy the certainty of a fixed rate and the flexibility of a variable rate: a split rate loan.

This lets you divide your loan between a fixed rate and a variable rate. For example, 40% of your mortgage could be accruing interest at a fixed rate and the remaining 60% could be charged at a variable rate.

You get bragging rights about the lower fixed rate you’re paying, plus the features of a variable rate loan.

It’s a bit like hedging your bets, with some additional benefits.

Want to know more?

Still not sure which option might suit you?

Contact us today to find out more. We don’t have a crystal ball, but we can sit down and work out what’s important to you – and then which of the above options aligns with those needs.

How much does LMI really add to a home’s cost?

Saving for a 20% house deposit is like house training a wilful Labrador. It requires plenty of patience and persistence. Not your thing? You could take out lenders mortgage insurance (LMI). But how much extra does that cost? And can you avoid paying for it? (for the LMI, not the dog…)

LMI is a type of insurance that protects the lender (not you or any guarantors) if you can’t keep up with your home loan repayments.

It’s typically applied to home loans when your deposit is less than 20%. And right now, that’s the case for many home buyers.

A recent Mozo study found 84% of Australians saving a deposit can’t currently afford the full 20% deposit needed to avoid LMI – in no small part due to increasing property prices.

In fact, the national median property price is now $973,300, up from $949,400 in December last year and $649,300 in June 2019.

So, let’s shed a light on how much LMI can cost – plus ways to make the expense more manageable or possibly disappear altogether.

How much LMI could I pay?

LMI typically works out to about 1% to 2% of your loan value, depending on the size of your deposit and the size of your loan.

The more you can stump up as a deposit, the lower the LMI premium can be.

We’ll use this handy LMI estimator to show how it works (feel free to give it a go yourself).

Let’s say you’re buying an apartment costing $500,000. If you have a 10% deposit of $50,000, LMI will likely cost around $8,680.

It all depends on the price of the property you’re buying and your deposit amount. For example, the LMI premium can be as high as $36,480 if you have a $150,000 deposit for a $1,500,000 home.

The good news is that there are ways to manage – and potentially even bypass – LMI. Here are three ideas to consider:

1. Talk to us

Unlike other types of insurance, you can’t shop around for the cheapest LMI provider. Your bank will organise cover and let you know how much you’re up for.

However, different lenders use different LMI insurers. So the premium can vary depending on the lender you choose.

That’s why it’s important to talk to us.

We can explain what the LMI premium is likely to be for each lender you’re considering. This could see you potentially save on LMI.

2. Pay LMI off gradually

Instead of paying LMI in a lump sum, your lender may agree to add the cost to your loan balance.

This way you can pay LMI off gradually as part of your normal home loan repayments, but the downside is you’ll likely be paying interest on that LMI amount over the life of your home loan.

Remember that example we used earlier of a $500,000 apartment with a $50,000 deposit?

Adding the LMI premium to your home loan in that scenario could result in your monthly repayments increasing by about $45-65 per month over the life of a 30-year home loan, depending on the interest rate at the time.

Alternatively, some LMI insurers can allow you to pay your LMI premium in monthly instalments until you’ve got a suitable amount of equity built up in the property that your lender is satisfied with.

3. Have LMI waived altogether

Like the sound of sidestepping LMI completely?

Here are a few strategies that could scratch the cost of LMI from your buying budget:

– Use your job: some lenders waive LMI for workers in certain professions such as doctors, lawyers, accountants, vets, engineers and pharmacists.

– Tap into the Home Guarantee Scheme: this scheme sees the Australian government guarantee your loan, allowing first home buyers to buy with just a 5% deposit, or as little as 2% if you are a single parent – and no LMI to pay.

– Ask a family member to guarantee your loan: a guarantor can provide additional security, such as the equity in their own home, to raise the security on your loan up to the equivalent of a 20% deposit.

Next step? Contact us

If you’re having trouble saving up for a 20% deposit, contact us today.

We can help give you a clearer idea of what you could be up for in LMI, and help you discover any steps you may be able to take to keep a lid on the cost.

How to nail a home loan if you’re self-employed

It’s the great Australian dream for many: giving the 9-to-5 grind the flick and running your own show. But when it comes to taking out a home loan, being your own boss can dish up some unexpected hammer blows.

Rightly or wrongly, lenders tend to see self-employed borrowers as a higher risk compared to employees. That’s largely because, by and large, their income isn’t as guaranteed.

In addition, it’s likely their earnings won’t be the same each pay day – they may differ, sometimes substantially, from one month to the next.

In a lender’s eyes this has the potential to impact their ability to make regular loan repayments.

So if you own one of Australia’s 2.6 million small businesses, or you’re one of the nation’s one million independent contractors, here are some tips on how to convince a lender to back you.

Show you’ve been in business for a while

Banks often feel more comfortable if you have been self-employed for a while.

That can mean showing you’ve held your Australian Business Number (ABN) for at least a year or two. It demonstrates the business has got legs and possibly generates a reasonable income for you.

Gather proof of income

While employees can simply stump up a couple of pay slips as proof of income, if you’re self-employed you’ll likely need to pull together several pieces of paperwork as evidence of income.

The requirements vary between lenders.

You may be asked to provide your last two years of financial statements, including business and personal tax returns (a good incentive to stay up-to-date with your tax!).

Or the bank may just want to see several recent business activity statements.

In some cases, you may be asked for an income statement signed by you and your accountant that confirms your financial position and that you can afford the loan repayments.

With so much variation, it’s important to speak with us to know what different lenders look for.

Showcase your other assets

It’s not a bad idea to gather evidence of personal savings and investments.

A healthy track record of regular saving, in particular, can go a long way towards convincing a lender that you can handle home loan repayments.

Don’t hide your income or exaggerate expenses

The Australian Tax Office (ATO) estimates that about 10% of small businesses under-report income (aka cash-in-hand jobs) or exaggerate/overclaim expenses.

Not only can this get you in hot water with the ATO, but it can also impact your borrowing capacity.

That’s because generally speaking, the lower your income, the lower the repayments a lender may expect you’ll be able to afford each month.

Low-doc loans for self-employed home buyers

You may have heard about low-doc home loans.

These are purpose-built loans designed for self-employed borrowers who don’t have sufficient documents to apply for a regular home loan, hence the name “low doc”.

The beauty of low-doc loans is that they can provide a pathway into the property market.

The downside is that with less proof of income, the bank may see you as higher risk. And that can mean paying a higher interest rate.

The good news is that the higher rate may not apply for the life of the loan.

If you build up a record of reliable loan repayments, the bank may let you convert your mortgage to a full doc loan at a later stage, potentially providing the savings of a lower rate.

Not every lender offers low-doc loans. Talk to us to know which, if any, low-doc loans are suitable for your circumstances.

Get the ball rolling

Borrowing to buy a home may involve a little extra effort when you’re self-employed but it can be done.

And if you’ve created a successful business with a strong track record of generating a profit and income for yourself, the process can be straightforward and result in you landing a regular ol’ home loan.

The catch is that running your own show is likely to mean you’re stretched for time to put the application together.

If that sounds like you, give us a call. We’ll help take care of your home loan while you’re taking care of business.

What’s going on with negative gearing?

Negative gearing is in the headlines again. But what is it all about, and could it affect you? We explain how negative gearing works, why it’s so popular among investors, and why it’s attracting fresh attention.

Australians love property. So much so that more than one-in-ten adults (2,268,161 Australians) own an investment property.

So why is property such a popular investment?

Well, landlords can earn regular, consistent rental income. That’s extra cash to pay off the investment loan.

Additionally, over the past 100 years, national property prices have risen 10.9% per year on average, according to AMP insights.

This kind of return can provide a decent capital gain when the owner sells – which may also be eligible for a 50% capital gains tax (CGT) discount.

But there’s a third factor that can make property such an attractive investment, and that’s the potential tax savings of negative gearing.

How negative gearing works

‘Gearing’ simply means borrowing to invest.

‘Negative gearing’ is where the costs of owning the property, such as loan interest, council rates, insurance and so on, exceed the rental income the property generates.

The investor then claims a loss on the property via their tax return (this loss can be claimed even though the property’s value, aka capital gains, might have increased during that period).

The advantage of negative gearing is that this loss can be offset against other income, including your regular wage or salary.

The end result is the potential to save on your tax bill.

The tax savings can stack up

A simple example here will help.

Let’s say Deb’s annual salary is $125,000. At 2024-2025 tax rates, she pays tax plus Medicare levy totalling $28,288.

Deb recently bought an investment property. It generates $25,000 in annual rent, and the ongoing costs (including, but not limited to, strata levies, landlord insurance and loan interest) add up to $35,000 each year.

This leaves her with a loss of $10,000.

Deb now claims that loss on her tax return.

This will push her taxable income down to $115,000 ($125,000 salary less $10,000 property loss).

At this point, Deb’s tax (plus Medicare levy) is cut to $25,288, giving Deb an annual tax saving of $3,000.

This tax saving is more than just a sweetener.

It’s extra cash that can go towards repaying the investment home loan.

One of the controversies surrounding negative gearing is that many investors are unlikely to really be making a loss on their investment property because the value of their property usually increases each year.

The counter-argument to that however is that those capital gains are already subject to capital gains tax (albeit, usually discounted at 50%).

Why is negative gearing back in the news?

The latest kerfuffle around negative gearing arose because Federal Treasurer Jim Chalmers let slip that he had asked the Treasury for modelling around negative gearing and its impact on housing supply.

Prime Minister Anthony Albanese had stated “We have no plans to touch or change negative gearing.”

But of course, nothing is set in stone when it comes to politics.

That said, it would take a brave government to scrap negative gearing.

After all, those 2.2 million property investors are also voters – about half of whom negatively gear their properties.

Keen to buy an investment property?

It always makes sense to talk to a tax professional to know whether you could benefit from negative gearing.

As mentioned above, about half of property investors employ the strategy – it’s not the right fit for everyone.

Either way, if you’re keen to become a property investor and want to explore finance options that could help make that a reality, get in touch with us today.

We can help you assess your borrowing capacity and give some insights into how you could leverage the equity in your current property to make it happen.

Does your job come with home loan perks?

One of the first things a lender will look at when you apply for a home loan is your ability to manage repayments. And for most of us, that comes down to having a job that pays a regular income.

However, not all jobs – and types of income – are treated in the same way by every lender.

From nurses and other essential workers – to lawyers and accountants – various occupations can enjoy special treatment.

Essential workers – additional types of income considered

Where would we be without our essential workers – the nurses, firefighters, police and ambulance officers who play such a key role in our communities?

Despite the valuable services they provide, essential workers aren’t usually among the top income earners, and they can struggle to buy a home of their own near their work – especially those within 15kms of Sydney and Melbourne CBDs.

However, a number of lenders are helping out in a variety of ways.

Some banks have introduced home loans designed for essential workers that come with lower interest rates. According to Mozo, this can see essential workers pay some of the lowest rates in the market.

Other lenders take a more generous approach to the types of income essential workers earn when it comes to determining their loan serviceability.

For instance, some banks will include 100% of an essential worker’s overtime pay in their income calculations. Others will add in allowances received by essential workers.

The definition of ‘essential workers’ varies across lenders and policies, but can include:

– frontline ambulance officers
– paramedics
– firefighters
– police officers
– corrective services officers
– nurses
– aged care or disability workers
– teachers
– early childhood educators
– defence or military personnel.

Lenders’ mortgage insurance waiver

Several of the big banks offer other types of support that can make home buying more accessible.

Westpac, for example, may waive lenders mortgage insurance (LMI) for nurses and midwives who only have 10% deposit.

Usually, LMI is applicable when borrowers have a deposit below 20%.

A $90,000 per year minimum income is needed for the below professions (casual incomes calculated over 48 weeks) to apply with just a 10% deposit with Westpac:

– audiologist
– chiropractor
– midwife
– occupational Therapist
– osteopath
– physiotherapist
– podiatrist
– psychologist
– registered Nurse
– radiographer
– sonographer
– speech Pathologist
– optometrists
– pharmacists
– veterinary practitioners.

Meanwhile, for the below professions there is often no minimum income requirement to secure a loan with a 5% deposit and no LMI:

– dentist
– general practitioners
– hospital-employed doctors (intern, resident, registrar, staff specialist)
– medical specialists (as per the Medical Board of Australia).

Perks for home buyers in professional occupations

Home buyers who work in high-income professions may find it less challenging than essential workers to pull together the funds to buy a home. But they too can be eligible for a few home loan sweeteners.

The most common perk is a waiver of LMI, even for borrowers with a deposit as low as 5%.

As a guide, buying an $800,000 home with a 5% deposit of $40,000 would normally attract an LMI premium of $35,000.

LMI waivers are usually available to medical professionals, lawyers and accountants, though they can extend to sports and entertainment stars. They’re generally offered because banks are keen to form long-term relationships with these customers.

Call us today

It can take a bit of hunting around to know which lenders provide valuable perks for your occupation.

And if your job involves shift work – or long hours such as a doctor or lawyer – the last thing you want is to spend your spare time trawling the mortgage market.

One way to save time is to call us.

We can explain the various benefits you may be entitled to across a range of loans and lenders, and discuss any conditions banks may impose.