Recent data out of the US shows that the number of homes seriously "underwater" has reached its lowest level in 2 years – and I guess we'd kind of expect that as the US economy starts to pick up again.
So, what do we mean by a property that's underwater, I hear you ask? Well, first of all, it's got nothing to do with rising sea levels and global warming, so take a chill pill on that![. . .]
One of the concerns some people have in buying property is how much Lenders Mortgage Insurance (LMI) they have to pay to the bank.
Before we talk about that – let me explain what it is first.[. . .]
Australians have a love-hate relationship with fixed mortgage rates. Media-driven panic coerced many people into fixing at 8% just before the backside fell out of the economy and interest rates dropped to all time lows, and they got stuck with rates 3% above market and paying a massive premium.
However, times have changed, and rates are still very low, with fixed rates out to 3 years running at below 5% in Australia. This has seen a spike in popularity, and certainly these products can provide an "insurance policy" against interest rate rises for a few years, and that certainty is drawing a lot of people into them, so that 1 in 4 loans are utilising fixed rate products at the moment.
Similarly, in Canada – whose market is similar in many ways to Australia - a CIBC survey earlier this year showed that 48% would choose fixed, a marked increase over previous surveys. Maybe this is an indicator for consumer sentiment in Australia. Will we see a rise in the popularity of fixed rate home loans? They seem to be pretty popular right now, as people are fixing into low rates for a longer period as an "insurance policy" against rate increases.
Is it right for you? Talk to us about it and we can help you make an informed decision.[. . .]
One of my mates has a beautiful home – wonderful inside and out. They also own an investment property, which provides them with a good income stream. They're making good money, and they've got plenty of equity, but their existing financial institution won't give them the money they want to buy their next investment.
Why? Well, because it's structured all wrong.
My mate really wants to invest but his wife is adamant that they are NOT moving out of their home and sacrificing the lifestyle they have worked so hard to build just to free up equity.
Fair call – I reckon. If this was you – what would you do?
Well, here's what I'd do – I'd make sure the finance was structured properly, and I'd use multiple lenders to look after my own interests, not just one, who will look after the bank's interests.
If you don't know how to do this – you should talk to someone who does, then you can have your cake and eat it too![. . .]
So, let's say you bought a property 10 years ago as a holiday home, or maybe it was your old home and you moved somewhere else for work and hung onto it as an investment property (this happens quite a bit with Defence personnel, amongst others). Someone has been paying the rent for you and it's poking along and looking after itself, and that's great.
But now, you've come across some different opportunities, and your wealth is tied up in a property that has grown in value, and is just sitting there.
Ask yourself the question – has this property served its purpose? If it is holding you back from other opportunities and there's equity locked up there that you could use on another project – it just may have served its purpose already, and maybe selling it would be a good idea.
I did this once – our family home had doubled in value, and we'd moved somewhere else for lifestyle, but we kept our old house as an 'insurance policy' for a few years (you know, just in case we wanted to move back to the 'big smoke'). It was great for the 10 years we owned it – but the time came when it HAD served its purpose, so we sold it, bought another investment property in a better location, and threw some money into some other ventures as well.
It's a plan that might work for you as well.[. . .]