Are you an Aussie expat that has been abroad for a while?
You may not have heard about the increases to investment loan interest rates!
Throw into the mix the lending restrictions affecting all non-residents and you may be wondering what you can do to avoid these high costs.
Read on to find out more.
Banks have turned the heat up on investment rates
Over the past 6 months, major Australian lenders have increased investor loan rates by over 1% on average.
As an example, for a $500,000 home loan, that works out to be an extra $5,000 p.a. in interest payments alone!
Just this month, Commonwealth Bank, NAB, ANZ, Westpac and other major lenders increased their rates by up to 0.35%. You can read more about that here.
How much your monthly repayments have changed depends on the lender you’re with and the type of mortgage you have.
The most significant increases have been for interest only investment loans, with several lenders no longer offering interest only.
If you’ve been affected by increased interest rates, call us on 1300 889 743 (or +61 2 9194 1700 from outside of Australia) or complete our free assessment form to discuss your situation with one of our mortgage brokers.
Should you refinance?
You will typically only benefit from refinancing if:
- Your mortgage is on a variable rate.
- You owe less than 80% of the property value.
- You’re in a financial position to make P&I repayments.
You may not be able to refinance!
Expats have been partially swept up in wide-ranging policy changes affecting foreign citizens wanting to buy property in Australia.
As all loans for expats are investment loans, their rate has been increased and they’re sometimes unable to refinance.
You can typically borrow up to 90% of the property value but it depends on the currency you earn an income in.
Preferred currencies are:
- United States Dollar (USD)
- Great Britain Pounds Sterling (GBP)
- Euro (EUR)
- Singapore Dollar (SGD)
- Canadian Dollar (CAD)
- Hong Kong Dollar (HKD)
- Japanese Yen (JPY)
- Swiss Franc (CHF)
- New Zealand Dollar (NZD)
- Chinese Renminbi (CNY)
For currencies that fall outside of this list, you may still be able to refinance but they’re borrowing power will be restricted.
The other problem hindering a refinance is whether you’re self-employed.
Most lenders simply won’t accept self-employed expats but a select few will accept sole source contractors.
There are other restrictions that apply, particularly when it comes to off the plan properties, so it’s best to speak with a mortgage broker.
Check out the Australian expat home loan page for more information about getting approved.
Alternatively, call us on 1300 889 743 (or +61 2 9194 1700 from outside of Australia) if you’re interested in refinancing your investment loan.
You can always switch to P&I instead
If you don’t meet refinance requirements, you can still avoid high interest rates by switching from interest only to principal and interest (P&I) repayments.
Generally speaking, you won’t incur any fees by switching!
P&I loans are seen as a much lower risk and some banks have actually reduced the interest rates on these loans!
The biggest rate cuts have come for P&I owner occupied loans, which is good news for Aussies returning home to settle down or just because they’re homesick.
Expats planning to move into their investment property can switch to a much lower rate if they can show evidence that they are living in the property.
You should consider your own financial situation before making the decision to switch and speak with a mortgage broker about getting approved.
Do you have a fixed rate home loan already?
The great news is that banks can’t tinker with fixed rate loans settled prior to these rate changes so these expats are safe for now!
When your fixed rate expires, you should check your interest rate.
Why are banks increasing investment rates?
In order to make the banking sector more sustainable, the Australian Prudential Regulation Authority (APRA) (the industry regulator) forced banks to limit approvals on investment and interest only loans.
APRA’s decision was driven by a concern over possible real estate market inflation.
Facing penalties by the regulator, the banks really didn’t have any choice but to restrict investor approvals and to increase rates.
If you’re an Aussie expat looking to invest Down Under or you already own property, call us on 1300 889 743 (or +61 2 9194 1700 from outside of Australia) or fill in our online enquiry form to find out how you can get an investment loan at a great price.