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Will Australia become a Capital Exporter?; Mortgage holders have more cash than official figures recognise - money held in offset & redraw not accounted for by ABS
Topic Started: 6 Sep 2013, 08:49 AM (9,744 Views)
peter fraser
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miw
22 Sep 2013, 09:24 AM
Depends on your bank and how you make your payments doesn't it?

For P+I loans payment is almost always paid by salary directly paid into the loan, or probably more commonly by a regular transfer that you actually have to alter - in other words changing the amount you pay into the loan requires a decision and and action and staying the same merely requires inaction. Given that most people realise that in an increase in disposable seems to disappear without trace and if they need the money later most have a redraw facility, I would find it amazing if most people didn't at least delay taking the extra cash or at least only take part of it as interest rates went down.

Only a fool would spend the cash just because it was there.
Absolutely correct. Salary crediting has only been a widespread practice over the last decade.

To an earlier point - yes a bank would let you take a repayment holiday if you are ahead in repayments, and even if they didn't you could just redraw the extra repayment and put it into the account where payments were made from. A buffer is a buffer. Almost every borrower that I talk to who is looking to refinance or access equity has a reasonable buffer. In may cases quite substantial buffers.

If you read the content of posts made by renters you will constantly read that they have $100K or more saved because rental properties have a low ROI. And yet owners who bought 10 years ago are making repayments based on a house price from 10 years ago. If that was calculated as a rental ROI it too would be quite low, probably lower that the ROI on current rentals.

Renters constantly accept that they are clever enough to accumulate large deposits, but they assume that home owners don't have that intellectual capacity. David Collyer is a fool to himself and he has led a lot of people hopelessly astray.

Doesn't that strike you as very shallow and quite stupid of them? People who buy houses are not of a lower IQ as some imply in their posts. Some of the myths prevailing on bear internet sites are nothing more than sad, and hopelessly inaccurate. It is often closer to propaganda than some of the worst bullish journalism.
Edited by peter fraser, 22 Sep 2013, 09:48 AM.
Any expressed market opinion is my own and is not to be taken as financial advice
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zaph
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Lef-tee
22 Sep 2013, 09:12 AM


Then I would suggest that you are looking at an alternate real world - because that is precisely what has not been happening these past couple of years, much to the RBA's dismay.

Quote:
 
Which leads me to the question that while you and I may operate lines of credit that allow us to draw back on excess payments, such a system only appears to account for a relatively small percentage of borrowers - can you typical person on a standard variable mortgage access excess payments previously made in order to spend the money today?


Anyone with a redraw on their homeloan can withdraw excess payments to spend anyway they want. I believe most loans have a redraw facility. Peter might be able to clarify roughly what percentage.

Quote:
 
And if they are as far in advance as being argued here, does that mean the bank will allow them to stop making mortgage payments for the next 20 months if they suddenly find themselves unemployed and cut off from their income stream?


You could redraw and use that to make payments. Not sure how long it would take them to cotton on, or if the bank would care.
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stinkbug
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zaph
22 Sep 2013, 10:26 AM





You could redraw and use that to make payments. Not sure how long it would take them to cotton on, or if the bank would care.
The bank doesn't care one bit. as long as interest payments are met and period payments have enough cash to cover them, the bank doesn't give a rats dick.
---------------------------------------------------------------

While it's true that those who win never quit, and those who quit never win, those who never win and never quit are idiots.

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Sober
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peter fraser
16 Sep 2013, 09:31 AM
Yes it's very common, to the point where banks recognise that by not counting credit card limits in their servicing calculations if you can show them that the cards are cleared in full every month. They want to see the last three months statements to confirm that.

"Banks recognise", etc., etc.? Is that most banks or some banks? And does it require explicit referral to the banks' mortgage BDM to get the credit card limits ignored?

Last I recall, the majority of lender servicing calculators still included existing CC limits--whether cleared monthly or not--as a negative factor affecting maximum serviceability, and therefore restricting maximum lending limits. Have things really changed so much, across the board, in the past 12 - 18 months??

I can certainly see the case for a high-touch mortgage broker gaining client exceptions to standard servicing-calculator norms, and you, Peter, may well be able to wangle such exceptions as a matter of course.

But I still wonder how representative that experience is...?
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Trojan
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Sober
23 Sep 2013, 02:43 PM
"Banks recognise", etc., etc.? Is that most banks or some banks? And does it require explicit referral to the banks' mortgage BDM to get the credit card limits ignored?

Last I recall, the majority of lender servicing calculators still included existing CC limits--whether cleared monthly or not--as a negative factor affecting maximum serviceability, and therefore restricting maximum lending limits. Have things really changed so much, across the board, in the past 12 - 18 months??

I can certainly see the case for a high-touch mortgage broker gaining client exceptions to standard servicing-calculator norms, and you, Peter, may well be able to wangle such exceptions as a matter of course.

But I still wonder how representative that experience is...?
There has always been a simple way around this anyway if you really do pay off the balance at the end of the interest free period.

eg. I have a Visa Signature card with Citibank and I just call them up and tell them I am applying for a home loan and they straight away reduce my limit to $1000 and send me out a letter confirming my limit with them is only $1k. On the back of that, it automatically reinstates my previous credit limit in 30 days if I don't advise them otherwise.

So my credit limit on my CC has never affected my borrowing capacity.
Edited by Trojan, 23 Sep 2013, 02:55 PM.
I put trolls and time wasters on my ignore list so if I don't respond to you, you are probably on it ....
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Sober
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peter fraser
22 Sep 2013, 09:44 AM
Renters constantly accept that they are clever enough to accumulate large deposits, but they assume that home owners don't have that intellectual capacity. David Collyer is a fool to himself and he has led a lot of people hopelessly astray.

Doesn't that strike you as very shallow and quite stupid of them? People who buy houses are not of a lower IQ as some imply in their posts. Some of the myths prevailing on bear internet sites are nothing more than sad, and hopelessly inaccurate. It is often closer to propaganda than some of the worst bullish journalism.
While realising that you are reacting to earlier bear/renter fanatics on the thread, it is worth recognising that there is a vast middle ground between the pauks and the strindbergs of the world. That middle ground includes yourself, repeatedly making the "as soon as financially appropriate" case for RE ownership, vs me, suggesting that renting is cheaper until there is some geographic stability in one's housing location and physical requirements.

Put another way, the intelligent case for renting can easily co-exist with the intelligent case for buying, and there is no reason to consider either side "stupid" or "shallow", as long as their decisions rationally reflect their individual circumstances...

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miw
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Sober
23 Sep 2013, 03:03 PM
While realising that you are reacting to earlier bear/renter fanatics on the thread, it is worth recognising that there is a vast middle ground between the pauks and the strindbergs of the world. That middle ground includes yourself, repeatedly making the "as soon as financially appropriate" case for RE ownership, vs me, suggesting that renting is cheaper until there is some geographic stability in one's housing location and physical requirements.

Put another way, the intelligent case for renting can easily co-exist with the intelligent case for buying, and there is no reason to consider either side "stupid" or "shallow", as long as their decisions rationally reflect their individual circumstances...
+1. Not much point buying your own place if you think you'll just have to sell it inside 5 years.
The truth will set you free. But first, it will piss you off.
--Gloria Steinem
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peter fraser
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Sober
23 Sep 2013, 02:43 PM
peter fraser
16 Sep 2013, 09:31 AM
Yes it's very common, to the point where banks recognise that by not counting credit card limits in their servicing calculations if you can show them that the cards are cleared in full every month. They want to see the last three months statements to confirm that.

"Banks recognise", etc., etc.? Is that most banks or some banks? And does it require explicit referral to the banks' mortgage BDM to get the credit card limits ignored?

Last I recall, the majority of lender servicing calculators still included existing CC limits--whether cleared monthly or not--as a negative factor affecting maximum serviceability, and therefore restricting maximum lending limits. Have things really changed so much, across the board, in the past 12 - 18 months??

I can certainly see the case for a high-touch mortgage broker gaining client exceptions to standard servicing-calculator norms, and you, Peter, may well be able to wangle such exceptions as a matter of course.

But I still wonder how representative that experience is...?
It's always been the case that most lenders will ignore credit cards that get cleared in full every month without fail. It's not something that is restricted to a few brokers, but it is something that perhaps isn't known by all brokers.

As a rule it doesn't make any great difference, but when dealing with some high net worth clients it's not unusual to see them with several large limit credit cards, all of which are unused. It can on occasions be worth getting a lender to ignore these facilities.

The trick is though they must have the last three consecutive months accounts showing that any balance owing was cleared to the last cent. Any user who leave even small amounts uncleared must account for the full limit in the servicing calculation whether or not the full limit is used, as you appear to know.
Sober
23 Sep 2013, 03:03 PM
peter fraser
22 Sep 2013, 09:44 AM
Renters constantly accept that they are clever enough to accumulate large deposits, but they assume that home owners don't have that intellectual capacity. David Collyer is a fool to himself and he has led a lot of people hopelessly astray.

Doesn't that strike you as very shallow and quite stupid of them? People who buy houses are not of a lower IQ as some imply in their posts. Some of the myths prevailing on bear internet sites are nothing more than sad, and hopelessly inaccurate. It is often closer to propaganda than some of the worst bullish journalism.
While realising that you are reacting to earlier bear/renter fanatics on the thread, it is worth recognising that there is a vast middle ground between the pauks and the strindbergs of the world. That middle ground includes yourself, repeatedly making the "as soon as financially appropriate" case for RE ownership, vs me, suggesting that renting is cheaper until there is some geographic stability in one's housing location and physical requirements.

Put another way, the intelligent case for renting can easily co-exist with the intelligent case for buying, and there is no reason to consider either side "stupid" or "shallow", as long as their decisions rationally reflect their individual circumstances...

yes I did assume that a buyer would have geographic stability. If I was not a home owner I would certainly not buy if I didn't think that it was for the long term, and I assume that others think likewise. Churning houses is a losing game.

Edited by peter fraser, 23 Sep 2013, 06:15 PM.
Any expressed market opinion is my own and is not to be taken as financial advice
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bull
Unregistered

39 percent of new housing loans are interest only.....

http://www.apra.gov.au/adi/Publications/Documents/Quarterly-ADI-Property-Exposures-June-2013.pdf

This is because buyers now.....

1) Take out a five-year interest only mortgage with offset account
2) Instead of paying down principal, they put extra money into the offset
3) When upgrading, they withdraw from the offset and use that as the deposit for a new house
4) They negative gear the original property, using the original loan with the offset now removed

Banks must retain extra capital for these loans, but apart from admin fees there is no difference in costs the bank charges the consumer for doing this as opposed to purchasing a P&I loan and making extra payments on the principal.
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Bond
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One thing that might explain how prices can be rising without a surge in overall household debt is that the overall figure masks changes in composition.

It is worth keeping in mind that it is the natural order of things for debts to be extinguished.

Yeah I know that is obvious but it is easy to forget that if no new debt is being created the process of deleveraging or paying down of existing debt should be quite rapid. If all household debt had a maximum repayment period of 20 years the household balance sheet debt category would shrivel at a rapid rate in the absence of new loans being created.

We know that a lot of people are repaying their loans ahead of schedule so the household debts should be shrinking at an even faster rate than the maximum term of the loans would suggest.

That means that just keeping the overall level of debt stable at a very high level means that there is still a lot of new debt being created and those debts are being incurred when rates are at record lows.

Considering we are talking about house prices and they are changes at the margin it is not hard to see how prices could rise strongly even though the total level of debt is not growing.

The rapid deleveraging by some households is masking the rapid leveraging by others.

Considering how our houses economy has been built around the stimulation generated by fresh debt being spent it is clear why the RBA appear oblivious to the dangers of throwing young people under the debt bus by encouraging them to take on loans for over priced housing.
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