Should I fix my home loan?

There has been a lot of commentary lately about Home Loan rates being as low as 2.99% and with the Reserve Bank to soon meet again, there may be more reductions on the way.

Many Mortgage Owners are contemplating ‘fixing’ their loan rates, so it’s important to understand the differences between fixed and variable home loans:

What is a fixed rate home loan?

A fixed interest rate home loan is a loan with the option to lock in (or ‘fix’) your interest rate for a set period (usually between one and five years). One of the main advantages of this is cash-flow certainty. By knowing exactly what your repayments will be, you’ll be able to plan ahead and budget for the future. This factor often makes fixed rate home loans very popular for investors over the first 2-3 years they own a property.

A fixed rate loan may be a good option in a rising loan market as any interest rate rises won’t affect the amount of interest you are required to pay. However, if interest rates drop, you might be paying more than someone who has a variable rate home loan.

It’s important to note there may be a number of restrictions associated with fixed rate loans. Often additional repayments are not permitted with fixed-rate loans (or you may be charged a fee). As there is a restriction on extra repayments, the ability to redraw is also frequently not offered on a fixed rate loans, effectively reducing the flexibility of the loan.

What is a variable rate home loan?

A variable rate home loan is a loan where your interest rate will move (or ‘vary’) with changes to the market. This means your interest rate can rise or fall over the term of your loan. Variable home loans may have appealing features like the ability to make extra repayments, often at no extra cost to help you pay down your loan sooner, saving you interest. Variable rate loans may also include unlimited redraws, allowing you ‘draw’ back any extra repayments you have made.

Variable rate loans are more uncertain than fixed interest loans. This can make budgeting for your interest payments more difficult as you need to take into account potential rate rises. If you aren’t prepared, you could have trouble keeping up with repayments.

It is common practice for the banks to not pass on rate cuts to existing and established customers and with interest rates being at record lows and the possibility of further reductions, it is a good time to consider what you should do with your current loan. If it has been 2 years or more since you have had your loan reviewed, then now is the perfect time to call our Mortgage Broker – Warren Richards on ph: 9851 0300 to arrange an appointment.

Record losses expected as scammers target Australians

Australians are set to lose a record amount to scams in 2019, with projections from losses reported to Scamwatch and other government agencies so far expected to exceed $532 million by the end of the year, surpassing half a billion dollars for the first time. “Many people are confident they would never fall for a scam but often it’s this sense of confidence that scammers target,” ACCC Deputy Chair Delia Rickard said. “People need to update their idea of what a scam is so that we are less vulnerable. Scammers are professional businesses dedicated to ripping us off. They have call centres with convincing scripts, staff training programs, and corporate performance indicators their ‘employees’ need to meet.”

Investment scams are one of the most sophisticated and convincing scams and continue to have the highest losses. Nearly half of all investment scams reported this year resulted in a financial loss. These scams are prominent on social media, with ‘Facebook lottery’ scams, the ‘Loom’ pyramid scheme, and cryptocurrency scams particularly common.

Cryptocurrency investment scams have seen record losses, with reports to the ACCC alone of $14.76 million between January and July 2019. Many use social media platforms, fake celebrity endorsements or fake online trading platforms that are made to look legitimate.

Common types of investment scams

Investment cold calls:

A scammer claiming to be a stock broker or portfolio manager calls you and offers financial or investments advice. They will claim what they are offering is low-risk and will provide you with quick and high returns, or encourage you to invest in overseas companies. The scammer’s offer will sound legitimate and they may have resources to back up their claims.  They will be persistent, and may keep calling you back. The scammer may claim that they do not need an Australian Financial Services licence, or that that they are approved by a real government regulator or affiliated with a genuine company.

The investments offered in these type of cold calls are usually share, mortgage, or real estate high-return schemes, options trading or foreign currency trading. The scammer is operating from overseas, and will not have an Australian Financial Services licence.

Share promotions and hot tips:

The scammer encourages you to buy shares in a company that they predict is about to increase in value. You may be contacted by email or the message will be posted in a forum. The message will seem like an inside tip and stress that you need to act quickly. The scammer is trying to boost the price of stock so they can sell shares they have already bought, and make a huge profit. The share value will then go down dramatically.

If you invest you will be left with large losses or shares that are virtually worthless.

Investment seminars:

Investment seminars are promoted by promising motivational speakers, investment experts, or self-made millionaires who will give you expert advice on investing.  They are designed to convince you into following high risk investment strategies such as borrowing large sums of money to buy property, or investments that involve lending money on a no security basis or other risky terms.

Promoters make money by charging you an attendance fee, selling overpriced reports or books, and by selling investments and property without letting you get independent advice. The investments on offer are generally overvalued and you may end up having to pay fees and commissions that the promoters did not tell you about. High pressure sales tactics or false and misleading claims are often used to pressure you into investing, such as guaranteed rent or discounts for buying off the plan. If you invest there is a high chance you will lose money.

Visit ASIC’s MoneySmart for more information about investment seminar scams.

What can you do:

Protect yourself:

  • Do not give your details to an unsolicited caller or reply to emails offering financial advice or investment opportunities – just hang up or delete the email.
  • Be suspicious of investment opportunities that promise a high return with little or no risk.
  • Check if a financial advisor is registered via the ASIC website. Any business or person that offers or advises you about financial products must be an Australian Financial Services (AFS) licence holder.
  • Check ASIC’s list of companies you should not deal with. If the company that called you is on the list – do not deal with them.
  • Do not let anyone pressure you into making decisions about your money or investments and never commit to any investment at a seminar – always get independent legal or financial advice.
  • Do not respond to emails from strangers offering predictions on shares, investment tips, or investment advice.
  • If you feel an offer to buy shares might be legitimate, always check the company’s listing on the stock exchange for its current value and recent shares performance. Some offers to buy your shares may be well below market value.
  • Never commit to any investment at a seminar – always take time to consider the opportunity and seek independent financial advice.
  • If you are under 55, watch out for offers promoting easy access to your preserved superannuation benefits. If you illegally access your super early, you may face penalties under taxation law.

Have you been scammed?

If you think you have provided your account details to a scammer, contact your bank or financial institution immediately. We encourage you to report scams to the ACCC via the report a scam page. This helps us to warn people about current scams, monitor trends and disrupt scams where possible. Please include details of the scam contact you received, for example, email or screenshot.

Scams that relate to financial services can also be reported to ASIC.

We also provide guidance on protecting yourself from scams and where to get help.

RBA Board delivers expected 25bp cut and remains dovish-Bell Potter update (01/10/2019)

  • The rate cut was made on the basis of two considerations, domestic spare capacity and the trend lower in global interest rates.First, and foremost the decision to cut was made to support employment and income growth. Since the September Board meeting the Q2 National Accounts data showed further weak growth in household income. This is something we previously highlighted as a key issue for household consumption growth, which that RBA still describes as “the main domestic uncertainty…with the sustained period of only modest increases in household domestic income continuing to weigh on consumer spending”. With respect to supporting employment growth, the policy statement introduced the new less optimistic sentence of “forward-looking indicators of labour demand indicate that employment growth is likely to slow from its recent fast rate”. We expect yearly employment growth to slow from 2.5% to around 2¼% over the next six months. The second reason for the cut was the trend lowering in global policy interest rates. The RBA Board decided it could not ignore this influence citing “the effects this trend is having on the Australian economy and inflation outcomes”.
  • The Board is prepared to further reduce interest rates.Repeated from the September policy statement was the phrase “the Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed”. Most of the remaining October statement was largely a repeat of the September statement. In our opinion, the RBA therefore remains mildly dovish with respect to the prospect of future easings. That the Governor didn’t release a more dovish statement probably reflects some ongoing reluctance to cut. Governor Lowe has previously warned that rate cuts risk being capitalised into asset prices rather than supporting trend growth. Nevertheless, with no support from fiscal policy and the RBA likely to face another bruising encounter at the next semi-annual parliamentary committee if it did not attempt to address the slowing economy and widening in labour market spare capacity, the Board had little choice but to remain open to further policy easing. But with the policy statement remaining only mildly dovish, we will keep our existing forecast for the next 25bp easing to occur in February 2020. If it had been more aggressive we would have brought it forward to Q4 this year.
  • The policy statement did not reference any Board discussion on unconventional policy measures.For us, this suggests that the RBA believes it can lower rates further before it needs to potentially consider such measures. If needed, the focus is likely to be on unconventional measures that ensure an even lower risk-free rate. The RBA said in response to questions from the last parliamentary testimony that “this would involve taking the cash rate to a very low level and possibly purchasing government securities to lower the risk-free rate further out along the term spectrum”. We also support a BoE style targeted lending scheme to help pass-through further cash rate cuts through the banking system as the cash rate approaches the lower effective bound.
Disclosures

Appendix A-1

ANALYST CERTIFICATION

The research analysts primarily responsible for the preparation and content of this research report are either (i) designated by “AC” in the author block or (ii) listed in bold alongside content which is attributable to that analyst. If multiple AC analysts are designated in the author block, each analyst is certifying with respect to the entire research report other than (a) content attributable to another AC certifying analyst listed in bold alongside the content and (b) views expressed solely with respect to a specific issuer which are attributable to another AC certifying analyst identified in the price charts or rating history tables for that issuer shown below. Each of these analysts certify, with respect to the sections of the report for which they are responsible: (1) that the views expressed therein accurately reflect their personal views about each issuer and security referenced and were prepared in an independent manner, including with respect to Citigroup Global Markets Inc. and its affiliates; and (2) no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed by that research analyst in this report.

IMPORTANT DISCLOSURES

Within the past 12 months, Citigroup Global Markets Inc. or its affiliates has acted as manager or co-manager of an offering of securities of Australia.

Citigroup Global Markets Inc. or its affiliates has received compensation for investment banking services provided within the past 12 months from Australia.

Citigroup Global Markets Inc. or an affiliate received compensation for products and services other than investment banking services from Australia in the past 12 months.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as investment banking client(s): Australia.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, securities-related: Australia.

Citigroup Global Markets Inc. currently has, or had within the past 12 months, the following as clients, and the services provided were non-investment-banking, non-securities-related: Australia.

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Citigroup Global Markets Australia Pty LimitedJosh Williamson

OTHER DISCLOSURES

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The proportion of all Citi Research research recommendations that were the equivalent to “Buy”,”Hold”,”Sell” at the end of each quarter over the prior 12 months (with the % of these that had received investment firm services from Citi in the prior 12 months shown in brackets) is as follows: Q2 2019 Buy 33% (72%), Hold 43% (64%), Sell 23% (56%), RV 0.6% (88%); Q1 2019 Buy 33% (70%), Hold 43% (64%), Sell 23% (57%), RV 0.8% (85%); Q4 2018 Buy 33% (69%), Hold 43% (62%), Sell 23% (59%), RV 0.6% (100%); Q3 2018 Buy 33% (69%), Hold 43% (64%), Sell 23% (58%), RV 0.6% (99%). For the purposes of disclosing recommendations other than for equity or high yield recommendations (whose definitions can be found in their corresponding disclosure sections), “Buy” means a positive directional trade idea; “Sell” means a negative directional trade idea; and “Relative Value” means any trade idea which does not have a clear direction to the investment strategy.

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