Fixed Rate Interest Rates VS Variable Rate Interest Rates

If you are in the market to buy a property, unless you are one of a very small minority, you will need to obtain finance to assist with the purchase.

The perennial question amongst borrowers, both new to the market and otherwise, is whether to lock in a fixed rate or to stick with your lenders standard variable rate.

There is no definitive answer to this question. The answer is predictably dependant on the borrowers own personal circumstances.

Some of us decide to fix because our circumstances dictate that the certainty of a fixed rate is necessary. For example, if your employment or income varies, a fixed rate may be more attractive as you know the minimum amount required to pay is constant. Alternatively, you may elect to have a variable rate for exactly the same reason thereby allowing you to make higher repayments than those scheduled without the penalties attached to fixed rate loans.

You should also consider whether your borrowing costs will be reduced by electing to choose fixed or variable loan.

Furthermore, if you are looking to sell in the imminent future, fixed rates may not be the way to go as the break costs for breaking a fixed rate loan could be disastrously high.

One option is to consider a split. Why not fix half of your loan and leave the rest as variable? Fixing your home loan needn’t be an all or nothing exercise. Alternatively, if sticking with a variable rate, look at an offset account which you can pour your savings into.

Historically, the long term average variable rate sits at around seven per-cent. With some super attractive fixed rate loans available, there are plenty of people currently locking these rates in.

One thing you clearly shouldn’t be doing is taking a punt on the future movements in interest rates. No one, including the so-called experts, has a 100% success rate in picking the winner come Reserve Bank Meeting day.

This correspondence is for the benefit of our clients and our friends. It is not intended to be construed as professional financial advice.   First State Conveyancing recommends that professional advice is obtained by borrowers before any action is pursued.

Interest Rates left On Hold

The Reserve Bank has today announced that it has left interest rates on hold.

The cash rate was today left unchanged at 3.25 per cent.

This surprise announcement means that today is the first Melbourne Cup day in six years that rates will remain unchanged.

BUYING A PROPERTY - FIFTEEN STEPS TO SETTLEMENT

From a purchaser’s point of view, settlement is the day that they get the keys to the property – however in reality it’s much more than this.

                Settlement is the day when you, the purchaser, instruct your First State Conveyancer to hand over the balance of the purchase monies to the vendor’s conveyancer/solicitor, and your First State Conveyancer authorises, on your instructions, the release of the deposit to the vendor.

                In return, the vendor conveyancer/solicitor hands over to your First State Conveyancer the Certificate of Title and documents transferring title to you and arranges for the keys to be released to you. If you have arranged a loan to assist you with your purchase, then your First State Conveyancer will also hand over the Certificate of Title to the lender’s solicitor as security for your loan.

                Issues can arise around settlement, so take note of the following checklist to minimize so that you are fully aware as to settlement process.

1.                      CONFIRM DETAILS

You, as the purchaser, should confirm the date, time and venue for settlement of your purchase. Normally, you would not attend settlement. On the morning of settlement, check the property to confirm that it is in the same condition that you saw it before exchange of contract. You may also take any cheques required for settlement to your First State Conveyancer, or you can arrange to deliver these the day before.

2.                      SETTLEMENT STATEMENT

You will receive a settlement statement from your First State Conveyancer just prior to settlement, showing the funds required for settlement, for your approval. Sometimes it is difficult for your First State Conveyancer to give this information as early as they would like to as they will be waiting to receive information from the vendor’s conveyancer/solicitor, who in turn could be waiting on receiving the relevant information from the seller’s lender.

3.                      COUNCIL RATES

The settlement sheet will usually show the adjustment for local council rates. Rates are adjusted between the vendor and purchaser, as at the date of settlement; usually, the rates owing to council are paid in full from the vendor’s money, and the purchaser’s share is refunded to the vendor by means of an addition to the purchase price. Your First State Conveyancer will advise the Council following settlement as to the change in ownership so all future rates and notices will be issued to you as the new owner.

4.                      WATER/SEWER CHARGES

In metropolitan Sydney (Sydney Water) and in regional areas (local council/ local water authority) relevant bodies make a charge for water and sewer availability and for water usage. The water rates usually run quarterly and, on settlement, will generally be paid to the end of the current quarter by the vendor. These charges are adjusted between the vendor and purchaser as at the settlement date. You will only pay rates and charges for the time after you complete your purchase, or after the time agreed with the vendor.  Once again, your First State Conveyancer will advise the water authority as to the change in ownership so all future rates and notices will be issued to you as the new owner.

5.                      STRATA LEVIES

Strata Levies only apply where the property is a strata property, such as an apartment or townhouse. Usually, the strata levies run quarterly and, on settlement of your purchase, will be paid to the end of the current quarterly levy period by the vendor. Prior to settlement, your First State Conveyancer will obtain an original certificate of currency of the owners corporation insurance, so that you can confirm that the building is insured. Sometimes, your lender may require evidence of the insurance being in place and will want their interest as mortgagee to be noted. Your First State Conveyancer will ensure that all of your mortgagees requirements are satisfied. Your First State Conveyancer will also advise the owners corporation or the managing agent following settlement as to the change in ownership so all future levy notices will be issued to you as the new owner.

               

6.                     REGISTRATION FEE

Where applicable, the vendor will allow you a credit at settlement for any registration fee that must be paid to the Land Titles Office for the removal of the vendor’s mortgage or other dealings from the title. Your First State Conveyancer will discuss with you any dealings that need to be removed, such as caveats.

7.                      MONEY REQUIRED FOR SETTLEMENT

If you are using your own funds for the purchase of your property, then you will have to arrange for a bank cheque (not personal cheques) for settlement. This will normally be deposited into the First State Conveyancing Trust Account. Your First State Conveyancer will then draw cheques according to the vendors direction. Alternatively, you may have cleared funds in an account from which your lender can, and has prior authority to, draw them from. If you have arranged a loan, your First State Conveyancer will usually arrange for your lender to deliver the cheques available from the proceeds of the loan to settlement

8.                      DIRECTION TO PAY

                The vendor can determine how the balance of the purchase price must be paid on settlement, and this is normally done by directions for payment. For example, the vendor can ask you to provide cheques to pay the rates owing, to pay legal bills, to pay off a mortgage – but the money comes from the vendor’s sale proceeds, not out of your pocket.

9.                      FIRST STATE CONVEYANCING FEES

You will generally be advised prior to settlement of your First State Conveyancing account and this will be paid at settlement.  As First State Conveyancing is a flat fee conveyancing service, there will be no additional professional fees or disbursements incurred, as a result of   additional legal services required by settlement.

10.                  KEYS

The keys may be collected from the agent immediately after settlement. We recommend that you consider changing locks after settlement.

11.                  REGISTRATION

If you have a loan, then following settlement your lender/mortgagee will register the transfer and mortgage at the Land Titles Office. The mortgagee will retain the Certificate of Title as part of the security for the loan. Alternatively, your First State Conveyancer will arrange registration of your title following settlement and will forward you a copy of the title once registered. Your title will be held in the First State Conveyancing safe and is available for collection with twenty-four (24) hours notice.

               

12.                  ELECTRICITY AND OTHER SERVICE

                It is up to you to arrange for electricity meter readings and the connection of other services by suppliers on the settlement date.

13.                  FINAL INSPECTION

                You should inspect the property just before settlement to ensure all is in order. The     property should be in the same condition as at the date of settlement, as it was when you saw it prior to exchange of contracts, fair wear and tear expected. We advise you to take photographs and date them. If there are any issues that you wish to raise, do so with sufficient time so that they may be resolved before settlement. If relevant, you should ensure that any vendor or tenant has vacated the property.

14.                  CHANGE IN OWNERSHIP

The Land Titles Office, will notify Council, the Valuer General (and Water) of the change in ownership, based on a form that is lodged by your First State Conveyancer or your lender’s solicitor after settlement.

15.                  INSURANCE

Perhaps your most important responsibility in the lead up to settlement is to adequately insure the property.

If purchasing a house, you should arrange for a policy of building insurance to commence at the earlier of:-

·         the settlement date; or

·         the date that you take possession of the property.

You should also consider the following insurances, depending on your circumstances:-

·         contents insurance if you keep contents in the property;

·         landlord’s insurance if you lease the property;

·         Public Liability Insurance.

In the event that you are unsure as to what insurances you need to obtain, you should speak with an insurance broker.