Why it's time to renegotiate your home loan + 3 top tips to avoid bogus financial advice

Happy Friday everyone,

What a difference a week makes on the sharemarket. From a record-breaking streak to some pretty solid falls on the back of disappointing profit updates from those US superstar tech companies.

My coverage in last week’s newsletter on strategies to adopt was pretty timely. Keep it as a reference as it becomes clearer over the next few weeks whether this is just a short-term stumble on sharemarkets, or the end of the winning streak.

Pretty quiet when it comes to economic news this week. But that is all about to change with the critical June quarter CPI figure out next Wednesday, which will be pivotal for any interest rate decision from the Reserve Bank board meeting. This will be held on the following Monday and Tuesday.

In today’s newsletter:

• Renegotiate your home loan on the back of the increase in property prices.

• Get better bang from your rental buck through more bedrooms.

• Buying an investment-grade Olympic gold medal.

• Beware of where and from whom you get financial advice. 

As property values go up, your home loan interest rate should come down

Homeowners need to start taking advantage of the increase in their property’s value by negotiating a better home loan interest rate with their lender.

The general rule of thumb is that the more equity you have in your property, the better the interest rate you’ll get from a lender. Financiers believe the higher the equity you have in your property, the lower the risk you will default on the loan, so the better the interest you receive.

Over the last few years many people who took out a loan based on a small level of equity in the property would now have a much larger stake given Australia’s property boom. And that could mean a better interest rate.

Lenders base your home loan rate on your ‘Loan to Valuation Ratio’, that is the size of the loan against the value of the property. An analysis by Compare the Market found that rates for borrowers with a LVR of 50-60 per cent could be up to 0.40 per cent less than some of the top rates on offer for borrowers with an LVR of 80-90 per cent. 

For a property valued at $500,000, that could be a difference of $1,015 on a borrower’s monthly repayments. That is a massive saving.

The national median house value was 32 per cent higher in May 2024 compared to May 2019, according to figures from CoreLogic, meaning a large number of Australian property owners could be sitting on untapped equity. 

Property owners who have not refinanced during the past few years could be missing out and need to act now.

If you have been paying off your mortgage for quite some time, it’s also likely that the value of your property has increased. People with a lower LVR are often entitled to lower interest rates because their loans are seen as less risky. This is their trump card.

Since the rates tightening cycle began in May 2022, a borrower with an average loan size of $626,000 is potentially paying $1,619 more each month. 

Just because your LVR has decreased, doesn’t necessarily mean the bank will automatically drop your rate. You’ll likely have to do the heavy lifting to get that discount. 

If you’ve recently undergone renovations or believe your property value has increased, you may have to ask the bank for an evaluation so they can determine whether you will qualify for a lower rate.

But even if your LVR hasn’t improved, you’ve got to make sure you’re on a competitive rate and not paying more than you need to be. 

It doesn’t always pay to be loyal when there’s a 0.45 per cent difference in home loan rates, which can add up to be tens of thousands of dollars more over the life of the loan.

More bedrooms add more bang to your rental buck

As the rental crisis continues, it seems tenants are shifting towards larger properties with more bedrooms so the cost can be shared across more people.

CoreLogic has produced a fascinating study which shows growth in rents is slower for properties with fewer bedrooms than more. CoreLogic believes the reason could be the slight slowdown in overseas migration slowing demand for smaller, inner-city units.

CoreLogic’s new bedroom count metric (which analyses housing market performance segmented by the number of bedrooms) shows for houses, rents increased 8.4 per cent nationally in the year to June, and this ranged from a 7.6 per cent rise in houses with up to two bedrooms, to 8.7 per cent in larger houses with five bedrooms or more.

In home units and townhouses, there has been an even bigger slowdown in the rent growth of smaller dwellings. Annual growth in one-bedroom units and studios slowed from a peak of 16.8 per cent in the year to April 2023, to 7.1 per cent in the past 12 months. This was the weakest annual growth of unit rents by bedroom count in the period. 

Similarly, two-bedroom units have seen a slowdown in annual rent growth from 15.4 per cent  to 7.9 per cent in the past 12 months. Despite the slowdown, two-bedroom units maintained the highest rent growth on a national level.

Interestingly, larger rental properties are showing more resilient rent growth, despite being more expensive. Large rental properties may actually be more feasible for renters in share situations, including households where different generations have moved back in together to share costs.

The higher the bedroom count in a property, the lower the average rent per bedroom (ie. total rent divided by number of bedrooms).

Despite larger houses seeing higher rent growth on a national scale, this is a trend largely led by NSW and Queensland, with Melbourne also showing higher growth in house rents with five or more bedrooms. In most capital cities, two-bedroom units have sustained the highest increases in rent over the year.

Cities where larger house rents are underperforming, such as Perth and Adelaide, are likely to eventually see a similar shift to higher demand for larger dwellings that can be occupied by shared households.

Going for your own Olympic gold

As we cheer on our Olympic team in Paris how about this ... your own Olympic Gold medal?

A massive, solid gold, $3,000 coin produced by the Royal Australian Mint in 2016 to celebrate Australia's Rio Olympics team will be sold at auction by Noble Numismatics at the NSW State Library next Tuesday.

The one kilo coin, with a 9999 purity, is one of only five minted and will sell for more than $100,000. The current price for a kilo of pure gold is around $118,000. So you can own a piece of Olympic history, and maybe earn an 18 per cent return immediately.

The auction also features a matching one kilo $30 silver Olympic coin. One of only 30 minted and now valued at $1,500

Be careful where you get money advice from

I have always said that good advice is your best investment. There is plenty of advice out there, but the question is whether it’s “good”?

It’s one of the reasons I write this newsletter every week, to give you a round-up of what I think you need to know about finance from the experts who I think are good. I’ve been writing about personal finance and quizzing investment experts ever since I worked as a journalist on BRW magazine and started Personal Investment magazine back in the 1980s.

Today, you can't believe everything you read on the internet (or scroll past on TikTok) but that’s where 29 per cent of adult Australians are learning about finance.

Gen Z are the most app-happy generation, with 22 per cent using the internet and 28 per cent using social media platforms like TikTok, YouTube, Facebook and Instagram to learn about money.

According to the survey by Compare The Market, the majority of Australians (32 per cent) learnt their most useful financial knowledge from their parents or family. Bear that in mind when you’re talking about money in front of your children.

Meanwhile, 11 per cent sought out a professional financial advisor, accountant or banker for their financial knowledge. This was followed by less than 10 per cent who got their most useful financial knowledge from work, books, school and Reddit. 

In 2022, the Australian Securities and Investment Commission (ASIC) cracked down on social media influencers, warning they could face imprisonment and $1 million fines it they don’t obtain a financial services licence or quit promoting shares and investment funds online. 

Since then, the corporate watchdog has issued several warnings about unlicenced financial advice. So, err on the side of caution.

Don’t take everything at face value and make sure you fact check any advice you see online. To avoid falling into a money trap, do a bit of desktop research to ensure what you’re seeing is credible.

For every helpful tip there could be hundreds of bad ones leading you down the garden path. I know that far too many Australians have missed out on a financial education at school and for them the internet is an easy way to access information.

Unfortunately, many of us don’t know how to distinguish between bogus and brilliant advice, especially on a topic we may be unfamiliar with - and there is plenty of unreliable information available that can easily lead you astray.

3 top tips to avoid bogus financial advice:

1. Don’t use a broad-brush approach.

There is no one-size-fits-all approach to managing finances, so be cautious about using tactics promoted online. What’s worked for one person might not work for you. It’s vital you take your own specific needs and circumstances into account. 

2. Seek independent financial advice.

By going with an independent provider, you are more likely to receive unbiased advice that is based on your individual needs. Keep in mind that anyone giving personal financial advice in a professional manner must be licenced, so it’s a good idea to vet this before proceeding.

3. Beware of scams and schemes.

In the digital age, scams have become harder than ever to spot. Always be wary of an entity that asks for your personal details, without first proving themselves to be who they say they are. And when it comes to schemes - if the offer sounds too good to be true, it probably is!