Barefoot-Approved Home Loans?

Hi Scott
 
I was scrolling Instagram the other day and I came across a group called Unbiased Mortgage Brokers who have “Recommended by the Barefoot Investor” at the top of their page. Before I book an appointment, I just thought I’d check that you do actually recommend this home loan provider.
 
Jerry
 
Hey Jerry
 
Thanks for checking!
 
I’ve never heard of them. However, I am very happy to give you a recommendation: stay away from Unbiased Mortgage Brokers, and anyone else (other than financial counsellors from the National Debt Helpline) claiming that I recommend them.

Scott.

How to Earn $6,000 in One Hour

Hey Scott,
 
My wife and I are fiercely trying to pay down our home loan. After trying to negotiate down our rate with our lender last year, we decided it was time to switch to what was, at the time, the best variable rate we could find. Fast-forward a year and there are far better rates ‘out there’, with many lenders offering enticing cash bribes. So my question is: what’s stopping me from refinancing regularly … even yearly? Is there a chance lenders might start rejecting my applications, leaving me in no-man’s land?
 
Tim
 
Hi Tim,

No, I don’t see that happening.
 
I had a Barefooter write to me about what happened when he threatened to leave his bank for a cheaper rate, and the bank called his bluff.
 
Here’s what happened next, in his own words:
 
“ANZ were offering new customers a $4,000 sign-on bonus (and a slightly better rate), so we switched. But then, a few weeks later, I saw that my original bank was offering $3,000 for new customers. Bang! Before you know it, I’m back with my original bank. For about 1–2 hours of paperwork and a few phone calls and emails, we were able to pay $6,000 off our home loan (after fees!).”
 
Nice one!
 
Last month the CEO of ANZ Bank said that the home loan market was the most competitive he’d ever seen, and some banking analysts are suggesting that the discounts and incentives new customers are getting offered at the moment are irrational.
 
Understand this: the banks aren’t flashing the cash to their loyal customers … only those who bother to switch. So the only irrational thing you can do is not spend a few minutes putting your bank under the hammer this weekend.

Scott.

The Seven Stages of Grief

Hi Scott,

My fiancé and I purchased our house in December 2021 and had a fixed rate for two years at 2.59%.

With the constant increase in rates, he says our repayments will revert to around $5,000 a month come December, and I am freaking out! He earns $115,000 a year (pre-tax, less his child support!). I earn zero. What do we do? Should we sell our house and hold on to our money until rates come back down and try again? This is so overwhelming and confusing.
 
Natalie
 
Hi Natalie,
 
My calculator just broke: you’ll be paying 70 PER CENT of your take-home on your home loan?!
 
Cracker Jack!
 
So it sounds like you’re in a state of shock …    
 
Excellent!
 
That’s the first step. Now we need you to move through the other stages of grief, and pronto.
 
The next step is denial.
 
Here’s you: “Maybe everything will sort out … and rates will come down … and we’ll be okay?”
 
Here’s me: “No you won’t. Even if rates come down slightly, you’ll be shooting in a paper bag with only 30% of your take-home left over.”
 
Let’s move on to anger.
 
Here’s you: “It’s the bloody bank’s fault for lending us so much!”
 
Here’s me: “That’s it, let it all out! Do you feel better? Good. Still, it won’t change your situation one iota.”
 
Next, let’s move on to regret.
 
Here’s you: “Why did I borrow so much money?”
 
Here’s me: “Woulda, coulda, shoulda … but you did … and here we are.”
 
And now, to depression:
 
Here’s you: “It’s hopeless … there’s no way out.”
 
Here’s me: “This is where most people who are in severe debt end up: feeling defeated and depressed. That causes them to stop talking to their lender, and the situation gets worse.”
 
Natalie, I know it’s hard but you need to break through to the final stage of grief – acceptance and hope:
 
You may need to accept the harsh truth that you can’t afford your home based on your current income. So, unless the two of you can bring in substantially more, it’s likely you’re going to have to sell your home.
 
And what about the hope?
 
Well, the hope is that you take control of your situation early, rather than letting things happen to you.
 
So please call 1800 007 007 and team up with a financial counsellor, and take control today.
 
Scott.

How to Get a 30-Year Home Loan Fixed at 2%

Hi Scott,
 
I’m an Australian expat living in the United States. In the US the vast majority of people have either 15-year or 30-year fixed-interest-rate mortgages, with most of these loans having very few restrictions or prepayment penalties. Prior to the recent Federal Reserve interest rate rises, you could lock in a mortgage for 2% to 3% per annum for the entire loan term (and if rates dropped, you could also refinance and get a lower rate!). It isn’t clear to me why the Australian banks can’t offer these products. Maybe all this is not the fault of the RBA (they’re just trying to do their job of managing inflation) but of the Australian banks!
 
Matt
 
Hi Matt

Yes, our banks could offer 30-year fixed-rate home loans if they really wanted to … just like I could choose to mow my paddocks with a Victa push mower if I really wanted to.
 
In reality, what works for the banks is selling simple variable rates that track the RBA cash rate. And that explains why the majority of borrowers choose a variable rate: it’s generally the cheapest deal on offer.
 
Conversely, the banks make the act of fixing your rate much more complicated and expensive. In most cases, the longer you fix your rate for, the higher the rate you pay. And you can only fix for a relatively short time (less than five years), and then you’re dumped back onto a variable rate.
 
Now the reason the Yanks can offer 30-year fixed rates, with no penalties, is that the US Government basically set it up that way by guaranteeing the loans, which the Australian Government hasn’t done.
 
Having our Government create something similar would lessen the impact of these bulldozer rate rises from the RBA and give borrowers more flexibility and security. However, it would be a huge undertaking. 
 
So the real question is whether any of our politicians could be bothered bending over, cranking the Victa, and pushing things forward.

Scott.

Dr Seuss Gives Financial Advice

G’day Scott,

I’ve been seeing so many ads on Facebook from people spruiking ways to pay off your mortgage in 7 to 10 years. Is there some secret I’m not aware of? We are a young family with two boys and are worried about our repayments when our fixed interest rate ends. It’s been a challenge to save the last year with prices going up and some health challenges on my part. One of our cars has just died too, so we are pretty stressed. Should we take action?

Tenille

Hi Tenille

Last Saturday morning I was with my kids in the Lego store in Melbourne when I got a text from a friend: “Someone is impersonating you on Facebook and running a scam to fleece your readers!”

Alarmed, I immediately called my assistant, and she was like: “Yeah, that happens all the time, it’s like whack-a-mole, Scott.”

Now the ads you’re looking at aren’t a blatant scam, but they may as well be.

Here’s their pitch, which is as old and smelly as my trusty Gray-Nicolls cricket box:

“So you want to get out of debt, right? Well, if you borrow a heap of money (through me) and buy some Gold Coast apartment (also through me, which I get a $50,000 kickback on), then when it (cough, cough) doubles in value, you’ll be able to pay off your home loan in just 7 to 10 years!”

It’s like a freaking Dr Seuss book.

“To get out of debt you’ve got to get into more debt. Debt, Debt, Debt!”

Tenille, focus on the two things that will really move the dial: getting a lower rate, and making extra repayments. Oh, and delete Facebook.

Scott.

The Reality of the Budget

Help!

I really need advice. I’m a single mum of three (14, 12 and three years old). I bought a townhouse when rates were low, and locked in a fixed rate at 1.9%. It was already tight with my budget. But now that rates are rising, I simply won’t be able to afford the mortgage when the fixed rate period ends. So do I sell now and cut my losses? Or do I hold until I am completely broke and wait for the market to recover? I reckon I have three months (six months tops). I feel like I’m gambling with all that I have.

Desperate single mum

Hi desperate single mum,

There are people reading your question thinking “why would a low income earner do this? Surely you knew that rates were going to rise?”

Well, you could ask the exact same thing of our politicians, who have created schemes that incentivise people to get into this sort of situation.

Case in point: in this week’s budget the Treasurer was crowing about their ‘Help to Buy’ program, which allows low-income earners and single parents like you to buy a home with just a 2% deposit.

Now I’m not a gambler, and as a single mother you shouldn’t be either.

Keeping a roof over your kids’ heads is your first, second, and third priority. And it doesn’t matter if it’s rented or owned – just that you have one.

So it sounds like you’re going to have to make some tough decisions, which are best discussed with a financial counsellor (see the number above).

Scott.

Tarzan Feeds Six People

Hi Scott,

My 58-year-old husband is the sole breadwinner, and we have six adults at home. We have a beautiful new house built on the site of our old home and a mortgage of about $350,000, which is currently interest only and consequently never seems to reduce. Given that everyone has started running around like headless chooks yelling “inflation!”, and my hubby’s super has plummeted again, should he stop putting the extra $750 a month into super and instead put an extra $500–$600 onto the mortgage? Obviously – God willing and no World War Three – the funds will pick up again, but we would really like to own our home fully while he’s still able to work. It seems like a reasonable strategy to us, but we’d really appreciate your advice.

Jane

Hi Jane,

There’s a lot to unpack here.

First, if you’ve elected to pay interest only on your home loan, you’re not actually paying off the principal, only the interest. If you want to pay down the debt, you’ll need to reconfigure your loan.

Now let’s talk about the monkey in the jungle:

Jane, you said there are six adults living in your house, and just one Tarzan providing for them all?

Talk about swinging from the branches! I’d suggest you hold a meeting around the campfire and get everyone to start pitching in to help pay down that debt.

Scott.

Bullying the Banks

Hi Scott,

With more equity in the house this year, I built up the courage to contact our bank, CBA, and request a better deal. With little hassle they dropped their rate by 0.15%. I mentioned a much more appealing rate at a rival with a $4,000 cashback offer, yet the best they could do was a further 0.02%.

So we started the refinancing route. After we’d filled out a multitude of forms through a broker, our friends from the CBA were in contact asking why we wanted to discharge our loan. I politely indicated we made them aware of this before deciding to pursue the better offer. The CBA has now offered to reduce our rate below the rival rate and thrown in $2,000 in cash to reward us for being a loyal customer. Thank you for everything you do!

John and Suzie

Hey guys,

Oh, I love, love, love this. You bullied the banks!

And it doesn’t stop there. Putting that $2,000 against your loan is going to have a compounding effect over the years, slashing the time it takes you to become debt-free.

Having said that, I’d be tempted to take at least a few hundred bucks and have a fancy-pants dinner. You deserve it!

Scott.

Your biggest financial worry right now

My long-suffering editor, Wally, loves to joke that you can tell the financial pulse of the nation from a glimpse at my inbox. After all … thousands of people of all ages, from all across the country, write to me about what’s stressing them out.

So, after doing this for almost two decades, I can tell you exactly what worries Australians the most:

Whatever the media is banging on about at that moment.

It’s true. Right now the ‘threat’ of rising interest rates is at fever pitch. It’s been spurred on by some experts predicting that interest rates will hit 3.5% by next year. To put that in context … that would be thirteen additional hikes in almost as many months.

Personally, I find that hard to believe.

However, the surging inflation that is happening around the world will require much higher interest rates going forward … yet I have no idea how high they will go, or when.

My main point is that higher interest rates were entirely predictable — heck, I’ve been talking about them for years! In January 1990 the cash rate was 17.5%, and they limboed it all the way down to 0.1%.

Where did we think they’d go next?!

Now I am not saying that interest rates will get back to 17.5%.

Yet the one takeout from the last few years is that the world is a risky and unpredictable place. Weird stuff happens when you least expect it. Bad stuff happens if you haven’t prepared for it.

So what can you do?

Well, if you’ve been following the Barefoot Steps, the answer is: you’re already doing it! You’re aggressively paying down debt, building up a cash buffer, and investing long term into shares via your low-cost, tax-effective super fund.
In other words, focus on what you can control. More Date Nights, less TV news.

Tread Your Own Path!

Barefoot Blows Renters an Air Kiss

Hi Scott,

I’ve read your newsletters religiously over the past few years (and generally loved them), but this is the first time I’ve been compelled to write back. I am frustrated with your take on OwnHome last week — not because what you said is untrue but because you basically did not offer an alternative option to people in this sad situation. You started off your piece talking about how people trying to save a deposit are going backwards due to how much house prices are going up (so far I was nodding in violent agreement as I was reading), but then you ended the piece by telling them to basically keep doing that same thing!

Peter

Hi Peter,

Fair point.

That being said, I don’t offer magic wands, and I tell it like I see it.

Still, it feels a little like getting angry at your personal trainer when she pooh-poohs your idea of getting lipo to lose your belly. You need to do some crunches, tubby!

That’s also why I’m wary of any company – or any government policy – that ‘helps’ people to sidestep saving up much of a deposit. Given the sums people are having to borrow in a rising interest rate environment, I think it’s irresponsible.

Look, it’s not a sexy position, but I believe that spending a few years saving prepares you for the tough times that will come. And when they do, you’ll need some (firm) skin in the game.

Scott.

Stuck in Reverse

Hi Scott,

My daughters swear by your advice and said I should run our problem past you. My husband and I are in our eighties and have had a reverse mortgage for 12 years, without paying anything back. We are getting worried that the longer we live, the less our three kids and their families will end up with when we are gone. I rang the bank and asked if they could lower the interest rate but the answer was “no”. Do you have any suggestions?

Launa and Reg

Hi Launa and Reg,

Reverse mortgages are the financial equivalent of a rottweiler dressed up as labrador:

Essentially the bank gives you a lump of dough, and you don’t have to pay anything back.*

(*But the bank charges fees, plus an interest rate that is generally higher than a home loan.)

Nice doggie!

The bite comes years down the track when people find that the bank owns much more of their home than they thought possible; they’ve experienced compound interest in reverse.

Because of this, reverse mortgages taken out from 18th September 2012 have had to include a ‘negative equity protection’ so you can’t end up owing the bank more than your home is worth. However, you may have missed out on this important safeguard.

The fact is that a reverse mortgage is a very complex dog, and one that was pushed on a lot of retirees without a lot of explanation. So, I’d like you to ring 1800 007 007 and speak to a not-for-profit financial counsellor who will be able to read through your contract and see if there are grounds to push back and negotiate with your lender.

Scott.

Fixed or Variable?

Hi Scott,

I am wondering, given current home loan interest rates, whether you still recommend a variable home loan with no frills and extras. Fixed-term home loan now rates are as low as 1.9%, so they are very tempting!

Erin

Hi Erin,

Yes, they’re low right now.

However, the banks have begun hiking their fixed term rates, especially their four- and five-year fixed-term loans.

Why?

Well, I guess they’re picking up what the Reserve Bank is putting down: money may be dirt cheap now, but with the economy on steroids it’s unlikely to be in four or five years’ time.

So should you snap up a fixed-term rate?

Well, it’s a personal choice but, if you do, read the fine print: they’re generally not as flexible as variable loans and it may restrict how much you can repay. For most homeowners, getting the lowest variable home loan rate you can find, and paying it off as quickly as you can, still makes sense.

Scott.

Mortgage Wars

Hi Scott

I just had to email you to say thank you and that I love your book. I have just rung my bank and followed your script, and was able to get a 0.49% discount on my home loan. I am a single mum and have been so stressed, having recently lost my job. This little win has given me a boost and I just needed to let you know I appreciate your advice.

Linda

Hi Linda,

Sorry to hear about your job, but congrats for making the call!

And for any mortgage payers reading this, you need to follow Linda’s lead. Today.

Here’s why:

Earlier this month the Reserve Bank of Australia cut the cash rate to a new record low of 0.1%.

Even better, the RBA said rates are going to stay low … for at least the next three years.

You know what that tells me?

It tells me just how big a hole the economy is in, and how tough they expect the next few years will be.

Yet that’s a bit of a downer, so let’s focus on the upside.

It’s like the RBA has got the tequila out and is wearing one of those ridiculously oversized hats.

They’re telling us it’s time to part-ay … and hit our bank for a rate cut like it’s a piñata.

If you have a ‘3’ in front of your mortgage rate, it’s time to get out the lemon and salt: shoot for a rate that’s below 2.5%.

There are some amazing fixed rates on offer (even below 2%), but the old Barefoot rule is to only fix your rate if you’re struggling to put sausages on the table. Everyone else should be reading the script from my book, getting a lower variable rate, and smashing their debt.

Olé!

Scott.

Dodgy Banks, Dodgy Accounting

Hi Scott (you dirty misandrist haha!),

I am hoping to get your thoughts and advice on these dodgy banks. Years ago, I bought a home for $535,000, with a 5% deposit, initially paying ‘interest only’ on my home loan. (So a ‘loan to value ratio’, or LVR, of 95%.) Cut to today and I have brought the loan amount down to $460,000. So I thought I’d do the Barefoot thing and ask my bank for a better rate than the 3.97% I am currently being slugged with. Yet when I called them to review my loan, they said that because my house price has fallen (I live in Perth) they now consider my LVR to be 120%! I expected them to reduce my rate once my LVR was sub-80% of the original loan and house valuation. My question is: can they move the goalposts like this? It is absolutely shattering!

Steve

Hi Steve,

Better grab two Panadol and a Berocca, Steve. This one’s going to be rough.

Here’s the deal: you bought your joint when the property party was in full swing.

Your bank was feeling liquid and loose! How else can you explain that they let you buy into a new suburb with just a 5% deposit and an interest-only loan? Now it’s the morning after, and the hangover has set in.

In your case the bank has revalued your property down from your original purchase price, $535,000, to around $380,000. And that’s how you get the 120% loan to value ratio — you’re only looking at the ‘loan’ part of the ratio while the bank is looking at the ‘value’ part.

Bottom line?

You’re upside down. 

If you had to sell in a pinch, you’d be out of pocket. As would the bank (and banks hate losing money).

The situation you find yourself in is why I steadfastly recommend people save up a 20% deposit.

You’re in no position to negotiate a better rate, so there’s no hair of the dog for you, my friend.

It’s tough, but you need to ride the porcelain bus, then get cracking on paying down that loan.

Scott

NAB CEO says ‘get out now’

“Get out now.”

That’s the advice the CEO of NAB has given to homeowners who are struggling to make their repayments.

Yes, in his quarterly trading update last week, NAB’s new-ish chief, Ross McEwan, warned:

“There will be some circumstances where people are better off selling out early and taking some equity out of their homes, or keeping some equity, before it disappears.”

While most of the media didn’t give his words much attention, there are two good reasons that you and I should:

First, because in all the years I’ve been doing this column I’ve never heard a bank boss speak so candidly. 

Bank bosses are basically politicians: they get parachuted into the top job, stay there for five years, and rocket out with $40 million. Their main job is to stick to the script: “keep lending”. (And we’ve all witnessed how bad things go when bank bosses go off script, like getting into wealth management.)

So why is NAB’s CEO sticking his neck out?

Well, that brings me to my second point: he obviously doesn’t like what he sees on the horizon.

And know this: McEwan isn’t peering into a cloudy crystal ball. Over the years NAB has invested billions into tracking its customers’ every financial move. In fact, all the banks have incredibly detailed customer analytics that tell them what people are doing — or not doing — with their money, in real time.

Now, according to the banking regulator, APRA, roughly 1 in 10 mortgages in Australia are paused.

Which gets me thinking ...On one side, how long can the banks cop 10% of their customers not paying?

On the other, when will customers who are really struggling finally bite the bullet?

It’s a grim situation.

My hunch is that the banks are betting that the overwhelming majority of their customers will get through this. Yet they also know a small number of their customers won’t, and so they (well at least Ross McEwan) are turning up the heat on them.

My advice?

Please don’t misquote me: I am not saying you should sell your home.

What I am saying is don’t be a frog … if you were in hot water before COVID hit, don’t just sit there bubbling away.

We’re still early on in this crisis, and you have more options than you think. And if you want someone independent (and free!) to walk beside you and carefully lay out your options, call the National Debt Helpline on 1800 007 007 and speak to a financial counsellor (like me) immediately.

The last word goes to McEwan:

“We’ve seen in other crises around the world, when people try to hold on they end up walking away with nothing.”

Don’t say you haven’t been warned.

Tread Your Own Path!

Mortgage Wars

Hi Scott, 

After reading ‘Mortgage Month’ in Step 3 of your book, I apprehensively (as I avoid confrontation) called the bank and stuck to your script. Our rate was dropped from 4.03% to 2.74%, no questions asked. I shared this idea with my sister (single mum with mortgage, whose employer just announced her contract will not be renewed). Her rate dropped from 4.1% to 2.94%. A teary (because those bastards charged us so much for so long) and heartfelt thanks from both of us!

Sarah

Hey Sarah,

Sweet as! 

If there’s one thing you can do when you’re stuck at home, it’s to get a better deal on your home loan. The big four banks have all been reducing their basic variable offerings to around 2.7%. They’re really slugging it out on fixed rates -- though I’d stick with a variable rate.  I had a window-shop this week and saw three small lenders were offering deals below 2%. I have never, ever seen rates this low. Time to get the banker off your back!

Scott