Podcast Summary
Mortgage fees vs. Inflation: Inflation may help offset mortgage fees over time, but frequent remortgaging with high arrangement fees could outweigh the savings, especially for overseas investors due to additional risks.
While inflation can help offset the cost of arrangement fees for interest-only mortgages over time, frequent remortgaging with high arrangement fees could potentially outweigh the savings. For overseas investors like Andrew, the cost could be even higher due to additional risks perceived by lenders. However, it's essential to consider the overall financial picture and the potential benefits of expanding your property portfolio. If you have concerns about mortgage fees or any other property-related questions, don't hesitate to submit them at propertyhub.net/ask.
Mortgage arrangement fees: Mortgage arrangement fees are high, especially for smaller properties, and can be mitigated by considering a five-year mortgage product instead of a two-year one.
Arrangement fees in the current mortgage market are relatively high, making it essential for both domestic and overseas investors to consider their property's value when assessing the impact of these fees. For those purchasing properties worth over half a million dollars, the fees may not be as significant due to the smaller percentage they represent. However, for smaller properties, the fees can be quite substantial. To mitigate the frequency of these fees, considering a five-year mortgage product instead of a two-year one could be beneficial. Although this may not generate as much business for mortgage brokers, it is the best financial decision for their clients given the current market conditions. As previously discussed on this podcast, some financial advisors recommend five-year fixes to help clients avoid the toll of frequent arrangement fees.
Mortgage fixed rates vs shorter-term: Considering a mortgage, choosing a longer-term fix can offer stability, but hope shouldn't drive the decision. Leverage is a significant advantage in property investment, allowing for faster wealth growth.
When considering a mortgage, it's essential to weigh the potential benefits of long-term fixed rates versus shorter-term ones. While the arrangement fees might be similar, going for a longer-term fix could provide more stability, especially if mortgage rates become more competitive in the future. However, there's a risk that hope, rather than solid investment decisions, might drive this choice. Regarding Adam's question, leverage is a significant advantage in property investment, allowing investors to grow their wealth faster than with other investment types. It's highly unlikely that mortgage companies will link their loans to inflation, as this goes against their business model, which has remained consistent for centuries. While it's natural to consider potential risks, the fundamental nature of how leverage works in property investment remains strong.
Leverage and Inflation: Banks profit from lending and leverage can increase potential gains during inflation. However, extreme economic conditions and potential tax changes could impact its effectiveness.
Banks make money by extending loans and the more business they do, the better. Leverage, or borrowing to increase potential gains, can be beneficial for individuals during inflation. However, extreme economic conditions like deflation or hyperinflation could significantly impact the effectiveness of this strategy. Additionally, potential changes in taxation, such as increased capital gains tax, could make using leverage less appealing. While economic conditions are subject to change, the principle of using leverage and benefiting from inflation is considered fundamental and stable by some experts.