At today’s board meeting the Reserve Bank decided to leave the cash rate unchanged at the current low of 2.00%.

For many of us, the days of saving up for a big ticket item are gone. Living in a world that delivers so much so quickly has fuelled our desire for ‘instant gratification’. We don’t even need the cash to pay for what we want!

If you’re a winner on the big race today that’s ONE way of paying for that big item. But most of us will need to find another way to fund a big purchase – and some are DEFINITELY better than others.

In this month’s article 9 ways to purchase your race horse… or holiday, pool, new car, renovation – or whatever – we look at your options for making a big purchase WITHOUT breaking the bank.

As always, please call us for a chat if you would like to discuss your finance options.

We look forward to hearing from you.

Gone are the good old days of ‘lay-by’ – remember that? The ‘olden days’ of buying something you couldn’t afford. It was the original form of delayed gratification and budgeting for things we wanted – something our children and grandchildren will never know anything about. Perhaps even some of our Gen Y readers?

Do you have a big ticket item you would really like to purchase but you’re not sure about how to pay for it?

Lets take a look at a few ways, starting with the most obvious:

1. Set up a budget and start regularly putting a little extra aside until you have saved enough to purchase your big ticket item. (Yes, we know it’s BORING!)

Let’s face it, many of us really aren’t big fans of delayed gratification, however if you are most comfortable with this method there is absolutely nothing wrong with that. In fact more people should follow your example. Set up a separate savings account, ask your employer to direct a portion of your salary each week into the new account so there’s no temptation to spend it. Then watch it grow!

Most of us are more the INSTANT GRATIFICATION type. We just can’t wait. We want it and we want it NOW! So most of us will then…

2. put it on the credit card (accruing from 15% or more interest and taking many years to pay it off),

OR

3. take out a personal loan.

The advantages?
Both of these options are going to get you that item right now.

The disadvantages? Unless you pay your credit card off within the 55 day free interest period, the cost for both of these options will end up being much more than the ticket price in the long run.

WARNING: Both options would not be high on our recommended list. If your credit card has an interest rate in excess of 15% and you take 5 years to pay off the debt then your $20K holiday could end up costing you as much as $30,000 or more!

Of course, you MIGHT experience an unexpected windfall? You could…

4. pay for your big ticket item with an inheritance from a long lost cousin you’ve never met,

OR

5. win big at the races!

Good luck with both of those options.

What about using your home loan?

There are several ways you can do this. You can:

6. use your redraw facility (if you have one)

8. use the existing equity in your home (set up a redraw or split loan facility)

OR

9. refinance all your debt AND your home loan to include the cost of the big ticket item.

The advantage of using your home loan?
Adding a large ticket item to your home loan is likely to give you the lowest interest rate available as the item is secured against your home. And let’s face it – interest rates are pretty good at the moment – it is the cheapest way of buying money today.

The disadvantage?
If you fail to make additional payments over a short period of time to cover the additional loan you risk taking many more years to pay off your home and can even pay a lot more than the original cost of the item.

The major risk? If you take a very long time to pay off the debt, you are increasing the total interest repaid – thus the total amount of the big ticket purchase. It could end up costing you a lot more than you really wanted to spend.

If you really want to make a big purchase this way, you MUST pay off all debts as fast as possible!

Regardless of the item you want to purchase, we always recommend you do two things:

1. Come and talk to us before you sign anything. We may have some finance options you haven’t yet considered.

2. Ensure you review your budget to maximise repayments and minimise the total cost of any money borrowed.

At today’s board meeting the Reserve Bank decided to leave the cash rate unchanged at the current low of 2.00%.

Since APRA1 recently moved to tighten lending criteria for property investment loans many lenders have announced changes to their investment loan products – for both existing and new customers.

So what does this mean for YOU? If the feedback we get from many of our clients is anything to go by – mostly confusion!

This month’s article aims to shed some light on the facts. If the changes have deterred you from property investment or you don’t know what it all means in relation to your current loan we encourage you to read on.

Regardless of the type of loan you have or may be seeking we are here to help! We would be happy to help you explore your finance options for your particular circumstances.

We look forward to hearing from you.

1. Australian Prudential Regulation Authority

Changes to property investment loans in Australia have dominated finance news over the past few months. Barely a week goes by without yet another financial institution announcing changes to their investment loan interest rates or lending criteria.

So what does this mean for YOU, a current or potential consumer of finance products? Well if feedback across the industry is anything to go by it would seem it is mostly CONFUSION!

Let’s take a look at the changes that have occurred and break it down into simple language.

What has changed?
In recent months APRA (the Australian Prudential Regulation Authority) pressured banks and other lenders to make it more difficult to finance a property investment loan. The reason for this move is that APRA set a benchmark of 10% maximum growth for residential investment mortgages. The big banks were beginning to exceed this benchmark level – hence the action by APRA.

By taking these measures APRA is attempting to make property market conditions safer for consumers. Rapid growth in property investment lending can be perceived as risky as investors may be placing ‘all their eggs in one basket’ rather than having investment diversification.

While banks and other non bank lenders have announced varying policies here is an overview of some of the measures that have been put in place:

· generally stricter criteria to approve investor loans

· cuts to interest rate discounts for investment loans

· deposits raised up to 20% (previously as little as 5% for investment loans)

· reduction in the amount of rental income taken into consideration when assessing an applicant’s income

What do the changes mean for investors?
Probably the biggest impact is that property investors will now require bigger deposits as banks restrict LVR (loan to value ratio).

If you are a potential investor it is important to remember that interest rates are still at their lowest level in history. With the property investment market constantly in the news it is easy to get caught up in the hype and overlook the positives that may still make it a prudent time to take the step onto the property investment ladder – despite tightened lending criteria and the larger deposit required.

Many lenders are aggressively marketing to existing customers with updates and news on how the changes affect them and the range of finance products they offer. Certainly most people with a current investment or interest only loan will have already had a letter from their lender regarding changes to their loan.

It is important to note some lenders are only ‘penalising’ Sydney and Melbourne investors with stricter criteria due to the higher investment activity in these cities. Remember you will only be given an overview of YOUR current lender’s products in any communication.

Some lenders are not allowing investors with a current investment property to use the existing equity in that property to leverage for further investments where the LVR falls outside the 80% LVR benchmark – effectively forcing them to refinance.

If the changes have prompted you to think about switching to another loan or even another lender – PLEASE CONTACT US FIRST.

Refinancing or switching loans should include consideration of your full financial situation and explore the full range of available products to suit your particular situation.

Had your investor home loan a while?
Lenders are also reporting an increase in customers changing investor home loans to owner occupied1. Investor rates are now higher than owner occupier rates for the first time since the 1990s. Are you now living in a property that may have previously been rented out? If so, you could be sitting on an interest rate that is higher than it should be. Make sure you talk to us NOW and we can help you explore your options.

What do the changes mean for owner occupier buyers?
Predictions are that the owner occupier market will increase as a result of tightened criteria for property investment loans. Many lenders have recently announced a raft of changes to new owner occupier loans including lower interest rates, cashback offers and the waiving of annual fees.

A more complex lending environment makes it more important than ever for us, as your finance specialist, to guide you through the confusion around the regulatory changes and how they may affect you. We stay well informed on the changing landscape of lending so that we can continue to offer you up to date information.

1. mpamagazine.com.au – 3 September 2015

At today’s board meeting the Reserve Bank decided to leave the cash rate unchanged at the current low of 2.00%.

Interest rates and the Australian home loan market continue to be hot topics in 2015. With the RBA cash rate and interest rates still so low it will be interesting to see where they go in the future.

Many people may be wondering if it is a good time to fix their interest rate.

There is no easy answer to that question! However in this month’s article we discuss the advantages and disadvantages of the available home loan options.

As always, please call us for a chat if you would like to discuss the options for your particular circumstances.

We look forward to hearing from you.

Interest rates and home loans continue to be a hot topic in financial circles. 2015 has seen the lowest cash rate – and resulting interest rates – in Australian history. Can they go any lower?

Opinion remains divided as to whether they will go any lower – and also when. In addition, the RBA no longer controls whether your home loan interest rate will go up or down. Lenders have been setting their interest rates independently of the RBA for around four years.

The only thing that IS certain is that they WILL eventually rise again.

So what loan is the right one for YOU?

Well, that all depends on your circumstances. Variable and fixed loans have their advantages and disadvantages so it’s imperative to consider these before making a decision. A number of lenders have recently reduced their fixed rate loans and there are even a couple of lenders that allow you to redraw the excess payments during the fixed term. Split loans combine features of both variable and fixed loans allowing you to broaden your options.

Features to consider

It is important not to judge a home loan solely on interest rates. Be aware of other fees including upfront fees and ongoing monthly fees. We can help you review the costs and benefits of extra features, such as an offset account or redraw facility, possibly saving you money.

Other loan features to pay attention to include lenders waiving fees and charges for other accounts held with them (such as monthly transaction account keeping fees). Make sure extra repayments are not penalised. Some loans, such as fixed loans and some no-frills variable loans, may limit the amount that you can reduce your loan.

How easy is it to switch to another home loan?

Many people end up paying more than they need by staying with an existing loan or lender because they think it is ‘too hard’ to investigate switching to another option. You should ask yourself whether the loan and structure you have is working for you and whether you have achieved your financial objectives. Can you improve on those?

“I think the only thing that is certain is that uncertainty is likely to persist for some time to come”

As your finance specialist we research alternative products and/or available lenders. If changing products is suitable for your situation, we help make the process as smooth as possible – even if you wish to stay with the same lender!

The ban on exit fees came into effect in 2011 and applies to home loans entered into after 1 July 2011. Many lenders have also extended the removal of exit fees to existing loans. Check with us first! We can advise you if there are any exit charges for your individual loan.

Standard costs such as mortgage stamp duty and mortgage registration will also apply (although in some states you may be exempt from paying mortgage stamp duty).

If you HAVE NOT reviewed your financial situation in the last 12 to 18 months then you are more than likely MISSING OUT on some great finance offerings.

It costs nothing for us to double check your situation and may in fact save you hundreds each month.

Dear Client,

At today’s board meeting the Reserve Bank announced a further drop in the cash rate. It now stands at a new all-time low of just 2.00%.

Statistics show the lower interest rates have driven a general decrease in the percentage of homeowners experiencing mortgage stress over the past 12 months. That’s great news!

But if you think you could still be vulnerable to mortgage stress if your circumstances change, you need to read our feature article this month.

Perhaps you should do our quick stress test?

As always, we would be happy to have a chat if you would like to explore your finance options.

We look forward to hearing from you.

Low interest rates have largely driven a decrease in the percentage of homeowners experiencing mortgage stress over the last 12 months. From March to September 2014 the percentage of homeowners claiming mortgage stress almost halved from 28% to around 15%. However, a further 15% of those surveyed were anticipating mortgage stress at some time in the future1.

That is still a large number of homeowners who are vulnerable if stress factors rear their head!

Unlike several years ago (in the higher interest rate climate), interest rates are no longer the biggest cause (or potential cause) of mortgage stress.

According to the survey, the top five reasons for mortgage stress are:

1.  Higher cost of living

2.  Unemployment/redundancy

3.  Other debt obligations

4.  Fewer hours worked or lower pay

5.  Interest rate rises

But what if…

·     You lost your job

·     Interest rates go up (and they will)

·     Your health suffers and you are not able to go to work for an extended period of time.

Would you cope financially?

Many of us will experience financial stress at some stage of our lives.

A recent study2 showed that 39% of Australians wouldn’t have enough savings to maintain their lifestyle or meet their commitments if they lost their income for 3 to 6 months.

In fact, an alarming 17% would find it difficult to access $500 to $1,000 in an emergency.

For millions of Australians, maintaining a lifestyle simply means paying the mortgage (or rent) and keeping on top of the bills. Not everyone takes an overseas holiday every year!

When taking out a mortgage – and for most of us, this is the largest amount of debt we’ll ever have – just ‘hoping’ for the best isn’t likely to pay the bills or mortgage should the unexpected occur.

What is mortgage stress?

Mortgage stress usually affects people paying more than 30% of their pre-tax income on their home loan repayments. This is the highest level of recommended financial commitment you should incur to maintain some ‘wriggle-room’ in your budget and stay out of financial trouble.

Mortgage stress is a real issue for many home owners but there are ways to avoid it. And, if you do experience mortgage stress or get into financial difficulty, help is usually available.

Do the mortgage stress calculation then give us a call if you’re over 30%.

Don’t be alarmed if this is you. There are many things we can do to help you with this. The important thing is to identify the potential stress before it happens.

Of course if your percentage is well below 30% then call us for a quote to help you get into the investment property market.

Stress test this!

Another stress test is to work out your mortgage repayments at a 2.5% higher interest rate and then do the same calculation. Again if your result is close to or over 30% we need to see you now.

For example if you have a home loan of $350,000 over 30 years at 4.5%, your repayments would go up from $1,773 per month to $2,329 per month if rates were to rise by 2.5% (to 7% – the historical average). That’s $556 per month (or $139 per week)!

It might even pay to do the same calculation exercise at a rate of 9% (about the highest it has been in the past decade – in late 2008) as a real safety net indicator.

1 Streets Ahead Genworth Homebuyer Confidence Index Sept 2014

2 BT Australian Health Index

Dear Client

You don’t have to be wealthy to invest but you DO have to invest to be wealthy!

Do you believe that statement is true? Do you think you can’t afford to buy an investment property?

For many people it makes more financial sense to buy an investment property before buying a home to live in. You don’t necessarily have to be in a high income earner bracket to achieve this.

In fact, the skills, experience and discipline you have gained managing on a tight budget just may have given you the pre-requisites to be a good property investor.

So before you give up all hope of getting into the investment property market within the near future we encourage you to read on.

We would be pleased to explore your property investment options for your financial situation both now and in the future. We’re here to help.

With your best interest ALWAYS in mind…

If you think you have to be wealthy to invest in property you might be mistaken! In fact the skills and experience you’ve gained managing a budget on a lower income could make you a better property investor than some big spending high income earners.

We often meet people who are hooked on the good life: living in expensive suburbs, driving fancy cars, frequently dining out and taking overseas holidays. Many will have built their wealth through a successful investment strategy but you may be surprised to find out how many don’t have adequate savings for retirement or redundancy, let alone a solid investment plan.

Lower income earners are often the ones who knuckle down and save. Careful budgeting, motivation and discipline are very important attributes of successful investors. If you have had plenty of practice stretching your dollar further and living within your means, you might already have what it takes!

Lower income earners can often have a more realistic view of investment risk.

They know they need to do something to get a better financial future. Many people are hesitant to invest because they just don’t like having debt. That’s a fair call… but you can reduce your risk.

Why people DO it

Around 20% of Australians invest in property for:

· potential capital growth

· rental income

· tax benefits

They:

· tend to consider property one of the more solid, less volatile forms of investment because you can actually touch bricks and mortar

· like the feeling of getting ahead financially

· don’t want to be one of the 80% of Australians who have to rely on the aged pension when they retire

Why others DON’T

Around 80% of Australians don’t invest in property because they:

· don’t like debt

· need more information to take the first step

· don’t know how to ensure their investment property is not threatened by interest rate rises or unreliable tenants

· aren’t sure how to pick appealing properties for good rental return

· don’t realise they can probably afford it – even if they don’t have a big salary

· think all debt is ‘bad’ and haven’t realised an investment property could make them money and even pay for itself

Will you be part of the wealthier 20% OR will you be in the 80% of Australians who will need to rely on government support at retirement?

If you don’t act, nothing changes. Remember:

· You most likely have some good equity in your existing property.

· Financial institutions like lending to investors.

Call us today.

We can help you look at property investment options suitable for your own financial situation now and in the future. We can calculate how much you could afford to borrow to invest or explain how to use your home equity to allow you to get ahead financially with limited risk.