NO CHANGE TO INTEREST RATES
There was rumour of a possible interest rate cut this month, but in the end the RBA chose to keep the official cash rate on hold. It remains at the record low of 1.5%pa. Experts continue to predict a cut at some stage this year.
Last month we explained lenders mortgage insurance (If your deposit is less than 20% of the value of the home you will be required to take out lenders mortgage insurance, which protects the lender if you are unable to make home loan repayments).
This month, we focus on another form of Mortgage Protection Insurance.
Mortgage Protection Insurance
Mortgage Protection Insurance (MPI) is a product that, in effect, insures you in the event that something should prevent you from meeting your commitments. If you become ill, suffer an accident etc. There are many variations offered and it is something to consider particularly if you have a family/ dependents.
MPI varies from lender to lender. Basically, it involves a one-off payment towards your home loan if you die or will cover most or all of your monthly repayments if you are unable to work due to a series illness or injury (up to a set amount of months). As with most insurance, your eligibility takes into account whether a diagnosis has been make in the 12 months before you purchased the policy.
It also covers monthly repayments if you become involuntarily unemployed. However, it does not apply if you quit your full time job, or if you are employed in a permanent part-time, casual, contract, or temporary capacity for less than 20 hours per week or you are self-employed and working less than 20 hours per week.
Is it expensive?
The exact cost of mortgage protection insurance will depend on:
Do you need Mortgage Protection Insurance?
That depends on your personal circumstances. As usual, we are here to help – give us a call and we can discuss your options.
Until next month,
Reserve Bank leaves interest rates on hold
As expected, the RBA Board has decided to keep the official cash rate on hold at the record low of 1.5%. Commentators expect this will continue, with the possibility of another cut before the end of the year. If this happens, conditions will be even more favourable for people who are saving up for their first home.
Lenders mortgage insurance
If you’re a first time homebuyer or an investor, it’s possible the deposit you have is less than 20% of the value of the home you want to buy. If this is the case, you’ll most likely need lenders mortgage insurance.
It’s important to realise that lenders mortgage insurance benefit the lender, not you - it protects them if you are unable to make home loan repayments. The benefit of lenders mortgage to you is gives you the option to buy a home sooner, rather than later. However, it’s also important to know that this will add a further expense.
The cost of lenders mortgage insurance depends on your loan – the larger the loan and the smaller your deposit, the more you’ll pay on insurance. Other factors (depending on the lender) may include whether you are employed full time or casually, and whether it’s your home or an investment property.
How to avoid paying lenders mortgage insurance
As the cost of lenders mortgage insurance can be more than you budgeted for, you’ll need to consider the following:
It’s best to know upfront whether or not you need lenders mortgage insurance. That’s where we can help – give us a call and we’ll help you navigate the home loan application process.
Until next month,
Is the key to saving a home deposit as simple as giving up smashed avo toast for breakfast? Well not quite, but spending less does make a difference.
On top of a budget, a savings plan and strategies such as a high-interest savings account, an effective way to save is to reduce or eliminate expenses.
Start by understanding your spend
It can be easy to lose track of how you’re spending money, especially due to cashless payments and credit cards.
Many online banking systems include tools to categorise debits and make a budget – take advantage of them. Or download an app that helps you track your personal expenses on the go, like ASIC’s TrackMySPEND.
Find savings in the essentials
Some costs can’t be avoided – but many everyday expenses can be reduced. For example you could:
Make sure you’re paying off debts or credit cards completely each month or as much as possible, to avoid the added expense of paying interest.
Reduce common overspending
If you spend excessively on things like buying clothes, going out or expensive hobbies, it may be unrealistic to cut the expense entirely. Set a weekly or monthly limit and reduce that limit over time.
A survey of more than 1000 Australians showed that 73 per cent have a problem with overspending. In particular, people tend to go overboard Christmas rolls around.
To reduce gift expenses, be like Santa: make a list (and a budget). Buy only planned items within your allocated budget – then stop! Ask your family for support; it’s easier to put a cap on gift values if everyone else does too.
Another common way Aussies overspend is on holidays. CommBank research has shown that a third of holidaymakers spent more on their trip than planned. Do your research and set a daily budget.
Costs that could be eliminated
Look for opportunities to eliminate costs. Cancel unused services. Update your internet or mobile plans if you’re always paying for excess data.
Ask yourself: are you really using that gym membership? Are you getting value from your subscriptions? Remember, every wasted dollar is money you could be spending on your own home.
Friends, throwing the box wide open this morning, and calling a spade a spade, and on an important matter which a number of clients have emailed me about over the weekend.
There was an article published over the weekend by all the major publications, titled "If you have extra money in your mortgage, get it out now!" which has created a little panic, and unnecessarily so.... I want to put your mind at ease, and let you know, you can save the panic for more important things of impending emergency, such as being chased by a shark, or a lack of coffee in the cupboard, either of these qualify for hitting the emergency button.
This kind of publication is scare mongering, putting the wind up people like the revelation is something new and imminent, which it really is not.
To be clear, all contracts disclose that the bank can make changes to the limit, and repayment, and due dates of repayments, etc etc, to ensure that they comply with the contacted term, and there is not an impending and imminent cancellation of your savings sitting in your home loan or your offset account about to occur that is going to effect every home buyer in the country.
In fact, if a bank wanted to, they could sweep funds from any account that you have with them, and dump it into your loan if the loan is out of order, and the current status and the bank failing to take action would mean they failed to keep their contractual obligations, and you had failed to meet yours! This, is not anything new either, and has been happening for well over 30 years. It is not something that occurs very often at all however, as it is not something the banks like to do.... really bad PR! But, if you were at risk of foreclosure on your home, and the bank could see that they could help you protect your home with savings you had sitting in another account, they will try to protect you from yourself, if you hadn't used the funds already to avoid that foreclosure.
My advice? Let it go, it’s always been like this, and there is no point to this article other than to create panic. And, if you want to talk about it further with me, to discuss risk mitigation, call me, let's discuss, or even better, let's discuss over coffee, because coming to the realisation that there is no concern is even better with coffee, refer paragraph 2!
New year, same official interest rate.
The holiday is over. Or is it? Mortgage holders can continue to relish record low interest rates – the longest in history – as the Reserve Bank of Australia voted to keep the cash rate on hold. It has remained at 1.50% since August 2016.
Looking back at the last quarter of 2017, there is great news for first home buyers, owner-occupiers and local investors. Economists say that, with foreign buyers pulling out of the Australian housing market, more locals looking for a home or investment are set to increase their share in the market.
NAB Chief Economist Alan Oster says first home-buyers are entering into the market at the highest levels since 2011, making up 18% of new owner-occupier loans.
He also reports that “sentiment towards Australia's housing market remained at above-average levels in the fourth quarter of 2017” – a positive sign for 2018.
Time to refinance?
Experts point out that, while interest rates are expected to stay on hold for a while, they will eventually rise. That’s why many think now is the perfect time to look at refinancing.
There are currently a number of lenders offering variable rates below 4%. Refinancing now can help you get ahead on your mortgage repayments, saving you thousands in the long run.
If you’re interested in reviewing your options, as usual, we are always here to help.
Until next month,
Rachael and the Team @ Get Smart Financial.
Here's the thing about finance.... it can be really serious, and we know it.
Very often our clients are making really big, perhaps life changing decisions, and are entrusting us with the responsibility of guiding them through what can be an absolute maze of finance solutions, policies, rates, and outcomes, towards the bigger picture, and we never take this lightly. What it does not mean however, is that it can't be fun! As serious as finance is, it is also terribly exciting and such an honour to be entrusted with being a valued and relied upon member of a client's team! And given the journey that we take with our clients, we often get to know then quite well, as they do us, so as to enjoy the ride.... kind like being stuck on the rollercoaster with someone you know nothing about, taking those twists and turns, and ultimately celebrating the success of the ride can be a little awkward, so we do take the time to know who's riding with us! Life is like that sometimes, so let's try to keep it fun shall we?!?
The last couple of weeks have been like that! The run up to Christmas is always like the uphill climb on that rollercoaster, and in a week's time, it will be like the rush down the other side with Christmas being the final destination. Amongst the mix however, and to add to the excitement, the team and I have had a little (LOT) of recognition for all the hard work and investment we make into our client's dreams and goals, which has been in the form of a very special award at our National Conference just a week or so back.
You see, our clients and referral partners know how hard we work, how serious we take our mission, but also how much we love and enjoy our passion, and the last year has seen our growth, commitment and passion recognised at a National Level at the Choice Aggregation 20th Anniversary National Conference on the Gold Coast. So much of our work comes from our existing clients talking about how awesome we are, as well as our referral partners relying on us to hold the hand of their valued clients in supporting their visions.
As always, a girl just couldn't do it without her team... Ally, Kylie, Ave, Julie, Nat, and Phil... not to mention my parents (doesn't matter how old you are, if the sentence starts with your name, you know you are in trouble!), children, friends, clients, business and referral partners and support team in general who support me both professionally and personally (girl, you seriously need to get more sleep!)... 2017 has been a success! Bring on 2018, it's going to be grand!
December is always so very frantic, and whilst so very busy and celebrating all that the year past has been, it can also be a little stressful upon reflection of our goals and resolutions.... Want to know how the team and I manage this part of the year and what it means to us, and you? We'd love to know what you think!
Rachael and the team - Stop the chaos and take control ;)
It’s all too easy to rack up debt – credit cards, HECS, car loans – and may seem all too hard to pay it off. Debt can also have a big impact on how much money you can borrow for a home loan, so reducing your debt is essential when you set out to buy your first home.
Here are seven steps you can take towards minimising your debt and moving into the property market.
1. Work out how much you’re spending
Create a spreadsheet and track your expenses for a month – record everything so you can see where your money is going. You may be spending much more than you think on some things – more than you can really afford.
2. Decide where you can cut back
With a clear idea of how much you spend each month, you can figure out how much you really need to spend, and where you can cut back. That second coffee every day could be costing you $20 a week – that’s $1,000 a year. Buying your lunch rather than bringing it could cost you $2,500 a year. Buying one less bottle of wine a week could save you another $1,200 a year. With a bit of commitment, you can rein in your spending and have more money to repay debt.
3. Make a budget
The only way to get on top of your credit cards is to stop using them. Make a budget for the money you need to spend each week or fortnight, based on how much money is coming in and what your necessary expenses are, and stick to it.
Calculate how much is left over after you’ve paid for the necessities, then figure out how much you want for discretionary spending and how much you can put towards repaying debt. Also, put money into a contingency fund to cover unexpected expenses such as car repairs that could bust your budget and cause you to reach for the credit card.
4. Prioritise your debt
Work out how much money you actually owe on credit cards and loans – you may not realise how much it is. When you know how much debt you’re in, you can think more realistically about repaying it.
You need to pay at least the minimum amount due on all credit cards each month to avoid going backwards and in some cases being charged fees and penalties. But by paying only the minimum, you may never get the cards paid off; you need to pay more to make progress.
5. Make a repayment plan
Armed with your budget and having worked out your debt priorities, you can plan which debts you will pay off over what period of time. Having a plan will increase your sense of control over your debt; sticking to it will increase your sense of achievement.
6. Set goals and celebrate them
The thought of paying off all your debt may seem daunting, so breaking it down into milestones will help you see the way ahead. Set goals such as paying off 10%, then paying off 25% and so on.
Remember to celebrate each time you reach a milestone – buy yourself lunch or go to a movie as a small reward for your achievement.
7. Stick to the plan – and ride out the setbacks
Keep going with your repayment plan. If you miss a payment because of an unforeseen expense, stay positive. Avoid feeling demoralised or derailed by looking forward to the next debt milestone – you can get there.
Rachael Bland – Founder & CEO