Refinancing is a good way to cut away debt, by switching to another option to get a cheaper home loan. Alternatively maybe you have a home loan, personal loan, car loan and credit cards that you juggle and it would help you budget if you could roll them altogether. Come in and talk to us about whether this is an option.
Products at a glance
BASIC HOME LOANS
Pro - Interest rates are often half to one per cent below the standard variable rate; often no monthly fee.
Con - Limited features, less flexibility and possible penalty fees for early loan repayment.
STANDARD VARIABLE-RATE HOME LOANS
Pro - Make regular repayments based on the current interest rate; effective if rates do not rise.
Con - Should interest rates increase your regular mortgage repayments will rise.
FIXED-RATE HOME LOANS
Pro - Fix your interest rate for a specific period, giving certainty to monthly repayment amounts.
Con - Should interest rates fall you'll still need to repay your mortgage at the agreed fixed rate; if you payout loan early penalties could apply.
SPLIT-RATE HOME LOANS
Pro - Fix a portion of your interest rate to give certainty to monthly repayments while also benefit from a variable-rate portion should rates drop.
Con - If interest rates do drop you'll be left paying a higher rate for your fixed-rate portion.
INTEREST-ONLY HOME LOANS
Pro - Pay only the interest component on your mortgage.
Con - Repayments do not reduce the principal component of your mortgage.
LOW DOC HOME LOANS – Limited Market
Pro - Can help you enter the property market if you’re a self-employed, contract or seasonal worker without regular income or proof of income.
Con - Typically have higher interest rates; you may also have to pay LMI.
Do you know exactly where you stand, financially?
Are you aware of how much money passes through your hands each year?…..No? Well, here’s an exercise that will show you exactly what your current financial situation is.
Now, what you’re about to do, is make a list of all the things you spend money on throughout the year, so you’ll need to go to your filing cabinet, or wherever it is you keep your important documents and find all the insurance papers, copies of bills etc. from the previous year.
Begin to make a list of all the items you spend money on but also make note of how frequently you pay them. Some things you may spend money on weekly, like groceries. Others may be fortnightly like mortgage repayments. You might pay your phone bill monthly and insurance premiums are generally yearly.
So, let’s get started. The obvious ones are going to be mortgage repayments or rent, as perhaps your biggest expense as well as any other loans you might have. A car loan for example. And then you might think about Council Rates and/or Body Corporate Fees. Utilities – electricity, water, phone and internet. Credit card payments. And then there’s the cost of feeding and clothing yourself and your family. What about vehicle registrations, maintenance and fuel? And the many different insurances necessary if you want to be prepared for the ‘just in case’ scenarios – Vehicle Insurance, Life Insurance, Income Protection Insurance, Private Health Insurance, Home and Contents Insurance. Your list will be quite long but here are a few questions to ask yourself as you add to your list:
Do you:
- Have an AANT Membership
- Have Ambulance Cover
- Pay School Fees
- Make Personal Contributions to your Superannuation Fund
- Have health issues that need regular check-ups or treatments, e.g. physio, podiatry, chiropractic, massage, dentistry
- Need a repeat script for medication
- Need a new set of contact lenses every 3 or 4 months?
- Have a sporting club/gym membership/personal training sessions
- Play sport which requires fees/uniforms
- Subscribe to a magazine or Austar
- Make regular donations to charity
- Smoke/drink regularly
- Go to the movies/hire movies often
- Get together with friends regularly for a few drinks at the pub
- Buy your lunch everyday
- Go out for dinner often
- Buy coffee daily
- Have regular beauty treatments/haircuts/styles
- Buy skincare/hair care products
And lastly, if you already put money aside regularly for savings, also add this to your list.
Do you have a Christmas Saver Account? Add this to the list as well.
So now that you’ve made a list of absolutely everything you spend money on, calculate each item down to how often you get paid – weekly, fortnightly or monthly. For example, if you get paid weekly but you pay your Home and Contents Insurance yearly, divide your premium by 52. (Fortnightly, divide by 26 and monthly, divide by 12) Then add all these individual figures together, to get a total figure for the amount of money needed each time you get paid, to cover your cost of living.
Then take this figure away from how much you earn – weekly, fortnightly or monthly. For those of you who do regular overtime, and therefore your income is different each pay period, use an average earnings figure. For example, add up four weeks (or fortnights/months) of income, then divide it by four to get an average. It’s better to slightly underestimate your income than over estimate and be short.
Is that final figure positive or negative?
So what has this exercise shown you? Are you living outside of your means by spending more than you earn? Are there expenses you can reduce to bring your finances back in line? Do you need to create a budget/limit for various categories, like groceries and entertainment?
Has this exercise shown you that you don’t spend as much as you thought you did, and therefore, save a good portion of your income? If so, well done.
The bottom line is, if you’re goal is to own a home or investment property, to refinance or to apply for a loan for any purpose, the lending institution wants to see a pattern of regular savings, as well as no defaults on repayments of current loans or rental payments.
So ask yourself, what are my financial goals, and are my current financial habits going to get me there?
First Home Loan Deposit Scheme (FHLDS)
The First Home Loan Deposit Scheme provides a guarantee that will allow eligible first home buyers on low and middle incomes to purchase a home with a deposit of as little as 5% without needing to pay for lenders mortgage insurance.
