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10 May 2019 | Home Loans, Investor Loans, Personal Finance
Mortgage stress: What it is, and how to avoid it
You might be comfortable paying off your mortgage now, but what if things change? Here are some tips on how to avoid a mortgage stress fracture.
Paying off a mortgage is one of the biggest financial challenges you and your family will ever tackle.
And it isn’t easy. Mortgage repayments take up about one-quarter of a family’s income on average. According to the Australian Bureau of Statistics’ 2016 Census.
While most families manage, what happens if your circumstances change?
- unexpected redundancy,
- relationship breakdown,
- illness or
- accident
All could dramatically impact your ability to make your payments and put you in mortgage stress.
But first, what is mortgage stress?
While there isn’t a technical definition for the term. Mortgage stress is generally considered to occur when a person or family is spending 30% or more of their income on home loan repayments.
There are also a range of other criteria which would suggest you’re experience mortgage stress:
- paying only the interest on your home loan,
- borrowing money from family, or
- having difficulty paying your bills
Then you might be experiencing mortgage stress.
I don’t have a problem now, why worry?
It’s unwise to assume your circumstances will never change. An accident or illness can befall a person at any time. The impact on your finances can be devastating.
An increase in interest rates can also have a significant impact on your mortgage repayments. A simple 0.25% rate hike can increase repayments on the average Australian loan ($375,000) by about $50 a month.
Over the course of a year – and with a potential of further rate hikes – this can really chew into your disposable income.
Ok, so how can I avoid it?
The smart borrower won’t wait for their circumstances to change. They will start planning now to make sure they can weather a storm if it hits.
Steps you can take to reduce your risk include:
Step 1: Use a mortgage calculator to see what your repayments would look like if there was a rate increase. Would you be able to keep up?
Step 2: Review your current income and expenses. Make a new family budget. Use it to track where your money is going and where savings can be made. Either pay off your mortgage sooner or get by if things go awry.
Step 3: If you’re worried about your mortgage. Concerned about the impact of a future rate hike. Give us a call on 07 3911 1190 and let’s have a chat about your concerns.
We can talk to you about your situation and help you make a plan to ensure a small problem doesn’t become a big one.
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3 May 2019 | Investor Loans, Personal Finance, Property
Shares vs Property: the pros and cons breakdown
NRL vs AFL. Neighbours vs Home & Away. Gas vs charcoal grill. Ford vs Holden. We Aussies are no strangers to a heated debate. And that extends to the shares vs property discussion.
You’ve probably seen it unfold at the family BBQ before.
Uncle Mick will swear black and blue that property is the only way to go, as he bought his $1 million beachside shack for just $20,000 thirty years ago.
He’s immediately countered by your know-it-all second cousin James. His hand-picked share portfolio has outperformed the property market five years running, he claims, as he casually reels off lingo such as “bullish” and “bearish”.
But as with most things in life, the best option depends on your individual situation. So let’s run through the five major pros and cons of shares vs property.
Shares: PROS
- You will receive regular income from dividends. Which tend to grow with CPI, and can pay 6%-7%.
- Easy for you to buy and sell on the market for a low cost.
- You can Easily diversify your portfolio. Providing you with exposure to many different companies or industries.
- Little hassle after your initial investment. That can be as little as $500.
- No leverage means you can’t lose more than you invested.
Shares: CONS
- The share market can be volatile and you are exposed to market crashes.
- They’re not a physical asset.
- You can’t leverage them during periods of high growth.
- Typically you have to pay capital gains tax when shares are sold.
- No control over the day-to-day operations of the company you invest in.
Property: PROS
- Many investors like the tangibility of having a property and/or a stable place to live.
- You can use borrowed funds to invest and leverage returns, which is handy during periods of low interest rates.
- You’re able to renovate to add value to your asset.
- There’s the potential for negative gearing.
- Lack of correlation with other asset classes.
Property: CONS
- Your worries could include bad tenants, rental vacancies, interest rate rises. Plus you have you have to allow costs for real estate agent, body corporate, land tax, and maintenance.
- May limit diversification as a large chunk of your money is tied to a single asset.
- Leveraging magnifies losses, so you can lose more than you invested.
- High transaction costs associated when you buy or sell. Which typically takes months to conduct.
- Your entry point for investment is high. With your deposit plus taxes and stamp duty. You may also need to borrow a significant amount which could leave you with negative equity if the property drops in value.
Final word
As you can see, what might be a major sticking point for your uncle, could be water off a duck’s back for your second cousin. And vice-versa.
So rather than getting drawn into a pointless debate and being forced to pick a side. Call and chat with us for unbiased advice on what would best suit your individual situation.
Besides, someone’s got to keep an eye on those lamb snags (which are clearly superior to beef snags).
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26 Apr 2019 | News
What you need to know before buying your second property
Whether it’s as an investment asset or a holiday home. Buying your second property poses a unique set of challenges. Here’s what you should consider.
Australians love property, and it’s not difficult to see why. Property is seen as a secure, long-term and low-risk investment with clear financial returns.
Indeed, in 2016 total returns from property in Australian capital cities was 7.5%.
But buying a second property is different to your first, with a new set of challenges and opportunities. What do you need to think about?
Pick the right property at the right price
An investment property is only a good investment if it delivers you a return. When selecting a place to buy, you need to be confident it will increase in value.
Research the neighbourhood to get an understanding of current price trends. See what’s on the cards which could affect its value in the future.
Including:
- roadworks,
- Public transport changes,
- Business developments, or
- Residential developments
You should also consider how attractive the property will be to renters. Any time it is vacant will cost you.
Look for a place that is ready to lease, unless you want to shell out for major renovations.
Make sure you really have the cash
This might feel like a no-brainer. Are you certain you’ll have the rental income or another form of cash to service your second mortgage? If not you risk having to sell the property before it’s suitably increased in value.
You also need to be sure you have enough money left over to reach your other important short and medium-term financial goals. Such as paying off a loan or investing in education.
Get a good property manager
A good property manager can save you a lot of headaches and, ultimately, money.
Your property manager should be able to provide you with advice on legal matters relating to the property, troubleshoot any issues with tenants, and advise you on your responsibilities as a landlord.
Importantly, they should also be able to advise you on when you should and shouldn’t increase your rental terms, help you stay on top of the changing market and make sure you’re not missing any additional income.
Compare different mortgage options
An investment property brings various potential tax implications so it makes sense to shop around for a mortgage that minimises your tax obligations, and maximises your capacity to achieve other life goals.
This is where we come in.
By helping you find the best loan structure, we can reduce your accounting costs and maximise your tax benefits to save you thousands of dollars in the long run.
Still unsure?
Taking the leap into the world of property investment can be daunting, particularly if it’s the first time you’ve considered managing tenants.
If you’re still not sure about what you need to consider before signing the paper work, come and have a chat with us.
We’re happy to talk through your options to make sure your investment pays off.
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19 Apr 2019 | Home Loans, Personal Finance
Sticking to a financial plan – such as paying off a mortgage – can be a long journey that’s punctuated by high highs and low lows. Here are some tips to get you through the tougher times.
According to Mental Health Australia, 1 in 5 Australians are affected by mental illness, yet many don’t seek help because of stigma.
The thing is, mental health and financial safety are strongly linked, with many studies showing personal finances are one of the main sources of stress.
With that in mind, below we’ve outlined six ways you can help protect your mental health from being eroded by financial concerns.
First, however, we believe it’s important to add that if you’re feeling severely down or depressed, please contact your GP or call Lifeline on 13 11 14.
1. Know the warning signs
Signs that you may not be coping as well as normal include:
– Arguing with the people closest to you about money
– Sleeping difficulties
– Feeling angry, fearful or resentful
– Sudden mood swings
– Loss of appetite
– Not wanting to hang out with family or friends as much as usual.
2. Exercise daily
Exercise releases feel-good chemicals such as endorphins and serotonin. It also gets you out and about, which minimises your feelings of loneliness.
You don’t have to run a marathon or anything either. Just a brisk 30 minute walk each day will deliver both physical and mental health benefits – and help you sleep better at night.
3. Eat well
There’s not much use doing all that exercise if you’re just going to smash a few Big Macs straight after.
Instead, try cooking some new healthy recipes with your loved one, or inviting a friend you haven’t seen for a while to come eat with you.
A healthy diet not only improves your physical health, but it’ll make you feel better too.
The best bit? Cooking uses brain power, which will help distract you from any issues that are making you down or anxious. And they’ll make you proud of your gourmet creations, of course!
4. Reach out to support networks
Make an effort to reach out to and catch up with family, friends and other members of your community.
Don’t wait for them to reach out to you – be the one who initiates contact.
It doesn’t have to cost you anything extra, either. Kill two (or three!) birds with one stone and invite them over for a walk, or a home-cooked meal.
5. Positive sense of identity and an optimistic outlook
Always look on the bright side of life.
For example, if you’ve recently become redundant, look at it as an opportunity to launch into a new job, or finally give running your own business a shot.
Also, adopt a positive attitude to seeking support. Rather than feeling down about seeking help, take pride in the fact that you’ve got the initiative to recognise when you’re not feeling up to par.
6. Improve your financial literacy
Sometimes, our finances can feel all too overwhelming, which in turn, gets us feeling down.
If you fall into that category, brushing up on your financial education can help you feel a whole lot better about things – not to mention equip you with the tools you need to improve your budget bottom line.
Our regular blog covers a wide range of topics that can help you improve your financial literacy.
Alternatively, don’t hesitate to give us a call if you’re worried about your finances, such as paying off your mortgage.
We’d be more than happy to workshop some ideas with you to help improve your situation and get you sleeping better at night.
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12 Apr 2019 | Investor Loans, Property
Floating the idea of refinancing your home loan?
When it comes to refinancing your home loan, it’s a case of reward vs risk. Let us step you through some of the most common questions and concerns.
Refinancing your home loan is the process of either extending or replacing an existing loan with your current financial institution or one of its competitors.
It can be a good option for people who feel they’re paying a lot in fees and interest, or for those who are looking for a new rate which could save them money.
For some, however, there can be an element of risk as it creates a new debt with associated interest rates and fees.
When should I consider refinancing?
It’s useful to run an annual home loan health check to see exactly how much you’re paying in interest and fees.
For a rough idea, you can use an online home loan calculator that compares your current situation to other products on the market. If you find a product which offers you a better rate with lower fees, it may well be worth refinancing your loan.
Refinancing may also be a good option if you’re looking to use the equity in your home to renovate, or if you’re coming to the end of a fixed term rate and you want to see if you can get a more flexible loan.
What should I take into account before refinancing?
While refinancing may give you a better interest rate and payment options, it’s also important to address any risks or issues that may counter those benefits. So make sure you calculate all the costs of the new loan.
Refinancing can also sometimes look like a great solution to your debt troubles. However, in the long term a loan with a lower interest rate may end up costing you more, particularly if it comes with high fees.
You should also consider any upfront costs associated with changing loans, including settlement fees, loan establishment fees, and exit fees and charges.
And remember: if it sounds too good to be true…
If you come across a refinancing deal that sounds too good to be true, it probably is.
Unfortunately, there’s the odd less-than-reputable person out there who will try and get you onto a deal while not properly explaining fees, charges and repayments before you sign up.
If you feel like you’ve been offered a deal with a hidden catch, come and have a chat with us and we’ll be happy to go over it with you.
Your next step
We understand that there’s a lot of different options out there, and searching through them all can be a little overwhelming.
Rest assured however that we’re here to help and will always give you information that’s in your best interest.
So if you’re tossing up whether or not to refinance your home loan, call us on 07 3911 1190 and for a chat. We’ll run you through your options for refinancing, and help you decide whether it’s the right course of action for you.
https://finance-matters.info/2017/11/28/floating-idea-refinancing-home-loan/
