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30 Nov 2018 | Personal Finance
Credit card providers love to use all kinds of incentives to get you to put that shiny piece of plastic into your wallet, ripe for usage at your weaker moments. Here’s how to avoid getting snared in credit card debt.
Most humans love to spend. It’s a scientific fact. No joke, going shopping tells your body that it should start producing greater amounts of the feel-good neurotransmitter dopamine.
Credit card providers know this well and have plenty of tricks up their sleeve to get you chasing that high with their high-interest credit.
Here’s how to avoid some of their more common traps.
1. Points and bonuses
You know that dopamine rush we were just talking about?
Well, sometimes people end up spending a lot more on their credit cards than they would otherwise because they’re chasing points and bonuses.
If you’re one of those who likes to collect points through your credit card – and can’t be convinced otherwise – remember to set up a system that will ensure you pay it back straight away.
This could include a direct debit, or an e-calendar reminder, to ensure you avoid high interest and fees which can cancel out any bonuses received.
2. Interest-free periods
There are a lot of credit card providers out there that offer interest-free periods, just hoping you won’t check the fine print.
Some retailers will offer 12-50 months with no interest and no repayments, making it possible for you to walk away with a shiny new product without spending a cent.
However, once the interest-free period ends, interest rates can be up to 30%, and the credit provider is under no obligation to remind you when that period ends.
Additionally, if you purchase anything else on that card other than the original purchase, it probably won’t be covered under the initial interest and repayment free conditions.
A couple of final warnings: interest free doesn’t mean fee-free, and the product you’re buying might be more expensive at the store than elsewhere.
3. Cash advances
Almost everyone has, at some stage, reached a point where they’re a little short of cash.
And while cash advances might seem like a good option to tide you over, they actually accrue a much higher rate of interest straight away (up to 30%), not to mention a cash advance fee which is usually a percentage of the amount withdrawn.
If you want to make the most of your credit card and all the benefits it has to offer without ending up stuck in a tough repayment cycle, be sure you understand the post cash advance interest rates, and make sure that the cash withdrawal is really worth it.
And, if you really need to access a bit of cash, try asking a family member or close friend first. As an absolute last resort, you could purchase their groceries, fuel or pay their bill using your credit, then they could immediately reimburse you in cash.
4. Multiple fees
On top of regular annual or monthly fees, many cards have additional fees that will vary depending on how you use your card.
You can be charged extra fees for failing to meet minimum repayments, for exceeding your credit card limit, and for withdrawing money.
Be sure to understand your card fee structure, and use responsibly.
5. Paying only the minimum
When it comes repayment time, be careful about only paying the minimum amount outlined on your bill.
This amount will leave a balance that will continue to accrue interest, and will end up costing you more in the long run.
You should pay back the maximum you can afford, lessening the time it will take you to pay off your card in full.
Final word
Not all debt is bad. We appreciate that better than most. But it’s fair to say that credit card providers don’t have your best financial interests at heart.
If you’re tempted to get a new credit card, get in touch with us first. There’s a whole range of better financing options out there, all of which we’d be happy to run you through.
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23 Nov 2018 | Home Loans, Investor Loans, Personal Finance
We all know that recycling is great for the environment. But debt recycling? Well, if done right, that could be great for your own little patch of planet earth.
There are three things that many Aussie property owners wish they could do: make their debt tax deductible, pay off their mortgage sooner, and invest in other asset classes to build towards future wealth.
Well, with debt recycling it’s possible to achieve all three. But it’s a somewhat complicated strategy that’s not without risks.
But first, what exactly is debt recycling?
The idea behind debt recycling is to take the non-deductible debt from your home and recycle it into tax-deductible debt.
That is, to replace your mortgage debt with investment debt.
The earnings accrued from your investments can then be used to pay off your home loan.
If done effectively, not only can you pay off your home loan much faster, you can also generate higher levels of wealth as your home and investments grow in value over the long term.
Who might it suit?
Debt recycling is a higher-level financial strategy that is more suitable for certain individuals including those who:
– Are happy to invest for the long-term (5 years plus), as opposed to seeking immediate returns.
– Have a high marginal tax rate (greater benefits from tax-deductibility).
– Have a good appetite for risk.
– Have a secure income source that is not affected by investments.
The benefits
When executed properly, debt recycling offers a number of significant benefits, such as:
– Allowing you to start investing almost immediately, even if you have no existing source of finance with which to get started.
– You don’t require years of investment practice to begin debt recycling (although it is highly advisable to work alongside an experienced financial planner).
– It can help you to cover the gap between your superannuation savings and your retirement targets.
– It can help you to pay off your mortgage earlier and relieve your debt burden.
The risks
Though it is true that you can reduce risks by gaining a firm understanding of debt recycling and other investment strategies, you will never be risk-free.
The two major risks you face are:
- In the same way that you benefit from compounding gains over time, a market downturn can compound losses, meaning that the amount you eventually owe could be more than the value of the portfolio.
- You could also be at risk of losing your home if you use the existing equity in your home as security for the investment loan.
Is debt recycling right for you?
It’s fair to say that debt recycling isn’t for everyone. Like most things in life, it will depend on your personal circumstances.
So if you’d like to find out more, get in touch. We’d be more than happy to run through your options with you.
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16 Nov 2018 | Home Loans, Personal Finance
Want to avoid sinking your entire savings balance into your mortgage? An offset account could be the solution you’ve been looking for.
An offset account is straightforward to set up and easy to understand. It also has the potential to save you thousands of dollars and could shave years off your mortgage.
Got your interest yet?
Yup! But what’s an offset account?
Basically, an offset account is a regular transactional account which is linked to your home loan.
The advantage is that you only pay interest on the difference between the money in the account and the mortgage.
Banks usually offer two types of offset accounts – full offset account, or partial offset account.
A full offset account means that the entire amount in the account is deducted from the principle before you start to pay interest.
In a partial offset account, a reduced interest rate on the mortgage is offered on the equivalent amount in the offset account.
Whichever you choose will depend on the bank and the type of mortgage you have.
How does it work?
Say you owe $350,000 on your mortgage, and have $50,000 in a savings account that you currently use for regular transactions.
If you move that $50,000 into a full offset account, you’ll only pay interest on $300,000 (which is the difference between that amount and the loan principle).
The offset account can then continue to be used for all your daily needs, like receiving your salary and withdrawing cash.
Why else would you consider an offset account?
Well, say for example that you had a savings account with a 3% interest rate and a mortgage with a 5% interest rate.
By allocating money into your full offset account, you’d save more money on interest than you would earn in your savings account.
Additionally, interest on your savings accounts are subject to tax, whereas the interest-saving on your mortgage isn’t.
How much can it save me?
Under the right circumstances, a lot.
Using the example above, if you’re 35 when you take out a home loan, you could shave years off a 30-year loan term just by keeping $50,000 in the offset account.
This means your loan could be done and dusted right in time for your retirement.
Is it right for me?
Of course, there are some additional factors to consider, such as account keeping fees and the minimum amount needed in the account to make it useful.
As everyone’s situation is different, get in touch and we can discuss whether an offset account might be suitable for you.
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9 Nov 2018 | Home Loans, Investor Loans, Personal Finance
Most Australians grow up with the dream of buying and living in their own home. But, given the difficulty of cracking into the market in trendy locations, another option has emerged.
So what is rentvesting?
Put simply, rentvesting is the increasingly popular practice of buying an investment property while continuing to rent.
The logic surrounding the idea is that rentvesters will be able to rent out the investment property to generate an income stream that covers their rental payments.
The property can then be sold at a later date for capital gains.
Rentvesters tend to buy investment properties in affordable areas while renting a property somewhere more affluent.
This allows them to live in their desired location whilst building an investment portfolio that will eventually provide them with the means to purchase a property there.
Who it might suit
Rentvesting may be most suitable for young professionals who want to live an aspirational lifestyle in the present without endangering their chances of getting on the property ladder later on down the line, and who are willing to wait a while to call their home their own.
That said, rentvesting is not for everyone. Particularly not for those who see renting as a waste of money when they’d rather be channelling their earnings into something that is fully theirs.
The pros
Rentvesting gives people the opportunity to get on the property market sooner than they might otherwise have. That’s because a smaller deposit is needed to purchase a property in more affordable areas.
It also allows people to live the lifestyle they want without having to worry about taking on a huge mortgage, as well as giving them an opportunity to build wealth and reap the tax benefits of investing.
The cons
The primary concerns many people have with rentvesting involve the fact that it requires pushing lots of money into rental payments.
There are also no guarantees that rentvesting will pay off, and it may seem counter-intuitive to buy an investment property before your own home.
In this way, rentvesting is not necessarily suited to those with emotional attachments to properties.
Is rentvesting right for you?
If you’d like to explore if rentvesting suits your individual circumstances, come and visit us to find out more.
We’d be happy to help you look at the various ways you can crack the property market.
2 Nov 2018 | News
We’re pretty proud of the work we do. Every day we get to help Aussie families secure finance for the home of their dreams and set up their financial future. Here’s why we’ll always put you first.
You may have seen news reports in recent times regarding the lending practices of some of the banking industry’s less scrupulous operators.
And to be honest, it can sometimes be a little frustrating seeing these headlines when we work so hard to help families achieve their life-long dream of purchasing their own home.
So, we’d like to clear the air. It’s the practices of a few big players, not mortgage brokers like us, that are bringing the mortgage broking industry’s reputation into disrepute.
And a recent independent report by Deloitte Access Economics has backed up mortgage brokers just like us with the following findings.
Deloitte Access Economics’ key findings
More than 90% of customers are happy with their mortgage broker’s performance.
Mortgage brokers on average have almost 14 years’ industry experience.
Mortgage brokers drive competition as they have access to 34 lenders, not just the major banks (the share for non-bank lenders has increased from 21.4% in 2013 to 27.9%).
The mortgage broker channel has contributed to a fall in lenders’ net interest margins of more than three percentage points over the past 30 years.
Get in touch
Here’s another interesting stat. Deloitte also found that 70% of the average mortgage broker’s business is referred from existing customers.
This highlights just how important it is for us to put you, our client, at the centre of everything we do.
Because without your ongoing support, we wouldn’t have a business to run.
So if you, a family member or a friend would ever like to find out more about how we can help secure a great Australian dream home, don’t hesitate to get in touch.
