Australian home owners are currently enjoying the savings they’re making on their mortgage repayments thanks to all-time low interest rates.

Home loan fixed rates currently sit well below the standard variable rates (SVR) so, at the moment, it’s possible to cut your interest costs by fixing.

However, although a fixed rate home loan can offer good protection against rising interest rates, it’s important to consider all aspects of fixed loans, which are generally far less flexible than their variable siblings

Timing

The ideal time to fix a rate is when variable rates don’t look like they will fall any further in the short to medium term, however predicting interest rates is nearly impossible historically. If interest rates fall, you will still be stuck with the rate you locked in for the duration of your fixed loan, potentially costing you far more over the long-term.

However, if interest rates rise as a result of improved economic growth, your interest rate costs and repayments won’t rise during the duration of the fixed loan term even if variable rates rise.

Essentially, fixed loans are like a form of insurance that your interest payments won’t go up or down during the fixed term – however you may be forced to incur ‘lock-in-costs’ which range from $500 – $750 per application on average.

Repayment limits

Most lenders strictly limit extra repayments you can make on fixed loans. Some don’t allow any extra repayments, while others will allow extra repayments up to a certain limit, generally $10,000 or $15,000 a year.

Break costs

Repaying a fixed loan early will generally incur ‘break costs’, which covers the lender’s loss on the forecast interest and can often amount to thousands of dollars.

Check offset option

Unlike variable loans fixed loans generally do not offer offset facilities, which allow you to cut interest costs substantially by allowing the balance in your offset account to offset your home-loan balance, thereby cutting interest charges.

Split option

A split mortgage lets you fix a portion of your loan, and leave the remainder on a variable rate, providing you with some protection against interest rate rises whilst retaining some of the additional features variable loans offer as mentioned.

If you’re in the market for a mortgage or are looking to refinance an existing one, get in touch with one of our ChapterTwo representatives for a free consultation.

Used appropriately, debt can be a wonderful financial tool that can help to build your wealth, however if used incorrectly its effects can be devastating.

Therefore it’s imperative that households understand and continually assess their debt to avoid financial impairment. Here’s what you should look out for, as well as some positive steps you can take should you need help getting back on track.

Good debt vs. bad debt

Essentially, good debt is money borrowed to buy something that will rise in value, bring in an income and create financial discipline such as borrowing to buy a house. Whereas bad debt is money borrowed to fund everyday expenses like a holiday, or to buy an asset that will generally decrease in value like a car.

However, if repayments on the loan (good or bad) become overwhelming, the level of debt becomes adverse to your initial financial goals and/or living standard.

The warning signs

When it comes to adequately managing your debt, it is critical that you are able to recognise the warning signs. Those associated with bad debt include failing to pay off credit card balances on time or the interest repayments on a personal loan.

Whilst those associated with good debt include falling behind on interest repayments, or the value of the asset falling below the value of the loan.

Borrow within your means

When it comes to borrowing – the most critical component is not how much you owe or how much you can borrow, but how much you can afford to repay.

Start by preparing a comprehensive budget listing all income and expenses whilst allocating a percentage of income towards saving for the future.

Take control of your spending

Using your budget, work out whether you’re in deficit or surplus and act accordingly. If you are in a deficit, look at what expenses you can cut to get back on track. If you’re in surplus look to service existing debts, save for the future and invest.

Make extra repayments

Funnelling extra money into paying debts off early will save you big on interest and free up money to put towards building your wealth. Start with the highest interest rate debts fist such as credit cards, because they are costing you the most.

Once your credit card is paid off in full, focus your efforts on the next highest interest rate loan, for example a car loan.

Minimise your interest

Too many Australian’s are not seizing the opportunity to minimise the interest they pay on their existing loans, and with rates at an all time low – now is the time to do so.

Start by comparing the market for a better rate, negotiate with your bank or talk to a mortgage broker – who will do all the leg work at no cost to you.

Ultimately, if you can borrow within your means, control your spending and minimise bad debts and interest, you are managing debt effectively. However if you find that your debt is becoming unmanageable – reach out to one of our experienced consultants to see how can help you get back on track.

With interest rates at an all-time low, coupled with low inflation and relatively low unemployment rates – more and more Australians are taking up home loans to fund their property purchase.
 
However as global economic conditions remain delicate and Australian banks are required to hold more capital against their mortgage portfolios – lenders are becoming increasingly thorough when scrutinizing an application.

With this in mind, we have outlined some simple tips to help you maximise your borrowing power.

Cutback your credit

If you own three credit cards with a limit of $20,000 each, the lender will view this as a potential debt of $60,000, significantly reducing your borrowing capacity.

Reducing your available credit will not only save you on fees and high interest rates, but help to increase your borrowing capacity as well.

Healthy credit history

Maintaining a clean credit history is also an effective way of increasing your borrowing capacity considerably. By paying even the most inconspicuous bills on time, you’re viewed as a responsible borrower in the eyes of a potential lender.

For more information on your credit history visit: http://www.veda.com.au/

Consolidate your debts

By consolidating all your outstanding debts into single loan, it allows you to streamline your payments, helps with budgeting and allows you to refinance at a better rate – all positives in the eyes of a potential lender.

Financial Records

By complementing your application with proofs of any bonuses or overtime you regularly receive, rental and other income from investments you can significantly improve the assessment of your financial position by a prospective lender.

Savings

Most lenders require record of genuine savings over a period of at least three months before they approve your loan. Furthermore, having a deposit of at least 20% means you avoid paying Lenders Mortgage Insurance.
 
Taking advantage of the First Home Owners Grant offered by many States can further boost your savings as it will supplement the amount you pay upfront for the house, while additional stamp duty concessions are also available for first home-buyers.  

If you would like to learn more about your borrowing capacity, or are interested in obtaining a loan, get in touch with one of our ChapterTwo representatives for a free consultation.

Everyone wants to live comfortably in retirement, unfortunately that dream is becoming less attainable, with an increasing number of Australians entering retirement who do not own their homes outright.

A recent study from The Australian Centre for Financial Studies indicated that eight per cent are still paying off a mortgage, while around 15 per cent of retirees are renting property.

Here are some tips that can help you fight back against debt now and pay off your mortgage sooner, ensuring you enter retirement in the best possible financial position.

Avoid credit where possible

As a general rule, if you can’t afford to pay off your credit card each month – then you shouldn’t be using it. Tightening up spending and limiting the interest you pay now will pay significant dividends when it comes time to retire.

Start high

Make it your goal to pay off the debt that carries the highest interest first – i.e. credit cards.

Refinance

There has never been a better time to take advantage of all time low interest rates by refinancing your existing mortgage.

Use an offset account

Mortgage offset accounts are a great way to reduce your interest each month, as the interest accrued in the offset account, offsets the interest accrued in your mortgage account. This option is only for those who are financially disciplined.

Pay extra

With interest rates so low, there has never been a better opportunity to increase your loan repayments and decrease your debt.

Do the sums

Sit down and do the numbers to work out how much you need to be paying now, to ensure you are debt free by your intended retirement age.

Downsize

Downsizing to a house that will reduce your mortgage to nil may be an effective way of entering your retirement free of debt, but consider carefully if it is the right decision for your situation.

Contemplate your options

Although not ideal, consider working a little longer than you had planned. This will help pay off debt and boost your savings and your super balance, allowing you to live a more comfortable lifestyle in retirement.

If you’re interested in reducing your debt, refinancing an existing mortgage or planning your financial future – reach out to one of our experienced ChapterTwo consultants today.