Category: News

According to the International Coach Federation (ICF), “an organisation is only as successful as their clients”. The ICF believe that inspiring your clients is one of the key differentiating factors for any service provider, particularly within the financial services sector. They define client inspiration as offering “insight, direction, advice and solutions to your clients. Identify their overall goals and enable your clients to achieve them with your help. Become a beacon of inspiration among your industry”.

Whilst these are wise words for any aspiring business leader, they are far more challenging to place into practice and then maintain for long periods of time. Inspiration and the flow-on client service excellence requires an abundance of planning, organising, commitment, focus and energy.

Within the mortgage lending sector that Link Mortgage Services (LMS) operate, the importance of demonstrating inspiring outcomes that lead to client service excellence is paramount. There are numerous reasons for this being the case. For example, low barriers to entry and moderate educational requirements enable new entrants into the mortgage lending sector and further crowd the market for what can already be perceived as a complex and emotive experience for clients.

Additionally, with the proliferation of social media and access to mortgage-related advice and information, clients are generally more deeply self-educated prior to discussing their mortgage lending requirements with relevant service providers. These are but a few examples of what is driving the need for strong and comprehensive mortgage lending advice and guidance which is something that LMS continuously works hard to achieve.

One of the best ways to determine how your client service ethos, approach and outcomes are being perceived by your stakeholders is to ask them directly for their perceptions and feedback. According to one key stakeholder external to LMS, Alex Sobolevsky and his team are very dedicated to their clients. This particular stakeholder stated that LMS “understand their business intimately and work very hard for their clients to ensure they get the right outcomes. Dedication to clients really stands out. Not like other brokers who do the transactions and disappear”.

This stakeholder went on to comment that LMS “work hard to maintain the relationship on a longer-term basis, remaining involved with the client and maximising the client experience as much as possible. Whole banking and finance requirements are being looked after. LMS are highly professional, demanding that their clients are serviced correctly. The client doesn’t have to worry about contacting a bank as this is all taken care of by LMS”.

According to the Harvard Business Review’s (HBR) article entitled “Revolutionising customer service”, getting customer interactions right “has never been more important, especially since social media has given unhappy customers a louder voice”. HBR go on to say that it’s critical to “educate employees more generally about what service excellence means. Managers should work hard to persuade employees to commit to a holistic definition of service: creating value for others, outside and within the organisation. Teach them to first appreciate customers’ concerns and only then to act. They should continually ask themselves, who am I going to serve, and what do they need and value most?”.

Forbes website articulates four customer-facing principles that can “set your client service apart”. These principles effectively underpin how LMS aim to service their clients and are defined by Forbes as follows (verbatim):

1. Listen

Listening means getting actionable client feedback, and understanding their needs prior, during and after your transaction. Get to know your clients, as the relationship is a marriage of sorts.

2. Tailor

Tailoring does not mean come up with an entirely different suite of products to satisfy everyone. That is a futile effort. Rather, can you offer a hybrid solution within your resources that better solves the problem at hand for your client? This way, you find solutions for the ever-changing needs of the clients.

3. Deliver and implement

Execution is everything. Once you’ve noted and created the perfect solution for your client, it’s time to act on your plan. Knowing that you can implement the promises laid out is of the utmost importance. It lets people know you are credible in your field and trustworthy when the time comes.

4. Manage and react

As you become involved in the growth of your clients’ businesses, it’s important to note that you should be mostly managing and nurturing their projects as if they were your own.

The team from Link Mortgage Services is committed to being your financial solutions partner. This is evidenced by their market reputation and their passionate client service philosophy. Instead of offering a hasty, one-off service, they believe in fostering relationships that stand the test of time. With a high referral rate and even higher number of clients who return to them time and time again, LMS provide tailored solutions to everyone from first-time property buyers to self-funded retirees, commercial property investors and companies with highly complex financial needs.

Source: Adam Kreuzer, World Media Group (Monday 21st August 2017)

 

With the rise in housing prices and a relatively slow income growth, the capacity for some individuals to save an adequate deposit on a house or unit has become progressively difficult*. In light of this, to strengthen their loan application, some prospective new entrants may consider turning to family members for help via a loan guarantor arrangement.

Who may consider help from a guarantor?

Typically, an individual that requires a guarantor may not have an adequate deposit saved and/or a credit provider is concerned about his or her capacity to service a loan. Without a guarantor, it would mean that they may be required to pay Lender’s Mortgage Insurance^ or potentially have their loan application declined. Depending on the circumstances and relevant credit provider, a guarantor may also be used for an investment or business loan.

What does it mean to be a guarantor?

A guarantor is someone who guarantees a loan for another person; however, the guarantor doesn’t have the right to own the property or items bought with the loan. In some instances, for greater assurance, a credit provider may ask the guarantor, as part of their guarantee, to put up an asset as security; this is called a security guarantee. This means that the loan is secured using both the asset being purchased with the loan as well as the asset used as the security guarantee.

Depending on the circumstances, a security guarantee can either be in full or limited. Although full security guarantees do exist, it is common for credit providers to allow the guarantor to provide a limited guarantee for an amount sufficient to reduce the borrowing amount, for example, to less than 80% of the purchase price. This may help alleviate the need for Lenders Mortgage Insurance as well as reduce some of the risks and responsibilities for the guarantor.

Who can be a guarantor?

Guarantors can be immediate family members such as spouses, de facto partners, siblings, adult children or grandparents; however, in some instances, a credit provider may accept friends, workmates or associates.

Furthermore, a guarantor must be an Australian or New Zealand citizen, at least 18 years of age, of sound mind and generally must also be currently working; however, some credit providers may also accept self-funded retirees or recipients of social security payments such as the age pension. In addition, if a guarantor intends to use their property as part of the security guarantee, certain criteria may need to be met. For example, the property can’t be located overseas and may need to be owned outright or owe less than 80% of the property value on an existing loan.

Important things to consider

Being a guarantor for a family member may help them enter the housing market with a smaller deposit (or, none at all), increase their borrowing capacity and potentially avoid the costs of Lenders Mortgage Insurance, but there are risks and responsibilities involved. For example, if a family member defaults on their loan obligation then as the guarantor it becomes your legal responsibility (for the portion that you guaranteed). This responsibility might include the principal amount, any interest and default interest, as well as any fees incurred by the credit provider in resolving the default.  Furthermore, if you are unable to service the loan, the credit provider may sell the asset that you put up as security to pay the outstanding debt.

So, before agreeing to be a guarantor on a loan do your homework.

1. Request a copy of the loan contract and take the time to understand:
How much is the loan for, how much are the loan repayments, and what is the term (duration) of the loan?
What is the interest rate on the loan, and is it an introductory rate that will revert to a higher standard rate after a given period?
Is the family member putting up security for the loan, for example, their home?
Will you be providing security as guarantor, for example, your home, and, what restrictions apply, if you decide in the future to sell the property?
Will you be guaranteeing the entire loan amount or just a portion of it and for what timeframe?
If the family member defaults on their loan repayments
What are their responsibilities as well as yours as the guarantor?
What are the actions that the credit provider may take to address the default?

2. Consider your relationship with the family member who is seeking loan approval. For example, a breakdown of the guarantor arrangement, due to a default arising, could place a strain on the relationship.

3. Evaluate your financial situation as well as that of the relevant family member. For example, if the person were suddenly unable to meet the required mortgage repayments for a period due to sickness or injury. Ask:
Can you rely on your family member to repay the debt? Consider their current income and asset position as well as their future income and expenses. It’s important to be honest in answering this question as you will be putting your income and assets at risk by guaranteeing the loan.
Do they have adequate personal insurance in place and what arrangements are in place to ensure the proceeds are used to repay the loan?
Do you have the capacity to cover the loan obligation (for the portion that you guaranteed)?

4. Consider limiting your guarantee. For example, with the approval of the credit provider, you can limit the amount of the guarantee, as well as the timeframe in which the guarantee remains valid. This may help to reduce the risks and responsibilities involved in being a guarantor if a default was to occur.

5. If you are uncomfortable with the level of risk involved in being a guarantor, take the time to investigate other options. For example, consider the option of gifting or loaning the family member a portion of the required deposit. Before doing this, consider your cashflow needs and check the rules regarding gifting (if you’re about to retire or are currently on Centrelink payments such as the age pension).

6. Finally, seek professional advice from your solicitor and financial adviser to make sure you fully understand what is involved in becoming a guarantor and how it may affect your financial situation. For example:
Your intended asset distribution to beneficiaries via your Will may be impacted by a forced sale of the property you used a security.
Your ability to borrow against your assets may be restricted if you are a guarantor (as the guarantee is recorded as debt).
Your credit report may be affected if you are unable to service the loan obligations in the event of a default.
Moving forward

Being in a position to help a family member via a guarantor arrangement may bring a feeling of contentment. However, before making the commitment, carefully consider the risk and responsibilities involved, investigate other options available, understand how this may affect your financial situation, and seek professional advice.

Source: IRESS Knowledge Database

Credit cards, mortgages, car loans, store credit, investment loans and business loans are all ways of borrowing money to achieve different goals. While they may achieve different goals, they are all fundamentally the same; you borrow a sum of money and repay it over time, with interest. Borrowing money can lead to positive or negative outcomes depending on how you actually go about it, and how this strategy is carried out over the life of the loan.

What am I borrowing for?

The terms good and bad debt are sometimes used to refer to certain situations when we borrow money. A ‘good debt’ generally refers to debt which is used to invest in an investment asset, which might appreciate in value and provide income over time. Examples are borrowing to invest in property, shares, or a business. In many cases this type of debt will attract favourable tax treatment with the interest paid often being considered a tax deductible expense. Please note, there are exceptions to this and personal advice is highly recommended.

‘Bad debt’ refers to a situation where you borrow money to invest in something which doesn’t hold its value – like a car or a TV. Bad debt also refers to credit card debt which has accumulated through paying for goods and other everyday expenses. Some people also refer to a personal mortgage being ‘bad debt’, due to the fact that the interest paid is not tax deductible, although you can still see an increase in the value of the home, although this isn’t guaranteed.

Should I borrow?

Whether you should borrow depends on what you are trying to achieve and on your ability to meet regular loan repayments. Based on the above description of good and bad debt, it’s difficult to justify the benefits of racking up a credit card debt to buy consumer items just to satisfy the urge to go on a shopping spree. Generally speaking, you’d be better off spending extra time saving before you go out and purchase the new fridge or iPad.

It’s important to point out that store cards and credit cards often have extremely high interest rates too. Interestingly, credit card companies now need to alert you to this. If you wish to purchase a property to live in or rent out, it can often make sense to borrow. This type of asset often increases in value over the longer term (although this is not guaranteed), and it would take a long time to save enough money to pay for it in cash. If you borrow to purchase an asset (such as property, shares) that produces an income, not only can the income you receive help to pay the interest repayments but there may also be taxation advantages associated with the interest cost of the loan.

Risk management?

Completing a budget to determine how much debt you can afford to service is one of the most important things you can do prior to taking a new loan. Once you know what you can confidently afford you can then shop around for the loan which best suits your needs. Be sure to look particularly at interest rates, fees and features that suit your personal circumstances. When increasing your debt levels, you also increase your living costs, and accordingly, it’s important to put in place or review your Income Protection insurance, which replaces part of your employment income if you are unable to work due to illness or injury. It’s also highly recommended to review other insurances such as Life insurance and Total and Permanent Disability insurance when increasing debt levels. It may be also worth stress testing your finances to see how you would fare if there was an increase in interest rates

How to reduce debt faster

There are some things you can do if you are struggling to reduce your debt. Firstly, by completing a budget you can work out where you can make savings and direct those funds into your loan. If you have assets you can sell then these too can be used to reduce debt. What can you sell online or sell at a garage sale? Do you have a bike that you never use, baby gear or car seats? In the case of a mortgage, a useful strategy may be the use of a mortgage offset account to direct your savings into. This means rather than receiving say, 3% interest on your savings whilst being charged 6% interest on your mortgage, your savings will be offset against the balance of your mortgage. This effectively means you are achieving 6% on your cash savings!

One of the most overlooked money saving tools is an appropriate loan repayment frequency. Most lenders will allow you to make your mortgage payments at intervals that suit your needs and preferences yet most of us will choose to make monthly mortgage repayments on our home loans. Switching to weekly or fortnightly repayments may make it simpler to manage repayments from a budgeting perspective. Additionally, the earlier you make a payment off your loan, the more it saves you in interest and therefore how long it will take to pay the loan out.

If you have multiple debts it may be beneficial to consolidate and refinance your debts. This means establishing a new loan by combining all of your existing debts into one. Do this at the lowest possible fees and interest rate you can achieve with only the appropriate features for your needs. When dealing with a bank, don’t be afraid to try to negotiate a rate lower than the advertised rate. You may not need to change banks; by simply calling and telling the bank you are considering moving, they may offer you a better deal anyway.

If you are not confident dealing with a bank direct or you want to shop around you’re lending without doing all the work yourself, you could consider using a broker.

I can’t afford to pay off my debt

If you are having trouble meeting your commitments, then it’s important that you do something about it as you might not realize the effect it’s going to have on your credit. Your credit card payments and level of debt have the most impact on your credit score. A poor credit score may make it difficult to obtain credit or borrow in the future and if you do secure credit, it will generally be at a much higher interest rate. Accordingly, if you find yourself falling behind in loan payments, with seemingly no way to get up to date, it’s important to take action.

One option is to look at refinancing the debt. You may wish to try to negotiate with your bank or lender. Contact them and explain your situation, and explain how much you are able to pay now and when you will be likely to make another payment. In many cases they will be obliged to consider part payments and late payments. Make sure any agreements are provided in writing and make a note of discussions you have during phone calls.

You may also be able to apply for an early release of superannuation on ‘compassionate grounds’ or ‘grounds of severe financial hardship’. Access to superannuation can be difficult, but if eligible it means you can access some of your retirement savings early in order to meet overdue loan payments or overdue bills. Such a strategy needs to considered carefully as doing so can lead to financial difficulty in the future if appropriate savings plans and measure aren’t put in place.

Debt plays an important role in our financial lives and knowing how best to manage it can ensure a positive relationship with creditors and a positive credit rating. For those interested in their credit rating, you can request a free copy of your credit rating report. Understanding your credit file enables you to make more informed decisions regarding your finances. As always, if you need help, it pays to seek advice from a financial specialist or lending professional.

Source: IRESS Knowledge Database

Do you have someone in your family that is part of Generation Y? Also known as Millennials, Generation Y refers to the generation currently in their mid-20s to early-mid 30s, who were born between 1980 and the early 2000s. Celebrated and criticised equally, this generation is characterised by its access to information, technology and travel more than previous generations. Equally, Gen Y has been shown to have very different attitudes to work and money than the generations that came before them.

Gen Y has also experienced an environment of economic volatility early in their adulthood, in some cases effecting their employment and their propensity to earn. For these reasons, many in this generation are choosing to live in the family home for longer and waiting until later in life to enter home ownership.

Research suggests a range of trends in how Generation Y thinks about money.  If you want to engage your Gen Y family-member in improving their financial management skills or even involving them in the family finances, you might consider some of the following:

Create rules around the Bank of Mum and Dad

Whether borrowing, paying rent or contributing to household expenses, ensuring that your Gen Y is accountable for their use of the ‘Bank of Mum and Dad’ is a useful place to start. Pulling their weight and paying their share of household expenses creates a broader awareness around the practicalities of running a household and maintaining a certain lifestyle, and informs their understanding of what it takes to live independently.

Involve them in a long-term savings goal

Studies highlight that Gen Y show consistent savings habits on a month-by-month basis, however this does not necessarily equate to implementing long-term savings habits. Whether it’s an apartment or buying dad’s old car, help them create a tangible long-term savings goal that incentivises saving today.

Engaging with super

A persistent issue for superannuation is a lack of engagement from those who are furthest away from retirement, such as those currently in their 20s and 30s. People in this age bracket are also more likely to have several superannuation accounts due to the multiple job roles that characterise early stages of people’s employment lives. Talk to your Gen Y son or daughter about managing their superannuation, for example by selecting an investment option most appropriate for their life stage and risk preference, or consolidating multiple superannuation accounts to minimise fees. This can be a useful way to start preparing them for making informed decisions with regards to their super.

Discuss debt

Generation Y is recorded to have more debt and at an earlier age than any other generation before them. While this may be in large part due to student loans, this trend is also resulting in longer debt repayment periods. If your Gen Y family-member has a loan or credit card, make sure they are aware of their total principal and interest payments and help them create a practical repayment schedule. This may be part of a larger debt management plan.

Help them put a plan in place

While Gen Y is more than capable of creating a budget, few actually do so. From writing up a basic budget at home on Excel, through to visiting a financial adviser to get a run down on options for future financial savings and goals, getting numbers down in black and white and tracking finances is a highly valuable exercise to start engaging your Gen Y family-member on money matters.

Encourage the entrepreneur

Statistics repeatedly show that Gen Y has a strong tendency towards entrepreneurship, with this age-group comprising a large section of new company registrations over the past few years. This could be attributable to the attractiveness of new digital business models, a trend towards collaborative start-ups or simply a desire for self-employment. Whatever the case, if your Gen Y has an idea for a small business, you can guide them in turning this idea into a tangible outcome by providing personal, financial and administrative insight from your own experiences. Running a business is a meaningful way in which to learn to become more responsible with money.

Source: IRESS Knowledge Database

Why do interest rates move up and down over time? The RBA uses changes to interest rates as a way to implement the decisions they make on how to better manage the country’s economy. This is also referred to as their “Monetary policy” decisions.

Put simply, the RBA will often decrease interest rates in order to stimulate or grow the economy, or they will increase interest rates to try and reduce growth. The recent decision by the RBA to cut rates was designed to encourage more consumers and businesses to spend money. For some this move by the RBA to cut rates has sparked concerns that Australia is heading into recession (which is defined as two successive quarters of negative growth). However, the RBA have indicated that the decision to cut rates was due to low inflation and the Australian Dollar being valued higher than what they would like to see.
To put things in perspective, the decline of our interest rates has been gradual since 2008 but interestingly, Australia hasn’t been in a recession for 25 years. When the rest of the world suffered during the Global Financial Crisis in 2008, Australia’s economy managed to resist a recession due to a large extent by the RBA’s ability to cut interest rates (six cuts between August 2008 and April 2009 led to the interest rate dropping from 7.25% to 3%) and subsequently help stimulate the economy.

Whilst low interest rates are great news for borrowers, it’s not such great news for people saving with no mortgage and retirees alike as the interest rates and returns on cash savings and term deposits also usually suffer; however, something to note is that several financial institutions have decided to increase their term deposit rates in light of the recent interest rate cut, which may have been done to ease concerns by savers and retirees and/or to attract new deposits.

Many people believe that low interest rates may be here to stay but a move back to “normal” interest rate levels (e.g. 5.5%-6%pa +) could have a significant impact on your spending and your ability to make repayments on your personal debt, credit cards and home loans.

This interest-rate-risk may pose a threat to those people who do not have access to surplus cash-flow or cash savings to support any interest rate increases particularly if interest rates move back toward “normal” levels.

Source: IRESS Knowledge Database

The popularity of home renovation reality shows like The Block and The Renovators has encouraged more Australians to undertake their own renovations on their homes and investment properties. The benefits of a well-planned and executed renovation are both financial and personal. After all the hard work, it can be immensely gratifying to see your inspiration and creativity come to life. Whilst renovating can be very exciting, it can also be quite stressful if not managed or budgeted properly.

Here are some tips for planning a renovation:

Research your renovation

It pays to do a few background checks prior to starting your renovation, to make sure you can make the changes that you want to. Doing the research on your home upfront can help to avoid unplanned costs that lead to renovation budget blowouts.

A building inspection can help you to determine whether the existing building structure will support the additions and changes you plan to make. It can also help to uncover potential problems (i.e. termite damage, dry rot, and building defects).

Once you’ve got the all clear, check with local council whether any local planning laws may limit what you can do with your property. If you live in an apartment or townhouse governed by a body corporate or strata title then you will also need to get an understanding of what your limitations are and what your neighbours will and will not allow.

Financing your renovation

Getting funding for your renovation in advance can help you work out how much you have to spend so you can stick to your budget. There are a number of ways you can fund your renovation, depending on the size of your project and your budget.

If you have savings or receive a financial windfall or inheritance these funds are often a good way to fund your renovations as you have a defined amount to budget with and don’t need to borrow to finance the renovations.

If the property has increased in value since you bought it, or you’ve been making additional repayments on your mortgage, then you may be able to access this to fund your renovations. Typically there are three main ways to use this equity:
Use the equity in your home via a redraw facility – If you’ve made additional repayments on your mortgage over the years, you may be able to redraw those funds to use for your renovation;

Establishing a line of credit or construction loan – A line of credit gives you the option to withdraw funds from your home loan up to an agreed limit. A construction loan works in a similar way, releasing funds to pay renovation costs as they fall due. The benefit with these loans is that you only pay interest on the funds as you draw down on them; and,

You may decide to refinance your existing home loan and increase the loan limit. You should speak to your existing lender or financial adviser and research other loans available in the market to ensure you are getting a good deal.

Some people choose to finance smaller renovations with personal loans or credit cards. Whilst these options may appear convenient it pays to check the interest rates on this type of finance, as they will generally be higher than other options.

Sticking to your Renovation Budgets

Your budget is going to need to include architect and engineering fees, council fees, building inspection fees, insurance and building and labour costs. Your materials, fixtures, fittings and furnishings will be on top of this.

If you know exactly what you want and can clearly explain that to your builder and other tradespeople then you will generally be able to budget easier as you will receive more accurate quotes. Changes halfway through or at last minute can be expensive and can often lead to budget blowouts.

A kitchen renovation may cost $5,000 to $50,000 or more, depending on the appliances and finishes you choose. Some renovation experts recommend you limit the budget for the kitchen renovation at 5% of the value of your home. So if your home is worth $500,000, you could consider spending up to $25,000. This is just a guide though and your budget will come down to affordability and balancing what you want with what you need and what will truly add value to your home.

Unfortunately even with the most careful planning, renovations don’t always go to plan. Many experienced renovators will advise you to budget an additional 10% – 20% to the quoted prices, as a buffer for incidental costs and unplanned expenses.

Sticking to a budget can be a daunting task but can more easily be managed if you keep hold of your receipts and track all spending in a budget spreadsheet. The key is to regularly update your budget and expenses and keep on top of them. Otherwise you may end up having to halt works, or live with incomplete renovations because you’ve gone over budget.

Avoiding Overcapitalisation

It can be very easy to get carried away when renovating. Home and interior design magazines and websites such as Houzz and pinterest boards are packed with all the great stuff you can do and buy.

Whilst these are great resources for inspiration, it’s important that you are clear on what you need and what you want as it is very easy to get carried away.

When you first start planning, it can help to first investigate what your home may be worth when you finish renovating. If you haven’t had your home valued in a while, this is a good place to start. You can then check with your local real estate agent or online for what similar renovated properties are selling for. If the cost of your planned renovation will end up being more than what your home will be valued at after renovations, you’ll be overcapitalising.

In summary, renovating can be a fantastic opportunity to add value to your home and to help you create a dream space. The key to a successful renovation, like most things, is to do your research, plan before you begin and stick to your budget.

Source: IRESS Knowledge Database

An offset account is a bank account linked to your home loan which operates just like an everyday banking or savings account. You will generally have ATM access to your account and be able to make internet banking transactions and payments like any other savings account. An offset account is a feature that can be added to a variable rate home loan, but not all loan products will have this feature.

How does it work?

When you borrow to buy a home you are charged interest on the amount that you borrow. If you have any cash in the bank and you earn interest it will be most likely be at a lower interest rate than your home loan and this interest income will be taxable. With an offset account you are charged interest on the home loan balance minus the amount in your linked offset bank account. The more money you have in your linked offset bank account, the less interest you pay on your home loan.

Offset Account Strategies

There are a number of ways you can utilise an offset account to further reduce the interest expense on your home loan. Some of these may include:

Having your salary paid directly into the offset account – having your employer send your pay directly to your offset account will immediately reduce the interest payable on your home loan. The interest payable on your home loan is generally calculated on a daily basis on the amount you owe on that day. At the end of the month the lender totals up the interest payable from each day in that month and charges you a monthly interest amount. You don’t need to have a lot of money in an offset account in order to save on interest. Over the life of your loan even small amounts in an offset account can potentially save you hundreds or thousands in interest expense.

Using your credit card for everyday purchases – You can take advantage of your interest-free period on your credit card by using the card to pay for your expenses during the month and paying the balance in full from your offset account before the due date each month. This means that you have more cash sitting in the offset account for longer. While you will save interest and may gain reward points by using the credit card more frequently, the strategy only works if you are disciplined and can pay your credit card balance in full each month.

Investing surplus cash in an offset account instead of a savings account or term deposit – Unlike normal savings and term deposit accounts, offset accounts do not pay any interest. For an offset account to be worthwhile, the interest rate on your home loan will need to be higher than the interest received from your savings or cash investments. In the current low-interest rate environment, you may be better off using an offset account to invest your surplus cash in as the interest savings it will provide on your home loan is likely to be more than the interest you would earn from a normal savings account. For example, you have savings of $20,000 and your home loan interest is currently 7.5%.

Your online savings account is offering 4.40% pa interest then:

If you keep the money in your online savings account you will earn $73.33 in interest each month (before tax).

If you put this money in your 100% offset account, you would save $125 in home loan interest each month. That’s a saving of $50 per month, ignoring the tax you would also save.

Offset accounts are not suitable for everyone and they are generally only available for variable interest rate loans. So if you have a split loan (meaning part of your home loan is on a fixed interest rate and part is on a variable interest rate), you will only be able to link the offset account to the variable part. If you have a fixed home loan then you may need to wait until the fixed period of your loan expires as breaking a loan or making changes to an existing loan can sometimes incur significant exit and penalty costs.

If an offset account isn’t the right option for you, then you can make extra repayments to reduce the home loan which will increase your equity in your home and help to reduce your loan repayments. If your loan has a redraw facility, you may be able to access these additional repayments if needed down the track.

If you are interested in an offset account, you should seek professional advice to make sure that it is an appropriate strategy for your situation and to ensure you are fully aware of the implications, fees and costs as well as any risks involved before making a decision.

Source: IRESS Knowledge Database

Are you planning a renovation?

Renovating a property is more than just a pure financial decision. It can have significant implications not only for your cash flow, but also for your lifestyle. So before you get going take stock and make sure you’ve considered everything.

To help make renovating a breeze, we’ve compiled a list of 7 things to consider before you begin!

1. Be clear on why you are renovating. There are many reasons to renovate a property, you may want to enhance its liveability, extend, update or fix up a property to rent out or sell. If renovations are for family or personal reasons, then it can often involve a more emotional spend and it can be easy to over-capitalise and get carried away! On the other hand, if the renovation is a pure-financial one and you plan to rent out or sell the property in future, then you may look at it more logically and from a return on investment perspective.

2. Consider getting an independent valuation for the property. This can be a good way to get an idea of what other properties in the area are valued at and help you work out what is reasonable and worthwhile spending, so you don’t over-capitalise.

3. Put together a budget and keep a close eye on it throughout the process – costs can escalate quickly!

4. Make a list of your needs, wants and nice to haves. It can be easy to get carried away so it’s important to try to keep things in perspective. Cutting back the ‘nice to haves’ can help save your budget without compromising your needs.

5. Consider where you might live while you renovate and factor this in. In some cases, you may be able to live through the renovations particularly if they are only short term, minor or cosmetic. But for bigger, structural renovations you may need to move out for a few weeks, months or even longer! Will you stay with friends or family, or rent another place?

6. Consider how you’re going to pay for the renovations. If you’re using equity in your home loan or redrawing an amount from a line of credit or other financing arrangements, factor in the extra repayments, fees and any implications this will have on your lifestyle.

7. And, before you put hammer to nail, it pays to first check with your local council (as well as your body corporate – if you live in an apartment or townhouse) as you might find that there certain local planning laws (and/or strata title rules and regulations) in place that may put restrictions on your renovation plans.

Renovation shows like “The Block” and “Renovation Rescue” often make renovating look simple and glamourous. But in reality, a renovation project can be stressful. Make sure you keep up the communication between you and your partner or family members and give yourself some space and time to relax if things become difficult or stressful to manage.

Source: IRESS Knowledge Database

Wealth accumulation can be as simple as putting aside money each week into a high-interest savings account, paying down your debts, or building a diversified investment portfolio inside or outside of superannuation. Does the family home also come into mind when considering your personal wealth?

According to the Australian Bureau of Statistics*, owner occupied dwellings are the largest asset held by households, accounting for roughly 42% of household assets (with superannuation coming in second, accounting for roughly 17%); however, this also comes at a price as loans to purchase owner occupied dwellings are also the largest value across all household liabilities. With this in mind, we have put together two potential strategies for you to consider when actively working towards decreasing your existing loan to value ratio on your home and in turn building your personal wealth over time.

Increasing the value

Did you know that the combined capital city home values have experienced 7.1% growth*^ over the 12 months? In terms of changing the value of the family home, your location (city, suburb, land ‘position and site’) are somewhat fixed unless there is an expected population increase coupled with a surge in property demand, a proposed nearby residential/commercial/retail development or a change in land subdivision rulings. So what about tapping into an often underestimated variable, ‘You’ and being ‘house-proud’?

Keeping up with the required repairs and maintenance, enhancing the ‘aesthetic appeal’ that makes your home different from the next and making improvements that bring your home into the 21^st Century may be ways for you to not only enjoy your home today, but also may improve the potential salability of your home in the future. Furthermore, if there does come a time for you to sell your family home, remember that you will generally find that your main residence is fully exempt from Capital Gains Tax – so decreasing the loan to value ratio of your home can mean more money in your pocket to help with the next chapter of your life (e.g. upsizing or downsizing).

Extra mortgage repayments

Most people would be familiar with how extra mortgage repayments on a home loan can help to reduce the loan term and save on interest payable, but how many of us actually employ this strategy to build our personal wealth?

Let’s look at a simple example of making extra mortgage repayments.

John and Jane recently purchased their dream home in the cosy town of Smithsville with the help of a $400,000 loan from their chosen lending institution. The loan term was 30 years with a variable interest rate of 5.50% and a minimum principal and interest repayment amount of roughly $2,271 (paid monthly). However, John and Jane had already decided that they didn’t want to wait 30 years to own their home nor pay roughly $417,703 in interest over the life of the loan!

After carefully completing a budget of their household income and expenditure and having an open and honest conversation about their needs versus wants, they found that there was $300 surplus per month that could be allocated towards paying down their mortgage faster. With a little help from their extra repayment calculator they found that if the $300 was directed toward their home loan then it would result in a reduction of their loan term by over 7 years and a saving of roughly $115,681.53 in interest payable.

Even though this article doesn’t take into account all of the possible scenarios^# that can affect your financial position in relation to your family home over time, it does serve to illustrate the power of accumulating wealth earlier by taking an interest (and pride) in your assets and making the commitment to reduce your levels of debt faster. To help you navigate through this complex world and other important financial matters it pays to seek professional advice that reflects your own personal financial situation.

Author: IRESS Knowledge Database

The most commonly asked question we get asked by current and prospective clients of Link Mortgage Services is which type of loan is right for them. Whether they should consider an interest only loan or one which incorporates payment of both interest and principal amount. At Link Mortgage Services, we take great pride and care in understanding your financial and broader life circumstances to ensure that the loan arrangement which you undertake is correctly structured to successfully achieve your lending goals and objectives.

There has been an abundance of national media coverage over the past few months in relation to the various loan types available to borrowers in a sustainably heightened housing market. The financial news media have been focusing on the Australian residential mortgage market in what the Australian Prudential Regulation Authority (APRA) describe as “an environment of heightened risks”. APRA, in their recent media release, have initiated additional supervisory measures to reinforce sound residential mortgage lending practices across the country.

AAP news have stated that “APRA has told lenders to limit higher risk interest-only loans to 30 Continue reading “Ensuring your lending strategies align with your broader life requirements” →