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Interest rate ponderings

During the past few months there has been a lot of talk about interest rates.

Despite the RBA keeping the official interest rate at 1.5%, many lenders - banks and non-banks - began to increase their interest rates for home loans.

First it was on loans for investment properties. Then the rates were increased for any interest-only loan, be it investment or owner-occupied. A interest-rate rise for principal and interest home loans soon followed from some lenders.

One of my business associates, a financial planner, explained some of the reasoning behind the rate rises.

He said it had to do with the global money market. 

Lenders in Australia don’t have enough money to cover all the loans they make, so they source money from overseas. The US is one of the major sources of this money.

Interest rates rose in the US, including the interest that lenders paid for these overseas funds also rose. And of course the banks and other lenders passed that onto borrowers, many of those being lending institutions here in Australia.

The Federal Reserve raised the official US interest rate by 25 basis points to 1.25% in June this year. This was the second rate rise in 2017, with experts predicting a rise to 1.5% by the end of the year.

In addition, the Australian Prudential Regulation Authority (APRA) decided there were too many interest-only loans.

APRA oversees banks, credit unions, building societies, general insurance and reinsurance companies, life insurance, private health insurance, friendly societies and most members of the superannuation industry. 

Media statements from the banks in July claimed they had to reprice their interest-only mortgages to meet APRA’s requirement to limit the flow of new interest-only lending to 30 per cent of new residential mortgage lending (The Adviser). That is, interest-only loans could make up no more than 30% of new loan settled that month.

At the same time, the big banks announced cuts to interest rates for owner-occupied, principal and interest loans.

In August, a number of lenders have announced a fall in interest rates, including those for interest-only and investment loans. 

More competition for loans and APRA relaxing their stringent policies could be some of the reasons for this.

Whatever the reasons, let’s hope it keeps up!

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The Reserve Bank of Australia has just handed down the first decision for 2017. The cash rate will remain at a record low of 1.5%. 

The decision came as no surprise to most economist and financial experts.

In making the decision, the RBA took into consideration the strong Australian dollar, weak gross domestic product (GDP) growth and an sluggish inflation rate. 

And while some economists believe the RBA would like to lower the cash rate even further, many lenders have increased their rates for fixed interest loans and today AMP announced an increase in their variable home loan rate for investment properties.

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The official cash rate remains at 1.5% after the Reserve Bank of Australia’s last board meeting for 2016.

This will come as no surprise to finance industry experts, with most having predicted the status quo to remain for the time being.

However, predictions of a rate rise early in the new year are reflected in many lenders’ recent interest rate rises.

“Unfortunately for home buyers, some of Australia’s mortgage lenders have moved to increase their mortgage interest rates over recent weeks,” HIA senior economist Shane Garrett said. 

“By hitting investors with higher rates, the banks risk exacerbating the slowdown in residential construction that is already under way.”

He added that the prospect of an interest rate rise in the United States this month could affect interest rates in Australia.

“With interest rates in the US likely to rise later this month, there is a strong possibility that the era of RBA interest rate cuts is at an end,” Mr Garrett said. 

“The cash rate could well hold steady right through 2017 – assuming there are no major gyrations in the dollar’s exchange rate.”

[lucrative1-blog1]

Business or commercial loans

Got an idea for a new business? Or perhaps you’re thinking of buying an existing one. Whatever the case, finance will be needed. 

A commercial bank is usually where small businesses turn first for a loan. It can be difficult for a start-up small business to get a commercial bank loan because of perceived risk. Mature small businesses obtain loans regularly through commercial banks.

Things to consider before applying for a business loan are your (or your business’s) credit history, how much money will be needed to buy start-up assets, a business plan, and necessary documentation including the business financials or projected income.

It is not just advisable but necessary to seek the advice of your accountant and financial adviser before seeking a business loan.

Then when you’re ready to make the move, talk to a trusted broker. They will have access to a number of commercial lenders and be able to find a loan to suit your business needs. 

Visit Lucrative Financial Services and let Margaret work with you to find a commercial loan for your next venture.

[lucrative1-blog1]

The perfect property at an affordable price - it’s not a myth

So you’ve found your dream home, but it’s in need of a little TLC. While others may see this as a deterrent, this is actually a great opportunity to nab the house of your dreams at a price tag that’s within your means. Here’s how to tactfully negotiate the price without ruining your chances of securing the property.

Tip #1: Never enter a negotiation empty-handed

Whether it’s hiring inspectors for a building and pest report, or obtaining quotes from tradespeople, obtaining facts and figures will give you ammunition when requesting a price reduction.

Tip #2: Separate your emotions

The most tactful way to negotiate is to eliminate all emotions. Try to be objective when negotiating the sale price of your dream home. Present your argument logically, but remember, the owner is under no obligation to accept your offer.

Tip #3: Remember this is someone else’s house

Negotiation is a two-way street, so in order to come to an agreement, concessions will have to be made on both sides. For a lower price, you might offer a longer (or shorter) settlement period.

Tip #4: If you don’t ask, the answer is always going to be no

From wanting certain fixtures included in the sale price, to extra inspection requests, you won’t know what the owners are happy to give if you don’t voice your desires. However, before you go wild with requests, think about what is most important to you, as realistically the owners aren’t likely to budge on everything.

A house that requires a bit of repair work is a great bargaining tool and generally an opportunity to secure a good price.

[lucrative1-blog1]

Some of my clients have asked me about how to go about setting up a self-managed super fund so they can buy property as part of their plan for retirement.

If you like to be in control of your own retirement savings plan, than an SMSF could be the choice for you. Be mindful that you will be responsible for your fund, which also means you must comply with the super and tax laws.

An SMSF is a private superannuation fund that is managed yourself. It can have up to four members who are trustees. It is run for your own benefit, and you are responsible for all decisions made and ensuring they comply with all relevant laws.

The main challenge most people encounter with a SMSF is the sheer complexity of running a fund and where to start.

Should I seek a professional adviser?

Starting your fund is only a small portion of the work. You should engage an adviser to help with the investment decisions or administration duties, although, you must ensure you understand what your adviser is doing as you are still holding the responsibility of being the trustee of your SMSF.

How much do I need to start?

It is suggested you should have approximately $200,000 of combined assets to start your SMSF. You will also need to budget for the annual running fees – this may include professional accounting, audit, tax, legal and advice fees.

Let’s not forget to mention the importance of insurance, such as life insurance, disability insurance and income protection should something happen to yourself or one of the trust members. You should certainly take some time to assess affordability and be sure you can cover these costs before beginning your SMSF journey.

What can I invest my super in?

One reason SMSFs appeal to investors is that they give access to a broader range of investments, such as direct property, jewellery, artwork, antiques, vehicles, memorabilia and wine, as well as the usual shares etc. However, keep in mind you may only use your money to provide retirement benefits. They must not provide a present-day benefit.

If you would like more advice on where to start with your SMSF, as well as the security of ongoing management and support, please take a moment to look at the services offered at http://sydneywealthadvisers.com.au/…/self-managed-super-fu…/

- David Hammett, Financial Adviser

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First home buyers in NSW may be eligible for a $10,000 government grant. The grant applies from January 1, 2016 and is for first home buyers purchasing a new home. The value of the new home must not exceed $650,000 for contracts dated between October 1, 2012 and June 30, 2014. For contracts dated on or after July 1, 2014, the purchase price of the home must not exceed $750,000. The grant amount is determined by the date of the eligible transaction. This is the date of the contract to purchase a new home or contract to build a home. For an owner builder, the eligible date is when the building work begins. For eligible transactions made on or after January 1, 2016, the grant amount is $10,000. For eligible transactions made between October 1, 2012 and December 31, 2015, the grant amount is $15,000. The government has defined a new home as one that has not been previously occupied or sold as a place of residence and includes a home that has been substantially renovated and a home built to replace demolished premises. A home that has been occupied, including by the builder, a tenant or any other occupant is not considered a new home. Where the home is being purchased, it must be the first sale of that home. To be eligible for the grant: ♣ the contract date must be on or after 1 January 2016 ♣ the home is a brand new home ♣ you are over 18 ♣ you or your spouse (including de facto spouse) have never held a relevant interest in any residential property in Australia prior to July 1, 2000. However, you may be eligible if you or your spouse, including de facto spouse, have only had a relevant interest in any residential property in Australia on or after July 1, 2000 and you have not resided in that property for a continuous period of at least 6 months. ♣ the value of the property must not exceed the First Home Owner Grant Cap of $750,000 ♣ you have not received a first home owners grant in any State or Territory, unless subsequently repaid ♣ you need to live in the home for a continuous period of at least 6 months ♣ at least one applicant is a permanent resident or Australian citizen ♣ each applicant must be a natural person and not a company or trust. If your contract is dated prior to October 1, 2012, visit the First Home Owner Grant page on the NSW Office of State Revenue website. First home buyers need to meet all the eligibility requirements to receive the grant. Anyone who receives the grant and fails to meet the eligibility requirements (for example, not living in the home for a continuous period of at least 6 months), they will be required to pay back the grant. Failure to do so can result in prosecution and penalties up to $11,000. If you are part of the Australian Defence Force and all applicants are on the NSW electoral roll, you may be eligible for an exemption from the 6-month residence requirement. * Source: The Office of State Revenue website

[lucrative1-blog1]

Favourable interest rates are a borrower’s best friend, but should you lock in a low rate or go with a variable rate? Here are five things to consider.

1. How low can rates go? Interest rates are at historically low levels and the current outlook suggests there may be further cuts in the medium-term future. If you lock in your rate now, you won’t reap the benefits of later decreases. The question is: how low do you think the rate will go before it starts to climb back up? Timing is crucial if you want to lock it down at its lowest point.

2. Balancing the budget How are your budgeting skills? If you want to know your precise repayment obligations for the next one, three or five years, then a fixed rate term can give that to you. Be aware, however, that you may not secure the best rate. Consider this route if certainty is important to you.

3. Fixed or flexible? Fixing a rate denies you some flexibility. Once you fix a rate, some lenders won’t let you make extra repayments to reduce your principal. If you come into extra money, such as a work bonus or an inheritance, you lose the opportunity to make what could be a sizeable dent in your mortgage.

4. Selling points A fixed rate may put you at a disadvantage if you’re looking to sell your property in the foreseeable future. Lenders may charge a break fee if you make changes to your loan or pay it off early, which often happens when borrowers sell.

5. Fixed vs variable: It’s about 50/50 According to a study conducted by Canstar, a website that compares loans, the advantage of a variable versus fixed rate is fairly small over time. Canstar compared an average three-year fixed-rate loan with variable rates over two decades. People who fixed their loan did better for 112 months, while those who chose variable were ahead for 123 months. “That’s pretty close to a 50/50 bet,” remarked Mitchell Watson, research manager for Canstar. Seeing interest rates decrease understandably prompts borrowers to think about fixing their mortgage to a low rate. If you’re weighing up the options, consider the benefits and drawbacks of locking in a low rate versus the flexibility of a variable loan according to your personal circumstances.

This article first appeared at news.com.au

[lucrative1-blog1]

To refinance or not to refinance, that is the question

How long is it since you took a good look at your home loan? How much interest are you paying? Or maybe you’re paying too much in fees.

It might be time to refinance your home loan.

Refinancing is when you switch your home loan, either to a new lender or with your existing lender.

It’s often done to get a home loan with lower interest rates or fees, or when circumstances change, for example when renovating a home, or consolidating debt if a person is finding they are under financial stress and unable to make their repayments for the Home Loan, credit cards and or personal loans (eg. car, boat etc)

CASE STUDY ONE

Matthew and Debra have a $300,000 loan remaining on their home. They also have a credit card debt which has gradually spiralled out of control and sits at $20,000 ($600/mth), and a car loan of $20,000 ($450/mth).

Matthew and Debra are feeling like they’re battling to pay all their repayments each month and are experiencing more financial stress with each passing month. They can’t see a light at the end of the tunnel and want to refinance and consolidate their credit card debt and car loan into their home loan, increasing the balance to $340,000.

Current home loan $300,000 @ 4% over a 30 year term = $1432/mth

Credit card $20,000 = $600/mth

Car loan $20,000 = $450/mth

TOTAL REPAYMENTS = $2482/mth

After refinancing and consolidating all their debt into one loan:

New Loan $340,000 @ 4% over a 30 year term =$1623/mth

This is a saving of $859/month which will reduce the financial stress and take the pressure off Matthew and Debra and hopefully if they manage their finances well, they can save and make plans for travel overseas in the future which is something they have been wanting to do together since they met.

CASE STUDY TWO

Aaron and Rose have had a home loan for 4 years and it’s currently at $450,000. They are comfortably paying their repayments but have heard about the recent interest rate reductions and are interested in whether or not it’s worth them refinancing and getting a lower interest rate.

Current home loan $450,000 @ 4.79% over a 30 year term = $2358/mth

New refinanced home loan $450,000 @ 4% over a 30year term = $2148/mth

This is a saving of $210/month.

If you are feeling under financial stress like Matthew and Debra or like Aaron and Rose want to see if you can get a better interest rate, give us a call on 0432 108 391 or 4915 8554.

-Finder.com.au

[lucrative1-blog1]

Property Investment

Negative v Positive Gearing

So much has happened in the past few months with the federal election and Census debacle on the national front, the rejection of the Ausgrid sale on the state front; and Brexit and the fear of a Trump-led US on the international scene.

Hopefully your personal lives have not been as tumultuous!

Before the election, debate around negative gearing was raging. Labor wanted to get rid of it and the Coalition argued for its retention.

So what is negative gearing?

First, the term ‘gearing’ as used in relation to property needs an explanation.

Gearing is the process of borrowing money for the purpose of buying an investment property, which is usually tenanted to offset the cost of the purchase.

Gearing can be negative, but it can also be positive.

Positive gearing occurs when the rental income is greater than the cost of the mortgage repayments (including interest) and maintenance of the property.

This gives the owner an additional income stream.

Negative gearing is basically the opposite of this.

Negative gearing occurs when the property operates at a loss to the investor.

That is, the mortgage repayments and maintenance of the property cost more than the rental income.

The idea is that the property provide the investor with a capital gain in the long term.

In the short-term, it creates a taxable loss which offsets the investor’s primary income as a tax saving.

[lucrative1-blog1]

Sometimes the hardest thing about saving money is getting started. It can be difficult to figure out simple ways to save money and how to use your savings to pursue your financial goals. Here's a guide to help you get started.

1. Record your expenses First you need to know how much you're spending. So for a month, record of everything you spend - everything! Organise the money spent into categories so you know how much you're spending on outings, fuel, rent/mortgage, electricity, phone etc.

2. Make a budget Now that you have a good idea of what you spend in a month, you can build a budget to plan your spending, limit over-spending and make sure that you put money away in an emergency savings fund.

3. Plan to save Create a savings category in your budget and try to make it at least 10% to 15% of your net income. If your expenses won’t let you save that much, it might be time to cut back. Start with non-essentials like entertainment first.

4. Set savings goals Setting goals makes it easier to get started. Begin by deciding how long it will take to reach each goal. Some short-term goals (which can usually take 1-3 years) include a holiday, new car, emergency fund. Long-term goals include a deposit for a home, saving for your children's education.

5. Decide on priorities Decide which goals are more important to you. If you don't have much spare money, choose your main goal and aim for that. Some goals might have to take a back seat to ensure you save for your main goal/s.

6. Make sure you open an account for your savings. This is particularly important when saving for a deposit on a house. Banks and other lenders generally need to see that you are capable of saving money over time. This is commonly referred to as genuine savings.

7. Make saving money easier with automatic transfers Automatic transfers to your savings account can make saving money much easier.

8. Watch your savings grow (the fun part) Check your progress every month. Not only will this help you stick to your personal savings plan, but it also helps you identify and fix problems quickly. With these simple ways to save money, it may even inspire you to save more and hit your goals faster.

#saving #homedeposit #budget #family #savingsgoals #financialgoals #lucrativefinancialservices

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Lucrative Financial Services

27 July at 20:24

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How to boost your borrowing prospects

The days of 100 per cent loans are all but gone so borrowers need to ensure they have some savings. Home buyers today face substantial deposit requirements as lenders adjust their lending standards. Most mortgage lenders now require a deposit of between 5% and 10%, and many require the borrow to show the money has been saved over time. This is commonly referred to as genuine savings. ...

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20 July at 18:30

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Work & Money

Do you need to buy/lease more equipment or machinery? Whether it be an updated printer/photocopier, a company car, trucks from a pantech to a B-double, or earthmoving equipment I can help find a loan or lease to suit your needs. Commercial finance can take a number of forms and can help grow your business or keep it running efficiently day-to-day. Commercial finance can take many forms: A business overdraft, line of credit, commercial loan,cash flow finance, business equipment finance. Commercial finance can be a smart way to maintain or build your business.

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14 July at 18:22

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The idea of property investment is one that appeals to many Australians but sadly often overlooked because of the misconception that it is only within the reach of the wealthy.

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Margaret Dennis Greg Smee Leah Mac Gillian McFayden Gregory Dennis

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Negotiating with agents

In most property transactions you'll probably have to deal with a real estate agent, so it’s worth taking time to understand what makes them tick.

It’s important to be clear on one important point – a real estate agent represents the seller, not the buyer. Agents are paid a commission on the sale of the property, so it’s not just their responsibility to make sure the vendor gets the highest possible price, it’s in their interest.

Knowing this puts you in a better position to negotiate effectively with the agent and armed with a few tips and strategies you can maximise your chances of haggling the price down closer to a level that suits you.

Cash on the hip: A pre-approved loan and a deposit at the ready will give you the edge over other buyers who still have to organise their finance. Experienced agents have an eye for a serious buyer and you’ll be in a stronger bargaining position with your finances in order. 

Shoot low: Make your first offer low but not ridiculous. The first offer is more symbolic than anything else, but it shows the vendor that you are serious about buying the property while allowing \some extra room to move in the negotiation process. 

Be critical: Keep a keen eye out for defects and compile a list. From cracked roofing tiles to stains on the carpets, every little blemish can be used to drive down the price – so don’t be afraid to speak out.

Leverage: Use your financial position to gain leverage over the competition by offering to move quickly. Agents and vendors can get nervous when a property has been on the market a while; a buyer who is ready to act now and settle fast might see an extra 5 or 10 per cent tumble off the price.

Give me a call on 0432 108 391 and take advantage of my free service to help you get pre-approval for a home loan to give you the edge.

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[lucrative1-blog1]

Borrowing within your means

The choices you make when taking out a mortgage have long lasting implications – so you need to approach borrowing with a healthy attitude. 

How much you can borrow and how much you should borrow can be two very different things. 

While your lender should not let you borrow more than you can afford, ultimately the choice is yours – so be careful not to over commit yourself.When determining your borrowing capability, start by measuring your income against expenses, including your mortgage repayments. 

A good rule of thumb is that no more than 35 per cent of your gross monthly income should go towards servicing your mortgage.  Lenders use a similar method to work out how much to lend you. 

As a general rule, the bigger deposit you have and the higher your income, the more they should be willing to lend. 

This is particularly the case following the global economic crisis as banks have become even more risk averse.

Here are some factors to take into account when determining how much you should borrow rather than how much you can:  

How much debt can I handle? Don’t over commit. Borrowing too much can be a big strain on your personal life and lifestyle. Think about what aspects of your lifestyle you may be willing to give up, and those that you can’t. 

Am I being realistic? Houses are like stepping stones – it’s probably best to start with something affordable and move towards your dream home as your personal earning capacity and equity grows.

What are my plans? Think about what the future holds – both personally and financially. Are you a one or two income household and is this likely to change in the future? What about interest rates? Consider how any rate rise will impact on your ability to make repayments and factor that in when setting your borrowing limits. 

And don’t forget, there are added extras when purchasing a house, like solicitors and application fees, as well as ongoing commitments including council rates and utility bills – so consider these costs when determining how much you can borrow.