Rather than 12 monthly payments you will actually make 26 fortnightly payments in a year. You will save on interest and you will end up paying off more capital in any given year.
For a $300,000 loan over 30 years this could save you almost $120,000 in interest payments over the term of the loan and you could reduce the term of your loan by around 7 years!
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Wednesday, November 30, 2011
Home loans – back to basics
With all the talk of Interest Rates changes I though it might be worth looking at home loans and how to get rid of your home loan ASAP.
Firstly, unless you are very strict with your money and have a good handle on exactly what you are spending try to avoid an ‘All in one’ portfolio type loan which work like a normal bank account in permanent overdraft.
These loans are extremely flexible, but the lenders are banking on you getting lost with your budget and essentially treating it as an interest only arrangement – always reverting back to your max overdraft limit.
As with anything you can use the flexibility to your advantage, but be very careful. If you are not great at budgeting do not use the loan account as your everyday bank account – maintain a separate every day transaction account.
The thing to realize is that despite what they say the banks actually want you to be in debt for as long as possible – that is how they make their money so when you are offered fancy new home loan product, make sure you know exactly what you are signing up to.
The biggest mistake is using home loans to free up cash. Using home loans as a cash flow tool is extremely risky and your only aim with your home loan should be to pay it off ASAP. Reduce the term as much as you can and overpay as much as you can afford as often as you can afford.
There are people out there who still promote interest only loans – but my view – steer well clear of them unless it’s for an investment property and you know exactly what you are doing.
Over the coming days I will give you some easy and practical ideas on how to pay your home loan off quicker...................
All the examples are based an initial loan of $300,000 over 30 years at a rate of 7.5%. The savings are not exact and are designed to be nothing more than thought provoking. The scenarios are generic and do not take individual circumstances into account. You should seek independent financial advice before making any significant changes to your financial products.
.
Firstly, unless you are very strict with your money and have a good handle on exactly what you are spending try to avoid an ‘All in one’ portfolio type loan which work like a normal bank account in permanent overdraft.
These loans are extremely flexible, but the lenders are banking on you getting lost with your budget and essentially treating it as an interest only arrangement – always reverting back to your max overdraft limit.
As with anything you can use the flexibility to your advantage, but be very careful. If you are not great at budgeting do not use the loan account as your everyday bank account – maintain a separate every day transaction account.
The thing to realize is that despite what they say the banks actually want you to be in debt for as long as possible – that is how they make their money so when you are offered fancy new home loan product, make sure you know exactly what you are signing up to.
The biggest mistake is using home loans to free up cash. Using home loans as a cash flow tool is extremely risky and your only aim with your home loan should be to pay it off ASAP. Reduce the term as much as you can and overpay as much as you can afford as often as you can afford.
There are people out there who still promote interest only loans – but my view – steer well clear of them unless it’s for an investment property and you know exactly what you are doing.
Over the coming days I will give you some easy and practical ideas on how to pay your home loan off quicker...................
All the examples are based an initial loan of $300,000 over 30 years at a rate of 7.5%. The savings are not exact and are designed to be nothing more than thought provoking. The scenarios are generic and do not take individual circumstances into account. You should seek independent financial advice before making any significant changes to your financial products.
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Tuesday, September 8, 2009
Spend or Save?
Financial recovery package or just a band-aid? You decide!
Over the last few weeks there have been a lot of people on TV, radio and on Blogs telling us that the AFC (Australian Financial Crisis) is as good as over.
- Real Estate ‘experts’ are telling us that house prices have started to stabilise and in most cases increase.
- Retailers are telling us how consumer confidence is improving
- The ASX is on the up
- There is talk of imminent interest rate rises
Wow – things must be good. Surely we’re in the clear!?
Hmmm….. take a step back a moment. Have a think – are things really on the up.
Sure consumer confidence is on the up, but what about commercial and business confidence – which is really what matters?
How many empty shops are there in your local High Street? Have you notice how much commercial property is sit empty with For Lease signs outside. Take a look on your way home tonight. You know the one I mean – that brand new building on the corner that has been empty for over 6 months.
The cold facts are that commercial confidence is far from where it needs to be for us to say that we are in any kind or recovery.
Here’s a rather negative but realistic view on where we are at right now.
Things started going wrong last year, so K Rudd threw some cash at the problem. Things didn’t get any better so this year he threw some more money at it and it seemed to wok.
Yes it worked on the surface and helped consumer confidence, but did it actually do anything for a GNP? NO!
So what did the K Rudd financial stimulus really do? The simple answer is that it artificially inflated consumer confidence.
A lot of people ended up with a bit of extra cash which they were encouraged to spend. Retailers were happy, consumers seemed happy all good….. you’d think so, but what happens when the money runs out?
The cash stimulus was a knee-jerk reaction and it was a just a cosmetic fix. The cracks are still there under all the make-up and the political spin!
Then we have the new home owners grants and extra incentives – excellent idea – NOT! Think about it. K Rudd is encouraging people who cannot really afford it to buy homes. Offering inflated incentives and bonuses means that people who could not afford a house 12 months ago, can afford one now. Again on the face of it this seems like a great idea, but what happens when the RBA increases interest rates based on artificially orchestrated consumer confidence? We are being lined up for the biggest fall of all. Has everyone forgotten how all of this started? Over borrowing, over gearing… need I say more?
Over the last 12 months K Rudd and the G20 have been blowing smoke up each others arses telling each other how great they are and how well they are managing the GFC. It’s time to wake up ladies and gents!
What has been accomplished by K Rudd and Co over the last 12 months is pretty poor when you actually look below the surface. Essentially, he pushed Australia into deficit by spending $40+ billion on a band-aid solution which long-term will actually make the problem even worse.
- Interest rates go down
- Government stimulus package
a. Cash payments
b. Insulation grant
c. Home buyers grant - People think they have more money and spend up
- Consumer confidence increases
- New home buyers – buy homes
- Low interest rates, cash incentives, people encouraged to spend spare cash to ‘support the economy’
- House prices on the way up
- Everyone is happy?
- Interest rates go up thanks to artificial consumer confidence
- Cracks start to appear
- New home owners cannot afford repayments as rates increase
- Tax rises to pay off deficit
- Welcome the real recession!
Hold on tight – things could still get a lot worse!
My advice – pay off as much of your home loan now when the interest rates are low – over pay as much as you can to reduce the capital. When rates rise as a result of artificial stimulus you'll be glad you did!
Wednesday, May 20, 2009
Consolidate your Super
Many of us have changed jobs in the last 5 years. Some more than others. The question is do you know where all your Super is?
When you move jobs the temptation is to just sign the form and go with the default Super fund provided by the employer. Anything else is often seen as ‘too hard’.
For this reason many Australians have numerous Super funds sitting around the place with different providers.
Well – time to consolidate!
Why consolidate – simple! If you have your super sitting in 4 different funds with different providers you will be paying 4 lots of charges. As there are no additional contributions going into 3 out of 4 of the funds, it is likely that they are being eaten up by management fees and charges.
There are services available to find all your Super contribution and Switching has been made very easy. It just takes a few forms and the receiving Super Fund will generally help you as much as they can.
Move all the money into 1 place and you only pay 1 set of fees and charges instead of 4 – instant saving of 75%!
Now – talk to your Financial Advisor and you may be able to save or make even more money by choosing the right Super Fund and the right investment strategy.
Take charge of your Super. It’s your money!
When you move jobs the temptation is to just sign the form and go with the default Super fund provided by the employer. Anything else is often seen as ‘too hard’.
For this reason many Australians have numerous Super funds sitting around the place with different providers.
Well – time to consolidate!
Why consolidate – simple! If you have your super sitting in 4 different funds with different providers you will be paying 4 lots of charges. As there are no additional contributions going into 3 out of 4 of the funds, it is likely that they are being eaten up by management fees and charges.
There are services available to find all your Super contribution and Switching has been made very easy. It just takes a few forms and the receiving Super Fund will generally help you as much as they can.
Move all the money into 1 place and you only pay 1 set of fees and charges instead of 4 – instant saving of 75%!
Now – talk to your Financial Advisor and you may be able to save or make even more money by choosing the right Super Fund and the right investment strategy.
Take charge of your Super. It’s your money!
Thursday, April 2, 2009
Budget on your iPhone
Budget on your iPhone - track where your money is going and how you can save.
Ever wondered how much money you spend on coffee in a day? A week? A year?
How about seeing how much money you could really save by taking a packed lunch to work?
Or seeing where your monthly paycheck went even though it’s two weeks until payday?
Big Spender is an easy to use application designed to help you track your personal spending. Simply make an entry each time you spend some money. Over time, you will be able to see where you're spending the most, and identify areas where savings can be made.
Big Spender application available here.
Ever wondered how much money you spend on coffee in a day? A week? A year?
How about seeing how much money you could really save by taking a packed lunch to work?
Or seeing where your monthly paycheck went even though it’s two weeks until payday?
Big Spender is an easy to use application designed to help you track your personal spending. Simply make an entry each time you spend some money. Over time, you will be able to see where you're spending the most, and identify areas where savings can be made.
Big Spender application available here.
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