The new financial year is a great time for Australians to revise their household budget and achieve their future financial goals sooner, according to Australia’s largest independently-owned mortgage broker, Mortgage Choice.
The recent bout of economic uncertainty means many people have or are in the process of changing their financial plans. Existing borrowers and those looking to enter the property market during the next couple of years should reassess their investment strategies, cut unnecessary spending and/or borrowing and prepare for future interest rises.
Mortgage Choice senior corporate affairs manager, Kristy Sheppard said “The middle of the year – the end of one financial year and the beginning of another - is an ideal time to revisit your personal and household expenditure and set clear financial goals for the year ahead. This applies whether, for example, you plan to move out of the rental market, purchase an investment property, upgrade your place of residence, pay more off your mortgage or help your child into their first home,” she said.
“Australians are an ambitious bunch, according to the 2009 Mortgage Choice Property Investor survey conducted in June. 20% of respondents looking to purchase an investment property in the next two years plan to have as many properties as possible and 39% are keen to secure up to two or three.
“These goals are optimistic, and it is terrific to see Australians looking positively to the future. However, borrowers need to be mindful we are experiencing a period of historically low interest rates, reduced mortgage payments, low rental vacancies and stronger demand for affordable housing that may be unlikely to continue once the economy gains ground again.
“It’s beneficial for Australian property buyers, owners and investors to maintain financial dreams that are manageable and attainable according to their current situation.”
Consider the following top tips when budgeting for a new financial year:
A new financial year means new goals and priorities
Considering adding to your brood? Feel a holiday is well overdue? Plan ahead and work out what in life is most important to you by distinguishing between things you ‘need’ vs. ‘want’. Forgo some luxuries to achieve your goals and then contribute any leftover money into your mortgage repayments, which takes time and interest paid off your loan. You may even consider selling property or other assets with a relatively high monetary value in order to achieve other goals.
Invest in your family’s future
Whether you are single, living with a partner or married, it can be advantageous to invest any extra money you receive such as an inheritance, your tax return or an end of financial year bonus into your home and/or investment property – depending on your goals, of course. Why? Clearing debt can reduce personal stress and benefit those closest to you.
Don’t be fooled by the honeymoon period
Some borrowers are offered a treat when they take out their loan with a low honeymoon rate (usually of one year). Keep in mind this rate will default to a higher rate after the introductory period expires. If you do choose to take advantage of a honeymoon rate, it is a good idea to make higher loan repayments from the start – you can reduce your loan term, be ahead on your repayments and will avoid a shock when the honeymoon rate is over.
The only way from here is up
Historically low interest rates won’t last forever. Borrowers and those looking to purchase property within the next few years should consider the impact future rate rises will have on their mortgage repayment amounts and household expenditure. While you may have been enjoying the low rates it’s a good idea to plan to repay your loan at a higher interest rate. Consider calculating your repayments based on a 8% interest rate (at 300 basis points above the ‘neutral’ cash rate, this is considered to be a more reasonable expectation of a ‘usual’ mortgage interest rate).
Increase the health of your wealth
The new financial year may be the ideal time for you to add to your property investment portfolio, upgrade to something bigger or downsize to a property that is more manageable. Borrowers should be aware there is a wide range of loans and lenders to choose from. Smaller lenders can offer products that are competitive to that of major lenders.
Debt free
Before taking the leap into a new financial commitment revisit any existing loans (car, personal or property) and consider consolidating your debts into one loan for easier management. However, be aware this will stretch those debts over the life of your mortgage. If you do consolidate, it is a good idea to continue making the same or similar repayments on those debts so you pay them off within your mortgage as quickly as possible, though these will be made at the lower mortgage interest rate. Or better yet, clear your debts before taking on any new ones - a clean slate and good credit rating are a great starting point.
For further information or to arrange an interview, please contact:
Kristy Sheppard
Mortgage Choice
(02) 8907 0502 / 0407 450 860
kristy.sheppard@mortgagechoice.com.au
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