June 30, 2010
Tired of sitting on the sideline and want to score your financial goals sooner? Mid-year is a good time to review your progress over the past 12 months and strategy for the future, to help you hit the ground running in the new financial year.
According to Australia's largest independently-owned mortgage broker, Mortgage Choice, existing and potential borrowers now have a great opportunity to contribute any end of financial year bonus, new pay increase or tax return towards their property goals while checking they are on track to achieve them.
Company spokesperson, Kristy Sheppard explains, "It is an ideal time for borrowers and those-to-be to reassess their property goals, revisit their budget and make the most of any new windfalls while putting in place a solid plan for the new financial year."
"This applies whether you are looking to move out of the rental market through buying a home, purchase an investment property, upgrade or downsize your place of residence, pay more off your mortgage, or help your child into their first home.
"Setting realistic goals on a regular basis is vital. Biting off more than you can chew or constantly falling short of your expectations can set you back emotionally and financially. Now is the time to set your property goals in motion by thoroughly revisiting your finance strategy."
Consider the following tips when planning your property strategy forthe new financial year:
Cash up to cash in. Saving your tax return or bonus, forgoing luxuries and/or selling assets with a high monetary value can help you achieve your goals sooner. Contribute this money into your savings account to increase your deposit for a first, next or investment property purchase. Or, create a financial buffer by depositing it into your loan account, which takes time off your loan term and reduces the total interest owed.
Interest in advance. Investors with healthy cash flow and good savings habits might consider the tax advantages of an interest in advance home loan. These let you to pay, in advance, up to a year's worth of interest, allowing you to claim the tax deduction in the current financial year. There are limitations to consider, eg. at the end of the interest in advance term the loan may need to be renegotiated or switched to another type, often at your expense. Also, because these are fixed rate loans, they are usually not as flexible as variable rate loans.
Fixed repayments are luring. Some lenders have started to reduce their fixed interest rates. However, Mortgage Choice's May loan approval data showed just 3% of new borrowers chose to fix. These loans can provide peace of mind, keeping repayments stable over a fixed term. However, there may be fewer features on offer and you may incur significant costs to break and switch from the loan. Variable rate loans tend to be more flexible with features and the interest rate, but you must be prepared for rate rises. If you want to hedge your bets and take advantage of pros from each rate type consider splitting your loan between fixed and variable.
Think outside the repayments. Choosing a home loan requires more than finding the cheapest interest rate. There are so many other features to consider, such as the ability to make additional repayments, redraw extra funds and offset. For example, 100% off-set accounts enable you to link a savings account with your home loan account and 'off-set' the amount to reduce the interest accumulated on the loan. To demonstrate, if you have a 30-year $300,000 loan at 7% and your $5,000 bonus is in a full offset account, the loan term would be reduced by one year and five months and you would save approximately $22,500 in interest.
Match the loan type to your goals. Think carefully about interest only versus principal and interest loans. Although paying only the interest will not reduce the loan amount, it will result in smaller monthly repayments, allowing you to make greater contributions to your principal place of residence or to invest in another asset, while the property grows in value through capital gains. In comparison, principle and interest loans help you repay your debt sooner as repayments cover all the interest plus some of the actual loan amount.
Call Mortgage Choice customer service on 13 MORTGAGE.
For further information or to arrange an interview, please contact:
(02) 8907 0502 / 0407 450 860 / (02) 8907 0472