September 19, 2011
School holidays often impact Australian families juggling additional entertainment costs and their regular financial commitments. Many parents rely on credit for unplanned expenses and may not be aware that there are simple ways to take control of holiday cash flow headaches.
Home loan features, such as a redraw facility, can provide a clever way to stay on top of spending, according to Australia's largest independently-owned mortgage broker, Mortgage Choice.
Company spokesperson, Kristy Sheppard said, “Borrowers are often unaware their home loan may allow them to stash extra funds for cash-heavy periods such as school holidays and save money over the long term. Some still put funds away into a savings account instead even if they are aware.”
“I question why a borrower who can contribute extra funds into their home loan as a buffer, and redraw without penalty when that money is needed for unexpected expenses, would store the funds in a savings account where the interest made is taxable. Which will build a stronger financial position?
“By contributing the extra into their home loan, they'll accrue less interest, lowering their repayments. Every extra dollar above the minimum repayment reduces the principal loan amount the interest is calculated on. This same theory applies to funds kept in an offset account attached to the home loan.
“Of course, redraw and offset account usage costs need to be taken into consideration. There may be one-off setup costs to activate a redraw facility and some lenders set minimum and maximum redraw amounts and frequencies. Such a facility works better for those who occasionally redraw extra funds.
“Borrowers requiring frequent redraws would be better suited to a loan with an offset account. This links a savings account of sorts with their home loan account and ‘offsets,' or uses, that amount to reduce the daily interest accumulated on their mortgage while still being available to withdraw. Note that some lenders offer partial offset only and some attract set up and ongoing maintenance costs.”
Consider Mortgage Choice's other tips to consciously save, manage spending and enjoy the holidays:
1. Set a yearly savings plan. Utilise your home loan's features or, if it works better for you, regularly deposit funds in a high interest savings account. Review it often to stay on top of holiday spending.
2. Involve the kids in creating a holiday agenda with a budget attached. Your children may be more appreciative if they are involved in the process of deciding what outings the family can afford.
3. Keep activity costs down, but the excitement up. With so many children armed with games consoles, invite your children's friends over for a games night where everyone brings some food.
4. Research multi-passes and other discount offers. If pre-purchasing tickets, ask for multi-park or ride passes as well as family or student discounts. Monitor group buying sites for special deals.
5. Calculate what you want to spend next holiday season. Divide the total spending of the most recent holiday period by 12 (if you are paid monthly or by 26 and 52 for fortnightly and weekly) and add a little inflation to calculate how much you need to save for the next holiday season.
For further information or to arrange an interview, please contact:
(02) 8907 0472 or 0407 416 124