Friday, June 05, 2020

MORTGAGE

Your home loan is probably the biggest investment you will make in your life, and a debt that most people would like to pay off as quickly as possible. But how achievable is that?

Here we look at some ways to pay off your mortgage sooner... 

Re-evaluate your mortgage

How long has it been since you last had a good look at the details of your mortgage? Do you know where you are in terms of the progress you are making on paying it off, and importantly, is it still the best mortgage product that suits your needs?

With a long-term commitment like a mortgage, it is tempting to set and forget, and to just make repayments as they are due. But this can be a costly mistake. It is vital to regularly re-evaluate your mortgage and refinance where necessary. New products are always becoming available, rates change ad so can your circumstances. 

By regularly re-evaluating your mortgage, you could make real savings, pay off the debt sooner or release equity to invest elsewhere. 

Make more frequent payments

Time is money and you may not think you can afford to increase the amount of repayments you make to your mortgage, but it is a very worthwhile strategy which could see you clear your loan faster, with the added benefit of having to pay less interest overall. 

If you presently pay your mortgage monthly, consider changing to fortnightly or weekly repayments (if your mortgage product allows). For example, if your monthly mortgage payment is $3,000, half this pay to $1,500 each fortnight and by the end of the year you will have paid off $39,000 rather than $36,000.

Don't just pay the minimum

A minimum repayment is just that - a minimum! Many loans allow you to pay more than the minimum, whether it be ad hoc payments or regular overpayments. Check with your lender as to the terms of your particular product to see how much you can overpay. 

Even small increases can make a real difference. Simply by rounding up a number or adding an extra $100 to your payments will reduce your mortgage. If you don't think this is affordable to you, start thinking outside of the box - consider putting bonuses, tax returns and gifts into your mortgage and you will soon be on your way to clearing your mortgage faster. 

Maintain repayment levels when interest rates fall

Even if your lender reduces your repayments when fees or interest rates decrease, ask them to keep your repayments at the same level as before and you will pay down more of the principle with each payment that you make. 

Get offset

If your mortgage allows for it, use an offset account - this is an account which is linked to your mortgage, and the amount of money in the offset account is deducted from your outstanding loan balance when the interest is calculated. For example, if your mortgage is $600,000 and your offset account has $20,000 in it, you will only pay interest on the remaining balance of $580,000.

An offset account saves interest whilst still giving you access to your savings and for property investors, it means they can maintain the tax deductibility of the mortgage. 

Shop around for a better deal

Your mortgage needs to suit your personal circumstances and the loan you chose previously might not be suitable any longer. If your circumstances have changed or are about to change, consider whether or not your current mortgage is still the best product for you by discussing your needs with your mortgage broker who will be able to find you the right product and negotiate rates with lenders on your behalf. 

But remember, you may be liable to pay break costs or other fees to your current lender if you decide to make changes to your loan, so this needs to be carefully explored when evaluating the benefits of making any changes. 

Your mortgage broker will be able to provide details of any potential costs to make sure you have the right loan to get that balance down sooner. 

 

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. 

Louisa J Sanghera is a credit representative (437236) of BLSSA Pty Ltd AC 117651760 (Australian Credit Licence Np. 391237). 

hand shake

Recently, I sat across from a client who had a casual $2 million sitting in his bank account. That's right - two million dollars, just languishing in an ordinary bank account, not achieving very much. 

He wasn't investing in the stock market. He wasn't contributing extra to his super. And the only property he owned was the home he and his family were living in. 

Can you imagine? He had $2 million just sitting in the bank; that is known as dead money. With interest rates in the toilet and so many better options out there he could be using to grow his wealth, this seemed like such a wasted opportunity to me.

He may as well have had it stuffed underneath his mattress!

Of course, I knew that I had to get him in front of a great financial planner, pronto

This is something that comes up quite a lot for me as a finance broker. I'm not qualified or certified to give money advice, so in these situations, I always refer my clients to a reputable financial planner. 

As a broker, all my clients require adequate TPD and income protection insurance, and most of them have no idea how to get it, what products are available or why they even need it in the first place. 

So, virtually every borrower I meet needs the aide of a financial planner to navigate this. Not to mention those clients whose expenses are holding back their borrowing power, or those who have no clue how to best structure their finances to take advantage of tax breaks and other incentives. 

If I can refer these clients to a planner I know and trust to take care of these needs, not only does that planner benefit from a new client, but I'm also able to offer a greater variety of products to the client and possibly write them a larger loan. 

It's a win for the client, who moves towards a better financial position as a result of the advice, and a win for the financial advisor, who builds new business... which is why it blows my mind that more financial planners and brokers don't collaborate. The benefits for all parties involved can be huge!

Accordingly, for planners, taking on new clients means loads of information gathering as you get to grips with the state of their finances and their short and long-term goals. In the process, of course, you will tally up their current debt and how this will factor in your planning. 

This is the ideal opportunity to hand over to a broker, who can help with refinancing said debt at a more attractive rate, or recommending a product with inclusions that will better fit their goals. When they arrive back at your office with more manageable monthly debt repayments and the spare cash that’s been freed up through refinancing, they’ll be better able to implement your suggestions and the financial planner can take care of their insurance needs. 

In my mind, a savvy planner is one who looks for debt first, as this is an area where substantial savings can be made without any real changes to the clients’ lifestyle or goals. Clients are more willing and able to commit to these painless adjustments than they might be to a strict budget, and if they’re happier, they’ll refer more friends, family and colleagues to the professionals who have helped them.

The cross-collaboration opportunities don’t stop there. In our increasingly online environment, working together allows financial planners and brokers to boost our social media engagement, grow our LinkedIn presence, and get more visits on our websites – all of which can lead towards more enquiries, more referrals, and more clients.

It’s essentially free advertising. For instance, I might share and promote a great blog written by a planner colleague of mine, and in turn, he’ll do the same with my most recent article. We’ll comment on each other’s updates and congratulate each other on accolades and awards, like my recent Broker of the Year and Customer Service of the Year wins at the Momentum Media Australia Business Awards. All of this serves to build our reputations and credibility in the eyes of potential and existing clients.

And all the while, we are increasing our online visibility and driving more and more traffic, enquiries and commissions.

What do you think? Are you a planner who can see the value in collaborating with an experienced broker – or perhaps you’re a broker who never realised just how complementary the two professions are? If so, maybe it’s time to start hitting up your connections and see where it takes you both.

 

This article contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation or needs before making any decisions based on this information. 

Louisa J Sanghera is a credit representative (437236) of BLSSA Pty Ltd AC 117651760 (Australian Credit Licence No. 391237). 

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Contact Details

Zippy Finance 

PO Box 3078
North Turramurra
NSW 2074

T 1300 855 022 

Louisa Sanghera is a credit representative (437236) of BLSSA Pty Ltd ACN 117 651 760.  Australian Credit Licence 391237. ABN 85 168 278 975.

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