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eNewsletter – January 2016
Welcome to the January edition of our newsletter!
No news from the Reserve Bank this month, as they take their annual month off. Hoping that you also enjoyed a break and had the opportunity to relax with friends and family. Welcome to 2016.
In this edition, we look at 3 ways to save on utility bills.
We also discuss the differences between a fixed and variable loan.
And finally, we’ll clarify exactly what negative gearing is and what it means for you.
As always, whether you’re looking for a loan, health checking the one you have, or need answers to questions about property finance, we’re here to help.
Senior Mortgage Broker / Director
Customers First Mortgages & Insurance
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your Cost of Refinancing. Click here for details.
Nobody likes bills. Everyone tries to avoid them or cut down on them or watches in despair as their bank account trickles down as a result of them. Utility bills can be a major factor in stopping you from budgeting correctly and achieving your financial goals.
In 2010, the Australian Bureau of Statistics (ABS) reported that 13 per cent of households are unable to pay their utility bills, while in 2012 they reported that the average household spends $99 a week on energy, including gas, fuel, water and electricity. It’s no surprise that people are stressing out over them!
So what can you do to defeat those utility woes?
In its 2012 study on utility costs, the ABS found that Australians were spending $39 a week purely on electricity and gas on average, but those that used solar power or water were saving $6 due to their green technology: almost 15 per cent every week! Six dollars may not seem much, but over the course of a year that adds up to $312.
With residential solar panel installation costs at a three year low in 2015 according to Solar Choice, you should definitely consider solar! Look into speaking to a mortgage lender to help you find the right loan.
Don’t just standby, turn it off
This is an obvious one: rather than simply letting your electronics go to standby, power them down instead. According to the Department of Industry, Innovation and Science (DIIS), that little flick of the switch could save you $175 a year from game consoles alone! That’s a huge saving for a singularly small effort.
Televisions, computers and even microwaves often go on standby. A good rule of thumb is if you aren’t using it frequently, unplug it completely.
Efficiency is key
Did you know that installing a water-efficient shower head could save you $350 a year, according to the DIIS? There are all sorts of ways to make your household appliances more efficient, but your best bet is simply to upgrade your existing amenities, particularly if they are getting a little old. An investment in energy efficiency now could save you a great deal in the future, and help push you towards better budgeting results.
We hope these tips help you reach your financial goals, but if your local utility bills are getting you down, you may want to consider consolidating your debts with a home loan. Speak to us today to find out your options.
Should I fix or should I vary? That’s often the question for many a home loan applicant. Knowing the difference – and the unique pros and cons – of each type of interest rate is critical to making the right decision when taking out a mortgage.
What is a fixed rate?
A fixed rate loan is exactly that – FIXED – rather than moving up and down as the lender sees fit, the rate is set at a specific level for a certain period of time – anywhere between one and five years. During these years, no matter what happens with wider economic conditions, the rate will stay exactly the same.
What is a variable home loan?
Variable home loans are products where the interest rate fluctuates based on the movement of the official cash rate (OCR). Because the OCR has been at rock bottom levels lately, variable rates have similarly fallen. However, if the OCR were to go up, so, likely, would the variable interest rate.
So, which one is better?
It’s not as simple as one being better than the other. Each has its advantages. Because a fixed rate stays the same, you get a greater stability in your monthly repayments, making budgeting easier. As well as this, if rates have fallen significantly, fixing your rate could be a good idea – this way, you protect yourself from any future rate increases while making the most of current lows.
Of course, you have to time it well. Some people fix only to see interest rates fall further and further in subsequent months, locking them into a higher rate. It’s also worth noting that, a lender will charge you a fee to make extra repayments on a fixed rate, beyond what they set as a moderate buffer amount.
Is a fixed rate for me ?
The answer to this will depend on your appetite for risk. It is important to consider the variable / fixed interest rate differential at the commencement of the period and then overlay your own thoughts on your belief for the future direction of interest rates. As a guide however, should you envisage a possibility of the sale or refinance of the home within the time period being considered, then you definitely remain at a variable rate. This is the most flexible option that allows you to make future decisions without significant penalties.
Do I have to choose?
Not necessarily – there is also such a thing as a split home loan which allows you to utilise both, though that’s a whole topic on its own. Please give us a call should you wish to consider any of these possibilities.
“Negative gearing” is one of those terms you’ve probably heard being thrown around by people in the real estate industry. If you’re a novice home buyer though, not versed in the language of property, for all you know it’s something to do with a car, or a way to prepare dessert.
Just as well we can answer all of the basic questions about negative gearing that you’ve been burning to ask. If you’re thinking about taking out a home loan for investing, it’s definitely worth knowing.
So what is negative gearing?
Negative gearing simply means that the income you get from a rental property is less than the costs of managing it. It means you’ve made a loss in terms of your taxable income, which you can offset from your salary or wages to lower your tax bill. Losing is winning, as there are acceptable tax deductions such as depreciation that don’t involve you parting with cash. Black is white and down is up!
What are some of these costs?
There are a lot of different costs that might outweigh the rental income of a property. One of them might be the interest payments on your fixed home loan. Others might be any repairs or maintenance you had to shell out some cash for to keep the property looking good. It might even include cleaning costs, council rates and the expense of ridding your home of pests.
That’s all well and good, but it’s pretty abstract. Could you put it into numbers?
Sure. Let’s say you buy a house worth $550,000. You pay a $50,000 deposit, leaving you with a $500,000 mortgage, which has an interest rate of 5 per cent. Annually, this means, you’re paying $25,000 in interest.
At the same time, you’re charging rent for this investment property, which gives you a tidy $450 a week. This is $23,400 a year – just short of how much you’re paying in interest. Add on all the other costs involved and your loss gets bigger.
Thankfully, with Australia’s tax system, you don’t have to swallow this as an outright loss. The negative effect of your investment results can be used as an deduction to reduce the amount of tax paid on your personal income – you can use it to make some handy tax savings, which could be useful in the long run.
Thinking positively toward negative gearing yet?