5 damage control tips for Christmas spending

Christmas is just a matter of days away and for many Australians, they’re likely to be the most expensive days of the year.

According to the Australian Retailers Association and Roy Morgan Research, we’re expected to spend over $48 billion in the lead up to Christmas 2016, so the Christmas shopping frenzy is bound to put a dent in a few credit cards!

 

Nobody wants to be a scrooge at this time of year, but it doesn’t pay to throw all caution to the wind. Here’s five great tips that can help you apply some damage control to your Christmas spending spree without giving up the simple joy of giving.

Make a list and check it twice.

Impulse purchasing is one of the worst spending traps during the Christmas shopping season. And it can be a particular problem if you’re one of those shoppers who just can’t resist buying a present for yourself every time you buy one for someone else. Making a list is a great way to stay focused on buying only what you need. It can also help you avoid the temptation to shower yourself with gifts when you should be waiting to see what Santa brings you first.

Take a sensible approach by making a list of everyone you need to buy a present for and putting a budget for the gift next to each person. It may be a good idea to download a budgeting app like TrackMySpend from ASIC’s MoneySmart website or Christmas Gift List from Google Play. These apps will help you keep track of the gifts you’ve bought, how much you’ve spent and how much you have left in your budget for further purchases.

Online shopping is not naughty, but nice.

With your carefully prepared list in hand, it’s time to hit the shops, right? Not necessarily. Visiting the stores makes it much more difficult to resist the temptation of buying things you don’t really need. And a trip to the shops can often be an expensive exercise in itself – you’ll probably need to pay for car parking, festive season snacks, not to mention plenty of energy drinks to keep you going. Shopping online can be an excellent way to save!

In order to maximise your savings, try doing a web search for discounts or coupons that you can use for the specific gifts you want to purchase. If you Google the item itself, you can often find several vendors and choose the least expensive – but make sure you include shipping costs when you are comparing prices and check the delivery period.

Social media is also a good way to grab a bargain, as retailers will often offer exclusive discounts to loyal followers. Simply look up the social media sites for your favourite brands and see what they have on offer.

Collaborate with family and friends.

If you ask most people, they’ll tell you they prefer quality over quantity when it comes to receiving gifts. If you can’t afford to buy an expensive item, then why not consider pooling your resources with some other family members? This could potentially save you a lot of money and at the same time, ensure you give great gifts that are genuinely appreciated.

Many larger families choose to take the Secret Santa option to reduce costs at Christmas. Rather than spend a lot of money buying an inexpensive (and probably useless) gift for each and every family member, consider putting everyone’s name in a hat and drawing one each. This will allow you to spend your budget on one decent gift, rather than risk overspending by trying to get a little something for everyone.

Buy your gifts wholesale or in bulk.

Every wine connoisseur knows that buying one excellent bottle of wine from the local bottle shop can be a bit expensive, but a whole case of the same wine can bring the price down considerably, particularly if you go direct to the supplier. Great wine can make the perfect gift for some people, but of course if you have many people to buy for and would rather not give alcohol, there are many kinds of gifts you can buy wholesale direct from the supplier or discounted in bulk.

Some ideas could include scented candles, body lotions and bath oils, t-shirts and caps, diaries and stationery sets, jewellery, exotic tea or coffee beans, glasses and tableware, artwork and ornaments, chocolates and sweets, lipsticks and make-up, perfume and aftershave – the list is literally endless! Simply go online and search for bulk suppliers of the kind of items that will make great gifts for your particular friends and family members.

Save on interest for bigger gifts.

If you plan to use credit to purchase your Christmas gifts this year, take a close look at your credit card statement and check how much interest you’ll be paying on your purchases. If your credit card interest is high, consider looking for an alternative card that offers a lower interest rate. You may even be able to find a card that offers you an interest-free period on a balance transfer from your existing card, so you could end up saving yourself some money there too.

If your Christmas Shopping List includes some big ticket items this year – perhaps it’s a new jet ski, family boat, a new car or even an overseas holiday – then talk to us about the most cost-effective way to finance your purchases. There are many options that could end up costing you much less in interest than a credit card, with flexible repayment terms that could help to make your purchase more affordable. Our job is to help you find the most suitable option available considering your personal financial circumstances and goals, so give us a call today.

What you need to know about interest-only home loans

An interest-only home loan is a product that allows you to obtain a loan and only pay the interest for a set period of time, without paying off any of the loan principal.

Many people think that interest-only home loans are only for serious property investors with aggressive purchasing strategies. However, all kinds of property buyers can apply for an interest-only loan and there are a lot of clever ways you can use them to your advantage.

As your mortgage and finance broker, we’re here to make sure you understand the different uses of loan products and how they may apply to your personal financial strategy and purchasing goals. In this article we talk about the pros and cons of interest-only products to help you decide if it’s time to say hello to interest-only.

The Pros

Smaller loan payments

During the interest-only period of the home loan, your monthly loan payments would be lower than with a principal and interest loan. This is because your payments only need to cover the interest on the loan. Great if you want to reduce your expenses!

Free up cash

Lower loan payments mean you could use your available cash for other purposes that may be financially beneficial. You could use the money to pay off debts to help save money on interest, make other investments to build wealth for your future, fund a loan to purchase another property or to make home renovations to increase your property value and equity position.

Tax deductible for property investors

Want to save money on tax? The interest on an investment property debt is usually tax deductible for property investors, as long as you follow the ATO rules. That means an interest-only loan could very beneficial if you are a property investor because it could help you to maximise your tax deductions and cash-flow. Unfortunately, if you are using an interest-only loan product to purchase a home as an owner-occupier, you will not receive any tax deduction for interest.

Benefits are ongoing for the life of the interest-only term

With an interest-only home loan, you can often choose an interest-only term from 1, 3, 5 or 10 years. This can be very beneficial for tax minimisation strategies and financial planning purposes. It could also be very beneficial for people buying a home on a tight budget as it can help you to plan your finances for the first few years you own the property as well as keep your loan payments lower.

Make payments on the principal when you have extra cash

Many interest-only home loans allow you to make payments on the principal of your loan if you want to. This means that you can still build equity in your property by making a repayment on the principal of the loan when you have the extra cash.

The Cons

It’s possible that you may not build any equity

Interest-only loan payments do not help you to build equity in your property because your loan payments do not pay down the loan principal. That means you will be relying on property prices to rise to gain equity (unless you make extra payments as mentioned above).

When the interest-only period ends, the loan will revert to a principal and interest loan and your loan payments will increase unless you make other plans

If you decide to take out an interest-only loan, you should be careful to plan ahead for what you will do at the end of your interest-only period. At that time, you will have to decide whether to renegotiate another interest-only term, allow the loan to revert to a principal and interest loan, refinance the loan, or sell the property to pay off your debt.

An interest-only loan will cost more in interest over the life of the loan than a principal and interest loan

Very few people keep a loan for the full 25 years, but you should be aware that the cost differentials between an interest-only loan and a principal and interest loan can be quite significant when calculated over the entire life of the loan. For example:

• With a normal principal and interest loan for $500,000 at 4.78% p.a. based on an LVR of 80% over 25 years, the total cost of interest on the loan would be $357,766 over the 25 year period.

• On an interest-only loan for $500,000 at 4.78% p.a. based on an LVR of 80% over 25 years with an interest-only period of 10 years, the total cost of interest on the loan would be $440,443 over the 25 year period. This means that the interest-only loan could cost you an additional $82,676 in interest compared to a 25 year principal and interest loan.

You may miss out on a golden opportunity to pay down the principal while interest rates are low

Is a principal and interest the right loan for you considering that interest-rates are now at all time lows? Sometimes it can be worth paying more now to save money later. Paying down as much as you can off the loan principal now could mean that when interest rates do rise, you will be paying those higher interest rates on a reduced loan amount. Of course, a reduced loan size could mean lower loan repayments and/or paying less interest in the long-term.

Ask us if an interest-only home loan could help you to achieve your goals.  As your professional mortgage and finance brokers, we know about the pros and cons of all home loan and finance products. We’re here to help you understand the different financing options available and give you expert advice on how you can be clever about applying them to help you achieve your goals. Everyone’s personal financial circumstances and goals are different and you can be sure we’ll take the time to listen and understand what you want to achieve. If you’re considering using an interest-only home loan, please get in touch. We’ll help you decide if it’s the right option for you.

How to access your equity (and what to do with it)

Saving up the cash for a deposit on a second property can be just as difficult as saving for your first home. So how do property investors manage to get their hands on enough money to build a decent portfolio?

The answer is equity. It’s a hidden source of wealth that grows inside your property purchases over time. Equity is one of the biggest financial benefits of home ownership, a benefit that could allow you to turn your first home into a money tree that helps you finance property investment activities and build wealth for your future.

What is equity exactly?

Your equity is the difference between what your home is worth and what you owe on it. For example, if your property is worth $500,000 and you owe $400,000 then your equity is $100,000.
In order to calculate your equity position properly, you will need to establish the current market value of your home. You can do an estimate yourself by comparing your home to the price of similar homes that have sold in the surrounding area recently. If you would like a more accurate assessment of your home equity, you will need to obtain the services of a professional valuation expert.

How do you access your equity?

Once the equity in your home has increased, it may be possible to access it. Accessing your equity requires making an arrangement with a lender. There are several different ways you can go about accessing your equity. The options that are available to you will depend on your personal financial circumstances and goals, so you should talk with a professional mortgage broker about which method is right for you.

The two most popular options to access equity are to refinance your existing mortgage to extract a lump sum, or to establish a line of credit against the equity in your home. However, it should be noted that a lender will seldom allow you to borrow against all of the equity in your home, particularly if you still have a mortgage. They usually prefer to keep back at least 20% of the equity in your first home as security.

How can you grow your equity faster?

A popular strategy to grow equity quickly is to add value to your property. This can be achieved by renovating or expanding your home. You can often create quite large equity gains with a relatively small capital outlay and the equity increase occurs as soon as you have completed the project. Improving your property also tends to help it to continue to go up in value more readily over time – out dated properties, particularly run down properties, tend to experience less value growth because prospective buyers view them as fix-me-uppers and only want to pay a bargain price.

If your property is on a large block of land, you may even like to consider subdivision as a means of accessing the equity in your home. The subdivided block will acquire a value of its own, which you can borrow against to build. Or you can simply sell the block and access the funds.

What is the equity investment strategy?

When investing in property, time is your friend. Over time, the equity grows in your first property, which you can then use as a deposit to purchase a second property. This will mean that you now have two properties growing in value over time, which has the effect of growing your total equity position twice as fast. After a little more time passes, you can access more equity from the first two properties to invest in a third property, and so on.

Whilst you continue paying the mortgage on your first property yourself, your tenants pay the mortgages on your second property and any further properties you may purchase after that. Both the tenant’s financial contributions and home value growth in the marketplace continue to increase your total equity position. The more properties you own, the more quickly your total equity grows.

Are there any risks?

There are always risks associated with any kind of investment strategy. The danger is that you will borrow too much money and when interest rates go up, your tenant’s rental contributions will not cover your mortgage repayments and you may not be able to cover the difference from your own pocket. If a decline in property prices was to occur at the same time as an interest rate rise, you may find yourself in the position of having to sell off your properties at a considerable loss.

The way to mitigate these risks is to invest conservatively and always get the advice of a professional mortgage broker to help you determine how much you should borrow. They will help you take into consideration what could happen in the worst case scenario and help to make sure you don’t get caught out.

For more information about using the equity in your home to invest, please call us today. We’ll be happy to help you formulate an appropriate strategy that’s right for your personal financial situation and goals and help you to get started by helping you access your equity and by getting you pre-approval on an investment loan.