EOFY: It Is a great time to get your budget under control!

Getting your budget under control and your finances in order is absolutely essential to anyone looking to apply for a home loan, but it is particularly important for first home buyers about to take the first step on the property ladder. Now the end of financial year has arrived and you are getting all your paperwork together for your tax return, why not take stock of your financial situation and plan your budget for the year ahead at the same time? Here are a few things to consider if you are looking to get financially fit for a home loan application in the new financial year.

Reassess your budget and get serious about your savings

When you apply for a home loan, particularly as a first home buyer, it is important to have a thorough understanding of your financial situation and good savings habits. Lenders will want to see an established history of regular savings before they will give you their best rate on a home loan and for this reason, you should take a realistic look at your spending habits and create yourself a budget to ensure your savings will grow at a steady rate.

Work out how much deposit you will need and set yourself a savings target

If you set yourself a savings target, you may find it will be much easier to stick to your budget. To set your target, first you will need to work out how much you need for your deposit. The amount of deposit you will need will depend on the cost of the property you want to buy, but if you have an idea of the kind of property you want to purchase you will be able to set a goal. It is recommended that you have a deposit of at least 5% of the purchase price, however if you can possibly save 20% of the purchase price you will avoid paying Lenders Mortgage Insurance.

Make an accurate assessment of any debts and ongoing expenses

Lenders assess your creditworthiness on the amount of money you already owe, your ability to repay your debts and your capacity to take on more debt. Paying down any credit card debts or personal loans prior to applying for your home loan will improve your borrowing capacity and give you the best chance of loan approval when you apply.

Even if you do not have any debt on your credit cards, lenders take into consideration the credit limit on your credit cards and count this as potential debt. So if you have several credit cards, it may be a good idea to cancel some of them now if you are planning on applying for a home loan in the next financial year.

If you have a lot of debts, think about consolidating them

If you take stock of your debts and realise you will not be able to pay them all off anytime soon, it is a good idea to look at ways to reduce your interest liability. Credit cards, store cards, short-term personal loans and cash advances all carry high interest rates and this can make them quite difficult to pay down. Getting your finances in order may mean it is time to consolidate your debts.

Consolidating your debts means rolling all your debts into one, usually using a loan that has a lower interest rate. If you have quite a few expensive debts it may be possible to roll these into your home loan if you have one, or perhaps a personal loan that carries a lower interest rate overall. This may save you a great deal of money on interest payments, which is money you could use to pay off your debts faster. It could also allow you to spread your repayments over time, making them more affordable. If you want to be eligible to apply for a home loan in the next financial year, consolidating your debts sooner rather than later may be a good idea.

The end of financial year is a great time to get your finances in order and you never know, you may get a tax refund that could really give a boost to your savings efforts for a deposit for your home! Remember, we are here to help you get your finances under control so you can save your deposit and get into your new home sooner. If you are planning on applying for a home loan in the next financial year, do not hesitate to give us a call today.

EOFY: Why property investors love tax time

Love getting a tax refund? While nobody enjoys all the paperwork that goes with filing a tax return, getting it right can be rewarding particularly if you are a property investor. One of the major benefits of investing in property over other asset classes, is support for your investment from the Australian government in the form of tax relief. And of course, if you have a property investment or are considering investing in property soon, you will not want to miss out on a single cent from any of the deductions that are available to you. Here are some tips to help you maximise your tax benefits this financial year if you are a property investor.

Make sure you are claiming every cent you can for depreciation

Depreciation is one of the major tax benefits that property investors can claim. Depreciation occurs as an item’s worth becomes less over time as it is used and it wears out. When you are talking about a tax deduction, depreciation is a method of allocating the cost of an item over its useful life. For example, if your investment property has an oven that is valued at $1,000 and has a ten year life, you can claim $100 against your taxable income for 10 years on that individual item.

With an investment property, you are only allowed to claim depreciation on certain items against your taxable income. There are two types of depreciation tax deductions that you can claim:

Depreciation on plant & equipment: this refers to items within the building like ovens, hot water heaters, air conditioners, carpets, blinds, light fittings and so on.

Depreciation on buildings or ‘building allowance’: this refers to the construction costs of the building itself, such as concrete, brickwork, and so on.

In order to make a tax claim for depreciation, you need a report that identifies all the things that may be claimed against your tax and the current value of each item. This is called a depreciation schedule. Unfortunately, the Australian Tax Office will not allow you to create your own depreciation schedule, you will need to employ the services of a qualified Quantity Surveyor to do a thorough inspection to identify what can be claimed and make the necessary valuations on those items. But do not worry, the cost of preparing your depreciation schedule is also tax deductible.

Spend money on property maintenance now so you can claim it back right away

Every investment property requires maintenance and if you do it in June, you will not be out of pocket for the expense for very long. If your property’s smoke detectors need servicing, or you have not sent the pest control company around for a while, now is a good time to do it. Cleaning, gardening and lawn mowing costs are also usually tax deductible (for you, not your tenant). Any other necessary repairs, maintenance and service costs – like checking the gas and hot water heaters for example, are also tax deductible for most property investors, so consider taking care of any issues before the end of the financial year.

Get back the other money you hate to spend

When you own a property, it sometimes seems like you have to pay out a lot of money for invisible things that do not have much benefit for you, which can be annoying. Tax time is when you can get your own back, with land tax, council and water rates, property management fees, advertising costs for marketing the property to tenants, body-corporate and strata-title fees all tax deductible expenses. You can also claim back any travel and car expenses directly related to inspecting your investment properties, but do keep a log book and any relevant receipts.

Remember to claim your finance and insurance costs

Generally speaking, you are allowed to claim all finance costs associated with your property investment, including bank fees and charges, borrowing costs and interest on your loans. All insurance costs for your investment property are also tax deductible. So if you talk to us about your insurance coverage now, we can make sure you have the right cover for your current needs just in time for you to put in a claim for the cost with this year’s tax return.

Remember, if you are a property investor or are considering investing in property soon, we are here to help you get your finances right. We can help you access a loan structure that is right for your ongoing investment strategy and help you access the most competitive rate available for you considering your personal financial circumstances and goals. Give us a call today.

How to avoid paying too much interest

Many people do not think twice about paying interest on everything they purchase. For a lot of people, it is just the price they have to pay for convenience and getting the things they want in life. And when you are borrowing money to make money, as with your home loan, your interest repayments may be considered a necessary evil if you want to get ahead.

But does paying interest always make sense? If you are not very careful, the interest you pay can end up costing you more than you can afford. Here is three simple ways to help you keep your interest liabilities under control.

Do not use a credit card

Many people think they just could not live without their credit card. But in terms of interest payments, this is the most expensive form of debt there is. If you really think about it, if your credit card interest is 20% per annum, you are paying 20% more for everything you buy if you take a year to pay it off. Do you really want to be doing that?

We recommend that wherever possible, you make your everyday purchases using cash and only use your credit card in the event of an emergency. This may mean saving up for larger purchases rather than buying them immediately with your credit card. When you do have to make a purchase with your credit card, you should try to pay it off as soon as you can – within the interest free period if at all possible. Some credit cards offer 55 days interest free on purchases, so choose one of these if you can.

Pay less interest on your home loan

There are several ways to reduce the amount of interest you pay on your home loan. You can make repayments more often – say weekly or fortnightly instead of monthly, you can use a mortgage offset account, or you can make extra repayments on your home loan to reduce the interest payable. All these measures together can accumulate to cut years off your home loan and save you tens of thousands of dollars on interest over the life of your loan.

Another way to reduce the interest you pay on your home loan is to keep it up to date – so you do not pay the lender more interest than is strictly necessary. We recommend that you contact us for a free home loan health check every year, or at least every two years. That way you can always make sure your home loan has the lowest interest rate available to you.

Consolidate your debts

You see advertisements for debt consolidation on TV all the time – they are usually aimed at people who are in trouble with debt. However, there is no need to wait until you are in trouble to consolidate your debts, you can do it now to reduce the amount of interest you have to pay.

Consolidating your debts means rolling all your debts into one, usually using a loan that has a lower interest rate. If you have a home loan, for example, you could refinance in order to use some of the equity in your home to pay off all your other debts and access the lowest interest rate available.

If you do not have a home loan and have quite a few expensive debts like credit cards, car loans, or store credit, it may be possible to roll these into a personal loan that carries a lower interest rate overall. It also allows you to spread your repayments over time, making them more affordable. If you want to eventually end up debt free, consolidating your debts is a good place to start.

As your finance and mortgage broker, we are not just here to help you find the right solution for your home loan. We can help you with all your financing needs including budgeting, debt management and debt consolidation. We consider it a vital part of our service to save you money on interest – so you can use your money to enjoy a better lifestyle or invest it to build wealth for your future.

For assistance or more information about reducing your interest obligations, please give us a call*. We’ll be happy to help.

*Your full financial situation will need to be reviewed prior to acceptance of any offer or product.