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The trick is there is no trick. Unless you strike it rich, debt reduction always takes financial discipline and usually some sacrifice. But if you are prepared to prioritise your spending and adopt a long-term focus, there are ways to slash your mortgage and get ahead.

Get the right loan

Apart from possibly paying for features you don’t need or missing out on a lower rate, you need to think beyond the here-and-now and consider your debt if interest rates climb.
Look for a loan that suits your circumstances. If you plan to make extra payments, consider a redraw facility that allows you to tap into the buffer you have built up, with no penalties or restrictions.

Securing the lowest possible rate is important, but make sure the offer is not a honeymoon rate, which will expire in six or 12 months and may leave you paying a higher rate for the life of the loan than if you had borrowed elsewhere.
If switching lenders or to a new type of loan, make sure you weigh up the cost of any switching or early exit fees against what you expect to save before signing on the dotted line.
A mortgage broker can help you navigate and compare the hundreds of loans available to find the right one for your situation.

Make extra payments as soon as possible

You pay the most interest in the first few years of a loan when the principal is at its highest. The sooner you can start reducing your principal, the better.

Let’s say, for example, you start out with that average new home loan of $444,000, taken out for 30 years at 5.5 per cent per annum. And say you tip an extra $100 a month (a modest $23 a week) into the repayments. You would knock $84,951 or 2.7 years off your debt. Pay an extra $200 a month and save $147,930 or 4.89 years. Super-size that to $300 extra per month and you will slash a massive $203,054 or 6.71 years off your mortgage.

You should also pay any windfalls, such as tax returns or work bonuses, into your mortgage to chip away at the principal faster.

Set your savings to work

Another way to make big dents in your mortgage debt is to leverage any savings via an offset account. Basically your savings work for you because they are offset against your loan balance to reduce the amount of interest you pay. If you have a $200,000 loan, for example, and $20,000 in a savings account linked to your mortgage account, your interest repayment will be calculated on $180,000. To maximise your savings balance and cash flow management, have all of your income paid directly into the account and all of your expenses paid out of it. Hopefully, your cash in is greater than your cash out, so there are savings to offset against your loan. Maximise your savings further by putting as many of your expenses as possible on a 55-day interest-free credit card and pay the full balance by the due date. That allows you to maintain as much in your savings account for as long as possible each month, with interest on your home loan calculated daily but charged monthly. The example above is a very neat one to illustrate the concept. Your savings account will fluctuate depending on your monthly cash flow, and so will your interest repayments. As long as month on month, the savings are growing and the loan balance shrinking, you are heading in the right direction.

If you struggle to save or be disciplined with credit cards, this strategy may not be right for you. You might be better off setting up a direct debit straight from your pay for extra repayments on your loan.

Instead of an offset account your lender may offer you a line of credit, where all of your income and debt run in and out of the same account, so your mortgage basically becomes your transaction account. The more funds that go in – and stay in – the lower your interest repayment each month and the faster you pay down the debt. The problem is many borrowers find they are not disciplined enough to keep reducing the debt and tend to treat the available balance as disposable income. While they can work for shrewd owner-occupiers, lines of credit are generally better suited to property investors who are looking to negative gear and rely on capital gain over time.

Cash flow is king

You may be wondering where to find funds for extra loan repayments or how to stockpile savings in an offset account. It comes down to how you manage your cash flow, which is essentially how you prioritise your spending. Make an honest appraisal of your expenses each month and look for discretionary costs you can get rid of or cut back. It may mean eating out less, taking your own lunches to work, cleaning your own home, taking cheaper or fewer holidays or buying less expensive clothes. Most people who have made significant inroads on their mortgages faster than others have made sacrifices along the way. Think of it as short-term pain for long term gain, which is ultimately a better financial future.

Cash in on deductions

You still have time to make any tax deductible purchases before June 30. Check with the ATO what you can claim for your specific job if you are a PAYE employee.
Small business owners have until June 30 this year to cash in on the $20,000 instant asset threshold. This allows you to immediately deduct the business use portion of a depreciating asset that costs less than $20,000.

Now is also the time to make tax-deductible donations to a registered charity of your choice.
If you are cashed up, you may be able to pre-pay some tax deductable expenses, such as accountant fees, interest costs on investments and some work-related expenses, for the next financial year. Check with your financial advisor to ensure you are eligible for pre-payments and they suit your situation.

The festive season might be a distant memory but many of us will still be paying for it well into the future. According to the Australian Securities and Investment Commission (ASIC), more than a third of us put our Christmas gifts on plastic, racking up an average individual debt of $1,666.

 

The Christmas splurge adds to our mounting household debt, already among the world’s highest, with $30 million owed on credit cards².

Our penchant for plastic even has the banks taking steps to help curb our habit. Late last year the Australian Bankers Association proposed a new code of conduct to ban unsolicited credit card limit increases, make it easier for consumers to cancel cards, and improve transparency on interest-free periods³.

The reality, however, is the buck stops with each of us when it comes to personal debt. Here are Haven’s tips to get on top of credit card debt in 2018 before it gets on top of you.

Take stock

The first step to crunching debt is knowing how much you owe. It can be easy to lose track of credit card debt, especially if you have more than one card. Take note of what you owe, and the interest rate, on each card.

Now take a look at the bottom of your latest statement where it spells out how long it will take to pay off your credit card and how much interest you will fork out in that time if you just pay the minimum due each month. Warning – the figures might alarm you.

If you just make the minimum monthly payment on a $5,000 balance at 15 per cent (starting at $102 per month and decreasing over time, with an absolute minimum payment of $20), it will take you almost 24 years to rid yourself of the debt and you will end up paying more than $12,000 with interest! Notch the repayments upto $246 per month until the balance is cleared, and you knock the debt over in two years and save more than $6,000 in interest.⁴

The key take-out here is always repay more than the minimum due.

Demolish your debt

Make a plan to crunch your card debt. You may consider socking all your spare cash onto the card with the highest interest rate and pay it off first, but remember to pay the minimum due on your other cards. You could also investigate consolidating all your plastic debt to one card with a low rate. Just make sure you take full advantage of any introductory low-rate window by repaying more than the minimum due each month.

Cancel cards as you transfer balances from them, or once paid off, so you are not tempted to rack up debt on them again.

If your cards are getting the better of you, consider speaking with a financial adviser or visit ASIC’s MoneySmart website www.moneysmart.gov.au for further information.

Track your spending

Run through at least six months of card statements to get a handle on your plastic purchases and look for ways to cut discretionary spending, such as entertainment, clothes and holidays. Create a budget and sink leftover funds into your credit card balance to pay it off sooner.

Purge the plastic

Exchange your credit card for a debit card so you can only spend what you have in your savings account. You will avoid deepening your debt and hopefully develop better shopping habits.

Choose the right card

Think about avoiding cards offering rewards such as frequent flyer points as they usually attract a higher rate and require years of high use to accrue decent rewards. It may make more sense to opt instead for a low-rate card with an interest-free period, and make the most of it by paying off any new debt before you accrue interest charges.

Set aside the Christmas savings

Start saving now for next Christmas. If you put aside $10 a week from April 1 until December 1, you will squirrel away $340, enough to cover a few Secret Santas. Add to your stash by dropping your gold coins into a jar at the end of each work week. You won’t miss them and your little pot of gold will lighten your wallet.

Any small steps you take to save consistently throughout the year can make a big difference come spending season.

One in two Australian home buyers¹ now borrow via a broker. A dip in sentiment towards traditional banks, tighter lending criteria for investors and better-educated consumers have all helped boost mortgage brokers’ popularity over the past decade. There are, indeed, a raft of reasons to turn to a broker for your next home loan. Here are eight to get you started.

Freedom of choice

Brokers generally give you access to multiple loans from multiple lenders. Compare that with the loan options you might be presented with by a single lender. At the end of the day, competition and choice are the most powerful benefits a broker brings to the table and it’s the reason so many Australians have one onside.

You don’t pay a fee

Most brokers don’t charge their clients an up-front fee to use their services (and if they do, they need to give you a Credit Quote for your agreement). Brokers receive payment from lenders in the form of a commission and are required by law to disclose the details of these payments under the National Consumer Credit Protection Act to ensure transparency and to give you the peace of mind you’re after. Ask your broker to provide an overview of his or her commissions when you meet.

Save time

Why spend your valuable time researching home loans when a broker can do it for you? It’s the broker’s job to do the hard yards when it comes to your homework. A broker will make the most of your appointment time to get the necessary information to narrow down and present you with easy-to-understand options, saving you hours of online research and hard-to-translate comparisons.

It’s all about you

A mortgage broker aims to find a loan that’s right for you. Brokers are not salaried bank staff, and that means they focus on finding a loan that is right for your unique circumstances. Brokers also take the time to understand your financial situation and goals. Such as if you are planning to start a family, take a study break or save for an overseas trip.

A mortgage broker can recommend a loan that makes financial sense for you.

More accessible finance

Stricter credit rules have prompted some traditional lenders to avoid borrowers with poor track records or less predictable incomes. While no magic wands are waved, and higher interest rates might apply, a broker may be able to suggest an alternative option that’s right for you.

Smooth sailing

Buying a home and taking out a loan is an exciting and momentous milestone, but also a stressful process. Brokers ease many of the pain points by dealing with the lender and managing your application process through to approval. Brokers can also arrange after-hours appointments to fit your schedule, rather than the schedule of just one bank or lender.

The latest legislation

It’s also a broker’s job to stay up to date with legislation so they can make the right recommendations for customers and ensure they meet lending requirements, which have tightened in recent years to reduce the risk of loan defaults and help maintain a stable economy. Brokers stay across industry, economic and regulatory shifts to avoid unexpected roadblocks for borrowers.

Home loan health checks

Just like you get a check-up with your GP, your broker can run a regular health check on your home loan to see if it’s still right for you. Competition remains high in the mortgage market so it’s always worth asking your broker to reconsider your options. You could be paying off your loan sooner and saving thousands on interest repayments with a product that is better suited to your needs.

Saving can be simple when you know how. Yes, sacrifice is needed to get ahead but you can also be frugal without being a total scrooge. Follow our 50 tips to sneak more savings into your life.

 

1. Talk to me to see if you can save on one of your biggest outlays – your home loan.
2. Switch all your household lights to energy-efficient globes.
3. Sell old smart phones on eBay or Gumtree – families with tweens often want second-hand tech vs expensive new. An old iPhone could get you $200 on eBay.
4. Bag your fruit and vegies at fresh food markets instead of supermarkets.
5. Review your broadband and mobile plans – do you really need all that data?
6. Book holidays for off-peak or shoulder periods. Even better, save on accommodation costs by using a holiday housesitting website such as mindahome.com.au or housesitters.com.au
7. MYO breakfast and lunch on work days.
8. Freeze your credit card. Stick it in a glass of water in the freezer – you’ll need to thaw it to use it, by which time the impulse buy will have passed.
9. Shop around for better deals on your car, home and health insurances. Time-consuming maybe, but there are big savings to be made.
10. Love gigs and shows? Sign up to ticket agency and music venue email alerts to keep informed of two-for-one and ticket discount deals.
11. Try replacing expensive dishwasher tablets with a mix of two tablespoons of Borax combined with two tablespoons of bicarb soda. It’ll clean your dishes and the machine.
12. Split bulk-buy meat with buddies.
13. Make sure your dentist, optometrist and physio are among your health fund’s preferred providers.
14. If flying domestically, save with early morning or late evening flights on weekends or midday flights Monday to Friday.
15. Take advantage of free community events such as festivals, outdoor fitness classes and open-air movies.
16. Cancel your cable TV and subscribe to a more affordable streaming service.
17. Run your dishwasher and pool filter during off-peak energy periods, e.g. after 10pm or before 6am.
18. Make an agreement that you and your partner won’t spend more than $100 without checking with the other first.
19. Book your beauty appointments (waxing, pedicure etc) at a training college.
20. Make a grocery list and stick to it to save on impulse buying (and don’t shop hungry!).
21. Eat in, but head outside with a picnic blanket to make it a bit special.
22. Check you’re not paying extra for monthly car and home insurance payments.
23. Organise a fashion or book swap with friends and co-workers.
24. Flush less – we use 6 to 18 litres of water every time.
25. Cook bigger batches of discounted meat and seasonal produce and freeze meals.
26. Unplug unused appliances and save on standby energy.
27. Pay your mortgage fortnightly instead of monthly.
28. The ‘op’ in op shop stands for opportunity – you never know what you might find.
29. Enjoy a movie night at home with friends.
30. Grow salad greens and herbs – easy to grow and manage in pots.
31. Pay your bills on time to avoid penalties.
32. Give homemade gifts: biscuits, granola, pasta sauce, chutney, jam, cards.
33. Don’t discount the savings from shopper dockets.
34. Book quality, three-star hotels for overnight stays – you just need a comfy bed.
35. Wash and groom your own dog.
36. Turn your next dinner party into a pot luck.
37. Say yes to freebies and rewards and create a free email account just to receive deals.
38. Join the refill revolution with your own water bottle – save money and the environment.
39. Find a GP that bulk bills.
40. Dissolve four teaspoons of bicarb soda in one litre of water to clean kitchen and bathroom surfaces.
41. Buy loose fruit and vegies – snow peas, green beans, spuds – instead of pre-packed.
42. Never buy a new car.
43. Give favours instead of gifts – babysitting, mowing, cleaning, painting, car detailing, gardening etc.
44. Check out your local library for free activities, especially for kids.
45. Take advantage of sales on staples – laundry powder, shampoo, toilet paper etc. – and buy in bulk.
46. Tap into any workplace perks e.g. discounts on health insurance, gym memberships, entertainment, accommodation.
47. Consolidate your credit cards into one low-interest card.
48. Snuggle under a blanket instead of jacking up the heater.
49. Plan your meals around supermarket specials.
50. Exercise without a gym – there are loads of online workouts to help you cancel that membership. Or better still, go for a walk. The dog will love you for it!

 

The Reserve Bank of Australia decided to once again leave the official cash rate unchanged at 1.5% with the last rate move back in August 2016. I’d like to share today’s rate announcement and the thoughts on why the Reserve Bank of Australia has made this decision.

The economy appears delicately poised with slow wages growth, low inflation, a slowing housing market, tighter lending policies and high levels of household debt now leading some economists to believe that the next rate change could be down. Contrasting this, we have seen some lenders increase rates out of cycle, citing an increased cost of funds as the reason. Until the RBA sees a strong economic lead one way or the other it is highly likely to continue to leave rates as they are.

Rates remain constant now but it is important that you are prepared if the next rate announcement is an increase. There may be different rates available from our wide panel of lenders and I’m always available to ensure you have the right financial solution for your current and future circumstances.

If you’d like to have a chat about what today’s news means for you and your finances, please don’t hesitate to get in touch.