Reserve Bank figures show the average home owner is 2.5 years ahead with their loan. If you’re not one of them, you need to read this.
An overload of debt can have a way of creeping up on us, but the good news is that a few straightforward strategies can help you get ahead with debt in 2017 – and see you join the legion of home owners who are paying off their home in record time.
First, identify problem debts
Your home is backed by an asset that will rise in value so it’s often referred to as ‘good debt’. That’s quite different from, say, high interest credit card debt, which is often the result of everyday purchases. To identify your problem debts, list each amount you owe putting the high rate debts at the top of the list (your home loan will probably be at the bottom of the list).
Look for spending cuts
Next, look for areas where you can cut spending and free up cash to attack those debts at the top of the list. This means taking a hard look at where your money goes, and a range of apps can help here. Try the government’s fee TrackMySpend app – It lets you monitor spending on the go and set daily spending limits.
Get cracking with a budget
With a better idea of your spending it’s time to knuckle down to a budget. Sure, it can be challenging sticking to a budget especially if friends are hitting up the mall for new summer clothes or checking out the latest Thai restaurant. You don’t need to eliminate these things from your life, just cut back. And think of how much sweeter those experiences will be when you’re debt-free.
Knock off some high rate debts
With your new budget freeing up additional cash, use that money to knock off some of those high rate debts. It may not happen overnight, but it will happen. As each debt is cleared, use the money you spent on those repayments to pay down the next debt on your list.
Once the slate is clear you’re free to focus on your home loan. By making additional repayments you can save a bundle in home loan interest, and thanks to redraw the cash is always available if you need funds in an emergency. Check out how much you could save by paying a bit extra off your loan each month with Aussie’s online calculator or speak to your local Aussie broker.
Give your returns a festive boost
Interest rates may be at record lows but are you making the most of them? A quick check could give your investment returns a valuable uptick.
It’s amazing how much things can change in the mortgage market in just a short space of time.
Not so long ago, interest rates on investment loans were quite a bit higher than for owner occupiers. But it seems that’s changing.
Investor loan rates are softening
In its latest Financial Stability Review the Reserve Bank of Australia (RBA) noted the cost of home loan finance has fallen thanks to successive cuts to the official cash rate. However, the RBA also pointed out that lenders are competing for new customers – investors in particular, and as a result the price gap between investor and owner-occupier loans has narrowed.
This is important news for investors.
You see while interest on an investment loan is normally tax deductible, taking advantage of opportunities to reduce the rate makes good financial sense. A lower rate can make a significant difference to the profitability of your investment, and paying less interest puts money back in your pocket.
More smart reasons to review your loan
The only way to know if you are making the most of record low rates is to speak with your local Aussie broker to see how your current loan stacks up.
There are other good reasons to review your current investment loan too.
Refinancing can provide an opportunity to lock in an ultra low fixed rate. This option also provides certainty of your outgoings, making investment cash flow easy to budget for. Equally, if your current fixed rate term is coming to an end, ask your lender about the revert rate – if it’s not competitive, refinancing can help you secure a better deal.
If your tenant is preparing to vacate the property, you have a window of opportunity to revise the rent. It’s good practice to review your loan if you’re preparing to attract a new tenant. Once a new lease is in place it’s not easy to increase the rent, so now’s the time to be sure you are paying a highly competitive rate on the loan.
Talk to your Aussie broker
Yes, it’s a busy time of year but it always pays to give due attention to both sides of your rental investment – the property and your loan. Speak to an Aussie broker for more ideas on how you could make the most of today’s historically low interest rates.