Welcome to our new-look newsletter, we hope you enjoy the content and look forward to hearing your feedback. Please let us know if there are any topics that you would like us to cover in future issues.
April has kicked off with a welcome Easter break! As the vaccine rollout continues, restrictions ease, and life is a little closer to normal despite occasional setbacks. Whether you are relaxing at home or heading off on holidays, we hope you were are to take some well deserved time off.
There was a raft of positive economic news in March, which should make the Federal Treasurer’s job a little easier when he hands down the Budget on May 11. The Australian economy staged a remarkable V-shaped recovery in 2020, growing 3.1% in the December quarter and 3.4% the previous quarter – the biggest 6-month lift on record – after plunging into recession in the first half-year. The main contributor was iron ore, which has doubled in price since March last year.
As the vaccine rollout began and restrictions eased, business and consumer confidence rebounded. The NAB Business Confidence Index rose to an 11-year high of +16.4 points in February while the ANZ-Roy Morgan Consumer Confidence rating hit a 7-year high of 124 points in March, up 30% over the year.
Confidence was reflected in a recent surge in new vehicle sales, housing construction and property values. It was also boosted by a fall in unemployment from 6.4% to an 11-month low of 5.8% in February. Company profits have also remained strong, with 86% of ASX200 companies reporting a profit in the December half-year. Although aggregate earnings fell 17%, dividends were up 5% from a year ago with an estimated $26 billion currently flowing to shareholders.
It’s not all plain sailing though. Temporary coronavirus JobSeeker and JobKeeper payments ended on March 31, and fuel prices are rising just as everyone fills up for Easter road trips. The strengthening economy saw the Aussie dollar shed 2c to US76c in March.
Cheers from Daniel, Craig and the Team at Onelife Financial
Chasing the lowest rate: Is it worth it?
Over the past year, the Reserve Bank of Australia (RBA) has cut their cash rate to record lows in a move to stimulate the economy throughout the COVID-19 pandemic. This has led mortgage lenders to offer exceptionally low fixed interest rates.i
In theory, an interest rate cut of even 0.5% could save you thousands of dollars over time. This can reduce your monthly payments or assist you to pay off your loan a little faster.
In such a low interest rate environment there has understandably been a move to lock in the low rates. In fact, over the past year borrowers taking out fixed price deals tripled from 13 to 33 per cent.ii
We talk to a lot of people who want to know if they should lock in today’s record low interest rates with a fixed rate mortgage. The answer is always ‘it depends on your circumstances’. So, let’s look at some things you should consider before deciding if that low rate is the most important mortgage criteria for you.
Is a fixed interest rate best for you?
There are three types of interest rates. Let’s look at the different benefits they offer.
A fixed interest rate stays the same for a set period (e.g. three years) and gives you the security of knowing how much you have to repay each month. At the moment, fixed rate loans offer the lowest interest. While you may have security in knowing your repayments, fixing your interest rate means you won’t be able to benefit if rates were to go down further, and being locked into a fixed-term contract means it may cost you more to switch later on.
A variable interest rate can go up or down, so there is more risk involved. They tend to offer greater repayment flexibility which is beneficial if your circumstances change, and it’s usually easier and cheaper to switch loans if you find a better deal.
A split loan is when you get the best of both by dividing your loan between fixed and variable rates. You can often split your home loan in different ways, say 50/50 or 20 per cent fixed and 80 per cent variable interest. A split loan can help you manage the risk of future rate increases or reductions. This arrangement can also allow you to pay off part of the mortgage faster while enjoying a lower fixed rate on the balance of your loan.
What kind of mortgage do you need?
Weighing up the advantages and disadvantages of fixed versus variable rates, means looking at your current circumstances and future commitments. Consider your cash flow, your need for security compared with your desire for flexibility, and the costs involved in changing your current loan structure.
Home loans with extras are often more expensive. The most common extra is an offset account that links your savings and mortgage to lower your loan amount. Other popular extras are a redraw facility or line of credit. Both are ways to access any additional payments you make towards your loan.
Things to consider
The low rates you see advertised are often only for new borrowers which means those with an existing mortgage may need to move lenders to refinance at a lower rate.
The interest rate you’re offered will depend on things like the size of your deposit, whether you are an owner occupier, repaying interest and principal, and the length of your loan.
When calculating what you’ll save, you may also need to consider that refinancing a fixed rate deal, often involves paying exit fees.
As well as comparing interest rates and extras, check if the lender has reduced the cost of taking out their mortgage. Some cut fees and charges (including Lenders Mortgage Insurance) while others offer introductory bonuses and incentives.
A mortgage broker can help you decide if fixing a low interest rate is your best option. Plus, we have access to the broadest range of offers including some broker-only deals. So please get in touch if you’d like to discuss how make the most of today’s low interest rate environment.
ii Data from Mortgage Choice 2021
Secrets to success as a homebuyer
Buying your own home can be overwhelming, which is hardly a surprise given it’s the biggest investment most people make in their lives. There is so much to take in, that you can feel like you’re flying by the seat of your pants.
It pays to be prepared and to put yourself in the best standing for purchasing a property. So, what are some ways to ensure that you’re not only prepared for making your new purchase, but will make it a success?
Know where you stand financially
It’s easy to get in over your head, but the repercussions of overextending yourself when buying property are serious – creating unnecessary financial pressure on you and your household, leading to financial stress or ending up in a situation where you need to sell. Before you start looking to buy, have a serious look at your financial situation.
Consider how much you can afford in repayments in view of any foreseeable changes to your income – obviously this not always possible to know, but think about the likelihood of landing that promotion, or on the flipside, your income being reduced, even temporarily.
Don’t forget to take into consideration more than just the sticker price, acknowledge all of the costs associated with purchasing a property, such as conveyancing, stamp duty and other taxes. If you’ve got debt, this will impact the likelihood of getting a loan approval, so keep that in mind as well.
Choose the best strategy to save
By understanding your financial situation you’ll be better placed to establish a timeframe for meeting your goal. While the more you save, the quicker you’ll be in your home, it’s not always that simple.
Short-term savings may be best in a savings account or offset, however if your goal is to purchase in five years or later, an alternative investment vehicle may be the better option in the long-term.
Refine your search
Know what you want, but be realistic – who wouldn’t want that sprawling beach house, yet how many of us can afford it? Research the location you’d like to buy in and think about the size of the property and type, such as a unit, apartment or house. Be flexible, as you may need to compromise on some factors along the way.
It’s a good idea to develop a list of ‘must-haves’ and a list of ‘nice-to-haves’ – bearing in mind that these may change once you have looked at a few properties!
Know what you’re buying
Doing your due diligence ahead of the sale will pay off in the end. By thoroughly inspecting the property, you’ll have a better idea of what you’re buying and know of potential issues, such as mould or termites, that will need to be addressed immediately.
Building inspections, pest inspects and a property survey should be done ahead of the sale. If there’s nothing yet to inspect, as is the case for off the plan homes, make sure you research the builder and developer you’ve engaged with. Customer testimonials are helpful but ideally see if you can talk with a past client directly.
Arrange appropriate insurance
Home insurance isn’t a legal requirement, but it’s wise not to skip it. Arranging home insurance prior to signing the contract with the seller is a good idea, as although seller’s insurance is in place until settlement, this will provide extra peace of mind should anything go wrong.
Your lender may have rules around what insurance you need and from when, so make sure you check with them directly.
Seek professional advice
This process is new at some stage for all home buyers, which is why it’s helpful to reach out for professional advice along the way. We can answer all your questions and provide tailored advice that takes your circumstances into account as well as assistance with pre-approval and loans.
You’re not expected to know everything right off the bat, so get in touch and we can help you navigate the process and land your first home.
Declutter your life
When was the last time you were truly relaxed at home? Home is meant to be a haven, a place to feel at ease and unwind, but too often our sanctuaries are filled with the excesses of our modern lives and the clutter we surround ourselves with does impact our mental state.
The dictionary definition of ‘clutter’ is “a large number of objects in a state of being untidy”. This suggests that the solution to clutter is keeping your ‘large number of objects’ well organised and hidden from view.
But several tidying experts (yes, that’s a real job title) disagree. They argue that the key to keeping your home uncluttered for good is to minimise the number of objects you keep. It’s not quite classic minimalism – pure functionality devoid of ornamentation. Rather, it’s something a little more emotionally complex.
The KonMari method
This global phenomenon KonMari has changed the way millions of people think about their possessions. About the sheer amount of stuff they have. The Method was developed by Marie Kondo, a Japanese ‘organising consultant’. Her bestselling title ‘The Life-Changing Magic of Tidying Up’ sold more than 10 million copies and made Kondo a household name.
The core principle of the KonMari Method is that one must only keep items that ‘spark joy’. This means taking time to go through all your belongings, and (somewhat ruthlessly) keep only the things that make you feel a little thrill of happiness.
Critics say it’s more about finding a method that works for you. Or at the very least, addressing the psychological roots of why you become emotionally attached to inanimate objects. But one thing is undeniable – KonMari got the world re-focused on the benefits of a decluttered life.
Practical, mental and financial benefits
Speaking of psychology, the good news for those planning on tackling a cluttered home is that there are scientifically proven benefits. Some studies have suggested a strong link between tidier living areas and ‘better’ life choices, such as selecting healthier snacks or donating more money to charity.i Others have found that physical clutter causes sensory overload, as all the items compete for your attention – thus suggesting that a decluttered space improves your ability to focus, process information, and relax.ii
Breaking down your emotional attachment to items can also have financial benefits. The most obvious is the future savings. With a renewed aesthetic and attitude to accumulating new things, you may find you spend less on items you don’t use. Long term, you may have an easier time with lifestyle changes that make sense for your broader goals, such as downsizing.
Feeling excited but intimidated about tidying up? Don’t be. Here are a few of the basics to get you started.
Don’t feel that you’ve got to tackle the whole house in one go, clean out a drawer or your wallet and then work your way up to the larger spaces in your home like your closet of living room.
Decluttering is not organising
Don’t try to organise while you declutter. Focus on getting rid of stuff. This can be a little overwhelming so push through the challenges and take it one step at a time. Use the following checklist to help you with the decision making process.
Keep or Discard?
If you can’t tick three or more of the following points – it’s time to say goodbye.
Have I used it in the last 12 months?
Will I need it in the next three months?
Does it make me feel happy?
Does it work/fit/serve its basic purpose?
Is it worth a lot? Would I pay full price for it today?
Is it worth repairing/maintaining?
Do I really need it more than someone else? (Would it be good to donate?)
Take all the time you need and if you get stuck just move on to something else. You’ll get there!
The key is to start now. Because you deserve a decluttered home. A space that sparks joy.
Daniel Grusd and Onelife Wealth Management Pty Ltd (ACN 139 437 513) are authorised representative of Synchron, AFS Licence No 243313. Trading as Onelife Financial, Suite 806, 251 Oxford St, Bondi Junction NSW 2022. Unless specifically indicated, the information contained in this newsletter is general in nature and does not take into account your personal situation. You should consider whether the information is appropriate to your needs, and where necessary, seek personal advice from a financial adviser’.