An in­ter­est in in­ter­est

ABC (Australia) - - FINANCE - Graeme McDon­ald A mem­ber of the Money Re­sources Group p: 03 8699 5000 f: 03 9690 9484 m: 0401 189 160 e: graeme@ mon­eyre­sources. com.au writes Graeme McDon­ald

“The one thing most peo­ple set and for­get is their home loan in­ter­est rates — if I asked you what it was now, could you tell me?”

Do you set and for­get or sit and for­get, W hat’s the one thing that you try not to think about? Well, not so much try not to think about, rather you don’t think about at all. No, not the time you dyed your hair black when you were a blond try­ing to be Robert Downey Jnr from Iron Man for a fancy dress party ... I swear the packet said it would fade and wash out in a cou­ple of weeks … nah, that didn’t hap­pen!

Now, I know I touched on this re­cently. How­ever, I think it is timely to delve a bit deeper given the on­go­ing head­lines, which I am sure most peo­ple mainly ig­nore, but I am sure that like me, there have been some changes.

WHAT RATES?

The one thing most peo­ple set and for­get is their home loan in­ter­est rates ─ if I asked you what it was now, could you tell me? Like me, with­out check­ing my in­ter­net bank­ing or call­ing the bank man­ager, your an­swer would prob­a­bly be no.

I re­cently checked mine af­ter the last round of in­creases and there wasn’t any change. A cou­ple of weeks later, a small no­ta­tion on my bank state­ment ad­vised me it had in­creased a few points. The rate is still okay, and given the other things I have go­ing on with my bank I’m okay with what it is, as it’s still at the low end of the mar­ket.

So I am sure most peo­ple have now worked out that the banks are chang­ing the way they bal­ance their ledgers; part of this is brought about by the pub­lic and po­lit­i­cal pres­sure be­ing brought to bear on the banks to make the prop­erty mar­ket more eq­ui­table and more ac­ces­si­ble to rst-home buy­ers.

For some rea­son peo­ple seem to think that if you pun­ish the in­vestor for buy­ing an­other prop­erty, it will some­how open the mar­ket to the rst-home buyer. Maybe, maybe not. In­vestors will al­ways be in the mar­ket; in­vestors will al­ways take a punt be­cause they have al­ready es­tab­lished them­selves, and the cost is, in the main, tax de­ductible. Depend­ing on your in­come bracket, the more you pay, the big­ger your re­fund/ de­duc­tions can be. So what am I get­ting at, given the re­cent changes by the banks to in­crease the in­ter­est-only rate for loans and, at the same time, sneak-up a few xed rates and the stan­dard prin­ci­ple and in­ter­est rates, it’s prob­a­bly time to check what you’re pay­ing.

Now, we all know that no­body works for free – we don’t, so the banks won’t. The banks are look­ing to protect their mar­gin and in­come in what is be­com­ing a heav­ily com­pet­i­tive mar­ket. Strangely, though, de­spite the head­line rates, (loss leader to get you in), when you sit and go through it all, the ac­tual mar­gin be­tween low and high is not much. Some that say they are low on rates ac­tu­ally sneak up to a higher re­turn by charg­ing a monthly ac­count-keep­ing fee. Oth­ers don’t al­low you to have a mort­gage off­set ac­count on their ba­sic rate deal. Oth­ers in­sist that you put all your money into your mort­gage and live off a low-rate credit card that you clear ev­ery month.

WATCH YOUR PEN­NIES

All these types of ac­counts and many other types have their ad­van­tages and dis­ad­van­tages, but the bot­tom line is you must man­age your money. When I talk about mort­gages with our mort­gage per­son, we both keep com­ing back to the one mes­sage: Keep it sim­ple; what do you need it to do; be easy to man­age; and, me per­son­ally, I like an off­set ac­count. You can park your ex­cess money in the ac­count and ev­ery dol­lar in there off­sets a dol­lar of debt, then when you need it, you just move it back to your work­ing ac­count. You will be sur­prised at the dif­fer­ence that will make to your in­ter­est payable each month. Re­mem­ber, ev­ery dol­lar you don’t pay in­ter­est on is an ex­tra prin­ci­ple de­duc­tion when the pay­ment is made.

Fi­nally, if you think your in­ter­est rate is too high, call your bank rst. As with all banks, it’s cheaper for them to keep you than it is to nd a new client. Often a phone call is all that’s needed. If you get the cold shoul­der, don’t be afraid to shop around. If you don’t want to do it your­self, call me and we can help you through what is some­times a maze of op­tions.

Well, enough from me for this month, if you have any ques­tions or you want to dis­cuss any mat­ter, please feel free to drop me an email or give me a call, I’m al­ways happy to lis­ten and give you my opin­ion.

Newspapers in English

Newspapers from Australia

© PressReader. All rights reserved.