PER­SONAL WEALTH IS FIX­ING RATE A

The Sunday Mail (Queensland) - - NEWS -

TAM AND CHRIS ASK: My wife and I sat down with a mort­gage bro­ker, who sug­gested we re­fi­nance to a fixed-rate loan.

The dif­fer­ence be­tween fixed and vari­able is neg­li­gi­ble – around 0.10 per cent on a three-year term (no off­set, though) – but, with all the talk of the US Fed­eral Re­serve lift­ing rates, is the smart money fix­ing at these record low rates?

What would you do? BARE­FOOT REPLIES: You’re right – in­ter­est rates are head­ing higher (not yet, but it will hap­pen).

Well, that’s ac­cord­ing to the bloke who ac­tu­ally sets our in­ter­est rates, Re­serve Bank Gover­nor Philip Lowe.

He made head­lines last week when he said that not only will the next rate move be up, but Aussies will be “shocked” when it even­tu­ally hap­pens.

Per­son­ally, I think the Guv is hav­ing his “seven-year itch” – given that’s how long it’s been since rates have in­creased in Aus­tralia.

Bor­row­ers are ba­si­cally be­hav­ing like a hus­band who’s spent his en­tire mar­riage drink­ing tin­nies on the couch and wait­ing for the mis­sus to de­liver his din­ner.

And then he’s to­tally shocked when she gets jack of it and tells him “it’s over”. “Where the hell did that come from?!” he says, be­wil­dered.

Any­way, you guys are do­ing some­thing very un-Aus­tralian: think­ing ahead. Good on you.

How­ever, I per­son­ally wouldn’t fix my rate, even on the slight dif­fer­en­tial that you spoke about.

Why? Be­cause I don’t know when rates will in­crease, and nei­ther does the Gover­nor.

And be­cause fix­ing your rate locks you in, and re­stricts the amount you can re­pay. (Also, in your case, there’s no off­set ac­count on the prod­uct you’re sug­gest­ing. Some fixed loans do of­fer this, but they charge more for it.)

It also re­stricts your abil­ity to re­fi­nance dur­ing the fixed term, should in­ter­est rates or your cir­cum­stances change (and it also locks in the bro-

THIS week Mark Zucker­berg tes­ti­fied be­fore the US Congress. It kind of looked like he’d en­tered an old peo­ple’s home, didn’t it? None of the old duf­fers seemed to have any idea how the in­ter­net worked.

Yet Zuck quickly clued them up, with his en­tire tes­ti­mony ba­si­cally amount­ing to, “If you’re not pay­ing for the prod­uct, you are the prod­uct.”

Back here in Aus­tralia a sim­i­lar sit­u­a­tion was play­ing out, but in a dif­fer­ent arena. The Bank­ing Royal Com­mis­sion is in full swing, and Jus­tice Ken­neth Hayne, the head of the Com­mis­sion, was try­ing to get to the bot­tom of who mort­gage bro­kers ac­tu­ally work for.

“So who does a bro­ker act for, who does the cus­tomer think the bro­ker acts for, who does the lender think the bro­ker acts for?” he asked.

Well, turns out that 82 per cent of cus­tomers be­lieve their bro­ker is act­ing in their best in­ter­ests, ac­cord­ing to re­search from the bro­kers’ as­so­ci­a­tion, the MFAA (Mort­gage and Fi­nance As­so­ci­a­tion of Aus­tralia).

How­ever, the banks, who pay bro­kers to feed them loans, were a lit­tle more cagey in their an­swers. The NAB re­sponded to the Com­mis­sioner like a moody teenager: “This is both a le­gal and a fac­tual ques­tion, which — as posed at the cur­rent level of gen­er­al­ity — is not ca­pa­ble of a sim­ple an­swer.”

So there! The CBA didn’t even get a ker’s trail­ing com­mis­sion).

So, un­less things are re­ally tight, I’d sug­gest putting your en­ergy into get­ting the cheap­est vari­able rate loan you can, and us­ing the low­est rates in his­tory to knock a huge chunk of debt off your home loan. NIKKI ASKS: I’m a lady who, at age 49, is con­tem­plat­ing mar­riage in the near fu­ture.

I earn $100,000 a year and am worth sev­eral mil­lion – my part­ner much, much less. I know mar­riage is not just about money, as we both chance to get its mumbo jumbo on. They got punked when the Com­mis­sion found a pre­vi­ously se­cret sub­mis­sion from former chief Ian Narev, who ad­mit­ted that the cur­rent mort­gage bro­ker model — which gen­er­ates over half of all loans in the coun­try — is ‘con­flicted’, and as a re­sult cus­tomers are los­ing out. Damn straight.

So let’s de­tail why your mort­gage bro­ker is con­flicted.

First, they get paid by the len­ders, some of whom pay higher com­mis­sions than oth­ers. Does that in­flu­ence who the bro­kers rec­om­mend? Maybe. The Royal Com­mis­sion found that the CBA’s wholly owned sub­sidiary Aussie Home Loans fun­nelled two out of ev­ery five mort­gages to the bank.

Second, the more you bor­row, the higher the up­front and trail­ing com­mis­sions paid to the bro­ker. That’s one rea­son why ASIC found that cus­tomers who use mort­gage bro­kers typ­i­cally bor­row more than those who ap­ply di­rect, and it’s also why they found that loans ar­ranged by bro­kers were 25 per cent more likely to go into ar­rears.

Zucker­berg, when faced with the over­whelm­ing con­flicts of his busi­ness, ad­mit­ted to Congress that Facebook was con­sid­er­ing im­ple­ment­ing a user­pays plat­form that would pro­tect users.

It’s time mort­gage bro­kers in Aus­tralia did the same. Re­mem­ber, if you’re not pay­ing for the prod­uct, you are the prod­uct.

Tread Your Own Path! have skills and qual­i­ties that make us a strong team. But isn’t it wise that I pro­tect my as­sets with a fi­nan­cial agree­ment be­fore mar­riage?

Thank you for your book – I have ap­plied its ad­vice, but maybe a fu­ture edi­tion up­date could pro­vide some guid­ance on this? BARE­FOOT REPLIES: I went look­ing back through my book and couldn’t find any­thing in it about prenup­tial agree­ments (or “bind­ing fi­nan­cial agree­ments” as they’re also known).

Still, it’s true that I have said pre­vi­ously that I chose not to have a pre- nup with my wife. How­ever, that’s be­cause we came to the re­la­tion­ship rel­a­tively equal (fi­nan­cially), and knew we’d have a fam­ily.

So in our case there wasn’t a need for an agree­ment.

Even bet­ter, my wife is the smartest per­son I know, and there’s a di­rect cor­re­la­tion be­tween our mar­riage and my in­creas­ing earn­ings!

In your sit­u­a­tion, I agree that a bind­ing fi­nan­cial agree­ment makes sense. You’re com­ing to the re­la­tion­ship with sig­nif­i­cant as­sets, and be­cause of your age it’s un­likely you’ll be start­ing a fam­ily with the guy.

THE PRENUP DILEMMA

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