Many people ask us the question should they buy or rent ? Even though I love property investing myself we will usually go through a list of questions before making a recommendation.
Here are some of the pros and cons that every person/couple should consider before they commit to buying.
Buying
Advantages
- Emotional satisfaction knowing security is under your name
- Another way of investment, build equity
- Once you have built enough equity, you can borrow against it for other investment
- Maybe capital gains tax free
- If your mortgage is paid off, there are very little ongoing expenses
- Forced saving program
Disadvantages
- High cost of entering eg: Stamp duty, legal costs and possible land tax
- When interest goes up you might not be able to afford the repayment
- If bought in wrong property cycle and neighbourhood, price may actually decline
- Less flexibility eg: high transaction cost to sell then buy again
Renting
Advantages
- Normally cheaper than making mortgage repayments (if you don’t have a big deposit)
- More certainty on month expenses, as interest rate may fluctuate faster than rent
- Can live in suburbs or properties you want but can’t afford to buy
- Landlord wears most of the costs like strata, council rate, repairs.
- Flexibility, need to move around
- Can invest money elsewhere eg: stock market or business
Disadvantages
- Maybe forced to move out as landlord wants the property back
- Face narky landlord
- Rent money is “dead money”, you are effectively helping your landlord to pay off their mortgage and build their asset
- In a short rental supply market, it’s hard to find a good property and may need to pay higher rent
- Have to ask permission to do anything eg: re-paint, re-tile, landscape, change carpet
The final decision will always depend on each individuals’ situation. Renting is normally a short term solution and while buying is a long term commitment. If you are not ready to hold the property for one property cycle, for example normally every 7-10 yrs then you may face the risk of selling at wrong time of cycle. If you are a great investor in stock/equity (share) market and getting higher returns, then buying property may not be the right choice for you. If you are first home buyer, it will be less costly for you to enter the market.
What we know is from the recent Australian Bureau Statistics, Australia has one of the highest levels of home ownership in the world. Results from the Census of Population and Housing show that home ownership was at 70% in 2006, little changed over the past 40 years !
Wednesday, November 18, 2009
INVESTMENT TIPS
We all have financial goals. You may want to provide the best education opportunities for your children. Or you may want to build an investment portfolio so you can live comfortably in retirement. Whatever your goals, regular saving to meet those goals is important, but regular investing is critical. Here are some tips:
1. Clarify your investment goals.
2. Pay yourself first.
3. Set up an automatic payment.
4. Invest your savings to grow.
5. Harness the power of compound interest.
6. Diversify your wealth.
7. Choose tax advantaged investments (not tax driven investments).
8. Time in, not timing the market
9. Get some advice.
10. Do something now.
Saving versus investing : regular saving is a familiar concept, however, saving in your bank account will only give you a few percent per annum in return. Investing can deliver much more.
Saving and investing – make your money work harder : the first step towards a secure financial future is to clarify your investment goals. Once you have identified your goals, it is important to set a plan to ensure you save while investing wisely to make sure you can reach them. One of the easiest ways to keep your saving plan on track is to “pay yourself first”. What does this mean? Set aside a part of your pay packet for yourself, before you pay anyone or anything else such as bills, groceries, shopping, car, phone, rent or mortgage. By setting aside an amount straight from your bank account when your pay goes in, you can make sure that you get paid regularly....and on time. But how much can you afford to pay yourself? Start by making a budget. List all your expenses and then work out how much you can afford to save each month.
Invest in your savings to grow : the next step is to make the most of your savings by investing them. The type of assets you invest in will depend on your financial needs and objectives. Manages funds are one of the easiest ways to put your plans into action. They pool your savings with many other investors. You can then access a wide range of quality investment, managed on your behalf. Diversification can also be important. It means spreading your risk across each of the main investment types (shares, property, fixed interest, and cash) with an aim to achieve more consistent returns. In other words, “not putting your eggs in one basket”.
Harness the power of compound interest : once you’ve set your investment goals and decided where to invest your money, another reason for regularly investing into a managed fund is access to compound returns. Each dollar you invest earns a return. If you reinvest that return, it can earn more dollars, allowing your investment the potential to grow much faster.
Turn your savings into earnings : turning your savings into an investment which can help you to reach your goals does not have to be difficult. With just $1,000 to start, you can make use of regular investments of $100 or more each month, switched directly from your bank account to a managed fund. It is called a regular investment plan.
1. Clarify your investment goals.
2. Pay yourself first.
3. Set up an automatic payment.
4. Invest your savings to grow.
5. Harness the power of compound interest.
6. Diversify your wealth.
7. Choose tax advantaged investments (not tax driven investments).
8. Time in, not timing the market
9. Get some advice.
10. Do something now.
Saving versus investing : regular saving is a familiar concept, however, saving in your bank account will only give you a few percent per annum in return. Investing can deliver much more.
Saving and investing – make your money work harder : the first step towards a secure financial future is to clarify your investment goals. Once you have identified your goals, it is important to set a plan to ensure you save while investing wisely to make sure you can reach them. One of the easiest ways to keep your saving plan on track is to “pay yourself first”. What does this mean? Set aside a part of your pay packet for yourself, before you pay anyone or anything else such as bills, groceries, shopping, car, phone, rent or mortgage. By setting aside an amount straight from your bank account when your pay goes in, you can make sure that you get paid regularly....and on time. But how much can you afford to pay yourself? Start by making a budget. List all your expenses and then work out how much you can afford to save each month.
Invest in your savings to grow : the next step is to make the most of your savings by investing them. The type of assets you invest in will depend on your financial needs and objectives. Manages funds are one of the easiest ways to put your plans into action. They pool your savings with many other investors. You can then access a wide range of quality investment, managed on your behalf. Diversification can also be important. It means spreading your risk across each of the main investment types (shares, property, fixed interest, and cash) with an aim to achieve more consistent returns. In other words, “not putting your eggs in one basket”.
Harness the power of compound interest : once you’ve set your investment goals and decided where to invest your money, another reason for regularly investing into a managed fund is access to compound returns. Each dollar you invest earns a return. If you reinvest that return, it can earn more dollars, allowing your investment the potential to grow much faster.
Turn your savings into earnings : turning your savings into an investment which can help you to reach your goals does not have to be difficult. With just $1,000 to start, you can make use of regular investments of $100 or more each month, switched directly from your bank account to a managed fund. It is called a regular investment plan.
New RBA Cash Rate and NSW Home Buyer 50% Stamp Duty Exemption
I hope you had a great hot day on Melbourne Cup yesterday. Thanks to Shocking as I earned a free lunch.
It wasn’t so shocking that RBA increased the cash rate by 0.25% yesterday, I think most people was expecting this to come. This is the fifth year in a row that RBA adjusted interest rate in Nov !
New RBA Cash rate is 3.5%. At the moment all the 6 banks (CBA, NAB, ANZ, Westpac, St George and ING) will follow the same 0.25% increase.
With the slump in Sep09 retail sales figures released today, let’s hope RBA won’t increase the rate again in Dec2009. If that is the case then we are safe until Feb2010.
This week’s newsletter is to remind the investors and non first home buyers buying NSW properties that until 31 December 2009, NSW Government is giving out a 50% stamp duty exemption on new properties purchased (below 600k purchase price). You can save up to $11,245. Please see below for more information.
The NSW Housing Construction Acceleration Plan (HCAP) has been introduced to stimulate the construction of new homes by providing a reduction in duty on the purchase of new homes by people who are not first home buyers.
When does HCAP apply?
It applies to agreements for sale of a new home executed on or after 1 July 2009 and before 1 January 2010.
How many new homes can I purchase under HCAP?
There is no limit
What proportion of the property must the purchaser acquire?
The agreement or transfer must be for the whole of the land. If the land is a parcel of land on which two or more homes are built or being built, the agreement or transfer must be for that part of the land that is an exclusive occupancy.
Is there a limit on the value of the new home?
The dutiable value of the property under the agreement or transfer must not exceed $600 000.
How is duty calculated?
If an application is approved under the Housing Construction Acceleration Plan the amount of ad valorem duty chargeable is reduced by 50%.
What is a new home?
A home is a building that may lawfully be used as a place of residence and is in the Chief Commissioner’s opinion, a suitable building for use as a place of residence and includes a unit, apartment and substantially renovated home.
A new home is a home that has not previously been occupied or sold as a place of residence. Unless it is an off the plan purchase agreement, the new home must be complete and ready for occupation.
Do I have to be an Australian citizen or permanent resident?
No. There is no requirement that a purchaser be an Australian citizen or permanent resident.
Is there any age limit on applicants?
No. There is no age limit
Does HCAP only apply to natural persons?
No. HCAP is not restricted to natural persons.
Can I get HCAP on a purchase off the plan?
An off the plan purchase will be eligible only if the agreement states that it must be completed before 30 June 2011 or in any other case, the agreement is completed before 30 June 2011. The Chief Commissioner does have the discretion to allow a later date for completion where the delay is caused by circumstances beyond the control of the parties.
Can I apply for HCAP on a substantially renovated home?
Yes.
What is a substantially renovated home?
A home is a substantially renovated home if:
• the sale of the home is, under the A New Tax System (Goods and Services Tax) Act 1999 of the Commonwealth, a taxable supply as a sale of new residential premises within the meaning of section 40-75 (1) (b) of that Act, and
• the home, as renovated, has not been previously occupied or sold as a place of residence.
Does HCAP apply to new units and apartments?
Yes. Units and apartments are considered as homes.
Can I get HCAP on a house and land package?
If the agreement is for the purchase of a new house and land package and duty is payable on the value of the house and land, HCAP may apply.
Can I get HCAP on the purchase of vacant land?
No. HCAP only applies to agreements for sale or transfer of new homes.
Can a home still be a new home even if it was completed some time ago?
Yes as long as it is the first sale of the home and the home has never been occupied as a place of residence.
I have previously received the First Home Owner Grant on another property.
Can I still get HCAP on the purchase of new property?
Yes.
What evidence will be required to show that the new home is ready for occupation?
You may be asked to provide a certificate of occupation for the property.
HCAP – homes example calculation
Purchase price ($) Usual duty ($) HCAP duty ($) Savings ($)
250 000 7 240 3 620 620
300 000 8 990 4 495 4 495
350 000 11 240 620 5 620
400 000 13 490 6 745 6 745
450 000 15 740 7 870 7 870
500 000 17 990 8 995 8 995
550 000 20 240 10 120 10 120
600 000 22 490 11 245 11 245
It wasn’t so shocking that RBA increased the cash rate by 0.25% yesterday, I think most people was expecting this to come. This is the fifth year in a row that RBA adjusted interest rate in Nov !
New RBA Cash rate is 3.5%. At the moment all the 6 banks (CBA, NAB, ANZ, Westpac, St George and ING) will follow the same 0.25% increase.
With the slump in Sep09 retail sales figures released today, let’s hope RBA won’t increase the rate again in Dec2009. If that is the case then we are safe until Feb2010.
This week’s newsletter is to remind the investors and non first home buyers buying NSW properties that until 31 December 2009, NSW Government is giving out a 50% stamp duty exemption on new properties purchased (below 600k purchase price). You can save up to $11,245. Please see below for more information.
The NSW Housing Construction Acceleration Plan (HCAP) has been introduced to stimulate the construction of new homes by providing a reduction in duty on the purchase of new homes by people who are not first home buyers.
When does HCAP apply?
It applies to agreements for sale of a new home executed on or after 1 July 2009 and before 1 January 2010.
How many new homes can I purchase under HCAP?
There is no limit
What proportion of the property must the purchaser acquire?
The agreement or transfer must be for the whole of the land. If the land is a parcel of land on which two or more homes are built or being built, the agreement or transfer must be for that part of the land that is an exclusive occupancy.
Is there a limit on the value of the new home?
The dutiable value of the property under the agreement or transfer must not exceed $600 000.
How is duty calculated?
If an application is approved under the Housing Construction Acceleration Plan the amount of ad valorem duty chargeable is reduced by 50%.
What is a new home?
A home is a building that may lawfully be used as a place of residence and is in the Chief Commissioner’s opinion, a suitable building for use as a place of residence and includes a unit, apartment and substantially renovated home.
A new home is a home that has not previously been occupied or sold as a place of residence. Unless it is an off the plan purchase agreement, the new home must be complete and ready for occupation.
Do I have to be an Australian citizen or permanent resident?
No. There is no requirement that a purchaser be an Australian citizen or permanent resident.
Is there any age limit on applicants?
No. There is no age limit
Does HCAP only apply to natural persons?
No. HCAP is not restricted to natural persons.
Can I get HCAP on a purchase off the plan?
An off the plan purchase will be eligible only if the agreement states that it must be completed before 30 June 2011 or in any other case, the agreement is completed before 30 June 2011. The Chief Commissioner does have the discretion to allow a later date for completion where the delay is caused by circumstances beyond the control of the parties.
Can I apply for HCAP on a substantially renovated home?
Yes.
What is a substantially renovated home?
A home is a substantially renovated home if:
• the sale of the home is, under the A New Tax System (Goods and Services Tax) Act 1999 of the Commonwealth, a taxable supply as a sale of new residential premises within the meaning of section 40-75 (1) (b) of that Act, and
• the home, as renovated, has not been previously occupied or sold as a place of residence.
Does HCAP apply to new units and apartments?
Yes. Units and apartments are considered as homes.
Can I get HCAP on a house and land package?
If the agreement is for the purchase of a new house and land package and duty is payable on the value of the house and land, HCAP may apply.
Can I get HCAP on the purchase of vacant land?
No. HCAP only applies to agreements for sale or transfer of new homes.
Can a home still be a new home even if it was completed some time ago?
Yes as long as it is the first sale of the home and the home has never been occupied as a place of residence.
I have previously received the First Home Owner Grant on another property.
Can I still get HCAP on the purchase of new property?
Yes.
What evidence will be required to show that the new home is ready for occupation?
You may be asked to provide a certificate of occupation for the property.
HCAP – homes example calculation
Purchase price ($) Usual duty ($) HCAP duty ($) Savings ($)
250 000 7 240 3 620 620
300 000 8 990 4 495 4 495
350 000 11 240 620 5 620
400 000 13 490 6 745 6 745
450 000 15 740 7 870 7 870
500 000 17 990 8 995 8 995
550 000 20 240 10 120 10 120
600 000 22 490 11 245 11 245
MAKING ENDS MEET
I thought it best to share an extract from the October/November issue of our newsletter, INSIGHTS.
The global financial crisis has brought about a new mindset for many Australians. Now more than ever, people are becoming more resourceful to ensure their finances stay on track.
The web provides a whole world of tips to stay stylish and fashionable on a tight budget. Entertaining in the home is becoming more prevalent, spawned by the increasing cost of food, the desire to maintain close relationships, and maybe even the MasterChef phenomenon. Frugality has replaced conspicuous consumption. People are trying to make more out of less and in some cases, supplementing their regular household income in creative ways. In an economic environment where job and financial security is a concern, old fashioned Australian entrepreneurism is coming to the fore. Here are some of the money making activities Australians are taking up.
Direct selling
No longer solely the realm of entrepreneurs, retirees, stay at home mums, even the full time employed are getting into direct sales. Nutrimetics has had a 40% increase in the number of consultants and Tupperware Australia has seen 16% more demonstrators join its ranks in the past six months. That’s because direct selling is one industry that booms when the economy is weaker. John Holloway from the Direct Sellers Association explains that a downturn in the economy is beneficial to the industry, “During recessions, we see an increase in the number of people searching for alternative ways to make an income by joining our companies.” This mode of generating income is very attractive to people who like to work flexible hours and be their own boss, and the start up costs are very low. Direct sales representatives are independent contractors who typically sell their products in homes and do not have a retail storefront. They are not employees of the company they’re selling products for. Direct sellers are their own bosses and can put as much or as little effort into growing their business as they choose, which can be appealing for those with other responsibilities.
Other money making ideas
•• walking and washing dogs
•• babysitting young children
•• catering or baking cakes for parties
•• house sitting and pet sitting
•• cleaning homes
•• gardening and yard work
•• running errands for professionals or families
•• letting out a room to an international student
•• odd jobs handyman.
Homemade items
The rising popularity of art and craft also appears to defy poorer economic conditions. The trend away from mass produced and environmentally harmful products has created a ‘handmade movement’. Once seen as the domain of granny and nanna, crafts such as sewing, toy making and knitting are making a comeback among people of all ages. Apart from the obvious benefits of providing an outlet for creativity, people also do it to be green and sustainable and even to make money. At the local level, outdoor markets are a popular place for creative folks to offload their wares. According to Peter Holman, General Manager of Eumundi market, the largest outdoor market in Australia, both shopping and selling at markets is becoming increasingly popular. “When times appear tough more people tend to shop in areas they perceive as being more reasonably priced, such as the markets.” However, buying and selling handmade goods has also taken on a new twist in the modern world. Artists and craftsman are taking advantage of the internet to form online clubs, swap ideas or photos and to sell online. Etsy.com is an online marketplace for all things handmade boasting 2.8 million members and over 250,000 sellers world-wide. Globally, there are currently 4 million items listed and $102 million worth of goods have been sold as at the end of July 2009. If you have a creative talent, the opportunities for growing a handmade business seem endless.
Bed and breakfasts
Running a bed and breakfast (b&b) has been a popular dream for many people approaching retirement and for good reason. It allows the owner to work from home while still earning an income, stay socially connected and meet a broad range of people from all over the globe. The popularity of bed and breakfasts as side businesses or even as a full time occupation is on the rise. If you’d like to know more, many community colleges around Australia now offer short courses in becoming a b&b owner.
Turn your clutter into cash
Most households contain a pile of unused items at the back of the closet or lurking in the garage which could be put to better use. Selling these unwanted items can help in two ways – reducing clutter and generating cash. Research from eBay Australia suggests that on average, Australians have $3,000 worth of unused household items which could immediately be sold. This extra cash could be used to help pay the bills, save for that special treat or trade up to buy something you really want or need. Look around your home and ponder these statistics. On an average day in Australia, a piece of women’s clothing is sold every 15 seconds on eBay and an antique is sold every 4 minutes and 3 seconds.1 Many people are using eBay not just for selling unwanted odds and ends but as a sales channel for their small business. Just three years ago, over 52,700 eBay sellers in Australia derived their primary or secondary source of income from selling on eBay.com.au. Every cloud has a silver lining, and the silver lining of this economic slowdown is that thrift and frugality are driving a new entrepreneurial trend. If you’re looking for ways to boost your income and make ends meet, the sky is the limit.
1 eBay Marketplaces Quarterly Fast Facts, 31 December 2008
Wouldn’t it be good to have that extra cash in time for Christmas?
The global financial crisis has brought about a new mindset for many Australians. Now more than ever, people are becoming more resourceful to ensure their finances stay on track.
The web provides a whole world of tips to stay stylish and fashionable on a tight budget. Entertaining in the home is becoming more prevalent, spawned by the increasing cost of food, the desire to maintain close relationships, and maybe even the MasterChef phenomenon. Frugality has replaced conspicuous consumption. People are trying to make more out of less and in some cases, supplementing their regular household income in creative ways. In an economic environment where job and financial security is a concern, old fashioned Australian entrepreneurism is coming to the fore. Here are some of the money making activities Australians are taking up.
Direct selling
No longer solely the realm of entrepreneurs, retirees, stay at home mums, even the full time employed are getting into direct sales. Nutrimetics has had a 40% increase in the number of consultants and Tupperware Australia has seen 16% more demonstrators join its ranks in the past six months. That’s because direct selling is one industry that booms when the economy is weaker. John Holloway from the Direct Sellers Association explains that a downturn in the economy is beneficial to the industry, “During recessions, we see an increase in the number of people searching for alternative ways to make an income by joining our companies.” This mode of generating income is very attractive to people who like to work flexible hours and be their own boss, and the start up costs are very low. Direct sales representatives are independent contractors who typically sell their products in homes and do not have a retail storefront. They are not employees of the company they’re selling products for. Direct sellers are their own bosses and can put as much or as little effort into growing their business as they choose, which can be appealing for those with other responsibilities.
Other money making ideas
•• walking and washing dogs
•• babysitting young children
•• catering or baking cakes for parties
•• house sitting and pet sitting
•• cleaning homes
•• gardening and yard work
•• running errands for professionals or families
•• letting out a room to an international student
•• odd jobs handyman.
Homemade items
The rising popularity of art and craft also appears to defy poorer economic conditions. The trend away from mass produced and environmentally harmful products has created a ‘handmade movement’. Once seen as the domain of granny and nanna, crafts such as sewing, toy making and knitting are making a comeback among people of all ages. Apart from the obvious benefits of providing an outlet for creativity, people also do it to be green and sustainable and even to make money. At the local level, outdoor markets are a popular place for creative folks to offload their wares. According to Peter Holman, General Manager of Eumundi market, the largest outdoor market in Australia, both shopping and selling at markets is becoming increasingly popular. “When times appear tough more people tend to shop in areas they perceive as being more reasonably priced, such as the markets.” However, buying and selling handmade goods has also taken on a new twist in the modern world. Artists and craftsman are taking advantage of the internet to form online clubs, swap ideas or photos and to sell online. Etsy.com is an online marketplace for all things handmade boasting 2.8 million members and over 250,000 sellers world-wide. Globally, there are currently 4 million items listed and $102 million worth of goods have been sold as at the end of July 2009. If you have a creative talent, the opportunities for growing a handmade business seem endless.
Bed and breakfasts
Running a bed and breakfast (b&b) has been a popular dream for many people approaching retirement and for good reason. It allows the owner to work from home while still earning an income, stay socially connected and meet a broad range of people from all over the globe. The popularity of bed and breakfasts as side businesses or even as a full time occupation is on the rise. If you’d like to know more, many community colleges around Australia now offer short courses in becoming a b&b owner.
Turn your clutter into cash
Most households contain a pile of unused items at the back of the closet or lurking in the garage which could be put to better use. Selling these unwanted items can help in two ways – reducing clutter and generating cash. Research from eBay Australia suggests that on average, Australians have $3,000 worth of unused household items which could immediately be sold. This extra cash could be used to help pay the bills, save for that special treat or trade up to buy something you really want or need. Look around your home and ponder these statistics. On an average day in Australia, a piece of women’s clothing is sold every 15 seconds on eBay and an antique is sold every 4 minutes and 3 seconds.1 Many people are using eBay not just for selling unwanted odds and ends but as a sales channel for their small business. Just three years ago, over 52,700 eBay sellers in Australia derived their primary or secondary source of income from selling on eBay.com.au. Every cloud has a silver lining, and the silver lining of this economic slowdown is that thrift and frugality are driving a new entrepreneurial trend. If you’re looking for ways to boost your income and make ends meet, the sky is the limit.
1 eBay Marketplaces Quarterly Fast Facts, 31 December 2008
Wouldn’t it be good to have that extra cash in time for Christmas?
MAKING ENDS MEET
I thought it best to share an extract from the October/November issue of our newsletter, INSIGHTS.
The global financial crisis has brought about a new mindset for many Australians. Now more than ever, people are becoming more resourceful to ensure their finances stay on track.
The web provides a whole world of tips to stay stylish and fashionable on a tight budget. Entertaining in the home is becoming more prevalent, spawned by the increasing cost of food, the desire to maintain close relationships, and maybe even the MasterChef phenomenon. Frugality has replaced conspicuous consumption. People are trying to make more out of less and in some cases, supplementing their regular household income in creative ways. In an economic environment where job and financial security is a concern, old fashioned Australian entrepreneurism is coming to the fore. Here are some of the money making activities Australians are taking up.
Direct selling
No longer solely the realm of entrepreneurs, retirees, stay at home mums, even the full time employed are getting into direct sales. Nutrimetics has had a 40% increase in the number of consultants and Tupperware Australia has seen 16% more demonstrators join its ranks in the past six months. That’s because direct selling is one industry that booms when the economy is weaker. John Holloway from the Direct Sellers Association explains that a downturn in the economy is beneficial to the industry, “During recessions, we see an increase in the number of people searching for alternative ways to make an income by joining our companies.” This mode of generating income is very attractive to people who like to work flexible hours and be their own boss, and the start up costs are very low. Direct sales representatives are independent contractors who typically sell their products in homes and do not have a retail storefront. They are not employees of the company they’re selling products for. Direct sellers are their own bosses and can put as much or as little effort into growing their business as they choose, which can be appealing for those with other responsibilities.
Other money making ideas
•• walking and washing dogs
•• babysitting young children
•• catering or baking cakes for parties
•• house sitting and pet sitting
•• cleaning homes
•• gardening and yard work
•• running errands for professionals or families
•• letting out a room to an international student
•• odd jobs handyman.
Homemade items
The rising popularity of art and craft also appears to defy poorer economic conditions. The trend away from mass produced and environmentally harmful products has created a ‘handmade movement’. Once seen as the domain of granny and nanna, crafts such as sewing, toy making and knitting are making a comeback among people of all ages. Apart from the obvious benefits of providing an outlet for creativity, people also do it to be green and sustainable and even to make money. At the local level, outdoor markets are a popular place for creative folks to offload their wares. According to Peter Holman, General Manager of Eumundi market, the largest outdoor market in Australia, both shopping and selling at markets is becoming increasingly popular. “When times appear tough more people tend to shop in areas they perceive as being more reasonably priced, such as the markets.” However, buying and selling handmade goods has also taken on a new twist in the modern world. Artists and craftsman are taking advantage of the internet to form online clubs, swap ideas or photos and to sell online. Etsy.com is an online marketplace for all things handmade boasting 2.8 million members and over 250,000 sellers world-wide. Globally, there are currently 4 million items listed and $102 million worth of goods have been sold as at the end of July 2009. If you have a creative talent, the opportunities for growing a handmade business seem endless.
Bed and breakfasts
Running a bed and breakfast (b&b) has been a popular dream for many people approaching retirement and for good reason. It allows the owner to work from home while still earning an income, stay socially connected and meet a broad range of people from all over the globe. The popularity of bed and breakfasts as side businesses or even as a full time occupation is on the rise. If you’d like to know more, many community colleges around Australia now offer short courses in becoming a b&b owner.
Turn your clutter into cash
Most households contain a pile of unused items at the back of the closet or lurking in the garage which could be put to better use. Selling these unwanted items can help in two ways – reducing clutter and generating cash. Research from eBay Australia suggests that on average, Australians have $3,000 worth of unused household items which could immediately be sold. This extra cash could be used to help pay the bills, save for that special treat or trade up to buy something you really want or need. Look around your home and ponder these statistics. On an average day in Australia, a piece of women’s clothing is sold every 15 seconds on eBay and an antique is sold every 4 minutes and 3 seconds.1 Many people are using eBay not just for selling unwanted odds and ends but as a sales channel for their small business. Just three years ago, over 52,700 eBay sellers in Australia derived their primary or secondary source of income from selling on eBay.com.au. Every cloud has a silver lining, and the silver lining of this economic slowdown is that thrift and frugality are driving a new entrepreneurial trend. If you’re looking for ways to boost your income and make ends meet, the sky is the limit.
1 eBay Marketplaces Quarterly Fast Facts, 31 December 2008
Wouldn’t it be good to have that extra cash in time for Christmas?
The global financial crisis has brought about a new mindset for many Australians. Now more than ever, people are becoming more resourceful to ensure their finances stay on track.
The web provides a whole world of tips to stay stylish and fashionable on a tight budget. Entertaining in the home is becoming more prevalent, spawned by the increasing cost of food, the desire to maintain close relationships, and maybe even the MasterChef phenomenon. Frugality has replaced conspicuous consumption. People are trying to make more out of less and in some cases, supplementing their regular household income in creative ways. In an economic environment where job and financial security is a concern, old fashioned Australian entrepreneurism is coming to the fore. Here are some of the money making activities Australians are taking up.
Direct selling
No longer solely the realm of entrepreneurs, retirees, stay at home mums, even the full time employed are getting into direct sales. Nutrimetics has had a 40% increase in the number of consultants and Tupperware Australia has seen 16% more demonstrators join its ranks in the past six months. That’s because direct selling is one industry that booms when the economy is weaker. John Holloway from the Direct Sellers Association explains that a downturn in the economy is beneficial to the industry, “During recessions, we see an increase in the number of people searching for alternative ways to make an income by joining our companies.” This mode of generating income is very attractive to people who like to work flexible hours and be their own boss, and the start up costs are very low. Direct sales representatives are independent contractors who typically sell their products in homes and do not have a retail storefront. They are not employees of the company they’re selling products for. Direct sellers are their own bosses and can put as much or as little effort into growing their business as they choose, which can be appealing for those with other responsibilities.
Other money making ideas
•• walking and washing dogs
•• babysitting young children
•• catering or baking cakes for parties
•• house sitting and pet sitting
•• cleaning homes
•• gardening and yard work
•• running errands for professionals or families
•• letting out a room to an international student
•• odd jobs handyman.
Homemade items
The rising popularity of art and craft also appears to defy poorer economic conditions. The trend away from mass produced and environmentally harmful products has created a ‘handmade movement’. Once seen as the domain of granny and nanna, crafts such as sewing, toy making and knitting are making a comeback among people of all ages. Apart from the obvious benefits of providing an outlet for creativity, people also do it to be green and sustainable and even to make money. At the local level, outdoor markets are a popular place for creative folks to offload their wares. According to Peter Holman, General Manager of Eumundi market, the largest outdoor market in Australia, both shopping and selling at markets is becoming increasingly popular. “When times appear tough more people tend to shop in areas they perceive as being more reasonably priced, such as the markets.” However, buying and selling handmade goods has also taken on a new twist in the modern world. Artists and craftsman are taking advantage of the internet to form online clubs, swap ideas or photos and to sell online. Etsy.com is an online marketplace for all things handmade boasting 2.8 million members and over 250,000 sellers world-wide. Globally, there are currently 4 million items listed and $102 million worth of goods have been sold as at the end of July 2009. If you have a creative talent, the opportunities for growing a handmade business seem endless.
Bed and breakfasts
Running a bed and breakfast (b&b) has been a popular dream for many people approaching retirement and for good reason. It allows the owner to work from home while still earning an income, stay socially connected and meet a broad range of people from all over the globe. The popularity of bed and breakfasts as side businesses or even as a full time occupation is on the rise. If you’d like to know more, many community colleges around Australia now offer short courses in becoming a b&b owner.
Turn your clutter into cash
Most households contain a pile of unused items at the back of the closet or lurking in the garage which could be put to better use. Selling these unwanted items can help in two ways – reducing clutter and generating cash. Research from eBay Australia suggests that on average, Australians have $3,000 worth of unused household items which could immediately be sold. This extra cash could be used to help pay the bills, save for that special treat or trade up to buy something you really want or need. Look around your home and ponder these statistics. On an average day in Australia, a piece of women’s clothing is sold every 15 seconds on eBay and an antique is sold every 4 minutes and 3 seconds.1 Many people are using eBay not just for selling unwanted odds and ends but as a sales channel for their small business. Just three years ago, over 52,700 eBay sellers in Australia derived their primary or secondary source of income from selling on eBay.com.au. Every cloud has a silver lining, and the silver lining of this economic slowdown is that thrift and frugality are driving a new entrepreneurial trend. If you’re looking for ways to boost your income and make ends meet, the sky is the limit.
1 eBay Marketplaces Quarterly Fast Facts, 31 December 2008
Wouldn’t it be good to have that extra cash in time for Christmas?
Looking For a New Vehicle or Equipment ?
Thank you all for visiting our stand last Saturday at the Granny Smith Festival. We had fun and a great turn out.
This week I want to talk about Vehicle Finance. When looking at vehicle and equipment finance, you need to consider:
- Which product is right for me?
- How should I structure the loan for my situation?
- Where can I find a quick and easy approval?
“Leasing” is a generic term used for equipment finance. Since the introduction of GST, leasing is being used much less than pre-GST.
Current Finance breakdown
• 20% Commercial hire purchase
• 70% Chattel Mortgage
• 10% Finance Lease
•
Commercial hire purchase or “CHP” is typically used by individuals (eg sales rep with car allowances) or companies on accruals for GST.
Chattel mortgage has become popular since the introduction of GST and is normally used for businesses on cash accounting for GST.
Types of finance we can offer:
1. Motor vehicle finance
• Passenger cars for business use
• Passenger cars for personal use
• Light commercial vehicles – vans and small trucks
• Heavy trucks and trailers
2. Plant and equipment finance
• Income-generating assets
• Manufacturing, construction, medical, transport…
• Computers and electronic equipment
As a quick reminder, the government's 50% tax* break for businesses with turnover less than $2million expires 31 December 2009, less than 2.5 months to GO !
Many dealers are not holding large amounts of stock so it is becoming more unlikely that you will find a vehicle with your particular colour and option requirements on a dealer's yard.
We recommend that if you are keen to achieve delivery prior to 31st December, you need to consider ordering your vehicle as soon as possible.
We know you are busy and we can help. Not only can we assist you with obtaining the right finance for your new vehicle, we can now help procure the vehicle itself.
Just tell us what make, model and type of vehicle you require and we’ll handle the transaction all the way from quoting through to documentation and settlement.
When you are ready to buy, be sure to call us to enjoy the experience.
*You must obtain accounting and tax advice specific to your own situation before deciding to purchase for the purpose of claiming the tax break.
For more information please see www.australia.gov.au/businesstaxbreak
This week I want to talk about Vehicle Finance. When looking at vehicle and equipment finance, you need to consider:
- Which product is right for me?
- How should I structure the loan for my situation?
- Where can I find a quick and easy approval?
“Leasing” is a generic term used for equipment finance. Since the introduction of GST, leasing is being used much less than pre-GST.
Current Finance breakdown
• 20% Commercial hire purchase
• 70% Chattel Mortgage
• 10% Finance Lease
•
Commercial hire purchase or “CHP” is typically used by individuals (eg sales rep with car allowances) or companies on accruals for GST.
Chattel mortgage has become popular since the introduction of GST and is normally used for businesses on cash accounting for GST.
Types of finance we can offer:
1. Motor vehicle finance
• Passenger cars for business use
• Passenger cars for personal use
• Light commercial vehicles – vans and small trucks
• Heavy trucks and trailers
2. Plant and equipment finance
• Income-generating assets
• Manufacturing, construction, medical, transport…
• Computers and electronic equipment
As a quick reminder, the government's 50% tax* break for businesses with turnover less than $2million expires 31 December 2009, less than 2.5 months to GO !
Many dealers are not holding large amounts of stock so it is becoming more unlikely that you will find a vehicle with your particular colour and option requirements on a dealer's yard.
We recommend that if you are keen to achieve delivery prior to 31st December, you need to consider ordering your vehicle as soon as possible.
We know you are busy and we can help. Not only can we assist you with obtaining the right finance for your new vehicle, we can now help procure the vehicle itself.
Just tell us what make, model and type of vehicle you require and we’ll handle the transaction all the way from quoting through to documentation and settlement.
When you are ready to buy, be sure to call us to enjoy the experience.
*You must obtain accounting and tax advice specific to your own situation before deciding to purchase for the purpose of claiming the tax break.
For more information please see www.australia.gov.au/businesstaxbreak
RPdata / Property Reports
We have 2 important announcements.
As part of ongoing improvement in our service, we can now provide property reports to our clients (NSW, ACT and QLD) through RPData.
Having information like this is quite crucial when buying property. These reports may:
• Give a good comparison of current and historical selling prices.
• Provide a better understanding of the prices in the area.
• Buying – useful in negotiating with real estate agents and vendors, so you know you are not paying over market prices.
• Selling – to maximize your profits.
• Shows how long the property has been on the market, thus a better deal can be settled.
• Supply “mortgagee in possession/sales” data, for bargain prices.
Normally, it will cost you anywhere between $50 to $100 per report depending on the area. We are happy to cover this cost for you, but only for clients who are serious and want to do business with us.
Please give me a call if you have a particular area or suburb in mind.
Second announcement - we will be participating in this Saturday’s (17th Oct) Granny Smith Festival event in Eastwood. Please come and say hello to us as we will have lot of prizes to give away! See link for more info. http://www.ryde.nsw.gov.au/grannysmithfestival our stand will be approx in front of Sakura Grocery shop/CBA branch.
As part of ongoing improvement in our service, we can now provide property reports to our clients (NSW, ACT and QLD) through RPData.
Having information like this is quite crucial when buying property. These reports may:
• Give a good comparison of current and historical selling prices.
• Provide a better understanding of the prices in the area.
• Buying – useful in negotiating with real estate agents and vendors, so you know you are not paying over market prices.
• Selling – to maximize your profits.
• Shows how long the property has been on the market, thus a better deal can be settled.
• Supply “mortgagee in possession/sales” data, for bargain prices.
Normally, it will cost you anywhere between $50 to $100 per report depending on the area. We are happy to cover this cost for you, but only for clients who are serious and want to do business with us.
Please give me a call if you have a particular area or suburb in mind.
Second announcement - we will be participating in this Saturday’s (17th Oct) Granny Smith Festival event in Eastwood. Please come and say hello to us as we will have lot of prizes to give away! See link for more info. http://www.ryde.nsw.gov.au/grannysmithfestival our stand will be approx in front of Sakura Grocery shop/CBA branch.
End of Low Interest Rate Cycle ? and Lenders Mortgage Insurance Analysis
With the announcement today (6th Oct 2009) that the Reserve Bank has decided to increase the official cash rate by 0.25% to 3.25%, I thought it would be timely to provide a brief economic update as per below. I have attached RBA’s media release if you wish to read it.
Performance
• The Australian economy's performance over the first half of this year has exceeded expectations with consumer and business spending responding positively to the sizeable monetary and fiscal policies. GDP increased by 0.6% in the June quarter which was a healthy rebound from a 0.7% contraction in the final quarter of 2008.
• While the global downturn has hit wage growth income, disposable income growth has held up strongly. This reflects greatly reduced debt servicing costs and the $20bn cash transfer from the Commonwealth Government over seven months
• The key growth engines for 2010 will be a turnaround in housing construction from declines to a sharp recovery and a substantial acceleration in public sector investment. The strength of housing finance points to upside risks - even with the prospect of an easing in the first home buyers segment
Interest Rates
The market is confident that the RBA will have raised the cash rate by 50bps by the end of this year and that the cash rate will be 125 to 150bps higher by June next year.
- Westpac's forecasting that the rise by mid next year will be more like 50 to 75bps,
- CBA forecast to increase another 150bps by Dec next year
- ANZ forecast to increase another 100bps by Dec next year
On a separate note, this week I would like to discussed about Lenders Mortgage Insurance (or LMI).
Most people we chat to each day will ask on interest rate and application fees, however they always forgot about LMI cost.
LMI is an insurance that protects the lender if borrower default on the loan.
This insurance is required if the borrowing ratio is more than 80% (for full documentation applicants) or 60% (for low documentation applicants).
It will also depend on location of properties too, for example with some lenders any inner CBD postcodes LMI is required if it’s more than 65%. We will discuss more about this in another week.
There are two major LMI insurers in Australia, they are Genworth (part of GE) and QBE. However premiums are quite different across to each lenders even though they may be using same LMI company. This is because each lender’s loan portfolio is different and clients base could be very different too.
Further some lenders have their own mortgage insurance subsidiary company as well (ie self-insured), example like ING, Westpac, ANZ, St George.
LMI premiums will normally depend on 2 variables, one variable is % of borrowing and second variable is borrowing amount. Then this will determine the total cost. Each state may have different stamp duty cost on the LMI (yes another Tax !) and also some may give discount to first home buyers.
Just to give an example of the premiums, say a borrower needs a 90% finance and loan is $300k.
With one lender the LMI will be $4,983 and another lender will be $2,823, which is different by $2,160 ! and both are major lenders.
Over the last 6 months we have noticed LMI premiums have being moving up at the same time maximum borrowing % have been coming down. This could be increase in default rate or maybe LMI provider is expecting interest rate is coming back up and people will be more likely to default.
Although LMI is a once off fee, to my opinion it’s definitely worthwhile to know how much it will cost when doing the loan comparison, especially when interest rate is going up !
If you would like to discuss any of the above, please shoot me through an email and I will give you a call.
Performance
• The Australian economy's performance over the first half of this year has exceeded expectations with consumer and business spending responding positively to the sizeable monetary and fiscal policies. GDP increased by 0.6% in the June quarter which was a healthy rebound from a 0.7% contraction in the final quarter of 2008.
• While the global downturn has hit wage growth income, disposable income growth has held up strongly. This reflects greatly reduced debt servicing costs and the $20bn cash transfer from the Commonwealth Government over seven months
• The key growth engines for 2010 will be a turnaround in housing construction from declines to a sharp recovery and a substantial acceleration in public sector investment. The strength of housing finance points to upside risks - even with the prospect of an easing in the first home buyers segment
Interest Rates
The market is confident that the RBA will have raised the cash rate by 50bps by the end of this year and that the cash rate will be 125 to 150bps higher by June next year.
- Westpac's forecasting that the rise by mid next year will be more like 50 to 75bps,
- CBA forecast to increase another 150bps by Dec next year
- ANZ forecast to increase another 100bps by Dec next year
On a separate note, this week I would like to discussed about Lenders Mortgage Insurance (or LMI).
Most people we chat to each day will ask on interest rate and application fees, however they always forgot about LMI cost.
LMI is an insurance that protects the lender if borrower default on the loan.
This insurance is required if the borrowing ratio is more than 80% (for full documentation applicants) or 60% (for low documentation applicants).
It will also depend on location of properties too, for example with some lenders any inner CBD postcodes LMI is required if it’s more than 65%. We will discuss more about this in another week.
There are two major LMI insurers in Australia, they are Genworth (part of GE) and QBE. However premiums are quite different across to each lenders even though they may be using same LMI company. This is because each lender’s loan portfolio is different and clients base could be very different too.
Further some lenders have their own mortgage insurance subsidiary company as well (ie self-insured), example like ING, Westpac, ANZ, St George.
LMI premiums will normally depend on 2 variables, one variable is % of borrowing and second variable is borrowing amount. Then this will determine the total cost. Each state may have different stamp duty cost on the LMI (yes another Tax !) and also some may give discount to first home buyers.
Just to give an example of the premiums, say a borrower needs a 90% finance and loan is $300k.
With one lender the LMI will be $4,983 and another lender will be $2,823, which is different by $2,160 ! and both are major lenders.
Over the last 6 months we have noticed LMI premiums have being moving up at the same time maximum borrowing % have been coming down. This could be increase in default rate or maybe LMI provider is expecting interest rate is coming back up and people will be more likely to default.
Although LMI is a once off fee, to my opinion it’s definitely worthwhile to know how much it will cost when doing the loan comparison, especially when interest rate is going up !
If you would like to discuss any of the above, please shoot me through an email and I will give you a call.
12 Strategies To Pay Off Your Loan Faster !
This week I will continue part 2 of how to pay your loan faster. There are hundreds of ways to pay down your loan faster, here are some of the ideas that I believe most people can do.
1. Make extra repayments
a. This can be paying interest in advance, for a month, six months or 1 yr ahead
b. Pay extra whenever you can eg bonus time, commissions or profit sharing
c. Make repayment more regularly eg change repayment from monthly to fortnightly or even weekly
d. Cut back on some expenditures eg big furniture items or small as one cup of a coffee a day can save you $100 a month, this can save a lot of interest
2. Find a cheaper interest rate product and pay only the features you will benefit from. Eg a basic home loan with no fees vs professional package loans.
3. Look for loans that offer features without a charge, eg redraw fee, extra repayment....etc you can save if you know you are likely to use this kind of feature and find a loan that doesn’t charge it. We know some banks would charge anywhere from $25 to $50 per redraw!
4. Pay your salary payment directly to your loan account
5. Use 55 days credit card for your day to day spending
6. Set up a 100% offset account, especially for time poor people, this will save them monitoring the balance in the saving account and transfer extra fund to the loan account.
7. Keep the same repayment amount when interest rate goes down.
8. Review your loan more often
9. Close any saving accounts or high interest deposit account which are earning small interest and you need to pay tax on the earning
10. Make use of internet banking
11. Pay extra funds on fix rate loan (if it allows you to do so without being charged a penalty) or have a split variable rate and fix rate loan
12. Use your free equity to invest in higher earning investments over long term eg rather than keep paying off one home loan you may be able to buy another investment property and over long term the capital gain on that property will outweigh the interest rate. However to do this you must first understand the risk and get a proper financial advice.
I did not go into each point in detail, however please email me if you need further explanation.
1. Make extra repayments
a. This can be paying interest in advance, for a month, six months or 1 yr ahead
b. Pay extra whenever you can eg bonus time, commissions or profit sharing
c. Make repayment more regularly eg change repayment from monthly to fortnightly or even weekly
d. Cut back on some expenditures eg big furniture items or small as one cup of a coffee a day can save you $100 a month, this can save a lot of interest
2. Find a cheaper interest rate product and pay only the features you will benefit from. Eg a basic home loan with no fees vs professional package loans.
3. Look for loans that offer features without a charge, eg redraw fee, extra repayment....etc you can save if you know you are likely to use this kind of feature and find a loan that doesn’t charge it. We know some banks would charge anywhere from $25 to $50 per redraw!
4. Pay your salary payment directly to your loan account
5. Use 55 days credit card for your day to day spending
6. Set up a 100% offset account, especially for time poor people, this will save them monitoring the balance in the saving account and transfer extra fund to the loan account.
7. Keep the same repayment amount when interest rate goes down.
8. Review your loan more often
9. Close any saving accounts or high interest deposit account which are earning small interest and you need to pay tax on the earning
10. Make use of internet banking
11. Pay extra funds on fix rate loan (if it allows you to do so without being charged a penalty) or have a split variable rate and fix rate loan
12. Use your free equity to invest in higher earning investments over long term eg rather than keep paying off one home loan you may be able to buy another investment property and over long term the capital gain on that property will outweigh the interest rate. However to do this you must first understand the risk and get a proper financial advice.
I did not go into each point in detail, however please email me if you need further explanation.
Trauma insurance
To Our Valued Clients & Friends.
This week we will look at Trauma insurance.
Trauma insurance provides a lump sum payment if you suffer a serious, debilitating medical condition (specified in the policy) such as heart attack, cancer or stroke. Generally, you will receive the trauma benefit providing you survive for a set period after incurring the condition. Receiving a lump sum can help people cope with a traumatic event and deal with issues that may have to face such as:
• A change of employment to a less demanding role
• Servicing a mortgage and other debts
• Making home modifications if required
• Paying for medical expenses
Trauma Statistics:
• MALE Trauma Statistics – The Australian Bureau of Statistics commissioned a report entitled, “Year Book Australia 2002 – Health – Special Article – Chronic diseases and risk factors”. In this report, the top 10 causes of trauma that affect a male’s life (without immediately killing him) over the long term are:
o Ischemic heart disease
o Stroke
o Lung Cancer
o Chronic obstructive pulmonary disease – chronic bronchitis and emphysema
o Depression
o Road traffic accidents
o Diabetes mellitus
o Colorectal cancer
o Dementia
• FEMALE Trauma Statistics
o 1 in 4 women will contract cancer before the age of 75 (AIHW and Australasian Association of Cancer Registries, Cancer in Australia in 2001 & 2004)
o 1 in 11 Australian women is likely to have breast cancer (Cancer Council Australia)
o Every woman is at risk: only 5 to 10% of all breast cancers happen because of inherited mutations (Cancer Council Australia)
o In woman diagnosed with breast cancer in 2001:
24% were aged 20 to 49
49% were aged 50 to 69
27% were aged 70 & over (AIHW and Australasian Association of Cancer Registries, Cancer in Australia in 2001 & 2004)
o Women have a 1 in 4 chance of suffering a critical illness between ages 30 & 64 (General Cologne Life Re Australia, 2002)
o Women have a 1 in 4 chance of suffering a mental illness before the age of 65 (IFSA Study 2005)
o After the age of 40, women have a 1 in 3 chance of suffering from heart disease (IFSA Study 2005)
This week we will look at Trauma insurance.
Trauma insurance provides a lump sum payment if you suffer a serious, debilitating medical condition (specified in the policy) such as heart attack, cancer or stroke. Generally, you will receive the trauma benefit providing you survive for a set period after incurring the condition. Receiving a lump sum can help people cope with a traumatic event and deal with issues that may have to face such as:
• A change of employment to a less demanding role
• Servicing a mortgage and other debts
• Making home modifications if required
• Paying for medical expenses
Trauma Statistics:
• MALE Trauma Statistics – The Australian Bureau of Statistics commissioned a report entitled, “Year Book Australia 2002 – Health – Special Article – Chronic diseases and risk factors”. In this report, the top 10 causes of trauma that affect a male’s life (without immediately killing him) over the long term are:
o Ischemic heart disease
o Stroke
o Lung Cancer
o Chronic obstructive pulmonary disease – chronic bronchitis and emphysema
o Depression
o Road traffic accidents
o Diabetes mellitus
o Colorectal cancer
o Dementia
• FEMALE Trauma Statistics
o 1 in 4 women will contract cancer before the age of 75 (AIHW and Australasian Association of Cancer Registries, Cancer in Australia in 2001 & 2004)
o 1 in 11 Australian women is likely to have breast cancer (Cancer Council Australia)
o Every woman is at risk: only 5 to 10% of all breast cancers happen because of inherited mutations (Cancer Council Australia)
o In woman diagnosed with breast cancer in 2001:
24% were aged 20 to 49
49% were aged 50 to 69
27% were aged 70 & over (AIHW and Australasian Association of Cancer Registries, Cancer in Australia in 2001 & 2004)
o Women have a 1 in 4 chance of suffering a critical illness between ages 30 & 64 (General Cologne Life Re Australia, 2002)
o Women have a 1 in 4 chance of suffering a mental illness before the age of 65 (IFSA Study 2005)
o After the age of 40, women have a 1 in 3 chance of suffering from heart disease (IFSA Study 2005)
Be Prepared For Higher Interest Rate !
Hi
Since September 2008 we have enjoyed the down ward cycle in interest rate movement. Cash rate have dropped 4.25% over last 12 months.
With so much talk in the media and RBA’s meeting comments, it seems the reverse is going to happen soon.
For this week, I thought it would be good to understand how much it will impact our cash flow (before it happens).
I understand everyone is on different loan package and rates, for simplicity I use a round interest rate figure and assume everyone is on 5% rate now.
Table 1 calculates the monthly repayment if you are on principal and interest loan over 30yrs term. For example, if you are on $400k loan then your monthly repayment is $2,147/month.
Table 1 - Monthly Repayment (P&I over 30yrs)
Loan Amount 5.00% 6.00% 7.00% 8.00%
$100,000 -$ 537 -$ 600 -$ 665 -$ 734
$200,000 -$ 1,074 -$ 1,199 -$ 1,331 -$ 1,468
$300,000 -$ 1,610 -$ 1,799 -$ 1,996 -$ 2,201
$400,000 -$ 2,147 -$ 2,398 -$ 2,661 -$ 2,935
$500,000 -$ 2,684 -$ 2,998 -$ 3,327 -$ 3,669
$600,000 -$ 3,221 -$ 3,597 -$ 3,992 -$ 4,403
$700,000 -$ 3,758 -$ 4,197 -$ 4,657 -$ 5,136
$800,000 -$ 4,295 -$ 4,796 -$ 5,322 -$ 5,870
$900,000 -$ 4,831 -$ 5,396 -$ 5,988 -$ 6,604
$1,000,000 -$ 5,368 -$ 5,996 -$ 6,653 -$ 7,338
The Impact
Now let’s see what is the impact if interest rate increase by 1%, 2% or 3% ie to 6%, 7% or 8%.
For a $400k loan if interest rate increase by 1% your loan repayment will increase extra $251/month (Table2) or $3,011/year (Table3).
See blow tables for other calculations.
Table 2 - Monthly Difference to 5%
Loan Amount 5.00% 6.00% 7.00% 8.00%
$100,000 -$ 63 -$ 128 -$ 197
$200,000 -$ 125 -$ 257 -$ 394
$300,000 -$ 188 -$ 385 -$ 591
$400,000 -$ 251 -$ 514 -$ 788
$500,000 -$ 314 -$ 642 -$ 985
$600,000 -$ 376 -$ 771 -$ 1,182
$700,000 -$ 439 -$ 899 -$ 1,379
$800,000 -$ 502 -$ 1,028 -$ 1,576
$900,000 -$ 565 -$ 1,156 -$ 1,772
$1,000,000 -$ 627 -$ 1,285 -$ 1,969
Table 3 - Yearly Difference to 5%
Loan Amount 5.00% 6.00% 7.00% 8.00%
$100,000 -$ 753 -$ 1,542 -$ 2,363
$200,000 -$ 1,505 -$ 3,084 -$ 4,727
$300,000 -$ 2,258 -$ 4,625 -$ 7,090
$400,000 -$ 3,011 -$ 6,167 -$ 9,453
$500,000 -$ 3,764 -$ 7,709 -$ 11,817
$600,000 -$ 4,516 -$ 9,251 -$ 14,180
$700,000 -$ 5,269 -$ 10,792 -$ 16,543
$800,000 -$ 6,022 -$ 12,334 -$ 18,907
$900,000 -$ 6,775 -$ 13,876 -$ 21,270
$1,000,000 -$ 7,527 -$ 15,418 -$ 23,633
One strategy that you might want to implement is to cut back on your spending now and increase your monthly repayment. So eventually when interest rate have come back up you won’t be as panic.
Increase monthly repayment will also reduce your loan life (if interest rate remain the same). For example if you can pay extra $251/month on the $400k loan, you can save $88k in interest or reduce loan term by 6yrs and 2months !
Over next few weeks I will point out a few other strategies to pay off your loan faster.
Since September 2008 we have enjoyed the down ward cycle in interest rate movement. Cash rate have dropped 4.25% over last 12 months.
With so much talk in the media and RBA’s meeting comments, it seems the reverse is going to happen soon.
For this week, I thought it would be good to understand how much it will impact our cash flow (before it happens).
I understand everyone is on different loan package and rates, for simplicity I use a round interest rate figure and assume everyone is on 5% rate now.
Table 1 calculates the monthly repayment if you are on principal and interest loan over 30yrs term. For example, if you are on $400k loan then your monthly repayment is $2,147/month.
Table 1 - Monthly Repayment (P&I over 30yrs)
Loan Amount 5.00% 6.00% 7.00% 8.00%
$100,000 -$ 537 -$ 600 -$ 665 -$ 734
$200,000 -$ 1,074 -$ 1,199 -$ 1,331 -$ 1,468
$300,000 -$ 1,610 -$ 1,799 -$ 1,996 -$ 2,201
$400,000 -$ 2,147 -$ 2,398 -$ 2,661 -$ 2,935
$500,000 -$ 2,684 -$ 2,998 -$ 3,327 -$ 3,669
$600,000 -$ 3,221 -$ 3,597 -$ 3,992 -$ 4,403
$700,000 -$ 3,758 -$ 4,197 -$ 4,657 -$ 5,136
$800,000 -$ 4,295 -$ 4,796 -$ 5,322 -$ 5,870
$900,000 -$ 4,831 -$ 5,396 -$ 5,988 -$ 6,604
$1,000,000 -$ 5,368 -$ 5,996 -$ 6,653 -$ 7,338
The Impact
Now let’s see what is the impact if interest rate increase by 1%, 2% or 3% ie to 6%, 7% or 8%.
For a $400k loan if interest rate increase by 1% your loan repayment will increase extra $251/month (Table2) or $3,011/year (Table3).
See blow tables for other calculations.
Table 2 - Monthly Difference to 5%
Loan Amount 5.00% 6.00% 7.00% 8.00%
$100,000 -$ 63 -$ 128 -$ 197
$200,000 -$ 125 -$ 257 -$ 394
$300,000 -$ 188 -$ 385 -$ 591
$400,000 -$ 251 -$ 514 -$ 788
$500,000 -$ 314 -$ 642 -$ 985
$600,000 -$ 376 -$ 771 -$ 1,182
$700,000 -$ 439 -$ 899 -$ 1,379
$800,000 -$ 502 -$ 1,028 -$ 1,576
$900,000 -$ 565 -$ 1,156 -$ 1,772
$1,000,000 -$ 627 -$ 1,285 -$ 1,969
Table 3 - Yearly Difference to 5%
Loan Amount 5.00% 6.00% 7.00% 8.00%
$100,000 -$ 753 -$ 1,542 -$ 2,363
$200,000 -$ 1,505 -$ 3,084 -$ 4,727
$300,000 -$ 2,258 -$ 4,625 -$ 7,090
$400,000 -$ 3,011 -$ 6,167 -$ 9,453
$500,000 -$ 3,764 -$ 7,709 -$ 11,817
$600,000 -$ 4,516 -$ 9,251 -$ 14,180
$700,000 -$ 5,269 -$ 10,792 -$ 16,543
$800,000 -$ 6,022 -$ 12,334 -$ 18,907
$900,000 -$ 6,775 -$ 13,876 -$ 21,270
$1,000,000 -$ 7,527 -$ 15,418 -$ 23,633
One strategy that you might want to implement is to cut back on your spending now and increase your monthly repayment. So eventually when interest rate have come back up you won’t be as panic.
Increase monthly repayment will also reduce your loan life (if interest rate remain the same). For example if you can pay extra $251/month on the $400k loan, you can save $88k in interest or reduce loan term by 6yrs and 2months !
Over next few weeks I will point out a few other strategies to pay off your loan faster.
RBA Board Meeting Sept 2009
Hi
Please find below an article from the CBA Bank's economists regarding the Reserve Bank of Australia leaving the cash rate unchanged at 3% today.
Summary
• The RBA left the cash rate unchanged at 3% in September.
• The RBA has set a framework that will allow it to move at a time of its choosing – but they are still looking for a ”durable recovery”.
• We are holding to our call for the first move in QI 2010.
• Any tightening cycle starts at point where the amount of economic slack will be less than previously expected - the move back to “normal” is likely to be fairly rapid.
• CBA expect the RBA to stop when the cash rate has reached 5% in the early part of 2011.
Nobody expected any change to monetary settings today and the RBA Board duly delivered. The cash rate remains at a close to fifty-year low of 3%. All agree that the next move is up. But this is where the consensus ends. Markets have put a very high probability on the tightening cycle commencing at the next meeting in October. Some economic commentators expect a rate rise before year end. Most have pencilled in the first move for QI 2010.
The RBA has taken every opportunity over the past month to note that the economic backdrop (domestic and global) has tracked better than expected. They have emphasised that the current cash rate represents an “emergency setting” for extraordinary circumstances and that at some point the Bank will have to start moving interest rates back to “normal” levels. From that perspective, the rhetoric in today’s short post meeting statement is very similar. There certainly doesn’t seem to be any hardening in that rhetoric and certainly not enough to justify market pricing for an October rate rise.
The RBA has clearly set a framework that will allow it to move at a time of its choosing. Economists generally pick up on the shifts in policy bias. But RBA often ends up moving sooner than expected. With that warning in mind, the harder-edged macro component of recent RBA commentary does, however, suggest expectations of an October start date for the tightening cycle are a little aggressive:
• While the RBA has revised up growth projections, its forecast profile implies the economy will be running at a sub-trend pace for another eighteen months. Such a backdrop would normally result in higher unemployment and lower inflation rates – exactly what the RBA expects.
• The RBA is attributing a significant part of the strength in HI 2009 activity to temporary policy stimulus and expects QIII GDP to decline.
These projections emphasise why the RBA wants signs that a “durable” recovery is underway before signing off on a rate rise. They will want evidence that retail spending is being supported by more than just cash handouts, that residential construction is lifting, that capex plans are being reinstated and that unemployment is peaking. We are not there yet. We are holding to our call for the first move in QI 2010.
What is also increasingly clear is that the tightening cycle will commence at point when the amount of slack in the economy will be less than previously expected. The output gap will be smaller and the unemployment rate will be lower than thought likely only a few months ago. The move back to “normal” is likely to be fairly rapid when it comes.
Debate about what is a normal level of rates will continue. RBA Governor Stevens signalled at his recent Parliamentary appearance that normal was “a good deal north” of 3%. He also noted that the average cash rate is in the 5’s but normal isn’t necessarily a constant.
The RBNZ has developed a simple analysis based on the shape of the yield curve to estimate the neutral rate. This method shows that the neutral cash rate has largely fluctuated in a 5-6% band (averaging 5¾%) since the turn of the century. This band fits in with the RBA’s typical characterisation of the neutral zone for monetary policy. Latest readings, however, suggest that the neutral rate is now a little lower (around 5¼%).
Other calculations also suggest neutral or normal rates are now a bit lower. Changes in household debt servicing are a useful leading indicator of consumer trends. There is a certain critical debt service level over and above normal where the resultant “stress” has a significant impact on consumer spending. That critical level can be determined by benchmarking deviations in debt servicing against deviations in consumer spending growth. The approach is quite neat because once the critical debt service ratio is known, it is possible to work out what cash rate you need to get there. The current critical level would be breached with an RBA cash rate of 4¾-5%.
We expect the RBA to stop when the cash rate has reached 5% in the early part of 2011.
Please find below an article from the CBA Bank's economists regarding the Reserve Bank of Australia leaving the cash rate unchanged at 3% today.
Summary
• The RBA left the cash rate unchanged at 3% in September.
• The RBA has set a framework that will allow it to move at a time of its choosing – but they are still looking for a ”durable recovery”.
• We are holding to our call for the first move in QI 2010.
• Any tightening cycle starts at point where the amount of economic slack will be less than previously expected - the move back to “normal” is likely to be fairly rapid.
• CBA expect the RBA to stop when the cash rate has reached 5% in the early part of 2011.
Nobody expected any change to monetary settings today and the RBA Board duly delivered. The cash rate remains at a close to fifty-year low of 3%. All agree that the next move is up. But this is where the consensus ends. Markets have put a very high probability on the tightening cycle commencing at the next meeting in October. Some economic commentators expect a rate rise before year end. Most have pencilled in the first move for QI 2010.
The RBA has taken every opportunity over the past month to note that the economic backdrop (domestic and global) has tracked better than expected. They have emphasised that the current cash rate represents an “emergency setting” for extraordinary circumstances and that at some point the Bank will have to start moving interest rates back to “normal” levels. From that perspective, the rhetoric in today’s short post meeting statement is very similar. There certainly doesn’t seem to be any hardening in that rhetoric and certainly not enough to justify market pricing for an October rate rise.
The RBA has clearly set a framework that will allow it to move at a time of its choosing. Economists generally pick up on the shifts in policy bias. But RBA often ends up moving sooner than expected. With that warning in mind, the harder-edged macro component of recent RBA commentary does, however, suggest expectations of an October start date for the tightening cycle are a little aggressive:
• While the RBA has revised up growth projections, its forecast profile implies the economy will be running at a sub-trend pace for another eighteen months. Such a backdrop would normally result in higher unemployment and lower inflation rates – exactly what the RBA expects.
• The RBA is attributing a significant part of the strength in HI 2009 activity to temporary policy stimulus and expects QIII GDP to decline.
These projections emphasise why the RBA wants signs that a “durable” recovery is underway before signing off on a rate rise. They will want evidence that retail spending is being supported by more than just cash handouts, that residential construction is lifting, that capex plans are being reinstated and that unemployment is peaking. We are not there yet. We are holding to our call for the first move in QI 2010.
What is also increasingly clear is that the tightening cycle will commence at point when the amount of slack in the economy will be less than previously expected. The output gap will be smaller and the unemployment rate will be lower than thought likely only a few months ago. The move back to “normal” is likely to be fairly rapid when it comes.
Debate about what is a normal level of rates will continue. RBA Governor Stevens signalled at his recent Parliamentary appearance that normal was “a good deal north” of 3%. He also noted that the average cash rate is in the 5’s but normal isn’t necessarily a constant.
The RBNZ has developed a simple analysis based on the shape of the yield curve to estimate the neutral rate. This method shows that the neutral cash rate has largely fluctuated in a 5-6% band (averaging 5¾%) since the turn of the century. This band fits in with the RBA’s typical characterisation of the neutral zone for monetary policy. Latest readings, however, suggest that the neutral rate is now a little lower (around 5¼%).
Other calculations also suggest neutral or normal rates are now a bit lower. Changes in household debt servicing are a useful leading indicator of consumer trends. There is a certain critical debt service level over and above normal where the resultant “stress” has a significant impact on consumer spending. That critical level can be determined by benchmarking deviations in debt servicing against deviations in consumer spending growth. The approach is quite neat because once the critical debt service ratio is known, it is possible to work out what cash rate you need to get there. The current critical level would be breached with an RBA cash rate of 4¾-5%.
We expect the RBA to stop when the cash rate has reached 5% in the early part of 2011.
What is Income Protection?
Hi There
Two weeks ago (before I went to NZ), we briefly outlined the 4 types of insurances namely Income Protection (IP), life, Total & Permanent Disablement (TPD) & Trauma and promised that we would discuss the fine points in the coming weeks. Let us start with Income Protection.
Statistics reveal that:
• 1 in 3 Australians will be off work for more than 3 months during their working life due to illness or injury – Institute of Actuaries of Australia (1993, 1995, 1997).
• When a person is off for more than 3 months, then the average duration of claim is usually 4.2 years – Institute of Actuaries of Australia (1993, 1995, 1997).
• The most common type of work related injury is industrial deafness, followed closely by back related injuries – ABS National Health Survey: Injuries Australia.
• Each year, approx 1 million Australians experience serious injuries or illness, which either require hospitalisation or prevent them from working – ABS National Health Survey: Injuries Australia.
• Half of all serious accidents occur away from work, so workers are not covered by workers compensation – ABS National Health Survey: Injuries Australia.
• 1 in 2 Australians will be off work for more than 7 days during their working life due to illness or injury – Institute of Actuaries of Australia (1993, 1995, 1997).
So What is INCOME PROTECTION?
Income protection insurance (also known as salary continuance insurance) pays a monthly benefit of up to 75% of your pre-tax salary if you are unable to work due to illness or injury. Income protection may pay benefits for temporary conditions that affect you for weeks or months as well as for long-term illnesses. Income protection benefits begin after a predetermined waiting period that you nominate when you take out the cover. Generally, the longer the waiting period the lower the premium. The policy will continue to pay the benefit for as long as you remain unable to work – up to a maximum predetermined period. This can be a set time frame such as two years, or be age-based, for example up to age 60. Generally, the longer the potential benefit period, the higher the premium. Income protection premiums are usually tax deductible as an expense incurred in earning your income. It is a monthly income stream to help support you and your family if you are sick or injured and can’t work.
Two weeks ago (before I went to NZ), we briefly outlined the 4 types of insurances namely Income Protection (IP), life, Total & Permanent Disablement (TPD) & Trauma and promised that we would discuss the fine points in the coming weeks. Let us start with Income Protection.
Statistics reveal that:
• 1 in 3 Australians will be off work for more than 3 months during their working life due to illness or injury – Institute of Actuaries of Australia (1993, 1995, 1997).
• When a person is off for more than 3 months, then the average duration of claim is usually 4.2 years – Institute of Actuaries of Australia (1993, 1995, 1997).
• The most common type of work related injury is industrial deafness, followed closely by back related injuries – ABS National Health Survey: Injuries Australia.
• Each year, approx 1 million Australians experience serious injuries or illness, which either require hospitalisation or prevent them from working – ABS National Health Survey: Injuries Australia.
• Half of all serious accidents occur away from work, so workers are not covered by workers compensation – ABS National Health Survey: Injuries Australia.
• 1 in 2 Australians will be off work for more than 7 days during their working life due to illness or injury – Institute of Actuaries of Australia (1993, 1995, 1997).
So What is INCOME PROTECTION?
Income protection insurance (also known as salary continuance insurance) pays a monthly benefit of up to 75% of your pre-tax salary if you are unable to work due to illness or injury. Income protection may pay benefits for temporary conditions that affect you for weeks or months as well as for long-term illnesses. Income protection benefits begin after a predetermined waiting period that you nominate when you take out the cover. Generally, the longer the waiting period the lower the premium. The policy will continue to pay the benefit for as long as you remain unable to work – up to a maximum predetermined period. This can be a set time frame such as two years, or be age-based, for example up to age 60. Generally, the longer the potential benefit period, the higher the premium. Income protection premiums are usually tax deductible as an expense incurred in earning your income. It is a monthly income stream to help support you and your family if you are sick or injured and can’t work.
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