If you’re finding it difficult to save a 20% home loan deposit, you might still be able to borrow by paying Lenders Mortgage Insurance. We’ll run through how LMI works and what it might mean for you.

How Lenders Mortgage Insurance (LMI) works

Lender’s Mortgage Insurance (LMI) is insurance that a lender takes out to insure itself against the risk of not recovering the outstanding loan balance. This is required if you, the borrower, are unable to meet your loan payments and the property is sold for less than the outstanding loan amount (known as the ‘shortfall debt’).

The Lender will normally require LMI if you do not have the required home loan deposit (typically 20% of the property value) and the cost is usually passed to the borrower as a fee. 

Paying LMI may mean that you are able to apply for a home loan sooner. However, a smaller deposit may also increase the possibility of a shortfall debt as there is less of a buffer between the outstanding loan amount and the property value.

It’s important to note that LMI is insurance that protects the Lender, not you (or any guarantors) against loss. Only the Lender can make a claim under the LMI policy, not you.

Benefits of Lenders Mortgage Insurance

Where you meet all other lending criteria, LMI is one way of buying your home sooner without having the 20% deposit typically required by lenders. Without LMI, a lender may not be able to offer you a home loan even where those other lending requirements are met.

What does Lenders Mortgage Insurance (LMI) cost?

The cost of LMI depends on various factors including, the amount of your home loan, the value of the property you’re buying and the type of loan you get. Your banker or your broker will provide you with the amount of the LMI fee when you apply for your home loan.

How does LMI get paid?

LMI is charged as a one-off cost by the LMI provider to the Lender. We pass on this cost as an LMI fee to you and no more. The LMI fee is generally added to the amount you borrow and payable at drawdown. In some cases, you may be able to pay this upfront using your own funds – speak to us on Phone: 07 5641 4134 to find out more. 

Is Lenders Mortgage Insurance refundable or transferable to another financial institution?

LMI is not transferable to other financial institutions. If you repay your home loan within two years of the settlement or drawdown date, you may be entitled to a partial refund of the LMI fee.

If your settlement or drawdown date was on or after 25th November 2019, you’ll be refunded:

• 40% of your LMI fee if you repay your home loan within 12 months of the date of settlement or drawdown.

• 20% of your LMI fee if you repay your home loan between 12 and 24 months after the date of settlement or drawdown.

You won’t be refunded any of your LMI fee if your drawdown or settlement date was before 25th of November 2019; or if you don’t repay your home loan within two years of your settlement or drawdown date. If you wish to refinance to another lender, you may need to pay LMI again with your new lender if you do not meet their minimum deposit requirements.

What if I’m unable to make my home loan repayments?

If you are unable to make your loan repayments and default on your home loan, your property may be sold to cover the outstanding loan amount.  If the property is sold for less than the outstanding loan amount, the Lender will incur a loss and submit a claim to the LMI provider. The LMI provider pays the Lender this amount (subject to the LMI policy) and the LMI provider or their authorised third-party debt collector may then seek to recover this amount directly from you as the borrower, or any guarantors.

For example:

Peter and Emma buy a home valued at $750,000. LMI is required and included (or capitalised) into the loan amount of $700,000. Unfortunately, Peter and Emma are unable to meet their loan repayments and default on their loan. The property is sold for a loss at $650,000. The outstanding loan balance at the time of sale is $725,000 made up of the original loan amount, unpaid interest that has accumulated during the default period and other fees/charges associated with the sale. This means there is a shortfall of $75,000 (being the difference between the outstanding loan balance of $725,000 and the sale proceeds of $650,000). In this case, the LMI provider would, pay the Lender the shortfall. The LMI provider may then seek repayment of this amount from Peter and Emma.

LMI vs. Mortgage Protection Insurance

LMI should not be confused with Mortgage Protection Insurance (MPI). MPI covers you if you’re unable to meet your mortgage repayments due to unemployment, death or disability. MPI protects you, whilst LMI protects the lender.

Experiencing financial difficulties

If you’re experiencing financial difficulties or think that you may be unable to make your home loan repayments, contact us on Phone: 07 5641 4134.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/home-property/buy-first-home/lmi

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

The daily grind of a job working for an over-bearing boss, or is it a family or financial problem, a traumatic life-event, or the fear of getting older can force us to sit down and really think about the meaning of life. Why are we here? What is our purpose? What do we want to be known and remembered for? What makes us smile?

We move through our life stages from carefree kid, teenage school years, our working years, finding a partner and (maybe) having a family and watching them grow into adults. Then we finish up work, move into retirement and then onto our “third life” elderly years. At each of these stages our purpose and priorities in life can, and often does, change.

Some feel comfortable with these life transitions. It’s not unusual for someone to be struggling to find and implement a meaningful life. You don’t walk this path alone.

The theory…

Psychologist Abraham Maslow talked about finding purpose as a key human need and that getting clear on your purpose starts with what you do … the activities that fill your day. Get clear on what these activities are, then practice and do them consistently. Build good life habits.

Others have written that finding true purpose in life is about building three (3) “big rocks” in your life by finding: (1) something to do; (2) something to love; and (3) something to hope for.

The findings…

About 10 years ago, the then UK Prime Minister, David Cameron, wanted to get a better idea about well-being in the population. The English Longitudinal Study of Ageing was a study that he turned to. It’s a comprehensive study looking at multiple things to do with work, retirement, health, and social activity to name a few. In a nutshell, it identifies what happens to people as they age.

One of the key findings to-date was that people involved in the study who were doing “worthwhile” activities in their life (as understood by the researchers over the years through constant checking-in and asking questions) were generally healthier, had less pain, had developed fewer illnesses and diseases, were sleeping better, generally happier and overall satisfied with their lives.

Another very interesting and important finding from the research is that “social engagement and activity” at older ages is very critical to health and well-being. Prosocial activities contribute to people feeling that their life is worthwhile and that they have valuable things going on in their lives. Those people who become isolated and who don’t maintain regular contact with other people are more likely to “age” more rapidly. The incidence of isolation and loneliness is sadly on the increase leading many health experts to claim this as a “silent killer” of many people.

How does aged care fit in?

Many people want to live in their own homes (or a “downsized” home) for as long as they possibly can, maintaining their independence and control over their lives.

However, with ageing can come reduced movement and mobility. Those day-to-day chores around the home just get that little bit harder and uncomfortable to manage and do.

That’s where the Government steps in with their “home help funded programs.” People can work with aged care providers to bring help and assistance into the home. Along with nursing-in-the-home services, this type of help may be assistance with house cleaning, food preparation or delivery and lawn mowing. These are the most common that we see. All are great help for those that need them.

However, what we don’t see happen anywhere near enough is people asking for help to participate in social engagement activities. These can be as big or as small as your imagination. It might be travel assistance to attend a club or organisation, someone to walk with along the beach or in a park, a therapeutic massage to give better movement or mobility, meeting with people to sing in a choir or a book club or a men’s shed. Or you might just want someone to talk to… simple as that.

The options are endless and typically very individualised to each person. The research shows that if these social engagement activities are wanted and are able to be done – they are beneficial to people’s health, well-being and happiness.

It’s time for the aged care industry to do something different… start to challenge the status quo and stop hiding behind the (written… and often unwritten) rules. Rules don’t have to be “broken.” However the rules can be ever so slightly “bent” or “reshaped” to help people as they age to live a meaningful life… and one of purpose.

If you’d like to find out more about Aged Care, contact us today on Phone: 07 5641 4134.

Source: Reproduced with permission of Family Aged Care Advocates

Download 10 aged care traps to avoid for your ageing parents

No specific person’s personal objectives, needs or financial situations were taken into consideration when creating the content for this article. Family Aged Care Advocates Pty Ltd (ABN 77 642 454 484) are aged care specialists. You should seek qualified financial planning, taxation and legal advice before making any decisions that are unique to your circumstances.

This article was prepared in good faith and we accept no liability for any errors or omissions. Any information provided by the author detailed above is separate and external to our business. Our business does not take any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

The use of trusts by Australians to hold different assets, including investments in exchange traded funds (ETFs), managed funds, and direct shares, continues to grow.

According to the Australian Tax Office (ATO), there are now more than one million trusts operating nationally, collectively holding assets that generate in excess of $400 billion in income a year.

Around a third of these are classified as micro trusts, because they receive less than $2 million in annual income. Another roughly 3 per cent are classified as small trusts, with annual income between $2 million and $10 million.

Why use a trust?

Trusts are used to hold assets for various reasons, but most typically for tax planning and asset protection purposes.

Rather than being an entity in their own right, like a company, a trust is actually an agreement between the legal owners of assets (the trustees) and the beneficiaries of those assets.

A company is often nominated or set up as the trustee of a trust to eliminate a trustee’s personal legal responsibility to creditors. More than one party can be appointed as a trustee.

The agreement between the parties to a trust is governed by a deed, which among other things can set out what assets the trust can and can’t invest in.

There are a number of different types of trust structures, however the most common is known as a discretionary trust.

Discretionary trusts are often referred to as family trusts. They give trustees the discretion to distribute income earned in the trust, or capital derived from the sale of assets within the trust, to each of the named beneficiaries.

Tax planning

Family trusts enable trustees to distribute investment income and capital to beneficiaries in the most tax-effective way.

Often that involves distributing a greater proportion of the total earned each financial year to trust beneficiaries with a lower marginal tax rate, which reduces the total amount of income tax that needs to be paid.

The ATO recently released a suite of public advice and guidance relating to family trust distributions and tax arrangements, noting it has no issue with income payments to beneficiaries on lower marginal tax rates where they simply receive or enjoy the benefit of their distributions.

However, the tax regulator does have concerns over family trust arrangements aimed at avoiding tax, where adult children on low tax rates are made beneficially entitled to income but their parents retain control over and enjoy the economic benefits of that income.

There are also still strict rules in place for trust distributions to beneficiaries aged under 18.

If a minor is entitled to a share of a family trust’s income, the trustee is assessed and liable to pay tax on that income as if it were their income, unless the minor meets certain exceptions.

Unemployed minors can only be paid up to $416 tax free. Any distributions above $416 up to $1,307 are then taxed at 66 per cent, and distributions above $1,308 are taxed at 45 per cent on the entire amount.

Another aspect of tax planning in family trusts is to reduce capital gains tax. Investments in a trust held for more than 12 months receive a 50 per cent CGT discount if sold.

But keep in mind that investment losses on assets held within a trust can’t be claimed and used to offset the taxable income of individual beneficiaries.

Asset protection

In addition to potential tax benefits, family trusts can also be beneficial in terms of the protection of family assets from external creditors.

That’s because trust investments belong to the family trust and are not directly owned by the individual beneficiaries.

Having that ownership separation means that, in the event a trust beneficiary is sued, either as a business owner or individual, the assets within the family trust are effectively quarantined from any legal settlement.

The same applies in a situation where a trust beneficiary becomes bankrupt.

While the assets with of a family trust are protected, any trust income distributed to a bankrupt beneficiary can be applied to pay off creditors and other outstanding debts.

But the decision on whether trust income is distributed to a bankrupt beneficiary ultimately rests with the trustee.

Further information on trusts

The ATO has also recently published further information on trust income, outlining its requirements for record keeping and tax reporting.

Failure to follow the ATO’s requirements could have unintended tax consequences.

Contact us on Phone: 07 5641 4134 if you’d like to find out more about family trusts.

Source: Vanguard May 2022

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2022 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Characteristics of goal-driven savers

A ‘money mindset’ is a way of thinking about personal finance. Your money mindset can change over time, and it may help explain your spending and savings habits. Understanding this can help you build habits and strategies to better manage your money.

If the following applies to you, you might be a goal-driven saver:

• You focus on growing your savings until you reach a specific savings goal, then relax your savings habits.

• It’s easy to save money when you have a clear goal in mind.

• If you won $1,000, you’d put it towards your savings goal.

• If you needed $2,000 for unexpected car repairs, you wouldn’t need to borrow money or use a credit card – you could take the money out of your savings account. However, this would cause you mild financial strain. 

Read about other money mindsets.

About goal-driven savers

If you’re a goal-driven saver, you’re good at saving money as long as you have a clear goal in mind. Once you achieve this goal, you tend to slow down your saving.

You may switch from being an impulsive spender to a goal-driven saver when you’re saving for something in particular. This is usually a mid-term goal you can achieve in around six months, like a holiday. Goal-driven savers can be reluctant to commit to longer-term goals like a house deposit.

When you feel motivated, you work hard to reduce your expenses and increase your income. You also use financial windfalls like tax returns and bonuses to boost your savings.

Build consistent savings habits

Goal-driven savers are already strong savers. You can benefit from creating sustainable savings habits that you can stick to long-term, even when you’re not saving for anything in particular.

You can build consistent savings habits by:

• Creating a savings goal using apps so you can watch your savings grow.

• Setting up automated transfers so money goes straight into your savings each payday. People who save first, rather than saving what’s left over at the end of their pay cycle, have more savings success.

• Asking your employer to deposit part of your pay directly into a separate savings account.

• Opening different savings accounts for different savings goals. Some savings accounts are fee-free, so it doesn’t cost you anything to separate your savings.

• Building an emergency fund so you don’t have to withdraw from your savings when faced with an unexpected expense.

If you’re ready to start saving for a longer-term goal, look into ways you can improve your chances of being approved for a home loan. You can also read this useful guide to saving for a home deposit.

Manage your money

As a goal-driven saver, you need to find ways to stay in control of your money, even when you don’t have a savings goal in mind. Goal-driven savers sometimes turn into impulsive spenders without a goal to work towards, and you may find yourself taking money out of your savings to pay for unplanned purchases.

Can you look at creative ways to boost your savings? Take on an extra shift at work, sell some items you don’t use anymore, or start a side hustle.

Looks at strategies like tracking your spending and bucketing your money to build consistent saving and spending habits. You can also consider hiding your savings account in internet banking so you’re not tempted to dip into it.

Contact us on Phone: 07 5641 4134 today if you would like some budgeting tips that can assist you to reach your goals sooner. 

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/manage-money/money-basics/goal-driven-saver

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Marketing campaigns, agent commission, taxes… there’s a lot to consider when it comes to the cost of selling your home. We’ve laid out the  main expenses for you, so you can stay on track, and on budget.

Marketing costs

Advertising

Advertising costs vary depending on a number of factors, especially how you choose to sell and how long your home stays on the market. But there are some common costs you can’t avoid, such as listing fees (online or in print), photography for your home and floor plans.

Repairs and presentation

Pre-sale repairs and presentation can add significant costs to prepping your house for sale. Work out a budget for home staging, cosmetic upgrades, minor repairs and landscaping.

“Get an agent in before you decide to renovate,” says Kylie Davis, head of marketing, Property Solutions & Content at CoreLogic. “Often the agent has very different ideas on what makes property a dream home to live in. If it’s to change the carpet or paint the walls, do it. But if it’s putting in marble bathrooms, maybe not. Decisions must be made with the head, not the heart – think about the buyer.”

Agent fees

Commissions and other bonuses

The agent’s commission is one of the more significant costs in selling your house. Agents can charge fixed rates, a flat fee or a tiered rate that’s based on your property’s final sale price. Make sure your agent has a good track record, and that you settle on all fees before signing.

Auction and private sale fees

Advertising for private sales tends to cost less than it does for auctions. You don’t need to pay for an auctioneer, and if you accept an offer immediately, you’ll be up for less marketing costs. However, if your home doesn’t sell quickly, you’ll need to keep it on the market. This could mean continued advertising costs; you may even want to refresh your campaign completely.

Online fixed fee sites

Listing with fixed fee agents online and ‘for sale by owner’ websites helps you control your costs in fixed-fee packages. But remember, after you meet the agent face-to-face for the initial property viewing, you’ll largely have to drive the sale process yourself.

Legal fees

Conveyancing and solicitor fees

Conveyancing is the process of transferring legal ownership of the home from seller to buyer, also known as settlement. It’s a must in every state, and fees vary depending on where you’re selling.

These fees cover work that goes into assessing contracts, dealing with banks and lenders, conducting title searches, adjusting rates and taxes, and booking the settlement date.

Shop around for a good conveyancer by researching the services they offer, how well they understand your situation, and how they charge.

Title search and transfer

The land title outlines the owner of the title, and all current recordings and registrations on the title including mortgages, easements, and any liens, caveats or covenants. 

Government and bank fees

Capital gains tax

Capital gains tax is the tax you pay on a capital gain you make from selling an asset. For example, if you paid $650,000 for a property and sell it for $750,000, you’ll pay capital gains tax on the difference of $100,000.

The good news is that, under the main residence exemption, you usually don’t have to pay capital gains tax on the family home – but there could be exceptions. Learn about calculating and paying capital gains tax to stay on track and in the know.

Mortgage discharge fee

A mortgage discharge fee is payable to your bank or financial institution when you close the mortgage.

Buying your next home

Stamp duty

You’ll need to pay stamp duty on your next home based on the purchase price of the property and its location. To find out how much stamp duty could cost on your property, you can use this stamp duty calculator.

Bridging loan

If you’ve found your next home before you’ve sold your current one, you might need to take out a bridging loan to get the funds you’ll need. Learn more about the ins and outs of bridging loans, and buying before selling.

Accurate valuation

Your agent can estimate the value of your house, but nothing beats a valuation from an accredited, independent valuer. Research a few third-party valuers, and choose the best option for your budget and needs. 

Lenders Mortgage Insurance

Have you been approved to borrow more than 80% of the assessed value of your home (loan-to-value ratio, or LVR)? Then most lenders will ask you take out a Lenders Mortgage Insurance policy. This provides insurance in relation to the increased risk of your loan.

Relocating and storage costs

You could be up for moving and storage costs at various stages of the sale. For example, most home-stagers recommend you move out while your home is on the market to provide easy access to potential buyers. Moving and storage costs vary from state to state, and can reach the thousands if you hire professionals.

Utilities connections

Your energy provider may charge disconnection and reconnection fees when you move. These fees also vary from state to state, so check what you could be up for and budget accordingly.

Ready to chat? Talk to us today on Phone: 07 5641 4134.

Source: NAB

Reproduced with permission of National Australia Bank (‘NAB’). This article was originally published at https://www.nab.com.au/personal/life-moments/home-property/buy-next-home/costs

National Australia Bank Limited. ABN 12 004 044 937 AFSL and Australian Credit Licence 230686. The information contained in this article is intended to be of a general nature only. Any advice contained in this article has been prepared without taking into account your objectives, financial situation or needs. Before acting on any advice on this website, NAB recommends that you consider whether it is appropriate for your circumstances.

© 2022 National Australia Bank Limited (“NAB”). All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Review your investments regularly to make sure you’re on track to reach your financial goals and you’re comfortable with the investment risks.

Find out how to review your investments’ performance and what to do if you’re not getting the returns you expect.

Monitor your investments regularly

How often you review your investments will depend on:

• your financial goals

• how long you’re planning to invest

Defensive versus growth assets

Defensive assets include savings accounts, term deposit and fixed-interest investments like bonds. When you receive a statement, check income (for example, interest) is being paid and the value of your capital hasn’t changed too much.

Growth assets include property, shares and managed funds. They are more volatile and it’s best to review them once or twice a year. For example, for shares, around the time semi-annual and annual reports are released. Over-tracking may lead to over-trading. This can result in selling when markets fall and not sticking to your investing plan and investing time frame.

Make sure your investments are diversified, and leave them to ride out the downs. For more about defensive and growth assets, see choose your investments.

Review your investing plan

It’s important to review your investment plan once a year. Check your investments are still in line with your financial goals, risk tolerance and investing time frame.

Ways to monitor your investments

You’ll need to monitor different investments in different ways.

Shares

Key ways to monitor your shares:

• Set up a ‘watch list’ for the shares you own. You can do this through the Australian Securities Exchange (ASX) or your online broker platform. This will help you track share prices, dividends and price sensitive announcements. 

• Review semi-annual and annual reports. These tell you about the company’s performance, important changes, and expectations for the coming year.

For more information, see keeping track of your shares.

Property

To monitor an investment property’s performance:

• Use real estate websites to review the prices of similar properties that have sold.

• Monitor monthly housing price updates published by CoreLogic and the Australian Bureau of Statistics.
  

• Monitor auction clearance rates online or in newspapers. These tell you the percentage of properties sold at auction and show the strength of the property market.

If you invest in a real estate investment trust (REIT), monitor it the same way you monitor shares.

Investment performance warning signs

It’s difficult to tell if an investment will perform poorly. But there are warning signs that you can look out for.

Financial and accounting problems

Watch for mistakes, delays and media controversy over financial accounts. Genuine errors happen, but repeated accounting issues can be a sign of more serious problems.

Management problems

Frequent changes of a company’s board, directors and management can be a warning sign. Another sign can be directors and managers selling their shares in the company.

Company announcements will show changes in a company’s management and director holdings. You can find these on the ASX, the company’s website or through your online broker platform.

Published statements

The Australian Securities and Investment Commission (ASIC) and the ASX can ask issuers of investment products to publish statements clarifying or correcting information given to investors. These public statements can be a sign of issues within the company or their reports, so read them carefully.

Keep an eye on ASIC media releases.

When to sell your investments

It’s important to not panic and sell an investment when the price has fallen. Before you sell an investment, take the time to review it. Check if it can still help you to reach your financial goals and if you’re comfortable with the risks involved. If you are, it may be better to hold on until the price rises again.

Your financial adviser will be able to assist at any point if you have any queries regarding your investment portfolio. Contact us on Phone: 07 5641 4134 to discuss your investment strategy.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/how-to-invest/keep-track-of-your-investments

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

There’s good news for first home buyers. The First Home Super Saver (FHSS) scheme which allows you to save for your deposit in your super account, is increasing its maximum release to $50,000.

How it works is a little complicated, but we’re here to guide you through the steps. Here’s what you need to know.

The FHSS scheme helps first-home buyers save for a deposit through their super. It allows you to reduce your taxable income as you save money for your future home. From 1 July 2022, the maximum amount you can access will increase from $30,000 to $50,000.

How does FHSS work?

Under the FHSS scheme, first-home buyers can use voluntary super contributions of up to $15,000 each financial year to help them save for their first home. You make voluntary super contributions from your salary or savings. The benefit is that the money you save in your super is taxed at a lower rate – only 15%. This means you pay less tax on the money you put towards your deposit, and it may earn more than if it was in an ordinary bank account.

On top of your contributions, a percentage of the earnings your contributions make is included when calculating how much you can withdraw through the FHSS. This figure is calculated by the Australian Taxation Office (ATO) not your super fund. We can give you an idea of the current earning percentage being used. Here are some examples of how the scheme works.

1. You have salary sacrificed $15,000 every year for three years ($45,000) and the ATO calculates you earned $5,000 from that investment. You can then apply to release the full $50,000 amount.

2. A couple who have saved in their individual super accounts would have a combined FHSS release of $100,000.

3. If you salary sacrifice $10,000 a year, you may need to wait four or five years to reach $50,000 or access a lower amount sooner.

Are you eligible for the FHSS scheme?

You must be 18 or older to register for and release money under the FHSS scheme. You must also never have owned any type of property in Australia.

Eligibility is assessed on an individual basis. This means that individuals can access their own FHSS contributions to put towards the same property. It also means that if another person who already owns a property is buying with you, you can still apply for your FHSS release.

Getting your funds in time for settlement

It’s important you understand the process for having your funds released in time for settlement. The ATO can take some time, so it’s a good idea to start the FHSS process when you first apply for pre-approval on a home loan. You’ll need a minimum of six weeks for each step.

The first step is to apply for a FHSS ‘determination’ from the ATO – not your super fund. You can do this using your MyGov account. The ATO will calculate how much you can release and give you their ‘determination’. It’s very important that you receive your determination before signing a contract for a property.

Once you get the determination, you can request the funds be released. Again, do this through your MyGov account and as soon as possible. The ATO website has a summary of all the conditions for releasing money under FHSS.ⁱ

Remember that you can only use the FHSS scheme once. However, you have up to 12 months to sign a property contract from the date you make a valid release request to notify the ATO.

The First Home Super Saving scheme may help you save for your first home deposit faster than a regular bank account – and help you pay a little less tax too.

We can help you manage the timelines and rules involved so your funds are released in time for your settlement. Simply give us a call on Phone: 07 5641 4134 to find out how the FHSS scheme could help you own your first home sooner.

i https://www.ato.gov.au/individuals/super/withdrawing-and-using-your-super/first-home-super-saver-scheme/#Howyoucansaveinsuper

A ‘transition to retirement’ (TTR) strategy lets you access some of your super and keep working.

Setting this up can be complicated, so contact your super fund or financial adviser for advice.

How transition to retirement works

If you’ve reached your preservation age (between 55 and 60) and still working, you can use a TTR strategy to:

• supplement your income if you reduce your work hours, or

• boost your super and save on tax while you keep working full time

Starting a TTR pension

You can start a TTR pension by transferring some of your super to an account-based pension.

You need to keep some money in your super account to continue to receive your employer’s compulsory contributions. Or any voluntary contributions you make.

Government benefits and TTR

Starting a TTR pension may impact your or your partner’s government benefits. Speak to a Services Australia Financial Information Service (FIS) officer for more information.

Life insurance and TTR

You may have life insurance with your super. Check if your cover reduces or stops if you start a TTR pension.

Using TTR to reduce work hours

If you want to reduce your work hours, a TTR strategy can top up your income.

Pros

• Continue to receive super contributions — This helps to replace the money you take out.

• Pay less tax — If you are 60 or older, your TTR pension payments are tax free. If you are 55 to 59, your pension is taxed at your marginal tax rate, but you get a 15% tax offset.

• Ease into retirement — You can start planning what you’ll do with your leisure time before you retire completely.

Cons

• Affects retirement income — If you start drawing down your super early, you’ll have less money when you retire.

CASE STUDY 

Alisha reduces her work hours

Alisha has just turned 60 and currently earns $50,000 a year before tax. She decides to ease into retirement by reducing her work to three days a week. This means her income will drop to $30,000. Alisha transfers $155,000 of her super to a transition to retirement pension and withdraws $9,000 each year, tax-free. This replaces some of her lost pay.

Using TTR to save on tax

You can use a TTR pension to grow your super and pay less tax in the lead up to retirement.

This strategy works best if you are 60 or older and a mid to upper income earner.

Pros

• Boost your super — A TTR pension can be used with salary sacrificing to top up your super as you approach retirement.

• Save tax — You pay 15% tax on salary sacrificed contributions. This is likely to be lower than your marginal tax rate.

• Pay less tax on income — If you are age 60 or older, your TTR pension payments are tax free. If you are 55 to 59 you are taxed at your marginal tax rate, but you get a 15% tax offset.

Cons

• Complexity — You may need to pay for financial advice to understand if this strategy is for you.

CASE STUDY

Kyle reduces his tax

Kyle is 60 and earns $100,000 a year. He intends to keep working full-time for at least another five years. Kyle transfers $200,000 from his super to an account-based pension so he can start a TTR strategy.

He salary sacrifices into his super. This will reduce his income tax, but also his take-home pay. He tops up his income by withdrawing up to 10% of his TTR pension balance each year.

Plan your retirement

You may benefit from combining a mix of income options when you retire.

Financial decisions at retirement

How to make the most of your retirement income.

Download PDF

Contact us today on Phone: 07 5641 4134 if you’d like to implement a strategy for your retirement.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/retirement-income/transition-to-retirement

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

What are interest rates?

The interest rate is the amount a borrower pays for borrowing money from a lender, which is why it’s often referred to as the cost of borrowing.

Conversely, the interest rate is also the amount earned on money deposited into a bank or financial institution, also known as the rate of return.

Why is the cash rate so important and how does it influence interest rates?

The interest rate a bank charges borrowers is influenced by the cash rate, which is set by the Reserve Bank of Australia (RBA).

The cash rate is the interest rate on unsecured overnight loans between banks, and is an important part of a central bank’s monetary policy which is why it receives so much attention.

The primary objective of the RBA’s monetary policy is to encourage strong and sustainable economic growth. One way to do this is by using the cash rate to influence interest rates, which in turn influences economic activity by changing the incentives for households and businesses to save or consume and invest.

So, an increase in the target cash rate will generally mean an increase in the interest rates charged by banks and financial institutions if passed on.

Higher interest rates make the cost of borrowing more expensive while also encouraging households to save more. This usually reduces spending and consumption, placing less demand on goods and services, which reduces upward price pressures and ultimately helps to control inflation.

How can rising interest rates affect investments?

When it comes to investing, interest rates affect different investments in different ways.

Bonds have an inverse relationship to interest rates. When interest rates go up, bond prices tend to fall. This is because new bonds issued at the higher interest rate will generate higher returns, so there’s less demand for existing bonds at the lower rate. The opposite happens when interest rates go down.

Interest rates can also affect the share market indirectly. As rising interest rates make the cost of borrowing (and therefore the cost of doing business) more expensive, company revenue may be negatively impacted as liabilities increase, leading potentially to less growth and lower market valuations.

Property investments can also be affected by rising interest rates as mortgage repayments become more expensive, which in turn reduces the incentive for investors to borrow money to invest in property.

What should investors do when interest rates increase?

Rising interest rates can be cause for concern for some investors, particularly existing bond investors who may be witnessing fluctuations in their portfolios.

It’s worth noting that there can be a lot of noise and chatter surrounding bonds during periods of changing rates, but Vanguard research has shown that rising rates can be a good thing for bond investors if their investment horizon is long enough. Bonds should also be considered for their portfolio diversification benefits, not just for the returns they generate.

It’s also a timely reminder that markets are forward-looking and have already priced in future return expectations. Investors should be similarly forward-looking and focus on the long-term, which includes making sure they are diversified across different asset classes and sticking to their chosen asset allocation despite volatility in the short-term.

Contact us on Phone: 07 5641 4134 if you’d like to find out more about how interest rates could impact your investment portfolio.

Source: Vanguard May 2022

Reproduced with permission of Vanguard Investments Australia Ltd

Vanguard Investments Australia Ltd (ABN 72 072 881 086 / AFS Licence 227263) is the product issuer. We have not taken yours and your clients’ circumstances into account when preparing this material so it may not be applicable to the particular situation you are considering. You should consider your circumstances and our Product Disclosure Statement (PDS) or Prospectus before making any investment decision. You can access our PDS or Prospectus online or by calling us. This material was prepared in good faith and we accept no liability for any errors or omissions. Past performance is not an indication of future performance.

© 2022 Vanguard Investments Australia Ltd. All rights reserved.

Important:
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.

Find out how to save money every day and make a savings plan to stay on track.

Separate and automate your savings

An online savings account is a great way to grow your money faster. Unlike a transaction account, you can’t spend money directly from a savings account, so it’s harder to dip into your savings.

Automate your savings

Transfer part of your pay into your savings account. You can ask your employer to do this for you or you can set up a direct debit. This way, you’re saving without even having to think about it.

Round-up transactions

Some savings accounts or apps let you round-up your daily transactions to the nearest $1 or $5. The change then goes directly into your savings account.

For example, James buys a coffee before work each morning:

• The coffee costs $4.20.

• His account is debited $5.

• 80 cents goes straight into his online savings account.

After a year, James will save more than $200.

Look for ways to reduce spending

Look at your expenses to see where you can make quick savings. It may surprise you how little things add up.

Find quick wins

Look through your bank or credit card statements for the last two months. Identify anything that isn’t essential. This could be things like subscriptions or memberships.

Reduce your grocery and utility bills

To reduce your grocery bills:

• plan meals in advance and only shop for the ingredients in those meals

• buy home or own brands where you can

• buy fruit and vegetables that are in season or on sale

• cook meals like soups and pasta sauces that have lots of left overs you can freeze for later

• meat can be expensive, so plan some meals that don’t include meat

Compare energy suppliers to make sure you’re getting the best deal. Use the Government’s Energy Made Easy website. Or Victorian Energy Compare, if you’re in Victoria.

Shop around for insurance

When it’s time to renew your insurance, compare premiums with other providers. Your current insurer may offer to beat competitors’ offers to keep your business.

You may also be able to save on your premium by increasing your excess or by bundling all your policies together with one insurer.

Find out how to get the best price and protection when choosing car insurance or home insurance.

Have a savings plan

The secret to saving is to start early and save often. Create a savings plan so you can manage your money and stick to your goal.

Know where your money is going

Have a clear picture of your regular expenses and spending habits. This helps you see where you can cut back and save. See track your spending for practical ways to get started.

Start a budget

Once you know how you’re spending your money, you can set a realistic budget. Your budget will help you to stay on track, review your progress and reach your money goals sooner.

See how to do a budget to get started.

Set a savings goal

Setting a savings goal helps you stay focused. It doesn’t matter how big or small your goal is, work out how much money you need and make a start.

Pay off some debt

If you can, make extra repayments towards any credit card debt or loans you have. Paying off your debts sooner can save you thousands in interest.

See how to get debt under control for more information about prioritising and managing debt.

If you need some more budgeting tips, call us on Phone: 07 5641 4134.

Source:
Reproduced with the permission of ASIC’s MoneySmart Team. This article was originally published at https://moneysmart.gov.au/saving/simple-ways-to-save-money

Important note: This provides general information and hasn’t taken your circumstances into account.  It’s important to consider your particular circumstances before deciding what’s right for you. Although the information is from sources considered reliable, we do not guarantee that it is accurate or complete. You should not rely upon it and should seek qualified advice before making any investment decision. Except where liability under any statute cannot be excluded, we do not accept any liability (whether under contract, tort or otherwise) for any resulting loss or damage of the reader or any other person.  Past performance is not a reliable guide to future returns.

Important
Any information provided by the author detailed above is separate and external to our business and our Licensee. Neither our business nor our Licensee takes any responsibility for any action or any service provided by the author. Any links have been provided with permission for information purposes only and will take you to external websites, which are not connected to our company in any way. Note: Our company does not endorse and is not responsible for the accuracy of the contents/information contained within the linked site(s) accessible from this page.