19 Jan 2023 Podcast: Deep Dive – How to Prepare for Your Fixed Rate Expiry
The cliff is approaching! 75% of all loans issued in Australia in 2020 were fixed rates, and many of these borrowers will be coming off these deals in 2023.
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If you find yourself in this situation, what should you expect, how can you prepare and how do you work out your next move in property finance?
In this episode, Evelyn and Maddie cover all the ins and outs around your fixed rate expiry to help you get ready.
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Podcast Audio Transcript
Before we begin, we would like to acknowledge the traditional owners of the land from which we are recording and you are listening today, we pay our respect to their Elders, past present, and emerging always was and always will be Aboriginal land.
Welcome back to another episode of you.
0:20
Have my interest, I’m Evelyn.
And together with my colleague Maddie, where mortgage brokers here to help you make smart moves with your money by giving you tips tricks and tools to help navigate your wealth Journey.
Good morning, Maddie, and welcome back everyone.
0:36
I can’t believe it’s already the start of 2023 last year.
Went so so quickly and we’re already halfway through January as well at the time of recording, which is absolutely hectic and we are officially back in office this week as well.
We are.
So how was your, how was your break?
0:52
We had about two weeks off, two and a half weeks.
Yeah, it was lovely.
It was, as I said, I’ve said to a few people now, since starting their businesses is probably the first holidays that have taken that, I really felt like I was on Days.
And I mean, there’s probably a few factors that go into that in terms of I think a lot of people last, you just ran straight through because of covid and there was a bit of uncertainty around.
1:11
Are we going to go into another lockdown?
What’s going to happen this year?
Let’s sort of make hay while the sun shines, but this year, I’ve definitely felt a bit of a change just in the atmosphere of, I think everyone’s been like, no, we need a break.
Let’s all go away, let’s be.
Come back refreshed and that’s what we did.
Spend a bit of time at the beach.
1:27
Went to Wilsons prom.
Did some hiking, what about you?
Oh, that’s awesome.
I mean I still feel like covid circling and a lot of my friends are still getting covid to this day.
That’s also because people are going overseas and they’re traveling, they’re going holidays, they’re going to all the festivals.
1:43
Like a lot of my friends went to Falls and yeah I just thought covid still circling but it’s nowhere near what last year was this time last year?
I had covid.
So yeah last year was just it was a lot more intense.
Everybody was getting everything and yeah it was anyway.
1:59
It’s been a yeah.
I did have a really good holiday.
I we had two and a half weeks off.
I worked a couple of days so it obviously as you know, but I still feel like I got to rest and recharge I was at my family farm in New South Wales and it was just really nice to have be away from society and pretty much I was in isolation.
2:20
I just had the horses and the cows and everybody around me and it was yeah, it was beautiful.
So I feel really good and raring to go.
Yeah, lovely that’s good.
I guess we’ve been chatting a little bit about to give everyone idea, the topic of today’s episode is really how to prepare for coming off, your fixed rate, which there’s some big statistics about it.
2:42
But the number one, statistic, that I’ll share is that in 2020, when fixed rates were at their lowest in history, 75% of all loans issued in, 2020 were fixed rates so that just kind of gives you a bit of perspective as to the extremity of the number of loans that are going to be coming off.
2:59
These extremely Low rates, but we’ve just been chatting about, had this, not be January yesterday.
Would have been another RBA announcement, which doesn’t actually occur in January.
They actually take a month off, Hallelujah.
So Miracle everyone, listening.
3:15
You will not have a rate rise.
This month.
The next RBA announcement will be the first Tuesday of February, which this episode will come out prior to then.
And so, most of the fixed rates that we’re starting to see rolled off, will probably start around February, March of this year.
3:31
We wanted to get this episode out prior to so that we can give some people some really practical tips as to what to consider when coming off your fixed rates, how to prepare for that.
Preparing early enough, but not too early, of course, and give them.
Also, some practical numbers around, what’s that going to look like from an everyday lifestyle perspective, for you and some tools if that’s going to be something that maybe is a little bit challenging and just sort of reframing people’s perspectives and mindsets on loan products and that sort of thing.
3:59
So, Yeah, I’m looking forward to getting into this conversation because I think there’s going to be a lot of learnings and practical tips that people can take away.
I think so too.
And I also, we also want to stress that just because you’re coming off a fixed rate, doesn’t mean there isn’t a product out there.
4:15
That’s right.
For you.
There are ways on making sure that you get the right product and the interest rate isn’t everything, is what we were saying.
It’s also good to note that borrowing capacity is a changing the way that the banks are assessing your servicing is changing as as well.
4:31
So there is something out there for you and we’ll go through some really good practical tips on how to get you there as well, which is really good.
And I think will be really useful for people that are listening.
Yeah absolutely.
What a kickoff mads.
Let’s do a little bit of a deep dive on the difference between fixed and variable rates just to give some people some context when they are thinking about their loan products.
4:52
And then from there, we can go into more of those calculations around how their repayments may change.
Sounds good.
So I think we should start with fixed.
So, with a fixed product, what are the pros and cons in your mind that really, really makes someone I choose fixed or go against it?
5:11
What do you think of the best things that people?
Yeah, absolutely.
So I guess to start off with a fixed rate is effectively, you are locking in the interest rate for a set period of time with that bank.
And with majority of banks, you have the option to lock it in from anywhere between one to five years.
And that basically means, That if there are any rate changes as people would have experienced over the last couple of years, you will not be impacted by that, you won’t be passed on that interest rate change.
5:37
So that effectively means that your repayment amount is set for that period of time that you fixed your rate as well, the advantage the number one advantage that I think that that provides you is security and certainty around.
That repayment amount from a budgeting perspective.
And particularly, if you are someone that, maybe it’s your first home that you’ve purchased therefore You coming, you coming off paying a set, rental amount.
6:01
Fixed rates can be a really nice, sort of way to ease into getting used to making mortgage repayments, because you’ve got that certainty for at least the next 12 months, or 24 months or however, long you’ve locked in that rate as to exactly what that repayments going to be.
So I think that that’s probably the number one pro that people tend to look at.
6:19
Obviously, it’s protecting you from rate Rises, which is another Pro if rates are in an upward trending Market, if rates are going down though, the the negative side to that is that you won’t then receive any benefit from the discount in interest rates, you’re going to be stuck on that higher rate, so that’s one part of it.
6:37
But the biggest side to the fixed rates that most people tend to forget, I find is that you have far less product features and far less flexibility when it comes to how you actually manage your repayments.
So most fixed rates do not have offset or redraw facilities, which pretty much all variable rates will have depending on the type of the variable.
6:58
Loan itself.
Some banks will give you re drawn a fixed rate in might be limited and some will give you like a limited offset facility as well, so you can get that, but it is far less common on a fixed rate than it is on a variable.
So, to me, they’re the biggest like – sighs to a fixed rate.
7:16
The other thing that I’d also mentioned that too, is, depending on the market that you’re in and depending on how fixed rates have changed from the time that you originally locked in and how the variable rates have changed, if you break a fixed rate early, So, if you need to make any changes to your loan, or you need to sell your property or whatever it might be, during that fixed term, you may incur break costs.
7:36
And I’ve seen break costs up to 14,000 on a fixed-rate before.
Whoa, yeah.
It’s like to ask how much they are and that’s usually when they’re down trending Market though because people would break, if they’re fixed rate is higher than the variable.
But what about in this uptrending market is there going to be any break cost?
7:53
Because I feel like they wouldn’t be because the banks would be getting more interest out of a client if they He and going on to a variable rate, in every client that I’ve seen break their fixed rate over the last two years, I have seen 0 break costs.
So we have definitely come out of that market which has been interesting.
8:08
As I said, that one that I saw that was around 14,000 was in that period of time where they’d locked in their rate, probably similar to what we were on.
Now to be honest to go on to a rate that was much lower.
This was prior to any sort of pandemic.
So this was probably three or four years ago now that I saw this but no in the last couple of years Years, I haven’t seen any break costs.
8:29
I do Wonder, though, whether or not there may start to be some break costs coming forward, though?
Now that we’re in, we’re already in a bit of a higher interest rate market report.
So we have plateauing a little bit.
Yeah, yeah so yeah, will be interesting to see, but in order to calculate that all you got to do is call your bank and just ask for a break quote, and they’ll be able to give you a quote over the phone on the spot.
8:51
It’s only valid for that day but it very rarely changes much from that actual quote itself.
Yeah.
I’m I wouldn’t be surprised if they still zero dollars to this day because yeah, people will be a doubt it.
Yeah.
But I mean, another thing that I do like about most fixed rates is that you can put a little bit extra into the loan generally.
9:10
Usually about ten thousand dollars a year.
Would you say which isn’t it too bad and I feel like it’s still allowing you to put a little bit extra in but it’s not offsetting.
The interest is.
So basically with the correct with the additional repayments that you are allowed to make on a fixed rate, it depends completely on the lender.
9:28
To give you an idea of the majors.
There’s four very different answers.
AIDS is 5,000 per year.
CBA is 10,000 per year 10,000.
Yeah, NAB is 20,000 per year and westpac’s is 30,000 per fixed term.
So if it’s a two-year fixed-term, it’s 15 per year, effectively the caveat to that is with all of the majors bar, Westpac.
9:49
You can’t take out any of those additional payments that you’ve made is redraw.
So that’s where that redraw components.
You put that additional payment in is basically for savings until that fixed rate expires.
With Westpac, you can redraw up to that 30,000 dollar threshold of of additional repayments that you’re allowed to make.
10:05
I think when we were discussing it with our Westpac manager that it’s thirty thousand dollars in payments.
So if you take him back out, I don’t think I think it still counts up to 30 grand.
That’s it.
It’s not an unlimited reader or facility.
Yeah, we see which you do get a variable on a variable rate.
As soon as that fixed rate expires, you get full access to that redraw that you have prepaid into the loan.
10:26
And that’s also important feature to To note as well.
You’re not.
If you choose to go with a fixed rate, you’re not locked into that for 30 years.
It’s only the initial period of time that you’re actually locking it in once.
That’s variable, you got access to all the regular features that you would get on that product regardless.
But once you are in an unlimited redraw sort of facility Market on the variable products, you can literally be using that redraw on a transactional basis.
10:49
You can move it back and out on a daily basis effectively so it’s definitely a good feature to consider particularly.
If you’ve got the capacity, T to make additional payments.
And you really do want to sort of, you know, pump those repayments into the loan whilst you’ve got some surplus cash or whatever.
11:07
It might be to get that down as fast as possible.
It’s a good thing that you noted in terms of 30 years.
It just triggered.
Something in me with my friends that are in America, they have 30 year fixed terms over there.
Yes, I do.
So so interesting and eyebrow that weak sense, no break costs either, but I find that really interesting.
11:26
And obviously, if you locked in two years ago at their 2%, you’d be cheering for 30 years, it just that makes sense over there.
Why you wouldn’t really move Banks as much as we do here because the Loyalty here just doesn’t really I pay for itself, but now I think that’s a good time to go to variable and let you know when you move to variable from a fixed, what are the pros that you can’t have and what are the things that you can do to make that work for you in the best way possible and we’re coming out of a market now where we’ve all been in covid-19, saving a lot of our cash because we haven’t been spending it.
12:00
So a lot of people do have extra cash in savings, or they have extra Investments that they have to really give them a bit of a buffer.
Yeah, but how, can they really use the variable rate to Get the most out of it and be in the best position possible for them.
So I think a couple of things to consider there is number one.
12:16
Let’s talk about the different types of variable, right?
So you’ve got a basic variable and you’ve got a package variable product.
So, you’re on the basic variable.
I’m on the package variable product.
So we can kind of talk about why we chose those particular products over the other.
But basically, the difference between the two is on any variable product, you’re generally going to get redraw.
12:36
And the basic variable product does have the redraw Associated to it, so that’s Has any additional repayments that you’ve put into the loan facility itself?
Above that minimum monthly repayment?
You can take back out of the loan.
It’s sitting there.
Basically, as you know, available funds are below the limit of your own with the package variable product, you get the additional facility known as the offset account.
12:57
So that’s a transactional account that’s opened up with that banking facility or that loan when you take out the loan and the offset account Works slightly differently to the redraw because rather than putting your additional repayments into the loan facility itself.
Self, you’re keeping it in an everyday account separate to the loan, but they’re linked.
13:14
And that means that if I had a five hundred thousand dollar loan limit and I had 50,000 dollars savings sitting in my offset account.
I’m only getting charged interest on the four hundred fifty thousand dollar difference.
So they actually work very very similar in terms of how they save you interest.
13:30
It’s just that the redraw sits in the loan and the offset sits in a transaction account outside of the loan.
Yes, structure is different but the way it works is the same.
Yeah.
And the main thing is is with a redraw.
You can take it in and out as many times as you want, obviously, depending on the lender.
13:48
It’s just that you have to take it out to use it where as an offset account, if you’re with any, certainly can have multiple and so you can have all of your everyday spending and Savings in your offset accounts, every dollar counts towards our interest and it just makes it a little bit easier in terms of splitting up your finances, and if you react in different accounts, you have savings.
14:06
C fund spending salary accounts.
Like a lot of our clients have.
Yeah.
And that’s where that makes it a little bit easier.
I guess we’re as mine for my redraw.
I just have my emergency fund in there really.
And I only take it out if I really, really need to.
But the rest is just in a separate, not linked to my lonely.
14:21
And some people will go with the basic product with the redraw because there’s no ongoing fees associated with it either.
Whereas I pay an annual package fee to have my offsets accounts with that.
Though.
I’ve also split my rates.
I’ve got some fixed, some variable and that’s why The packaged product with the offset attached to the variable loan was the right way to go for me.
14:41
And it also got me a discount off my interest rate that I would have got a higher interest rate had, I just gone the basic variables.
So with all those factors considered, and I think that’s why it’s important to speak to a broker because it’s going to be tricky to, I guess compare apples for apples.
When you’ve got so many different types of facilities as well and types of rates, but it’s going to be based on what’s actually going to work, best for that client.
15:02
But to come back to your question, Mounds on how to make the most use of your variable product.
You want to first of all, identify which type of variable product is going to be most suitable for you.
Whether it be the basic or whether it be the package.
I’ve also seen some people, I give you got high fluctuations in incomes.
15:19
For example, if you’re a business owner and your money is just lump sums at various stages, sometimes having the offset account is really beneficial for you because you might one day have a hundred thousand dollars in your offset.
And then six months later, it might be down to 20 K, but it might jump back up to 100 K and fluctuate quite significantly.
15:35
So having something like In my opinion, is definitely more tailored towards an offset, then it would be a basic variable because you want to make the most of having those Surplus savings there whilst you can.
So, coming to back to that, why did you go with the package product?
15:50
Is that because you can’t choose a basic variable when you split your loan into fixed and variable, do you have to go with the packaged product?
Then good question.
Some banks will allow you to do that.
Some won’t, I got a lower interest rate on the package that I did on the basic variables?
16:06
Anyway.
Yeah, and on the fixed rate, I was already going to be charged a 395 annual fee.
So because my 395 dollar annual fee, is part of the fixed rate package, you only pay it once on all of your loan facilities.
Even if you split it into two or three separate loans, you still only paying the 395 once so it just made so much more sense to keep it under the package.
16:26
I don’t take out credit cards or anything with my loan so that doesn’t really worry me.
But that is also another feature that you get in a packaged product with some banks.
Let the main features that I would I consider but yeah I think when you’ve got multiple loan facilities, it often makes more sense to go with the package.
16:50
For sure.
So the reason that I chose the basic variable when I refinance, it may last year was because it gave me point three percent discount off in comparison to the package product.
It also had no account keeping fees.
So I didn’t have to pay that 395 annual package, and I also didn’t really need to use offset too much.
17:11
So most of my additional funds back, then we’re going into additional Investments.
So I would go and put them right into brokerage and pay for ETFs and As and things like that.
Mmm, so I didn’t really need any additional funds on top of my emergency fund which sits in my redraw facility.
17:28
So that’s why I chose basic over package.
So yes definitely depends on your own personal situation and what will work best for you in terms of what type of very product or fixed your choose.
But let’s go back now to fixed rates and coming off fixed rates and what people are going to be dealing with.
17:44
Yeah, the next year to two years and some practical tips on how they can really prepare for that.
What they should be doing in advance.
Absolutely.
Well, let’s first of all talk about since the fixed rates since yet twenty 20 February, let’s go back two years ago because a lot of people locked in a two year fixed rate, so we’re just going to Shawnee 23 now.
18:06
Yeah, 2020 was 13 months ago.
Yeah, 20:21 my God.
Talking about 20, 20 or 21?
I don’t know.
Now I’m confused.
Yeah, I think people in 2021 with fixing because 20 20 February was That’s what we mean and that’s when rates are coming down.
18:22
So we’re talking about if you fixed in February 20 21, this is for you.
So since February 20 21, if we look at the RBA increases, the total cash rate has increased by 3%.
So the numbers that we’re going to share with you, you were going to base off those assumptions and we’re going to assume that you fixed for two years.
18:43
And now you’re coming out, 3% higher.
That’s just what these figures are calculated on.
We want to give people.
First of all, some practical Numbers on how much can you realistically expect on a monthly, fortnightly or weekly basis for your loan repayments to have increased by now?
19:00
This is not going to be perfect.
We’re going to give you also some tools that you can go and look up yourself.
We’ve got some great calculators on our website.
So we’ll put all of those in the show notes links, so that you can actually go and play around with those numbers yourself.
But we’re also going to give you a calculation that you can do yourselves with a calculator or an Excel spreadsheet however you want to do it.
19:20
It that will give you a rough indication of how much your interest has increased by and therefore your new repayment will effectively be when you come off that fixed rate.
So, to start off with, if you fixed in February 20 21 on about a two percent interest rate, and that’s now gone up three percent.
19:37
You can expect your variable rate when you roll off, to be somewhere around the five percent Mark.
Now on a five hundred thousand dollar loan that equates to about 15,000 dollars worth of additional.
Interest per annum.
And the way that that’s calculated is basically a five hundred thousand dollar loan, times three percent because it’s three percent per annum.
19:57
So that gives us that fifteen thousand dollars.
If you then, look at what that equates to either monthly fortnightly or weekly, it’s about one thousand two hundred and fifty dollars extra per month $576 per fortnight or two hundred and eighty eight dollars per week that your rate has actually, or your payment has increased by.
20:19
So where is she?
In that your principal hasn’t changed because we can’t calculate the difference in principle and what you’ve got owing and all that sort of thing.
So we’re just assuming they’re the assumptions that we base those calculations off.
So then obviously, when we look at a million dollar loan when we times in 1 million dollars, buy three percent that gives us thirty thousand dollars extra you going to be paying a year which is a hefty chunk when you think about it.
20:40
And that equates to about 2500 dollars a month about 1000 $150, a fortnight or $576 a week, which is it Big, big difference in what you’ll be paying already on your fixed rate of two percent.
Two hundred eighty eight dollars a week or five hundred seventy six dollars a week.
20:58
That’s a lot.
That’s my feel payments.
That’s my, all my red Joe stuff that some of my bills.
That’s my groceries.
That’s a lot instead of putting our savings or putting towards our expenses, just giving to the bank for interest.
So that’s just what we’re paying.
Additionally, that’s not what your repayments will be.
21:14
That’s just what you have to add on top.
So just to reiterate again, what you’ll need to do is times your loan amount.
Count by three percent that will give you the extra amount of Interest you’ll have to pay per year.
Yeah, and that is a said also that’s assuming that your rate goes up, exactly three percent from what you’re currently on.
21:31
And we won’t know that because every lender is increased their variable rates by different amounts.
So if we then look at the Practical tips on number one, you probably want to get an idea on how much that amount has increased by so that you can then start to, I guess, adjust your lifestyle or get used to pay.
21:50
At higher amount if you don’t need to adjust your lifestyle but adjust your payment amounts yourselves.
So the first thing you want to do is find out what your rate is going to be.
When you come off fixed and you can do that by speaking to your bank, or you can speak to your broker, most of the time, you can’t find out exactly what that’s going to be until you’re within a month coming off the fixed rate because variable rates do fluctuate.
22:13
Yep.
One of the biggest pieces of advice that I have for everyone that’s in this boat is as You’re entering four to six weeks out from your fixed-rate expiry date.
You should be contacting.
Either your bank or your broker, whoever wrote The Loan in the first place and you should be getting them to do a rate review for your post fixed rate, that means they’re going to be able to tell you and get approval for you to come off the lowest possible variable rate you can when that expires and that’s what you can then calculate your new repayments or your increase in repayments off.
22:47
Yeah.
And a big note on that is that The time you won’t be on the lowest variable rate that new to bank clients will be on, which is why it’s so important to try at least.
Even if you think you’re going to refinance restructure with your broker or your bank.
It’s really important to still get the lowest rate possible.
23:05
So as you’re going through the process of refinancing, you’re not paying extra interest that you don’t really have to be.
Yeah, exactly.
Right.
Whilst you’re going through the process and getting all your documents sorted and applying for a refinance with another bank and going through that approval process, Us because one of the biggest misconceptions around refinancing is that it just happens overnight or it happens in a week or so in an ideal world that would be great but it’s actually the exact same process that you go through.
23:30
When you apply for a new loan, you’re still being assessed from start to finish by that bank.
You’ve got to be approved.
And then you’ve got, once you’re formally approved, you’ve got to sign new loan, documents and still go through a settlement process with that bank, like you would when you purchase.
So in that period of time, save yourself as much interest as possible by speaking to the bank and organizing with And as close as you can get to neuter Bank rates on that variable rate, for that time being anyway, for sure.
23:57
And when you go to your broker, when you know that your four to six weeks from coming off your fixed rate, and you’re really wanting to look at refinancing options re-fixing, staying at the same bank, all those different types of things that we can help you with.
It’s really good to note that you should be really on to it and have all your documents ready to go and be ready to start the process when four to six weeks, because it does take us about a month to go from.
24:19
Start to end.
And and if you really want to avoid paying extra interest that you really need to, it’s good to be on to it and so we can get everything done as close to your fix your fixed rate ending as possible.
Yeah, absolutely.
That’s right.
So, let’s say a clients coming to us.
24:36
They’re fixed rates expiring.
They want to know what their options are, and they’re trying to organize some practical steps to go forward.
As we said, number one step should be four to six weeks out.
So the timing of that needs to be write.
The number two steps should be then.
Organize a review on your post fixed rate.
24:53
So what, what are you going to come off onto on a variable rate perspective, even if you do or don’t have the capacity to refinance, get that done.
Number three, should be working out.
What’s the best product for you to refinance on to?
So it’s either you’re going to be staying with your same bank and either extending the fixed rate or rolling off onto their variable rate.
25:11
And then selecting which kind of variable rate is best for you or you’re going to be refinancing to another lender.
And in that same process, you still need to workout.
Do I want to stay on fixed?
Do I want to go to variable?
And if variable is the redraw or the offset product the most suitable?
25:27
So you kind of need to have a bit of thought process around what type of product.
You also want to come off, those steps combined is going to allow you to, then be able to refinance on to the best product for you in the most timely manner that you can as well.
25:43
And hopefully really close that gap between, when you come off the fixed rate to, then going back onto your new product, whether it be Lower rate with your current bank or whether it be a brand new bank entirely.
And it’ll be really interesting with people coming off, fixed rates as well saying, what the evaluations now returning to and what other banks are going to value your property as yeah.
26:03
And that’s I feel like that could be a really interesting thing as well because most people don’t value their properties until they’re going to refinance or yeah.
That’s very true and change the structure of their loan and I know that over the last six months we’ve seen a bit of a reduction in how much the banks are valuing properties.
26:18
Yeah but I still think from two years ago in peak covid times we’re going to see quite a big increase which Be very interesting on how much Equity people will have in their properties.
Yeah.
And from then also are they able to take it out if they want to because rates are higher, have their incomes increased just as much as the rates have increased.
26:37
So that’ll be interesting to see if your borrowing capacity changes and therefore can you even refinance at all if you want to?
Yeah.
Well, you’ve mentioned some really interesting points are mads and I probably want to break down a few of those borrowing.
Capacity, is definitely a big one, but before we go into that, speaking about valuations, There are going to be some people that in order to refinance without paying lenders mortgage insurance.
27:02
You need to basically have a loan to value ratio sitting at that eighty percent threshold, and that’s a very blanket rule.
Of course, there’s factors that go into lenders, mortgage insurance, waivers and all sorts of things, but if you purchased your property at a 95% alvear, or with a guarantor, or paid alimony in the first place.
27:20
If your valuation has an increased enough or you haven’t paid down enough of the loan you may.
Not be sitting at 80% lvr and you may not want to refinance because it might actually be too costly when you factor in l.a. my as well because you’d have to pay L.
Am I again?
Correct, you do have to pay alimony.
Again if you’re above if you’re, if you’re eligible to paella my then yes, you would have to pay it again in that circumstance.
27:41
So valuations we one thing borrowing capacity.
Let’s break that one down.
So we’ve seen that with rates increasing by 3% from a variable rate perspective, what?
It’s a currently paying in actual interest rates.
27:58
Two years ago, the banks were assessing their repayments at because the banks at a 3% interest buffer when they calculate borrowing capacity.
So now, all of a sudden they’re being assessed at a 3%, higher interest rate again, which means that if you, if you purchased a property at your maximum towing capacity, two years ago, you may find it difficult to refinance if something hasn’t changed in your lifestyle.
28:21
For example, you haven’t had an increase in salary.
Or you haven’t closed other loan facilities or something along those lines.
Yeah, it’s really interesting to know.
I mean, that’s the case for me.
When I want to go to refinance in two years time, we know that I’ve switched careers, which means, obviously, I’m starting back from the bottom and I’m working our way up which you get there.
28:42
No, worries to me at all, and I knew that it would happen, but it means that.
Now if I wanted to refinance right now, I can’t because my my income is a lot lower than what it used to be, and I’m not working two jobs anymore, which obviously, Sighs a factor.
So I wouldn’t be able to refinance to another bank even if I wanted to.
28:59
And that’s what you really need to play off with the banks that you’re on Gary, best rate possible threatened that you’re going to refinance anyway, which is something that we do with our clients, that want to refine it in the first place to see if the current banks will give them a better deal.
Yep.
But it’s really interesting to note that, I mean, we’re going through a lot of struggles.
29:18
Everybody goes through struggles.
When it comes to income increasing, people will get 1% or 2% pay rise which isn’t even.
In line with inflation and that can be a really sore spot for people when they haven’t had enough of a pay-rise.
Yeah, that they should have to keep up with everything and then expenses are going up more.
29:37
So because of expenses going up, it makes servicing harder to because you’re spending more money on other things, that go and go to your mortgage.
Yeah.
And we’ve seen that also flow through a little bit with some banks now increasing their minimum expenditure amounts.
That is a manager.
I think we spoke about in a previous podcast we have In terms of how, how Banks assess your minimum monthly expenditure.
29:59
Well, as a result of inflation, some banks have had to increase that now as well, but you’re not increasing your income, correct.
So the rates are increasing your expenses are increasing, but your income isn’t really keeping up with that.
Yeah.
So it’s also a matter of how much can you refinance for?
30:15
Which is, we’re going to a broker and they can assess that because, as we know, every single Bank, assesses, your servicing directly.
Yeah, that and there can only be self-employed Good.
Yeah for sure.
Yeah.
And well they can’t even claim Nomads.
We’ve got you know there’s if we look at the pros to refinancing there’s so many incentives.
30:34
These days to refinance cashback offers sure you need a bank rates, we hear time and time again, that word loyalty tax, which effectively refers to.
If you stay with the same bank for a long period of time, over time, your variable rate tends to increase and it is often much higher than what a new to bank client would experience.
30:54
Number one thing that I have noticed in the last, 12 months in particular, is that banks are now starting to see how easy it has been for clients to refinance over the last few years.
Particularly all these incentives out there, and they’re coming to the party to try and match new to Bank rates for their existing clients.
31:11
It’s not a blanket rule, it doesn’t happen all the time, but we are seeing more and more banks with better repricing tools for their existing clients.
And they are offering particular if you’ve been with that bank for a significant period of time now they are trying to match.
New Bank rates where they can.
So that’s great.
31:27
So that’s the number one thing that we do before.
We look at any refinance, with the client, we go to their current bank.
We see how much we can save them.
And if that figure is the same or better than what you get with another bank, most people wouldn’t go through the process of refinancing because it’s an instant reduction that’s applied to their loan, they get the savings from that point in time.
31:46
They don’t have to go through the paperwork.
They don’t have to go through the process of refinancing or maybe for a couple of thousand dollars cash back, which is probably What it’s going to cost you in time, waiting and in additional fees to refinance and refinance costs as well because people don’t realize that it actually costs you to refinance a fair bit too.
32:05
So that’s why they have the rebate to offset that as well and give you a little bit extra, it’s not just the full four thousand dollars that you’re going to get back.
Because you spent spending money on settlement discharge re registration fees.
It’s a lot that people don’t really realize.
Yep.
Exactly.
32:21
Yeah.
So, I guess, if you’re in a position where you’re not able, Able to refinance for lvr reasons, borrowing capacity reasons, whatever it might be, you might have changed jobs.
You might have been working in a casual job that and the bank’s just won’t accept that from a policy perspective.
Given the length of time you’ve been employed.
32:38
There’s a lot of factors that go into whether or not you may be eligible to refinance at that point in time.
But if you’re not and you do come off your fixed rate and you are going to be experiencing a higher repayment amount.
Will you will be some practical advice that we can definitely give clients is number one.
32:54
Review your right with your bank, where you can number to look at the type of product and make sure that’s really suitable to your circumstances.
And number three, I want to give some clients numbers around making additional repayments and how much that can save you.
So we’ve assumed the same figures that we did before.
33:12
You’re on a five hundred thousand dollar loan amount owing.
Let’s say you’re on that five percent interest rate over a 30-year term.
Your regular repayment is going to be sitting around about two thousand eight hundred dollars.
I think.
Let me just get that number spot on around two thousand seven hundred dollars.
33:33
If you look to make just an additional $100 per week on your home loan, your total monthly repayment, now goes up to around about three thousand one hundred and twenty dollars per month and your interest saved over a 30 year.
33:52
Loan term is 138, Eight thousand dollars.
It takes about seven to eight years off your loan.
Isn’t that insane?
It’s never really goes to show that compound interests as well, can work the other way and reduce it so so much.
34:09
Correct.
Absolutely crazy.
Yep.
So if you are in a position where you like, I’m kind of stuck with this lender for the current period of time and this is an owner-occupied loan.
It may be a different scenario for investment because again we’re not going to get into the nature of tax deductibility and all that sort of thing.
34:26
But that’s a whole nother can of worms.
Please pay this loan off.
Pay as little interest as possible.
I can tell you right now that the more that you can pay off the at the start of the loan, the better that you’re going to be in the long term because the quicker that you can get that balance down just by nature of compound interest, you will be charged less interest on a lower balance.
34:49
So get that loan down as fast as possible.
Can’t believe that $100 a week can save you nearly eight years.
Yeah, that’s 140 thousand dollars.
Imagine what you can absolutely insane.
Property.
That’s another deposit.
That’s more than the deposits.
Like two deposits for two different properties.
35:06
It’s crazy.
Yeah, so yeah, some practical tips there.
If you are with your going to be with that same lender and you’ve got a variable alone even if you’ve got a fixed rate you can probably put in an extra hundred dollars a week.
Without going over your limit is 50 200 a year.
35:21
So correct just over the 10 grand so you can still do that.
Yeah, so go for it, pay off as much as you can.
It’s still there is available redraw or it’s going to save you significantly long term and we will put in the additional repayment calculator in our show notes as well, so you can manipulate some of those numbers.
35:38
But this is probably my favorite graph to show clients on zooms.
It’s so much fun.
It’s so much fun.
Just seeing how much you can save from Little amounts.
Can you try a $50 or week?
I want to see what for yes.
Or we could say $50 a week on those same parameters.
Five hundred thousand dollar loan, 30 year loan term, 5% interest rate $50 a week.
35:57
You’re still saving 82 thousand dollars over the Life the loan for years, 7 months crazy.
So a little bit goes a long way and you can probably try and scrounge around for either getting extra income or $50 a week or saving it on your groceries or you feel or things like that.
36:15
You can try and save as much as you can.
This is the time of the year that I really look into different types of companies that I can get savings on for my car insurance.
My home insurance, my phone bill, my Wi-Fi, all my different plans that I have.
So if you can really save a little bit there, you can put that extra income that you would have been putting into that into your repayments and that’s what I’m doing at the moment and that will Maps.
36:37
I want to ask you because this is probably one of the things that I have always sort of like being really interested in watching you on your money with Maddie Paige.
I think probably why a lot of people follow you as well.
You have a lot of very Savvy money tips and I think you’ve done a lot of research, your cell on, finding the best deals and putting in place budgets and all that sort of thing.
37:00
What would Say I’m going to put you on the spot.
What would you say your top four tips?
I’m sure you all with for well it’s a random number.
I’m sure you can come up with for top four tips are to save on.
Well let’s say to he’s cash flow so it can be increasing your income or it can be decreasing expenses.
37:18
I don’t care which way you go.
Or you do a combination of both for forgive me for, okay?
Alright, let’s say so I’m completely on the spot.
This was unplanned.
That’s okay, so my favorite way.
Is always to try and get the best deals possible on decreasing your expenses.
37:36
But before I go into that to me by principal thing that I like to think of it is always easier to increase your income and decrease your expenses because you technically have uncapped potential to increase your income, right?
You can take on extra jobs, you can go to the side things, you can do so much to try and increase your income, but there is only so much you can do to decrease your expenses, I still have fixed.
38:00
This for all of my gym, memberships, my phone bill, my Council rates, my water, my electricity even groceries and fuel.
There’s only so much you can do, right?
Yeah.
So anyway, I love that.
Come is yeah.
So, increasing income is pretty much the way to go and what I try to focus on the most.
38:17
I don’t want to reduce my expenses and really reduce my my living and my, my happiness, I guess by reducing things here and there by a hundred dollars when I can just try to increase my income by $100 a week.
Or A fortnight or a month because even if you only get $100 extra a month from little side jobs, that’s still over a thousand dollars a year that can go towards other things.
38:40
So for increasing income, which is what I do.
And what I focus on, I prefer not to go for a second job.
I did that for two years, it really killed me mentally.
And so it’s about being sustainable for me and obviously wanting to focus on my full-time job.
Because that’s my career.
38:55
Now, I really want to focus on that and be in the best head space possible.
I digress.
When it comes to increasing my income.
What I do is I try and do little side jobs here, and there that don’t cost me any money to start up.
So, I’m very big on market, research and online, surveys.
39:12
And that’s the best thing because all I need is my opinion.
I don’t need any more equipment, I don’t need to set anything up but I still get a lot of extra money so I if I even do one or two a week, I get about, I can get anywhere from fifty to three hundred dollars.
Wow, I’m just doing market research your opinion is so Valuable when it comes to Market Research, I used to do my job.
39:35
And then I used to go in a few games of netball and I’d get 30 bucks to 40 bucks cash in hand per game.
And I do usually four games a night.
I might do it two nights a week and there was all my cash.
Exactly and then you basically ideals and I was working out.
39:50
Okay?
Yeah exactly.
And then I get use that income to pay for all your expenses or you just be really intentional you put it towards something specific, like a savings goal or your mortgage.
Yeah.
So that’s basically what I do.
I really try to focus on increasing my income.
So I don’t know if that’s just one point on its own.
40:06
That’s not what about Lee acknowledging side?
You’ve got a pretty sound budget that you have and I’m senior breakdowns on, is it?
We money.
Yeah, I do we money and that’s an automated platform but what I really like to do the most is I like to manually do it so I like to have a manual budget where I put in all my expenses and that can sound like a lot of time and effort, but I’ve just found that when I’m not doing something automated, when I put it in myself, I’m more intentional with my spending because I have myself to be accountable for it.
40:36
Yeah, and so I do something called a zero-based budget and that’s where every single dollar of income, it has a job.
And when I When I first started using this and I got really flustered about it because I’m like, well what if I spend an extra five dollars here or I spend five dollars less there but then you have to realize it’s a budget and it’s not to be exact.
40:58
So like I put a hundred dollars to groceries for a week for example but what if I spend 95, what do I do with that extra five dollars?
So there is a little bit, it’s a little bit to get used to and a lot of there’s a lot of different ways that you can budget but I really like it because it allows you to be intentional and it allows you to have a solid plan.
41:14
There are also Different types of budget methods that really works.
I mean, a lot of people, a lot of people do the 50 30, 20 rule, 58 percent goes towards your fixed expenses and go and Necessities 30% goes to your wants and then the fun things and then 20% to savings.
41:31
The reason, I don’t really like the percentage rules is because when your income fluctuates, yeah, that can be really tough.
If you’re on a low income, usually your fixed expenses.
Like me.
There are a lot higher than 50% and when you’re on a very high in, Come, they’re also not 50% and you have then you’re only saving.
41:49
If you’re on say, two hundred thousand dollars a year and you’re only saving 20% of your income.
That’s probably not working either.
So I don’t really like percentages and I prefer to go with dollar figures and yeah that’s why I use zero based budget because it works really well.
Yeah, that makes I also have things.
42:04
I have always different tips on my own page of different types of budgeting methods.
Yeah, I think that’s a great idea.
People can go and definitely look in detail at the tips that you provide.
Actually, on your page and also what you mentioned before now is a great time to coming into a new year review, all of your insurance has so whether they be personal, whether they be vehicle, whether they be home, insurance has all of those types of things health insurance, even, yeah, go through and review those and then look at and that’s the same with your mortgage.
42:36
It’s probably a good time to sit down and review where you’re out from a home loan perspective as well.
And as I always say, and I think it’s really important to to come back to what your long-term goals are because your decisions will be made off that if you’re just making decisions based on the number in front of the percentage sign, as we like to say, or you’re making decisions based on what your current wants and needs are, it may not be working towards your long-term goals either.
42:59
So I think there’s some really practical tips there for sure man’s.
But if people want to you know, either have their mortgage reviewed or they want to go and learn about some of your money tips that can definitely go and check out your Instagram page, and we’ll put everything that we spoken about today in the show notes.
43:15
But please do feel free to reach out to us with any specific questions, particularly about fixed rates, or particular lenders, if you’ve got them and we’re more than happy to answer them, my only other tip would be in terms of what you just said.
Is this is the only time in life that I like to be a Karen.
43:32
This is where you really want to hone in on your Karen capabilities and say I’m threatening to leave your company and blah blah blah.
Yes I’m refinancing away and a big tip for us.
I think that we like To give our clients is when they’re looking at refinancing, don’t just ask your bank.
43:49
What’s the lowest rate you can give me?
Yeah, say that I’ve gotten full approval with another bank for a refinance.
Can you just give me the?
Can you please send me through the discharge paperwork, or how do I discharged?
That’s when they start to backtrack?
That’s when you go to their attention team and you can go before you’ve gone through the whole process of refinancing her.
44:06
And you can try and get the best rate possible and even sometimes they’ll give you a cash back as well.
So yeah, I like to be a Karen and Go full steam.
Ahead on all of that and that’s in terms of all my insurance is and things like that.
I’ll always raise such what I can get from other Banks or other companies before I go to the bank and ask for something else, because if you’re just like, oh, I’m looking at getting a lower rate, can you please help me?
44:31
They don’t really care too much.
They like you really want to be strong.
You want to be certain, I’m moving away from me.
I’m just letting you know, how do I cancel my subscription?
How do I cancel my plan?
My insurance, my mortgage with you.
That’s probably the best way to go about it.
And yeah.
What probably my other tip would be buttering off the top of yours.
44:48
Yeah.
So embrace your inner Karen and we just spoke about our words with three.
My word is be all my action for this year that I’m embracing is be bold.
So, I encourage everyone to be bold with their savings goals and with their, you know, tips and tricks that they’re going to now Implement to save some money on their interest rates, and their insurance is, and all that sort of thing.
45:09
Be bold, everyone and we will see you next week.
Sounds good.
See you later.
Thanks for listening to this week’s episode of you have my interest.
Remember to subscribe to the show on your favorite podcast.
Player to find out more about how everland can help educate and Empower you to achieve your goals with finance and property, just visit evelyn.com dot au forward slash podcasts and booking a free Discovery call.
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