From nappies to investment property

Identifying and acting on those missed opportunities

We are all so focused on the money going out of our pockets that we sometimes don’t notice what’s coming in.

When you think about it, there are many events in our lives when we do actually have a financial win, but because of our busy lifestyles, we don’t register them. It starts as early as when your children grow out of nappies. During the first 2.5 years of life the average spending on disposable nappies is over $3,0001 per child, not including baby wipes, nappy rash creams etc.

So what happens to that $100 or more each month when the kids are toilet trained? It gets absorbed in our daily living! This is a great opportunity to start paying down your mortgage and increasing your equity so you can start planning your steps into property investment.

Then we progress to ‘BIG SCHOOL’!

‘Big school’ means a lot of things, however from a financial perspective it means NO MORE CHILDCARE FEES!

Did you know that it is not unusual for parents to spend $10,000 or more per child per year on long day care? That equates to more than five (5) months of repayments every year on their mortgage!

Alternately, for many families the start of primary school is an opportunity for a parent to increase their hours of work or return to the workforce on a part or full time basis. This can have a significant effect on family income, lifestyle and relationships.

If you are one of the 270,000+ parents who had a child starting school this year, what have you done (or are planning to do) with the extra cash you now have to ensure it does not simply disappear into your everyday spending?

Great time to review

When your children start school and/or your employment circumstances change it is always a great time to re-assess your overall financial situation. Over the years, having worked with many clients who have young children, we have observed (either intentionally or maybe unknowingly) the following:
1. mortgage payments reduced to minimum levels,
2. personal debts and/or credit cards built up,
3. limited refinancing options due to lower income levels, and/or
4. investment decisions being placed on hold.

We have also observed that when our clients re-enter the workforce, most forget that they actually managed quite well on lower income levels. Instead of investing, saving or paying off debt, the additional cash flow has been absorbed in their new daily lifestyle.

‘Investments are typically the first item that we see families put on hold while their children are young.’

With both parents working and the elimination of childcare fees, an investment property may become an affordable option. Remember you don’t need to pay off your own home before considering an investment property. In fact we find that for most people we can structure their finance to help them pay off their home sooner by investing in property. Sounds weird doesn’t it?

‘Many people underestimate their potential to invest.

‘Even if you think this doesn’t seem real for you, why not call us for a chat anyway. You may be surprised at how close the dream could be. It is never too early to start planning.

More than the Big 4

What do YOU know about the Australian lender market?

The ‘Big 4’ banks have maintained a dominant profile in the complex and
ever-changing Australian finance market – just think about how often you read about them in the news! And it is this high profile in our everyday lives that has contributed to a perception that all lenders are the same.

Is that what you think? In fact, Australian consumers are spoilt for choice…

(Did you know there are over 40 banks (plus multiple foreign bank branches) and around 60 credit unions and building societies in Australia1 as well as a number of non-bank lenders)

Of course if you are receiving this email you would already know that one of the key advantages of using our services – as your finance specialist – is that we have access to a range of lenders when seeking a loan that may be suitable for your individual circumstances. We are not tied to just one lender and their available loan products.

So what is the difference between lender types?


  • Banks are authorised deposit taking institutions (ADIs) and can use their own funds to provide home loans.
  • They provide integrated banking packages including savings, transaction accounts and
    credit cards.
  • Wide branch networks provide additional service but also contribute significantly to
    overhead costs.

Second tier banks

  • Second tier banks are those that are not part of the Big 4. They include a surprising number of household names such as ING Direct, Bank of Queensland, Macquarie Bank,
    Suncorp, ME Bank, Bendigo and Adelaide Bank, St George, Bankwest, Citibank and AMP Bank.
  • While some are now owned by the big banks it is worth considering their competitive offerings.

Building societies and credit unions

  • These non-profit cooperatives are owned by the people who use their services so each
    member is both a customer and a shareholder.
  •  Rates can be very competitive.
  •  Member deposits are used to fund loans.
  • Like banks they offer a wide variety of banking facilities with a focus on customer service.
  • They are regulated in the same way as banks.

Non bank lenders

  • They do not hold an Australian banking licence so cannot accept deposits therefore they source wholesale funding via investors, financiers, trusts and even the Big 4 banks.
  • They do not have the overheads of an extensive branch or ATM network.
  • The appeal for customers has been competitive interest rates, more flexible lending criteria (eg for low doc or non-conforming loans) and higher loan to valuation ratios (LVRs). Low rates are however often balanced by higher fees.
  • An emphasis on customer service, faster loan processing times and responsiveness are other selling points compared to the big banks.
  • Tend to have limited products and services so they may not be suitable for all your financial needs.

So do we recommend the Big 4 to clients?

The Big 4 are strong competitors with broad product ranges so if they have a solution suitable for your individual circumstances then of course we do. However we may also recommend second tier banks or non-bank lenders if their product, pricing and services are ideal for you.

Most importantly, you will have the confidence of knowing we only recommend lenders that have provided a good personal experience for other clients.

Call our office today if you would like us to take the legwork out of your search for lenders.

Is switching loans a suitable alternative for me?

Your home loan is usually your largest financial commitment. We understand that changes in interest rates can have a big impact on your monthly repayments and how long it takes you to pay off your loan.

Switching loans might cost you thousands in early exit fees and other required fees, but it could possibly SAVE you thousands of dollars as well.

• But how will you know?
• How will you compare each new lender’s offering against others?
• What new conditions will accompany a new loan?

When you contact us we will compare your existing loan with other lenders’ products.

Our goal for you is to find out:

‘Is the cost of switching loans worth the potential interest rate saving?’

  • We will use the following steps:We shop around for you

We use our financial calculators to compare interest rates, fees and features of your current loan with several other home loans available in the market.

We might also be able to negotiate (on your behalf) a discount below the listed interest rate, especially if you have a large loan. We will talk to your current lender and tell them you are thinking of switching to a cheaper loan offered by another lender.

They may offer to reduce the interest rate or suggest a cheaper ‘no frills’ loan. This could save you significant switching costs. Often, by using us, your mortgage specialist, we can secure a better rate than if you try to negotiate this yourself.  

  • We research the potential savings from switching

Our role is to calculate the fees you will be charged if you change loans, plus other expenses you may need to pay e.g. lender’s mortgage insurance (LMI).
We will show you how long it will be before you start making savings after the cost of switching. We can also compare the minimum repayments of potential new loans.

  • We compare home loan features against your existing loan

We determine a range of potential loans that may be suitable for your circumstances and check them against your existing loan. We will compare the features such as:
• the ability to make extra repayments
• having an offset account
• having a redraw facility
You may pay more for a loan with extra features and flexibility so we will need to determine if these features are important to you and whether they are worth the extra expense.

You decide, then we help you take action 

We will present to you the potential cost savings and
differences in features between loans.

Please note:

You will only reap the potential savings if the new loan stays cheaper over the long term. The longer it takes for a switch to save you money, the greater the chance that the interest rate savings may fade.

Your savings can be used to pay off your new mortgage more quickly or make lower repayments to alleviate some of your current financial burden. If you decide you would be better off switching loans, then let’s take action together!

Interest-only versus principal-and-interest: why it’s time to revisit the debate

The landscape has shifted in that perennial debate – interest-only versus principal-and-interest loans.

Until quite recently, as much as 40% of all residential mortgages were interest-only – a figure that’s high by international and historical standards.

Both Aussie investors & home owners have been enthusiastically adopting interest-only loans in order to take advantage of well-documented lower initial repayments, tax benefits and greater flexibility.

But while some of these potential perks remain, a number of factors are now coinciding to make it a potential good time to consider the principal-and-interest option.

Is it time to reconsider? First, Let’s have a look at what’s changed

– Tightened lending criteria

Regulators have recently put the brakes on interest-only loans.

In March, APRA said that with such a high percentage of interest-only residential mortgages, it was worried about vulnerabilities to payment shock, interest rate increases and house price falls.

To mitigate the risk, it told lenders to cap interest-only lending at 30% of total new residential mortgages, and to tighten some lending criteria.

So what does that mean for you? Well, it’s getting more expensive and complex to secure an interest-only loan (although, there are still plenty of ways to do so).

– Interest rates 

Interest-only rates are also rising as a result of regulatory pressure to get below that 30% cap – in some cases as much as 100 basis points in the past year.

Meanwhile, rates on principal-and-interest loans have fallen to some extent as lenders have moved to make them more appealing.

In a nutshell? Interest-only rates are going up. Principal-and-interest rates are going down.

So if you’re going to switch, now may be an opportune time to do so, because once lenders start getting more people on principal-and-interest loans they might not feel so generous.

– Flexibility

In the past, one of the major attractions of interest-only loans was flexibility. They allowed investors to borrow more and expand their portfolio.

In many cases, investors have relied on the capital gain from the sale of their property to pay back their principal.

But with tightening around borrowing capacity, some investors may find they no longer qualify to extend their interest-only loan in line with their original plan.

The benefits of shifting to principal-and-interest

Ok, let’s take a quick look a little hypothetical scenario.

Say you take a $500,000 loan. At an interest-only rate of 5.20% your monthly repayments will be $2,167.

It will cost you an extra $235 per month to make principal-and-interest repayments (taking your monthly repayments to $2,402, assuming a rate of 4.05%).

For that extra $235, however, you’re paying $715 off your principal due to the lower rate. You are effectively saving $479 worth of interest each month. Over 30 years that equates to $172,440.

That’s a pretty good return for your dollar. But the benefits don’t stop there.

By saving on all that interest, you’re ensuring more of your money ends up in the equity of the property, rather than the bank’s back pocket.

Additionally, by switching to principal-and-interest, you’re are somewhat protected against a dramatic increase in repayments down the line when your loan does revert to Principal and Interest.

Are there any downsides?

Before you take the leap, however, there are some factors you will need to consider, including:

– Higher monthly repayments

A principal-and-interest loan is likely to cost you more each month, from a cashflow perspective. This may not suit you and affect your ability to manage and grow your portfolio as you choose.

– Reduced flexibility

If you have an aggressive investment strategy you may want to keep cash readily accessible for other investment opportunities that come along.

You may also prefer the benefits offered by an offset account, including the ability to reduce your monthly repayments and minimise tax.

It’s also really important to discuss any future implications of making the switch, because reverting back to interest-only may not be so straight-forward.

So, is it worth it?

Whether or not you make the switch could be one of the biggest financial decisions you make.

Just remember, the above hypothetical is just one scenario and everybody’s situation are different.

So let us run you through your unique situation, help you crunch the numbers, and draw on all the very best resources to help you make an informed decision.