Don’t let the break up, break the bank…

Three months after her separation, Cathy was unable to get a mortgage from a major bank. It took a clever broker to work out why and turn her situation around.

Cathy was 32 when she met Dan at a winetasting class. The two hit it off immediately and by the following year, family and friends gathered at the Botanic Gardens to raise a glass to the new bride and groom.

That was 18 years and two children ago, and sadly the marriage didn’t improve with age. Several months ago, the couple decided to separate. Cathy had worked part-time since the kids started pre-school 11 years ago. As Dan is an accountant, he took care of the finer details of their finances although Cathy stayed informed and involved. When the marriage ended, Cathy knew she had to start making independent financial decisions. She researched thoroughly, took advice from family and friends and started to make plans.

Some of those plans almost cost Cathy her financial future.

Three months after the separation, Cathy’s credit report looked as if she had applied for almost $1.5 million worth of property finance and she was unable to get a mortgage from a major bank. It wasn’t until she was introduced to a mortgage broker that Cathy’s well-intentioned mistakes were turned around.

“When Dan and I split, I started to think about where I would live,” Cathy says. “We had our family home which we owed very little on and an investment property on the coast. Whatever we did, I assumed I would be in a fairly good financial position, so I started to look for properties that suited my needs. I also considered my financial options, researching mortgages, comparing banks and organising a preapproval.”

As the dust settled on the separation, Cathy found the apartment she wanted to buy and began taking serious steps towards the purchase. That’s when things started to unravel.

“I was rejected for a loan from a major bank, which was a shock as I had around a 40% deposit and a great history of making repayments,” Cathy says.

“I knew banks were tightening up on lending, so I figured it was a one-off and applied to another major bank and was rejected again. After all the emotion of the separation, these rejections from the banks almost tipped me over the edge. I felt so lost and useless and was worried I wouldn’t be able to buy a home. So I went to see a mortgage broker. That’s when everything started to turn around.”

Her broker got to the bottom of Cathy’s predicament – she discovered that in her efforts to do her research and be prepared, Cathy had inadvertently made three applications for pre-approval of a $500,000 mortgage. On her credit report this looked like she had applied for $1.5 million in loans over a three month period – a red flag to most lenders.

“I was simply shopping around and seeing if I could get approval,” Cathy said. “I had no idea these enquiries were accumulating on my credit report. I also had no idea that pre-approval is not the same as an actual approval.”

“I was very fortunate to find an educated mortgage broker who helped me navigate the approval process. She mitigated the problem on my credit report and helped me find a mortgage that suited me. She also got me a line of credit and a better deal on my credit card, reducing my monthly repayments.”

Cathy’s advice to anyone facing divorce or separation is to get expert advice.

“Your friends and family will mean well, and some of their advice may be good, but you really need advice from an expert,” she says. “The lending industry changes so fast, and even someone like me who considers themselves fairly financially intelligent can get into trouble really quickly.”

Thanks to her broker, Cathy is now celebrating her new property purchase and starting a new phase of her life, safe in the knowledge that she is in a strong financial position.

Don’t let the break up break the bank

We see many ‘Cathys’ in our finance line of duty every day.

We wanted to share this story so you, your family and friends know it is safe to come to us in confidence to help you with your financial challenges and decisions, regardless of your personal circumstances and knowledge.

59% of Australians now use mortgage brokers in order to avoid:

• wasting your time

• damaging your credit file

• acting on poor or uninformed advice and

• missing out on finance that you should be approved for.

Remember, everyone’s personal and financial circumstances are different. What may have worked and been recommended to your friends a few months ago is unlikely to be suitable for you today.

Is Instant Gratification Creeping Up On You?

Buy now, pay later is growing in popularity as an alternative payment method to credit cards and other interest free term deals. If you are one of the over 2 million users in Australia who do use this payment system, we recommend following these 4 tips to avoid fees, charges and credit creep.

Our 4 tips to tame your buy now, pay later spending

1. Spend within your budget

Buy now, pay later payment options may be a means to pay off a large necessary purchase that hadn’t been budgeted for, such as replacing a broken washing machine or fridge, but be careful not to continue the convenience spending on wants, rather than needs. You may have great intentions of just replacing that broken washing machine, but when there is an Afterpay or Openpay account ready and waiting, the temptation may be too great and send you over your budget and capacity to repay.

2. Avoid late payment fees

Payments are automatically deducted from your chosen credit or debit card, so make sure you keep up to date with your repayments. We highly recommend you have the payments taken from your DEBIT CARD NOT CREDIT CARD to avoid credit card interest accruing and adding even more financial difficulty to your situation.

3. Keep your credit clean

Although customers are quickly approved and accounts swiftly set up, third parties such as credit reporting bureaus may check your credit history. Plus, when it comes time to seek finance for a loan or property, each credit limit can make a difference to your application and your borrowing capacity. A lender will take into account your total credit limit as it will impact your capacity to repay a new loan. We recommend a reduction in the credit limits and the number of cards held by you.

4. Build up an emergency fund to limit buy now, pay later

To prevent the need for using buy now, pay later, we recommend you build up a savings or emergency account. Then if the washing machine or fridge breaks down, you have the cash buffer to use. If you take our advice on step 4, you won’t need to worry yourself about steps 1 to 3!

AVOID the credit limit creep and don’t let instant gratification catch up with you. PLEASE spend within your budget.

Is it the season for Openpay?

Christmas shopping is now easier than ever before.

From pre-Christmas sales (39% of retailers plan to discount before Christmas this year) to online shopping and buy now, pay later (BNPL) options, it has never been easier to nab a bargain… AND pay for it later, INTEREST FREE!

Those of you who have been following us for a while will know our views on buy now, pay later options…. be cautious!

We highly recommend thinking twice about using these services, especially if you intend to buy a home or investment property or are considering refinancing in the next three to six months.

With over two million users of the buy now, pay later system in Australia, instore and online retailers are jumping onto a BIG opportunity.

But wait there’s more..

Even Amazon Australia has succumbed to the BNPL trend. Last month, they ventured into a partnership with Zip to allow customers to split the total cost of their order into instalments.

And more..

While Afterpay and ZipPay are the two most known in Australia, there are similar options growing in popularity such as Openpay and PayItLater, with varying terms and conditions.

The rise of Openpay

While Openpay has just 1,700 merchants and 310,000 customer payment plans, numbers have increased 100% year on year for three years. This is expected to only grow.

Openpay is looking to list on the Australian Stock Exchange and raise around $50 million through the listing. More money to expand!

Afterpay Vs Openpay

Afterpay and its alternatives provide an appealing option for customers with benefits including:

• immediate use

• easy to use

• interest free terms (It works like an interest FREE loan. You generally have longer to pay and you don’t have to pay a cent more than the actual cost of the item.)

• an alternative to using a credit card

• increasing availability instore and online While Afterpay and Openpay both offer interest free terms, Openpay goes a step further by offering flexibility. You choose your own plan. You can reschedule to avoid late fees. Repayment terms can be up to 6, 12 or 18 months (compared to 8 weeks for Afterpay).

BUT buyers beware of the pitfalls!

Afterpay and Openpay make money by charging retailers fees for offering the service. They also make money from fees charged to customers.

While with Afterpay there is no upfront fee to customers (but beware the late fees!), Openpay charges processing and establishment fees, in addition to late fees.

Don’t let your Christmas and impulse spending get out of control!

Pay by instalments options may seem manageable, but paying smaller amounts over time can lessen the impact of the TOTAL cost and potentially influence you to spend MORE.

A $25 instalment here and a $50 instalment there can all compound to substantial ongoing regular payments. Bundle half a dozen of those together and you could be racking up over $250 of regular (generally fortnightly) payments.

BNPL could affect your borrowing power

There are many factors that could impact your credit score (a number based on an analysis of your credit file that helps a lender determine your credit worthiness).

The type of credit providers you’ve applied for credit with and the amount of times you apply for credit, amongst many other factors, can greatly affect your borrowing power.

When it comes time to seek finance for a loan or property, each credit limit can make a difference to your application and your borrowing capacity.

Consider buy now, pay later as a payment option BUT make sure you make payments on time and keep a close eye on the credit limit – we don’t want ‘credit creep’ taking over your budget.

If you MUST use this system, we highly recommend you have the payments taken from your DEBIT CARD NOT CREDIT CARD to avoid credit card interest accruing and adding even more financial difficulty to your situation.

PLEASE AVOID the credit limit creep and don’t let instant gratification catch up with you. Spend within your budget.
Read our 4 tips to taming your impulse spending before you head to the shops this month.

If you or someone you know is confused about openpay or afterpay, read our 4 tips to tame your impulse spending before heading to the shops

Top Finance Tips

1.Be actively involved with your finance and wealth creation.

If you have joint accounts with another loved one

• know your lender, super and investment portal logins

• monitor your joint balance, credit card spend and savings • be part of the financial decision making

2. Prioritise and set yourself clear goals on what you want to achieve and by when.

It is sometimes easier when you are on your own to set and plan your goals because you are solely responsible for the outcome. If however, you have a partner, then communication is critical in understanding and appreciating each person’s individual goals. If you find you cannot agree, then seek expert intermediary opinion from your finance and planning team (and that’s not usually other family members – lol!)

3. Be an expert on understanding your financial position at all times – including savings, debt, insurance, investments and super.

4. Understand your saving and spending habits (and your partner’s).

• Know how much money is coming in and going out for you and your family

• Set yourself “safely spend” limits on your various shopping categories, eg groceries, food, clothes and entertainment etc. (A coffee a day adds up – just saying J) After all, as the saying by Charles A Jaffe goes… “It’s not your salary that makes you rich, it’s your spending habits.”

5. Purposefully plan your financial future

• know how much is in your super fund and how it is being invested

• find ways to accumulate more super to enjoy in retirement

• seek advice on whether voluntary contributions are a good idea if you have no ‘bad’ debt (66% of women are not participating in voluntary super contributions!)

6. Protect yourself against the unknown

Ensure you have appropriate and adequate insurances for health, life and trauma.

If you work part time and could not live without your additional income you should also have the appropriate insurances.

• Many women who work part time do not insure their income or have trauma cover

• Many people also think the income protection inside their super policy is adequate, however many policies only cover a few years

7. Review and update your will and estate planning on a regular basis to ensure they are still aligned with your goals.

In fact, anyone can use these seven money tips to achieve a better financial position.

We like to work with our clients to ensure they are using good money management tools and techniques so when it comes time for their first, or next, property purchase or investment, they are in the best possible financial position to secure their mortgage.

Contact the office TODAY to find out how WE can help YOU to purposefully plan for your future.