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Be careful of loading up on ‘buy now, pay later’ purchases this Xmas

‘Tis the season to be jolly, but it’s important not to get carried away when using ‘buy now, pay later’ providers to fund that festive spirit. That’s because one-in-five users struggle to make their repayments, new research has found.

HomeBuilder sparks surge in home loans, new builds and renos

Thousands of families across the country who had been thinking about a new build, or tackling an overdue renovation project, have rolled up their sleeves and committed to it, according to latest ABS data.

Turbocharged instant asset write-off scheme unveiled

There was one big-ticket initiative in the federal budget that really caught our eye, and that was the turbocharged version of the instant asset write-off scheme. Today we’ll look at how it could improve your business’s cash flow moving forward.

Your finances through COVID-19

Over the last 12 weeks, COVID-19 has made our world a very different place.

Getting Through Coronavirus Together (Apart)

How are you settling into the ‘new normal’, or new normal for now at least?

From the Comfort of Home

How are you settling into the ‘new normal’, or new normal for now at least?

The Pros and Cons of Having a Guarantor

The Pros and Cons of Having a Guarantor

The Australian dream of owning your own home is significantly harder to achieve than it was just a couple of decades ago. But the answer isn’t necessarily to work harder and save more for a deposit––a guarantor can help realise the dream of homeownership. 

What is a guarantor?

A guarantor is an immediate family member who offers either their house or a term deposit as security to help borrowers attain a home loan. To use a guarantor, you first need to be able to prove that you can afford to make the loan repayments on your own. Their role isn’t to help you make your repayments, it’s simply to reduce the bank’s risk of the borrower defaulting on the loan.


Life gets in the way of saving for a deposit. Studying, paying rent, prioritising travel and just the general cost of living all mean that you could spend your whole life trying to accumulate a deposit to purchase a home. A guarantor means that you don’t need to save forever to get your foot into your own door.

A guarantor can help you avoid paying Lenders Mortgage Insurance (LMI) which can potentially save you thousands of dollars. LMI is an insurance policy (at the expense of the borrower) designed to protect the lender from financial loss in the case that the borrower is unable to meet their home loan repayments. LMI is generally required when the borrower’s deposit is less than 20% of the value of the property being purchased.

Depending on the value of the security being offered by the guarantor, the borrower may have a wider choice of loan products available to them, meaning they may be able to get a much lower interest rate than what would’ve been attainable without a guarantor. This can also help with debt consolidation. Any minor debts, such as credit cards, can be consolidated into the home loan.

The positive aspects are significant but the negatives cannot be ignored as there can be serious consequences that come with the guarantor option. Consider the negatives before asking someone to take on the responsibility. 


If the borrower was to default on the loan and the sale of the home was unable to cover their liability, then it’s up to the guarantor to make up the difference. This could mean the guarantor loses their house to pay back the debt the borrower got themselves into by defaulting. 

The guarantor’s ability to borrow will be diminished once they’ve signed the agreement which could be an issue if they suddenly wanted to apply for their own loan.

The guarantor can be released from the agreement once enough equity has been built up but this may attract various fees.

There aren’t just financial risks to weigh up when deciding whether to have a guarantor. You would be tied financially to a close family member which poses a threat to the relationship if something was to go wrong. While it can be very beneficial, it’s a decision not to be taken lightly.

Investing with the Use of Equity

Investing with the Use of Equity

It is a common misconception that your mortgage needs to be paid off before you can purchase an investment property. This is simply not true. With the use of your home equity, you could be well on the way towards building your property portfolio. 

What is equity?

Equity is the value left over after subtracting the remaining amount of your loan from the current value of your home. For example, if your home is valued at $500,000 and the amount remaining on your mortgage is $300,000, your equity is $200,000. The equity can be borrowed against to secure an investment loan.

How to build equity

Equity changes by shifting one of two factors; The value of the home or the value of the mortgage. An increase in the home value or a reduction in the mortgage amount will grow your equity. 

Increase equity by reducing the mortgage quickly

Thanks to compound interest, any amount paid above the minimum loan repayment will be chipping away at the principal amount to reduce the debt faster and lower the interest costs. 

Making biweekly repayments rather than monthly will see you repaying the equivalent of 13 monthly repayments over 12 months. For example, a monthly repayment of $1,200 is $14,400 over 12 months. Split the monthly amount into biweekly payments of $600 and after 12 months you’ve paid off $15,600 – which is equal 13 of the original monthly repayments. 

Contributing any work bonuses, inheritance or windfalls to your mortgage reduces the principal amount and directly increases your equity. The interest costs will be reduced meaning you’ll save money while growing equity. 

Increase equity by increasing your home value

Generally speaking, property value tends to rise with time and consequently,  your equity will increase as the value of houses appreciate. Short of waiting for the value of your home to naturally rise with the market, renovations and general touch-ups can increase value. Bathroom and kitchen renovations tend to drastically increase value while things as simple as a new coat of paint or landscaping can increase your equity also.

How much can you borrow against your equity?

Due to risk management factors, banks won’t lend against your total accessible equity. The amount they will lend against is called the usable equity and is calculated as 80% of the current valuation of your home minus the current mortgage. 

From the example above, the accessible equity is $200,000 but the usable equity is $500,000 (home value) x 80% – $300,000 (remaining mortgage) = $100,000 

To calculate the maximum purchase price of an investment property, take the usable equity amount and multiply it by four. In our example, this gives you a purchase price of $400,000. This method means you have enough equity to use as a 20% deposit ($80,000) on the new property (so you’ll avoid paying lender’s mortgage insurance) plus enough to cover stamp duty and other fees (which could cost as much as $20,000 on a $400,000 property).

Take caution when using equity

Using your home equity to purchase an investment property comes with the risk of losing both your home and your investment property. It is a decision that needs to be made after careful consideration and consultation with a professional before deciding if it’s right for you.

Credit Card Pros and Cons

Credit Card Pros and Cons

Credit cards can be a really useful tool for managing cash flow. Each purchase you make with a credit card is made with money you have borrowed; essentially, each purchase is a loan that needs to be repaid at a later date. Interest is charged on the credit card balance if the amount is not repaid during the interest-free period, and as such, can become quite expensive if not properly managed. 

Credit Card Pros

  • Security. Credit cards offer zero-liability policies, which means that if your card is lost or stolen, you will not be liable for any unlawful purchases made using your card. 
  • Flexibility. No amount of planning can change the unpredictable nature of life. Emergencies, spontaneous purchases, and unexpected bills are just a few of the financial surprises that can come up in everyday life. Credit cards give you the freedom to be able to fund these situations when you otherwise couldn’t afford to. Just ensure you have the means to pay it back or you could face huge interest costs. 
  • Rewards. There are many programs available that reward the customer with points for making purchases with their credit card. The points can be exchanged for things such as flights, gift cards, travel benefits and even cashback. 
  • Positive Credit History. A credit card is a loan, which means paying back the loan in the required timeframe reflects well on your credit score. Building a positive credit history will help for when you want to apply for larger loans such as for a car or a home. 

Credit Card Cons

  • Splurging. When you’re not seeing a physical exchange of money it can be easy to get carried away with your spending. Credit cards do not offer free money — they are a loan that you are legally obligated to repay. If you are spending beyond your means with a credit card you could be hit with hefty interest payments. 
  • Late Fees. Along with interest repayments come late fees. If you cannot make the repayments before the required time then you could end up paying a lot more than the original purchase price of the goods or services you funded with the credit card.  
  • False Safety of a Balance Transfer. A balance transfer is used to transfer credit card debt to a new credit card with a lower interest rate to help make the debt more affordable to pay off. The danger comes when consumers continue to make purchases with the new credit card because of the attractive lower rate when really, they need to focus on first paying off the original debt. Adding to a credit card when you’re already in debt is a dangerous practice.
  • Negative Credit History. As discussed above, if used sensibly, a credit card can be beneficial for your credit history. But if spending gets out of hand and suddenly the interest costs and late fees are snowballing, your credit history is going to be negatively affected.   

There are many fantastic benefits of using a credit card but these need to be weighed up against the negatives before deciding if they’re the right choice for you.

Choosing Between Fixed and Variable Rate Home Loans

Choosing Between Fixed and Variable Rate Home Loans

What is the difference between fixed and variable?

A fixed-rate loan stays constant at an agreed-upon rate for a predetermined period, usually, 1-5 years, after which another fixed-rate can be agreed upon or, the rate will revert to the standard variable rate. Because the rate is fixed, the loan repayments do not fluctuate, which is desirable for borrowers who like to know exactly how much they’ll be paying.

A variable-rate can vary up or down at any given time, at the lender’s discrepancy, which can be influenced by factors such as the RBA official cash rate and competitors’ rates. The floating nature of the rate means that the monthly repayments can fluctuate as the rate changes.

Flexibility Vs Certainty

The certainty of a fixed-rate makes budgeting simple as you know exactly how much you’ll be paying back for the fixed term. The stability of a fixed-rate is beneficial as you won’t be affected by a rate rise like you would if you had a variable-rate. This is an important factor for anyone needing to stick closely to a budget if money is tight. For anyone with a variable-rate who isn’t prepared for a rate rise, they could be subjected to significant stress due to the increase in repayments. The other side of a rate rise is a rate drop which hasn’t been uncommon in Australia. Having a fixed-rate means you will miss out on reaping the benefits of rates dropping.

The flexibility of a variable-rate allows for extra repayments to be made, which can see you save thousands of dollars in interest costs and pay off your mortgage much faster. With making extra repayments comes a redraw facility which works like a savings account. Any extra repayments you make reduces the loan amount and offsets the interest costs with the added flexibility of being able to redraw the money at any time you choose. Fixed-rate loans generally don’t allow extra repayments or they’ll be capped at a low amount and a redraw facility is usually not available. 

A variable-rate gives you the freedom to refinance or sell your home without having to pay a break fee that would apply to a fixed-rate loan being broken within the fixed term.

Loan Splitting

To get the best of both worlds, splitting your loan into a fixed portion and a variable portion is an option. This gives you the flexibility to make extra repayments while managing some of the risks present in an interest rate rise. 

There are no rules regarding how much you allocate to the fixed portion and how much is assigned to the variable portion, so you are entirely free to split the loan however you deem appropriate once your goals have been taken into consideration. 
There are pros and cons plus different features and fees for both variable and fixed rate loans, so it is vitally important that you take your circumstances and needs into consideration to ensure that whatever loan you decide to choose is the best option for you.

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