(08) 6201 4465

Will interest rates remain as they are??

An Australian lender has forecast the official cash rate will not move by more than 50 basis points for the next 10 years. Speaking at the La Trobe Financial Q1 2014/2015 investor briefing yesterday, La Trobe head of funds management Chris Andrews made the bold prediction that interest rate stability would continue into the foreseeable future. Mr Andrews said the current low interest rate environment is “without a doubt” a tailwind for the Australian economy. In his October rate announcement, RBA governor Glenn Stevens flagged continued accommodative monetary policy over time, suggesting that rates would remain unchanged for some time. “We would go one step further than most would at this point,” Mr Andrews said. “The global economy is so fragile, and with all the pressures of the Australian economy, the RBA’s scope for policy action is most likely now extremely limited,” he said. “If you look at interest rate movements as far out as the eye can see, even to a decade-long horizon, [they] will be constrained to a 50-basis point band, plus or minus.” Mr Andrews admitted that the prediction was a “big call; it does emphasise the lender’s current house view of where the Australian economy is in a global context”. “There are always possibilities that could break this base case, but we have a strong house view here of a long period of interest rate stability,” he said. La Trobe’s prediction is at odds with the majority of Australian economists who are forecasting rates increase by 150 basis points from next year. The monthly Reserve Bank Survey of 20 leading experts by comparison website finder.com.au...

Should I pay off my mortgage or leave it in my offset account?

I’m confused – my bank teller is telling me to transfer my savings onto my mortgage but you are encouraging me to leave the money in my offset account. Isn’t the end result the same? Why am I being told something different from the bank? Great question! Besides the obvious answer that the banks would prefer the security of having your savings pay off my mortgage, most home owners understand that regardless of the approach you adopt, interest on your home loan is calculated on the same basis. Some believe the only difference between paying off your home loan account and placing your savings in an offset account is the flexibility of having easier access to your savings by having it sitting in your off set account. This flexibility of instant access however, is negated if you have a redraw facility on your loan account. While the interest savings are the same, there may be very different tax considerations, particularly if the property is for investment purposes or going to be used as an investment in the future. Just because the loan is secured by an investment property, it does not mean that all interest payments are deductible for tax purposes if you redraw on the facility. Your ability to claim a tax deduction for interest on the total loan is determined by the purpose of use of the...

Understanding the new credit reporting system

COMPREHENSIVE CREDIT REPORTING COMMENCED ON 12 MARCH 2014 UNDER CHANGES TO THE PRIVACY ACT AND IS THE MOST SIGNIFICANT CHANGE TO AUSTRALIA’S CREDIT REPORTING SYSTEM IN OVER 25 YEARS. COMPREHENSIVE CREDIT REPORTING CHANGES THE LEVEL OF CONSUMER CREDIT INFORMATION THAT CAN BE HELD ON AN INDIVIDUAL’S CREDIT FILE. PREVIOUSLY PERSONAL CREDIT FILES COULD ONLY HOLD ‘NEGATIVE’ INFORMATION LIKE CREDIT ENQUIRIES (APPLICATIONS) AND DEFAULTS. UNDER COMPREHENSIVE CREDIT REPORTING A PERSON’S CREDIT HISTORY WILL INCLUDE ‘POSITIVE’ CREDIT INFORMATION SUCH AS IF YOU MAKE YOUR CREDIT CARD AND LOAN REPAYMENTS ON TIME. THE DOWNSIDE IS, IF YOU DON’T MAKE YOUR REPAYMENTS ON TIME, THIS TOO CAN BE HELD ON YOUR CREDIT REPORT. What are the benefits for consumers? Highlights good credit behaviour: Australians will be able to demonstrate recent good credit behaviour because the new system records if you have made your credit payments on time. Faster recovery from adversity: You may improve your credit profile more quickly after an adverse financial event by showing good credit behaviour, potentially countering the impact of a default up to five years old. Quicker to establish a credit file: For individuals new to consumer credit, the use of comprehensive information means that you can build credit worthiness more quickly. For example, if you are a young person or a recent arrival from overseas. A more balanced system: It is a more balanced and transparent system for consumers who already have a good credit history, as well as those who previously had trouble meeting their financial commitments – as it may enable them to access quality credit where they may not have been able to previously....

Decision time…Round 5 NRAS applications “frozen” as Federal government looks for budget savings

Extracts from Saturday’s Weekend Australian: By Patricia Karvelas & Turi Condon THE Abbott government will slash the $4.5 billion National Rental Affordability Scheme, which has had the present round of applications frozen. Senior government sources have confirmed that the scheme, which has been criticised for letting wealthy foreign students ­access taxpayer-subsidised housing meant for low-income Australians, will face a revamp that delivers “substantial” savings in next month’s budget. The Department of Social Services received applications for almost 80,000 incentives under round five, covering 2200 projects across Australia, but The Weekend Australian can reveal that none has progressed after the government effectively halted the process. The entire scheme will now be cut back. A senior source said while some had called for its abolition, the government wanted to maintain a national housing scheme but felt the one designed by the previous Labor government was “unsustainable”. The NRAS is worth $4.5bn across 10 years. About 38,000 incentives already have been allocated, worth a total of about...

Is technology affecting your health?

When you think of sitting, it’s hard to see it as activity that could influence your health. It seems natural, something everybody does like breathing or blinking one’s eyes. After all, most of the population spends much of the day sitting, so how can there be a problem? In fact, that is the problem! The latest research figures show that a hefty 63% of the Australian population is overweight or obese. The fact that we are spending far too much time on our backsides rather than on our feet might be one of the reasons. The CEO of the Chiropractors Association of Australia (CAA), Andrew McNamara, says that the average office worker spends nearly 14 hours a day sitting. When you add 8 hours of sleep we are not talking about much time to walk, shop or exercise, or move our bodies in any real way. The surge in the size of the average Australian has also increased the rise of other chronic conditions and associated diseases such as cardiovascular, high blood pressure, atherosclerosis and type 2 diabetes, to name a few. When we sit says McNamara, kilojoules burning drop to a handful a minute, the enzymes that break down fat drop by 90% and the electrical activity in our legs shut down. Although humans are designed to move, sitting causes specific muscles to shorten and adapt to whatever position they are made to hold for long periods. The hip flexors, and hamstring in particular suffer the most, leading to back pain, a tilted spine and all sorts of postural complaints. Further technology hampers health and in particular shoulders....

What goes down must go up…

In the world of finance that is… We all know that interest rates are cyclical and that when rates go down they will eventually go up. As a result, lenders have been assessing loan applications on the ability of borrowers to make repayments at interest rates approximately 2% higher than those currently available. While lenders have been assessing your ability to make repayments at a higher interest rate, what is the reality of the financial impact of your regular loan repayments? Did you know that if you have a remaining loan term of 20 years with a loan balance of $400,000 at a current interest rate of 5.5%, if interest rates were to increase to 7.5% (representing the average variable interest rate over the last decade) your weekly repayments would increase from $637 pw to $745 pw. That’s an increase of $108 PER WEEK! If you are concerned about the likely increases in interest rates there are a few options available for you to consider. Apart from looking for existing opportunities to either make savings in your current expenditure to cover the additional repayments or to find ways to increase your income, the alternatives include: Move to a more competitive home loan If you have a home loan that is now more than a few years old it is likely that with renewed competition between the major banks and non-bank lenders you may be able to obtain a lower interest rate. The repayment savings can then be used to partially or fully off set future interest rate rises. You will however also need to factor in the cost of swapping loans. Lock in a fixed interest rate If you require greater certainty, fixing your interest rate...