Good Advice, Good Value, Good People

Author Archive for Daniel Stevens

10 Ways to Reduce Mortgage Repayments

As mortgage brokers, one of the most common questions we are asked is: “How can I reduce mortgage payments?

So we sat down and distilled what we do into this guide, “10 ways to reduce mortgage repayments“.

Your mortgage consists of:

Reduce mortgage payments overall by paying more in today

  • principal – the amount you borrowed to buy your home
  • interest – the amount you pay your lender and
  • fees for arranging and having the mortgage facility

The interest on a mortgage is substantial because you are borrowing over such long periods of time.

For example a standard variable 25 year loan of $350,000 at 6.25% interest would cost $692,652.85 – with nearly half the total cost being interest.

To see the cost of your home loan use this Home Loan Calculator.

To really slash years off your mortgage, you need to minimise interest in three ways:

  • Pay a lower interest rate (rate)
  • Minimise your loan balance daily (balance)
  • Borrow over a shorter period (duration)

There are a number of strategies to reduce mortgage repayments by minimising the rate, balance and duration. The key is to find the right mix of strategies which best fit your circumstances.

10 Ways to Reduce Mortgage Repayments

Rate (and Fee) Strategies

    1. Consolidate high interest personal debt into your variable loan within your mortgage AND continue to make those high personal repayments. You should aim to clear the personal debt off within 1 to 5 years. This is great for car loans and credit card debt where the interest rate can be over 9% compared to a mortgage rate currently around 4%.
    2. Take advantage of lenders’ discounts to the base rate e.g. professional occupation discount, lender packages, multiple accounts discounts and introductory (honeymoon) rates. If you choose a honeymoon rate you must check you can afford the repayments once the introductory period ends.
    3. Fix a proportion of your loan when rates are low and expected to rise. Still have a variable part of your loan to pay any windfalls into (to get your loan balance down) and to give you a buffer in case of any unexpected expense.
    4. Don’t pay lenders mortgage insurance (LMI) if you can avoid it. LMI is a non-refundable one off  fee added to your mortgage if you don’t have a 20% home deposit. LMI is there to protect the lender NOT you so there is no benefit of you of having this expensive cover.
    5. Refinance for a better overall deal. To get ahead on your mortgage you want a significant saving on your interest rate with a package suited to your life style and circumstances without paying a fortune in fees.
      Despite a surge in smaller lenders offering mortgage rates under 4.00%, borrowers are wasting $17 million a day by sticking with big bank lenders instead of switching to a cheaper home loan, according to a study by Mozo1. All lenders – banks, building societies and credit unions – operate under the same laws, rules and regulations for credit transactions in Australia. When refinancing appraise a number of lenders – a good way to do this is to talk to a reputable mortgage broker for a free no obligation consultation.

    Balance Strategies

      1. Pay windfalls or savings into your mortgage rather than into a lower interest savings account. Choose an account with no withdrawal fee if you need to access that money later.
      2. Get an offset account or revolving line of credit:
        With an offset account, any amount in your savings account is offset against your mortgage balance daily so your interest is charged on a smaller balance. Use the offset calculator to see how much you could save with an offset account.
        Revolving line of credit account – similar principle to an offset account. The line of credit (LOC) allows you to borrow to a pre-set ceiling. A LOC is great where you want flexibility e.g. to undertake major renovations without needing to arrange a new home loan. You need to be very disciplined to continue to pay off your line of credit account as many lenders require interest only repayments for the first 10 years which means that you have to significantly increase your payments later in the loan term and you will pay more in total. As they are riskier, lines of credit often:

        • have higher rates or ongoing fees
        • approval may be more difficult
        • they often offer a lower LVR amount, and
        • are usually not available with mortgage insurance.

          Reduce mortgage repayments with an offset account

          See how much you can save with an offset account

    Duration Strategies

      1. Finance over the shortest loan period you can comfortably afford – you pay considerably more interest on a 30 year loan over a 25 year loan. Bear in mind that interest rates are at historic lows so that they are going to increase over a 20+ year period. You need to know how comfortable you would be at making repayments if interest rates were at 6% to 9% (more typical long term levels).
      2. Shorten your loan period without refinancing. Use the calculator to find out the monthly repayments needed to pay your mortgage off a few years earlier. Make payments at this higher level. This will build up a buffer should you need to reduce mortgage repayments later e.g. because of redundancy or for a big ticket expense like a wedding.
      3. Make loan payments fortnightly, or weekly if you can. As interest is charged daily the effect of changing from monthly to weekly payments is considerable over the full loan period. It is best to set up a direct debit for your mortgage payments to synchronise with your salary so that your mortgage is always covered and not spent elsewhere. Furthermore, when changing over to fortnightly loan payments divide your monthly loan payments in two and you will end up paying another month off your mortgage each year.

    As you can see there are a number of ways to reduce mortgage repayments. Some you can adopt straight away and others will need the help of professional. The most important thing is to just get started as every dollar extra you put into your mortgage now could save you up to two dollars in the long run.

    1 Mozo Media Release 30/10/15

    This article was written by Andrew Maurer and Janine Leafe, accredited and licensed mortgage brokers at Approved Financial Planners. If you are in Perth and want a free no obligation chat about reducing your mortgage repayments call us on 6462 0888.

  1. This information is general in nature and should not be relied upon without financial advice tailored to your personal circumstances. Please refer to the Product Disclosure Statement before you purchase any financial product.

Superannuation Statements – What to Check

Last financial year’s superannuation statements are hitting your mail boxes over the last week.

It is important that you check your details are correct. The type of information you should be checking:

  • What is your balance.
  • Is the balance trending upwards over time – remember the Centrelink aged pension will probably not provide enough for the niceties in life. Chances are you will be relying on your superannuation for a better quality of life in your retirement.
  • Are all this year’s superannuation payments showing on your statement?
    Only recently we had a client whose superannuation guarantee payments from his employer were going into a different fund to the one he thought. And in rare cases, unscrupulous employers have been known not to make their payments at all even though they have a legal requirement to do so.
  • Do you have insurance within your superannuation (life, income protection or total permenant disability)?  Is it still sufficient for your needs?
    Remember that insurance premiums within your super fund are paid from your superannuation returns rather than billed to your directly. This makes them a convenient form of extra financial security, but one which it is easy to overlook.
superannuation statements in Australia

It is important to understand your superannuation – and superannuation statements – at every stage of life not just as your retirement

If you have multiple small balances in superannuation it is a good idea to consolidate them. Before you do so check you are not going to lose important insurance cover.

Lastly, check that you have received all your statements because it is easy to forget the small balance accounts.
If you move addresses and a couple of your superannuation statements are returned to the superannuation company, you might not notice.  Small balance lost super can end up in lost super.

If you need more in depth help understanding your superannuation statement, determining the right insurances, finding and consolidating superannuation please contact our friendly staff at Approved Financial Planners in Perth and we will help you get your superannuation in order.

Global Infrastructure Platform from AMP Capital Garners $1 Billion USD in New Commitments

If you are interested in investment planning help here in the Perth area, you may be interested in some recent developments from our parent company, AMP Capital. The AMP Capital global infrastructure platform recently added more than $1 billion USD, bringing it closer to its final close of $2 million USD.*

Investment Planning Firm Announces Global Infrastructure Platform

For its second and third closes, the Global Infrastructure Fund raised close to $400 million USD cumulatively. When the investor commitments are combined with an existing portfolio containing a diversified selection of European infrastructure equity assets, the platform has amassed more than 75% of its target.*

According to Boe Pahari, who is the Managing Partner of the AMP Capital Global Infrastructure Fund, “Investors….understand the many benefits that infrastructure provides to a portfolio.” These include: inflation and GDP linkage, high yield, low volatility, as well as low correlation with equities. Mr Pahari is encouraged because of the “increasing demand” for the platform.*

According to Anthony Fasso, CEO International of AMP Capital, the AMP Capital global infrastructure platform has drawn interest from investors in the US, Canada, Switzerland, Spain, Finland, Denmark, Japan and the Middle East.*

AMP Capital launched the global infrastructure platform in October 2014. Their open-ended Strategic Infrastructure Trust of Europe was converted into a closed-ended European fund. Subsequently, the Global Infrastructure Fund was launched.*

The platform is mandated to focus on “mature, brownfield assets” that hold long-term contracted revenues or monopolies in sectors which have proven to offer the best relative value. These include: energy, transport, utilities and communication.*

Currently, AMP Capital employs an experienced team of more than 60 professionals who specialise in infrastructure. They are located in New York, Sydney, New Delhi and London.*

Do You Require Investment Planning and Financial Services in Perth?

To learn more about us or about the AMP Capital Global Infrastructure Fund, call Approved Financial Planners in Perth today: 1300 787 274.

*AMP Capital, 24 February 2016. “AMP Capital’s global infrastructure platform surpasses US $1 billion in new commitments.”

Is Climate Change a Factor in Investments?

Investment planning in Perth and beyond has been introduced to a relatively new factor in potential investment performance: climate change. More specifically, greenhouse gas emissions are an important factor in evaluating Australian and global equity portfolios.*

Ian Woods is the Head of Environmental, Social and Governance Investment Research for our parent company, AMP Capital. Recently, Mr Woods published an insight paper on the AMP Capital blog called “Greenhouse gas emissions: risks and challenges for portfolios.” We would like to share some of his thoughts on the subject with you.*

Investment Planning Firm on Climate Change

Mr Woods used the Paris Climate Change Agreement as an example of a global commitment to acknowledge climate change. He feels that both companies and investors need to assess, communicate and manage risks posed to them by climate change.*

Assessing Greenhouse Gas Emissions

Greenhouse gas emissions are split into three categories. Scope 1 is from company operations, such as the burning of fossil fuel. Scope 2 is the emissions from the process of supplying electricity for operations generated by the combustion of fossil fuels. Scope 3 may include transportation of raw materials and provision of services.*

Entire funds are measured, company by company, for greenhouse gas exposure to assess the risk. Mr Woods thinks that either governments will enact a “carbon tax” or the market will exact a “carbon price” regarding greenhouse gas emissions. This and other factors will be used to assess the effects of greenhouse gas exposure on a fund’s performance.*

Assessing Climate Change Risk in Portfolios

Mr Woods describes the process used by AMP Capital to assess risk in various portfolios. It involves a lot of mathematics and metrics that we don’t have the time to describe for you here. Suffice to say that AMP Capital has been assessing the climate change exposure of the AMP Capital Sustainable Australian Equity Fund and the ASX 200 for more than six years.*

Call One of Our Investment Planning Advisers in Perth Today

To learn more, call us today: 1300 787 274.

*AMP Capital, 23 February 2016. Ian Woods: “Greenhouse gas emissions: risks and challenges for portfolios.”

Have the Sharemarkets Bottomed Out Yet?

At Approved Financial Planners in Perth, we have more than 80 years’ combined experience in the financial industry. We also have the full resources of our parent company, AMP Capital. One of the best resources AMP Capital has made available to us is their Chief Economist and Head of their Investment Strategy Team, Dr Shane Oliver.

Financial Planners on Sharemarkets

Recently, Dr Oliver wrote an article on the AMP Capital company blog called, “Have we reached the bottom?” It is a concise analysis of our current economic situation and contained his projections for the near future. We would like to share some of his ideas with you.*

The Reserve Bank of Australia (RBA) left the interest rate on hold at 2.0% during their first meeting of 2016. Dr Oliver believes their reasoning to be “reasonably solid economic data within Australia” and “global economic turmoil.” He also projects another rate cut of 0.25% to provide more relief for the Australian economy.*

How Oil Prices Affect Our Economy

Within the past two years, oil prices have dropped between 70-80%. Since we are a “net energy exporter,” many of our gas export contracts will go out at lower prices. This will create less tax revenues for the Federal Government. However, current prices are helping Australian households save an average of approximately $700 per year on petrol.*

Outlook for 2016

Dr Oliver believes it is “too early to say that we have reached the bottom for shares.” He also believes that a poor performance in January does not mean that the entire year will be poor and that the chances of a poor 2016 overall are “30-40%.” He expects it to “take a while for central banks to spring into action.” The end result is a projection of short-term volatility with a rising trend at the end of 2016.*

Call Approved Financial Planners in Perth Today

To learn more or for an obligation-free individual consult, call us today: 1300 787 274.

*AMP Capital, 19 February 2016. Dr Shane Oliver: “Have we reached the bottom?”

The Evolution of Chinese Spending Habits and How it Could Affect Investments

It may not seem important right now but the financial advisors in our Perth office are keeping an eye on Chinese spending habits. Change in Chinese spending habits are affecting a diverse lot of Western companies. Last year, Volkswagen, Nestle, Yum and Proctor & Gamble underperformed due to sales in China being weaker than expected. Meanwhile, Mercedes, Starbucks, Adidas and Nike had sales in China that were stronger than expected.*

Recently, Andy Gardner, who is the Portfolio Manager/Analyst of Fundamental Equities for our parent company, AMP Capital, covered the evolution of Chinese spending on the AMP Capital blog. The article, called “The evolution of the Chinese consumer,” explored the recent change in spending habits among Chinese consumers. We would like to provide an analysis for you.*

Chinese Spending Habits by Financial Advisors

According to Mr Gardner, China is shifting from being a “developing market” to a “mature emerging market” or a “developed market.” In a developing market, good brands that differentiate themselves tend to perform better than brands that don’t differentiate themselves. Due to the mathematics of its massive size, performance in China can have a huge effect on earnings. As Mr Gardner says, “…if your brand starts to perform badly in China, you can expect (it) to be reflected in stock performance.*

What’s Happening in China

Consumers in China have learned how to more accurately assess brand quality, identity and value for their money. The proliferation of smartphones has provided the Chinese consumer with more information. They are now looking for a better quality of life.

Assets that focus on health and wellness continue to exhibit strong growth, while products perceived as “unhealthy” are seeing decreased growth. While bottled water, diapers and yogurt grew, instant noodles, sugary tea and carbonated drinks showed decreased growth.

Call One of Our Financial Advisors in Perth

To learn more or for an individual consult, call us today: 1300 787 274.

*AMP Capital, 19 February 2016. Andy Gardner: “The evolution of the Chinese Consumer.”

How Property Returns are Affected in the Chase for Yield

Among the many financial services we provide to clients in the Perth area is helping to diversify their portfolios. Property investment is one way to diversify. Recently Michael Kingcott, Head of Property Investment Strategy and Research for our parent company, AMP Capital, took a look at how the “chase for yield” is affecting property returns. We would like to provide you with some highlights. (1)

Financial Services - Property Returns

During a period of low interest rates, Australian investors and foreign investors are choosing to invest in commercial real estate. Because yields on bonds tend to be low, investors are searching for a “safe” investment that provides higher yields. Currently, investors searching for a high-yield, low-risk investment are attracted to commercial real estate. (1)

However, yields have compressed during the last decade from a high of 8.7% just before the Global Financial Crisis (GFC) to their current level of 6.6%. Mr Kingcott expects yields to fall even further, matching their 2007 peaks. Some assets may see rates even lower than their 2007 peaks, such as investments with secure high yield, markets with rising prospects for rental growth and trophy assets. (2)

Mr Kingcott is of the opinion that investors will continue to chase yield until other prospects look better to them. This would include rising interest rates, steady momentum for global economic growth and some relief from share market volatility. He feels that the following circumstances will produce from 12-18 more months of yield chase. (1)

Australia has a “tepid” outlook for short-term economic growth. Forecasts from both the Reserve Bank of Australia (RBA) and AMP Capital call for short-term growth in the Gross Domestic Product (GDP) of 2-2.5% per annum. (1)

Real estate prices look more attractive to investors than other asset classes due to less volatility. It is preferred by many investors who are looking for shelter from a high volatility, low growth environment. (1)

Do You Need a Financial Services Provider in Perth?

Call Approved Financial Planners today: 1300 787 274.

(1) AMP Capital, Michael Kingcott. 19 February 2016. “Chase for yield pushes property returns higher.”
(2) JLL Research, AMP Capital (forecasts).

Outlook for Investing in Australian Banks

We have been providing investment planning services to clients in the Perth area since 2005 and have more than 80 years’ combined experience in the financial industry. We are now affiliated with AMP Capital, who provide us with even more resources to help us help you.

Recently, on the AMP Capital blog, Investment Director Jeff Brunton, Head of Credit Research Sonia Baillie and Portfolio Manager and Analyst Tom Young, all of AMP Capital, discussed the outlook for investing in banks from their respective perspectives. We would like to provide you with a “short version” of the information.*

Investment Planning in Investing in Australian Banks

Equity Perspective

In the last 12 months, the major banks have been under some pressure. For some of the banks, share valuation levels are similar to those during the Global Financial Crisis (GFC). During the same period, dividend yields of major banks have seen a rise of 2%. Share prices could become more volatile in the near future, as lower commodity prices and a housing market slowdown could exert a “drag” on earnings growth.*

Credit Perspective

Since the beginning of February, major bank credit spreads have undergone a sharp widening. On some securities, spreads are approaching their widest levels over a period of three years. There are three “drivers” for this widening.

Led by the commodity and energy sectors, there has been a global widening of credit spreads. The credit quality of European banks has caused concern among investors. In addition, new regulatory requirements are forcing banks to build their capital buffers.*

Opportunity or Risk?

The AMP Capital officers agree that the level of opportunity for shares of any bank are dependent upon the macro environment. In the credit market sector, Australian banks are receiving more attractive valuations, due to the widening of credit spreads, as medium term investments. However, the AMP Capital officers warn that “risk aversion is likely to remain elevated in the near term.”

Get Investment Planning Help from our Perth Office

To learn more, call Approved Financial Planners today: 1300 787 274.

* AMP Capital. 11 February 2016. “Australian banks: equity and credit perspectives on market movement.”

AMP Capital Expands SMSF Suite with Core Infrastructure Fund

If you are one of our self managed superannuation fund (SMSF) clients in the Perth area, you may be interested in this news. Our parent company, AMP Capital, has just added its Core Infrastructure Fund to their SMSF suite due to a growing number of SMSF trustees expressing interest in the class of infrastructure assets.*

Self Managed Superannuation Fund Suite with Core Infrastructure Fund

Entitled the “AMP Capital Core Infrastructure Fund,” this fund provides retail investors with access to an asset class that is usually available only to large institutional investors: direct infrastructure assets. The AMP Capital Core Infrastructure Fund invests in what AMP Capital calls a “targeted 50-50 mix” of listed infrastructure securities and direct infrastructure. The listed infrastructure securities provide investors with a degree of liquidity.*

According to the AMP Capital website, the AMP Capital Core Infrastructure Fund provides SMSF trustees with the opportunity to own “high quality direct assets” such as Angel Trains in the UK or Melbourne Airport in Australia. The minimum investment for the AMP Capital Core Infrastructure Fund is $10,000.*

According to John Julian, who is the Portfolio Manager for the AMP Capital Core Infrastructure Fund, the fund “aims to provide investors with both sustainable income and capital growth over the long term.”*

Mr Julian sees investment in infrastructure growth as a “never-ending cycle” in which investment creates infrastructure, infrastructure boosts “long-term economic growth” and growth creates the need for more infrastructure.*

In the five year period to 31 December 2015, the AMP Capital Core Infrastructure Fund delivered a return of 11.3% pa, which includes a cash yield of 6.6% pa. When compared to the S&P/ASX 200 Accumulation Index over the same period, the AMP Capital Core Infrastructure Fund displayed only 40% of the volatility of Australian equities while providing 162% of the return.*

Call a Self Managed Superannuation Adviser in Perth

To learn more or to express interest in the AMP Capital Core Infrastructure Fund, call us today: 1300 787 274.

* AMP Capital, 10 February 2016. “AMP Capital adds its Core Infrastructure Fund to SMSF Suite.”

The “Bear” Facts about Bear Markets

Perth financial planners are responsible for helping their clients navigate the markets during good times and bad times. At Approved Financial Planners, we have a great resource that helps us do just that. His name is Dr Shane Oliver. He is not only the Chief Economist for our parent company AMP Capital; he is also the Head of Investment Strategy and Economics and is responsible for their diversified investment funds. (1)

In mid-February, shares on the ASX 200 index temporarily entered “bear market” status. It is considered a “bear market” when shares declined 20% from their most recent high. For this instance, that “high” took place in April 2015. Media coverage helped generate great concern for this development. Dr Oliver responded with a post in his “Oliver’s Insights” column explaining why bear markets are “not always of the grizzly variety.” (1)

Financial Planners Discuss Bear Market

According to Dr Oliver, it is unfortunate that there is no true definition of what separates a bear market from a correction market. In addition, there is no industry official who is responsible for making that kind of declaration. Dr Oliver prefers to view a correction market as “sharp falls” within a rising market that only last a few months until the market continues its previous trend of rising, reaching a new “high” within 6 months of the low. (1)

In contrast, Dr Oliver prefers to define a bear market as one that sees these falls lasting longer, several months or years, with a profile he calls “a pattern of falling lows and highs,” in which shares don’t return to previous highs for at least a year. He sees the 20% dividing line which currently separates a correction from a bear market as “arbitrary.” (1)

According to the current paradigm, the All Ordinaries index was in a “correction” because it fell 19% but the ASX 200 was in a “bear market” because it fell 20%. (1)

Australian shares have entered “bear market” status 17 times since 1900, for an average of 18 months. The average fall from top to bottom was 33%. It has been an average of 37 months before they rose back to the preceding high, with the exception of the bear market that took place from November 2007 to March 2009, because shares still haven’t reached that previous high. On the average, shares have gained 29% over the first twelve months immediately after the bear market low. (1), (2)

Bear Markets are Not All the Same

Bear markets can be widely divergent. The worst on file was from January 1973 to September 1974, when stocks fell 59%. The cause was a phenomenon known as “stagflation,” consisting of recession and high inflation. The Global Financial Crisis (GFC) from November 2007 to March 2009 saw a drop of 55%. (1), (3)

On the other hand, many bear markets, such as those from February 1994 to February 1995, March 2002 to March 2003 and April 2011 to September 2011, only saw losses of 22%. (1), (3)

What This Could Mean to Investors

According to Dr Oliver, there is a 65% probability that shares will trend upward in the coming year. The main factors in determining whether or not this bear market deepens or relaxes are: whether or not there is a recession in the US or Australia and whether or not there is a “sharp fall in earnings.” (1), (3)

Dr Oliver feels that the US will not have a recession because of a low level of previous excesses and no current monetary tightening. According to many key indicators, Australia currently has growth of 2.5% pa, making a recession here unlikely. According to Dr Oliver, earnings in the resource only comprise 10% of the market and have already “crashed 80% or so,” limiting their ability to affect the market. Meanwhile, recent earnings reports indicate that the other 90% of the market is growing at a rate around 5%. (1)

Call One of Our Perth Financial Planners today

To learn more, call Approved Financial Planners today: 08 6462 0888.

(1)AMP Capital, 18 February 2016. Dr Shane Oliver. Oliver’s Insights: “There’s a bear in there – what drives mild versus deep bear markets.”

(2) Global Financial Data, Bloomberg, AMP Capital

(3) ASX, Global Financial Data, Bloomberg, AMP Capital