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How to get the best deal on rates · The Money Puzzle

0:09
Speaker 1: Hello, and welcome to The Australian's Money Puzzle podcast. I'm
0:13
Speaker 1: James Kirby, the Wealth editor at The Australian.
0:15
Speaker 2: Welcome aboard. If you're an investor, you're going.
0:18
Speaker 1: To want to know about rates. I don't just mean
0:21
Speaker 1: official cash rates and I'm sure you know there are
0:23
Speaker 1: four point three five percent and have been for a
0:25
Speaker 1: long time, folks, but all the rates in the market,
0:29
Speaker 1: because you want to know if you're a saver, and
0:31
Speaker 1: I'm sure you're a saver, I'm sure you've got some
0:33
Speaker 1: cash somewhere, you want to optimize that and have the
0:35
Speaker 1: best rates you can get out there. Similarly, if you're borrowing,
0:39
Speaker 1: you need to know there's quite a range, you know,
0:41
Speaker 1: even on the even on savings, I mean, honestly, the
0:44
Speaker 1: range is about five percent, that is, from nothing to
0:46
Speaker 1: five percent on cash, and then when you're borrowing there.
0:51
Speaker 1: First of all, there's different rate benchmarks for investors, private investors,
0:56
Speaker 1: or property investors or SMSF investors who get app solutely
1:00
Speaker 1: sort of smushed with the hardest highest rates that are
1:03
Speaker 1: out there, but it's worth knowing someone who could actually
1:06
Speaker 1: borrow through them is right across that. And a guest
1:10
Speaker 1: I have had on the show before is Sally Tindall.
1:13
Speaker 1: She's the inside director at the can Star Group and
1:16
Speaker 1: she is going to help us today set the scene
1:19
Speaker 1: for the year ahead.
1:19
Speaker 3: How are you, Sally, I'm great, James, how are you good?
1:23
Speaker 2: Thank you?
1:23
Speaker 1: Thanks for coming on again. Great to have you on.
1:25
Speaker 1: It was very good session the last time. It was
1:27
Speaker 1: very informative. I thought I might just start on that
1:31
Speaker 1: before we talk about borrowing.
1:33
Speaker 2: Everybody's got some cash.
1:35
Speaker 1: If you're an investor, you've got you're obvious accumulating cash
1:38
Speaker 1: so you can invest. If you've got your own SMSF,
1:42
Speaker 1: of course you've probably got more. They'll always tell you you've
1:45
Speaker 1: got more cash than you should have in your SMSF,
1:49
Speaker 1: but there are times that's very useful and you probably
1:52
Speaker 1: have that in the linked account and it's quite a
1:54
Speaker 1: job to switch them around. But let's just start with that.
1:57
Speaker 1: So we know that cash rates and official cash rates
2:00
Speaker 1: are four point three five. We know that the rates
2:03
Speaker 1: official rates haven't changed for over a year, and we
2:07
Speaker 1: are aware that they are supposed to go down. That
2:10
Speaker 1: is everyone's guest at the moment, but who knows about that?
2:15
Speaker 1: Tell us basically where we're out first of all, as
2:17
Speaker 1: to very broadly what you might expect if you were
2:22
Speaker 1: and you had cash, what's the sort of range you
2:25
Speaker 1: could expect, and what's a good rate and what's a
2:27
Speaker 1: bad rate.
2:28
Speaker 3: When it comes to savings, it can be such a
2:30
Speaker 3: great disparity between a good and bad rate. And one
2:34
Speaker 3: of the primary reasons behind that is that on the
2:36
Speaker 3: way up with those thirteen rate heights, four of which
2:39
Speaker 3: let's not forget we're doubles, the banks by and large
2:43
Speaker 3: picked and chose which savings account's got a boost, and
2:47
Speaker 3: which term deposits might have got a boost, and which
2:50
Speaker 3: missed out. And so we also saw banks opting to
2:54
Speaker 3: put any boost onto things like the bonus rate rather
2:57
Speaker 3: than the base rate. So if you didn't meet the
2:59
Speaker 3: monthly conditions one month, you might miss out. So right now, yes,
3:05
Speaker 3: I can provide you evidence of rates that are below
3:08
Speaker 3: one percent, But if we look at the big four banks,
3:12
Speaker 3: one of the lowest rates out there is from Westpac
3:14
Speaker 3: East Saber. It's sitting at one point one zero percent
3:19
Speaker 3: for its existing customers when the cash rate is at
3:24
Speaker 3: four point three five. As you said before, it's astonishing
3:26
Speaker 3: to think that it is so low and that there's
3:29
Speaker 3: some savers out there just copying that. On the other
3:32
Speaker 3: end of the scale, it is quite competitive still, which
3:34
Speaker 3: is fantastic to see for an ongoing rate, so I'm
3:37
Speaker 3: exploding those introductory rates that last for three to five
3:40
Speaker 3: months for the ongoing rates. The highest on our database
3:44
Speaker 3: is five point five zero percent. That's from four different banks.
3:48
Speaker 3: I think it's ig move, U Bank and Bank of Queensland.
3:52
Speaker 3: You do have to meet monthly terms and conditions in
3:55
Speaker 3: order to qualify for that maximum rate. There are things
3:58
Speaker 3: like balance caps, so if you go over a certain ballots,
4:01
Speaker 3: suddenly your rate will drop thereafter. There are even age
4:04
Speaker 3: caps on some of these accounts. That Bank of Queensland one.
4:07
Speaker 3: If you're over thirty five, which unfortunately is May, I'm sorry,
4:11
Speaker 3: but you don't qualify for that account. So it's really
4:14
Speaker 3: important to read the blind grit.
4:16
Speaker 1: Oh I find this so impuriating. I really do you know,
4:19
Speaker 1: you're driving down the highway, it's bigg at. It says,
4:21
Speaker 1: you know, cash five five five percent, you know, and
4:24
Speaker 1: it gives the distinct impression that that it's available.
4:28
Speaker 2: With no strings attached.
4:29
Speaker 1: And there's a little asterisk now on the corner and
4:32
Speaker 1: it's you know, for the first four months or something,
4:34
Speaker 1: and I just say, damn it, I'm not I'm not going.
4:36
Speaker 1: I'm not going to all the trouble of switching money
4:39
Speaker 1: because I don't know what's going to happen after the
4:41
Speaker 1: four months. Do you keep a record of what's what's
4:44
Speaker 1: what are good cash rates that have no strings attached whatsoever?
4:50
Speaker 2: Oh?
4:50
Speaker 3: Absolutely, It's one of my favorite things to look at,
4:52
Speaker 3: because you know, when it comes to being a savings account,
4:55
Speaker 3: you know, you've got to look at your savings goals.
4:57
Speaker 3: You've got to look at how much money you actually have,
4:59
Speaker 3: how much you're regularly putting in, but also your lifestyle
5:02
Speaker 3: and your personality. If you are really finicky and you
5:05
Speaker 3: would happily meet the terms and conditions with glee every
5:08
Speaker 3: single month, without breaking into a cold sweat in the
5:10
Speaker 3: last day of the month, you know, stressing about whether
5:13
Speaker 3: you've made you met the terms and conditions for that month,
5:17
Speaker 3: and then all go for it. You know, get that
5:19
Speaker 3: really high ongoing rate of five point five percent if
5:21
Speaker 3: you qualify. But for those people that just tend to
5:24
Speaker 3: want to set and forget, it's better looking at once
5:27
Speaker 3: with no strings attached, and so in the highest rates
5:30
Speaker 3: in that regard, we're looking at something like mcquarie Bank.
5:33
Speaker 3: It's offering five percent and an ongoing rate, no strings attached.
5:37
Speaker 3: In fact, it's actually got an introductory rate of I
5:40
Speaker 3: think five point three five memory for the first four months,
5:44
Speaker 3: but then it reverts to five percent for balances of
5:46
Speaker 3: up to two hundred and fifty thousand dollars. You know,
5:49
Speaker 3: So that's a pretty decent rate.
5:53
Speaker 1: Right, So they are there, and as you see, but
5:55
Speaker 1: even in that case there was not so much a
5:57
Speaker 1: string attached.
5:58
Speaker 2: But it's like it's not a pure offer. There's a
6:00
Speaker 2: variation built in and they're very hard to escape, rightn't there.
6:04
Speaker 4: There's a variation built into almost anything. Because I'm looking
6:07
Speaker 4: at my notes. There's two others that are offering an
6:09
Speaker 4: ongoing rate of five percent. But Australian Unity is Freedom
6:13
Speaker 4: Saver that's capped at fifty thousand dollars and A and
6:16
Speaker 4: Z's plus Flex Saver offers you five percent, no strings
6:21
Speaker 4: attached up to five thousand dollars.
6:24
Speaker 3: That's not much good always.
6:26
Speaker 1: It, Maybe grumpy servers, let me better accept that these days,
6:31
Speaker 1: you've just got to you've just got to accept that
6:33
Speaker 1: they're all up to it, and you've got to thread
6:35
Speaker 1: your way through because no one is offering a clean
6:38
Speaker 1: no bullshit, you're no rate anymore.
6:43
Speaker 3: No, there is no way out of reading the fine print,
6:47
Speaker 3: if that's what you're asking, James. But the one thing
6:49
Speaker 3: I would say in defense of savings accounts is that
6:52
Speaker 3: it's one of the easier products to switch. You know,
6:55
Speaker 3: you can open an account within say five minutes, if
6:58
Speaker 3: you've got you know, a bank that's really there in
7:00
Speaker 3: that application process, in streamlining it. I remember trying A
7:03
Speaker 3: and Z pluses the other day, and the real delay
7:06
Speaker 3: in the you know, me opening up an account was
7:08
Speaker 3: having to find my driver's license because I didn't know
7:10
Speaker 3: where I had it. But you know, moving your money
7:12
Speaker 3: across is pretty simple too, and typically on those savings accounts,
7:16
Speaker 3: you don't have you know, all your card details stored
7:20
Speaker 3: to make purchases and things like that, so it's not
7:23
Speaker 3: as problematic as say switching a transaction account or switching
7:26
Speaker 3: a credit card.
7:26
Speaker 2: Okay, yes, all right, very good.
7:29
Speaker 1: You were telling me also that we'll take it as
7:32
Speaker 1: read that the consensus in the market is that there
7:35
Speaker 1: will be red cuts this year mid year. Perhaps that's
7:40
Speaker 1: still very much the consensus. So, but you made a
7:45
Speaker 1: point that the banks will we'll kind of go their
7:48
Speaker 1: own way to some extent anyway, won't they on on
7:51
Speaker 1: what happens to efficient reads? And my reading of it
7:54
Speaker 1: obviously is I mean bond markets is where they fund
7:58
Speaker 1: and in the real world through not going down? Are they?
8:03
Speaker 3: No, they're not. It's interesting to watch. Actually, we would
8:07
Speaker 3: have normally seen fixed rates start to come down in
8:11
Speaker 3: a hurry in the lead up to a cash rate cut.
8:13
Speaker 3: We're not seeing that at the moment. We saw fix
8:16
Speaker 3: rates drop like flies back in July, August, September of
8:20
Speaker 3: last year. Things really cooled because wholesale funding costs took
8:24
Speaker 3: a dive back then, but have just popped up lately
8:28
Speaker 3: and have been consistent, you know, in December and January.
8:32
Speaker 3: In fact, in December we saw more lenders hiking fixed
8:36
Speaker 3: rates than cutting. That's not typical behavior in the lead
8:38
Speaker 3: up to a cash rate cut, which really interesting. So
8:41
Speaker 3: when we do finally see a cash rate cut, it
8:44
Speaker 3: will be interesting to see how the banks respond. As
8:47
Speaker 3: you said, they don't have to dance to the beat
8:49
Speaker 3: of the RBA's drum. I cannot see a world where
8:52
Speaker 3: they do not play a ball for at least the
8:55
Speaker 3: first couple of cuts. But if we see a smattering
8:59
Speaker 3: of rb A rate cuts in quick succession, after a while,
9:03
Speaker 3: we might find that some lenders choose to only pass
9:06
Speaker 3: on part of a rate cut, or not pass on
9:09
Speaker 3: that rate cut at all to their variable mortgage customers.
9:12
Speaker 3: It will be interesting times ahead, I think, particularly if
9:16
Speaker 3: we see a large number of cuts.
9:17
Speaker 1: Okay, very good, I think I mean, I mean in
9:20
Speaker 1: a way that's the essence of what you need to know,
9:22
Speaker 1: folks on the on the saving side, and how ridates
9:26
Speaker 1: will will affect your investments. We'll take a short break
9:29
Speaker 1: and then we will come back and we will look
9:31
Speaker 1: at the bigger issue of borrowing and what happening to
9:36
Speaker 1: rates in that area. Back in a moment, Hello, Welcome
9:56
Speaker 1: back to the Australian's Money Puzzle. I'm James Kirby and
9:58
Speaker 1: I'm talking to Sally ten at the Canstar Group.
10:02
Speaker 2: The doyen.
10:03
Speaker 1: There's a male and a female. There's a doyen and
10:05
Speaker 1: a diyena. Did you know that you're a doyenne.
10:07
Speaker 2: Of rates comparison? So tell me about in terms.
10:13
Speaker 1: Of what now if I'm going out to borrow, and
10:16
Speaker 1: obviously many of our listeners and when they think of lending,
10:20
Speaker 1: their thinking for property. So I'm going out to borrow
10:22
Speaker 1: for property, let's say, on a mortgage as opposed to
10:25
Speaker 1: an investment a home.
10:27
Speaker 2: What am I? What should I be? What should I
10:29
Speaker 2: be expecting to pay?
10:31
Speaker 3: Such a good question, and it's a really good one
10:33
Speaker 3: to keep your eye on, particularly if we do see
10:35
Speaker 3: cash right cuts coming down the line. The average owner
10:39
Speaker 3: occupy a variable rate at this point in time is
10:42
Speaker 3: six point three three percent, if for you, and that's
10:46
Speaker 3: by the collected by the RBA they collected from the bank.
10:48
Speaker 3: So it's a fantastic realistic figure of what the average
10:52
Speaker 3: is playing paying. But of course there's people that are
10:55
Speaker 3: above average and below average, and when it comes to
10:57
Speaker 3: the mortgage, you want to be aiming below, not above.
11:00
Speaker 3: For new customers looking as an owner occupier for a
11:03
Speaker 3: variable rate, they're actually getting a little bit lower as
11:06
Speaker 3: an average at six point twenty four percent. What that
11:09
Speaker 3: explains to us, it's lovely evidence that a new customer
11:13
Speaker 3: is more likely to get a better deal from a
11:15
Speaker 3: bank than an existing one, even if they're coming in
11:18
Speaker 3: refinancing or haggling, you know, you really they are chasing
11:22
Speaker 3: new business, particularly new home loans. Now those two averages again,
11:27
Speaker 3: you've still got to go lower. The lowest ongoing variable
11:30
Speaker 3: rate on our database at this point in time, I'm
11:33
Speaker 3: excluding things like green loans here is five point seventy
11:36
Speaker 3: five percent. Now that's significantly lower than six point three
11:40
Speaker 3: three percent, and a lot of people go, oh, but
11:42
Speaker 3: you know it requires a big deposit. I want an
11:45
Speaker 3: offset account. I want a bank that I know, you
11:47
Speaker 3: know that I've heard the name of. Let me tell
11:50
Speaker 3: you there are over thirty five different lenders on our
11:54
Speaker 3: database with at least one variable rate for owner occupiers
11:57
Speaker 3: under the six percent mark, and some of them include
12:01
Speaker 3: offset accounts. Some of them, you know, will cater to
12:05
Speaker 3: loans that have small deposits, some as little as five
12:07
Speaker 3: percent for new buyers. But also no, there's not a
12:12
Speaker 3: big four bank in there, but there are spin offs
12:15
Speaker 3: from the big four banks in there, things like Timely
12:17
Speaker 3: Home Loans which is backed by Bendigo Bank, or on Loan,
12:20
Speaker 3: which is backed by CBA. So you might be able
12:24
Speaker 3: to have your cake and eat it too if you
12:25
Speaker 3: do a bit of research when it comes to a
12:27
Speaker 3: competitive rate.
12:28
Speaker 2: Oh, thank you for that.
12:29
Speaker 1: That's really interesting, and it seems they are competing. They
12:34
Speaker 1: really are competing at the moment to big banks. There's
12:36
Speaker 1: sperits for they're convincingly competing and the spirits for they're not.
12:40
Speaker 1: It seems they really are at the moment. Oh, there's
12:42
Speaker 1: a margin battle going on inside the Big four.
12:45
Speaker 3: They did say at one point that they were walking
12:48
Speaker 3: away from that fight, and we saw that at the
12:50
Speaker 3: end when CBA nab westpact they ended the cash back
12:54
Speaker 3: if you remember that, and they said we're walking away
12:56
Speaker 3: from this fire. They've come straight back in as far
12:59
Speaker 3: as I can hell. A and Z still has its
13:01
Speaker 3: cash back on some of its loans. But CBA and
13:05
Speaker 3: A and Z really competing in that digital mortgage space.
13:08
Speaker 3: So CBA's got their Digi homelan, A and Z's got
13:12
Speaker 3: their A and Z plus home loan. The other day
13:14
Speaker 3: we saw A and Z. You know, it already had
13:17
Speaker 3: the lowest advertised bearable rate out of the big four banks.
13:21
Speaker 3: It cut even further down to six point oh nine percent.
13:25
Speaker 3: I think it is right now, and I've just realized
13:27
Speaker 3: also it comes with an offset account. It's only available
13:31
Speaker 3: to refinances and you have to apply online. You can't
13:33
Speaker 3: really apply through a broker, but at six point oh
13:36
Speaker 3: nine percent, that's highly competitive from a big four bank.
13:40
Speaker 1: Have you ever looked at in terms of, you know,
13:42
Speaker 1: on loan as you say, come Bank, U Bank, which
13:47
Speaker 1: is actually NAB and you mentioned the one that's actually
13:50
Speaker 1: Bendy Gore.
13:50
Speaker 2: What was that one again?
13:52
Speaker 3: Timely Homelans. Yeah, used to be called TikTok, but now
13:55
Speaker 3: it's called Timely. Yeah.
13:57
Speaker 1: I noticed my daughter her a circle. They're familiar with
13:59
Speaker 1: all these banks and they never know that they're they're
14:02
Speaker 1: backed by the Big four and they're unaware of that
14:06
Speaker 1: and they think they're different banks.
14:08
Speaker 2: Does that matter? Do you think to people who are borrowing?
14:14
Speaker 3: Oh, look, as long as you're comfortable with who you are,
14:17
Speaker 3: you know, the bank that you're, the lender that you're
14:19
Speaker 3: borrowing from. You know, as long as you're happy with
14:21
Speaker 3: the customer service, as long as you're happy with the
14:23
Speaker 3: features in your home loan, go out there and get
14:26
Speaker 3: a competitive rate. Does it really matter that it's a
14:28
Speaker 3: big full bank or not? Or does it matter that
14:30
Speaker 3: you know that it's back by a big full bank.
14:32
Speaker 3: It's interesting to see the different strategies with someone like
14:34
Speaker 3: Timely homelan. You really have to look in the fine
14:37
Speaker 3: print to see that it's backed by Bendigo and Adelaid Bank.
14:40
Speaker 3: But for our loan, their strategy absolutely is to say, hey,
14:43
Speaker 3: we are part of CBA, We're a division of CBA
14:47
Speaker 3: that you know, and that they're hoping is going to
14:49
Speaker 3: bring people in with a cracking rate that's under six
14:52
Speaker 3: percent with that you know CBA logo in the corner.
14:56
Speaker 3: I think it's five point ninety nine at this point.
14:58
Speaker 3: And they give you a discount for every year that
15:01
Speaker 3: you have the loan with them, so it can drop
15:03
Speaker 3: quite you know, over the coast of line.
15:06
Speaker 1: But yeah, so it seems to be a different attitude
15:08
Speaker 1: inside the banks too, to this issue that some of
15:10
Speaker 1: them say, yes, you know, we should go on the
15:12
Speaker 1: front foot and say who we are, and others say,
15:14
Speaker 1: let's not, let's not tell them straight away, let's not
15:17
Speaker 1: make it too obvious.
15:19
Speaker 2: It's interesting.
15:20
Speaker 1: I'm sure I don't have to see services to know
15:22
Speaker 1: that the it's a younger demographic would go with the
15:25
Speaker 1: online only spin offs of the big four because they
15:29
Speaker 1: don't need that comfort that older investors seem to want
15:33
Speaker 1: when they're in the market. Because you mentioned there you
15:35
Speaker 1: mentioned that you mentioned a panel of rates there a
15:38
Speaker 1: few minutes ago, and you said, yes, there is no
15:40
Speaker 1: I didn't ask you, but you said, yes, there is
15:41
Speaker 1: no big.
15:42
Speaker 2: Four bank in there.
15:43
Speaker 1: So it's still it's still an issue for people, whether
15:45
Speaker 1: they are dealing with them or not. So okay, that
15:47
Speaker 1: was the home buyer, the investor then, and the SMSF investor.
15:52
Speaker 1: What would investor going out to buy their first property,
15:56
Speaker 1: what should they be, what should they be aiming for?
15:58
Speaker 1: What's the average and much? And then we'll know what
16:00
Speaker 1: they should be aiming for.
16:01
Speaker 3: So six point five to nine percent is the average
16:04
Speaker 3: of investor owner occupiers across the board. Yeah, and that
16:08
Speaker 3: we see that quite consistently through the rates. Some people
16:11
Speaker 3: have a lot smaller margins for investors, some have a
16:15
Speaker 3: handful have the same rate for investors and own occupies.
16:18
Speaker 3: The lowest on our database at this point in time
16:20
Speaker 3: is five point nine four percent for an investor on
16:24
Speaker 3: a variable rate. And I could only find three lenders
16:27
Speaker 3: that were offering investors at least one variable rate under
16:31
Speaker 3: that magical six percent mark, So you know, it's a
16:34
Speaker 3: lot significantly higher. And if you're aiming to get something
16:37
Speaker 3: under six percent you really, you know, go to be
16:40
Speaker 3: hamstrung for choice there, but just above six percent, we've
16:45
Speaker 3: still got a decent smattering of competitive rates even if
16:49
Speaker 3: you want interest only termed, because I think the banks
16:51
Speaker 3: recognize that, yeah, you might pay slightly more for interest only,
16:55
Speaker 3: but they know that's what a lot of investors are
16:58
Speaker 3: looking for.
17:00
Speaker 2: They are quite available. Are there two investors interest only?
17:05
Speaker 3: Absolutely, you do see a much greater proportion of investors
17:09
Speaker 3: taking out that interest only option. I was actually looking
17:12
Speaker 3: at the ABRA data just before this to see the
17:15
Speaker 3: mix in terms of interest only across the board, across
17:19
Speaker 3: the whole loan book. It's sitting at around ten percent,
17:21
Speaker 3: which is incredibly low. We keep looking at this data
17:24
Speaker 3: to see the signs of strets because one of the
17:27
Speaker 3: things if you were struggling to pay the mortgage would
17:30
Speaker 3: be to switch to interest only. We haven't seen a
17:32
Speaker 3: big uptick in interest only loans. It's squarely in that
17:36
Speaker 3: investor space that you're looking for interest only loan terms.
17:39
Speaker 3: The banks typically only give it to you for five
17:42
Speaker 3: years at a time, that they might extend that after.
17:44
Speaker 1: That, And it's ten percent of the loans out there
17:48
Speaker 1: are interests only and that's law you're seeing as a
17:51
Speaker 1: portion as that is, because I would have thought if
17:53
Speaker 1: you could get an interest only loan, why wouldn't you
17:56
Speaker 1: This is always a debate I have with people, but
17:58
Speaker 1: I think, like, why on are they would you pay?
18:01
Speaker 1: Principle if it's an investment and you intend to buy
18:03
Speaker 1: it in set it in five ten years time.
18:07
Speaker 3: Well, it's ten percent across the whole loan book, so
18:09
Speaker 3: that's owner, occupiers and investors combined, So higher percentage when
18:14
Speaker 3: it comes to investors. But you're right, some banks will
18:16
Speaker 3: start nudging you after a while and say, okay, Jones,
18:18
Speaker 3: it's time to start paying down your debt and not
18:21
Speaker 3: just treading water. But it is a popular strategy among investors,
18:25
Speaker 3: that's for sure.
18:26
Speaker 1: And as you also alluded to there, if on the
18:28
Speaker 1: reverse of all that, if people are starting to have
18:31
Speaker 1: trouble paying, then what they do often is they extend.
18:33
Speaker 2: If they could move to interest.
18:35
Speaker 1: Only, or they could make the mortgage longer, move it
18:38
Speaker 1: from twenty five years to thirty years, so thirty to
18:40
Speaker 1: thirty five. That's another thing people are doing, isn't it.
18:43
Speaker 3: It is a strategy, it's one. It's one of my
18:45
Speaker 3: least favorite strategies.
18:47
Speaker 2: So explain why you don't like it.
18:49
Speaker 3: Okay, So, if you are struggling to pay the mortgage,
18:52
Speaker 3: you bring your bank up. What are my options the
18:54
Speaker 3: best Well, one of the best ways would probably be
18:58
Speaker 3: to ask for a brake cut. And I would suggests
19:00
Speaker 3: you call up your bank and ask for a rate
19:02
Speaker 3: cut first before you tell them anything else.
19:05
Speaker 2: So elementary smart, Yeah, go.
19:08
Speaker 3: And get yourself on the lowest possible rate. You probably
19:11
Speaker 3: can't refinance at that point if you're in hot water financially.
19:14
Speaker 3: I don't think a new lend is going to take
19:15
Speaker 3: you on. But you know, in that initial phone call
19:18
Speaker 3: they don't need to know that. You just go and
19:19
Speaker 3: get yourself the most cracking rate you can by haggling
19:22
Speaker 3: with your current bank, and you can use interest rates
19:26
Speaker 3: and examples from other banks in that negotiation process, as
19:30
Speaker 3: you know, perhaps a tactic. But then call them back
19:33
Speaker 3: and say, well, even after that rate cut, I'm still
19:35
Speaker 3: struggling to pay the mortgage. What can you do? And
19:37
Speaker 3: so they could move you on to interest only, they
19:39
Speaker 3: could extend out your loan term, or you could go
19:41
Speaker 3: for part payments. These are three strategies. I'm sure that
19:44
Speaker 3: there are more if you're moving on to interest only terms,
19:48
Speaker 3: they might charge you a slightly higher rate for the
19:50
Speaker 3: privilege of switching to interest only, but you'll see a
19:53
Speaker 3: significant drop in your monthly repayments, so you should. I
19:56
Speaker 3: don't have the numbers quite handy, but the long term
19:58
Speaker 3: damage of being on in only for a couple of
20:01
Speaker 3: years isn't that perilous when you look at you know,
20:07
Speaker 3: extending out your loan term, for example, So you might
20:10
Speaker 3: be five years into a thirty year term and the
20:12
Speaker 3: bank says, okay, well, James, instead you could extend out
20:15
Speaker 3: your loan term for another five years. It will see
20:19
Speaker 3: a relatively minor drop in your monthly repayments, but the
20:23
Speaker 3: long term damage of paying interest to your bank for
20:26
Speaker 3: five extra years can sometimes run.
20:29
Speaker 2: You're going to pay them a lot more, yeah.
20:31
Speaker 3: Into the ten sometimes hundreds of thousands of dollars, even
20:35
Speaker 3: on a you know, say six hundred, seven hundred thousand
20:37
Speaker 3: dollar loan. I wish I had the figures for you
20:39
Speaker 3: to pull it out, but it is astounding.
20:41
Speaker 1: I'm familiar with them. In fact, Sally, I've written on this,
20:44
Speaker 1: and I've showed how how much it costs over a
20:48
Speaker 1: long period of time. And it's true. What you pay
20:50
Speaker 1: less per month is really it's really not much. You know,
20:55
Speaker 1: you're talking, you know, something the order of thirty dollars
20:57
Speaker 1: or something, and then you look at the home you pay.
21:00
Speaker 1: How much more you pay the bank over the fullness
21:02
Speaker 1: of time because you went on for five more years
21:04
Speaker 1: and it's enormous cost as you say, so a very
21:07
Speaker 1: good point.
21:07
Speaker 2: Very good point.
21:08
Speaker 1: And I thought the best point of all was folks,
21:10
Speaker 1: it's true. I mean, ring, pick up the phone and
21:14
Speaker 1: ring the bank. And you can haggle. I'm not a
21:17
Speaker 1: great haggler, sally, but when it really matters, I'll do it. Loans, salary, cars,
21:25
Speaker 1: that's about it. I'd probably be exhausted about that. I
21:28
Speaker 1: want to haggle in the shop about the price of
21:29
Speaker 1: a carpet, I couldn't be bothered.
21:31
Speaker 2: That's not me.
21:32
Speaker 1: But wherea's big ticket items, and I am. I've done
21:34
Speaker 1: it several times and it has worked, and I've been.
21:37
Speaker 2: Amazed that they do.
21:38
Speaker 1: They will work these days, the banks will. They have
21:41
Speaker 1: the capacity to do that. You don't have to talk
21:44
Speaker 1: to the chief of lending or whatever. They have the
21:48
Speaker 1: individual capacity to make it better deal. And they remember
21:52
Speaker 1: they don't want to lose you. Keep that in mind, folks,
21:55
Speaker 1: they do not want to lose you. It's a lot
21:56
Speaker 1: of trouble for them because because you, because you're it's
21:59
Speaker 1: it's a big deal. If you go out the door
22:01
Speaker 1: and if you if you sound like you're serious, then
22:04
Speaker 1: they will take you seriously and act seriously. All Right,
22:06
Speaker 1: we might go to questions now because we have some
22:08
Speaker 1: great questions. We'll be back in a moment. Hello and
22:26
Speaker 1: welcome back to The Australian's Money Puzzle. I'm James Kirby.
22:29
Speaker 1: I'm talking to Sally Tindall at can Star. We're talking rates,
22:33
Speaker 1: financing loans, savings rates a cant Star as you know
22:38
Speaker 1: as a rate comparison group, so they're very good on
22:40
Speaker 1: this sort of thing, as you can imagine. I'm want
22:42
Speaker 1: to move to questions now. The first question, I think,
22:45
Speaker 1: what's what would have been beyond both of us Sally,
22:49
Speaker 1: So I took the I took the precaution of asking
22:51
Speaker 1: James Gerard, a financial advisor who's regularly on the show,
22:55
Speaker 1: could the answer this one. But it is from a
22:57
Speaker 1: property investor, Scott. It's from Scott who says, let's say
23:02
Speaker 1: we bought a freestanding house in New South Wales for
23:05
Speaker 1: half a million that has its own mortgage and is
23:07
Speaker 1: an investment property. We then spent two years and three
23:10
Speaker 1: hundred thousand building a secondary dwelling on the site. It
23:13
Speaker 1: remains a single title. This was financed through an equity release,
23:19
Speaker 1: establishing an additional mortgage secured at the two year mark.
23:24
Speaker 1: Let's say the property is now valued at a million
23:26
Speaker 1: and we sold. This is all hypothetical, folks, and the
23:28
Speaker 1: answer will not be advised. It'll be information to keep
23:31
Speaker 1: that in mind. Scott says, My assumption is the capital
23:35
Speaker 1: gain here is about half a million, and based on
23:37
Speaker 1: the purchase price and new sale price, or am I
23:39
Speaker 1: missing some complexity about this investment and the cost of
23:43
Speaker 1: the additional bild. I assume there is no scenario where
23:46
Speaker 1: the gain is as little as two hundred k Okay
23:49
Speaker 1: James says, it's more of an accounting question. My guess
23:53
Speaker 1: is that the capital gain would be assessed based on
23:56
Speaker 1: the cost base, which includes the half million purchase price,
24:00
Speaker 1: three hundred thousand building costs and other expenses as for
24:04
Speaker 1: discounted capital games. The portion of the gain attributable to
24:08
Speaker 1: the initial dwelling would qualify for the discount as it
24:12
Speaker 1: was held for more than twelve months. However, the portion
24:14
Speaker 1: of the attributable to the new dwelling min I qualified
24:17
Speaker 1: for the discount since it was sold within twelve months.
24:20
Speaker 1: And even James the advisor suggests, I would suggest specialist
24:24
Speaker 1: accounting advice for keep in mind, keeping detailed costs at
24:29
Speaker 1: all levels of the construction would have been crucial. Great answer, James,
24:33
Speaker 1: Thank you very much. Okay, now, Sally, what else have
24:36
Speaker 1: we got here?
24:37
Speaker 2: From Anna?
24:38
Speaker 1: I read that the majority of home mortgages are now
24:41
Speaker 1: sold through mortgage brokers?
24:43
Speaker 2: Is this true? And will it ever change? Oh? It's
24:47
Speaker 2: more and more true, isn't it.
24:48
Speaker 1: I think it's it's seventy percent now something like that,
24:52
Speaker 1: of course.
24:53
Speaker 3: So I looked up the stats from the Opera Quarterly
24:57
Speaker 3: Property Exposure Statistics otherwise known as my favorite data set
25:01
Speaker 3: each quarter. It's the treasure trove of information in there.
25:04
Speaker 3: They do have third party originated loans in there, and
25:08
Speaker 3: when you do it as a proportion of all term loans,
25:10
Speaker 3: which we do, it's sitting at sixty two percent. That's
25:13
Speaker 3: from OPRA. It's risen in recent quarters. I think it
25:17
Speaker 3: was about fifty something back in when rates were at
25:21
Speaker 3: record lows, so it was sitting at we get this right,
25:24
Speaker 3: December twenty twenty quarter it was sitting at fifty five percent,
25:27
Speaker 3: So it's risen since then, I think because a lot
25:30
Speaker 3: of people were opting for those ultra low fixed rate
25:34
Speaker 3: loans and probably doing it themselves straight so a bank,
25:37
Speaker 3: particularly because the big ballbanks were offering it as this
25:41
Speaker 3: easy fixed advertised rate. Brokers can be incredibly handy, Let's
25:46
Speaker 3: be clear about that. Particularly if you're a first home
25:49
Speaker 3: buyer and you're nervous about entering the mortgage market for
25:52
Speaker 3: the first time, they can really hold your hand and
25:56
Speaker 3: do the paperwork for you. But if you are a
25:58
Speaker 3: nervous haggler, can pick up the phone and negotiate with
26:02
Speaker 3: your existing bank for you and help you out that way,
26:05
Speaker 3: or they if you are someone who hates paperwork and
26:09
Speaker 3: those deep within yourself that you need to refinance but
26:12
Speaker 3: haven't yet, again, they can be a fantastic resource where
26:15
Speaker 3: they're really prodding you for pay slips and all the
26:18
Speaker 3: information that you might need to refinance, and then sorting
26:21
Speaker 3: it all out and liaising with the bank for you.
26:23
Speaker 3: So they really do make things happen.
26:26
Speaker 2: That's the prouse what would the cons be.
26:30
Speaker 3: So the cons would be I think that they have
26:32
Speaker 3: a limited number of people on their panels. Their panels
26:35
Speaker 3: are getting increasingly bigger.
26:36
Speaker 1: They don't have all the banks do they like they
26:38
Speaker 1: give them don't give you the best loan out there,
26:40
Speaker 1: but they're just going to give you the best loan
26:42
Speaker 1: from the card that they have, which might be quite
26:45
Speaker 1: a lot of banks, but it will be every product
26:48
Speaker 1: in the market.
26:49
Speaker 3: Yeah, but also when they work out what is right
26:51
Speaker 3: for you, they will look at, you know, features that
26:54
Speaker 3: you might want in a home loan, your goals, your strategies,
26:56
Speaker 3: that type of thing as well. So they're not just
26:58
Speaker 3: going to the laws rate you know in their book either.
27:01
Speaker 3: They're looking and they're taking a holistic approach. But they
27:05
Speaker 3: don't have access to every single rate. So for example,
27:08
Speaker 3: when I mentioned those digital loans, particularly from like you know,
27:11
Speaker 3: CBA's unloan and CBAS Digit loan, they're not available by
27:14
Speaker 3: a broker, so you have to apply direct to the bank.
27:17
Speaker 3: I think that's just CBA's way to kind of create
27:21
Speaker 3: a mortgage pathway that's lower cost for them because obviously
27:25
Speaker 3: the banks are paying the broker's commission. It's important to
27:27
Speaker 3: understand how brokers get paid as well. But the other
27:31
Speaker 3: thing I would say, and this is absolutely not specific
27:34
Speaker 3: to brokers whatsoever, is that with any financial advice, go
27:38
Speaker 3: and get a second opinion. Just go and sense check
27:41
Speaker 3: everything while you're doing it. So before you pick up
27:43
Speaker 3: the phone to a broker, and I highly recommend doing that,
27:46
Speaker 3: have a look at what a competitive rate looks like.
27:48
Speaker 3: Have a look at, you know, kind of some of
27:50
Speaker 3: the office that you might be able to go and
27:51
Speaker 3: get from the bank, because then you can have an
27:53
Speaker 3: informed conversation with your broker about what might not suit
27:57
Speaker 3: you and what might not suit you, and they can
27:58
Speaker 3: tell you, well, look, Jane, your you know your strategy
28:01
Speaker 3: is X. So you really need to be looking at
28:03
Speaker 3: these options in order to shape that and then you
28:06
Speaker 3: will understand and be able to follow that conversation.
28:09
Speaker 2: Yes, okay, very good.
28:10
Speaker 1: Yeah, So don't don't ring them knowing nothing. Listen to
28:14
Speaker 1: this show for instance, and then ring them. You see,
28:16
Speaker 1: that will give you to be perfect. It would be
28:18
Speaker 1: a perfect own trade. Okay, folks. Now, one or two
28:22
Speaker 1: other questions. This one is I'm surprised you don't get
28:24
Speaker 1: it more often, but it's co It's from Darren, and
28:27
Speaker 1: he says, very simply, can you explain that division two
28:30
Speaker 1: nine to three tax? It sounds to me like an
28:32
Speaker 1: additional tax. Aren't earnings in excess of two hundred and
28:36
Speaker 1: fifty thousand a year?
28:37
Speaker 2: Is this correct? Yes?
28:39
Speaker 1: First of all, Darren's completely correct. So if you hear
28:42
Speaker 1: anyone complaining about the division two nine three tacks, well, folks,
28:44
Speaker 1: you'll know they're on more than two hundred and fifty
28:46
Speaker 1: because they'll be What happens is, to be precise, you
28:50
Speaker 1: do your let's say you're doing your Super contributions and
28:55
Speaker 1: you want to get the concessional tax rate pre tax rate,
28:59
Speaker 1: which is thirty You can in thirty grand pre pretext
29:02
Speaker 1: as they say. Now what happens is the tax office
29:06
Speaker 1: you see, comes along and says, ah, you are more
29:09
Speaker 1: than two fifty, and so the claw back some would
29:14
Speaker 1: you believe?
29:14
Speaker 2: Would you believe the bit of.
29:16
Speaker 1: Advantage you get in putting the money into Super, which
29:19
Speaker 1: is by no means marvelous, but it's something. They close
29:22
Speaker 1: it back on a scale basis. Once you're over a threshold,
29:26
Speaker 1: and that's division two nine three, and Darren, you're just
29:28
Speaker 1: completely right. Nothing else to say there. We can go
29:31
Speaker 1: into detail, but that's basically it.
29:33
Speaker 2: Okay.
29:34
Speaker 1: Now, the final piece of correspondence is from Bruce, and
29:38
Speaker 1: it's sort of the nature of a question, but I
29:41
Speaker 1: will read it once I've asked Sally whether she's aware
29:44
Speaker 1: of fire and the fire movement. Are you familiar with
29:47
Speaker 1: the whole thing?
29:48
Speaker 2: Sally?
29:49
Speaker 3: I am. You gave me a little bit of a
29:51
Speaker 3: heads up though, as well, and so I read up
29:53
Speaker 3: on it even further before this conversation.
29:56
Speaker 2: It's what do you think, what do you think of?
29:57
Speaker 2: What do you think of?
29:58
Speaker 1: What's your initial got reaction to it? Financial independence early?
30:03
Speaker 3: It sounds fabulous, but let's it's not going to suit everyone,
30:06
Speaker 3: and it's not achievable for everyone. So I think about
30:10
Speaker 3: my mother who's well over seventy and still working and
30:15
Speaker 3: it fulfills her and her work is a large part
30:19
Speaker 3: of her identity and has really you know, if she
30:23
Speaker 3: had retired early, I think that would have actually been
30:26
Speaker 3: a negative outcome for her. I think it's been really
30:28
Speaker 3: positive that she's continued working well into her seventy So
30:32
Speaker 3: it's not for everyone. There's a lot of people that
30:34
Speaker 3: know exactly what they're going to do with that extra
30:36
Speaker 3: spare time and they're going to have a fantastic time.
30:39
Speaker 3: And if they've got the finances to fund it, that's fantastic.
30:42
Speaker 3: But other people will find that they don't like retirement
30:45
Speaker 3: as much as they thought they did.
30:46
Speaker 2: Yeah, I'm a bit like you.
30:48
Speaker 1: I like the.
30:50
Speaker 2: First part financial independence. Sure, yes, go for it, retiring early.
30:57
Speaker 2: I don't know that's up to that's up to everybody
31:00
Speaker 2: want to do.
31:00
Speaker 1: But I suppose a positive way to read it would
31:02
Speaker 1: be that if you had financial independence, then your attitude
31:05
Speaker 1: towards your job would be quite different than if you didn't.
31:08
Speaker 1: And there's no two ways about it. If you have that,
31:10
Speaker 1: if you have that financial in dependence and the ability
31:12
Speaker 1: to say get lost, I can walk away from here anytime.
31:16
Speaker 1: I don't need to see any psychiatric evaluations or surveys
31:20
Speaker 1: to know that that is so much better and people
31:22
Speaker 1: are in such a better frame of mind, and maybe
31:24
Speaker 1: for that alone, the Fire movement is worth is worth
31:27
Speaker 1: checking out. So that's the Fire Movement, folks. I want
31:29
Speaker 1: to read just I'll read an ex tract only from
31:32
Speaker 1: something we got from Bruce. But it's very thoughtful and
31:35
Speaker 1: we have had lots of correspondence on fire, so this
31:37
Speaker 1: is this one. Just hear me out here. It's just
31:39
Speaker 1: about four paragraphs. Thanks for the recent program on the
31:42
Speaker 1: Fire movement. I retired sort of earlier, fifty five, almost
31:46
Speaker 1: nineteen years ago. That is not so early in terms
31:48
Speaker 1: of say what Joe the Minx did, Joe the Minx
31:51
Speaker 1: being the author of the famous book, but early enough
31:54
Speaker 1: for me, and certainly much earlier than what I had
31:56
Speaker 1: envisaged when I started work at the age fifteen. You see,
31:58
Speaker 1: he started at fifteen. It's quite different to retire at
32:02
Speaker 1: sixty or sixty five if you start at fifteen, compared
32:06
Speaker 1: to the current generation who've probably done third level, probably
32:08
Speaker 1: don't start work till they're twenty two, three or four. However,
32:12
Speaker 1: after reading Your Money or Your Life by Joe the
32:15
Speaker 1: Minx and Vicki Robin, I read many other books in
32:19
Speaker 1: similar but slightly different veins, and decided fifty five was
32:23
Speaker 1: the age for me. I've never regretted the decision. However,
32:26
Speaker 1: here's three comments won the book might have started the movement.
32:29
Speaker 1: I recalled that Joe's philosophy was all about investing in
32:32
Speaker 1: government bonds and holding them to maturity. And living on
32:35
Speaker 1: the dividends of these bonds. This approach took risk out
32:38
Speaker 1: of the equation. Two subsequent books by other author has
32:42
Speaker 1: looked at survivability of portfolios of twenty percent cash and
32:46
Speaker 1: eighty percent shares, looking at the performance all the way
32:50
Speaker 1: back to the US Civil War. The thesis was that
32:53
Speaker 1: by taking not more than four percent living expenses, the
32:57
Speaker 1: funds would never run out, and folks probably where they
33:00
Speaker 1: got the four percent draw down. You know, for retirees
33:03
Speaker 1: in Australia to think about it, it's no coincidence. And
33:06
Speaker 1: the third point from Bruce is the retire early strategy
33:11
Speaker 1: worked well for Joe de Mink because he retired at
33:14
Speaker 1: thirty one.
33:15
Speaker 2: He died at fifty eight.
33:16
Speaker 1: Had he planned to retire at sixty five, he would
33:18
Speaker 1: have missed out retirement completely. A lot of other interesting
33:22
Speaker 1: points from Bruce. The last part of it, this is
33:25
Speaker 1: the best book I have found of the whole lot,
33:27
Speaker 1: was The Joy of Not Working by Ernie Zelenski. That's
33:31
Speaker 1: Ernie Zelenski z e l I n Ski and he
33:34
Speaker 1: says the truth is in my retirement, I never found
33:37
Speaker 1: enough time to do all the things I want to do,
33:40
Speaker 1: and none of that includes travels. Since I had a
33:42
Speaker 1: long career, I did so much travel. I was a
33:44
Speaker 1: Quantus Platinum flat frequent flyer, and the novelty of traveling
33:48
Speaker 1: war off many years ago. However, there are tons of
33:51
Speaker 1: pursuits that cash up retarities can enjoy if they do
33:53
Speaker 1: a little analysis. Thank you, Bruce. Very good piece of correspondence.
33:57
Speaker 1: Very nice way to end the show. And that's something
34:00
Speaker 1: I imagine we will come back to. I could give
34:02
Speaker 1: you a piece of corresponds from about the Fire movement
34:05
Speaker 1: every week if we wanted to, because people don't. It's
34:07
Speaker 1: just captured people's imaginations.
34:09
Speaker 2: Sally. That's no bad thing.
34:11
Speaker 1: If it gets people's imaginations, gets them talking, gainst them thinking.
34:14
Speaker 3: Yeah, thinking about financial independence too. I love that it's
34:19
Speaker 3: you know, breaking free of your job, if you choose
34:22
Speaker 3: to breaking you know, not having a mortgage to be shackled,
34:26
Speaker 3: to having enough for your savings to be able to
34:29
Speaker 3: cope with any kind of emergency. It's fantastic feeling.
34:32
Speaker 1: Yes, of course, and we can't recall those stresses if
34:36
Speaker 1: you've managed to climb out of that particular phase of life.
34:39
Speaker 1: But it's something that everyone should aspire to. Okay, terrific folks.
34:43
Speaker 1: Keep the emails coming. The money puzzle at the Australian
34:46
Speaker 1: dot Com Dot You. Today's guest was Sally Tendal of cancer.
34:50
Speaker 1: I thank you, Sally, really good as always, love you
34:52
Speaker 1: to talk to.
34:52
Speaker 3: You, Thank you for having me. James love being here.
34:55
Speaker 1: And thanks too to Leah Samba GLU for producing today's show.
34:58
Speaker 2: Talk to You Soon.
35:01
Speaker 3: Really the fast sum the plant so