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Interest rates, inflation: Expert reveals four ways you can save money fast

Interest rates, inflation: Expert reveals four ways you can save money fast

Inflation is through the roof, interest rates are rising and many families are struggling to keep up with their mounting bills.

Finding ways to reduce financial stress can be overwhelming.

For many people, the figures themselves are difficult to grasp — but they know it means they have to tighten their belts.

The Reserve Bank of Australia this week increased the cash rate target by 50 basis points to 1.85 per cent.

Annual CPI inflation also increased to 6.1 per cent in the June quarter, due to higher dwelling construction costs and automotive fuel prices.

So what can you do to relieve your financial pressure?

Curtin Business School instructor and financial planner Elson Goh told NCA NewsWire there were four key ways people could save money.

REFINANCING YOUR LOANS

Mr Goh said everyone with a loan should first contact their current lender to try to get a better deal.

“It is often more costly for a lender to acquire a new customer than to retain an existing one,” he said.

“Go into a bank branch and introduce yourself to the lending manager. It can be easier than dealing with a call center representative.”

Mr Goh also recommends people use a mortgage broker.

“A good broker will negotiate a better deal with your current lender and present other suitable opportunities,” he said.

“Your current lender may respond more favorably if your case is presented well.

“For example, it is pointless to be asking your lender to match the rate that your colleague at work was talking about when their loan size is $800,000 while yours is only $350,000.

“You need the right information such as estimated value of your property and whether or not you have 20, 30 or 40 per cent equity in your home.”

Comparison websites can be a useful tool but Mr Goh warns they are not perfect.

“You have to be cautious as some products may be heavily promoted on these sites and not every lender is represented,” he said.

“Additionally, you cannot focus on just the interest rate or the comparison rate, as there are other things like fees, loan features, loan term and product flexibility that must be considered.

“If you are refinancing your home loan, be mindful of the remaining term of your loan.

“If you have had the property and loan for say five years, and you take up a new loan for over 30 years again, you may be delighted that the monthly repayments are much lower and seemingly more affordable.

“But if you only pay the minimum repayments, you may end up paying more interest over the entire duration and take longer to be mortgage free.”

SWITCHING YOUR SUPERANNUATION

The main types of super funds are employer, retail, industry and self-managed.

Mr Goh said before making a switch you should seek advice if you have a defined benefit scheme, constitutionally protected fund, or benefits paid by the employer.

“You will not be able to restore your entitlements once you switch out to another fund,” he said.

“This can also apply to any insurance policies that you currently have in force within your existing fund.

The tax office website is a good place to start your research.

“However, it is futile to chase after returns as past performance is not a good indicator of future outcomes,” Mr Goh said.

“What you should consider is to ensure that you are paying for services and features that you need and check if the fund is investing at a risk level that you are comfortable with.”

INSURANCE AND UTILITIES

Insurance includes personal, home and content, motor vehicle and health, among others

Mr Goh recommends people seek advice when dealing with personal insurance.

“Your health condition was accepted by the insurance company at the time of application,” he said.

“You are covered under the terms of the agreement as long as you pay your premiums, regardless of the changes to your health.

“Any alterations of your personal insurance may result in reassessment of your current health conditions, which may attract a loading of premiums, exclusion of benefits or outright decline of cover.”

General insurance is different and a cheaper policy is often a result of having less coverage or stricter definition for payout.

But Mr Goh said there were things to consider to ensure you pay for what you need.

“For example, your home insurance cover should only be the amount needed to rebuild your house, not the full purchase price,” he said.

“The excess that you pay upon making a claim is a form of self-insurance.

“Your premiums will become cheaper as you increase the excess on your policy. You can increase the excess if you have available funds saved up and have a low claims history.”

FOOD, GOING OUT AND SUBSCRIPTIONS

When it comes to everyday costs like food and going out, Mr Goh recommends people involve the whole family.

“Rather than trying to formulate a battle plan on your own, you may be surprised by the variety of suggestions that would arise from people with different perspectives,” he said.

Mr Goh said people should make small changes over long periods of time, rather than drastic abstinence.

“It is easier to make small manageable changes than large ones that increase your stress levels. The latter often results in increased spending through retail therapy,” he said.

“Get creative and be flexible with your meals. Substitute ingredients that have gone up in price with more affordable alternatives when cooking.

“Or try preserving vegetables and making jams with produce that are in season or abundance.

“These are some of the things that our grandparents did after the war and they managed to thrive despite experiencing similar if not worse inflationary conditions.”

Mr Goh also recommends people look into their monthly subscriptions.

“They are often payments that get overlooked. If you are not fully utilizing the service or subscription, cancel them,” he said.

He also suggests people find ways to reuse and recycle where possible.

“You can breathe new life into old furniture with a new coat of paint or a box of screws,” he said.

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Interest rates: Peter White urges borrowers to beware of the hidden dangers associated with refinancing following RBA rate rise

Interest rates: Peter White urges borrowers to beware of the hidden dangers associated with refinancing following RBA rate rise

A leading loans expert is urging mortgage holders to be wary of the hidden dangers associated with refinancing as the big four banks look to entice more customers with “cheap deals” following this month’s rate rise.

Peter White AM, the managing director of the Financial Brokers Association of Australia (FBAA), is asking Australians who are considering whether they should switch up their home loan to proceed with caution, warning that “cheaper isn’t always better”.

The director’s message comes after the Reserve Bank of Australia increased the cash rate by 50 basis points for the fourth time in as many months on Tuesday.

With the base rate now standing at 1.85 per cent, Mr White is asking borrowers to be on alert as major banks look to lure vulnerable customers who are struggling with their repayments to sign up to its services.

“Some banks at the moment are offering cheap variable rates to new borrowers only. This is a trap,” Mr White told news.com.au.

“For the lender it’s about using a marketing budget to generate more customers, knowing that most customers will stay as it costs to change again.”

It’s all part of a “vicious cycle” lenders use to draw customers into borrowing from them, Mr White explained, where new customers are blindsided as the rate on offer doesn’t always mean the customer will be better off in the long term.

“There is a hidden danger at times like this that is rarely spoken about,” Mr White said.

“Banks will be looking to attract those considering refinancing as new customers, and will offer cheaper variable interest rates that are significantly below their fixed rates, which are rapidly climbing. This is a case of ‘buyer beware’.”

Cashbacks and exclusive rates at discount prices for new customers are some of the lures banks are using to attract new borrowers.

Both come at the cost of disadvantaging the lender’s current customer base as their higher interest rates make up for the lower rate offered to new customers.

“Borrowers should be aware that next time around they will be the existing customer facing higher rates and will be disadvantaged during rate increases,” Mr White said.

“It’s an old game to lure new customers with a perceived advantage only to be taken advantage of with the next move.”

Additionally, some banks use a tactic where they attempt to give you a better rate after you’ve agreed to another offer.

“If they were serious about looking after you they would have offered this when you first approached them, so ignore this offer and don’t be distracted as this will cause you even more headaches, and makes the process even more complex,” he said .

While Mr White advises borrowers to refinance with caution, saving on your home loan isn’t entirely off the cards.

Rather than focusing on the big four banks, Mr White recommends looking at what second tier banks such as Suncorp, and non-banks such as Bluestone, have on offer.

“Going with the major banks is often the most expensive way forward and may not be in your best interests due to constraints and other factors specific to you,” Mr White said.

“Remember the big banks can only sell you their products, and their aim is to look after themselves and their shareholders, not to act in your best interests.”

It’s also advised that borrowers go through a mortgage broker, rather than directly through a bank. Brokers are free to use as they receive commission from lenders once they sign a customer up to a service.

They also have access to a range of offers that aren’t always available to borrowers who go through the back directly and can find a rate and repayment schedule that suits a borrower’s needs.

“A finance broker is obliged to act in your best interests and sometimes this means explaining that the best option may be not to refinance,” Mr White said. “(They’re also) charged by law to act in your best interests, whereas banks are not.”

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Big four bank customers hit by $70k ‘loyalty tax’ by rising interest rates, research finds

Big four bank customers hit by $70k 'loyalty tax' by rising interest rates, research finds

Australian homeowners are being slugged with an extra $70,000 over the life of their loan by staying loyal to the big four banks and failing to refinance, new research has found.

It also revealed that the big four banks are raking in $4.5 billion each year as a result of the “loyalty tax” as the Reserve Bank of Australia’s (RBA) super-sized rate hikes are passed on to existing customers.

The RBA has raised interest rates from a record low of 0.1 per cent to 1.35 per cent since May.

The big banks are offering lower interest rates to attract new customers, the research from mortgage broker Lendi showed, while current homeowners are smashed by interest rate rises yet could make huge savings by switching home loan providers.

Lendi’s data showed that at the big banks existing customers are slugged an extra 0.91 per cent on interest rates compared to the offers for new customers.

This means at a big bank, customers are paying an interest rate that is 0.91 per cent higher – forking out an extra $70,000 over the life of a $500,000 loan.

Overall, the whole banking sector is charging current customers interest rates that are 0.86 per cent higher compared to new clients.

On Friday, ANZ Bank announced it would reduce standard variable interest rates for new customers refinancing to the big bank by between 0.1 and 0.5 per cent, yet it passed on the 0.5 per cent hike from July to existing customers.

Lendi chief executive David Hyman said when customers special fixed rates finish, most would not revert to the best available rate.

Instead, he advised customers to call their banks to ask for the same deals as new customers.

Record levels of refinancing

But a record 332,000 Aussies refinanced their properties in Queensland, New South Wales and Victoria in for the 2021/22 financial year, up 29 per cent on the previous 12 month period, according to the latest analysis released by digital settlement provider Pexa Insights.

Victoria recorded the highest volume of refinancing at 131,000 up by 23.7 per cent year-on-year followed by NSW with 127,600 an increase of 25.8 per cent year-on-year.

QLD experienced the highest growth in refinancing with 73,000 up 49.8 per cent for the last financial year.

All three eastern states recorded in excess of 150,000 new residential loans each, with QLD leading the way again with 160,000 home loans completed in the last financial year.

More than 472,300 new home loans were taken out across the eastern states with Victoria posting the highest growth in both new residential loans with 157,660 loans up 10.4 per cent year-on-year.

Mike Gill, Pexa Insights’ head of research, Mike Gill, said initially Australians were taking advantage of record low interest rates to refinance.

“There is now a clear correlation between the high numbers we saw during the financial year 21/22 and the Reserve Bank of Australia’s determination to lift interest rates twice before the close of the financial year,” he said.

“The record levels of new loans coincide with the strong buying and selling activity witnessed throughout the first half of the financial year 2022, in particular in Queensland which has experienced a state-based property boom across home buying and selling.

The race to attract new customers has become “highly competitive” between major and non-major banks for new loans across all three eastern states, he added.

“However, non-major banks recorded higher win/loss numbers for refinances in the same regions,” he said.

“Strong competition within the lending market can only lead to positive outcomes for consumers.”

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Sydney couple build $1.2m property portfolio in just three months

Sydney couple build $1.2m property portfolio in just three months

A Sydney couple, who had been priced out of upgrading their family home, have managed to create a property portfolio worth $1.2 million in the space of just three months.

Amit Kumar and his wife Astha had bought a townhouse in the Sydney suburb of Quakers Hill for $610,000 six years ago.

Despite saving hard and their family home growing in value to $780,000, the couple who have two children aged three and five, discovered Sydney’s skyrocketing property market would mean it was impossible for them to find a new property in the city.
They had discussed the idea of ​​buying other homes but were nervous.

“It was the fear of the unknown,” Mr Kumar said. “You just don’t know what to do, you don’t want to overpay, you don’t want to buy the wrong place and then have it vacant for long periods and with no tenants,” he told news.com.au .

“You don’t know where the growth is going to be and you don’t know what the projects are in certain areas and things like that.”

But the couple met with a buyer’s agent and took the plunge in April, snapping up two properties in that month alone.

The first was in Adelaide in the southern suburb of Christie Downs, a three-bedroom, two-bathroom house.

They purchased it for $425,000 and it has already grown in value by approximately $60,000.

The second property was purchased in Toowoomba, Queensland – a three-bedroom house for $455,000, which has also jumped in value by $50,000.

“We were very nervous, particularly because they actually settled very close to each other… the settlement was two days apart,” he said.

“And also complicating things further was the Easter break and the Anzac Day long weekend happened as well, so it was all on short notice.

“I think at the time there was an election coming up, we didn’t know what the policies were going to be, we didn’t know what the interest rate was doing and how it’s going to affect us.”

But the gamble has paid off so far with Mr Kumar revealing they had 20 rental applications for the Adelaide house before the open home was even held.

“So we had a very large number of applications to actually choose from and we actually managed to get more than what we actually hoped to achieve in terms of rent,” he said.

“So when we bought the place, we were told $410 is a realistic expectation in terms of rent, but we actually ended up achieving $420.”

The Toowoomba home was already tenanted but Mr Kumar said it was at a significantly lower amount to the market rate.

They were told they would get $450 for the place, but after the previous tenant moved out, it was only empty for three days and then rented out for $470, he said.

Their latest buy has been in Bundaberg, a house for $387,000 snapped up in July, which is expected to rent out for $460.

All three properties were also bought sight unseen, Mr Kumar added, while the rents cover their mortgages.

The couple paid $65,000 to $70,000 for each place including stamp duty, using a 12 per cent “sweet spot” deposit recommended by their mortgage broker.

Mr Kumar, who works in sales, said the couple still plan to use their portfolio as a “stepping stone” to buy a bigger place in Sydney in the next 12 to 24 months, but they won’t stop there.

The 39-year-old never believed it would be possible to build a property portfolio but now the couple have a goal to buy eight to 10 properties in the next five to seven years.

He advised others to get into the property market as soon as they can, adding people shouldn’t be influenced by the market, but instead focus on the long-term goal of building value in their property.

“One of the things the buyer’s agent said to me and it’s just stuck out in my mind is that the earlier you buy, the sooner you buy, then the more time you’re allowing for capital growth and timing is not as critical as just getting into the market,” he said.

“Because if you buy the right property at the right price, timing is not such an important factor.

“All three properties that he’s bought for me, we’ve actually managed to get all of them under market value, so what it means is indirectly like even already now by the time we settle, we already have some equity.”

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