How To Reduce The Risks That Cause Financial Failure

There are some life events and circumstances that can derail efforts to achieve financial independence. Some of them are out of our control like natural disasters and accidents, but our society has developed products such as life and health insurance to mitigate the consequences. “Lifestyle” diseases can also be controlled by making better food and exercise choices.

Apply Some Risk Management Strategies for Financial Security

Aside from these unfortunate events, there are other threats lurking that can throw into chaos our attempts to create financial buffers against unforeseen circumstances. What we can do, however, is to recognise these threats and apply some risk management techniques to create a soft landing if it becomes necessary.

Income Protection Insurance is Only the First Step

For most of us, secure and reasonably paid employment is the starting base. Income protection insurance and actively managing your career through upskilling, as well as promoting or starting your own business are some ways to reduce risks in producing a regular income. Understanding how the economy works and watching for changes like Australia’s recent decline in mining income are other ways.

Assuming that your income is secure for the foreseeable future, you could now be working on creating those financial buffers. We recommend always having some cash savings on hand for emergencies, but accept that with interest rates as low as they currently are, the returns are meagre. The only advantage is instant accessibility, which is why you should only do this for emergencies.

Share Market Volatility Deters Amateurs

Investing in the share market is an option, but only if you have the time and desire to learn and understand how it works and how to maximise investments. For most people, shares are a commodity that is best left to experts in this field to manage.

Property Investment has Many Advantages

The property market is the one area that has continued to perform over a long period of time in Australia. It is also one that most people who own or rent their homes are familiar with. No market is completely safe from economic downturns but we have found property to be one of the best vehicles for achieving financial security.

At Fountain Property Group we have experts available to help you select the right type of property for your circumstances. We will also arrange professional property managers who will select the best tenants and look after the ongoing maintenance.

Good Property Management and Insurance Cover Mitigates Risk

Landlords’ protection and home and contents insurance policies will protect your asset from unforeseen events. With industry-best property managers handling the day-to-day details, you will hardly need to lift a finger on your journey to financial security. Whether you are looking for capital growth, high rental returns or a long-term strategy, we can assist you.

Mortgage Repayments – A Different Approach

Everyone with a mortgage looks forward to the day when the last payment is made and this financial commitment is no longer necessary. Whether the mortgage is over the family home or an investment property, the euphoric feeling is the same. With it come new possibilities as the money that has been set aside regularly for this purpose is now free to be used for something else.

Use New Strategies to Control your Mortgage

For many people this comes at the end of a long process, taking years to get to this point. How great would it be then, to take a different approach to mortgage payments, and look for ways to not only cope better, but even to shorten the duration by getting in front when it is financially possible?

By taking greater control over spending, and looking for ways to be smarter with your mortgage payments, you could even be in the situation where buying an investment property is possible. With some equity in your home, reasonable employment prospects and a good credit history, our people at Fountain Property Group could be starting you on the road to serious wealth creation.

First Things First

Let’s put first things first by offering some suggestions to better manage your current mortgage payments. Interest rates are at their lowest since the 1960s, and current indications are that they will remain low for some time. This is a great opportunity for a mortgagor to calculate repayments at a couple of points higher than their current commitment, and pay this amount off the existing mortgage. If rates do go up, you won’t notice it and you will be getting in front with every additional dollar you pay.

Don’t Waste Financial Windfalls

Often, situations occur that give us unexpected access to lump sums of money. The most common example is a tax refund, but it could also be a small lottery win or an inheritance. Most people with a mortgage spend these windfalls on consumable items, but with a little self-discipline, these could be applied to the mortgage.

Make More Frequent Payments

If your mortgage lender allows, making more frequent payments will reduce the term of your loan considerably. For example, paying a mortgage fortnightly instead of monthly will save thousands in interest payments by using simple maths. There are only 12 months in a year, but there are 26 fortnights. By paying this way, you are effectively making 13 monthly payments annually.

Save More and Spend Less

The suggestions that most of us don’t want to hear involve spending less and saving more. We are not suggesting that you withdraw from society, but some short-term pain ploughed back into your mortgage will put you in an excellent position in a few years. That investment property could well be within your reach.

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Bringing It All Into Perspective

There is a lot of conjecture out there in the market about the ability of young people today being able to afford a mortgage. After reading this you may just believe that the truth Is – it’s all in how you manage your money in the first place. Surprise! Surprise! Nothing has changed about that in hundreds of years.

Easy Money

Over the years, as the public began to be aware that investing in property was a good thing, a new industry blossomed. Mortgages!

With large tax incentives all round, a bricks and mortar asset to insure against to satisfy your lending institution and you could easily be on the way to having your first – or fifth – or tenth mortgage, often at 100% of the purchase price, sometimes more.

The institutions, whilst still canny with their money, are more than willing to loan money for all sorts of things and this is where the trap lies. Twenty-somethings are investing in loans or higher credit card debt more than ever before.

Most people will be unaware that the repayments on a $20,000 credit card will be around the $600 mark per month. If you have a personal loan for $20,000, for a motor vehicle as an example, you are looking straight down the barrel of a $500 monthly repayment.

Amazing Mortgage Fact

Now check out this last little bit of data.

Did you know that the repayments on a $100,000 mortgage, 4.5% interest over 25 years is just $555 per month? Amazing.

The two debts mentioned above are relatively small on their own. Together, however, they can have a big impact on just how much money you can borrow for a mortgage. A bank will automatically cut your borrowing power by up to $200,000 as soon as it sees debt like this.

This is where Fountain Property Group like to help flesh out the details for you. We see a lot of disappointed faces in this business. It is amazing how this form of debt can reduce your service ability.

When we are educating our clients. We ask the hard questions like …In the short term, can you see the value in catching the train for a little while? To get that extra money for your mortgage is it worth forgoing the stereo or is it worth giving up your trip to Greece? You may answer yes or no to these questions. There is no right or wrong answer. The choice, however, will determine your living arrangements for a long, long time to come.

What Is The Right Home Loan Type For You?

Young couple getting help from a real estate agent

When looking for the perfect home loan, you need to have a clear understanding of 2 basic principles: The loan principal – which is the amount you borrow, and the loan interest – the amount you pay to borrow the money.  Most lenders will align their loan types around these 2 principles. Here are some of the most common types of loans you will encounter when dealing with home loans.

Fixed Loans

This loan type has the interest and repayments fixed for a certain period, usually between 3 – 5 years. This allows you to draw up a consistent budget without any changes to your repayments. Although fixed loans provide you that certainty, interest repayments will never change even if the market rates drop. You cannot redraw and make extra repayments on a Fixed Loan.

Variable Loans

Currently the most popular loan type in Australia, this loan type allows for varying interest rate payments depending on the lender. Changes to the interest rate will affect your loan – If the Interest rates drop, so will your repayments. If the Interest rates go up, so will your repayments. The good thing about Variable Loans is that you can create a budget plan where you can make extra repayments, shortening the term of the loan.

Split Loans

Split Loans are blended loan types that provide you the flexibility by combining Fixed and Variable options in one loan. This allows you to shorten the loan term by making extra repayments, but you still run into the risk of increasing repayments when the interest rates go up, affecting the Variable portion of your loan.

Lo – Doc Loans

Lo – Doc allows home buyers to secure a home loan even if they don’t have the necessary financial documents. Lo – Docs can either be Fixed or Variable. This helps people secure a loan, but also charges higher than other loan types. Repayments usually decrease after a few years if paid on time.

Line of Credit

Line of Credit allows you to draw from a fixed amount for home, shares, or any other asset types. This loan type provides you the extra funds, but with your home as security for the loan. You only pay interest on the funds you use, and can be accessed like a normal savings account.

Equity Release

Also called Reverse Mortgage, this allows people over 60 to gain access to equity on the property. Although no repayments are made, monthly interest accrued has to be paid when the property is sold.

To find out what loan type is the best for you, consult a certified financial planner. Home loans should help ease the burden and should not cause you financial stress when securing the home of your dreams.

Brokers Responsible For 51.5% Of Home Loans For 3rd Quarter

Brokers have solidified their presence in the mortgage market by becoming Australia’s majority writer for home loans for the first time in history.

A Mortgage & Finance Association of Australia research found that brokers accounted for 51.5% of home loans, up from the June and March quarter, finishing at 49.7% and 49.9% respectively. Brokers are making their presence felt in the mortgage market after being responsible for 67% of home loans from 19 aggregators for the 12 months to September 2014. Because of these contributions, brokers have accounted for $37.7 billion of the $56.2 billion increase in home loans, according to the Australian Bureau of Statistics.

Read more about this on the Adviser website.

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