7 of the best financial resolutions for 2020

7 of the best financial resolutions for 2020

Finance may not be sexy, but this classic season for goal-making and self-reflection is actually quite suited to financial resolutions. Access to annual financial statements can show you how you managed your money in 2019, and give you an idea of what you can achieve in 2020.

If you’re not sure where to start, we’ve picked 7 of the best financial resolutions for you:

1. Make a realistic 2020 budget

As the saying goes, a goal without a plan is just a wish. If you’re serious about improving your financial situation in 2020, you need to have a realistic plan that you can stick to. In finance, the best plan is to start by preparing an honest budget.

Write down a list of your current debts and bills, and do a thorough expense audit of your annual bank statement to find out where your money is really going.

Did you spend an unexpected $500 this year on UberEats? Maybe you subscribed to free trials of Prime Video, Disney+, Netflix, Stan and FoxtelGo, and didn’t notice that they all switched over to paying accounts?

Whatever you have done with your money this year, be honest with yourself, because if you cheat, you’re only cheating yourself.

Find out how to set your own 2020 budget here.

2. Cut down on stuff you don’t need

When you’re making your 2020 budget, think about what you can afford to live without.

Cutting down on your expenses is almost a similar process to decluttering your home. As Japanese Author and tidying consultant Marie Kondo says, “Small changes transform our lives.”

This same logic applies when reviewing your spending habits. Reducing unnecessary expenses can significantly impact the amount you can save, and help you pay off debts.

Starting small is the key to success. Getting rid of just one digital subscription for example, could save you over $100/year, and show you the benefit of sacrificing one small luxury to grow your savings.

Four ways to cut down on your expenses in 2020

3. Check your savings rate is above the inflation rate

A quick tip that you can implement quickly in 2020 is checking that your current savings account is offering you an interest rate above the inflation rate.

The inflation rate is currently sitting at 1.7 per cent. So, if your savings account is offering you an interest rate less than that, you are basically “parking” your money, rather than earning real interest on it.

For example, if you have $100 in your savings account now, and your savings interest rate is 1.5 per cent per annum, you will technically have $101.50 in your account at the end of the year.

However, if the inflation rate is 1.7 per cent, at the end of that year you will need $101.70 to buy goods or services originally worth $100. So, in terms of “real purchasing power” at the end of the year, you have lost 20 cents. Technically, the bank is not taking away any money from you, you are just not earning as much as you could have previously.

0.02 per cent, or 20 cents for every $100 may not sound like a lot, but if you have $100,000 in your savings account, this 20 cents turns into $2,000.

Learn more about how the inflation rate can impact savings rates.

4. Get a lower interest rate on your home loan

After three RBA cash rate cuts in 2019, interest rates for both owner occupier and investment home loans have reached record lows.

This prompted many Australians to start looking at the rates offered by their current lenders. Some customers found they could save thousands by switching from a big four to a smaller lender with a lower rate, yet many are still reluctant to switch. Whether this is a case of consumer inertia, or customer loyalty, is hard to tell.

However, just because you don’t want to switch doesn’t mean you can’t get a lower rate. If you’re a loyal customer, you can always negotiate a lower rate on your home loan by trying one of these four negotiation tactics:

  1. Shop around and find the lowest rates on offer, to see if you can save
  2. Ask for the same rate as a new customer, if you’re a reliable debtor
  3. Ask your bank for a discharge form, to show you’re considering switching
  4. Speak to a mortgage broker, to get professional financial advice

Learn more about how you can convince your bank to lower your home loan rate.

5. Consolidate your debts

Consolidating your debt can make managing your repayments a lot less confusing. It can also help you reduce the total interest you pay on your debts, to save you money overall.

Two popular methods of consolidating debt are personal loans and balance transfer credit cards. Depending upon your financial situation, either could help you reduce your debt in 2020.

A balance transfer credit card allows you to transfer existing debt to a new credit card, and they often come with interest-free periods of up to twelve or even eighteen months. These cards can revert to a higher rate when the interest-free period is over, so if you want to consolidate your debt, be sure that you can repay it within that time frame.

A debt consolidation personal loan, on the other hand, does not have an interest-free period. These types of loans will often have a lower interest rate than what a balance transfer card will revert to after the interest-free period is up, yet provide a level of certainty if you need a few years to pay off your debts.

6. Resolve to improve your credit score

Your credit rating takes into account your entire credit history, positive and negative, and is used by lenders to determine whether you are a reliable debtor.

Here’s how you can improve it in 2020:

  • Check your credit score: Showing you are committed to your financial situation, and regularly checking your credit score can, in fact, improve it.
  • Pay off your debts: Increasing your credit card repayments or reducing your credit limit can do wonders for your credit score.
  • Pay your bills on time: Making regular bill payments on time can make a positive impact upon your credit score, as you’re conscientiously working toward repaying your debts.
  • Don’t apply for multiple loans: Applying for multiple loans at once can harm your credit rating, but multiple comparisons will not, so it’s important to compare loans first.
  • Determine eligibility before you apply: Being rejected from a loan can also leave a mark, so before you apply, try to determine whether you will be approved.
  • Check your credit data is correct: Credit providers can provide incorrect information, such as listing the same debt twice, so it’s important to check and contact them if it’s incorrect.

7. Make sure you always start small

A general rule for setting resolutions is to ‘think big, act small.’ If you have major goal you want to achieve, cut it down into smaller, more realistic goals.

Say you want to buy a house, for example. You might first consider aiming to save $10,000, or to pay off your existing credit card debt.

This final resolution is the most important resolution of all, because if you aim too high, too quickly, you may feel overwhelmed and end up giving up altogether.

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Learn more about home loans

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

What do people do with a Macquarie Bank reverse?

There are a number of ways people use a Macquarie Bank reverse mortgage. Below are some reasons borrowers tend to release their home’s equity via a reverse mortgage:

  • To top up superannuation or pension income to pay for monthly bills;
  • To consolidate and repay high-interest debt like credit cards or personal loans;
  • To fund renovations, repairs or upgrades to their home
  • To help your children or grandkids through financial difficulties. 

While there are no limitations on how you can use a Macquarie reverse mortgage loan, a reverse mortgage is not right for all borrowers. Reverse mortgages compound the interest, which means you end up paying interest on your interest. They can also affect your entitlement to things like the pension It’s important to think carefully, read up and speak with your family before you apply for a reverse mortgage.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

What happens to my home loan when interest rates rise?

If you are on a variable rate home loan, every so often your rate will be subject to increases and decreases. Rate changes are determined by your lender, not the Reserve Bank of Australia, however often when the RBA changes the cash rate, a number of banks will follow suit, at least to some extent. You can use RateCity cash rate to check how the latest interest rate change affected your mortgage interest rate.

When your rate rises, you will be required to pay your bank more each month in mortgage repayments. Similarly, if your interest rate is cut, then your monthly repayments will decrease. Your lender will notify you of what your new repayments will be, although you can do the calculations yourself, and compare other home loan rates using our mortgage calculator.

There is no way of conclusively predicting when interest rates will go up or down on home loans so if you prefer a more stable approach consider opting for a fixed rate loan.

What is the Home Loan Rate Promise?

The Home Loan Rate Promise is RateCity putting its money where its mouth is. We believe that too many Australians are paying too much for their home loans. We’re so confident we can help Aussies save money, if we can’t beat your current rate, we’ll give you a $100 gift card.*

There are two reasons it pays to check your rate with the Home Loan Rate Promise:

  • You can find out how much you could save on your home loan by switching to a loan with a lower interest rate
  • If we can’t beat your current rate, you can claim a $100 gift card with our Home Loan Rate Promise*

Does the Home Loan Rate Promise apply to discounted interest rate offers, such as honeymoon rates?

No. Temporary discounts to home loan interest rates will expire after a limited time, so they aren’t valid for comparing home loans as part of the Home Loan Rate Promise.

However, if your home loan has been discounted from the lender’s standard rate on a permanent basis, you can check if we can find an even lower rate that could apply to you.

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

What is a redraw fee?

Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

What is break fee?

Break fees are charged when a customer terminates a fixed-rate mortgage. The amount is determined at the time you decide to break the loan and is based on how much your bank stands to lose by you breaking the contract. As a general rule, the more the variable rate has dropped, the higher the fee will be.

What is the amortisation period?

Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.

What is a honeymoon rate and honeymoon period?

Also known as the ‘introductory rate’ or ‘bait rate’, a honeymoon rate is a special low interest rate applied to loans for an initial period to attract more borrowers. The honeymoon period when this lower rate applies usually varies from six months to one year. The rate can be fixed, capped or variable for the first 12 months of the loan. At the end of the term, the loan reverts to the standard variable rate.

What is Lender's Mortgage Insurance (LMI)

Lender’s Mortgage Insurance (LMI) is an insurance policy, which protects your bank if you default on the loan (i.e. stop paying your loan). While the bank takes out the policy, you pay the premium. Generally you can ‘capitalise’ the premium – meaning that instead of paying it upfront in one hit, you roll it into the total amount you owe, and it becomes part of your regular mortgage repayments.

This additional cost is typically required when you have less than 20 per cent savings, or a loan with an LVR of 80 per cent or higher, and it can run into thousands of dollars. The policy is not transferrable, so if you sell and buy a new house with less than 20 per cent equity, then you’ll be required to foot the bill again, even if you borrow with the same lender.

Some lenders, such as the Commonwealth Bank, charge customers with a small deposit a Low Deposit Premium or LDP instead of LMI. The cost of the premium is included in your loan so you pay it off over time.