Budget busters: three simple ways to save up to $4K in 2021

Budget busters: three simple ways to save up to $4K in 2021

Start the New Year with more money in your pocket by making some simple changes to your budget in 2021.

With JobKeeper and JobSeeker cuts about to kick in, millions of Australians will be starting 2021 on the back foot.

However, there are steps you can take to get your finances in the best shape possible, potentially saving as much as $4,098.

Potential annual household savings:

  1. Home loan – negotiate and save up to $3,412.
  2. Credit card – switch and save up to $416.
  3. Phone plan – change providers and save up to $270.

1. HOME LOAN – haggle and save up to $3,412

One of the biggest expenses in the family budget is the mortgage. It’s also one of the areas where you can save the most, just by calling your bank.

Savings on the average $400K owner-occupier loan

  Average rate Savings after 1 yr
Existing owner occupier

3.13%

-

New customer variable rate

2.86%

$1,072

New fixed rate (1 – 3 years)

2.27%

$3,412

Notes: based on an owner occupier paying principal and interest, haggling 5 years into a 30-year loan with a $400,000 loan balance. Does not include fees. Average rates are from the RBA.

RateCity.com.au research director Sally Tindall said: “Check what your bank is offering new customers for both fixed and variable loans, then pick up the phone and haggle.

“While most banks’ lowest rates right now are fixed ones, locking in your rate isn’t for everyone. If you’re planning on getting ahead on your mortgage, or selling in the next few years, you might be better off sticking with a variable rate as they’re typically more flexible,” she said.

2. CREDIT CARD – switch and save up to $416

If you have a rewards credit card from a big four bank, it could be burning a hole in your pocket through high fees and / or rates.

“Make 2021 the year you review your credit card. Work out if it’s sending you backwards and look for alternatives that can save you money,” said Tindall.

“You might find you’re better off switching to a low-rate card, opting for a no-fee card, or going without one altogether.

Possible savings (based on a revolving $2K debt accruing interest)

  Average annual fee Average rate Potential savings

(up to)

Big four bank rewards card

$250

20.24%

 
No annual fee credit card

$0

15.95%

$336

Low rate credit card

$54

9.23%

$416

Notes: Calculations are estimates only. Exact savings are dependent on debt accruing interest, fees and rewards provided. Cards with a purchase rate under 10% are considered low rate.

LOW RATE OPTIONS - there are 15 providers offering credit cards under 10%.

  Rate Annual fee
G&C Mutual Bank Low Rate Visa 7.49% $50
Auswide Low Rate Visa 8.05% $50
American Express Low Rate Card 8.99% $0

LOW FEE OPTIONS - there are over 30 cards with no annual fee, several of which offer rewards points.

  Annual fee Rate Rewards
Coles No Annual Fee Mastercard $0 19.99% Flybuys points, insurances
HSBC Premier World Mastercard $0 19.99% HSBC rewards points, insurances
AMEX Essentials $0 14.99% AMEX rewards points, insurances

3. PHONE PLAN – switch and save up to $270

Phone plans are one of the few bills that have dropped in recent years, however, shopping around is still worthwhile – even supermarkets are getting in on the action. You might not even have to sacrifice on coverage as many of the smaller providers run off the Telstra or Optus networks, often at a fraction of the price.

“If you haven’t reviewed your phone plan for a while, it’s probably time to do a health check. A drop of $10 or $15 each month might not seem like a lot, but the savings can really add up, especially if you’ve got a few phones in your household,” she said.

Phone plan examples:

  Data Calls & texts Cost /mth Av. days in mth Approx annual cost
Telstra mobile plan 40GB Unlimited

$55

30

$660

Aldi Mobile 40GB Unlimited

$35

30

$426

Amaysim 50GB Unlimited

$30

28

$390

Note: the above plans are SIM only or pre-paid plans. Cost is based on an average daily rate over a 365 day year but actual cost over 2021 will be based on contract start date and billing dates. Only a selection of providers are displayed to be used as examples only. Customers should do a full comparison based on their needs.

 

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How is interest charged on a reverse mortgage from IMB Bank?

An IMB Bank reverse mortgage allows you to borrow against your home equity. You can draw down the loan amount as a lump sum, regular income stream, line of credit or a combination. The interest can either be fixed or variable. To understand the current rates, you can check the lender’s website.

No repayments are required as long as you live in the home. If you sell it or move to a senior living facility, the loan must be repaid in full. In some cases, this can also happen after you have died. Generally, the interest rates for reverse mortgages are higher than regular mortgage loans.

The interest is added to the loan amount and it is compounded. It means you’ll pay interest on the interest you accrue. Therefore, the longer you have the loan, the higher is the interest and the amount you’ll have to repay.

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.

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.

How to use the ME Bank reverse mortgage calculator?

You can access the equity in your home to help you fund your needs during your senior years. A ME Bank reverse mortgage allows you to tap into the equity you’ve built up in your home while you continue living in your house. You can also use the funds to pay for your move to a retirement home and repay the loan when you sell the property.

Generally, if you’re 60 years old, you can borrow up to 15 per cent of the property value. If you are older than 75 years, the amount you can access increases to up to 30 per cent. You can use a reverse mortgage calculator to know how much you can borrow.

To take out a ME Bank reverse mortgage, you’ll need to provide information like your age, type of property – house or an apartment, postcode, and the estimated market value of the property. The loan to value ratio (LVR) is calculated based on your age and the property’s value.

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.

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 average annual percentage rate?

Also known as the comparison rate, or sometimes the ‘true rate’ of a loan, the average annual percentage rate (AAPR) is used to indicate the overall cost of a loan after considering all the fees, charges and other factors, such as introductory offers and honeymoon rates.

The AAPR is calculated based on a standardised loan amount and loan term, and doesn’t include any extra non-standard charges.

What is the difference between a fixed rate and variable rate?

A variable rate can fluctuate over the life of a loan as determined by your lender. While the rate is broadly reflective of market conditions, including the Reserve Bank’s cash rate, it is by no means the sole determining factor in your bank’s decision-making process.

A fixed rate is one which is set for a period of time, regardless of market fluctuations. Fixed rates can be as short as one year or as long as 15 years however after this time it will revert to a variable rate, unless you negotiate with your bank to enter into another fixed term agreement

Variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts however fixed rates do offer customers a level of security by knowing exactly how much they need to set aside each month.

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*

What is the difference between fixed, variable and split rates?

Fixed rate

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Variable rate

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

Split rates home loans

A split loan lets you fix a portion of your loan, and leave the remainder on a variable rate so you get a bet each way on fixed and variable rates. A split loan is a good option for someone who wants the peace of mind that regular repayments can provide but still wants to retain some of the additional features variable loans typically provide such as an offset account. Of course, with most things in life, split loans are still a trade-off. If the variable rate goes down, for example, the lower interest rates will only apply to the section that you didn’t fix.

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 a variable home loan?

A variable rate home loan is one where the interest rate can and will change over the course of your loan. The rate is determined by your lender, not the Reserve Bank of Australia, so while the cash rate might go down, your bank may decide not to follow suit, although they do broadly follow market conditions. One of the upsides of variable rates is that they are typically more flexible than their fixed rate counterparts which means that a lot of these products will let you make extra repayments and offer features such as offset accounts.

What is a comparison rate?

The comparison rate is a more inclusive way of comparing home loans that factors in not only on the interest rate but also the majority of upfront and ongoing charges that add to the total cost of a home loan.

The rate is calculated using an industry-wide formula based on a $150,000 loan over a 25-year period and includes things like revert rates after an introductory or fixed rate period, application fees and monthly account keeping fees.

In Australia, all lenders are required by law to publish the comparison rate alongside their advertised rate so people can compare products easily.

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.