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What you should be doing now to take advantage of record-low interest rates

What you should be doing now to take advantage of record-low interest rates

Home loan interest rates in Australia are currently at all-time lows and they may go even lower.

Rates are dropping because the Reserve Bank has cut the cash rate not once but twice, lowering costs for banks. In response, many lenders have announced cuts to their variable rate home loans.

These record low rates are great news for people who currently have mortgages or those intending to get a mortgage.  Unfortunately for those relying on bank interest from savings the news is not that good.

Here’s 4 ways you can make the most of the low mortgage rates.

  1. Don’t change anything

Doing nothing only makes sense if you have a variable rate mortgage and your lender is passing on the cash rate cut. You’re fortunate if this is the case because you’ll already be enjoying lower repayments without you having to do anything.

However, you still might want to consider the following options.

  1. Compare your rate and if you should refinance to a lower one

Even if your lender has passed on the rate cut it makes sense to compare your rate with what else is in the marketplace. With literally hundreds of lenders and thousands of mortgage products available you should at least be checking and keeping your bank honest.

Switching to a lower rate mortgage on the right terms could save you a considerable amount of money.  If you have a look at the marketplace now, some lenders are offering rates in the low 3.0% range.

To get a sense of just how low rates are right now you can check out our monthly lowest mortgage rates page.

  1. Make extra repayments with your lower rate savings

When your rate is reduced you benefit from lower minimum required monthly mortgage repayments. To maximise the benefit simply keep making the same monthly repayments as you were prior to your rate being reduced. The difference between what you need to pay vs what you pay if you maintain repayments will result in you paying back your loan faster and reducing your overall interest expense.

Let’s use an example to demonstrate how the extra repayments work. Say you borrowed $450,000 over 30 years @ 3.89% p.a.

  • Monthly repayments = $2,119

If your lender passed on the last two cash rate cut’s your rate would fall to 3.39% p.a.

  • Monthly repayments at 3.39% = $1,993

The interest you will save is $29,440 and you will be mortgage free two years and 11 months sooner.  How good is that.

  1. Accumulate savings to account for possible rate rises in the future

What goes down will inevitably go up.  Mortgages are usually repaid over a long time which would include different economic cycles. Despite current low rates, you should expect them to rise at some stage in the future. This means your repayments will rise too.

While rates are low you can use your savings from your lower repayments to build up a cash buffer to use if you need to cover higher repayments in the future. There are at two ways you can do this:

  1. Redraw

If your loan allows for extra repayments and has a redraw facility then you could follow the extra repayment strategy from tip 3 and then redraw the money if you need it later. Note that some lenders have restrictions on how much or how often you can redraw.

  1. Offset account

If your loan has an offset account you can simply add the savings to the offset and they’ll act like extra repayments, effectively helping you pay less interest. But if you need to cover higher repayments in the future you have access to the funds.

Contact your PrimeAdvisory Accountant or Financial Advisor to discuss how you can take advantage of the currently low interest rates to stay on-track.

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Why Your Insurance Premiums Could Skyrocket!

Why Your Insurance Premiums Could Skyrocket!

As you may be aware, from 1 July 2019, new ‘Protecting Your Super’ laws came into effect. They were brought in to ensure that super account balances are not being unnecessarily eroded by fees and insurance premiums, particularly for accounts that have a low balance or have been inactive for a certain period. One of these measures relates to automatic cancellation of insurance cover for inactive super accounts and this is triggered if there have been no contributions for 16 consecutive months unless the member ‘opts in’ to keep the insurance.  Forefront in the government’s mind in making these changes were younger people who had yet to consolidate several superfunds opened during their fledgling careers and who also potentially were less likely to require insurance cover at that time.

These changes will have enormous flow on effects for the premiums of those with insurances remaining within the superfund environment. Insurance, fundamentally, is a risk pool – a large group of individuals that allows the higher costs of the less healthy to be subsidised by the relatively lesser costs of the healthy. This fundamental principle will be impacted greatly by these sweeping super laws. As mentioned earlier, a significant proportion of the automatic cancellations will be those younger people who hadn’t consolidated multiple funds. These premiums represent a significant chunk of the healthy ‘subsidisers’ and that means that superfunds will be forced to increase premiums to ensure that their total book remains viable.

We are already seeing corporate, retail and industry superfunds make substantial increases to premiums – see the example below from an industry fund,

 

Cover Type Payout Amount Premium p.a. now Premium p.a.  after 1st August 2019 % increase
Life Cover $2,068,438 $1,551.33 $2,876.16 85%
Total & Permanent Disability $2,068,438 $1,572.01 $3,366.18 114%

 

The great concern is that for many people, insurance inside super remains out of sight and mind. These increases to insurance premiums must be duly considered and can no longer be ignored. MBS Insurance are our in-house insurance broking division and have access to every insurer in the market. We encourage all clients to conduct a review of their existing cover to ensure that it is both competitive and appropriate to their circumstances.

Simply send your PrimeAdvisory Accountant or Financial Advisor a copy of your latest super statement for MBS Insurance  to provide a one-page review for your peace of mind.

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It’s the teamwork that makes the dream work

It’s the teamwork that makes the dream work

June and July are pretty big months for everyone at PrimeAdvisory.  It’s peak season for all of our team, working together using great teamwork to assist our clients with their end of financial year tax, accounting and planning for the next financial year.

Celebrating our milestones and achievements is something we do consistently and that we place great importance on as outlined in our recent blog about Quarterly Themes. One of the biggest celebrations on the Calendar is our End of Financial Year celebration.

Having achieved our targets for the quarter and year, our team recently enjoyed a lunch at the famous Bar Reggio in Surry Hills and then followed it with an afternoon at Cork & Canvas.

 

PrimeAdvisory does Pizza and Pasta at Bar Reggio in Surry Hills

Each team member had the opportunity to paint an abstract portrait of a colleague, guided by an artist in residence. It’s surprising how creative us financial types can get when we are allowed to drink wine and paint at the same time!

 

Angus and Michelle prepping for the painting

 

Sue showing some artistic talent with her portrait of Mark Kelly

 

Yvette with her work in progress

 

Who knew Mark Greenwood was so handy with a paint brush!

Following a couple of creative hours, the whole team where surprised by everyone’s creative and artistic interpretations of each other.

Cork and Canvas did a great job of guiding the team and subsequently shipped the artworks backed to our office.  We then ran our own version of The Archibald and voted on the best overall and best likeness.

When you are next at the PrimeAdvisory office you can peruse the artworks on display and be impressed by how creative we are.

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An Easy Way To Work Out What Tax Cuts You Can Expect

An Easy Way To Work Out What Tax Cuts You Can Expect

As widely reported, the Australian Parliament recently passed a bill to cut taxes which will apply to the tax return you are about to file or just have for the 2018/19 financial year. Depending on what your taxable income is for the year just gone, with the tax cuts you can expect a refund of up to $1,080.  If you’ve already submitted your tax return, fear not, you’ll still get the promised tax refund based on your earnings.

You can reference a detailed yet easy to understand explanation (including a handy calculator) in a recent article by The Guardian Australia which details how much you will receive now based on your individual income. Even more importantly, it also calculates what you can expect over the coming years.

Work out what your tax cut looks like for you.

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Tips For Successful Business Planning

Tips For Successful Business Planning

At PrimeAdvisory we’ve worked out that failing to plan usually means planning to fail.  For years now we’ve diligently set aside time to create a business plan each year, which is then supported by smaller 90 day plans called Quarterly Themes.  Given our tagline is about “keeping you on-track” it’s critical that we walk the talk ourselves and have a process to do so.

This commitment and discipline to planning and tracking results has helped us consistently achieve consecutive year on year growth.  The best plans are one’s that are simple, have clear metrics within them and that are easily understood.  That’s why we choose to base business plans on a simple one-page format.  We like to use Verne Harnish’s One Page Strategic Plan as our template.

This system for business planning keeps everything in the business plan aligned with:

  • The core values of the business
  • The purpose of the business
  • The Big Hairy Audacious Goal (BHAG) the business is focused on

As we’re already starting the new financial year with a fresh new one-page strategic plan, we thought we’d share how we’ve managed to make planning work so well that we’ve stayed on-track to achieve our goals for several years running.

Read “Scaling Up”:

All the directors of PrimeAdvisory have read Scaling Up, by Verne Harnish. This has helped us define the key decisions we need to get right:

  1. People
  2. Strategy
  3. Execution
  4. Cash

The book also provides a practical framework for how to define what it is that we need in those key areas.  With this guide we can focus on the big picture.

Get clear on why you are in business and the rules for how you operate:

Otherwise known as purpose (why you are in business) and values (the rules for how you do business). The book outlines a way to ensure your purpose and values are meaningful and authentic to your business.

Get clear on what your Big Hairy Audacious Goal (BHAG) is:

This is where it get’s exciting!  To help energise and align the entire organisation, it’s key to have a goal that’s measurable but also momentous!  This is when it’s time to think big and define a big goal that you can work towards in say 10 years’ time.

Make sure you’re measuring what matters:

It’s important to spend the time you need to make sure that the KPI’s you put into your plan line up. Ideally, they are directly aligned with your brand promise which is supported by your core values and purpose. These metrics can then be used to focus your teams and measure their success.  Then when those critical numbers have been hit you have appropriate rewards in place to celebrate the success.

Keep everything accountable and make sure there’s always ownership:

To get to where you want to go it’s important that you know who is responsible for achieving the results you are after and what actions are to be undertaken by whom to get it done. Good communication on who is responsible for what will also make sure there’s no confusion.

At PrimeAdvisory we have extensive experience in guiding business owners to stay on track with their goals.  If you would like assistance with facilitating and structuring your own one- page strategic plan, contact us.

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