- Ask if a redraw facility is for you?
- Ensure your insurance policy is the right one for you
- Discuss how wealthy we are

Is a Redraw Facility for you?

redraw One of the most common features of home loans these days is called a redraw facility.

So, it’s not surprising that we’re asked how one of these works and whether it suits everyone.

A Redraw Facility means that you can deposit extra money into your home loan resulting in your payments being “in advance”. Now most loans have allowed you to deposit extra money in the past, but with this facility you can, subject to the lender’s terms, have the money back if you need it by “re-drawing” some or all of the advance payments.

Let’s say you find some great shares to buy, or a bargain motor car that you just can’t resist, there’s no need to apply for another loan, you simply redraw part of your advance payments and take advantage of that great price.

Naturally that flexibility comes at a cost, and that cost can be direct and indirect; let me explain.

First there are different kinds of redraw facilities on the market. Some of these have minimum or maximum limits on the numbers of redraws possible in any year and others have fees and charges involved every time you make a redraw. Others still have minimum and maximum redraw amounts that also might not suit. Some even have an activation fee before the service becomes available to you. These are some of the possible direct costs.

The indirect costs are perhaps less obvious.

When your account is in advance and something happens to your pay you may apply so that you may not need to make repayments at all for a period of time. If the extra is redrawn, that option disappears.

Similarly by making extra payments you’re reducing the loan balance so that you pay the loan off over less than the standard term set and potentially save interest. However if all you ever do is redraw advance payments then the loan balance is simply paid off over the full term of the loan.

So, if your goals are either to have some extra in the loan just in case or to pay off your home as quickly as possible, or both, then one of these facilities may not help you. Like most of these facilities it comes back to deciding what you want the facility to do for you, and sticking to it.

Any other questions?

That’s the great part about having us as your mortgage broker, it’s our job to be up to date with loan products and facilities and to be there to help you decide on what’s right for you.

So if we can help in any way, please give us a call.

Don’t Buy Insurance on premium alone

damage Everyone’s on a budget these days, and the cost of insurance premiums can run into some serious money.

But regardless of the kind of insurance involved, it’s also important to be covered for the things you need.

Here’s a case in point, a busy couple had their insurance arranged by their lender, the deal was done because of the convenience of the transaction and the more than competitive premium on offer.

As usual, problems with insurance only surface when a claim is denied, and that’s what happened in this case. Due to the drought, clay soil under a large boulder dried out. After a hefty shower of rain, that soil anchoring the boulder was washed away and the boulder rolled down a steep incline and did substantial damage to the rear of their home.

Naturally they rang their insurance company and explained what had happened. You can imagine how they felt when they were told they were not covered. The policy excluded this kind of event which it described as “land slip”.

Had they read the policy or got help on this specific issue they would have found out that this particular policy didn’t cover this very real risk to their home. Their options then would have been to either negotiate different cover or go somewhere else for their home insurance. Ironically, when they finally read the policy document (after the event) they found that they were covered for flood damage. Being located near the top of a very large hill, the chances of ever needing this cover were remote indeed.

But that’s it you see, the cost of your policy is determined largely by the risks that are covered. Put another way, sometimes policies are cheap because lots of events or risks are excluded, in other words not covered at all.

This rather expensive exercise cost this couple $11,000. So, the lessons are to think about the cover you need, read up on all the policy terms, especially the exclusions, and to shop around for a fair price for it. Hopefully then you won’t also be paying for cover you may never need.

Time to review your policy document?

How wealthy are we?

globe On December 5 2006, a remarkable report titled The World Distribution of Household Wealth was published after five years of research around the world.

So how did “the lucky country” rate in the pages of this report?

One of the measures used was personal net worth per head of population. In other words what we each own minus what we each owe on average. Here Australians ranked tenth in the list of 20 wealthy OECD countries with those lucky people in Luxembourg topping the list at $182,567 net worth per head. Australians’ net worth was $90,906 per head by comparison. The Swiss ranked second followed by the USA, UK, Japan and The Netherlands.

What about our love of real estate?

Here Australians ranked second in the world when it comes to real estate ownership as a percentage of their total assets (58%). The top nation was South Africa (60%), and then we were closely followed by The Netherlands (57%) equal with the UK with Denmark rounding out the top 5 at 54%.

Interestingly when looking at shares as a percentage of our total assets held, Australians ranked well down, 18th out of the 20 wealth OECD countries with only 20% of our assets held as shares. The top score was Italy where a whopping 55% of their assets were shares.