Your Money & You – June 2010
RADM Nigel Coates AM RAN
8th March 1959 – 2nd June 2010
Nigel Coates was the inaugural Navy representative on the Council. He was a great supporter of our work and understood the importance of it for the welfare of his people. His advocacy of the Council's role in the ADF, particularly in our formative years, was much appreciated and will not be forgotten. On behalf of the Council, I express our condolences and support to Nigel's family, Vickie, Tim, Ben and Stephanie.
GPCAPT Robert Brown
Independent Chairman
Practical steps to manage your home loan
There's nothing like going home after a long day and putting your feet up for some well deserved R&R. Our homes can act as a sanctuary from the outside world. And for most of us, our home is our most valuable asset as well.
Recently, interest rates have risen so it is important to remember the essential, practical things you can do to manage your home loan.
If you are having problems meeting your mortgage payments, putting your head in the sand and ignoring the problem is the worst thing you can do. It could lead to you losing your home. There are steps you can take that will help you manage – whether you're finding meeting your repayments just a little difficult or a big stretch.
Do a budget
You've heard it time and time again because it really is the best thing you can do for your personal finances. But don't think of it as being a budget - think of it as a 'spending plan'. Budgets or spending plans allow you to free up your money so you can spend it on something really worthwhile. It doesn't matter whether you're saving for the short, medium or long term, the way to find extra money is by having a plan.
A great place to start is the free online Budget Planner at www.ADFconsumer.gov.au to see what costs you can cut. You'll probably be surprised by how much you can save without feeling much pain.
Make fortnightly repayments
If you make fortnightly repayments rather than monthly you make the equivalent of 13 monthly payments each year instead of 12.
Fortnightly repayments can cut four years and a staggering $40,000 in interest payments off a 20-year home loan of $200,000.
And if you can pay an extra $100 above the minimum repayment per fortnight, you will cut 7 years off your loan. This will free up money significantly to grow your investment portfolio down the track.
Consider switching
By switching home loans you could save yourself thousands of dollars in interest or take advantage of features offered by another loan.
But before you decide to leave your current loan, work out how much it will cost you to switch to a new home loan. Your current lender might charge you fees to exit your current loan, and a new provider might charge you fees to start a loan. Work out whether reducing your interest rate with a new loan outweighs the costs of switching from your existing one. The lower the exit and start-up fees, the more you stand to gain by switching.
If the fees are high it may not be worth switching or may be better to wait and switch later. There are four things you should do if you're considering switching:
- Shop around and compare loans from at least three home loan providers
- Work out all the costs of switching
- Compare interest rates, fees and features
- Ask yourself if the benefits of switching are worth the costs
Go to www.fido.gov.au/switching for more details.
Talk to your lender
If you are struggling to make your next home loan repayment, you should talk to your lender as soon as possible. All retail banks, building societies and credit unions have signed up to the Government's Principles to assist people in financial difficulty.
Options for assistance that the banks can offer include:
- Postponement for up to 12 months on repayments
- A longer contract with lower repayments
- Making interest only repayments for a short period of time
- Fee waivers
If you're feeling stressed about your home loan you can also talk to a financial counsellor. They can give you free and independent personalised advice about the best thing for you to do.
Go to www.fido.gov.au/survivalguide for more information, practical tips and useful links to help you through tough financial situations.
For financial tips and safety checks visit ASIC's consumer and investor website, FIDO at www.fido.gov.au or call 1300 300 630. E-mail ASIC with topics that interest you via ADFcolumn@asic.gov.au.
DODGY TAX SCHEMES
Don't buy yourself a lemon
The Australian Taxation Office (ATO) is conducting a national awareness program to help taxpayers protect themselves against promoters who are marketing dodgy tax schemes. The ATO is concerned that promoters may take advantage of the recent financial vulnerability of many taxpayers by increasing the marketing of high risk tax schemes such as 'mortgage management' and 'early release of super schemes'.
This year, the ATO campaign combines on-line advertising with advertisements in a number of major newspapers and investment magazines. The ATO is also working in partnership with the community by alerting taxpayers through professional associations and tax return intermediaries.
Making investment decisions - have you done your research?
Are you considering a tax-effective investment? It's important you have all the facts to make an informed decision.
Some investments offer tax benefits such as reducing assessable income or increasing deductions, but end up being outside the law. You can check with the ATO to ensure promised tax benefits will be available.
Find out as much as you can about an arrangement before investing. Make sure the arrangement has a prospectus or product disclosure statement and get independent advice about the promised tax benefits from a professional adviser.
A person associated with or selling the scheme is not independent.
Start by visiting www.ato.gov.au/investing and read the Investigate before Investing fact sheet. It provides information about tax effective investing and how to detect potential tax avoidance schemes.
You can also check if the arrangement you're considering is covered by an ATO product ruling confirming the tax benefits, or if a Taxpayer Alert has been issued warning about the arrangement.
Doing your research will help you avoid negative consequences including having to repay tax and incurring interest and penalties.
Further information
The following fact sheets are available on the Taxation Office website at www.ato.gov.au:
- Recognising and reporting tax avoidance schemes - for tax agents
- Making tax effective investment decisions - for sophisticated investors
- Tax planning - investigate before investing - for general investors
These fact sheets, along with more information for investors, are available on the Aggressive Tax Planning home page at www.ato.gov.au.
Key Message
If it looks too good to be true, it is too good to be true. So be warned!
During Career Seminars
An increasingly popular service offered by the Council is our program of During Career seminars.
This is a presentation of between one and two hours (at your location anywhere in Australia). Its purpose is to update ADF members on key issues in financial literacy, such as budgeting, debt, risk and investment.
Alternatively, it can be tailored to the needs of your people's particular requirements or interests.
These programs work best with an audience of at least 40 people. If you'd like to request a During Career presentation, please visit the website and complete the seminar request form.