Faraday West & Co Pty Ltd
Faraday West & Co Pty Ltd

July – August Newsletter 2017

If you love the location of your property but you’re not so keen on the property itself, you may want to consider a knock down rebuild. Our article Quick Guide: Financing a Knock down rebuildwill help you avoid unwanted surprises and hidden costs.

Have you been paying attention to how well your super fund is performing and whether it will be able to support you in retirement? 5 Smart Ways to Maximise your Super will give you strategies for taking an active role in growing your super.

Are you making the right choice paying off your home loan quickly? Find out whether your money could be better off spent elsewhere.

We might be heading towards a highly automated cashless society but there’s still value in human interaction. Check out Does Automation require a Human Touch?

Feel free to share this newsletter with family and friends.

Kind Regards,

John Paraskevas
Director – Faraday West & Co Pty Ltd

Faraday West & Co Pty Ltd
207 Riversdale Road
Hawthom VIC 3122

Email: john@faradaywest.com.au
Website: http://www.faradaywest.com.au
Tel: 03 8862 3800
Fax: 03 9819 5711

In This Issue

1. Does Automation require a Human Touch?
2. Quick Guide: Financing a Knock Down Rebuild
3. 5 Smart Ways to Maximise your Super
4. Are you making the right choice paying off your home loan quickly?
5. Did you know?
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Does Automation require a Human Touch?
The digital revolution has placed Australia on a fast trajectory to becoming a highly automated, cashless society. Some experts believe we will be cash free as early as 2022 and research indicates that over the next 20 years, 44% of current Australian jobs are at high risk of being affected by computerisation.

The Australian Payments Network Milestone Report shows the use of cheques has dropped by 56% over the last five years, and the number of ATM withdrawals has declined by 22%. Over the same time, we have increased our direct entry (direct debit and direct credit) transactions by 36.5% and our card payments by a staggering 71.6%.

It seems Australians are embracing the convenience of automation and contactless technology in growing numbers. You only need look at how many customer service functions have been automated to realise that there will come a time when robots will be able to comprehensively mimic human conversations, both listening and speaking.

Despite these changes, there remains a strong demand for human interaction. The active connection between a business and its customer is still recognised as adding incredible value to the service experience.

As mortgage brokers, we see the benefit of the human touch in many ways. By communicating with our clients, one-on-one, we develop a broader picture of their circumstance. This personal engagement enables us to affect outcomes for our clients that are both meaningful and long lasting.

Quick Guide: Financing a Knock Down Rebuild
If only a knock down rebuild was as simple as bulldozing an old home and putting a new one in its place. The reality is often a lot more complicated and can involve hidden costs and unwelcome surprises.

This might include finding asbestos or coping with the costly replacement of aged water, electrical and sewer infrastructure. The existing foundations might also cause trouble because if they are not up to the job of supporting a new home, they will have to be excavated and replaced.

The demolition cost may vary greatly between contractors so it’s worth getting a few quotes. The price will depend on issues like how easily the site can be accessed, what sort of materials are involved and what can be salvaged and sold. You may have to pay extra to completely clear the site of rubble or have it filled and levelled.

To compensate for these issues, it’s important to buy the land at a good price and have wriggle room in your finances. A common way to finance a knock down rebuild is with a construction loan. Here’s how they work.

You can draw funds as required

Unlike a traditional mortgage where you receive a single lump sum payment, a construction loan allows you to draw funds from the loan progressively as your invoices arrive – progress payments.

You pay less interest during construction

You can save money during construction because you will only be charged interest on the money that has been drawn down, not the full loan amount. The interest rate on a construction loan can be higher than a standard home loan, but this is usually only during the period of construction. Once your building is complete, it may drop to a standard interest rate.

The repayments are also lower

Your loan is interest only during the construction period, which frees up your cashflow for other expenses. This is particularly handy if you are renting accommodation until your new home is complete.

How much you can borrow will vary between lenders

Normally the property would be valued as the land value less the cost of knocking down the old home. Construction loans are assessed by lenders in different ways and the loan to value ratios (‘LVR’ – the maximum proportion of the property’s value you can borrow) will depend on factors like whether you are using a licensed builder and the property’s estimated value. You will need to show proof of income, evidence of genuine savings or even council approved building plans and a fixed price building contract.

5 Smart Ways to Maximise your Super
You can ignore your super and hope that one day it will be able to support you in retirement, or you can take an active involvement in its growth.

For a comfortable retirement, Australia’s super industry research body, the Association of Superannuation Funds of Australia (ASFA) has estimated a couple would need an annual income of $59,971. If you don’t think your super balance is on track to achieve this, you might want to try some of these strategies for maximising your super.

1. Monitor your fund’s performance

Keep an eye on your super fund’s long-term returns and compare it with other funds. There are many super comparison websites that rate different super funds but be sure to look carefully at their scoring system to ensure you are comparing fairly.

It’s important to take an overall view of your fund’s performance, including its fees, investment options, extra benefits, insurance and service. Compare its returns over five years, not one, as last year’s best performer might not stay consistent.

If you decide to switch funds, make sure you are not losing out on life insurance and income protection cover.

2. Do it Yourself Super

A self-managed superannuation fund (SMSF) will give you control over how your super is invested if you are prepared to put in the time and effort required. When you run your own SMSF you can quickly buy or sell assets, choose your own shares and invest in property.

There are numerous benefits to establishing an SMSF, but there are also risks. It’s important to seek professional advice and do your research on reputable sites like ASIC’s Money Smart.

3. Salary Sacrifice

Ask your employer to reduce your salary and put it in your super fund account. This salary sacrifice strategy means you are continually contributing a part of your pre-tax salary to your super instead of taking it as cash. In addition to boosting your super, it will entitle you to tax benefits.

4. Know your tax entitlements

If your spouse earns $37,000 or less you are entitled to a tax offset when you contribute to their super account.

Low income earners with a taxable income of up to $37,000, who make after tax contributions to super receive a tax offset contribution into their super provided they meet certain requirements.

If you are self-employed, your personal super contributions are fully tax deductible provided you meet age and other eligibility criteria.

5. Combine your accounts

Locating all your lost super and consolidating them into a single account will make it easier to keep track of everything and you’ll only have to pay one management fee.

Are you making the right choice paying off your home loan quickly?
Some of us pay off our home loan as a top priority, while others are happy to stick with the 30-year repayment term. Which is the better option?

If you are the type of person who hates debt, you probably think it is a no brainer to pay off your mortgage quickly. After all, the sooner you pay it off, the more you save in interest repayments.

However, if debt doesn’t bother you, you might argue that it’s better to let your home loan runs its course. By not funnelling all your money into the loan you have cash in hand to spend when needed, such as to invest in property or take a holiday.

There is no right or wrong answer, but it is important to examine your reasons for wanting to pay off your loan earlier. Consider these issues when making your decision and have a chat with us if you need further advice.

Extra repayment penalties

Depending on the type of home loan you have, sometimes the penalties of making extra repayments outweigh the benefits. While exit fees on new loans were banned from 1 July 2011, older loans may still charge these fees for paying off your loan early. Fixed rate loans can also include penalties in their terms if you make extra repayments towards your loan above certain limits.

Other debt

With home loan interest rates at a historic low, there is probably a vast difference between the interest rate you pay for your mortgage compared to the interest rate you pay for your credit card or personal loan. Your debt should be paid off in order of priority – from the highest interest rate to the lowest. If your home is listed as security for any debt, it’s doubly important to prioritise paying off this debt first.

Rainy day fund

It can be dangerous to put all your spare dollars on your mortgage if you don’t have enough savings set aside for emergencies. A good option is to use a mortgage offset account, which will offset the amount you owe on your loan, only charging interest on the difference.

Did you know?
Changes to the way super is taxed came into effect 1 July 2017. You may be affected if you are making extra super contributions; have an income close to $250,000; have an income less than $40,000; have taken a break from the workforce; work part time; nearly retired or already retired.  Go to the ATO website for details.
Preferred Partners of Faraday West

Faraday West is a Full Member of the MFAA. This means Faraday West has recognised and proven qualifications and expertise in the mortgage industry, and is bound by a code of ethics to ensure the highest levels of service, integrity and professionalism.

About Us
FaradayWest is an established mortgage management company with offices in Victoria & Western Australia. Having been in operation for over 15 years, the people at FaradayWest have an intimate knowledge of the business of lending.

FaradayWest provides a suite of lending products that are sourced from both traditional banks and non bank lenders, ensuring that our clients have access to products that will meet their individual needs.

FaradayWest is a full member of the Mortgage Finance Association of Australia (MFAA). Membership requires ongoing evaluation of accreditation criteria, ensuring that FaradayWest is up to date with all forms of industry training and development. Therefore, you can be secure in the knowledge that you are dealing with professionals under the MFAA Code of Practice.

Faraday also cater for the commercial property market, check out our website for more information.

www.faradaywestcommercial.com.au

Life is short

Don’t spend it running after lenders, on hold in phones queues, or dealing with red tape.

More efficient financial management and superior lending knowledge will change the way you live your life and run your business

At FaradayWest, we specialise is flexible mortgage services that allow you to take hold of an opportunity on your own terms. We offer innovative loans tailored specifically to your individual needs.

We understand that your time is valuable. Our application process is quick, easy and no fuss.

Seize the opportunity! Choose a financial service that evolves with your changing needs – FaradayWest.

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