Bridging loan or deposit bond

When selling one property and purchasing another, the funds from the sale may not be available in time to use for the purchase deposit.  There are typically two options in this scenario: a bridging loan and a deposit bond.

Bridging loan

A bridging loan is a short-term home loan designed to allow you to initiate the purchase of a property before you have sold your previous one.

Loan terms are often between six and 12 months. Bridging loans do not always have a higher interest rate than traditional home loans. Some lenders may even allow the interest to be capitalised.

This can be a great option but carries some risk. It’s important to know that you will be able to make the repayments even in a worst-case scenario where your old house doesn’t sell as quickly as you’d hoped or where property values may change unexpectedly.

It’s important to talk to a broker and ensure that you have the capacity to service the loan for the period of time required.

Deposit bond

A deposit bond is a tool that, upon agreement with a vendor, can replace the requirement of a cash deposit when purchasing a property.

This can be a relatively cheap method of initiating the purchase of a property usually without the need to liquidate your other assets.  The cost of a bond can vary depending on transaction complexity and the term being sought.  In a simple transaction, it is likely to be approximately 1.3% of the amount of the deposit.  For example, for a deposit guarantee to the value of 10% of a property price for an individual purchasing an established property in NSW and repaying that guarantee within 6 months on a $50k deposit for a property purchase of $500k, the fee will be about $650.

A deposit bond is issued by an insurer to the vendor of the property for either the full or partial deposit required.  At settlement, the purchaser must pay the full purchase price including the amount of deposit.  At this point, the deposit bond becomes void.

If the purchaser fails to complete the purchase of the property, the vendor can present the deposit bond to the insurer who will provide them the entire value of the deposit bond.

The insurer will then seek reimbursement of the deposit bond from the purchaser.

Deposit bonds are generally a fair bit cheaper than a short-term loan, but it’s important to talk to a mortgage broker to compare the two, taking into account your requirements and objectives and your financial situation.

 

Reserve Bank keeps interest rates on hold at record-low 1.5pc

The Reserve Bank of Australia has left official interest rates on hold as expected after its monthly board meeting. RBA Governor Philip Lowe said the central bank decided to leave the cash rate unchanged at a record low 1.5 per cent.

The decision to leave rates unchanged for a 13th consecutive meeting was widely expected by financial markets. A Bloomberg survey showed all of the economists polled expected rates to remain on hold for the rest of the year.

However, market pricing has a hike of 25 basis points priced in as a near certainty within the next 12 months.

Recent economic data in Australia has been mixed, with strong employment data offsetting disappointing retail sales and lacklustre economic growth.

Strong growth in full-time employment this year and upbeat comments from Governor Lowe have economists tipping a greater chance of hikes than cuts.

In recent weeks, ANZ and NAB have predicted two rate hikes next year, while JPMorgan abandoned its earlier predictions of two more cuts.

The RBA has continued to hold rates steady despite interest rate hikes from the US Federal Reserve and the Bank of Canada this year.

It also comes after the Australian dollar hit a two-year high of US81.25 cents last month.

– October 2017

 

Joint bank accounts – Should you open one?

When a couple gets married or has been in a relationship for several years, it is common to operate out of a joint bank account. So, is this beneficial? Is this the right way to go about things? Is it offensive to tell your partner that you would prefer to keep your accounts separate?

A significant portion of relationship breakdowns can be directly related to disagreements about money and spending habits. In fact, day-to-day arguments about finances between couples are more common than it needs to be.

Is A Joint Bank Account a Good Idea?

This purely depends on your situation. If you have a boyfriend or girlfriend, having a joint bank account is not always a good idea; particularly if you don’t have too many shared expenses. However, if you live together and/or have children together, then a joint bank account may be a good idea.

If you are married, there is a high likelihood that you will share many expenses. Generally, a high level of shared expenses will often give more cause to having a joint account – purely from a simplified financial perspective. Also, once you are married, all assets, regardless of who ‘owns’ them or whose name they are in, are generally considered ‘marital assets’ and by law will be effectively owned by both of you anyway.

In saying this, the most important thing to consider when determining if it’s better to have a joint bank account is that you and your partner are on the same page financially.

  • Do you share similar spending habits on a daily basis?
  • Do you have the same respect for money as each other?
  • Have you spoken about the things that you would like to save towards?
  • Is it possible one of you will spend more than the other and create tension in the relationship?