Frequently Asked Questions about "Loans ..."
What is the maximum amount I can borrow?
Should I get a fixed rate or the variable rate loan?
How much does Home Loan Advice Centre’s service cost?
How much can I save by paying extra off the loan?
Can I link an offset account with the loan?
What is mortgage insurance and do I have to pay it?
Can I redraw excess funds from the loan?
What are the ongoing fees associated with the loan ?
Should I go for the honeymoon rate loan?
Frequently Asked Questions about "Financial Planning ..."
Where should I start to plan for the future?
Why do I need to see a financial planner?
When should I see a financial planner?
I want to find out more about salary sacrifice. Should I see a financial planner
What is the minimum balance you should have prior to starting a SMSF?
Can My SMSF borrow to purchase property?
Can fund members occupy residential property?
How can I transfer the property?
What happens when the loan is fully repaid?
Can I make cash contributions into my SMSF?
Can I make Contributions to my SMSF other than by way of cash?
How are the Contributions Allocated?
How much can I contribute to Super?
What is the difference between a Non Concessional Contribution and a Concessional Contribution?
What is Salary Sacrifice and how does it save tax?
Can I prepare and lodge my own SMSF tax return?
Answer
1. What is the maximum amount I can borrow?
Each bank calculates your maximum borrowing capacity differently using their own serviceability calculators. At Menzies Financial we run your figures over all the banks calculators and determine the amounts each bank is willing to offer you. We can also suggest ways to increase your borrowing amount if required. In general, the higher your income and the lower your other liabilities are, the more you can borrow. See the How much can I borrow calculator page for more information.
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2. Should I get a fixed rate or the variable rate
loan?
It depends on your circumstances and your outlook. Fixed rates are usually a little higher than variable rates so you have to weigh up the alternatives ie comparative cost of each option, the requirement you have for certainty in your repayments, what you believe rates will do in the future, and the question of how long to fix for. Fixed rates have the benefit of giving you full knowledge of what your repayments will be over the term you fix however they also have a number of disadvantages. These may include a limit to the amount of extra repayments that can be paid off the loan each year. Most lenders limit this to an extra $5K or $10K over your agreed repayments There may be significant break costs if you have to break the fixed rate period before its expiry date ie if you decide to refinance or sell the security property. The fixed rate is usually set at time of settlement - not at the time the rate is quoted to you at the beginning of the arrangement of the loan. You can however "lock" the fixed rate upfront however there usually is a charge for this and the amount is dependent on the lender you are using.
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3. How much does Menzies Financial Group’s service
cost?
Depending on what area you are seeking advice, will determine if there is a fee or not. Generally it costs you nothing. As a group we refer large volumes of loans to each bank and commissions are paid back from these lenders based on this volume. The end result is that you end up with exactly the same loan as if you went to the bank directly but gain through getting our knowledge and advice on which banks it is worthwhile for you to approach and which banks are not. You also gain from our knowledge of loans and advice on the best way to structure your loan.
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4. Can I pay extra off my loan?
As long as it’s a variable rate loan, virtually all banks allow you to pay off as much as you like in extra repayments. With fixed rate loans the situation varies between banks. Most limit the extra amount you can pay off to $5000 per year but some allow up to $10,000 extra per year. Splitting your loan to half variable and half fixed overcomes the problem if you want to pay extra and still have the security of a fixed rate loan.
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5. How much can I save by paying extra off the loan?
You can potentially save very large amounts in interest cost by paying the loan off more frequently and by paying off extra amounts. At Menzies Financial Group we use software that can show you exactly how much you would save in any given scenario and suggest ways you can achieve the greatest savings. Setting your loan up with an offset account also can be a way to pay your loan off more quickly because any funds placed within this account is effectively equivalent to paying principle off your loan. Contact us to find more about this powerful structure.
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6. Can I link an offset account with the loan?
It depends on the actual loan. There is no set rule but most standard variable rate loans and honeymoon rate loans will allow them, but most discount variable rate loans won't. They are useful to have because they save on interest and are convenient.
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7. What is mortgage insurance and do I have to pay
it?
Mortgage insurance covers the bank in case you default on your loan repayments. It does not cover you - the borrower. As a general rule, the banks require you to pay for this if the loan amount you are requesting is greater than 80% of the purchase price. The only way to avoid it is to borrow less than 80% or provide additional real estate security to bring the loan to value ratio (LVR) to below 80%.
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8. Can I redraw excess funds from the loan?
It depends on the actual loan. Most variable rate loans have this facility and the cost varies between $15 and $50 per redraw and limit to the amount you can redraw. Some loans allow free redraw.
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9. What are the ongoing fees associated with the loan?
It depends on the actual loan. Most loans have a monthly service fee of around $8 to $10 however others have none. Usually the loans which have a monthly fee have a lower interest rate which can often make them worthwhile. There are also a number of premier package loans on offer by many of the main lenders which charge an ongoing yearly fee of between $295 and $350. The benefits are rate discounts and other advantages.
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10. Should I go for the honeymoon rate loan?
Honeymoon rate loans can be good for those people in a situation who want as low a rate as possible in the early days of their loan – usually the first 12 months. After that these loans usually default to the standard variable rate. Whether it is better to go for the honeymoon rate loan or a discount variable rate loan from the out set is dependant on the client’s individual preference and situation however it is very simple to calculate exactly the interest payments for each option to determine which is best for you. Call Menzies Financial Group to run through your scenario.
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11. What is financial planning?
Financial planning is the process of meeting your life goals through the proper management of your finances.
Your life goals could include buying a home, saving for your children's education, managing debt or planning for retirement.
Financial planners use a six-step process that helps you take a 'big picture' look at where you are and where you want to be financially. Using this process they help you work out what you need to do now and in the future to reach your goals.
The six steps of the financial planning process are:
- Gathering your financial data - such as details on your income, debt level, commitments, etc.
- Identifying your goals
- Identifying any financial issues - or deficiencies between where you are now financially and where you want to be.
- Preparing your financial plan - which will identify recommended investments and will address your attitude to risk
- Implementing your financial plan
- Reviewing and revising your plan - to ensure it stays up-to-date and relevant to the economic climate and your changing lifestyle
Source and copyright: Financial Planning Association 2002
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12. Where should I start to plan for the future?
Having thought carefully about what it is you want to achieve, and written down your objectives, a good place to start is to review your personal financial action plan. You will need to consider issues such as:
- Your Budget – A budget allows you to see where you really spend your money.
- Insurance – Adequate insurance is vital. You should regularly review your home and contents insurance, your life insurance and income protection insurance.
- A regular savings program – Saving regularly is a powerful wealth creation tool. The discipline of saving is rewarded in the long term.
- Wills and Enduring Powers of Attorney – Your will may not necessarily determine where your super goes.
- Superannuation – Superannuation is one of the most tax effective investments available. Take the time to understand your super fund so you can make the most of your end benefit. Contact Menzies Financial Planning to determine what is best for you.
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13. Why do I need to see a financial planner?
Constant change in superannuation, taxation and social security legislation means that even simple decisions can have unforeseen consequences over the long term. This can be particularly so as we move from work into retirement. A financial planner can help you plan for your future and to avoid some of the pitfalls and traps along the way.
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14. When should I see a financial planner?
There are a number of situations where a financial planner may be able to help. Some of the most important times include:
- If you are within 12 months from leaving work
- If you are facing a significant change in your circumstances (eg redundancy, career change, transition to retirement)
- If you receive a lump sum of money (eg an inheritance, a property sale, a windfall)
However, there is no harm speaking to an experienced Financial Planner for no cost as soon as you start earning working full time, get married, have kids or just feel the need to speak to someone that can help plan your financial future.
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15. I want to find out more about salary sacrifice. Should I see a financial planner?
It may be necessary to speak to a financial planner however there are a number of avenues you should explore first. Initially, discuss your situation with your Human Resources area. Many departments have a remuneration consultant that they can suggest you contact. Then, if you are considering salary sacrifice into super just call us for your options.
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16. It's important you know...
This information is published for your interest and every effort has been made to ensure the information contained in it is accurate. The item above is of a general nature only, is not completely comprehensive, and has not taken into account your personal situation or requirements. Also, changes in legislation sometimes occur very quickly.
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17. What is the minimum balance you should have prior to
starting a SMSF?
Opinions on this vary greatly, but the only real way to assess it is to work out your break even point. The fact is that the costs to manage a SMSF are falling, as the industry becomes more competitive. The break even point will depend on how much you are presently paying in fees with your current super fund manager. For example if your have $100,000 in super in a retail fund and are paying 2% in fees then it’s costing you $2,000 a year. If you do your own accounting a SMSF can be managed for as little as $500 a year.
It’s also important to consider is that as your fund balance grows a percentage based fee will see your costs increasing year after year. SMSF management costs are not % based so the break even point favors’ SMSF’s more and more each year.
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18. How do I setup a SMSF?
Menzies Super Fund Loans provides as service to set up your SMSF. The process also includes getting your loan approved and establishing the Security Custodian for you to purchase a property.
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19. Can My SMSF borrow to purchase property?
Yes, recent changes to superannuation legislation now permit SMSF’s to borrow to invest. A separate trust known as the “Security Custodian” (also known as the “Bare Trust”) is established to hold legal ownership of the asset on behalf of the SMSF. Then the SMSF takes out the loan and contributes the deposit to buy the asset. The SMSF then manages the property just as you would personally. When the loan is repaid, legal ownership of the property can be transferred from the Security Custodian to the SMSF.
The loan is a limited recourse loan with the property used as security. In the event of a loan default, the lender only has recourse to the property and not against any other assets of the SMSF.
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20. Can fund members occupy residential property?
You cannot occupy residential property owned by your SMSF. If a member of the super fund occupies the property the ‘in- house asset rule’ would be breached. However, the super fund can buy a property that the investor intends to live in after retirement. This is possible if you transfer the property from your super fund to yourself after you retire. If you have retired there is no capital gains tax payable when you transfer the property.
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21. How can I transfer the property?
The super fund can direct the Property Trustee to sell to any third party (subject to paying out your mortgage loan and any other amounts which might be outstanding).
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22. What happens when the loan is fully repaid?
When the loan is fully repaid, the super fund is entitled to have the legal title transferred to it. It may be possible to transfer without incurring tax, GST, or Stamp Duty liabilities (other than nominal) as the super fund will already be the beneficial owner.
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23. Who pays what and when?
As the beneficial owner of the property and the borrower of the loan, the super fund is responsible for paying all the usual amounts that you would expect to if you had bought an investment property and borrowed money on it outside a super fund. For example, the super fund will be required to pay:
- Council rates, water rates, and land tax (if any);
- Interest and other loan repayments;
- Repairs;
- Property management costs; and
- Insurance premiums.
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24. Can I make cash contributions into my SMSF?
Yes, cash contributions are made to your SMSF by simply depositing cash into your SMSF Bank Account.
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25. Can I make Contributions to my SMSF other
than by way of cash?
Yes. You can make Contributions other than by way of Cash by transferring either Listed Shares or Managed Funds into your SMSF. The amount of the contribution is the market value of the particular asset transferred.
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26. How are the Contributions Allocated?
All Contributions made to your SMSF whether in cash or via a transfer of assets must be allocated to a Fund Member. This is a legal requirement. It is also a legal requirement that each Member be issued with a Member Statement annually detailing their Member Balance movements including contributions made.
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27. How much can I contribute to Super?
Each person under 75 can contribute up to $150,000 per annum in Non Concessional into their SMSF. In addition if you are under 65 you can bring forward three years of Contributions into one and contribute a one off Non Concessional of $450,000 in one year.
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28. What is the difference between a Non Concessional
Contribution and a Concessional Contribution?
Personal Contributions made into Superannuation on which no tax deduction is claimed are known as Non Concessional Contributions. Contributions made into Superannuation on which a Tax Deduction is claimed are known as Concessional Contributions. The Contributions made by your Employer are Concessional Contributions because your Employer has claimed a Tax Deduction on the Contribution claimed.
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29. What is Salary Sacrifice and how does it save tax?
Salary sacrificing simply describes the strategy of making an agreement with your employer to pay part of your pre-tax salary directly into your SMSF. The advantage in salary sacrificing is that the contributions made to your SMSF are not taxed in your personal name but in the SMSF at 15%. So if your personal tax rate is more than 15% there is a tax advantage in salary sacrificing. For example say you are on the highest tax rate bracket of 46.50% and you salary sacrifice $10,000. The amount sacrificed of $10,000 will not be taxed in your name saving you $4,650. It is however taxed in the name of your SMSF at 15% resulting in a tax liability to your Fund of $1,500. This is a net tax benefit to you of $3,150.
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30. Can I prepare and lodge my own SMSF tax return?