NEWS & INSIGHTS | MORTGAGE BROKERS | PALM CAPITAL

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Stability in Turbulent Times

A part of prudent financial preparation is making use of mortgage resources.

Fears of a worldwide slump have increased as major central banks tightened monetary policy last week in reaction to the global economic situation and surging prices, with the RBA boosting the base rate by 0.25% to 1.25%. Inflation reached 9.1% in May, global financial markets have grown more unpredictable, and yearly home prices in Australia were up 10.5% in the first quarter of this year. Given this economic backdrop, it’s not surprising that households throughout Australia may be yearning for greater assurance in an uncertain future.

In these unpredictable and uncertain times, proper debt counselling is critical for holistic financial planning. Seeking the appropriate counsel from mortgage consultants and financial advisors might save borrowers thousands of dollars in interest and tax payments over time, as well as providing greater clarity and control with personal expenses.

Using interest-only mortgages to increase monthly cash flow flexibility

While many borrowers are drawn to interest-only mortgages in order to reduce mortgage repayments, they are also an excellent tool for adding flexibility to monthly outgoings, particularly for individuals with changing earnings such as company owners or bonus earners. Given the volatility of financial flows in the present economic situation, this added pliability is more vital than ever.

A recent enquiry came from a managing director of a company who had encountered tremendous volatility in previous years about their business profitability, despite the fact that the most recent year showed a large rise in profits. They wanted to borrow $1.5 million against a home worth $1.8 million, but they were apprehensive about the recent downturns and fluctuating interest rates.

Monthly payments on a mortgage of $1.5 million with a complete repayment plan would exceed $7,500, while those with a combination of interest-only and repayment would total just $5,200. The customer then has the option to make further overpayments of about $2,300 each month, bringing the debt down to the same level as the full repayment mortgage. By including an interest-only component to the mortgage, the customer gained both flexibility and the ability to pay down portions of the loan balance as and when they wished.

The Advantages of Offset Mortgages

In unpredictable times, offset mortgages might be a fantastic choice, for example, for businesses who require rapid access to capital in moments of need. If a borrower has savings that exceeds the amount of their mortgage, they can use that amount to reduce their monthly mortgage payment and their interest expense. The mortgage may be paid off faster and with less interest over time, yet they still have access to their funds in case of necessity.

Furthermore, for individuals considering retirement, offset mortgages can eliminate cash flow difficulties and provide them greater discretion over when assets are liquidated. The timing of when you liquidate your assets is critical, and offsetting mortgages can lessen the danger of doing so at a time when financial markets and equities are down.