Saturday, July 27, 2013

Paying Endless Insurance Bills

Lately it feels like all I've been doing is paying insurance bills one after the other to protect against an unknown future and unforeseen events that may be detrimental to my hip pocket.

In the past few weeks, there have been a multitude of bills and statements regarding death insurance, disability insurance, car insurance, home and contents insurance, health insurance and the list is endless.

Since I haven't claimed against my insurance providers for years and years, I feel like I'm paying premiums into a black hole. Although being young means we are the ones paying for the older folks who are claiming insurance, it still doesn't alleviate the feeling that paying for insurance is such a (necessary) waste.

I'd rather pay my premiums and not claim, than have to claim of course. To claim insurance would mean whatever detrimental event that I've insured against has actually happened and I'd rather not have those events happen!

Does anyone else find insurance bills tiresome?

Thursday, July 25, 2013

To Fix The Mortgage Or Not Fix?

Now that we are thoroughly settled into the house and getting used to the new local amenities, travelling arrangements and so forth, it's time to review our finances again.

With a few mortgage payments already made, there's a little bit of routine happening now. Bills are coming fast and furiously with the multiple investments assets but that's fine because the bad stuff(bills and expenses) is exceeded by the greater positive stuff(investment income).

Currently, mortgage interest rates are at historic lows and looks to be staying that way indefinitely until our economy improves. Particularly the mining industry which is in the doldrums and majorly affecting government tax revenue, thus curtailing the government's spending in relation to social welfare and spending on infrastructure.

To Fix Or Not Fix The Mortgage Rates?

Hamlet(or rather Shakespeare) posed the question, "to be or not to be?" ... although he faced an existential crisis, our crisis is not as dramatic but rather a financial issue.

While interest rates are at record lows, they can be lowered even further. However on the other hand, if the economy improved then the rates would head upwards again to curtail inflation. 50/50 really.

The house mortgage is currently a 100% variable mortgage loan attached with features such as unlimited repayments, ability to redraw, 100% offset facility and the interest is at 5.25%. 

If we were to fix, the interest rate would be 4.99% with the option to fix for two or three years. By fixing a portion of the mortgage, that fixed portion would then be stymied by the ability to only make a maximum of $10k in extra repayments per annum and there's probably a limit applicable for redraws(will have to check the terms and conditions), penalties and limits to loan portability, penalties on breaking fixed loans and the offset account will no longer be 100% offset against the fixed loan component.

I've been contemplating on fixing 50% of the loan because I prefer certainty to uncertainty and if interest rates were to drop further, that's okay. BUT if interest rates were to rise then that could possibly hamper our lifestyle somewhat and pose new financial challenges. 

Property Planning Australia wrote a short little article which illustrates reasons that are to be considered prior to fixing which I thought was rather useful and may be of help to you if you're facing a similar scenario:
"• Would you like more certainty in knowing what your loan repayments will be?• Do you feel like you are stretched with your cash flow?• Do you have little equity or cash buffer to draw upon if things got tougher?• Are you risk averse?• If rates kept going lower after you fix, would you be comfortable knowing that you cannot access the lower variable rate without a hefty penalty that would almost certainly make it non-beneficial to get out of your higher fixed rate?• Are you confident that you will not sell your house or want to refinance during the fixed rate period?• Do you have non-deductible and deductible debt, and would you feel more comfortable knowing that you had a set repayment for part or all of one or the other?
If you answer yes to many of these questions, then you are starting to build a case for fixing your debt."
Did You Know That You Can Fix Your Mortgage Loan In Multiple Structures?

I was thinking about fixing and how it would throw a spanner in the works against making unlimited extra repayments due to the $10k limit on extra repayments...then the question arose, what if we could have multiple fixed portions? That would mean the extra repayments would only be capped by the structure that we've set up. Thought that was too good to be true, however a trip to the bank confirmed that YES it was possible to have several concurrent fixed loan components and each fixed loan component has the facility to accept $10k in extra repayments per annum!

That means that instead of the original structure that I was considering, I could have a better structure that was more flexible. We could even have 5 fixed loan components which would allow $50k in extra repayments per annum in addition to the unlimited extra repayment on the variable portion if we were really that flush with spare funds.

Structure 1: 
50% variable at 5.25%, 50% fixed at 4.99% for two years
Thus extra repayments on fixed portion capped at $10k per annum while extra repayments on variable portion is unlimited

Structure 2: 
50% variable at 5.25%, 25% fixed at 4.99% for two years and 25% fixed at 4.99% for three years
Thus extra repayments on fixed portions capped at total of $20k per annum while extra repayments on variable portion is unlimited

When I queried the branch manager on why people didn't structure their loan with the greatest flexibility, she replied that not many people knew about structuring and even if you tried explaining or suggesting the structure to them they would get confused, so her work was to help people arrange what they wanted.

As mentioned before in previous posts, I haven't got a crystal ball for the future, however with our current loan, I would like some certainty regarding mortgage repayments. On the other hand, I don't want to limit our ability to make extra repayments so the best option for our scenario is to go ahead with Structure 2 and restructure the mortgage into three parts. 

Tuesday, July 23, 2013

Buy Next Investment Property Along North West Rail Link?

Although the reality of buying another investment property(IP) isn't anywhere on the immediate horizon, these sort of plans need a long time to think about before implementation. Especially since property prices in Sydney are so crazy.

There are so many promising areas to buy properties for rental income. I've written about passive income from my investment property previously and most recently about the most recent house acquisition to live in.

Having visited Castle Hill Towers recently, I saw the construction of the North West Rail Link being built. This new train line will connect Nor West Business Park with the city and connect the Hills district suburbs that are densely populated(they currently only have bus services available) to finally acquire public rail services.

Suburbs that are likely to rise in prices due to the North West Rail Link stations being built: Cudgegong Road, Rouse Hill, Kellyville, Bella Vista, Norwest, Showground, Castle Hill and Cherrybrook. The new train line will hook up via Epping to go to Macquarie University, Macquarie Park, North Ryde and Chatswood, possibly terminating at the city.

When the Epping to Chatswood rail link was being built, I KNEW that property prices would boom DURING the construction and AFTER the rail line was finally completed. Never in my wildest imagination could I have known how quickly property prices APPRECIATED when the rail line was finally complete. Pretty much almost all the apartments within 10-15 minutes walking distance went up in value by approximately $100k to $150k within the year.

You could work and save year after year by scrimping and eating peanut butter sandwiches, not going on holidays and living miserly OR you could make wise investment moves and simply capture investment gains by investing wisely.

Other friends of ours are looking at buying IPs and there are so many potential suburbs. Any property within 15km proximity to the city will go up in value as our population grows and any suburbs that has large scale, public/social infrastructures being built will go up in value.

I'm still tossing over the idea about whether it would be a better move to buy close to the new railway stations being built on the new rail line or whether to stick to the tried and tested blue chip suburbs that are within 5km of Sydney CBD and are close to either water, cafes, schools or transport etc.

Historically, either choices would be wise but which would be the wisest move? Wouldn't we all like to see the future?

Tuesday, July 16, 2013

Big Houses And Hours Of Cleaning

Since I've moved to a house, there's been endless cleaning and work. If you've been wondering why SMG has been offline and haven't posted for a while, that's the reason.

When I wrote about the endless search in the quest to buy a house, I mentioned that I liked houses with wooden floorboards, high ceilings, minimum of two bathrooms, built ins and so forth. Now that I've moved into the actual house, reality hits.

Houses with large rooms take longer to heat up, houses with high ceilings take even longer to heat up, and generally houses with the combination of large rooms, high ceilings and wooden floorboards are destined to be cold in winter and takes forever to heat up. 

Dust likes to pile up along the edge of the rooms and along the hallways. Dust will pile up regardless of how often you vacuum! Where on earth does all the dust come from when the windows are almost always shut?!

I've rattled on about loving gardening and plants and my addiction to plants. Now that there's a garden attached to the house, there's hours of gardening work involved which is more maintenance than pleasure. House dwellers never seem to mention these things. Previously when I've lived on the farm, everything was allowed to grow wild and it looked great.

Living in a house however, there's endless lawn to mow, weeds to pull out from the garden, the footpath, the paving and from the lawn itself. Dead flower heads to cut off, plants to trim and hedges to maintain. 

We are still unpacking despite having moved for several weeks now. Bigger houses need more furniture and the house is semi furnished with furniture from the apartment. There are vacant rooms with nothing in them and although that doesn't bother me, it does bother Mr SMG who is a perfectionist, loves brand new and doesn't like hand-me-downs. I can be a perfectionist as well, but fortunately not when it relates to furnishing the house and housing decor or else I'd have gone mad looking at the empty rooms and endless space.

So more shopping to do and on top of that, the mortgage payments have commenced and the monthly interest is painful. I had forgotten how much mortgage interest charges suck. 

The goal would be to knuckle down and work on tackling the mortgage to make huge ass lump sum repayments. However, that goal has been derailed somewhat by the endless quest to furnish the house, repair the house (leaking taps, broken/damaged washers), installing security doors and dead bolts, installing down lights so the house isn't so fashionably dim and buying rugs so that we can heat up the house.

Oh, and you know what happens when you buy houses that have beautifully high ceilings? You need to buy a HUGE, TALL ladder so that you can reach the lights, the top of the built ins and be able to repair and clean the higher sections of the house ;p So think twice before your dreams become reality and the reality doesn't measure up with expectations... larger houses aren't always the solution and the reality of maintaining a larger house means dedicating hours to housework that wasn't previously required.