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Borrowing money isn’t always a bad thing – debt can be a sensible way to build wealth

<div class="theconversation-article-body"><a href="https://theconversation.com/profiles/bomikazi-zeka-680577">Bomikazi Zeka</a>, <a href="https://theconversation.com/institutions/university-of-canberra-865">University of Canberra</a> Debt, in some form or another, is part of our financial profiles whether we like it or not. And it can be a useful way to build wealth if it is managed carefully and wisely. For example, you may borrow money from the bank to buy an asset – a resource of economic value that generates income from its productive use. Investment property is an example. So investing in an income-producing property can be a good idea. If you are already in the property market, the home equity you’ve accumulated – the share of the property value that’s yours – can help you buy a second property. This time, you may not need a deposit as big as the initial investment. In the event that the rental market is booming and your tenants pay you more than what you repay on the loan, municipal rates and property manager fees, then the wealth-building machine will start to run itself. But debt makes many people uncomfortable. In South Africa, a person earning R20,000 a month commits on average <a href="https://businesstech.co.za/news/finance/585372/south-africas-middle-class-is-in-serious-trouble-right-now/">63% of their salary to repaying unsecured debt</a> – such as credit cards, personal loans, overdrafts or “buy now, pay later” facilities. As a general guideline, it’s suggested that <a href="https://www.investopedia.com/terms/d/dti.asp">no more than 40%</a> of your income should be used to service debt. Financial anxiety has its roots in some misconceptions. The main one is that all debt is bad. This isn’t true. Prudent borrowing to buy an asset can help build wealth in the medium to long term. So fears about debt need to be weighed against a broader understanding of wealth accumulation. Well-managed debt can play a role in that process. Here are the four biggest misconceptions about debt. Recognising them will help you develop a more nuanced approach to debt. <h2>The misconceptions</h2> All debt is bad debt. Indeed, debt is a problem when you can no longer manage it and it starts to manage you. One of the simplest ways to tell whether debt is working for you or against you is through “leveraging”. This refers to the use of debt to acquire an asset that is worth more than the value of the debt. It’s also known as positive or favourable leveraging. People who take out unsecured loans are leveraging unfavourably when the debt is driven by consumption. Often there’s nothing to show for what you’ve spent. Unsecured loans also tend to charge higher interest rates to compensate for the lack of collateral. Only financially reckless people are in debt. This is the next misconception. Second to unsecured loans, most South African consumer debt portfolios are taken up by <a href="https://businesstech.co.za/news/wealth/617685/these-income-levels-in-south-africa-owe-the-most-debt/">home loans</a>. The most realistic way to gain entry into the housing market is through a mortgage. You’re doing the right thing if your mortgage is paid off within a reasonable time. This will mean that, in the long term, the value of the property will surpass the home loan amount that was taken out to buy the property in the first place. But there are two misconceptions related specifically to mortgages. After you’ve paid the mortgage deposit, you won’t have other fees to pay. This isn’t correct. Banks charge a fee to open and close a home loan account. There can also be a penalty when a home loan is repaid prematurely. So be sure to read the fine print about discharge fees or closing costs. If you stick to the repayment amount for your mortgage, you’ll be able to repay the loan quickly. This isn’t true – even if interest rates fall and your mortgage repayments decline, your home loan is most likely tied to a loan term of 20 to 30 years. Many banks will quote a monthly mortgage repayment amount that seems affordable at face value but is in fact based on a 20-year term period. Banks are businesses and it works in their favour if you take longer to repay your mortgage because that translates into more interest repayments. The longer the duration of the home loan, the more interest you pay, the more profit they make. If it takes over 20 years to repay a bond, it’s often the case that the value of the interest repayments exceeds the initial loan amount. Home loan calculators are a useful tool that can help you assess how much you could afford to repay on a home loan depending on the deposit saved, if interest rates change and how long it will take you to repay the mortgage with topped-up contributions. It is essential to have a goal for when you’d like to finish paying off your mortgage and a plan in place to achieve this goal. If you don’t do this you could become a mortgage prisoner. <h2>Keeping your eye on the prize</h2> As we’re about to conclude the year and enter the festive season, it’s a good time to remember your financial goals and not let your guard down by unconsciously swiping or tapping that credit card. “Janu-worry” is around the corner, and so is the financial anxiety that comes with it. But it need not be the case. Debt can either be the cure or the cause of your financial position. Reconsider spending patterns that prompt you to use your credit card. Too much debt over short periods is an irregular spending pattern that is a warning sign. There’s no harm in buying what you can afford or staying in your financial lane if the alternative forces you to sacrifice your hard-earned income on servicing consumption-driven debt. For better or worse, debt is a part of our financial portfolios. But the road to financial empowerment is not always easy – financial planning can help you keep your eye on the prize.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/192630/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/bomikazi-zeka-680577">Bomikazi Zeka</a>, Assistant Professor in Finance and Financial Planning, <a href="https://theconversation.com/institutions/university-of-canberra-865">University of Canberra</a> Image credits: Shutterstock This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/borrowing-money-isnt-always-a-bad-thing-debt-can-be-a-sensible-way-to-build-wealth-192630">original article</a>. </div>

Money & Banking

The hidden risks of buy now, pay later: What shoppers need to know

<div class="theconversation-article-body"><a href="https://theconversation.com/profiles/vivek-astvansh-1318943">Vivek Astvansh</a>, <a href="https://theconversation.com/institutions/mcgill-university-827">McGill University</a> and <a href="https://theconversation.com/profiles/chandan-kumar-behera-1479139">Chandan Kumar Behera</a>, <a href="https://theconversation.com/institutions/indian-institute-of-management-lucknow-6023">Indian Institute of Management Lucknow</a> <iframe style="width: 100%; height: 100px; border: none; position: relative; z-index: 1;" src="https://narrations.ad-auris.com/widget/the-conversation-canada/the-hidden-risks-of-buy-now-pay-later-what-shoppers-need-to-know" width="100%" height="400"></iframe> <a href="https://www.canada.ca/en/financial-consumer-agency/services/loans/buy-now-pay-later.html">Buy now, pay later</a> is a relatively new form of financial technology that allows consumers to purchase an item immediately and repay the balance at a later time in instalments. Unlike applying for a credit card, buy now, pay later <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4591446">doesn’t require a credit check</a>. Instead, <a href="https://doi.org/10.1108/EJM-11-2021-0923">these programs use algorithms</a> to perform <a href="https://www.investopedia.com/terms/s/soft-inquiry.asp">“soft” credit checks</a> to determine <a href="https://theconversation.com/if-it-looks-like-debt-lets-treat-it-like-debt-buy-now-pay-later-schemes-need-firmer-regulation-in-nz-211820">a shopper’s eligibility</a>. This means buy now, pay later loans target <a href="https://www.theguardian.com/money/2022/jan/27/buy-now-pay-later-schemes-entice-consumers-spend-more">low-income, tech-savvy</a> <a href="https://www.cnbc.com/2022/10/27/gen-z-and-millennials-prefer-buy-now-pay-later-services.html">millennials and Gen Z shoppers</a> in an effort to <a href="https://libertystreeteconomics.newyorkfed.org/2023/09/who-uses-buy-now-pay-later/">supposedly improve financial inclusion</a> for these groups. However, the newness of buy now, pay later programs means existing <a href="https://doi.org/10.1111/acfi.13100">consumer credit laws don’t cover it</a>. This lack of regulation puts shoppers at financial risk of accumulating higher levels of debt. <h2>Credit cards versus buy now, pay later</h2> There are three key differences between credit cards and buy now, pay later loans. First, while buy now, pay later loans are a line of credit like credit cards are, <a href="https://www.cnbc.com/2022/05/04/klarna-to-report-buy-now-pay-later-data-to-uk-credit-bureaus.html">they don’t impact credit reports</a>. Because of this, shoppers might be less cautious when using buy now, pay later services. Credit cards typically have annual interest rates ranging from <a href="https://www.bankrate.com/finance/credit-cards/what-is-credit-card-apr/#credit-card-apr-vs-credit-card-interest">15 to 26 per cent</a>. While most buy now, pay later loans have no interest, longer term loans have <a href="https://www.cbsnews.com/news/buy-now-pay-later-loans-interest-rate-fees-tips-what-to-know/">annual interest rates of about 37 per cent</a>. Shoppers are <a href="https://hbswk.hbs.edu/item/buy-now-pay-later-how-retails-hot-feature-hurts-lower-income-shoppers">at risk of overusing buy now, pay later programs</a> and accumulating more debt than they can manage. In addition, formal lenders, such as banks, currently have no way of knowing what buy now, pay later debt a person is carrying. The lender, therefore, likely incurs more risk than they are aware of. Second, credit cards typically provide <a href="https://doi.org/10.1080/1369118X.2022.2161830">an interest-free period</a>, after which <a href="https://doi.org/10.1177/03128962211032448">borrowers must pay interest</a>. In contrast, buy now, pay later users typically don’t have interest fees, but can incur <a href="https://doi.org/10.1108/IJBM-07-2022-0324">late fees for missed or late payments</a>. Falling behind on payment terms <a href="https://www.forbes.com/sites/andriacheng/2020/12/16/why-retailers-are-embracing-buy-now-pay-later-service-this-holiday-season/">can result in charges</a> that exceed <a href="https://stateline.org/2022/02/02/regulators-scrutinize-buy-now-pay-later-plans/">typical credit card interest rates</a>, causing more harm than interest payments. Low-income buy now, pay later users are <a href="https://hbswk.hbs.edu/item/buy-now-pay-later-how-retails-hot-feature-hurts-lower-income-shoppers">particularly vulnerable</a> to <a href="https://www.consumerfinance.gov/data-research/research-reports/consumer-use-of-buy-now-pay-later-insights-from-the-cfpb-making-ends-meet-survey/">using overdrafts to cover their buy now, pay later payments</a>. Third, people typically have just a few credit cards, making it easier to keep track of payments. Buy now, pay later users, on the other hand, usually engage with multiple buy now, pay later lenders through retailers. As a result, it’s difficult for them to keep track of all the buy now, pay later lenders and retailers they made purchases from. <h2>What are the Canadian governments doing?</h2> Canada classifies buy now, pay later as an unsecured instalment loan, which means lenders are subject to laws at the federal and provincial levels. Under federal law, there is an <a href="https://www.sec.gov/Archives/edgar/data/1711291/000171129122000011/curo-20211231.htm">annual interest rate cap of 60 per cent</a>. Provincial laws require buy now, pay later lenders to disclose the cost of credit and extend consumer protection rights to buy now, pay later shoppers. At the provincial level, <a href="https://www.canada.ca/en/financial-consumer-agency/services/loans/buy-now-pay-later.html">specific laws come into play</a>. Manitoba, Alberta, Québec, and Ontario have passed laws that require lenders to be licensed before they offer these products and be subject to regulatory oversight. These laws regulate high-cost credit products that have annual rates of 32 per cent or higher. This means buy now, pay later services should fall under this category. However, I found no evidence of buy now, pay later lenders being licensed in Canada. This means either lenders are not aware they fall under these laws, or no one is enforcing them. This ambiguity over whether or not buy now, pay later lenders are subject to regulatory oversight could be a hindrance for banks like the <a href="https://financialpost.com/fp-finance/fintech/why-higher-interest-rates-threaten-the-buy-now-pay-later-bubble">Bank of Nova Scotia and the Canadian Imperial Bank of Commerce</a>, as it deters them from entering the buy now, pay later market despite its profitability. <h2>Questions to ask before using buy now, pay later</h2> Before signing up for a buy now, pay later loan, shoppers should consider the following six questions. 1. Payment structure. How much of the invoice amount needs to be paid upfront? The norm is typically 25 per cent. What is the number of remaining instalments? The answer to this is usually four. Lastly, what is the frequency of instalments? The norm is biweekly. 2. Sensitive information. Does the lender require you to provide information about your chequing account? This is sensitive information to give away and puts you at risk of data breaches. Most buy now, pay later lenders withdraw instalment amounts from chequing accounts or debit cards, potentially exposing shoppers to greater risks than credit cards. 3. Interest charges Does the buy now, pay later lender charge interest on instalment payments? The norm is no. 4. Late fees How much is the late fee, when does it apply and what is the maximum amount of the late fee? Typically, late fees don’t exceed $8 or one-quarter of the invoice amount. Late fees usually kick in if your scheduled payment remains unpaid after 10 days. 5. Data responsibility. Who is responsible for your data? Whether it’s the retailer, the buy now, pay later lender or a company whose cloud storage the provider may be using, you should know. In general, the buy now, pay later lender holds this responsibility. 6. Licensing. Is the buy now, pay later lender licensed to sell the loan? Usually, the <a href="https://dfpi.ca.gov/wp-content/uploads/sites/337/2020/03/afterpay-settlement.pdf">answer to this question is no</a>. <h2>Buy now, pay later regulation</h2> Two sets of laws and regulations should be implemented to address some of these issues. The first set of regulations focuses on how buy now, pay later lenders interact with consumers. These lenders should clearly communicate <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4359956">all terms and conditions of their loans</a>, including late charges, interest charges and payment schedules, on their platforms to ensure shoppers are fully informed of their financial obligations. The Financial Conduct Authority in the United Kingdom recently issued guidelines allowing buy now, pay later lenders to <a href="https://www.ft.com/content/ca428bc8-65c3-49ed-8ba6-0d6f206098aa">terminate, suspend or restrict access to shopper accounts</a> for any reason without notice. Effective September 2024, New Zealand will require buy now, pay later lenders to <a href="https://theconversation.com/if-it-looks-like-debt-lets-treat-it-like-debt-buy-now-pay-later-schemes-need-firmer-regulation-in-nz-211820">check a shopper’s credit</a> before providing them a buy now, pay later loan. The second set of regulations defines the scope and boundaries of buy now, pay later lenders. On Dec. 9, 2022, California became the first American state to <a href="https://dfpi.ca.gov/2022/12/09/buy-now-pay-later-protect-yourself-before-you-check-out/">classify buy now, pay later as a loan</a>. Such classifications allowed California regulators to <a href="https://stateline.org/2022/02/02/regulators-scrutinize-buy-now-pay-later-plans/">question lenders about their transparency in disclosing the terms of their offerings</a>. The hope is that these laws and regulations will facilitate microlending and not impede the existence of buy now, pay later services, but rather make it safer and more secure for both lenders and users.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/215421/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/vivek-astvansh-1318943">Vivek Astvansh</a>, Associate Professor of Quantitative Marketing and Analytics, <a href="https://theconversation.com/institutions/mcgill-university-827">McGill University</a> and <a href="https://theconversation.com/profiles/chandan-kumar-behera-1479139">Chandan Kumar Behera</a>, PhD Student in Marketing, <a href="https://theconversation.com/institutions/indian-institute-of-management-lucknow-6023">Indian Institute of Management Lucknow</a> Image credits: Shutterstock This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/the-hidden-risks-of-buy-now-pay-later-what-shoppers-need-to-know-215421">original article</a>. </div>

Money & Banking

Forcing people to repay welfare ‘loans’ traps them in a poverty cycle – where is the policy debate about that?

<a href="https://theconversation.com/profiles/hanna-wilberg-1466649">Hanna Wilberg</a>, <a href="https://theconversation.com/institutions/university-of-auckland-1305">University of Auckland</a> The National Party’s <a href="https://www.1news.co.nz/2023/09/26/more-sanctions-for-unemployed-beneficiaries-under-national/">pledge to apply sanctions</a> to unemployed people receiving a welfare payment, if they are “persistently” failing to meet the criteria for receiving the benefit, has attracted plenty of comment and <a href="https://www.1news.co.nz/2023/09/26/nationals-benefit-sanctions-plan-cruel-dehumanising-greens/">criticism</a>. Less talked about has been the party’s promise to index benefits to inflation to keep pace with the cost of living. This might at least provide some relief to those struggling to make ends meet on welfare, though is not clear how much difference it would make to the current system of indexing benefits to wages. In any case, this alone it is unlikely to break the cycle of poverty many find themselves in. One of the major drivers of this is the way the welfare system pushes some of the most vulnerable people into debt with loans for things such as school uniforms, power bills and car repairs. The government provides one-off grants to cover benefit shortfalls. But most of these grants are essentially loans. People receiving benefits are required to repay the government through weekly deductions from their normal benefits – which leaves them with even less money to survive on each week. With <a href="https://www.stuff.co.nz/pou-tiaki/132980318/auckland-mother-serves-up-cereal-for-dinner-due-to-rising-food-costs">rising costs</a>, the situation is only getting worse for many of the 351,756 New Zealanders <a href="https://figure.nz/chart/TtiUrpceJruy058e-ITw010dHsM6bvA2a">accessing one of the main benefits</a>. <h2>Our whittled down welfare state</h2> Broadly, there are three levels of government benefits in our current system. The main benefits (such as jobseeker, sole parent and supported living payment) <a href="https://www.workandincome.govt.nz/products/benefit-rates/benefit-rates-april-2023.html">pay a fixed weekly amount</a>. The jobseeker benefit rate is set at NZ$337.74 and sole parents receive $472.79 a week. Those on benefits have access to a second level of benefits – weekly supplementary benefits such as an <a href="https://www.workandincome.govt.nz/products/a-z-benefits/accommodation-supplement.html">accommodation supplement</a> and other allowances or tax credits. The third level of support is one-off discretionary payments for specific essential needs. Those on benefits cannot realistically make ends meet without repeated use of these one-off payments, unless they use assistance from elsewhere – such as family, charity or borrowing from loan sharks. This problem has been building for decades. <h2>Benefits have been too low for too long</h2> In the 1970s, the <a href="https://mro.massey.ac.nz/handle/10179/12967">Royal Commission on Social Security</a> declared the system should provide “a standard of living consistent with human dignity and approaching that enjoyed by the majority”. But Ruth Richardson’s “<a href="https://www.stuff.co.nz/the-press/christchurch-life/124978983/1991-the-mother-of-all-budgets">mother of all budgets</a>” in 1991 slashed benefits. Rates never recovered and today’s <a href="https://www.1news.co.nz/2022/03/29/benefit-increases-will-still-leave-families-locked-in-poverty/">benefits are not enough to live on</a>. In 2018, the <a href="https://www.weag.govt.nz/">Welfare Expert Advisory Group</a> looked at how much money households need in two lifestyle scenarios: bare essentials and a minimum level of participation in the community, such as playing a sport and taking public transport. The main benefits plus supplementary allowances did not meet the cost of the bare essentials, let alone minimal participation. The Labour government has since <a href="https://www.beehive.govt.nz/release/government-delivers-income-increases-over-14-million-new-zealanders">increased benefit rates</a>, meaning they are now slightly above those recommended by the advisory group. But those recommendations were made in 2019 and don’t take into account the <a href="https://www.stats.govt.nz/news/annual-inflation-at-6-0-percent">sharp rise in inflation</a> since then. Advocacy group <a href="https://fairerfuture.org.nz/">Fairer Future</a> published an updated assessment in 2022 – nine out of 13 types of households still can’t meet their core costs with the current benefit rates. <h2>How ‘advances’ create debt traps</h2> When they don’t have money for an essential need, people on benefits can receive a “special needs grant”, which doesn’t have to be repaid. But in practice, Work and Income virtually never makes this type of grant for anything except food and some other specific items, such as some health travel costs or emergency dental treatment. For <a href="https://www.1news.co.nz/2023/02/27/very-stressful-beneficiary-says-he-cant-afford-msd-debt/">all other essential needs</a> – such as school uniforms, car repairs, replacing essential appliances, overdue rent, power bills and tenancy bonds – a one-off payment called an “advance” is used. Advances are loans and have to be paid back. There are several issues with these types of loans. First, people on benefits are racking up thousands of dollars worth of debts to cover their essential needs. It serves to trap them in financial difficulties for the foreseeable future. As long as they remain on benefits or low incomes, it’s difficult to repay these debts. And the <a href="https://www.legislation.govt.nz/act/public/2018/0032/latest/whole.html">Social Security Act 2018</a> doesn’t allow the Ministry of Social Development (MSD) to waive debts. <h2>Contradictory policies</h2> Another problem is that people on benefits have to start repaying their debt straight away, with weekly deductions coming out of their already limited benefit. Each new advance results in a further weekly deduction. Often these add up to $50 a week or more. MSD policy says repayments should not add up to more than $40 a week, but that is often ignored. This happens because the law stipulates that each individual debt should be repaid in no more than two years, unless there are exceptional circumstances. Paying this debt off in two years often requires total deductions to be much higher than $40. The third issue is that one-off payments can be refused regardless of the need. That is because there are two provisions pulling in opposite directions. On the one hand the law says a payment should be made if not making it would cause serious hardship. But on the other hand, the law also says payments should not be made if the person already has too much debt. People receiving benefits and their case managers face the choice between more debt and higher repayments, or failing to meet an essential need. <h2>Ways to start easing the burden</h2> So what is the fix? A great deal could be achieved by just changing the policies and practices followed by Work and Income. Case managers have the discretion to make non-recoverable grants for non-food essential needs. These could and should be used when someone has an essential need, particularly when they already have significant debt. Weekly deductions for debts could also be automatically made very low. When it comes to changing the law, the best solution would be to make weekly benefit rates adequate to live on. The government could also make these benefit debts similar to student loans, with no repayments required until the person is off the benefit and their income is above a certain threshold. However we do it, surely it must be time to do something to fix this poverty trap.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/212528/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/hanna-wilberg-1466649">Hanna Wilberg</a>, Associate professor - Law, <a href="https://theconversation.com/institutions/university-of-auckland-1305">University of Auckland</a> Image credits: Getty Images This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/forcing-people-to-repay-welfare-loans-traps-them-in-a-poverty-cycle-where-is-the-policy-debate-about-that-212528">original article</a>.

Money & Banking

A brief history of the mortgage, from its roots in ancient Rome to the English ‘dead pledge’ and its rebirth in America

The average interest rate for a new U.S. <a href="https://www.cbsnews.com/news/home-loan-mortgage-interest-rate-7-percent-highest-since-2001/">30-year fixed-rate mortgage topped 7% in late October 2022</a> for the first time in more than two decades. It’s a sharp increase from one year earlier, when <a href="https://www.valuepenguin.com/mortgages/historical-mortgage-rates">lenders were charging homebuyers only 3.09%</a> for the same kind of loan. Several factors, including <a href="https://www.nerdwallet.com/article/mortgages/fed-mortgage-rates">inflation rates and the general economic outlook</a>, influence mortgage rates. A primary driver of the ongoing upward spiral is the <a href="https://abc7chicago.com/fed-interest-rate-decision-today-hike-federal-reserve-meeting-november/12408055/">Federal Reserve’s series of interest rate hikes</a> intended to tame inflation. Its decision to increase the benchmark rate by <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20221102a.htm">0.75 percentage points on Nov. 2, 2022</a>, to as much as 4% will propel the cost of mortgage borrowing even higher. Even if you have had mortgage debt for years, you might be unfamiliar with the history of these loans – a subject I cover <a href="https://scholar.google.com/citations?user=KVv47noAAAAJ&hl=en&oi=ao">in my mortgage financing course</a> for undergraduate business students at Mississippi State University. The term dates back to <a href="https://www.english-heritage.org.uk/learn/story-of-england/medieval/">medieval England</a>. But the roots of these legal contracts, in which land is pledged for a debt and will become the property of the lender if the loan is not repaid, go back thousands of years. <h2>Ancient roots</h2> Historians trace the <a href="https://www.kingjamesbibleonline.org/Nehemiah-5-3/">origins of mortgage contracts</a> to the reign of King Artaxerxes of Persia, who ruled modern-day Iran in the fifth century B.C. The Roman Empire formalized and documented the legal process of pledging collateral for a loan. Often using the <a href="https://www.biblegateway.com/passage/?search=John%202%3A13-16&version=NIV">forum and temples as their base of operations</a>, mensarii, which is derived from the word mensa or “bank” in Latin, would set up loans and charge <a href="https://www.biblegateway.com/passage/?search=John%202%3A13-16&version=NIV">borrowers interest</a>. These government-appointed public bankers required the borrower to put up collateral, whether real estate or personal property, and their agreement regarding the use of the collateral would be handled in one of three ways. First, the <a href="https://www.merriam-webster.com/dictionary/fiducia">Fiducia</a>, Latin for “trust” or “confidence,” required the transfer of both ownership and possession to lenders until the debt was repaid in full. Ironically, this arrangement involved no trust at all. Second, the <a href="https://www.merriam-webster.com/dictionary/pignus">Pignus</a>, Latin for “pawn,” allowed borrowers to retain ownership while <a href="https://scholarship.law.upenn.edu/cgi/viewcontent.cgi?referer=https://www.google.com/&httpsredir=1&article=1684&context=penn_law_review">sacrificing possession and use</a> until they repaid their debts. Finally, the <a href="https://legaldictionary.lawin.org/hypotheca/">Hypotheca</a>, Latin for “pledge,” let borrowers retain both ownership and possession while repaying debts. <h2>The living-versus-dead pledge</h2> <a href="https://www.britannica.com/biography/Claudius-Roman-emperor">Emperor Claudius</a> brought Roman law and customs to Britain in A.D. 43. Over the next <a href="https://www.english-heritage.org.uk/learn/story-of-england/romans/">four centuries of Roman rule</a> and the <a href="https://www.english-heritage.org.uk/learn/story-of-england/early-medieval/">subsequent 600 years known as the Dark Ages</a>, the British adopted another Latin term for a pledge of security or collateral for loans: <a href="https://worldofdictionary.com/dict/latin-english/meaning/vadium">Vadium</a>. If given as collateral for a loan, real estate could be offered as “<a href="https://www.merriam-webster.com/dictionary/vadium%20vivum">Vivum Vadium</a>.” The literal translation of this term is “living pledge.” Land would be temporarily pledged to the lender who used it to generate income to pay off the debt. Once the lender had collected enough income to cover the debt and some interest, the land would revert back to the borrower. With the alternative, the “<a href="https://www.merriam-webster.com/dictionary/mortuum%20vadium">Mortuum Vadium</a>” or “dead pledge,” land was pledged to the lender until the borrower could fully repay the debt. It was, essentially, an interest-only loan with full principal payment from the borrower required at a future date. When the lender demanded repayment, the borrower had to pay off the loan or lose the land. Lenders would keep proceeds from the land, be it income from farming, selling timber or renting the property for housing. In effect, the land was <a href="https://www.jstor.org/stable/pdf/1321129.pdf">dead to the debtor</a> during the term of the loan because it provided no benefit to the borrower. Following <a href="https://www.royal.uk/william-the-conqueror">William the Conqueror’s victory</a> at the Battle of Hastings in 1066, the English language was heavily influenced by <a href="https://blocs.mesvilaweb.cat/subirats/the-norman-conquest-the-influence-of-french-on-the-english-language-loans-and-calques/">Norman French</a> – William’s language. That is how the Latin term “Mortuum Vadium” morphed into “Mort Gage,” Norman French for “dead” and “pledge.” “<a href="https://www.etymonline.com/word/mortgage">Mortgage</a>,” a <a href="https://ia600201.us.archive.org/1/items/cu31924021674399/cu31924021674399.pdf">mashup of the two words</a>, then entered the English vocabulary. <h2>Establishing rights of borrowers</h2> Unlike today’s mortgages, which are usually due within 15 or 30 years, English loans in the 11th-16th centuries were unpredictable. <a href="https://www.jstor.org/stable/pdf/1323192.pdf">Lenders could demand repayment</a> at any time. If borrowers couldn’t comply, lenders could seek a court order, and the land would be forfeited by the borrower to the lender. Unhappy borrowers could <a href="https://www.law.cornell.edu/wex/chancery">petition the king</a> regarding their predicament. He could refer the case to the lord chancellor, who could <a href="https://www.britannica.com/topic/Chancery-Division">rule as he saw fit</a>. <a href="https://www.britannica.com/biography/Francis-Bacon-Viscount-Saint-Alban">Sir Francis Bacon</a>, England’s lord chancellor from 1618 to 1621, <a href="https://www.jstor.org/stable/752041">established</a> the <a href="https://www.law.cornell.edu/wex/equity_of_redemption">Equitable Right of Redemption</a>. This new right allowed borrowers to pay off debts, even after default. The official end of the period to redeem the property was called <a href="https://www.law.cornell.edu/wex/foreclosure">foreclosure</a>, which is derived from an Old French word that means “<a href="https://www.etymonline.com/word/foreclose">to shut out</a>.” Today, foreclosure is a legal process in which lenders to take possession of property used as collateral for a loan. <h2>Early US housing history</h2> The <a href="https://www.loc.gov/classroom-materials/united-states-history-primary-source-timeline/colonial-settlement-1600-1763/overview/">English colonization</a> of what’s now <a href="https://themayflowersociety.org/history/the-mayflower-compact/">the United States</a> didn’t immediately transplant mortgages across the pond. But eventually, U.S. financial institutions were offering mortgages. <a href="https://www.huduser.gov/publications/pdf/us_evolution.pdf">Before 1930, they were small</a> – generally amounting to at most half of a home’s market value. These loans were generally short-term, maturing in under 10 years, with payments due only twice a year. Borrowers either paid nothing toward the principal at all or made a few such payments before maturity. Borrowers would have to refinance loans if they couldn’t pay them off. <h2>Rescuing the housing market</h2> Once America fell into the <a href="https://www.history.com/topics/great-depression">Great Depression</a>, the <a href="https://www.stlouisfed.org/news-releases/2008/05/02/does-the-great-depression-hold-the-answers-for-the-current-mortgage-distress">banking system collapsed</a>. With most homeowners unable to pay off or refinance their mortgages, the <a href="https://www.federalreservehistory.org/essays/great-depression">housing market crumbled</a>. The number of <a href="https://www.encyclopedia.com/education/news-and-education-magazines/housing-1929-1941">foreclosures grew to over 1,000 per day by 1933</a>, and housing prices fell precipitously. The <a href="https://www.fhfaoig.gov/Content/Files/History%20of%20the%20Government%20Sponsored%20Enterprises.pdf">federal government responded by establishing</a> new agencies to stabilize the housing market. They included the <a href="https://www.hud.gov/program_offices/housing/fhahistory">Federal Housing Administration</a>. It provides <a href="https://www.consumerfinance.gov/ask-cfpb/what-is-mortgage-insurance-and-how-does-it-work-en-1953/">mortgage insurance</a> – borrowers pay a small fee to protect lenders in the case of default. Another new agency, the <a href="https://sf.freddiemac.com/articles/insights/why-americas-homebuyers-communities-rely-on-the-30-year-fixed-rate-mortgage">Home Owners’ Loan Corp.</a>, established in 1933, bought defaulted short-term, semiannual, interest-only mortgages and transformed them into new long-term loans lasting 15 years. Payments were monthly and self-amortizing – covering both principal and interest. They were also fixed-rate, remaining steady for the life of the mortgage. Initially they skewed more heavily toward interest and later defrayed more principal. The corporation made new loans for three years, tending to them until it <a href="https://content.time.com/time/subscriber/article/0,33009,858135,00.html">closed in 1951</a>. It pioneered long-term mortgages in the U.S. In 1938 Congress established the Federal National Mortgage Association, better known as <a href="https://www.fanniemae.com/about-us/who-we-are/history">Fannie Mae</a>. This <a href="https://www.financial-dictionary.info/terms/government-sponsored-enterprise/">government-sponsored enterprise</a> made fixed-rate long-term mortgage loans viable <a href="https://www.investopedia.com/terms/s/securitization.asp">through a process called securitization</a> – selling debt to investors and using the proceeds to purchase these long-term mortgage loans from banks. This process reduced risks for banks and encouraged long-term mortgage lending. <h2>Fixed- versus adjustable-rate mortgages</h2> After World War II, Congress authorized the Federal Housing Administration to insure <a href="https://www.govinfo.gov/content/pkg/CPRT-108HPRT92629/html/CPRT-108HPRT92629.htm">30-year loans on new construction</a> and, a few years later, purchases of existing homes. But then, the <a href="https://files.stlouisfed.org/files/htdocs/publications/review/69/09/Historical_Sep1969.pdf">credit crunch of 1966</a> and the years of high inflation that followed made adjustable-rate mortgages more popular. Known as ARMs, these mortgages have stable rates for only a few years. Typically, the initial rate is significantly lower than it would be for 15- or 30-year fixed-rate mortgages. Once that initial period ends, <a href="https://www.investopedia.com/terms/a/arm.asp">interest rates on ARMs</a> get adjusted up or down annually – along with monthly payments to lenders. Unlike the rest of the world, where ARMs prevail, Americans still prefer the <a href="https://sf.freddiemac.com/articles/insights/why-americas-homebuyers-communities-rely-on-the-30-year-fixed-rate-mortgage">30-year fixed-rate mortgage</a>. About <a href="https://data.census.gov/cedsci/table?q=DP04&t=Housing">61% of American homeowners</a> have mortgages today – with <a href="https://doi.org/10.1080/15214842.2020.1757357">fixed rates the dominant type</a>. But as interest rates rise, demand for <a href="https://www.corelogic.com/intelligence/interest-rates-are-up-but-arm-backed-home-purchases-are-way-up/">ARMs is growing</a> again. If the Federal Reserve fails to slow inflation and interest rates continue to climb, unfortunately for some ARM borrowers, the term “dead pledge” may live up to its name. Image credits: Getty Images This article originally appeared on <a href="https://theconversation.com/a-brief-history-of-the-mortgage-from-its-roots-in-ancient-rome-to-the-english-dead-pledge-and-its-rebirth-in-america-193005" target="_blank" rel="noopener">The Conversation</a>.

Real Estate

Money guru's generous home loan offer for struggling Aussies

Finance guru Mark Bouris has offered to help five homeowners pay off their mortgages amid continuously rising interest rates. A vocal critic of the Reserve Bank of Australia’s dramatic hiking of interest rates, Bouris is determined to help struggling Aussies get ahead. The executive chairman of Yellow Brick Road Home Loans is lending a helping hand to homeowners hit hard by massive increases in their month mortgage payments with a generous cash injection of $12,000. “All Australians deserve a fair go on their home loans and right now you’re not getting one,” Mr Bouris said on Today. “I know many Australians are doing it tough out there right now. Through no fault of their own, homeowners are having to manage skyrocketing mortgage repayments." <blockquote class="instagram-media" style="background: #FFF; border: 0; border-radius: 3px; box-shadow: 0 0 1px 0 rgba(0,0,0,0.5),0 1px 10px 0 rgba(0,0,0,0.15); margin: 1px; max-width: 540px; min-width: 326px; padding: 0; width: calc(100% - 2px);" data-instgrm-permalink="https://www.instagram.com/reel/CpjyXECgnNr/?utm_source=ig_embed&utm_campaign=loading" data-instgrm-version="14"> <div style="padding: 16px;"> <div style="display: flex; flex-direction: row; align-items: center;"> <div style="background-color: #f4f4f4; border-radius: 50%; flex-grow: 0; height: 40px; margin-right: 14px; width: 40px;"> </div> <div style="display: flex; flex-direction: column; flex-grow: 1; justify-content: center;"> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; margin-bottom: 6px; width: 100px;"> </div> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; width: 60px;"> </div> </div> </div> <div style="padding: 19% 0;"> </div> <div style="display: block; height: 50px; margin: 0 auto 12px; width: 50px;"> </div> <div style="padding-top: 8px;"> <div style="color: #3897f0; font-family: Arial,sans-serif; font-size: 14px; font-style: normal; font-weight: 550; line-height: 18px;">View this post on Instagram</div> </div> <div style="padding: 12.5% 0;"> </div> <div style="display: flex; flex-direction: row; margin-bottom: 14px; align-items: center;"> <div> <div style="background-color: #f4f4f4; border-radius: 50%; height: 12.5px; width: 12.5px; transform: translateX(0px) translateY(7px);"> </div> <div style="background-color: #f4f4f4; height: 12.5px; transform: rotate(-45deg) translateX(3px) translateY(1px); width: 12.5px; flex-grow: 0; margin-right: 14px; margin-left: 2px;"> </div> <div style="background-color: #f4f4f4; border-radius: 50%; height: 12.5px; width: 12.5px; transform: translateX(9px) translateY(-18px);"> </div> </div> <div style="margin-left: 8px;"> <div style="background-color: #f4f4f4; border-radius: 50%; flex-grow: 0; height: 20px; width: 20px;"> </div> <div style="width: 0; height: 0; border-top: 2px solid transparent; border-left: 6px solid #f4f4f4; border-bottom: 2px solid transparent; transform: translateX(16px) translateY(-4px) rotate(30deg);"> </div> </div> <div style="margin-left: auto;"> <div style="width: 0px; border-top: 8px solid #F4F4F4; border-right: 8px solid transparent; transform: translateY(16px);"> </div> <div style="background-color: #f4f4f4; flex-grow: 0; height: 12px; width: 16px; transform: translateY(-4px);"> </div> <div style="width: 0; height: 0; border-top: 8px solid #F4F4F4; border-left: 8px solid transparent; transform: translateY(-4px) translateX(8px);"> </div> </div> </div> <div style="display: flex; flex-direction: column; flex-grow: 1; justify-content: center; margin-bottom: 24px;"> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; margin-bottom: 6px; width: 224px;"> </div> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; width: 144px;"> </div> </div> <p style="color: #c9c8cd; font-family: Arial,sans-serif; font-size: 14px; line-height: 17px; margin-bottom: 0; margin-top: 8px; overflow: hidden; padding: 8px 0 7px; text-align: center; text-overflow: ellipsis; white-space: nowrap;"><a style="color: #c9c8cd; font-family: Arial,sans-serif; font-size: 14px; font-style: normal; font-weight: normal; line-height: 17px; text-decoration: none;" href="https://www.instagram.com/reel/CpjyXECgnNr/?utm_source=ig_embed&utm_campaign=loading" target="_blank" rel="noopener">A post shared by Yellow Brick Road (@ybrhomeloans)</a> </div> </blockquote> “The Reserve Bank of Australia’s decision to increase the official cash rate for the past 10 consecutive meetings has left nearly 800,000 Australians at risk of mortgage default. At YBR Home Loans, we’re on a mission to hear the voices of those impacted most by this aggressive increase in interest rates." “We want to hear from you: your story, your struggles and particularly, if you’re worried about your ability to meet your mortgage repayments.” Mr Bouris and his team at YBR Home Loans will randomly select five lucky winners who are having trouble meeting their home loan repayments and give $12,000 to each winner “in order to help ease the strain of rapidly increasing interest rates”. “If you’re going to struggle to meet your mortgage repayments as you come off your fixed interest rate, or if you’re already struggling to meet your repayments, please fill out your details and outline your circumstances,” Mr Bouris said. Homeowners can write to Mr Bouris and Yellow Brick Road at <a href="https://ybr.com.au/fairgo" target="_blank" rel="noopener">ybr.com.au/fairgo</a> to be entered into the competition. Image credits: Instagram

Real Estate

“When you win, bring it back to Malibu”: Sean Penn loans Oscar to Ukraine

Actor Sean Penn has shown his support for Ukraine in its war with Russia by loaning one of his two Oscars to Ukrainian President Volodymyr Zelenskyy, telling him it could stay on one condition: “When you win, bring it back to Malibu”. A video of the encounter between Zelenskyy and Penn, who is making a documentary about the Russian invasion, was shared by Zelenskyy’s office online and described the gift as “a symbol of faith in the victory of our country”. “It will be in Ukraine until the end of the war.” During his most recent visit to Ukraine, Penn told Zelenskyy that every time he leaves he feels “like a traitor”. “But if I know this is here with you then I will feel better and stronger for the fights,” he said before presenting the leader with his award. “When you win, bring it back to Malibu. Because I feel much better knowing there is a piece of me here.” <blockquote class="instagram-media" style="background: #FFF; border: 0; border-radius: 3px; box-shadow: 0 0 1px 0 rgba(0,0,0,0.5),0 1px 10px 0 rgba(0,0,0,0.15); margin: 1px; max-width: 540px; min-width: 326px; padding: 0; width: calc(100% - 2px);" data-instgrm-captioned="" data-instgrm-permalink="https://www.instagram.com/reel/CktdU1RLvIQ/?utm_source=ig_embed&utm_campaign=loading" data-instgrm-version="14"> <div style="padding: 16px;"> <div style="display: flex; flex-direction: row; align-items: center;"> <div style="background-color: #f4f4f4; border-radius: 50%; flex-grow: 0; height: 40px; margin-right: 14px; width: 40px;"> </div> <div style="display: flex; flex-direction: column; flex-grow: 1; justify-content: center;"> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; margin-bottom: 6px; width: 100px;"> </div> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; width: 60px;"> </div> </div> </div> <div style="padding: 19% 0;"> </div> <div style="display: block; height: 50px; margin: 0 auto 12px; width: 50px;"> </div> <div style="padding-top: 8px;"> <div style="color: #3897f0; font-family: Arial,sans-serif; font-size: 14px; font-style: normal; font-weight: 550; line-height: 18px;">View this post on Instagram</div> </div> <div style="padding: 12.5% 0;"> </div> <div style="display: flex; flex-direction: row; margin-bottom: 14px; align-items: center;"> <div> <div style="background-color: #f4f4f4; border-radius: 50%; height: 12.5px; width: 12.5px; transform: translateX(0px) translateY(7px);"> </div> <div style="background-color: #f4f4f4; height: 12.5px; transform: rotate(-45deg) translateX(3px) translateY(1px); width: 12.5px; flex-grow: 0; margin-right: 14px; margin-left: 2px;"> </div> <div style="background-color: #f4f4f4; border-radius: 50%; height: 12.5px; width: 12.5px; transform: translateX(9px) translateY(-18px);"> </div> </div> <div style="margin-left: 8px;"> <div style="background-color: #f4f4f4; border-radius: 50%; flex-grow: 0; height: 20px; width: 20px;"> </div> <div style="width: 0; height: 0; border-top: 2px solid transparent; border-left: 6px solid #f4f4f4; border-bottom: 2px solid transparent; transform: translateX(16px) translateY(-4px) rotate(30deg);"> </div> </div> <div style="margin-left: auto;"> <div style="width: 0px; border-top: 8px solid #F4F4F4; border-right: 8px solid transparent; transform: translateY(16px);"> </div> <div style="background-color: #f4f4f4; flex-grow: 0; height: 12px; width: 16px; transform: translateY(-4px);"> </div> <div style="width: 0; height: 0; border-top: 8px solid #F4F4F4; border-left: 8px solid transparent; transform: translateY(-4px) translateX(8px);"> </div> </div> </div> <div style="display: flex; flex-direction: column; flex-grow: 1; justify-content: center; margin-bottom: 24px;"> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; margin-bottom: 6px; width: 224px;"> </div> <div style="background-color: #f4f4f4; border-radius: 4px; flex-grow: 0; height: 14px; width: 144px;"> </div> </div> <p style="color: #c9c8cd; font-family: Arial,sans-serif; font-size: 14px; line-height: 17px; margin-bottom: 0; margin-top: 8px; overflow: hidden; padding: 8px 0 7px; text-align: center; text-overflow: ellipsis; white-space: nowrap;"><a style="color: #c9c8cd; font-family: Arial,sans-serif; font-size: 14px; font-style: normal; font-weight: normal; line-height: 17px; text-decoration: none;" href="https://www.instagram.com/reel/CktdU1RLvIQ/?utm_source=ig_embed&utm_campaign=loading" target="_blank" rel="noopener">A post shared by Володимир Зеленський (@zelenskiy_official)</a> </div> </blockquote> After initially hesitating, Zelenskyy accepted the statue and quipped: “We have to win, quick.” Wednesday’s meeting, which marked Penn’s third visit to Ukraine since the invasion began, also saw the actor accept an award from Zelenskyy. The Mystic River star was presented with the Ukrainian Order of Merit of the third degree, which is given to citizens for outstanding achievements in economics, science, culture or military or political activity. “It was with great pleasure that I presented Sean Penn with the Order of Merit of the III degree,” the caption of the clip shared on Zelenskyy’s official Instagram read. “Thank you for such sincere support and significant contribution to the popularization (sic) of Ukraine in the world!” The video also showed the pair walking around Kyiv and arriving at Constitution Square where there is a “Walk of the Brave” - a walkway lined with plaques for world leaders who have supported Ukraine. Penn also has a plaque laid on the ground along the walkway, engraved with his name and the date February 24, 2022, which was the start of the invasion, as Penn was one of the first people to visit Ukraine after Russian troops moved in. Pointing to the plaque, Penn said there were three sources of pride for him in the world. “The place where my daughter was born, the place where my son was born and this. Thank you,” he said. Image: Getty Images

News

I’m considering an interest-only home loan. What do I need to know?

An <a href="https://moneysmart.gov.au/home-loans/interest-only-home-loans" target="_blank" rel="noopener">interest-only home loan</a>, as the name suggests, is where you only pay the interest on a loan and not the principal (the original amount you borrowed). While authorities such as the Reserve Bank often <a href="https://www.rba.gov.au/speeches/2018/sp-ag-2018-04-24.html" target="_blank" rel="noopener">see</a> them as risky, interest-only loans can be helpful in some circumstances. If you’re considering an interest-only loan, here’s what you need to know. How long do they go for? These loans are typically last for five years at most, before reverting back to principal and interest (where you have to pay back, through regular payments, both interest and the initial sum you borrowed). You could potentially apply for another interest-only loan after your first one winds up, perhaps by refinancing (where you take a new mortgage to repay an existing loan). But you might not get it – and you’d still have to pay off the principal eventually. <figure class="align-center zoomable"><a href="https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px" srcset="https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=401&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=401&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=401&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480309/original/file-20220822-18038-nyikjs.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" alt="" /></a><figcaption>Interest-only loans can cost you a lot more in interest over time than a regular principal and interest loan. Photo by Andrew Mead on Unsplash, <a class="license" href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noopener">CC BY</a></figcaption></figure> What are the upsides of an interest-only loan? An interest-only loan means you’ll have more cash available to cover other costs, or invest elsewhere. You can use a <a href="https://moneysmart.gov.au/home-loans/mortgage-calculator" target="_blank" rel="noopener">mortgage calculator</a> to work out how much extra cash you’d have if you switched from a principal and interest loan to an interest-only loan. It’s typically hundreds of dollars per week. This may get you a bit more wriggle room for daily expenses. Or, some people use the extra cash to invest in other things – such as shares – in the hope they can make more money overall and pick up some tax benefits along the way. That’s why interest-only loans are often popular among <a href="https://moneysmart.gov.au/home-loans/interest-only-home-loans" target="_blank" rel="noopener">investors</a>. Of course, this strategy comes with risk. An interest-only loan may also have a redraw facility, allowing you to add extra payments into the loan (above and beyond the interest) if you want, and withdraw money later when you need cash. This can allow people to avoid a personal loan, which usually has a much higher interest rate. Regular principal and interest loans may also have a redraw facility but the regular payments of principal are unavailable for redraw. That means less flexibility for the borrower. <figure class="align-center zoomable"><a href="https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px" srcset="https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=408&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=408&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=408&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=512&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=512&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480311/original/file-20220822-64666-y67vz3.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=512&fit=crop&dpr=3 2262w" alt="" /></a><figcaption>What’s right for one borrower won’t be for the next. Image by Pfüderi from Pixabay, <a class="license" href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noopener">CC BY</a></figcaption></figure> What are the downsides? The interest rates on interest-only loans are generally higher than principal and interest loans. For example, the RBA July 2022 <a href="https://www.rba.gov.au/statistics/tables/xls/f05hist.xls" target="_blank" rel="noopener">indicator rate</a> for owner-occupier interest-only rates is 6.31%. But the equivalent variable rate for principal and interest loans is 5.77% (the indicator rate is just a guide; the actual difference varies from bank to bank). Interest-only loans can cost you a lot more over time than a regular principal and interest loan. This means a borrower needs to manage their finances well to ensure they can cover the interest payments now and still have enough to pay down the principal eventually. So you’ll need a plan for how you’re going to do that when the interest-only loan ends. There is also a risk of a shock – such as job loss, personal crisis or housing crash – causing the borrower to default on the loan altogether. If the borrower defaults on an interest-only loan, they may lose the house and the bank is left with a debt that was not substantially repaid (because the borrower had not yet made a dent in the principal). It’s a lose-lose situation. Are interest-only loans common? Interest-only loans represent <a href="https://www.apra.gov.au/news-and-publications/apra-releases-quarterly-authorised-deposit-taking-institution-statistics-11" target="_blank" rel="noopener">11.3% of all home loans</a> in Australia. This figure has been <a href="https://www.rba.gov.au/publications/fsr/2017/apr/box-b.html" target="_blank" rel="noopener">trending down</a> over the past five years, due in part to tighter <a href="https://www.apra.gov.au/news-and-publications/apra-to-remove-interest-only-benchmark-for-residential-mortgage-lending" target="_blank" rel="noopener">lending restrictions</a> and the fact low interest rates have made principal and interest loans relatively cheap recently. <figure class="align-center zoomable"><a href="https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px" srcset="https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/480312/original/file-20220822-65738-za6ht2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" alt="" /></a><figcaption>Interest-only loans represent 11.3% of all home loans in Australia. Image by sandid from Pixabay, <a class="license" href="http://creativecommons.org/licenses/by/4.0/" target="_blank" rel="noopener">CC BY</a></figcaption></figure> What does the research say? One Dutch <a href="https://link.springer.com/article/10.1007/s11146-013-9453-9" target="_blank" rel="noopener">study</a> found “households that are more risk-averse and less literate are significantly less likely to choose an interest-only mortgage”. This partly due to lower initial repayments and wealthy households preferring the financial flexibility. Interest-only borrowing has also been found to <a href="https://www.sciencedirect.com/journal/journal-of-housing-economics" target="_blank" rel="noopener">fuel</a> <a href="https://doi.org/10.1016/j.regsciurbeco.2018.06.004" target="_blank" rel="noopener">housing</a> <a href="https://www.sciencedirect.com/science/article/pii/S1094202520300776?via%3Dihub" target="_blank" rel="noopener">speculation</a> and reduce housing affordability. A US study found borrowers also tend to <a href="https://doi.org/10.1093/rof/rfy016" target="_blank" rel="noopener">default</a> more. A Danish <a href="https://doi.org/10.1162/rest_a_01146" target="_blank" rel="noopener">study</a> found that once the interest-only lower repayment period is over and the loan reverts to principal and interest, those who didn’t make principal repayments suffered a large drop in disposable income. Financial flexibility comes with a catch With rates rising, interest-only loans may sound like an appealing way to have more cash available to cover other costs in life. But just remember financial flexibility comes with a catch. An interest-only loan could be more expensive in the long run. For some people, that cost will be worth it if it allows them to hold onto the house during a brief tough period or make more money investing elsewhere. But it’s a risk. And when the interest-only loan ends, you’re still stuck with the task of paying off the money you borrowed from the bank in the first place (with interest).<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important;" src="https://counter.theconversation.com/content/188817/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/adrian-lee-94688" target="_blank" rel="noopener">Adrian Lee</a>, Associate Professor in Property and Real Estate, <a href="https://theconversation.com/institutions/deakin-university-757" target="_blank" rel="noopener">Deakin University</a> This article is republished from <a href="https://theconversation.com" target="_blank" rel="noopener">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/im-considering-an-interest-only-home-loan-what-do-i-need-to-know-188817" target="_blank" rel="noopener">original article</a>. Image: Getty Images

Money & Banking

“Totally shocked” woman refused home loan due to maternity leave plans

A New Zealand woman <a rel="noopener" href="https://www.nzherald.co.nz/business/new-lending-rules-mum-shocked-by-90-day-maternity-leave-mortgage-condition/R3N4QF37MLMV44LUOPGV2VC6JA/" target="_blank">has been told</a> by ANZ that she would only be considered for a mortgage if she returned to work within 90 days of giving birth. The woman is one of several people who spoke to the Otago Daily Times following the introduction of changes to New Zealand’s Credit Contracts and Consumer Finance Act (CCCFA). Changes to the act were intended to protect borrowers from loan sharks, but have prompted banks to vet mortgage applicants’ spending habits and personal finances more closely instead. The woman, who the publication agreed not to name, said she felt “totally shocked and completely discriminated against” by ANZ, after she was informed through her mortgage broker that the bank had changed its policy on maternity leave for borrowers. An ANZ spokeswoman acknowledged that the bank was enforcing stricter rules for customers taking more than 90 days of maternity leave as a result of changes to the CCCFA. She said there had been no change to the bank’s policy. However the woman, who was in the later stages of pregnancy when she and her partner attempted to refinance their home, found that her plans for maternity leave affected their chances of securing their loan. After a family member who had helped the couple finance their home to start with passed away, the couple were looking to get a mortgage through a bank with the help of a mortgage broker. The woman planned to take 12 months off of work from early December, including nine months of paid leave - three by her employer and six by the government’s paid parental leave scheme. She said she wanted to take a full year of leave after taking just seven months off following the birth of her last child, giving her more time to spend with the newborn. “It’s a really special time and I wanted to be there for it,” she said. When they applied for a mortgage through ANZ, they received a series of questions about their financial situation, as well as questions about her plans to return to work. Though she expected questions about their finances, “which I totally understood”, the woman said asking about her plans after her maternity leave was “deeply personal”. “The decisions I choose to make after that time should be mine and not dependent on the bank,” she said. On January 7, the mortgage broker forwarded an email from ANZ saying the bank had changed its maternity leave policy - now refusing to give mortgages to customers who took more than three months off work. The woman said she believed the couple could still afford the mortgage whether she was working or not. “I mean, we knew we could afford it - and if we didn’t, we wouldn’t have applied,” she said. Though she was confident she would return to work, she didn’t believe the bank had the right to tell new mothers when they go back. “It’s completely discriminatory and just not needed,” she said. The couple, who now have a three-week-old baby, are now looking to other banks for a loan. Image: Getty Images

Real Estate

Paying off a home loan used to be easier than it looked. It’s now harder. Here’s why

So you think it’s the right time to dive in and buy a home. I can’t tell you you’re wrong. I can tell you it would have been better to do it before prices began soaring, and that if they keep soaring it will get worse still. When the year began, the typical Sydney price was <a href="https://www.corelogic.com.au/news/corelogic-december-home-value-indices">$872,000</a>. Five months later at the start of June it is <a href="https://www.corelogic.com.au/news/australias-housing-boom-rolls-national-home-values-lifting-another-22-may">$970,000</a>. That’s a jump of almost $100,000 in a matter of months — an awfully big price for procrastinating. In Melbourne the typical price has climbed from $682,000 to $740,500. In Perth it has climbed from $471,000 to $521,500, and so on. And banks are beginning to withdraw the cheapest of their still-very-cheap mortgage rates, at this stage mainly the fixed four-year rates which had been below <a href="https://www.domain.com.au/news/house-hunters-facing-rising-fixed-mortgage-rates-with-further-hikes-expected-1054965/">2%</a>. So why on earth wouldn’t you dive in, cut your living expenses to the bare minimum and try and buy a home while it’s the least bit possible? One (slight) reason to relax is mortgage rates. Despite the increases in fixed four-year rates, three-year rates have barely moved. That’s because the Reserve Bank has promised to hold the three-year bond rate <a href="https://www.rba.gov.au/media-releases/2021/mr-21-09.html">constant</a> at 0.1%. <h2>Buying has become a bigger commitment</h2> The three-year bond rate determines the cost to banks of their three-year fixed rate mortgages. The Reserve Bank has said it does not expect to lift its 0.1% cash rate until “2024 at the earliest”. Movements in the cash rate determine movements in variable mortgage rates. But there is another reason for proceeding with caution and taking stock. For our parents, buying a home was an exceptionally good deal, not only because homes were cheaper — until the end of the 1990s homes typically cost between two and three times household after-tax income, they now cost closer to five — but also because over time the loan became easier to pay off. Housing prices as proportion of household disposable income <a href="https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/394394/original/file-20210411-15-8ofvv7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="" /></a> Household disposable income after tax, before the deduction of interest payments, including income of unincorporated enterprises. <a href="https://www.rba.gov.au/chart-pack/pdf/chart-pack.pdf" class="source">Core Logic, ABS, RBA</a> <hr /> That isn’t because mortgage rates were coming down — at times they were going up — it’s because during our parents’ times wages (and prices) were climbing. It meant that even if someone of our parents’ generation just squeaked through one of the bank’s tests about their ability to make payments on a mortgage, a few years and lots of inflation and several big wage rises down the track those mortgage payments shrank compared to everything else. <h2>Once, wage rises took care of repayments</h2> Many of our parents paid off their mortgages early. One way to look at this is that the bank’s ability-to-repay calculators were set too harshly. They failed to account for future hefty wage rises and inflation. It’s probably also true that they were set more generously than they might have been in an implicit acknowledgement of what the assistant governor in charge of the Reserve Bank’s economic branch Luci Ellis calls “<a href="https://www.rba.gov.au/publications/rdp/2006/2006-12/global-trends.html">mortgage tilt</a>”. The former governor, Glenn Stevens, used another term, “<a href="https://www.rba.gov.au/speeches/1997/sp-ag-081097.html">front-end loading</a>”. <h2>Mortgages were ‘front-end loaded’</h2> When inflation was high, and as a consequence interest rates were high, wages that climbed rapidly with high inflation made the servicing burden “most acute in the very early phase of a loan, falling over time”. <a href="https://images.theconversation.com/files/403719/original/file-20210601-21-11ru9r3.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/403719/original/file-20210601-21-11ru9r3.png?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" alt="" /></a> <a href="https://www.rba.gov.au/publications/bulletin/1997/oct/pdf/bu-1097-6.pdf" class="source">Reserve Bank of Australia, October 1997</a> On a graph (and the former governor presented a graph) the line showing payments as a portion of income tilts down over time. In a world of lower inflation and interest rates, the tilt becomes flatter. By now (Stevens published the graph in 1997) the line must be near horizontal. If wage growth remains near the <a href="https://twitter.com/1petermartin/status/1399520798734389250/photo/1">record lows</a> the treasury is forecasting it will become scarcely any easier to make payments on a home loan over time. Yet the banks are still handing out loans using the sort of formulas they used to. If you get a loan you’ll be assessed as being able to (just) make the payments as always, but you’ll be denied the near certainty of being able to more easily meet the payments as time goes on. <h2>Now, we retire mortgaged</h2> This is a different from the risk you’ll also run of today’s ultra-low mortgage rates climbing (which banks do take into account in deciding whether to give you a loan). The proportion of homeowners reaching retirement age while still paying off their mortgage has doubled in 20 years. Which might be why some banks ask for details of your super before granting you a loan. It isn’t an idle inquiry. Might things get better? Maybe, if we can get wages moving again. Evidence given to Tuesday’s post-budget Senate estimate hearing provides cause for hope, and despair. <h2>Super hikes will make things worse</h2> The budget forecasts for wage growth over the next four financial years are incredibly low — 1.5%, 2.25%, 2.5% and 2.75% On Tuesday Treasury Secretary Steven Kennedy revealed that each would have been higher — 0.4 points higher — had the government not persisted with the five scheduled annual increases in compulsory superannuation contributions of 0.5% of salary starting in July. The treasury believes each increase will slice 0.4 percentage points from wage growth, on the basis that employers, who are legally required to pay the contributions, will have to find the money somewhere. <a href="https://images.theconversation.com/files/403717/original/file-20210601-17-qwhi6.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img src="https://images.theconversation.com/files/403717/original/file-20210601-17-qwhi6.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" alt="" /></a> <a href="https://budget.gov.au/2021-22/content/bp1/download/bp1_bs1.pdf" class="source">Commonwealth budget, 2021-22</a> It’s the same conclusion reached by the government’s <a href="https://theconversation.com/that-extra-youre-about-to-get-in-super-most-of-it-will-come-from-you-but-dont-expect-the-ads-to-tell-you-that-154723">retirement incomes review</a>. It’s cause for hope because it means that when those five increases stop (in mid-2026, or sooner if the government stops them mid-track) wages might be able to grow more strongly. It’s cause for despair because if the treasury is right, we are denying ourselves wage rises we could use in return for super we will increasingly use to pay down our mortgages.<img style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;" src="https://counter.theconversation.com/content/161873/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" /> <a href="https://theconversation.com/profiles/peter-martin-682709">Peter Martin</a>, Visiting Fellow, <a href="https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a> This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/paying-off-a-home-loan-used-to-be-easier-than-it-looked-its-now-harder-heres-why-161873">original article</a>. Image: Shutterstock

Real Estate

Small businesses are being starved of funds: here’s how to make their loans cheaper

The government has widely touted its support for small businesses – most notably the provision of loans subsidised by the Reserve Bank. In its economic update on Friday the Reserve Bank talked up its low-cost <a href="https://theconversation.com/more-than-a-rate-cut-behind-the-reserve-banks-three-point-plan-134140">Term Funding Facility</a>. Take-up was “<a href="https://www.rba.gov.au/publications/smp/2020/aug/pdf/00-overview.pdf">increasing steadily</a>”. The scheme gives banks <a href="https://www.rba.gov.au/publications/smp/2020/aug/pdf/box-e-the-reserve-banks-term-funding-facility-tff.pdf">ultra low-interest money</a> (0.25% per year for three years) on the understanding they will lend it to households and businesses that need it. The first allocation was a proportion of each lenders’ loan book. The second was conditional on the the lender expanding lending to business. Join 130,000 people who subscribe to free evidence-based news. Get newsletter For every extra dollar the bank extended to large business, it would get one extra dollar of funding from the Reserve Bank. For every extra dollar it lent to a small or medium size business it would get an extra five dollars. Yet the official figures suggest that the overwhelming bulk of the new money has gone to big businesses, those with turnovers of more than A$50 million per year. Medium-sized businesses have barely got a look-in. Lending to small businesses has actually gone backwards. Outstanding credit to businesses Loans outstanding for big businesses are 7.4% higher than at the start of the year, loans outstanding for medium-sized businesses are just 1.3% higher, and loans outstanding for small businesses are down 0.6%. Not only have banks channelled the overwhelming bulk of their new lending to large businesses, they have also done so at lower interest rates. Credit spread reductions for businesses Why have small businesses missed out? One explanation might be that they are not interested in borrowing. However, ask any economist, and she will tell you that demand for a good is usually a function of its price. This ought to be also be true for business credit. The Reserve Bank says small businesses are being charged as much as 4.5%. If the interest rate was lower there is a fair chance the amount borrowed would rise. Banks don’t think they’re worth the risk Another explanation might be that banks don’t see much profit in lending to small businesses. Start ups are risky, even more so in a recession. But the Term Funding Facility was specifically set up to counter this. Unfortunately it has proved inadequate to the task. The Reserve Bank’s offer of a three year loan fixed at 0.25% has not been generous enough to appeal to a banking sector whose cost of funding from traditional sources has also plunged. What can it do to re-calibrate the Term Funding Facility? It is is due to expire in January and will need to be extended in one form or another. They might if the money was free One solution would be to take a leaf out of Europe’s book and make the interest rate on part of the next phase of the program negative, essentially free money. The European Central Bank’s scheme offers loans at rates as low as -1% to banks that are willing to expand lending to small and medium-sized businesses. This offer has helped drive the interest rate faced by small and medium-sized businesses as low as 2%, well below the 4.5% sometimes charged in Australia. If the Reserve Bank offered part of the Term Funding Facility at a negative interest rate for banks that expanded lending to small businesses, it would likely see some expansion. It would both help stimulate the economy and increasing financial stability by making small business failures less likely. Some might argue against this by saying that negative interest rates are unprecedented in Australia. But this argument does not hold water. The times, and almost every proposed solution to our current problems, are unprecedented too. Written by Isaac Gross. Republished with permission of <a href="https://theconversation.com/small-businesses-are-being-starved-of-funds-heres-how-to-make-their-loans-cheaper-143834">The Conversation.</a>

Retirement Life

Why seniors need to think carefully before leaping into the Pension Loans Scheme

At first glance, it seems like a good idea – supercharge an existing Australian Government scheme to make it easier for retirees to turn the equity in their home into regular cash payments. The expanded <a rel="noopener" href="https://www.humanservices.gov.au/individuals/services/centrelink/pension-loans-scheme/who-can-get-it" target="_blank">Pensions Loans Scheme</a>, which came into effect on 1 July 2019, allows retirees to access a fortnightly amount representing 150 per cent of the maximum pension payment, via a government loan secured against their home. A 5.25 per cent interest rate will apply to the loan, which will need to be paid back to the government when the home is eventually sold. The government expanded the scheme by making it available to self-funded retirees as well as pension recipients and increasing the amount which could be borrowed from 100 per cent to 150 per cent of the maximum fortnightly pension rate. The scheme does look particularly attractive in a low interest rate environment, where retirees are struggling to create a strong and safe income stream from their savings. However, retirees will need to think carefully before they sign up to the scheme, as it does have a number of potential pitfalls. We’ve laid them out for you here: Doesn’t promote ‘fit for purpose’ housing for seniors Many pensioners are living in older-style homes, which were designed for active and young families. These homes are less suitable for elderly people, often because they contain stairs, trip hazards and don’t cater for people with reduced mobility. This government scheme will encourage pensioners to stay in these unsuitable homes, when it is perhaps preferable to be providing incentives for them to move to newer, safer and more comfortable housing stock. For instance, many newer homes are built to <a rel="noopener" href="http://www.livablehousingaustralia.org.au/" target="_blank">Livable Housing Australia</a> standards, which includes requirements for level pathways to the front door, easy-access shower cubicles, slip-resistant flooring and electrical powerpoints elevated from the skirting board. This scheme won’t help with housing affordability Across Australia, there are estimated to be <a rel="noopener" href="https://www.downsizing.com.au/news/347/Empty-bedrooms-in-the-homes-of-over-50s-could-help-solve-Australias-affordable-housing-crisis" target="_blank">millions of empty bedrooms</a>, largely due to ‘empty nesters’ living in homes well after the children have left home. These bedrooms are going to waste when they could be providing housing for those who need it. <a rel="noopener" href="https://www.downsizing.com.au/news/347/Empty-bedrooms-in-the-homes-of-over-50s-could-help-solve-Australias-affordable-housing-crisis" target="_blank">A survey by Downsizing.com.au and LJ Hooker in 2017</a> revealed the extent of the problem. Just under 90% of survey respondents said they had a spare bedroom available in their current home which no-one regularly occupies. Incredibly, one in five respondents said they had three spare bedrooms and four out of ten said they had two spare bedrooms. Encouraging pensioners to stay in their home will continue and exacerbate this national empty bedrooms problem, by locking up older, larger homes which could be better occupied by younger and growing families. It could lead to loneliness Like many other developed countries, Australia has an acute loneliness problem. <a rel="noopener" href="https://theconversation.com/one-in-four-australians-are-lonely-which-affects-their-physical-and-mental-health-106231" target="_blank">A major study released last year </a>found one in two (50.5%) Australians feel lonely for at least one day in a week, while more than one in four (27.6%) feel lonely for three or more days. The UK Government has even launched its own <a rel="noopener" href="https://www.gov.uk/government/news/pm-launches-governments-first-loneliness-strategy" target="_blank">Loneliness Strategy</a>, arguing that it is one of the greatest public health challenges of our time. As mentioned above, there are millions of empty bedrooms in homes occupied by elderly people across Australia. These bedrooms are empty for a very good reason – the family (and sometimes also a partner) are no longer living there. This can be a very lonely experience and also not a safe one during times of ill-health. Retirees may be better moving into retirement communities, where they can be part of a vibrant and supportive community, rather than utilising the Pension Loans Scheme and staying alone in their homes. Scheme doesn’t help people with large mortgages This scheme also may not help the increasing numbers of seniors who are arriving into retirement with a large mortgage and are struggling with repayments. The<a rel="noopener" href="https://www.pc.gov.au/research/completed/housing-decisions-older-australians" target="_blank"> Housing Decisions of Older Australians</a> report by the Productivity Commission, shows that around 30 per cent of Australians aged more than 55 in 2011 had an outstanding mortgage on their home, compared to around 15 per cent in 2001. Recent economic data has shown this <a rel="noopener" href="https://www.downsizing.com.au/news/566/How-downsizing-is-a-growing-mortgage-busting-option-in-retirement" target="_blank">problem has worsened since 2011</a>. Although it is possible to utilise the Pension Loans Scheme when there is an existing mortgage on the property, this may not be the best solution. This is particularly the case if the ongoing mortgage payments eat up the increased income which will come from the scheme. The best way to deal with this problem <a rel="noopener" href="https://www.downsizing.com.au/news/566/How-downsizing-is-a-growing-mortgage-busting-option-in-retirement" target="_blank">may be to sell the property to allow the mortgage to be removed, or to find other ways to get rid of the mortgage debt</a>. Using the scheme for a long period could cut into your home value The Pension Loans Scheme is based on a 5.25 per cent interest rate, that compounds fortnightly on the outstanding loan balance. <a rel="noopener" href="https://www.humanservices.gov.au/individuals/services/centrelink/pension-loans-scheme/how-much-you-can-get/interest-rate" target="_blank">As the government’s website explains</a>, this means that if you use the loan to get a fortnightly payment of $750, after 15 years you will have a total loan balance of $445,000 (of which some $152,000 represents interest). That sort of amount is likely to represent a pretty big whack on any inheritance which goes to the children. As <a rel="noopener" href="https://corporate.amp.com.au/newsroom/2019/june/changes-to-pensioners-loan-scheme-set-to-boost-retiree-bank-bala" target="_blank">AMP Technical Strategy Manager John Perri</a> explains: “When the family home is sold, the amount owed will be deducted from the sale price of the home.” “For retirees the Pensioners Loan Scheme provides an opportunity to free up some equity that they have in their home. This may help bridge the funding gap while looking to secure aged care or while they await an <a rel="noopener" href="https://www.myagedcare.gov.au/assessment/prepare-your-assessment" target="_blank">ACAT assessment</a>. “The downside is that their estate often will be left to pay the outstanding loan, potentially leaving less inheritance to the kids. Retirees should carefully consider their personal situation to work out if this is a viable option for them.” Conclusion There is no question that government intervention is required to help support ‘asset rich cash poor’ retirees to fund living expenses in later years. The government’s reverse mortgage scheme may offer a helpful temporary solution for some people. This could be after a sudden financial change, ill-health or the death of a partner, or while pensioners are transitioning into alternative accommodation. But in the longer-term, it may not be the best solution. In fact, it could encourage people to stay in large unsuitable homes and be increasingly housebound, lonely and socially isolated, while at the same time being in a scheme which may eat into the inheritance they want to give their children or doesn’t help them remove an unwanted mortgage. The early evidence is that seniors are not convinced about the scheme. <a rel="noopener" href="https://issuu.com/yourlifechoices/docs/retirement_affordability_index_june?fr=xKAEwAT3_NTU1" target="_blank">A recent survey by website YourLifeChoices</a> found that 87 per cent of seniors would not borrow through the Pension Loans Scheme, compared to 13 per cent who would. To this end, it would be helpful if the Federal and State Governments offered incentives for retirees to unlock equity by selling the family home and downsizing into a more suitable property. This would help retirees to access funds from their property, and at the same time enjoy the many benefits of downsizing. These incentives could include changes to the pensions asset test, increasing housing supply for retirees and stamp duty reductions or waivers. <div class="body-container"> <div> Written by Mark Skelsey. Republished with permission of <a rel="noopener" href="https://www.downsizing.com.au/news/573/Why-seniors-need-to-think-carefully-before-leaping-into-the-Pension-Loans-Scheme" target="_blank">Downsizing.com.au</a>. </div> </div>

Retirement Income

Why you should get a home loan health check

Your home loan should change as your needs do. How has your life changed since you got your home loan? Have you received a promotion, started a new job or taken extended leave? Have you gotten married? Started a family? Or made any other significant financial decisions? Are you planning a renovation or a big holiday? If you’ve answered yes to any of these questions, now is a good time to check if your home loan is still the right one for your needs. Here are some reasons why it’s important to do a home loan health check: To secure a more competitive interest rate Interest rates can change significantly over time. A recent survey conducted by Mortgage Choice found that almost 40% of Australians did not know the interest rate on their home loan. A mortgage is easily the most significant financial decision households make and if you’re not on top of yours, you may not know that you’re paying more than you have to. To pay off your loan faster You might have committed to a 30 year loan but it doesn’t have to take that long to pay it off. A home loan health check could show you viable options to paying off your loan faster and getting out of debt sooner. You can also learn how you can build equity in your home to access down the track. To refinance Like many borrowers, you might be coming to the end of a fixed rate term or interest only period. It’s important to take the time to have a look at what home loan offers are available to make sure you don’t roll over onto an interest rate that costs you more than it should. To renovate or upgrade your home A health check will help you determine how much equity you have in your property. You may have accrued equity if your property has increased in value, or you’ve paid down a significant amount of your loan. You can leverage the equity you’ve built to finance a renovation, buy an investment property and more. To access home loan features There are a variety of home loan features and facilities available to borrowers. For example, an offset account can help reduce the interest you pay on your mortgage each month. A redraw facility will allow you to access any additional repayments you make on your loan. It is important to note that some features will often come at a cost to the borrower but the flexibility could be worth it in the long run. To simply get on top of your mortgage see how you’re tracking It’s fair to say that your financial goals may have changed since you got your home loan. A home loan health check is a great way to check that your loan still aligns with your short and long-term financial goals and make changes if it doesn’t. Your local Mortgage Choice broker can do a health check for you in no time at all. They’ll search through hundreds of loans from over 20 lenders to make sure you’re getting a good deal for your individual circumstances. And if they find a better option for you, they will do all of the legwork to refinance your loan. Republished with permission of <a href="http://www.handyman.net.au/why-you-should-get-home-loan-health-check">Handyman.net.au.</a>

Caring

Commonwealth Bank credit cards and loans “disappear” in online banking outage

Commonwealth Bank customers have had their credit histories seemingly disappear from both the major bank’s smartphone app and its online banking facility. Around 8 am this morning, the disappearance occurred, only showing the funds customers had in savings, according to <a href="http://aussieoutages.com/status/commonwealth-bank" target="_blank">Aussie Outages.</a> The outage also appeared to wipe out the balances of home and personal loans, travel money card accounts, and affected bill payments using BPAY. The bank has warned that scheduled payments will experience delays but reassured customers that they will make sure they are all paid today. <img width="315" height="447" src="https://oversixtydev.blob.core.windows.net/media/7817086/cba.jpg" alt="CBA"/> The bank has created a pop-up message, warning customers of the error that has taken place. “We’re working to fix an issue affecting BPAY, Credit Cards and Loans,” the message reads. “You may not be able to make bill payments or see some of your accounts in the CommBank app, including Home Loan, Personal Loan, Credit Card and Travel Money Card accounts. “Scheduled payments have been slightly delayed – we’ll make sure they’re paid today. “Thanks for being patient with us – we’re sorry for the inconvenience.” The digital outage was not part of a scheduled digital update, with the last upgrade rolled out on 4 am Sunday. The online team said the bank was “working to rectify the issue as soon as possible”. Many customers took to social media this morning, worried that their accounts had disappeared. Some expressed annoyance with the issue while others were confused as to why they could not transfer funds between accounts any longer. Have you experienced any issues with the Commonwealth Bank's digital outage? Let us know in the comments below.

Money & Banking

How to get a home loan if you're a pensioner

With the population seemingly living longer than ever, retirement age creeping upwards, and parents wanting to help children get onto the property ladder, more and more over 60s are interested in finding out what their options are for a home loan. While some lenders view pensioners as high-risk customers, there are many lenders out there who are willing to provide home loans or mortgages to people over 60 – some even let you apply until you are 75! So, don’t let your age be a barrier if you are looking to buy your own property later in life, or if you want to use some of the equity that you have built up in your home. Here, we have answered some common questions for you: What should I keep in mind? People with a pension must keep in mind that their income may limit the level of loan they can apply for. This is because many lenders look at the level of income as an important factor in the amount of money they will lend. For this reason, pensioners will probably be better off speaking to a broker who can assist them in getting the right loan from a lender, rather than trying to apply for a loan online, as you may not be able to demonstrate your ability to repay the loan amount. Looking for a mortgage broker? As one of Australia’s largest independently owned non-bank lenders, <a href="https://www.mortgagehouse.com.au/">Mortgage House</a> offers a <a href="https://www.mortgagehouse.com.au/mortgages/types/">vast range of loan</a> and mortgage finance options. <img width="500" height="334" src="https://oversixtydev.blob.core.windows.net/media/7267359/mortgage-house-image-4_opt_500x334.jpg" alt="Mortgage House Image 4_opt"/> What types of loans are available to me? <ul> <li>Variable rate loans: If you take out a variable rate loan, one of the most common loan options in Australia, your interest rate will be based on interest rate fluctuations. This means it is subject to change during the life of your mortgage, and while it offers flexibility and possible savings, a rise in the interest rate can mean more of your pension has to be spent on repaying the loan.</li> <li>Fixed rate loans: If you take out a fixed rate loan, the <a href="https://www.moneysmart.gov.au/borrowing-and-credit/home-loans/interest-rates">interest rate for your loan</a> will be determined at the outset, often for the whole of the term of your loan, although there are hybrid options available where you fix the rate for a period of years with a possibility to change later. This means you will always know in advance what your repayments will be, allowing you to budget more easily.</li> <li>Reverse mortgages: This type of loan allows you to borrow using the equity in your home as security. You can receive a lump sum, get regular monthly payments, a line of credit (a pre-approved amount that you can withdraw as required) or a mixture of these options. As you don’t need to show any income to qualify for a reverse mortgage, expect the interest rate to be higher. Other conditions apply, including the fact that you must repay the loan when you sell your home, go into care or pass away.</li> </ul> What if I receive a disability pension or veteran’s pension? These types of pensions are usually considered to be a valid form of income by lenders. Keep in mind that you may have to provide proof of income, such as bank statements, letters from the relevant authority, or other documentation. Your broker can assist you with these and other possible eligibility requirements that you may need as a pensioner.

Money & Banking

Bank approves 30-year home loan to 76-year-old

The thought of debt hanging over your head as you hit triple figures isn’t pleasant, but it could be a reality for many Aussies as a <a href="http://www.heraldsun.com.au/moneysaverhq/76yearold-gets-30year-home-loan-as-lenders-approve-australians-into-their-80s/news-story/941bd41332ca92f9beaf245cccb5d823" target="_blank">News Corp report</a> reveals seniors in their 70s and 80s are increasingly being approved for owner occupier home loans. <a href="http://www.heraldsun.com.au/moneysaverhq/76yearold-gets-30year-home-loan-as-lenders-approve-australians-into-their-80s/news-story/941bd41332ca92f9beaf245cccb5d823" target="_blank">News Corp</a> cites industry sources who suggest applicants as old as 83 were approved for loans in 2017, despite a clampdown on lending requirements from regulators. In one case, a 76-year-old borrower was approved for a $940,000 30-year-loan. One sources reportedly said banks typically view borrowers over the age of 50 different, with those paying off mortgages above the age of 70 requiring an exit strategy. But <a href="https://www.homeloanexperts.com.au/" target="_blank">homeloanexperts.com.au</a>’s managing director Otto Dargan said this doesn’t necessarily mean lenders discriminate by age, and view each application differently. “Just because someone is over 65 doesn’t mean that it’s inappropriate to give them a mortgage,’’ he said. “Lenders investigate their specific circumstances and identify how they are going to repay the loan without getting into hardship. “Denying someone based solely on their age is a form of discrimination but lenders can deny a loan if it is unsuitable for the borrower.” An Australian Bankers’ Association spokeswoman said strict measures are already in place for anyone looking for mortgages later in life, to ensure they can repay debt. “When making lending decisions, banks take into account many factors including the customer’s financial situation, employment status, income and expenses,’’ she said. “No two customers are the same so each case will be assessed differently in line with banks’ responsible lending obligations.” What are your thoughts?

Money & Banking

This 40-hour home loan sale could change your life

Paying off a home loan can be an exhausting, demoralising and sometimes even an intimidating task. It’s not all doom and gloom however. Australians now have a rare opportunity to find a better deal, which could see them saving up to $39,000. RateCity’s <a href="http://www.ratecity.com.au/sale?utm_source=oversixty&utm_medium=referral&utm_campaign=rcsale_oversixty_article&rmatt=tsid:1030695|cid:54369|cgid:543693734136|crid:15969003" target="_blank">Switch and Save Sale</a> is Australia’s first industry home loan sale, which will see lenders slashing fees, offering cashbacks and cut-price home loan interest rates – including the lowest available on the market from Reduce Home Loans. RateCity Money Editor Sally Tindal says the sale has the potential to liberate a whopping $1.98 billion worth of home loan value away from the big four banks and ultimately put $222 million back into the pockets of everyday Australians. Ms Tindal says, “Our research shows that the average mortgage holder with a big bank could save up to $39,000 on a 15-year loan. That’s thousands back into your pocket, instead of your bank’s. “To participate in the sale, all you need is some basic information about your current mortgage such as interest rate, loan size and property value. “In less than a minute, you can plot a new path to mortgage freedom. “There are no up-front obligations, and customers have up to 30 days to take advantage of the discounted offer, provided they register within the initial 40-hour sale.” Ms Tindall said the climate was ripe for refinancing. “With banks putting up rates out of cycle, alongside comparatively low wages growth, mortgage repayments are starting to pinch. “Switching to a more competitive home loan is one silver bullet that’s staring us in the face. “Refinancing isn’t as hard as people might think. Yes, there’s a bit of paperwork involved, but lenders are more than happy to do the heavy lifting for new customers. “And for a return of up to $39,000? That’s a pretty good hourly rate,” she said. The RateCity Switch and Save Sale runs for 40 hours, from 6am Monday May 8, to 10pm Tuesday May 9. For more information or to register interest, <a href="http://www.ratecity.com.au/sale?utm_source=oversixty&utm_medium=referral&utm_campaign=rcsale_oversixty_article&rmatt=tsid:1030695|cid:54369|cgid:543693734136|crid:15969003" target="_blank">click here</a>.

Money & Banking

The one thing to check before applying for a home loan

A home loan is a daunting prospect for anyone, let alone seniors who may have to make do on a fixed income. But if you’re planning on a sea or tree change it may be a necessity. So how do you find the right loan for your situation? Well, the good news is <a href="http://www.oversixty.com.au/finance/comparison-tables/home-loans/mortgage-calculator/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-mortgage-calculator&utm_content=comparison-tables" target="_blank">there’s now a tool</a> that can help you navigate the clutter of financial products available and identify the one that best suits your individual needs. Over60 Comparison Tables has launched a <a href="http://www.oversixty.com.au/finance/comparison-tables/home-loans/mortgage-calculator/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-mortgage-calculator&utm_content=comparison-tables" target="_blank">mortgage calculator</a> that’s makes it easy to visualise and compare the home loans available and ultimately make the right call. Powered by RateCity, one of Australia’s leading comparison websites, the mortgage calculator is full of information, with an interface that is easy to use and understand. Filter products by Property Value, Loan Amount, Interest Rate and Loan Term, as well as Repayment Frequency and Repayment Type. The <a href="http://www.oversixty.com.au/finance/comparison-tables/home-loans/mortgage-calculator/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-mortgage-calculator&utm_content=comparison-tables" target="_blank">mortgage calculator</a> will break down your home loan repayments, interest payable and the total cost of the loan, while also generating a graph of the repayments schedule. To find out which home loan is the right choice for you, compare it to the market with the Over60 Comparison Tables <a href="http://www.oversixty.com.au/finance/comparison-tables/home-loans/mortgage-calculator/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-mortgage-calculator&utm_content=comparison-tables" target="_blank">mortgage calculator.</a>

Money & Banking

Huge changes looming for credit cards and loan applications

Australians have been warned about a raft of new data sharing laws that will affect everyone applying for credit cards, loans or mortgages in the future. In a report published on <a href="http://www.News.com.au" target="_blank">News.com.au</a>, credit rating bureau Experian said two thirds of Australians are unaware of the amended privacy laws which have been bought in as part of a new comprehensive credit reporting scheme. The changes will see lenders share positive data about customers like repayment history. Lenders and financial institutions currently are only able to share negative customer data like defaults and bankruptcies. This data has already been shared among main credit bureaus, affecting applications for credit cards, loans and mortgages. Experian managing director Suzanne Steele told <a href="http://www.News.com.au" target="_blank">News.com.au</a>, “Credit providers in Australia will soon be looking back at up to 24 months of your credit repayment history, which is why consumers need to start positively impacting their future credit score now by making sure they diligently make repayments on time. “Being aware of what your credit score is and the parts of your finances that impact the score is critical. It enables you to know where you stand and address any issues before applying for a new credit card, loan or mortgage. “Beyond that, my top tips include paying bills on time, doing due diligence before applying for credit and avoid multiple credit inquires in a short period of time.” Do you think the changes are a win? Related links: <a href="http://www.oversixty.com.au/finance/money-banking/2017/02/more-secrets-of-worlds-most-money-savvy-senior/">6 more secrets of the world’s most money savvy senior</a> <a href="http://www.oversixty.com.au/finance/money-banking/2017/02/ways-to-cut-your-grocery-spend-in-half/">8 ways to cut your grocery spend in half</a> <a href="http://www.oversixty.com.au/finance/money-banking/2017/01/ways-to-make-extra-money-in-retirement/">Over60 community’s tips on how to make extra money in retirement</a>

Money & Banking

How to find the best home loan for you

Whether you’re downsizing, considering a sea change, or finally springing for that dream property, a home loan can be quite a daunting purchase to consider, particularly for those on a fixed or limited income. With so many products on the market, it can be difficult to identify which one represents the best value for your situation. The good news is the Great Australian Dream is about to become a lot easier to fulfil with the brand new <a href="http://www.oversixty.com.au/finance/comparison-tables/home-loans/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-home-loans&utm_content=comparison-tables">Over60 Comparison Tables</a> tool. Powered by RateCity, one of Australia’s leading comparison websites, <a href="http://www.oversixty.com.au/finance/comparison-tables/home-loans/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-home-loans&utm_content=comparison-tables">Over60 Comparison Tables</a> takes the guesswork out of finding a home loan and makes it easy to track down the right one for you. <a href="http://www.oversixty.com.au/finance/comparison-tables/home-loans/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-home-loans&utm_content=comparison-tables">Over60 Comparison Tables</a> brings together the best home loan offers on the market in one easy to navigate matrix. Choose between Owner/Occupier and Investment Loans, and filter by the amount of money you’re looking to borrow and the rate at which you’ll be able to pay it off. You’ll be able to compare loans by Advertised and Comparison rates, Monthly Repayments and Estimated Up Front Fees. Once you’ve seen an offer that looks the goods, simply click View Now and you’ll be directed to the provider’s website. <a href="http://www.oversixty.com.au/finance/comparison-tables/home-loans/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-home-loans&utm_content=comparison-tables">Over60 Comparison Tables</a> also has a useful <a href="http://www.oversixty.com.au/finance/comparison-tables/home-loans/mortgage-calculator/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-mortgage-calculator&utm_content=comparison-tables">Mortgage Calculator</a>, to help you visualise the size of the loan you’re able to handle and the rate at which you can pay if off. To find out which home loan is the right choice for you, compare it to the market with <a href="http://www.oversixty.com.au/finance/comparison-tables/home-loans/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-home-loans&utm_content=comparison-tables">Over60 Comparison Tables</a>. Related links: <a href="http://www.oversixty.com.au/finance/retirement-income/2016/08/government-to-water-down-proposed-changes-to-super/">Government to water down proposed changes to super</a> <a href="http://www.oversixty.com.au/finance/retirement-income/2016/08/gap-between-retirement-dreams-and-savings-reality/">The gap between retirement dreams and savings reality</a> <a href="http://www.oversixty.com.au/finance/retirement-income/2016/09/not-too-late-to-reclaim-lost-super/">It’s not too late to reclaim your lost super</a> <div class="share-links"> <div class="addthis_native_toolbox" data-url="http://www.oversixty.com.au/finance/retirement-income/2016/10/how-you-can-pay-off-your-mortgage-in-retirement/" data-title="How you can pay off your mortgage in retirement | OverSixty" data-description="If retirement is on your horizon and you have more years left on your home loan than you have in the workplace, here are 4 ways to help reduce your debt."> <div id="atstbx3" class="at-share-tbx-element at-share-tbx-native addthis_default_style addthis_20x20_style addthis-smartlayers addthis-animated at4-show"></div> </div> </div>

Money & Banking

How to get the best deal every time

With so many options on the market, finding the best deal can feel like searching for a needle buried in a haystack. But that’s all about to change, as Over60 announce the launch our exciting new <a href="http://www.oversixty.com.au/finance/comparison-tables/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-1-launch&utm_content=comparison-table">Comparison Tables</a> section. Powered by RateCity, widely regarded as one of Australia’s leading financial comparison websites, <a href="http://www.oversixty.com.au/finance/comparison-tables/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-1-launch&utm_content=comparison-table">Comparison Tables</a> is designed to take the guesswork out of major financial decisions, bringing the best credit card, home loan, car loan, personal loan, super and pension offers together in one accessible place. Here’s how you can use <a href="http://www.oversixty.com.au/finance/comparison-tables/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-1-launch&utm_content=comparison-table">Comparison Tables</a> to find the best deal for you. 1. Shop around As with everything in life, the chances of stumbling across the best deal the moment you begin your search are slim. Comparison Tables gives you a chance to shop around, and browse 13,000 financial products from 250 providers. Drop-down menus let you refine your search, making it easy to get an ideal offer for your lifestyle and budget. 2. Read the fine print How many times have you thought you had the best deal, only to discover some snag hidden deep in the fine print? Comparison Tables makes it easy to avoid this, providing a simple breakdown of the fees and payment structures of each financial product, and easy access to the provider’s website for more detailed information. 3. Get financial advice If you’re stuck, the advice of a qualified financial adviser is the best way forward, especially when it comes to picking between what looks like two good offers. Comparison Tables is still a useful tool to educate yourself about the ins and the outs of the product before you approach the professional, to ultimately make a better-informed decision. To access Comparison Tables, <a href="http://www.oversixty.com.au/finance/comparison-tables/?utm_source=over60&utm_campaign=RateCity&utm_medium=in-article-link-1-launch&utm_content=comparison-table">click here</a>. Any advice contained in this communication is general advice only. None of the information provided is, or should be considered to be, personal financial advice. Related links: <a href="/finance/money-banking/2016/08/6-things-you-can-do-to-be-richer-this-time-next-year/">6 things you can do to be richer this time next year</a> <a href="/finance/money-banking/2016/08/5-ways-to-protect-yourself-from-atm-fraud/">5 ways to protect yourself from ATM fraud</a> <a href="/finance/money-banking/2016/08/how-to-shop-safely-on-your-mobile-devices/">How to shop safely on your mobile devices</a>

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