September 22, 2017

Home and Contents Insurance

A home and its contents are the most valuable things that most people will ever own.

To protect them, you can take out Home and Contents insurance.

This allows you to pay an affordable premium each year so that, if your home is damaged or destroyed, the insurance company will give you the money to replace what you lost.

Home and contents insurance often come bundled as a package but they are actually two separate polices.

Home insurance covers the cost of damage to your home, while Contents insurance covers damage to your possessions.

It is important to know exactly what an insurance policy covers as it varies between companies.

For instance some policies insure your home against flood but some do not.

You can find this out on the key factsheet for the product which will be on your insurer’s website, or you can ask them to send you a copy.

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What is a High Interest Savings Account

A high interest savings account is a bank account that offers a competitive interest rate.

It is similar to a regular bank account, but it is designed to help you save money, rather than spend money.

It does this by offering a higher interest rate than a transaction account.

Interest on a high interest savings account is usually calculated daily and paid monthly.

A high interest savings account gives you at-call access to your funds, which means you can get it quickly if you need it.

It is one of the safest investments in the financial system because it is guaranteed by the Australian Government.

Under its Financial Claims Scheme, the government guarantees deposits of up to $250,000 per customer per Authorised Deposit-Taking Institution.

If an Authorised Deposit-Taking Institution cannot pay you back your term deposit, the Government will aim to pay you the money in seven calendar days.

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Term Deposit Basics

Term deposits are savings products offered by banks, credit unions and building societies.

You give them a chunk of money for an agreed term and they give you a fixed rate of interest over that term.

The term can range from as little as one month up to five years.

Depending on the deposit, interest can be paid to you regularly or in one big payment at the end.

When the deposit matures, you can get your money back or roll it over into another term deposit.

The main benefit of a term deposit is that all deposits up to $250,000 are guaranteed by the Government.

The disadvantage is that if you want your money back before the agreed date, you will probably have to pay a financial penalty.

Applying for a term deposit is essentially the same as applying for a bank savings account, and most applications can be made online.

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What is Superannuation in Australia

Superannuation is a way to accumulate funds through your working life for your retirement.

It is compulsory for employers to contribute to superannuation on behalf of their employees.

Your employer must pay 9.5% of your salary into a superfund. This is called the Super Guarantee. You can also top it up with your own money.

If your money is being paid to a super fund, it is invested by your super fund manager into assets such as shares, property and term deposits so it can grow.

To encourage people to invest in super, the government taxes it at a much lower rate than investments outside super.

Generally, you are not allowed to withdraw money from your super until you reach your preservation age, which currently ranges between 55 and 60, depending on when you were born.

At retirement, you can retire and start withdrawing your super to live off.

The earlier you start putting money into super, the longer it has to grow. Retirement calculator will help you on this purpose

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What is Conveyancing in Australia

Conveyancing basics

When you buy or sell a property you will need to hire someone to handle the legal process, referred to as conveyancing.

It can be done by lawyers or by non-lawyers who are licensed conveyancers.

The work a conveyancer does for the buyer includes the preparation of the legal documents, conducting local government searches on the property, and checking the legitimacy of its current title.

The conveyancer will also:

  • Manage your deposit in the trust account
  • Calculate the adjustment of rates and taxes
  • Settle the property
  • Coordinate information between the banks and the buyer and seller
  • Generally represent your interests

For the seller, the conveyancer will ensure that all the legal documents are prepared, signed, and properly in order.

A licensed, professional conveyancer will protect you from being taken advantage of through fraud or misrepresentation.

Fees will vary so it is a good idea to shop around when you start looking for a property.

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How Borrowing Capacity is Calculated

Before you start searching for a home it is a good idea find out your borrowing capacity.

This will tell you what you can afford to buy.

To work out what they can lend you, a mortgage lender will determine what you could afford to repay each month.

They do this by comparing your spending with your income.

Your income includes your salary, any income you receive from a rental property, and other income such as overtime, bonuses, and government transfers.

Your expenses include your living expenses and your repayments on any other loans.

Lenders will ask you detailed questions about how many dependents you have and costs for childcare, school fees, and private health cover.

If you have a credit card, they will also factor in your whole credit limit to figure out how big your repayments could get in the future.

Many lenders offer a borrowing mortgage repayment calculator on their website to give you a rough idea of what they would lend you.

 

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What is a Comparison Rate

When they advertise a loan, banks and other lenders are legally required to display a comparison rate.

The comparison rate is important because it lets you know the true cost of the loan and to easily compare home loans between different lenders.

As well as charging interest, lenders levy fees which can be substantial including establishment fees, approval fees, and other upfront and ongoing fees.

The comparison rate combines these fees and charges along with the interest rate into a single, easy to understand percentage figure.

The lower the comparison rate, the cheaper the loan.

For this reason, it is wise to pay close attention to the comparison rate when you shop around for a loan and not be dazzled by a cheap interest rate.

But remember that cost isn’t the only thing to consider when you are trying to work out which loan is right for you.

 

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How income tax works in Australia

When you earn money from your work or investments, you will usually have to pay tax.

If you earn salary or wages, your employer is required to withhold some and send it to the Australian Tax Office.

This is called Pay-As-You-Go tax or P-A-Y-G for short.

The amount you pay will depend on how much you earn.

Australia uses a sliding scale of tax so that higher earners pay a higher rate of tax.

Income tax is your total income minus deductions which include things such as work expenses and donations to charity.

If you earned income during a financial year, you are required to submit a tax return to the Australian Tax Office.

It will then assess whether you owe tax or have paid too much during the year and are entitled to a refund.

You can fill out your tax return yourself or through a registered tax agent.

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What is an offset redraw facility

Many people choose a home loan with a 100% offset redraw facility because it helps them pay off their loan faster, with less interest.

An offset redraw facility is a sub-account within your loan account.

Whenever you put money into your offset redraw facility that money is 100% “offset” against your home loan compare.

Say you had a home loan of $350,000 and you put $10,000 into your offset redraw facility.

While that money is in there you only pay interest on $340,000.

Your monthly repayment will remain the same but more of it will go towards paying off your home loan principal and less towards interest, so you will pay down your mortgage in less time.

While your money is in the offset you can still access it.

For that reason, many people choose to maximise the “offset effect” by having their salary paid into their offset redraw facility, drawing it out it as needed.

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What is a Car Loan in Australia

A car loan is a personal loan that you use to buy a car.

You borrow the money and then repay it within a set period called the “term”, which is usually less than five years.

If you buy from a car yard, the dealer might offer to arrange finance for you, but make sure you shop around as you might find a better car loan deal elsewhere such as online.

Process of compare car loans have some key features that you will need to consider.

These include whether you want a fixed or a variable rate loan and whether you want a loan that is secured against your car or one that is unsecured.

Another decision is whether you want to pay your loan off in equal installments or use a “balloon” with smaller installments but a large lump sum at the end.

Whatever you choose, make sure to research a variety of lenders because interest rates vary widely.

 

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