Mortgage Basics – Helping You Understand Your Home Loan Better

Apr 10, 2024 | Book of the Week, Building Emotional Muscle, Building Financial Muscle, Debt, Educational Series, Episodes, Financial Health, Financial Management 101, Home Loan, Mindset, Saving Money, Self Development

Hey, fellow financial mavericks, I want to share a quick bite-size piece of information about your home loan, or, if you’re looking to dive into the property market as a first home buyer, then here are some of the mortgage terminology to help you understand what you’re getting into.

Buying a home and financing your new home is one of the biggest purchases of your life and is both exciting and nerve-racking. Firstly, it takes enormous amounts of your income to pay and smash down the home loan, however, it’s also one of the most rewarding things to see you owning your own home, whether it’s your first home or building an investment portfolio.

UNDERSTANDING MORTGAGES: THE BASICS

A mortgage is essentially a loan that helps you buy a property. When you take out a mortgage, you’re borrowing money from a lender (usually a bank or mortgage company) to purchase a home. The twist? The home itself serves as collateral for the loan. This means if you fail to make your payments, the lender has the right to take ownership of the property through a process known as foreclosure.

THE PLAYERS: LENDER AND BORROWER

In the mortgage world, the lender is the financial institution lending you the money. You, the homebuyer, are the borrower. Lenders evaluate your creditworthiness based on factors like your credit score, income, debts, and employment history. This evaluation helps determine how much they’re willing to lend you and at what interest rate.

YOUR MORTGAGE: THE KEY COMPONENTS

Let’s break down the basics of what a mortgage is, including terms like interest rates, principal, what amortisation means, and what it means when you look to refinancing.

So let’s start with:

Principal: This is the amount of money you borrow to buy a home. For example, if you buy a house for $500,000 and make a down payment or deposit of $80,000, your principal would be $420,000.

Interest Rate: The lender charges you interest as a cost of borrowing money. Interest rates can be fixed (remaining the same throughout the term) or variable (changing with market conditions). The rate impacts your monthly payment and the total cost over the life of the loan.

Amortisation: This refers to the process of spreading out the loan payments over a set period, typically 20 to 30 years for mortgages. Each payment includes a portion that goes toward the principal and a portion that goes toward interest. In the early years, a larger part of each payment goes toward interest; later, more goes toward reducing the principal.

Lenders Mortgage Insurance (LMI): Insurance added onto a home loan where your deposit or down payment is less than 20%, which is there to protect the lender if you default on the loan.

Government & Property Taxes: Whenever you purchase a property in Australia, the government charges you stamp duty and other costs, which you can either pay the amount owing at time of settlement, or, you can add the govt costs into your home loan.

Refinancing: This is the process of replacing your existing mortgage with a new one, usually to take advantage of lower interest rates. Refinancing can reduce your monthly payments or shorten your loan term, but it may involve additional costs like settlement fees.

Monthly Payments: Your monthly mortgage payment typically includes:

- - - Principal repayment: Reduces your outstanding loan amount.
    - Interest payment: The cost of borrowing the principal.

Long-term Costs: Over the life of the mortgage, you’ll pay back the principal plus the total interest accrued. A higher interest rate or a longer term means more money paid in interest.

For instance, a $420,000 mortgage at 6% interest over 30 years will cost less in monthly mortgage repayments, however you will be paying more in total interest than the same mortgage at 6% interest over a 25 year period. With a lower loan term, you will be paying higher monthly payments, but in total lower interest costs.

Generally a more extended loan term, helps make the repayment more manageable.

THE MORTGAGE PROCESS: STEP-BY-STEP

- Pre-Approval: Before house hunting, you may want to get pre-approved for a mortgage. This gives you a better idea of how much you can afford and shows sellers you’re serious.
- Find a Home: Once pre-approved, you can shop for a home within your budget.
- Apply for a Mortgage: After finding a home, apply for a mortgage. You’ll need to provide detailed information about your finances.
- Underwriting/Assessment: The lender reviews your application, verifies your financial information, and assesses the property’s value.
- Approval & Settlement: If the loan is approved, you’ll sign the loan documents, your solicitor or settlement agent will assist you in finalising the loan contract and then once settles, the home is yours!

TIPS FOR SUCCESSFUL MORTGAGE MANAGEMENT

- Understand Your Budget: Know what you can afford monthly,, to avoid financial stress.
- Improve Your Credit Score: A higher credit score can secure a better interest rate, saving you money in the long run.
- Save for the Deposit/ Down Payment: The bigger your deposit payment, the less you have to borrow, and the less you pay in interest and possibly mortgage insurance.
- Use a Mortgage Broker: Work with a mortgage broker research for you on who is going to offer you the best deal, based on your own personal financing position. Your mortgage broker will offer you a product comparison, highlighting a few lenders rates, terms and features and benefits.

Understanding these quick basics, helps in making informed decisions about buying a home and choosing the right mortgage. It’s essential to consider both the monthly affordability and the long-term financial implications when selecting a mortgage type and term.

CONCLUSION

Navigating the world of mortgages can feel overwhelming, but armed with the right information, you can make decisions with confidence. Remember, a mortgage is one of the biggest financial commitments you’ll make, so it pays to understand the basics and consider your options carefully.

As your financial and mortgage coach, I’m here to guide you through this journey, ensuring you feel empowered and informed every step of the way.

Understanding your home loan is about more than just signing papers; it’s about taking control of your financial future and making the dream of homeownership a reality.

If you want to know whether your home loan is working effectively for you and your personal finances contact me at karen@harkenfinance.com for a chat.

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The Importance of Good Credit

Mar 27, 2024 | Building Emotional Muscle, Building Financial Muscle, Debt, Educational Series, Financial Health, Financial Management 101, Home Loan, Mindset, Mortgage, Saving Money

People often underestimate the importance of having a good credit score and report.
In this article, I am going to walk you through how credit can affect your money management now and in the future.

If your credit score is high, you have a greater chance of getting approved for loans and credit cards from lenders and credit card companies.

Here are 5 reasons why a good credit score is important:

1. REDUCED INTEREST RATES ON BORROWED MONEY

Over time, you can save money by having lower interest rates on credit cards and loans, thanks to good credit.

2. GREATER CHANCES OF LOAN AND CREDIT CARD APPROVAL

If your credit score is high, you have a greater chance of getting approved for loans and credit cards from lenders and credit card companies.

3. BETTER LOAN TERMS

Having good credit can result in better loan terms, such as higher borrowing limits, in addition to lower interest rates.

4. LOW OR NO SECURITY DEPOSIT REQUIREMENTS

Having good credit can result in better loan terms, such as higher borrowing limits, in addition to lower interest rates.

5. EMPLOYMENT OPPORTUNITIES

When hiring new employees, especially for jobs requiring financial responsibility, some employers run credit checks.

Building and Maintaining a High Credit Score

Here are some ways to maintain and build on your credit score to keep it healthy and high:

1. PAY YOUR BILLS ON TIME

Your credit score can suffer greatly from late payments. Make sure that all of your bills—including credit card and utility bills—are paid on time.

2. MAINTAIN LOW CREDIT CARD BALANCES

Using a significant portion of your credit limit, or high credit utilisation, can have a bad effect on your credit score.

3. BUILD A LONG CREDIT HISTORY

Your credit score is influenced by the length of your credit history.

4. KEEP THE NUMBER OF NEW CREDIT INQUIRIES TO A MINIMUM

If you make too many hard inquiries quickly, your score may suffer.

Understanding Your Credit Report

It’s important that you understand your report and what it contains. You can do free annual checks by many of the online credit reporting agencies, like; Equifax and Experian, to name just two. Order your report and take a look at how yours stacks up.
Your credit report will include your credit history; including account details, payment history, credit inquiries, and public records like bankruptcies.

Make sure to regularly check your credit report for errors, including false payment statuses, accounts that are not yours, and inaccurate personal information.

Building and Maintaining a High Credit Score

Impact of Credit on Loan Eligibility and Interest Rates

Credit scores are used by lenders to evaluate risk. A higher score translates into lower risk, which makes you a more desirable borrower.

Your interest rate is determined, in large part, by your credit score. Better scores usually result in cheaper rates, which means you will pay less money back over the course of the loan.

Certain insurance providers base their auto and home insurance rates on credit scores.

Conclusion

Having good credit provides many financial opportunities. Understanding and managing your credit puts you in a better position to pursue favourable financial opportunities.

Regularly monitoring your credit report and score, developing responsible credit habits, and understanding how your financial behaviour affects your credit can result in significant savings and opportunities throughout your life.

The LEARNING HUB helps you gain more financial knowledge, while providing you with the support and help you and others need. Join now for only $79 USD per month.

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Managing Financial Stress for a Happier Life

Mar 6, 2024 | Book of the Week, Building Emotional Muscle, Building Financial Muscle, Educational Series, Financial Health, Financial Management 101, Home Loan, Mortgage, Relationships, Self Development

Financial stress is a common concern for individuals in their mid-30s to 50s. Balancing the costs of daily living, children’s education, mortgage payments, and saving for retirement can be overwhelming. However, there are effective ways to manage this stress, leading to a more balanced and happier life.

1. ACKNOWLEDGE YOUR FINANCIAL STRESS

Recognising that you have financial stress is the first step toward managing it. Determine which aspects of your finances are causing stress. Is it debt, a lack of savings, or concern about the future? Identifying the underlying cause is critical to finding a solution.

2. CREATE A SOLID FINANCIAL PLAN

A financial plan can significantly alleviate stress. This should include a budget, debt repayment plan, savings goals, and a retirement strategy. Knowing you have a plan in place can help you feel in control and at ease.

Recognising that you have financial stress is the first step toward managing it. Determine which aspects of your finances are causing stress.

3. PRIORITISE AND ORGANISE

Prioritise your financial goals. Not everything can be achieved at once. Focus on what’s most important, whether it’s paying down debt, saving for a child’s education, or investing for retirement.

4. BUILD AN EMERGENCY FUND

An emergency fund serves as a financial safety net and can be extremely reassuring. Aim to save enough money to cover three to six months’ worth of living expenses.

5. EDUCATE YOURSELF ABOUT FINANCES

Knowledge is power. Learn about financial management, investment opportunities, and retirement planning. This not only allows for more informed decisions, but it also reduces anxiety associated with the unknown.

6. MINDFULNESS AND STRESS-REDUCTION TECHNIQUES

Incorporate stress-relieving techniques like mindfulness, meditation, or yoga into your daily routine. These techniques can help with overall stress, including financial anxiety.

7. SEEK PROFESSIONAL ADVICE

Do not be afraid to seek advice from a financial advisor. Professional advice can help you gain clarity, explore new options, and navigate complex financial situations.

8. OPEN COMMUNICATION WITH FAMILY

Talk about your financial worries with your partner or family. Working together to resolve financial issues can strengthen relationships and distribute emotional burdens.

9. REVIEW AND ADJUST REGULARLY

Regularly review your financial situation and be willing to make changes. Your financial plan should change as your life does.

Talk about your financial worries with your partner or family.

10. CELEBRATE SMALL VICTORIES

Managing financial stress is more than just crunching numbers; it is about taking proactive steps toward financial wellness and achieving balance in your life. Remember that your financial journey is unique, as is your path to a happier, more stress-free life.

The LEARNING HUB at Financial Management 101 aims to help you gain more financial knowledge, while providing you with the support and help you need. Join the Learning Hub today for only $79 per month.

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Creating Multiple Income Streams After 35

Feb 28, 2024 | Book of the Week, Building Emotional Muscle, Building Financial Muscle, Debt, Educational Series, Financial Health, Financial Management 101, Home Loan, Mortgage, Relationships, Saving Money, Self Development

In today’s economic climate, relying solely on one source of income can be risky, particularly for people in their mid-30s to 50s. Diversifying income sources not only provides financial security, but also creates opportunities for personal and professional development. Let us look at how you can generate multiple income streams in your prime years.

1. TURN HOBBIES INTO INCOME

Many of us have interests or skills that can be monetized. Consider turning your passions, such as crafting, photography, or writing, into a side business. Online platforms make it easier than ever to sell products or services.

2. INVEST IN REAL ESTATE

Real estate investing can be a profitable way to generate passive income. This could include buying a rental property, investing in a real estate investment trust, or looking into Airbnb hosting if you have extra space.

3. DIVE INTO THE GIG COMMUNITY

The gig economy provides flexible ways to earn extra money. Freelancing, consulting, or part-time work in your area of expertise can supplement your primary income while giving you control over your schedule.

4. CREATE DIGITAL PRODUCTS

If you are an expert in a specific field, consider creating digital products such as eBooks, online courses, or webinars. Once created, these products can generate ongoing passive income with minimal effort.

5. DIVIDEND STOCKS OR MUTUAL FUNDS

Investing in dividend-paying stocks or mutual funds can generate a consistent income stream. While there are risks involved, dividends can be a relatively passive way to earn income.

6. PEER-TO-PEER LENDING

Platforms that allow peer-to-peer lending may be an alternative source of income. You can earn interest on money you lend to individuals or small businesses.

7. RENT OUT ASSETS

Consider renting out assets that you do not use on a regular basis, such as a vehicle, tools, or even a parking space. This can be an easy way to make money without a significant time investment.

8. START A BLOG OR A YOUTUBE CHANNEL

If you’re passionate about a particular subject, starting a blog or YouTube channel can be a way to earn income through advertising, sponsorships, and affiliate marketing.

Keep track of your earnings and expenses, and consider consulting with a financial advisor to make the most of your additional income sources.

9. PLAN AND BE PATIENT

Creating multiple income streams requires time and planning. Be patient, and do not expect immediate results. Concentrate on one or two areas first, then expand as you become more comfortable and successful.

10. KEEP YOUR FINANCES IN CHECK

More income streams require more financial management. Keep track of your earnings and expenses, and consider consulting with a financial advisor to make the most of your additional income sources.

Having multiple income streams after 35 is about more than just financial security; it is about discovering new opportunities and leveraging your skills and passions. With creativity and dedication, you can create a more secure and diverse financial future.

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Protecting Your Wealth: Insurance Essentials at 35-50

Feb 21, 2024 | Book of the Week, Building Emotional Muscle, Building Financial Muscle, Educational Series, Episodes, Financial Health, Financial Management 101, Mortgage, Relationships, Saving Money, Self Development

Individuals in their mid-30s to 50s face some of their most financially significant years, so protecting their wealth becomes critical. One critical component of this protection is having adequate insurance coverage.

1. LIFE INSURANCE: SECURING YOUR FAMILY’S FUTURE

Life insurance is essential, particularly if you have dependents. It ensures that your family’s financial needs will be met during your absence. Consider the amount required to cover debts, living expenses, and future plans, such as children’s education.

2. HEALTH INSURANCE: A MUST-HAVE FOR PEACE OF MIND

As people get older, their health risks increase. Having a comprehensive health insurance plan is necessary. It not only covers medical expenses, but it also gives you peace of mind knowing you are covered against unexpected health problems.

3. DISABILITY INSURANCE: PROTECTING YOUR INCOME

Your ability to earn an income is your most valuable asset. Disability insurance offers financial security if you are unable to work due to illness or injury. This coverage is often overlooked but can be a financial lifesaver.

Health Insurance: A Must-Have for Peace of Mind

4. HOMEOWNERS/RENTERS INSURANCE: SAFEGUARDING YOUR HOME

Your home is likely one of your most significant investments. Homeowners or renters insurance protects your investment from damage, theft, and liability claims. Ensure that your policy is up to date and reflects the current value of your home and belongings.

5. AUTO INSURANCE: MORE THAN JUST A LEGAL REQUIREMENT

Adequate auto insurance extends beyond the legal requirements. It protects you financially in the event of an accident, whether the damage is to your vehicle, others’ property, or medical bills as a result of injuries.

6. LONG-TERM CARE INSURANCE: PLANNING FOR THE FUTURE

As people live longer lives, the likelihood of needing long-term care increases. Long-term care insurance can help pay for care that regular health insurance does not cover, such as nursing home or in-home care services.

Regularly review your policies to ensure they are still meeting your needs and make any necessary changes.

7. REVIEW AND UPDATE YOUR POLICIES REGULARLY

Your insurance needs may change over time. Regularly review your policies to ensure they are still meeting your needs and make any necessary changes.

8. UNDERSTANDING POLICY DETAILS

It’s crucial to understand the details of your insurance policies – what’s covered, what’s not, and the terms and conditions. If anything is unclear, contact your insurance provider for clarification.

9. BALANCING COST AND COVERAGE

While it is important to save money on premiums, do not compromise on essential coverage. Balance the cost with the level of protection required. Sometimes paying a little extra for better coverage is worthwhile in the long run.

10. SEEKING PROFESSIONAL ADVICE

Consult an insurance advisor for professional advice tailored to your specific situation. They can guide you through the complex world of insurance and find the best coverage for your needs.

Insurance is more than just an expense; it is an essential part of your financial security strategy. Understanding and having the right insurance coverage protects more than just your assets; it also ensures the financial well-being of you and your loved ones.

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The Joy of Frugal Living: Luxury in Simplicity

Feb 7, 2024 | Book of the Week, Building Emotional Muscle, Building Financial Muscle, Debt, Educational Series, Financial Health, Financial Management 101, Home Loan, Mindset, Mortgage, Saving Money, Self Development

For those in their mid-30s to 50s, frugal living doesn’t mean cutting back on life’s pleasures. It is about finding the luxury in simplicity and making wise decisions that improve your life without breaking the bank. Let us look at how to live both luxuriously and frugally.

1. REDEFINING LUXURY

Luxury is often associated with high-end brands and lavish spending. However, true luxury is defined by high-quality experiences and moments. It is about appreciating what you have and seeing value in simplicity.

2. TRAVEL SMART

Travel does not have to involve expensive hotels and first-class flights. Consider low-cost options such as off-season travel, home exchanges, or staycations. Plan and book ahead of time to get the best deals and experience luxury for a fraction of the price.

3. GOURMET COOKING AT HOME

Dining at high-end restaurants is enjoyable, but recreating those experiences at home can be equally rewarding. Invest in new cooking skills, experiment with different recipes, and enjoy gourmet meals in the comfort of your own home.

4. SMART SHOPPING

Take a mindful approach to shopping. Put quality ahead of quantity. It’s better to have a few well-made items than a closet full of things you hardly use. Look for sales, discount outlets, and thrift stores to get high-quality items at lower prices.

Teach your children about money management, saving, and investing.

5. DIY HOME DECOR

You can create a luxurious home environment without spending a lot of money on decorations. DIY projects, upcycling, and a little creativity can help you transform your space elegantly and affordably.

6. INVESTING IN EXPERIENCES

Instead of material possessions, invest in experiences that create lasting memories. Concerts, art classes, local festivals, and outdoor adventures often offer more fulfillment than material goods.

7. SELF-CARE ON A BUDGET

Luxury is more than just material possessions; it is also about self-care. Instead of paying for expensive spa treatments, create your own at-home spa experience. Practice yoga, meditation, or have a relaxing bath – affordable yet luxurious ways to care for yourself.

8. SIMPLIFY YOUR LIFE

Remove clutter and simplify your living space. This not only makes your home more comfortable and manageable, but it also allows you to focus on what is truly important.

9. GROW YOUR GREEN THUMB

Gardening can be a relaxing and rewarding way to experience luxury. Plant your own herbs, vegetables, or beautiful flowers. This not only improves the ambience of your home, but it can also provide you with fresh organic produce.

10. EMBRACE COMMUNITY RESOURCES

Take advantage of community resources such as libraries, parks, and free local events. These can provide free entertainment, education, and the opportunity to connect with others.

Frugal living means appreciating and enjoying life’s simple pleasures. It’s a mindset that values experiences and quality over price tags, leading to a more sustainable, fulfilling lifestyle. Take this approach to uncovering the hidden luxuries in everyday life.

Learning about money can give you the power to make smart financial decisions and reduce money-related stress over time. That’s where the LEARNING HUB helps you gain more financial knowledge, while providing you with the support and help you need.

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Mortgage Basics – Helping You Understand Your Home Loan Better

THE MORTGAGE PROCESS: STEP-BY-STEP

TIPS FOR SUCCESSFUL MORTGAGE MANAGEMENT

CONCLUSION

FREE RESOURCES:

The Importance of Good Credit

Building and Maintaining a High Credit Score

Understanding Your Credit Report

Impact of Credit on Loan Eligibility and Interest Rates

Conclusion

The LEARNING HUB helps you gain more financial knowledge, while providing you with the support and help you and others need. Join now for only $79 USD per month.

Creating Multiple Income Streams After 35

The Joy of Frugal Living: Luxury in Simplicity

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