Coal Coast Mag - Finance Facts... Your money questions answered
Shares or and investment property?
You own your home, your mortgage is relatively low and you have savings left over each month. Where should you direct your hard earned cashflow; an Investment property or a share portfolio? The truth is both have been well performing investment assets, therefore consideration should be given to both. You would however need to ask yourself the following question; which asset works best for me given my personal circumstance, plans and current financial position?
The two options have differing qualities; investment properties incur ongoing costs such as strata, rates and insurance, shares do not. You can’t sell just a bathroom, whereby shares can be sold individually.
You cannot spread your cash between multiple properties in varying locations, whereas share portfolios can be spread across a range of businesses in varying sectors. Property is tangible and relatable for most, shares are intangible and tricky to evaluate. You typically only need a 20% deposit to invest in property, where typically no borrowing is used to fund a share portfolio.
This is where property (in the major cities) holds a slight advantage, in the last 20 years borrowing to purchase an investment property has been a lucrative strategy, maximising the return on your 20% deposit because the investment property returns have exceeded the after tax cost to borrow. What is important is ensuring your situation is well diversified – the old adage of not having all your eggs in one basket holds true. Holding varying assets will leave you less exposed to a single economic event – like a property downturn or a poorly performing business sector, reducing the financial impact.
Ultimately what drives which is the better choice depends on your situation, personal preference and ongoing needs. Here is where a trusted financial adviser steps in to assist.
How often should I look into changing lenders for my mortgage?
This is a common question that most Australian’s find themselves asking and for good reason. If correctly considered, refinancing can provide numerous benefits to borrowers such as lower interest rates, repayment savings, lower fees, improved debt structure, and access to equity. There is no magic formula or standard timeframe. So this being said; when should you look to refinance?
Generally, anytime that a refinance will provide a benefit to your circumstances is an ideal time to refinance. The lending market is constantly changing with new products and rates being offered, which creates opportunities for clients. Typically, most Australian’s refinance every 4-5 years, with some savvy borrowers who chase the best deals, refinancing every 2-3 years.
It’s important to note that refinancing does involve costs, and these must be taken into account. Our team ensure a review is completed at least annually for clients, in these reviews we run the numbers on whether a refinance makes commercial sense, outweighing the cost to move. We scour the market place for alternate options and have a good gauge on any promotions on offer. These promotional offers can range from $1,000 to $3,500 and in most cases, leaving a little extra cash in your back pocket after the moving expense.
The key takeaway is to monitor your loan closely and consult a mortgage broker – the service does not cost the borrower, will result in a better outcome and keeps the banks honest.