Give Your Finances a New Year Check Up

Start the year with the end in mind

As January unfolds across Australia, countless individuals are setting their resolutions for the new year. Whether it's committing to get fit, breaking bad habits, or embracing new challenges in 2025, the promise of a fresh start inspires many. For medical practitioners, who often juggle demanding schedules and responsibilities, the new year is an opportune moment to pause and reflect on personal and professional goals. One crucial area that often gets overlooked is financial well-being. While many New Year's resolutions tend to fade as the year progresses, taking the time now to conduct a comprehensive review of your financial situation can set you up for long-term success.

Where to begin, you ask? Even the most well-intentioned goals require a well-thought-out strategy. Here are some detailed steps to guide you through a financial health check aimed specifically at busy healthcare professionals:

Evaluate Your Lender

The concept of a 'lazy tax' serves as a reminder of the potential extra costs one might incur from sticking with current service providers without exploring other options. For medical practitioners, who may have specialised loan arrangements, it's especially important to periodically assess whether these financial relationships are serving your best interests.

Even if you're content with your current lender, it might be time to reassess your loan structure. Consider whether your fixed rate is nearing its end or if your interest-only period is about to lapse. These milestones offer a perfect opportunity to evaluate whether your current lender and loan terms align with your financial goals.

Investigate Interest Rates

When did you last examine whether your interest rates are competitive? The financial landscape is ever-changing, and keeping abreast of industry news is vital. The Reserve Bank of Australia has adjusted interest rates several times in recent years, and understanding which banks have passed these changes on to customers can provide leverage in negotiations.

Moreover, the Australian Prudential Regulation Authority (APRA) has relaxed restrictions on interest-only loans, which has narrowed the gap between these and standard mortgages. This development could open up new possibilities for homebuyers, particularly those in the medical community looking to expand their property investments or upgrade their primary residence.

Grasping these market shifts since your last financial review can empower you to make informed, strategic decisions moving forward.

Establish Financial Goals

Just as New Year’s resolutions provide a framework for personal growth, setting financial goals at the start of the year can guide your financial actions throughout 2025. Are you contemplating a home renovation or the purchase of a new property? Perhaps you're interested in acquiring your first investment property or expanding your existing portfolio.

By delineating these goals, you can map out the steps required to achieve them. This could involve setting savings targets, reassessing your borrowing capacity, or exploring new investment opportunities. Consider where you want to be in 12 months and take deliberate actions to reach that destination.

Remember, having support can make your financial journey smoother and keep you accountable. Just as hiring a personal trainer can accelerate your fitness goals, consulting with a financial expert can provide a tailored plan to expedite your financial progress. If you're a medical or dental professional who is eager to review your finances and set forward-thinking goals for the New Year, reach out to the team at BFD Finance today.

Taking these steps not only helps in achieving financial stability but also ensures that your career in the medical field is backed by a solid financial foundation. Embrace the new year with confidence, knowing your finances are as healthy as your patients.

What You Can Borrow vs. What You Should Borrow

As health professionals, you understand the importance of making informed decisions, just as you do in your practice. When it comes to obtaining a home loan, the amount you can borrow and the amount you should borrow often differ significantly. It's crucial to realistically assess your financial situation before making a major financial commitment.

Here's how to ensure you're making the right decision:

Step 1 - Understand Your Borrowing Capacity

Your borrowing capacity depends on several factors, including:

Your income, including any additional earnings from overtime or private practice
Your monthly expenses, which may fluctuate due to professional development or medical association fees
Existing debts, including substantial student loans
Saved deposit amount, considering any investment returns
Current interest rates, which can vary with economic conditions
Type of loan you are considering
Whether it's a principal-only or principal and interest loan
Loan term and how it aligns with your career plans
Estimated repayments and how they fit within your budget

Understanding the distinction between what you can borrow and what you should borrow is vital. As a general guideline, it's not advisable to allocate more than 30% of your monthly household income to home loan repayments, allowing you to maintain a comfortable lifestyle.

Step 2 - Build a Budget

To determine your realistic borrowing limit, start by creating a comprehensive budget and sticking to it. This should account for both your personal and professional expenses. Knowing what funds are coming in and going out will help you assess how much you can afford to repay, and thus, what you should borrow. If creating a budget seems daunting, consider seeking assistance from a financial planner experienced in the unique financial situations of health professionals.

Include these expenses in your budget:

Council rates and any applicable medical practice fees
Body corporate fees (if applicable)
Insurance costs, including indemnity insurance
Maintenance costs for both home and practice
Utility bills and estimates for any equipment in your practice
Estimated groceries, balancing time between work and home
Medical bills, personal health fund payments, and professional memberships
School fees for children, factoring in education as a long-term plan
Phone and internet costs, essential for staying connected with patients and colleagues
Petrol and transport payments, especially if commuting for work
Entertainment, travel, and clothing, ensuring a work-life balance
Other loans or credit card debts

Step 3 - Future-Proof Your Figures

Leave some flexibility in your budget for potential changes in circumstances. As health professionals, unexpected events like job loss, illness, or rising interest rates could affect your ability to make repayments. Consider other factors: Is your income likely to increase with additional qualifications or promotions? Do you plan to have children, which might temporarily reduce your working hours? Are you nearing retirement and considering a more flexible work schedule?

These are personal questions that will influence how much you should borrow. Remember, lenders inform you of how much you can borrow, but you know your situation best. It's up to you to decide how much you should borrow. For personalised guidance, consider consulting a mortgage broker who understands the financial intricacies faced by health professionals in Australia.

By taking these steps, you can make a well-informed decision that supports both your financial health and your professional commitments.

Offset vs. Redraw: Structuring Your Home Loan

A common question for health professionals discussing residential home loan options is: "Should I choose an offset account or a redraw facility for my loan?" This decision is crucial, as structuring your loan effectively is essential not only for managing repayments while living in your home but also for setting up a foundation for future financial prosperity. By understanding the unique features and benefits of each option, you can tailor your home loan to fit your financial goals and lifestyle needs.

What's the difference between offset and redraw?

Let’s break down what these options involve. An offset account is a savings or transaction account linked to your home loan, opened with your lender. The funds deposited in the offset account are subtracted daily from your loan balance, effectively reducing the interest you pay. Simply put, the more you have in your offset account, the less interest accrues on your loan. This allows more of your monthly payments to go toward reducing the principal rather than paying interest. Offset accounts are available for both owner-occupied and investment home loans, usually on variable rate loans. They offer the advantage of giving you immediate access to your funds, which can be particularly beneficial in emergencies or for making large purchases without disrupting your savings strategy.

On the other hand, a redraw facility allows you to withdraw any extra payments you've made on your home loan above the required minimum repayments. This option essentially gives you the flexibility to access those additional funds if needed, providing a safety net for unexpected expenses or investment opportunities. However, redraw facilities often come with certain restrictions, such as a minimum withdrawal amount or potential fees for accessing the funds. Therefore, understanding the terms and conditions associated with a redraw facility is important to ensure it aligns with your financial strategy.

Ultimately, whether an offset account or a redraw facility is more suitable depends on your personal financial situation, goals, and how you plan to manage your home loan over time. Consulting with a financial advisor or mortgage broker specialising in health professionals can provide valuable insights to make an informed decision that supports your long-term financial success.

Understanding Multi-Offset Accounts

Many people are now setting aside money into separate accounts, or "buckets," for different things in their budget. For example, a small family might have one account for groceries and transport, another for bills paid by direct debit, one for children's expenses, and a rainy day fund for future holidays.

This method makes it easier to budget for regular expenses and helps track spending, making money management simpler for many people.

If you have savings in the bank, you can also benefit by choosing a loan with an offset account. This means any money you have will lower the loan amount, reducing your interest payments.

The challenge is that most loans with an offset option only allow offsetting for one account. So, if you allocate your money into different accounts for easier management, you'll need to choose one account—usually the biggest—as your offset.

At BFD Finance, we have helped clients set up multiple variable loans for multiple offset accounts. However, some lenders offer multi-offset accounts on a single loan. Here, the balances across several accounts are combined and offset against the loan.

A real multi-offset setup isn't available with all major lenders and if you're interested in this option, you can achieve it with careful financial planning. Examples of current providers are Bankwest, St George, Bendigo and Macquarie Bank

Want to know more? Contact the team at BFD Finance today and chat with one of our experts to find the best solution for your needs.

Could Refinancing Be Your Ticket to Substantial Savings?

In today's fast-paced world, everyone is on the lookout for effective ways to save money. Whether it's setting up automated savings accounts or brewing homemade coffee instead of buying it on the go, there are countless strategies people employ to keep their finances in check. However, there's one surefire method that many people tend to overlook: refinancing.

As we've highlighted before, not shopping around for the best home loan deal could be costing you significantly. By refinancing, you can potentially take advantage of new offers, lower interest rates, or more favourable loan structures that better align with your financial needs. This could translate to a better deal and substantial savings over the life of your home loan.

Understanding the Benefits of Refinancing

Consider this scenario: you owe $500,000 on your home at a 3.50% interest rate, with 25 years remaining on the loan. By refinancing to a lower interest rate of 2.85%, you could achieve significant savings. If you continue with the minimum monthly repayment of $2,332, you could save an impressive $51,266 over the loan's duration. Furthermore, by increasing your repayments to $2,503 a month, matching your current minimum, you could save a staggering $72,201 and pay off the loan 28 months earlier.

Is Refinancing Right for You?

If you suspect there might be a better deal available, start by conducting thorough research. The Moneysmart website offers useful tools such as a mortgage calculator and a mortgage switching calculator to help you compare various rates and repayment timelines.

However, keeping up with the ever-changing offers from different lenders can be daunting and time-consuming. This is where a trusted mortgage broker can be incredibly beneficial, especially for health professionals seeking special deals tailored to their unique circumstances.

If you are contemplating refinancing, making a call or sending an email to a BFD Finance expert can be your first step towards substantial savings. Ensure you bring your current loan details and interest rates for a thorough comparison. To expedite the process, gather the necessary documentation in advance, such as identification verification, proof of income, and records of expenses, including bank statements, payslips, tax returns, and credit card statements. Rest assured, we will guide you through each step of the refinancing journey!

Refinancing could be a game-changer for health professionals looking to optimise their financial future. Don't miss out on the opportunity to secure better terms and save money.

Construction Loans and Renovation Loans

Construction Loan Process

Construction loans work differently from home loans because of how the funds are given out. Home loans provide a lump sum upfront, but construction loans release funds in stages as the building progresses. At key steps, like laying the foundation or finishing the project, the builder sends an invoice, and the lender releases funds after approval. You only pay interest on the funds used, not the total loan, which can save on interest costs. These loans are usually interest-only until fully drawn.

Lenders keep a close eye on renovation progress, unlike with standard property purchases. They inspect the work before approving payments, ensuring it meets standards, which can be reassuring.

Applying for a Renovation Loan

Getting a renovation loan is different from a home loan. First, you'll need detailed plans from a reputable builder, which you present to your lender. The lender appoints a valuer to assess these plans and determine the property's On Completion Value. This helps set your loan amount and includes a timeline for construction and payment schedules. You'll also need quotes for materials and special installations.

Once you get a loan offer, pay a deposit to secure the funds. At each stage, you'll sign a request with your lender to approve the work and release payment.

The Risks of Renovating

One risk is overcapitalising, where you spend more on improvements than the property's value increases. It's important to consider both the construction loan and any existing debts, like your mortgage. Compare similar local properties to gauge your home's value post-renovation. For example, if you bought your house for $650,000, owe $575,000 on your mortgage, and have a $250,000 construction loan, the On Completion Value should be over $900,000 to avoid overcapitalising.

Talk to your broker today to understand more about construction and renovation loans. Paul@bfdfinance.com

Outgrown your home? The crucial question arises: should you renovate or relocate?

Part 1 - Renovating
Buying a house, especially one to become your home, is a monumental and often emotional decision—a once-in-a-lifetime experience for many. If your lifestyle has outgrown your current property and you have the means, making the right choice can mean the difference between greater financial success and risking your investment.

When your home no longer meets your needs, the primary decision is whether to enhance your current property or buy a new one by either selling or converting your existing home into an investment.

Today, we’ll explore the financial aspects of renovating—how to fund a renovation and what considerations to take into account before starting major changes.

Renovation Loans
If you choose to improve your current property, you'll likely need financing for the renovation. Instead of refinancing your home loan, you can apply for a loan specifically for the planned improvements. Lenders categorize this as a construction loan, covering everything from new builds and full demolitions to minor extensions or reconstructions.

Key factors to consider for construction loans include:

The borrowing capacity is determined by the estimated post-renovation property value, known as the "On Completion Value." This value, along with other standard criteria, influences your borrowing limit. Lenders will also review:
Your building contracts
Current property valuation
Scope of the renovations—whether major structural or cosmetic
Comparable properties in the area
Standard lending criteria like financial position and assets

Remember, if you have questions about borrowing capacity as a medical or dental professional, and the special requirements or concessions available, contact the BFD Finance team today.

Different ways to buy your first home

Buying your first home is not a one-size-fits-all experience. From the property you’re searching for, to the way you go about buying it, to the loan features that matter most to you, no one’s first entry to the property market will be quite the same.

Most people have a vision of buying at auction and seeing the hammer fall on their successful bid, but there is more than one way to secure your dream home, and each one has different benefits - and conditions - to consider.

Buying at auction

Chances are you’re familiar with the auction process. A house will be advertised for a set period of time (often a few weeks) in the lead up to an auction date, at which interested buyers attempt to outbid one another to secure the property.

Auctioneers make a number of announcements at the start of an auction that outline the rules and regulations attached to the process. These may include prohibiting late bids, false bids or attempts to prevent someone from bidding.

A number of other conditions apply to auction sales. If you’re the successful bidder, you’ll immediately be required to pay a deposit (usually 10%), and the sale is final, with no cooling off period. There is no opportunity for negotiation and settlement periods are often set by the vendor.

Private sale

With a private sale (sometimes known as private treaty or sale by negotiation), the vendor advertises the property for sale, along with an asking price (or price range).

Prospective buyers will inspect the property and then submit offers, generally through the real estate agent who will act as the vendor’s advocate in the sale. Offers can be accepted or rejected, or the agent may enter a negotiation with the prospective buyer to meet a more favourable agreement.

Naturally, a private sale does away with the often stressful experience of bidding at auction, where some buyers find themselves swept up and enticed to spend more than they planned, or otherwise are left disappointed when a property sells for much more than expected.

For many, this is a significant advantage as it allows buyers to have much greater control over the price they pay, away from the auction adrenaline high. As well as this, private sales contain a ‘cooling off’ period - for example in Victoria, if you purchase a residential and small rural property there is a three-day window during which you may reconsider and cancel the sale (subject to certain conditions).

Because a private sale is negotiated, there is also the opportunity to add conditions. For example, you may negotiate to make the sale subject to a building and pest inspection, or subject to your ability to secure a loan (referred to as a finance clause)

Private sales can be a longer process and a more challenging way to find property, but for the patient buyer they can also provide greater flexibility and the chance to ensure added protections.

Expression of interest

Sale by expression of interest (EOI) is similar in many ways to a private sale, in that the property is placed on the market (generally for four to six weeks) and prospective buyers are invited to make an offer before the closing date. EOIs are often favoured when a property needs to be sold within a short time frame.

Where an EOI differs is buyers must provide a ‘best and final’ offer in writing, along with any conditions, and vendors wait until the closing date before considering all EOIs and proceeding with their preferred option. This means there is less flexibility in negotiating with multiple interested parties and over a period of time, and buyers must be prepared with any conditions when they submit their EOI, such as settlement details or making the offer subject to finance.

When searching for your dream home, keep in mind that the way you buy it can impact the flexibility you have to set your own price, terms and conditions. While some options put more power in the hands of the buyer, knowing what to expect will put you in a better position to succeed, regardless of the method of sale.

Remember that finance clauses and other procedures differ between states, so be sure to do your research into how these conditions apply to your situation before committing to any purchase.

Need some personalised advice on approaching your first property purchase? Contact the expert team at BFD Finance today to learn more about how we can support you to secure your dream home and protect your future financial success.

Is it time to refinance?

Is it Time to Refinance?

A common misstep many make in finance is the assumption that they must remain with the same lender on the same terms for the entire loan duration.

We've previously discussed the 'lazy tax,' which is the potential financial loss from not shopping around for the best deals in long-term financial commitments.

In home or commercial finance, understanding how your loan compares to the broader market—and how that market is evolving—enables you to make informed decisions. If necessary, you can act swiftly to refinance and capitalize on better offers.

Refinancing fundamentals

What is refinancing? Essentially, it involves replacing your existing loan with a new one. This new loan could be from your current lender, leveraging their latest offers, or from a new lender with more favorable terms.

During refinancing, your current loan is paid off and replaced by a new one. This differs from a second mortgage, which involves taking out an additional loan on the same property and is considered a higher-risk strategy.

The primary motivation for refinancing is straightforward: saving money. This can be achieved in two ways:

Switching to a lower-interest loan, reducing your monthly principal and interest payments, thus saving money over time.
Switching to a lower-interest loan while maintaining your current monthly payments, enabling you to pay off the mortgage faster and reduce overall interest costs.

Refinancing can be a strategic, proactive decision in response to your financial needs or a savvy reaction to market shifts and unexpected factors impacting the lending landscape. Tools like online mortgage calculators (e.g., Moneysmart’s Mortgage Switching Calculator) can help you explore your options, and a broker can provide a comprehensive review of your current loan and assist in finding the best solution.

Considerations when refinancing

With an existing loan, you likely have a clearer understanding of which features and benefits are most important to you compared to when you first applied for financing. This knowledge positions you to better assess what you want from your next lender.

Consider the following features:

Variable vs. fixed rates: With experience and an updated view of your financial stability, determine whether the certainty of a fixed rate or the potential savings of variable rates—along with their associated risks—is more beneficial.
Access to funds: Offset accounts and redraw facilities offer unique opportunities and risks. For more details, read our article: Offset vs redraw: How should I structure my home loan?
- Flexible repayment options: Would fortnightly rather than monthly payments suit your current lifestyle? Or could you benefit from the ability to pay off a loan early with minimal penalties?
Your lifestyle and financial situation may have changed since you first applied for financing. Whether these changes are personal or market-driven, use your insights to decide if a different loan might be more suitable.Rely on the expertsIn financial management, thorough research and knowledge are crucial for making confident decisions. Consulting with a broker who understands the market and can guide you through your options can save time, effort, and stress.If you're considering refinancing or want to discuss how recent market changes could affect you, contact the BFD Finance team today.

Finding the best loan for your first home

After diligently saving up and searching, you're finally on the verge of purchasing your dream home. Choosing the right home loan is a significant decision and can often feel overwhelming. As a health professional, gaining an understanding of the fundamentals of home loans will facilitate a smoother journey through this process.

Key Points for Choosing a Loan:

Variable Rate, Fixed Rate, or Both?

A fixed-rate loan ensures that your interest rate remains unchanged for a predetermined period, typically ranging from 1 to 10 years, which provides consistent and stable payments. This can be particularly beneficial if you prefer predictability in your financial planning.
A variable rate loan, on the other hand, can fluctuate at any time, which directly impacts your repayments. This type of loan may offer more flexibility but requires a certain level of risk tolerance.
You have the option to select a combination of both, by fixing part of your loan for stability and retaining part as variable. This approach can potentially offer benefits if interest rates are favourable.

When deciding, consider your comfort with risk and stay informed about current market trends to make an educated choice that aligns with your financial goals.

Offset Accounts:

An offset account is a transaction account linked to your loan that can help reduce the amount of interest you pay by offsetting your loan balance, thereby allowing you to pay off your loan faster.
These accounts are frequently coupled with variable rate loans and can offer significant savings over time, although they may involve certain fees or higher interest rates.
Understanding the ins and outs of offset accounts can be a valuable strategy in managing your home loan more effectively.

Pre-Approval:

While not mandatory, obtaining pre-approval gives you greater certainty regarding your budget and readiness to purchase. It serves as an indication of how much you might be able to borrow, streamlining the buying process and enhancing your negotiating position.
For pre-approval, you'll need to provide bank statements, proof of income, and details of assets, which can help you get a clear picture of your financial standing.

Consult a Mortgage Broker:

Finding a loan that aligns with your financial situation and lifestyle is crucial. A mortgage broker can offer professional guidance to help identify lenders that suit your needs and assist in gathering the necessary documentation. They can also provide insights into the various loan options and features available in the market.

Reach out to BFD Finance to explore your options and embark on your home-buying journey with confidence, knowing you have expert advice at your fingertips. With the right support, you can secure a home loan that meets your requirements and helps you achieve your dream of homeownership in Australia.