I didn't think that things could be more complicated in the world of finance with a dearth of products and services designed to try and extract as much money from people as possible. Today I learned about this "collared" loan product.
Things seem to be simpler here. It is much more obvious that you are getting reamed by financial institutions, and it is plain in view on their balance sheets. The "nice" things they did during COVID lockdowns to try and seem charitable to most people actually will, in the long run, extract more profit from those people.
And now with interest rates skyrocketing, it is a double pay day for those banks. It is really misleading conduct that regulators don't seem to care about. That is depressing, because here, financial literacy is very low indeed.
I'm really glad that you were adamant to take advantage of the stay on interest rates, and I'm also really glad that your stroke wasn't more serious. I don't think I ever formally said that; but it was always thought.
They have collared loans there too, but I think the max is three years. I also think that most of them are going to be expiring in the next six months, so all those FOMO Covid homes bought are going to have some unhappy mortgage payers.
I don't know if it is easier, but you are definitely getting reamed. In Sweden, they have "100 year loans" that you can pass to your kids - and grandkids. Then you have more disposable income to spend on crap. Housing is very expensive there.
As if the banks didn't know what was coming. Pump money into the economy at unprecedented amounts, it causes inflation. The response to inflation is increasing interest rates.
It was higher here, but it is falling fast in the younger generations.
Cheers mate :)
This is what "I just woke up brain looks like" = collared = fixed. We just use different terminology.
The way I interpreted it made it sound like it was a mechanism to prevent the rate of the loan exceeding a certain value, but not staying at a constant value throughout the period. My misunderstanding is corrected.
Our loan was fixed for the first 3 years, while we built a pool of savings. After that three years, we got an "offset" which basically ... uh, "offsets" you remaining balance against your savings.
So, owe 100k, have 30k in savings, pay interest on the 70k difference only. This is often "offset" by a higher interest rate, and additional fees, so you never win, unless you have a substantial offset balance. You can further use the bank's own products against them, by employing credit cards. Put all your expenses on credit cards, keep your savings in the "offset", then pay the credit card off a day before any charges start gaining interest there.
Labour intensive, but a small victory.
I envy people who had the foresight to lock in their rates as I had a colleague who fixed in a 1.7% fix rate for 10 years on his home. He did have to hunt around and pay a decent amount for it.
I too bought my place during COVID and am one of those thousands of people who have come off a fixed rate to a variable rate, so the pain is definitely felt here too.
I believe fixed is slightly different from collared as the fixed rate doesn't change for the duration of it. But collared seems to be a fixed range that the rate can move in. So in Taraz's case, his rate could go below the 1.65% he has been paying......that's mind boggling when I think of my variable rate.....which is 5%+
I am doing what you are doing, all expenses on the credit card (sans the stupid places that charge you 2% to use a credit card) all savings in the offset accounts (yes, you can have multiple offset accounts set up) then pay my credit card bills a few days before they are due. A bit of work for sure, but the perception of beating the bank is worth it!
About 60% of my mortgage is offset (and I've had 6 years to chip away at it)
I got a really modest place, well below my means, but its cosy, warm, and now has solar! :D
I could go back to fixed, or split the loan to get that perception of "beating the bank" even more, but the administrative effort involved in this case doesn't feel worth while.
I think my variable rate is about 5.4% at the moment.
You have already offset 60% of your mortgage! That's amazing. I still need to work really hard on mine:(
I think this is the reason why so many Aussies are struggling right now. You need to get a place that is below your means, and not max out your lending capacity. Neighbour envy is so strong here and people get sucked into it and now that there isn't anymore cheap interest rates......
I've got the best neighbours. One is an old bloke in his 70s who has a dark sense of humour, loves pizza and science fiction, the other is a lady in her 90s who will give you a hug and biscuits for helping her unjam her gate when it gets stuck.
I'll be sad when they move on. Very sad. (Here's hoping I outlive them both)
Good neighbours are the the one of the most important things, along with a safe neighbourhood when looking for a place to lay down roots. Apartment living (aka me) is tricky in that aspect. I know who the people on my floor are, but the rest of the building, it's more like hi/bye passerbys. Or maybe I am just the unfriendly type....
As long as you pay it all off each month, it can be great. they don't do it here as far as I know.
Yep - I have just got used to it here. The straight translation here is "interest roof"
Yep. If good with money management, this works wonders. Unfortunately, most aren't and get trapped paying higher interest anyway.
That's how the banks make money, all they rely on is the 10-20% who get it wrong and they are gold. And it's not just money management, it's financial knowledge as well which is severely lacking in Australia.
Let me tell you a story I heard on a tram quite a while ago and I have told to so many other people.
Two young males (18~20) were chatting on the tram and one of them mentioned he was going to take a loan to buy a $10k motorbike. Then his friend mentioned that he should take a $15k loan instead and put the $5k in a savings account and get interest. Whoops and high fives and they went on their merry way.
Spot the mistake in the paragraph above :D