FAQs - New Era Financial Planning

Buying Your First Home

Most lenders now require a deposit of at least 5% of the purchase price of the property. If you are able to save 20% of the value of the home you will avoid Lenders Mortgage Insurance (LMI). This is unrealistic for most however, so at New Era we generally aim for around a 10% deposit.

What is a deposit?

This is the amount that you need to pay out of your savings. Banks like to see that you have been able to save over time as this shows that you are more likely to pay the mortgage off comfortably. Most lenders don’t allow you to borrow the full amount of the property.

What is Lenders Mortgage Insurance (LMI)?

LMI is insurance that the banks take up to protect themselves if you are borrowing more than 80% of the property’s value. The cost of the insurance is passed on to you and is based on the property value and the % of the property that you are borrowing (known as Loan to Value Ratio – LVR). The insurance protects the bank against any shortfall in the sale price compared to your purchase price if you are not able to make your repayments and they need to re-possess and sell the property to recoup the loan.

What is Stamp Duty?

Stamp Duty is a state based tax that you will pay on your property purchase. As it is levied by each State and Territory government it is slightly different in each state/territory. There are also times where certain groups pay less or even no stamp duty – currently in NSW and Victoria 1 st Home Buyers do not pay any stamp duty on purchases under $600,000.

What is an LVR (Loan-to-Value Ratio)?

The LVR is the % of the property value that you borrowing. For example, if you are buying a property worth $800,000 and have $80,000 for the deposit you would be borrowing $720,000 – this is an LVR of 90% ($720k/$800k). Banks prefer an LVR of 80% or less, which is where the 20% deposit figure comes from. You can borrow more than 80% of a properties value, but you would usually have to pay Lenders Mortgage Insurance (LMI) to the bank if you do.

First Home Loan Deposit Scheme (FHLDS)

The First Home Loan Deposit Scheme is a government initiative to help first home buyers purchase a property with a deposit of as little as 5%.

The Scheme works by the government guaranteeing up to 15% of the value of an eligible loan, which means that eligible first home buyers can access 95% loan-to-value ratio products from participating lenders.

To be eligible for the Scheme, applicants must:

Be at least 18 years old; and
Be an Australian citizen or permanent resident; and
Have never owned a property before (including investment properties); and
Earn less than $125,000 per year (or $200,000 per year if applying as a couple)

Insurances (protecting yourself, your family, your home and your things)

What types of insurances are there?

There are many types of insurances available to protect yourself, family, home and belongings. These include private health insurance, home and contents insurance, personal insurances (such as life and disability cover), car insurance and of course pet insurance.

Why do I need insurances?

Insurances are used to cover yourself against negative incidents (such as illness, natural disasters, loss of income and even loss of life). By paying an insurance company an annual (or monthly) premium they will guarantee you a payment/s or other benefits if one of the above events occur.

How much do insurances cost?

Costs can vary widely, depending on the type of cover, quality of cover, your age and many other factors. We generally find that you can get a good level of cover for everything for around 5% of your income (leaving you to be able to spend the other 95% on everything else).

Are there other ways to protect myself instead of paying for insurances?

There are other strategies as part of a risk management plan. These can include building up a savings fund, having access to liquid assets, utilising leave entitlements and minimising the risks of certain events happening (for example living a healthy lifestyle to reduce illness, avoiding dangerous activities to reduce the risk of accidents). Everyone will have different requirements and we generally like to look at all your options as a combination.

Property

Should I buy an investment property or pay off my home loan first?

This really depends on your individual situation. Paying off your home loan is a great long term wealth building goal, however the earlier you start investing the more time you have for compounding to work it’s magic! This may be the difference between one investment property and a property portfolio.

What are the benefits of investing in property?

The main benefits of investing in property are the long term returns that a good quality property can bring you, generally with lower fluctuations than the share market, and the ability to increase those returns through gearing (borrowing). Banks prefer lending for property as opposed to many other assets, so you can use a combination of your own savings/equity, a bank loan and rent from tenants to build a property portfolio. There can also be tax benefits provided to property investors, however this can be changed by the Government and should always be a secondary consideration when deciding to invest.

What are the risks of investing in property?

All investments carry risk. When investing in property these can be reduced by careful research, correct funding and ongoing monitoring, however risks cannot be completely eliminated. The main risks involved in property investing are tenant and vacancy risks (having bad tenants, damage, long periods without tenants), market risks (lower than expected growth and returns), lending/interest rate risks (increasing interest rates meaning the loan repayments are higher) and legislative risks (changes in laws that pass through the Government).

Should I invest in property or shares?

This really depends on your individual situation. Paying off your home loan is a great long term wealth building goal, however the earlier you start investing the more time you have for compounding to work it’s magic! This may be the difference between one investment property and a property portfolio.

Investing

Should I invest in property or shares?

This will depend on your goals and current situation. Both property and shares can deliver good long-term returns, however they both have their own risks. Shares can be invested in with a small amount and added to regularly, whilst property requires a larger initial investment however borrowings can be used to fund the majority of the purchase.

Should I add more to super or pay more off my home loan?

Both options are good, and once again the best option will depend on your individual goals, timeframes and circumstances. Paying off your home loan provides a guaranteed return, whilst investing in super provides an uncertain however possibly greater return and can be more tax effective. It can be wise to do both as the compounding effects of super can work together with the early repayment of your home to help you become financially free.

Loans & Lending

How much deposit do I need?

Most banks require a deposit of at least 5% of the purchase price of the property. As an example, on a $500,000 property a minimum $25,000 deposit would be required. If you are able to save 20% of the value of the home you will avoid Lenders Mortgage Insurance (LMI). This is unrealistic for most first time buyers however, so at New Era we generally aim for a 10-12% deposit.

What is a Deposit?

This is the amount that you need to pay out of your savings. Banks like to see that you have been able to save over time as this shows that you are more likely to pay the mortgage off comfortably. Most lenders don’t allow you to borrow the full amount of the property.

What is Lenders Mortgage Insurance (LMI)?

LMI is insurance that the banks take up to protect themselves if you are borrowing more than 80% of the property’s value. The cost of the insurance is passed on to you and is based on the property value and the % of the property that you are borrowing (known as Loan to Value Ratio – LVR). The insurance protects the bank against any shortfall in the sale price compared to your purchase price if you are not able to make your repayments and they need to re-possess and sell the property to recoup the loan.

What is an LVR (Loan-to-Value Ratio)?

The LVR is the % of the property value that you borrowing. For example, if you are buying a property worth $800,000 and have $80,000 for the deposit you would be borrowing $720,000 – this is an LVR of 90% ($720k divided by $800k). Banks prefer an LVR of 80% or less, which is where the 20% deposit figure comes from. You can borrow more than 80% of a properties value, but you would usually have to pay Lenders Mortgage Insurance (LMI) to the bank if you do.

What is Stamp Duty?

Stamp Duty is a state based tax that you will pay on your property purchase. As it is levied by each State and Territory government it is slightly different in each state/territory. There are also times where certain groups pay less or even no stamp duty – currently in NSW and Victoria 1st Home Buyers do not pay any stamp duty or purchases under $600,000.

Should I get a pre-approval?

Yes, it is generally a good idea to have pre-approval in place. This is where a bank conditionally approves you for a loan before you buy a house. It allows you greater confidence that you are able to borrow the amount that you require, and can even be used as a negotiating tool as the seller knows you have your finances in order. Having a pre-approval in place will also reduce the time and stress of buying a home as a lot of the work to qualify for a loan has been done.

Should I use a Mortgage Broking service or my bank for a loan?

We generally recommend using the services of a Mortgage Broker to shop around for the most suitable loan for you. Banks are only able to recommend their loans and products, whereas a Mortgage Broker can investigate many banks and lenders. There may be times where going directly to your bank is worthwhile, for example if you are a staff member and get discounts, and we would let you know if this is the case.

How We Work (The New Era Process & Who We Work With)

Am I locked in to anything?

New Era has no contracts and so you are not locked in to anything. We hate lock-in contracts as much as everyone else! We offer payment plans & a subscription service so members can get the support they need when they need it.

What happens in the trial?

This is where we will discuss areas that are important to you and answer your questions (eg: how lending works, making the most of your incomes). We will also delve deeper into what you are hoping to achieve and explain how we work to see whether we are a good fit and, if so, which type of membership would suit you best.

How do you help people?

At New Era we strive to help people simplify their lives by making smarter money decisions. We do this by bringing together financial experts to tailor a plan for each of our members, from purchasing their 1 st home right through to helping them achieve financial independence.

The New Era Financial Blueprint

What is the Blueprint?

The Financial Blueprint is where we get to work designing your financial future. After completing the Goals and Cashflow sessions we create a Blueprint with the aim of achieving all of your goals and setting you up to achieve financial security & freedom. This has detailed modelling and projections as well so we can see how your cashflow will look each year, as well as the overall outcomes over a 20-year period.

How does it work?

We use specialised software to help design & then create a Financial Blueprint that is based on your specific situation, goals and requirements. The Blueprint will help tell us how much you would need to pay off your mortgage to be debt free in a certain time, how much to put away to invest to be financially free, and what type of return you need to be getting from your investments. It then allows us to go and build your financial future, based on the specifics in the Blueprint.

What happens after it is completed?

Once we have completed your Blueprint we meet to go through the details and outcome. We can make adjustments if required and update the financial modelling during the meeting (a bit like an architect adjusting 3D designs with you). When you are happy with the final outcome, you can choose to become a New Era Member and we will bring your Blueprint to life!

What is the New Era Membership?

The membership is for people who want us to build their financial life with them. Life building a beautiful building, we implement each part of your Financial Blueprint to make sure that everything is in sync and you are on the path to financial freedom!

Do you have any examples?

Yes! Check out more about the Financial Blueprint, and watch the video that will give a detailed run through of what you will get!

Super & Retirement

Should I invest in super or pay more off my home loan ?

The answer to this questions will depend on your specific goals, preferences and time frames. While paying off your home loan is a great long term wealth builder and a ‘pre-requisite’ for a comfortable retirement, adding extra to super can be tax effective and the earlier this is done the more time you have for the power of compounding to work its magic!

What is superannuation?

Superannuation (or super for short) was set up by the Keating government to help fund Aussie’s retirements. It isn’t an investment itself, it is more of a vehicle that you can invest in to grow your money over time. There are very generous tax concessions for those who contribute to super and for when you retire and access your money, and your employer (unless you are self-employed) must contribute at least 11% of your salary to your chosen super fund (this will increase to 12% over the coming years).

You are able to invest your superannuation in a way you see fit, however different funds will have different options for you so it is important to choose the right fund. You can invest aggressively, moderately or conservatively, with many super funds offering investments in shares, property, term deposits and some even offering commodities (like Gold) & currencies (think US $$s).

When can I access my super?

To access your super you generally need to meet two requirements – reach a certain age (known in super speak as your ‘preservation age’) and have retired (however from 65 onwards you get full access even if you are still working). For most people the earliest they can get access to their super is 60. There are other ‘conditions of release’, such as death, permanent disablement, financial hardship and compassionate grounds, where your super can be accessed if you meet any of these criteria. You can also access insurance benefits within your superannuation if you meet the criteria of these as well.

More recently the government has allowed 1 st Home Buyers to contribute extra to their super fund and access this to purchase a home. There are a number of conditions attached to this so do your homework or get advice on what is the best strategy for you.

How does superannuation work?

Super is based on the idea that making regular contributions and investing money over the course of your working life will provide you with enough to fund your retirement. Your employer is required to make contributions to your super over time (this is a % of your income) and that is invested to grow. The ideal outcome is that by investing well over time, you have enough money, with other investments you might have outside super, to achieve financial independence in the future.

When you retire and meet certain requirements, you can access your super to live on. Usually this is set up as an ‘Income Stream’ that pays you a regular income each fortnight or month, just like your salary would.

We view super as one of the four vital pillars of financial independence, with the other 3 being: owning your home, investing, & the Age Pension (if needed).

What are the benefits of superannuation?

The main benefits of super are:

Extra contributions that you make can be tax deductible, which will help reduce the amount of tax you pay
It is a great forced saving & investing tool to compound your money over time
The income & earnings within super are taxed at a lower rate than they would be if you invested the money in your name (they are taxed at 15% inside super, whereas your personal tax rate could be up to 47% including Medicare)
You have a wide range of super funds to choose from, and investment options within those funds. More and more options are becoming available all the time as well, so you are able to invest in a way that is most suited to you. This could be in a low cost index fund, a more sustainable investment fund or more active investments that aim to get better returns than the market.
When you retire, you can transform your super fund into an ‘Income Stream’ account. If you have less than a certain amount (currently $1.6 million per person) the income and returns from the fund will be tax free. The tax benefits help make super an amazing tool for achieving financial independence.

What are the drawbacks of superannuation?

Some of the drawback of super include:

Not being able to access the money until retirement or a specific ‘event’ – there are age requirements for accessing super (currently 60 at the earliest), as well as some other retirement requirements. There are ways to access super early, however these are things like passing away, becoming permanently disabled, being in severe financial hardship or requesting on compassionate grounds (eg: to help with medical costs).
There are limits on the amounts that you can contribute to super – you need to ‘colour between the lines’ with super, otherwise there are some hefty taxes & fees!

Frequently Asked Questions