1 December 2014

‘Tis the season to spend money...

With the month of December now upon us, the focus for many has turned to Christmas shopping. Retailers around the country are rubbing their hands together in anticipation of a bumper season of festive sales. According to the Australian Retailers Association, Australian shoppers are expected to spend a whopping $45 billion between November 15 and December 24 this year - up from $43 billion during the same period last year.

What is a little concerning however is that according to finder.com.au’s Christmas Debt Survey conducted earlier this year, during the month of December alone, Australians are expected to spend almost $27 billion on credit cards; and the majority of people will take more than 30 days to pay off that debt. Worse still, 1 in 10 people will carry the Christmas debt (and incur interest on it) for three to six months; over five per cent will lug it around for 6 to 12 months; and four per cent (estimated at 100,000 Australians) will ring in 2016 with 2014’s expenses still hanging over their heads – that’s right you’ll still be paying for Frozen, Peppa Pig and The Transformers long after the batteries have run out, and the children have well and truly “Let It Go!”.

At an average interest rate of circa 18%, Christmas shopping on credit is a very expensive proposition for many in addition to average spends of over $1,000 per person.

On top of buying gifts, there is the Christmas lunch to pay for, and maybe even the Christmas holiday? And whilst it is easy to say “only spend what you have” people inherently get caught up in the festive spirit and overspend – close to 50% of people are estimated to exceed their Christmas budget (if they have one at all). The good news is there are options available to deal with excess generosity at Christmas.


Alternatives to the lingering credit card Christmas hangover

Utilise the redraw or offset facility attached to a mortgage loan

According to the Reserve Bank of Australia (RBA), the aggregate mortgage buffer – balances in mortgage offset and redraw facilities – has risen to around 15% of outstanding loan balances, meaning that on average Australians have the equivalent of two years scheduled repayments (at current interest rates) at their disposal. With the average home loan rate now less than six per cent this is a much better way to utilise credit at Christmas.

Switch credit cards – balance transfer

One of the most common deals you will see in the market during January is the offer of a credit card “balance transfer”, which allows consumers to transfer all of their credit card debt to a lower rate card for a limited period; a nice way for other institutions to get a share of consumers wallets under the guise of offering to help when they need it. Whilst this can be a good alternative, consumers won’t want to board the credit merry-go-round, changing providers every year, as it can adversely impact their credit file.

Consolidate personal debts with a mortgage

If consumers are unable to clear their Christmas credit card debt through savings or advance repayments held, they could consider consolidating their personal debts with their mortgage, meaning that rather paying 18% p.a. they will reduce the interest charge to around 6% p.a. potentially saving thousands in interest charges over time. The key with this option is to ensure the debt is not forgotten by simply succumbing to the repayments on the new loan. Borrowers should try to make additional repayments as if they were still paying off the debt to maximise the benefits.

Release equity from the mortgage

Some lenders offer “Cash out” loans, or equity release loans that allow applicants to borrow part of the equity held in their security property for personal purposes, which may include holidays, a new car or potentially Christmas presents.

Applicants could look to refinance to a “Cash out” loan product prior to Christmas to give them the money to spend, avoiding credit card debt; or they could refinance after the Christmas holidays to repay the outstanding credit card debt and maintain the facility. Similar to the point above, borrowers should look to make additional repayments as if the debt was still in place to maximise the benefits.


How La Trobe Financial can help

Our loan products cater for both the consolidation of debt and cash out, and most have a redraw facility; plus, we can cater for residential, commercial or rural securities on either a Full-Doc or Lite-Doc basis.

Here is a snapshot of some of loan products that can help with your clients Christmas spending needs:

Product Full-Doc Debt Consolidation Lite-Doc Debt Consolidation Full-Doc
Cash Out
Lite-Doc
Cash Out
Commercial
Cash Out
Interest rate From
5.60% p.a.
From
6.50% p.a.
From
5.60% p.a.
From
6.50% p.a.
From
7.69% p.a.
Maximum loan amount $1.5m $2.5m $1.5m $2.5m $2m
Maximum LVR 80% 80% 80% 80% 70%
LMI required No No No No No
Term 30 years 30 years 30 years 30 years 25 years
Credit impairment permitted Yes Yes Yes Yes Yes
Redraw permitted Yes Yes Yes Yes Yes


Settle before Christmas

We are still taking applications for borrowers looking to settle prior to Christmas, so there is still time for your clients to get an application in and have cash for Christmas.

Please call your Senior Manager Client Partnerships or our credit team direct on 13 80 10 to discuss your scenario.





... That's Lending

Best regards,
Cory Bannister, Vice President, Head of Distribution
La Trobe Financial Asset Management Limited



La Trobe Financial is one of Australia's leading independent credit specialist Fund Managers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 123 staff and has managed over AUD$10Billion covering over 100,000 investment grade assets since inception in 1952.

Copyright 2014 La Trobe Financial. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial. Disclaimer

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