Restructure your loans and improve your cash flow
Inflation, interest rate increases and Australians coming off low fixed rate loans and moving onto higher variable rate loans has meant that we are having more and more conversations about cash flow.
Put simply, cash flow is a measure of the money you earn and the money you spend to determine if you have a money left over or you are spending more than you earn.
Having money left over, or positive cash flow, is very important to overall financial health.
Cash flow can be worked out by putting together a simple budget.
Creating a budget gives you the opportunity to review where your money is going, and if you find things are tight right now, you can always ask yourself things like do I really need that extra pay TV subscription or to buy my breakfast & lunch every day.
Making small changes, or compromises, can remove some of the financial stress and improve your financial situation.
Another way to help improve your cash flow is by restructuring your loans.
Today we are going to outline two simple strategies that can help to improve your cash flow, but keep in mind that this is only looking at one aspect of your financial situation, and we recommend that you get advice from a qualified professional like an accountant or financial planner who might have a broader understanding of your situation and goals.
- Moving your investment loans from principal and interest repayments to interest only.
If you have an investment property(s), paying principal and interest and have a home loan on the property where you live, it’s worthwhile considering moving your investment loans to interest only.
For example, on an $800,000 loan, with an interest rate of 5.5% and a loan term of 27 years, your repayments would be about $4,745 per month. If you moved this to interest only, your repayments would be $3,667 per month, $1,078 per month less.
You can use the extra cash to make an extra repayment on your home loan which could save you hundreds of thousands of dollars and shave years off your home loan term.
Moving from principal and interest to interest only is becoming harder these days and is subject to an application and review process by your lender. Generally, we are finding it harder to do this with the big 4 banks but several non-bank lenders (who have a different assessment criteria) are more open to it.
- Extending your loan term.
You may be able to extend your home loan term.
For example, on an $800,000 loan with a 23-year loan term and an interest rate of 5.5%, you’d be paying approximately $5,114 per month. If this loan was refinanced out to a 30-year loan term, you’d be paying about $4,542 per month, or $471.99 per month less.
The downside to this strategy is that you’ll end up paying more in interest over the life of the loan, but in the short term, it can relieve some cash flow pressure.
If you would like to discuss any of the above further, feel free to book in FREE consultation using the link below.
Have a fantastic week,
The team at Build & Protect Financial Services
