Earlier this month, Australia’s largest mortgage broker reported that a “large proportion” of its home loan business in December, came from Westpac customers switching to other lenders in protest at the banks oversized rate boost.

In case you missed it, Westpac put up their home loan rates by .45% where the Reserve Bank of Australia only put it up by 0.25%.  You might remember the banana smoothie advert/ email that they sent to their customers.

We in Australia have been taking so much flack from our banks over the years. High bank fees, ludicrous bank fees (e.g. a cash handling fee), home loan rates that go up two days after a lift in interest rates but then taking 11 days to come down after a fall in interest rates. ATM fees of $2.00 a transaction, monthly bank account keeping fees, credit card interest above 20% and credit card fees that you need to be a rocket scientist to work out. Normally they have done this with impunity. People being lazy or not caring have not put these banks in their place. And because of our silence as a nation, we have let them steamroll us into untold revenue for their shareholders.

So when I first heard about Westpac doing this, it is just something else we will have to deal with and pay. I was convinced that people would huff and puff but not much would happen or change.

I’m so happy that it seems that people are standing up to Westpac. Changing their home loan over to a different bank is sending them a message. Believe me this does not just send Westpac a message; it sends all banks a message. There are customers willing to do the hard yards to change to a different bank if their bank pushes them too far. And in this case it does seem that Westpac has pushed them too far.

What this action does is keep the banks honest. It keeps them in line and shows them that you can only treat people like numbers instead of customers for so long.

What I like most about this situation is that people are switching their home loans. Home loans are probably the most difficult product to switch. Credit cards, savings accounts and personal loans are difficult; however home loans take the most time, paperwork and possible fees to switch. These customers have all endured some time and pain to send a clear cut message.

The biggest secret that all four banks don’t want you to know is that while there are four of them, they operate in a relative duopoly. This means if you leave one you simply join with one of the other three. So the banks, as long as they do everything as a foursome (e.g. putting up rates together at once) you could leave your current bank but more than likely you would be going to a bank that is doing the same thing.

In this case, Westpac went out and did it alone. None of the other banks followed and that’s why people have chosen to move. Congratulations again to the people that changed from their Westpac home loan.

Thanks

Adam Goulding (Also known as Mr Home Budget)

www.mrhomebudget.com.au

There is a sense in my bones that this analogy is similar to Australians’ debt issue. Right now all is still calm, however any month now an uncontrollable and unpredictable economy might take shape. With Australians finally hitting breaking point with all the debt we are in. Is there going to be a straw that will break the camel’s back?

And we are in debt, tons of it; right up to our eyeballs. In fact on Dec the 27^th Australians now owe 1.2 trillion dollars. Yes that’s right I said trillion with a “t”. This is our debt on credit cards, personal loans and mortgages.

In fact this is on average, $56,000 for every man, woman and child in the country; up 71 percent from just 5 years ago.

Let’s do the sums. So if it is up 71 per cent from 5 years ago what does this mean? Well by my calculations, in Dec 04 as a nation, we owed $33,000 per every man, woman and child. This has climbed by an average of 11.2% each year, every year since then.

On average our debt has gone up by 11.2%. This is not a small percentage; this is a huge percentage. Especially, when you consider most people are only getting a 3 to 4% pay rise each year.

Did you know at 11.2% our debt doubles every 6 years and 3 months. If it keeps going this way we will be at $105,880 by Dec 31^st 2015… Only six years away.

In fact Australians’ debt now totals 100.4 percent of our total yearly GDP. In case you don’t know what GDP is:  It is all the money spent in the country for the whole year. (Please note this is a basic one sentence explanation of GDP). Plus this 100.4 is one of the highest ratios in the developed world.

Will Australia hit a debt wall? Will people all of a sudden not be able to pay back loans? This figure shows that there is trouble ahead. People are talking as if the GFC is already over. However, these figures in my opinion at least, show that Australia is maybe just getting started.

I’m not 100% sure of all the reasons of how we got to this situation. But we must start changing and quickly. 

There seems to be this undercurrent of worry out there. Most people seem to be putting on a brave face, however there are people really struggling.

We can’t as Aussies keep going along as if everything is fine; purchasing overpriced houses, using our credit cards and taking holidays on personal loans. We seem to keep doing these things as a whole because everyone else is doing it. We seem to feel safer in numbers doing stupid things than going it alone. I heard this story many years ago. I’m not sure where it came from, however I will tell it with my best recollection as I believe it describes this debt problem perfectly.

A man walks by a frozen river. He sees a bridge 500 metres into the distance that he must walk over to cross the river. He has no intention of crossing on the ice as he does not know how thin it is. However just in the corner of his eye he notices people; 2 or 3 people walking across the river. Then some children come and start iceskating. He watches further as people start going on the frozen water and having snow ball fights. Soon half the town is on the ice having a good time. As each person steps onto the ice it gives other people the confidence to step on the ice. Each person on the ice reassures the other people that the ice is 100% safe. The man seeing that the ice now looks very safe decides to cross the river. However he gets half way across and he hears a crack. The ice is breaking and everybody is screaming. They all fall into the freezing cold water.

The ice could only take so much weight before it gave way. I wonder what the weight of debt Australians can take before our ice gives way? Are we there now or do we have a few years to go? Who can say? What I do know is that with debt moving up 11.2% a year it can’t be too long before we hit the wall.

Thanks from Adam Goulding (Also known as Mr Home Budget)

For more information go to

www.mrhomebudget.com.au

A big number in anyone’s terms. But what does it represent? It is Australia’s ballooning credit card debt. It is every dollar we owe as a nation to the credit card companies right now.

In fact with 22,073,280 people currently living in Australia that means that this number divided is $3,551.00 for every man, woman and child in the country.

However due to the fact that some people don’t have credit cards and children don’t have credit cards this is likely to be much higher for every credit card holder.

With a number as big as $46 billion, it can be hard to get your head around it. So I have put down some things you could purchase with this money.

Every single person in Australia could purchase one Big Mac meal from McDonalds every day for 302 days.

You could pay off the New South Wales and Victorian State governments’ debt completely and still have $8.1 billion in change.

You could pay out 132376 home mortgages in full if they owed $350,000 each.

You could fill up a car on empty with a 60 litre tank at $1.25 per litre 617,756,274 times.

It is enough money for everyone in Australia to have a $1.00 can of Coke for breakfast, lunch and dinner for 699 days in a row.

Now some of this $46,331,720,564.00 is not earning interest as card holders will pay it back before their interest payments kick in. However a big portion of this money is earning interest. But not just interest, but incredibly high interest above 12% pa.

Readers of my blog, are you still included in this number? Or have you rid yourself of credit cards? I know not one dollar of this amounts to any money that I owe. Try and make it so that not one dollar is next to your name.

This number bothers me. It bothers me because of the rate it keeps going up. There is no reason for it to keep going up. All people have to do is get rid of their cards; one person and one household at a time.

Don’t be part of the problem, be part of the solution.

Have a great christmas, and I will catch you in the new year.

Thanks Adam Goulding (Also known as Mr Home Budget)

For more information please go to www.mrhomebudget.com.au

However, something interesting happened that day as well that concerns every person with a mortgage. The RBA put up their interest rate by 0.25 per cent. This was to lift the overall cash rate to 3.5 per cent.

However I want to talk about the 7th of Oct. You see the RBA on the 7th of October decided to put up their rates on that date. And my home mortgage company increased their interest rate by 0.25 per cent on the 9th of Oct.

It got me thinking. Wow, that was quick, only 2 days to take full effect on my home loan payments. My mind worked overtime as I thought back to when the RBA was putting down interest rates, was my bank following the trend and putting down rates as quickly as two days? I decided to do some investigation on the matter.

I took out my home loan in July of 2005. Between July 2005 and Oct 2009 there have been 14 changes by the RBA to the cash interest rate. Each change has been followed by the bank.

Six of the changes have been putting the interest rates down and 8 have been putting them up. I worked out that on average the bank has taken 3.25 days to put them up. However when putting them down, it has taken on average 11.33 days!

 That’s 11.33 days that you are paying additional interest. What is their excuse for taking so long?

It has taken them nearly 2 weeks to get the home loan down. Why would this be the case? Could it be that banks make millions of dollars by keeping the rate as high as possible for as long as possible?

Now this is just my bank and I am yet to look into any of the other banks. But I can assure you that I’m with one of the big four banks.

Now I’m not a banking expert, however to change the rate don’t you just punch some numbers in on a computer? Wouldn’t this be the same as putting it up; except you are taking it down?

You might not think this is very much money. However, let’s pretend a bank has 1000 home loans and each home loan is worth $350,000. This means they have $350,000,000 owed to them.

Let’s pretend that they are earning 5% per year on this money. That means each year they are earning $17,500,000 on their money or $47,945 a day in interest.

If all of a sudden they start getting 4.75% on this $350,000,000 now they are only earning $16,625,000 on their money or $45,547 a day in interest or $2398 less per day.

So if this bank could not change the interest rates for an extra 9 days they would save themselves $21,582. So the amount adds up. Also, if they could do this a couple of times a year, well you have to add that amount to the $21,582.

But this bank is a made up bank with only 1000 home loan customers. However, the big banks have ten of thousands of home loan customers, possibly even hundreds of thousands of home loan customers. This is not small amounts of money with that many customers.

So who pays for this … the home loan customer? We get stuck with the extra interest each year. And while it might not be a lot for us individually as home loan customers, add up the amount and it’s a bucket load for the people lending it to us.

Should there be a law against this … I believe so. I think the government should impose a time line after the RBA moves rates for the banks to move their rates by then. And when I say a time line, I mean a law that states: all interest rate movements must be made within 2 days of the RBA decision.

There it’s that easy, and the banks won’t be able to wait 8, 9 or even 12 days to change their rates down. Pass this on to your friends to get the word out!!!!

Thanks Adam Goulding (Also known as Mr Home Budget) For more information please go to

www.mrhomebudget.com.au

There is a report that was put out by Info Choice that indicates that Australians as a whole are costing themselves around $6.1 billion a year by not shopping around for banking products.

This figure of 6.1 billion (and yes that’s billion with a “B”) is broken down as follows:

$5.4 billion on home loans

$257 million on credit cards

$482 million on other personal lending

Currently in Australia there are 22,046,871 people. So if we divide this $6.1 billion between each person that equals $276.68.

That is $276.68 between every man, woman and child. So if you took out the children (who are unlikely to have any debt) this figure would be much higher. This figure also includes people who have no debt. So take them out and the amount would jump up again.

Also remember this only takes into account debt with a bank; this $6.1 billion figure does not include money you might save in fees on savings accounts by shopping around.

 So the question is, “Are you costing yourself money by not shopping around?” Where is the best place to start? How do you find savings in less than 20 mins?

Well, there are a huge number of websites that compare all sorts of Australian debt-related products. In fact, the company that did this report, Info Choice has a website www.infochoice.com.au that compares all sorts of bank products.

Start there and then google other websites that compare debt in Australia.

Remember you don’t have to change anything. You might just want to look at a good rate. Then call your own bank and see if they will drop their rate to the one you are looking at. You never know what they might say until you threaten to leave for a lower rate.

 I suggest you do this right away. Find out if your deal is overpriced. Find out if your savings account fees are too high. Find out how much your home loan rate is compared to the cheapest you can find.

Do some phone calls and if necessary, change companies. You might find out that with 20 to 40 minutes of phone calls, paperwork and investigation, you could start saving yourself $500 a year. Also this is not just for this year but you will save a lot going. This might be some of the easiest money you have ever made.

Also I suggest that once a year you recheck that you are on the best deal. Mark it in your diary to do this. You might find that things have changed and there are even better offers than what you are currently on.

I don’t think Australians are lazy by nature however; we could be a touch more productive if $6.1 billion dollars is slipping through our fingers each year.

Thanks Adam Goulding (Also known as Mr Home Budget)

For more information please go to www.mrhomebudget.com.au

In fact at this rate, the OECD says that we have the fastest growing prices for groceries in the WORLD. 

We are only second to Spain whose prices have grown by 41.2 percent.

So you think, 41.3 per cent big deal, what’s that in real terms?

OK what does this mean in terms of per year?  It is around 4% each year. Meaning, if you purchased a shopping trolley of goods in 2000 for $100, in 2001 it would be $104. In 2009, that shopping trolley of goods would be $141.30 due to the increased prices.

So let me ask you a question, “Have you been earning 4% more each year since 2000?” If you have great, you are ahead of the curb on groceries. If not, that’s bad because you are behind in food payments.

You need to keep this in mind each year when talking pay rises. I know someone who works for a company that asked them not to take a pay rise this year because of the GFC. He agreed to this request. However, he soon worked out that since he started with the company in 2000 he had only been getting increases of 3.5per cent a year.

For example, if he started in Jan 2000 at $35,000 and got a 3.5% pay rise each Jan. from then on until 2008 he would be on $46,088. This is a total pay rise of 31.6% over that time. Due to the fact that he gave up his pay rise in 2009 he is still only earning 31.6% more now than when he started.

This is despite food prices rising at 41.2%. His pay is not keeping up with the increases in his shopping bill.

Not only is he behind the food curb already because his employer doesn’t value him over a 3.5% range, but he is going to get further behind due to no pay rise at all this year.

Will his employer give him a pay rise in 2010; the jury is still out? Plus it raises further questions; if his employer does give a pay rise in 2010 will it only be 3.5% or will it be more to cover the amount lost in 2009?

In a country like Australia with food prices moving like they are, can you afford not to get a pay rise each year? You need to understand this to protect yourself from the fastest moving food prices in the WORLD.

You can easily see what you have been earning each year by your group certificates. Dig them out of the closet and see how much you were earning from 2000 to now. You might find you are well behind the increases in food costs. If you don’t have your certificates, call the tax department, they should have your records on file.

Thanks Adam Goulding (Also known as Mr Home Budget)

For more information please go to www.mrhomebudget.com.au

 There was a report done by Dun and Bradstreets Consumer Credit Expectation Survey. It found that 39% of respondents would only survive 30 days on their current savings. So as you walk out to your letterbox today, look around at the other houses. Thirty-nine percent means 4 out of every 10 houses you see would be struggling in 30 days to pay their bills if their source of income stopped tomorrow. Are you part of the 39%, or could you hold out for a little longer?

It’s an interesting question and I never really thought about it before. However, if Australia ever went into a depression (no not a recession but a depression with a “d”) things would get pretty ugly. In our last depression in 1929, Australia got to a high unemployment rate of 28%. Now that is up there. While this might seem out of the question in 2009 who’s to say when tough times will come back to haunt us. And I’m not just talking about the Global Financial Crisis; a depression might not be in the pipeline for 20 years.

I guess I have (and probably like you) have only grown up in good economic times. Sure I have been through a few recessions (including the one we are in now). However, I’ve never seen soup lines or people en masse begging in the street. (I hope I never will!)

There are people out there even some people I know, that have good jobs, who are intelligent and work hard, however they have no savings. None! They also have very few assets of any value. These people are 100% in the 39% range.

Plus some of these people even have families to support. They are flying very close to the sun; if a financial depression hits they will more than likely be the first to suffer. But they don’t even need a financial depression to come; what would happen if they had a disaster in their life. What if they lose their job? They get sick and they can’t work; or a million other things that could kill you financially?

 I was unaware that 39% of Australians lived this way. So what can be done about it? We need to start teaching kids in schools about money and credit. Give them a history lesson on the past and what they need to do to survive in the future. When I went to school I spent quite alot of time doing science. Each year we learnt about electrons and microns. However, I have never used that once; not a day in my life. On the other hand, I was never taught how to run a home budget. However, I need to do that every day. I believe that kids in schools should learn how to run a home budget right from the start. This should help drop that 39% rate down in future years.

The administration fee came into force from September 14 2009 for every bill payment sent by mail or paid over the counter at Telstra shops or at post offices. The credit card processing fee will also rise to one per cent for MasterCard, Visa and American Express users, and two per cent for Diners Club card holders.

Telstra says the fee is in line with industry practice and direct debit payment options remain fee-free. With revenues last year of $25,400,000,000 BILLION DOLLARS. We think you should not have to pay a fee to pay your bills. Come on this is a joke right! For more information go to www.mrhomebudget.com.au

“We, the undersigned, call on telstra’s current CEO David Thodey to get rid of the $2.20 fee for paying your phone, internet, mobile phone or pay tv bill.”

“We believe a company with $25,400,000,000 billion in sales last year alone doesn’t need my $2.20 for a so call processing fee.”

“This will be sent and presented to the Telstra CEO.”

http://www.gopetition.com/petitions/stop-telstra-charging-me.html

This letter was for a section in the magazine called “Ask the experts”. It had a subheading “No matter what your dilemma, Woman’s Day’s trusty team of experts can solve it.

There was a letter from a reader who was looking to purchase a house. I will write this letter word for word so you can see what I’m talking about.

Question: I am 24 and earn $34,000. My boyfriend is 22 and earns $36,000. The bank told us we could borrow $490,000 to buy a house. Should we go to the limit? We want to get married and have kids in a few years. SHARON, Bidwill, NSW.

Answer: I must admit that it is tempting to take all the money a bank throws at you, but taking on a mortgage is a huge commitment, and will impact on future decisions.

Twenty-one percent of home owners are currently under mortgage stress, and you need to make sure you don’t become one of them. That means not accepting the highest amount a bank will lend to you. I’m not a big fan of going to a bank’s borrowing limit, and prefer to be quite conservative.

I encourage taking a loan of only 70 percent of what they say. In your case, that would mean borrowing no more than $343,000. Sure you may need to forgo buying the mansion, but each journey of 1000 kilometres starts with the first step!

I’m also a big believer in putting down a 20 percent deposit on a place. It proves you can be disciplined and save, and it also provides a buffer, should things get tough.

By not extending yourselves too much, you will have more flexibility in the future.
The last thing you want to be told in a few years time is that you can’t afford to get married or, worse, can’t have a child because the monthly interest charged on your mortgage is so crippling. What would you do if interest rates rose by four percent?

Couples considering starting a family also need to factor in a reduction of income when it comes to paying a mortgage, so it’s advisable to lodge a loan application based on one income only.

Remember that it is always better to have a great night’s sleep in an average house than an average sleep in a great home.

OK, there is the letter and the advice. There is one assumption that I am going to make about SHARON from Bidwill, NSW. This assumption is that she is not wealthy. I mean she is not taking out a loan just for the sake of taking out a loan. The assumption that I make is that she and her partner have limited savings. Maybe $10,000 to $20,000. It does not go into it in the article however; I will assume this is correct. And If I was a betting man I would suggest that this would be a good bet. I can’t be 100% sure, but in my mind this is correct.

There are two points that I want to bring up about this article.

Point Number One:

How can any bank in Australia lend out up to $490,000 to a couple earning a total of $70,000 pre tax and $61,152 after tax? In my mind this is criminal. It is plain criminal. It is irresponsible lending.

Let’s say Sharon takes out the full $490,000 over 25 years at a starting variable rate of 5.33% (This happens to be my current rate). Each week they would have a repayment of $682.40 or a yearly total of $35,484.80.

This is 58.02% of their total after tax salary. This is well beyond what I suggest at 33% maximum of your total after tax salary. This gives the couple $25,667.20 a year to live on or $493.60 a week.

This seems like a reasonable amount to live on except if Sharon gets pregnant (as she said she was looking forward to doing in the future). Now they will either drop to her boyfriend’s wage alone or have to pay extra for child care. But let’s say they have a nice relative that will look after the baby while both are at work; this doesn’t matter because either way their non mortgage expenses will go up from the cost of the child. This would eat into their $25,667.20.

If they dropped down to his wage alone, they would be $4134 down each year. This is 113.16% of his total wage going to pay the mortgage payments each year. This is before they paid one cent in food, electricity, gas, telephone, car expenses etc.
Even a 15-year-old understands that you can’t spend more than you earn day in day out before you have no money left.

However this is at the low interest rate of 5.33%. Let’s use the example from the answer person in the Woman’s Day. He said, “What would you do if interest rates rose by 4%”.

Now their home loan would have an interest rate of 9.33%. Now their weekly payment is $973.89. This is 82.81% of their total wage. This leaves them with $10,510 or $202.11 a week to live on.

Let me talk from experience. Living on $202.11 is nearly impossible for two people. Especially two people both working. There would be no room to move on anything at all. If your TV blows up, forget replacing it. If the hot water system breaks down, get used to cold showers. Forget going out to a restaurant, even once a month, if not for the whole year!

So Sharon would be walking a tightrope. No ifs, buts or maybes.

Plus I was paying 9.15% interest rates only 8 months ago. So to suggest that interest rates won’t go up again as quickly as they came down is being hopeful.
Point Number Two:

Never ask a bank what you can afford. This is like asking the barber if you need a haircut. The barber will always say yes. The bank will always lend you more than you should have.

You see the bank knows that if interest rates go up only 4%, this couple will be living on $10,000 a year. However, they don’t care. As long as they get their payment each month they are happy.

They will let their customers eat two minute noodles each night just to survive, as long as they are getting their money.

Take this advice away from this blog. Just because a big organisation (for example, Commonwealth Bank, ANZ, American Express, Visa, NAB etc.) offers you money, don’t take it as a compliment that these big companies are willing to lend you money. It does not mean you can afford it!

You need to do your figures and come up with your own conclusions.

Banks are full of salespeople (yes including tellers). I had a friend that worked for a Savings and Loans credit union as a teller. She was taught how to sell people into credit cards, personal loans, car loans and even home loans.

One of the things she was told was to look at what the customer was carrying. For example, if the customer came to the counter with a travel magazine, she was told to strike up a conversation about holidays. Then she was told to move the conversation to personal loans that could cover the cost of the holiday. In her sales training they did role plays exploring the above example.

Banks just like all businesses make money on sales. One of their biggest products is lending you money. The more money you owe them, the more they make. As long as you keep making the payments they get their profits.

So do you really think they care if you are struggling month to month just to put food on the table?

Thanks Adam Goulding (Also known as Mr Home Budget)
For more information go to
www.mrhomebudget.com.au