February 22, 2023 • 22 mins
Jess and Dom offer saving strategies to Claire, a single mother with a child going into day care, who is also facing significant mortgage rate increases.
It All Adds Up is the podcast where we make money easy to understand so that listeners can begin building their financial wealth. You can submit questions to italladdsup@nine.com.au for Jess and Dom to answer each week.
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Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
S1 (00:07):
Hello and welcome to It All Adds Up the podcast
where we chat about money, how to get it, how
to spend it and how to invest it. I'm money
editor of the Sydney Morning Herald and The Age newspaper's
Dom Powell .
S2 (00:16):
And I'm senior economics writer Jess Irvine. And this week,
we're continuing our special series, focusing on real life budgets
and how you're tackling the rising cost of living.
S1 (00:28):
Yes. And last week we had a lovely question from Jewel,
our first caller in to the podcast, if you can
really call into a podcast. And she had some questions
about affording her first home. And this week we've got
a question from listener Clare, who was facing some pretty
steep rises on her cost of living and a mortgage
cliff like so many of us are. So let's have
a listen to what Claire has to say.
S3 (00:51):
Hi, Jason. I'm Claire. I'm a single mom of a
five month old. I work full time. I'm on maternity
leave at the moment. And I just wanted your thoughts
and ideas on where I'm at with my budget. So
I've recently paid off a $5,500 loan that I use
(01:13):
to pursue IVF. I'll have childcare costs when I go
back to work for my little one in April or May,
so I'll need to start paying for childcare. And I
also come off my low interest fixed mortgage of 1.89%
(01:33):
for my apartment. It's a loan of about $600,000 in September.
So I've got these changes coming up and I just
really appreciate your thoughts and reflections or any insights. And yeah,
thanks very much for your work on the podcast so far.
S1 (01:51):
Thanks for that, Claire. And yes, ouch. Couple of sort
of big costs that are coming in there. Obviously, child care,
a pretty big one and coming off a very low rate.
1.89 is super low. So that will be a very
big switch once she rolls off her mortgage. Just you've
got to look at Claire's budget. What do you think?
S2 (02:11):
Yeah, I think it is very similar to my own budget,
not least of all because she uses my money with
just a tracking system. But yes. Yeah. Same situation of
being a single parent with a mortgage of about that size.
I locked in at 1.84% for two years, so I
hit my mortgage cliff on June 30. And to be honest,
(02:35):
I feel a little bit uncomfortable knowing, planned and prepared
for it. But it's just this very uncomfortable feeling of
staring down the barrel of that mortgage. Cliff And Adam,
I think you fixed in as well did Yeah.
S1 (02:45):
I'm I'm slightly worse I'm at 2.79 but I've got
that until April 2024. So I'm really hoping that by
that point that Phil Lowe starts to think about putting
interest rates back down again. But that's me being incredibly optimistic.
S2 (03:00):
Yeah, well, I mean, that is that is of what
the sort of market pricing is, is for rates to
sort of hit the roof this year and then come
back down again next year. But who knows really what
will happen. But yeah, I did have a good look
through Claire's spreadsheets and worksheets that she sent me. And
first of all, she's doing an amazing job. And I
think if anybody's in the situation of facing the mortgage cliff,
(03:21):
the best thing you can be doing is, you know,
having visibility around where your money is going and tracking
it in some way and not just putting your head
in the sand and sort of just hoping for the best. So, yes,
I mean, the good thing for Claire is that she
has that full time permanent job in a relatively sheltered
or a sector that shouldn't be too affected. If we
do hit some harder times that she will return to
(03:44):
when she's finished on her parental leave. I did look
through and she was prior to the leave making extra
repayments on the mortgage. So many people will find that
they are ahead of what they work, their minimum repayments,
you know, that they were paying in. So there is
about a $1,000 per month buffer there that she was
(04:06):
chipping in. So, you know, and we'll go through the
figures later, but that might be about what she's required
to pay extra in interest per month anyway. You know
she's got this great savings history of paying off that
IVF loan. So it does look like Claire is running
herself a surplus. So she's she's able to save money
and she's also provisioning in her budget for the big
(04:29):
surprise expenses that hit people like car expenses, strata fees.
She's putting aside monthly amounts for that, which I love
to see in budgets. People sort of anticipating those big expenses.
But yeah, there's definitely some huge costs that she's staring
down the barrel of child care thing. One in particular.
S1 (04:52):
Yes. I mean, I had to look at the budgets
as well and put mine to shame, I'd just like
to say. But it doesn't take much to put mine
to shame. So, you.
S2 (05:01):
Know, no shade. But, you.
S1 (05:02):
Know, it's it's shame. It's allowed to be shame. It's
all right. But no, I was very impressed. But I
did think that, yes, you know, she doing a great
job in provisioning for everything that sort of, you know,
life can throw at you. She had sort of, I think,
for different little sort of Future Fund savers for for
various different things, which I think is great. But yes,
you're right. Childcare costs a big one.
S2 (05:24):
Yeah. Look, it's massive. And I think overall, you know,
when we're hitting the mortgage cliff and the childcare costs
at the same time, this is going to really stress
the budget. Oh my gosh. Are so my child is
now eight. Back in the day, you know, he went
to daycare sort of. And when he was less than
(05:45):
one and we were there for a couple of years
and we were paying for long daycare center in the
inner CBD and I think it was about $150 per day. Wow. Oh, really? Yes. Oh,
my gosh. Which there is. The government has a childcare subsidy,
which has changed since I was there. We used to
have this situation where we'd maxed out the subsidy and
(06:07):
then we would be paying full freight for a for
a couple of months of the year. That's sort of
since been rejigged. But yeah, that is not uncommon and
I expect it is much higher and probably creeping towards
the $200 per day for some of those CBD long
care where you can go from sort of 7 a.m.
to 6 p.m. or whatever those those hours are. So
(06:30):
and you're not allowed to pay for just a little
bit of the day, you just need a few hours,
you pay for the full day and you pay for
the days when your child is sick and actually unable
to attend the centre and you are unable to work.
And yes, there are a lot of those days because
kids go to daycare and they get sick all the
time and then they make you sick, so. Just sort
(06:51):
of to put a little word of warning out there
for Clare and others who were sort of in. It's
a really tough time to navigate and it's a time
when it's probably going to be hard to save much money.
You're sort of treading water just to afford those those
childcare costs. So in terms of preparing for that, you know,
(07:12):
you know, actually finding a place is a whole other thing.
And I presume Clare is, you know, researching that, making
sure that you're registered for the childcare subsidy and having
some understanding of what you can get back on those costs.
S1 (07:26):
Yeah. So for anyone who isn't aware, your family, if
your family incomes between zero to around $70,000, your childcare
subsidy percentage is 85%. But if you're over 72000 to 177000,
it's between 85 and 50% your subsidy and it goes
(07:46):
down by 1% for every $3,000 worth of income that
your family earns. So it's sort of I guess it's staged,
you know, for those higher income earners.
S2 (07:56):
Yeah. And that should increase from July one, I think
it is. The Labor Government has announced some changes to
that as well to make it slightly more generous for people.
But those are the current rates that apply and it's
not hugely more generous, although I get some billions of
dollars in aggregate and it's.
S1 (08:16):
Still not it's still not free.
S2 (08:18):
It's still not free. There is a review of there's
a Productivity Commission review and there's an early years strategy.
And there's a really compelling argument that spending taxpayer money
in this area yields benefits, you know, and higher taxes
in the future because you get good child outcomes from
at least some exposure to that early learning environment. So yeah,
(08:39):
unfortunately at the moment it's still expensive. We haven't made
it easy for families and yeah, for Clare to sort
of be looking at how many days she's going in
and what the price is and what the potential subsidy
is and trying to figure out how that fits into
the budget. That's something to definitely try and get ahead of,
at least in a planning sense. Yeah.
S1 (08:59):
Absolutely. And that might mean that she has to put
a little less into those sort of, you know, Future
Fund savers that we were talking about, maybe to sort
of scale those down a bit. So you're not contributing
nothing but you contributing, you know, maybe 50 bucks less,
each sort of thing.
S2 (09:11):
And then particularly on the more discretionary ones, like a holiday,
she's got a holiday fund. Some of the ones like,
you know, strata fees. Yeah, unfortunately. But yeah, we'll get
to some of the nice things that might have to
go at the end. But yeah, let's get to the mortgage.
So this is the one that, you know, we're both
(09:31):
facing down, although mine's a little bit more imminent. So
what do you think's going to happen to interest rates?
S1 (09:37):
Oh, is that, is that the million dollar question? Is
this where I get to become Phil Lowe successor? I mean.
S2 (09:43):
It's about the sort of $1,000 per tax on the
average mortgage.
S1 (09:46):
Really? Well, funnily enough, so I was looking the other
day because I was thinking about what my interest rates
might be looking like once I get off my loan.
And right now I was it's looking like something like 6.2%
on like an average variable interest rate, which is crazy.
Like that's, that's more than double what I'm on at
the moment. I mean, I've got until April 20, 24.
I'm crossing my fingers and toes to hope that things
(10:09):
start to look a little bit sort of calmer then,
and I might be able to get on to a
maybe a four.
S2 (10:15):
Ish.
S1 (10:16):
Four or five ish percent.
S2 (10:18):
You can dream.
S1 (10:19):
I will dream. And I do dream every night of
a 4.4 to 5% interest rate.
S2 (10:24):
Yeah, I can. So I'm fixed, but I have a
small proportion of my loan on variable, but it's where
I park my emergency fund, so it's completely offset and
I don't actually incur the interest, but I'm able to
check in and go, what is the sort of variable
rate of interest that my bank is charging and that
I'm likely to revert to? And it's currently 5.74% depending
(10:46):
when you're listening to this. We're expecting at least another
one or two more rises. So they're likely to revert
me to something with a six plus percent from a 1.84.
S1 (10:57):
This is what Claire can expect as well. When we
come around to September, she's probably going to be looking
at a six point something interest rate, which, you know,
is three times the amount that she was on, which
is a massive, massive increase. So like, I think we've
done some calculations or you've done some calculations just in
terms like what's what's that sort of increase a month
(11:17):
looking like?
S2 (11:18):
Yeah. If you really want to freak yourself out or
get prepared for this or do both at the same time,
I'm Google Money Smart mortgage calculator and it has a
handy little tool there where you put in how big
your home loan is, your current rate. You know, if
you're on a 25 or 30 year term and it
spits out your monthly repayments so you can have a
little bit of a play. And currently Claire's looking she's
(11:42):
probably paying about 2200 per month on her mortgage, the
minimum sort of required that would be if. It rolls
off to a 6% interest rate that rises to about
$3,600 and she'll be needing to find an extra $1,400
per month.
S1 (12:03):
That's a lot of dough.
S2 (12:04):
At the same time that you've got the childcare costs
kicking in. So you know, who knows, by September, that's
when she is rolling off. Having said that, you know,
the 6% and the sort of, you know, what I'm
on is sort of the it's the sort of top
shelf or it's the one that they put you on
if you've been a loyal customer for a while. It's
(12:27):
not the really great new rates that you can get
by being a new customer. And one of the it's
not an endorsement, but I do like to check the
website of Tick Tock loans. TikTok. Not the dancing app.
Not the dancing app. I like to check that one too.
But Tick Tock is currently advertising an interest rate of
(12:47):
variable of 4.56. So that's compared to my variable rate
of 5.74, which is about 1.2 percentage points cheaper. Yeah.
So there are better deals. And if you particularly if
you are locked in with one of the bigger lenders,
just be aware that they're probably going to pop you
on a right that is not competitive and it is
(13:08):
definitely time to be shopping around.
S1 (13:11):
My current homeland is with one of the sort of
the newer lenders, the neo bank lenders, so to speak.
And yeah, they're great because they don't have the overheads
that the other banks do. So they can offer these
really competitive rates, but they also can and like everyone's
doing this because I don't know if anyone's been reading
the finance reports from the banks this week. This is
very business journalist, nerdy business journalist thing to do. But
(13:34):
apparently the mortgage market is incredibly competitive. They've been. The
Bendigo Bank CEO said that it was like crazy, like
she was like, I've never seen anything like this. So
there are banks are out there, they are desperate for
a business and they are giving big fat cashbacks like
just obscenely high, like five $6,000 in some cases. So
this is something else to think about when you're refinancing,
(13:56):
which may well be that not only can you sort
of go to one of these sort of smaller lenders
that might be able to give you a competitive right,
but they're also then going to give you five grand
as well?
S2 (14:05):
Yeah, if you can handle all the paperwork involved, if
you switched every six months, you could offset the impact
of the higher rates by sort of getting those juicy cashbacks,
although that may affect your credit rating, that you might
not be able to play that card too many times. Yeah.
And with the the neobanks or the smaller lenders, it
can be a little bit more tricky if you're self-employed
(14:27):
or you've got sort of circumstances where you can't just
immediately lodge the payslip to show easily he's the income.
So it's not an option for everyone. But if you
do sort of have the income, you can substantiate quite clearly.
And importantly, if you've got enough equity in your home,
which is something we might mention as well for the
mortgage prisoners out there. Do you want to explain what
(14:48):
a mortgage prisoners?
S1 (14:51):
Yes. So, I mean, you considered a very dramatic term,
but you're considered a mortgage prisoner if your equity in
your home has fallen below 20%, so it might not
of it might have been above 20% initially when you
bought the place, but the value of the property might
have dropped or or anything you might have happened and
it's fallen below that 20%. So you now face lenders
mortgage insurance if you refinance, which means the whole sort
(15:13):
of process of refinancing becomes more expensive when the whole
idea is that it's supposed to be cheaper. So it
becomes sort of like financially unviable to leave your your mortgage, Right.
So therefore, you sort of trapped in it.
S2 (15:25):
Yeah. I mean, and you can if the savings on
the interest was going to be very substantial, it might
be worth paying the lender's mortgage insurance, which can sort
of be amortized into your payments across the the length
of the loan in some cases. So it's worth investigating.
It's going to be a bit tricky. You know, I
would say reach out to a mortgage broker or just
walk into a bank in like we did in the
olden days and have a chat about what your options
(15:48):
are and start to have that chat. I would say
at least two months out from when your fixed rate
is ending, you want to know from your lender what
right are you going to put me on? Or at
least what is it now? And you know, if rates
go up, what will be added to that? So you
can start to shop around and look at all those
usual sites that can sort of compare the market, find
(16:11):
a right city and get an idea of what those
competitive deals are. Because you're right, Tom, You know, we
still have this vision of the banks of, you know,
they're there, they're not doing deals. They're charging around high rates.
But for new customers, there really are some competitive write
out there. And you want to make sure that you
get one of them. Yeah.
S1 (16:28):
And like basically just never take anything at face value. Right? Never,
never take the first number you're given, you know, when
when these sort of things come along because there's almost
always going to be either from that lender or a different.
Linda a better offer.
S2 (16:41):
Yep. And even if you don't switch, call your current
lender and say, Hey, you've just put me on this
vastly inflated rate. Can you can you do better place?
Otherwise I will walk away, you know, to treat a
mean ticket That's.
S1 (16:54):
It's like in love like in finance. So sort of
looking at Clare's budget in terms of things that she
spends money on. Jess, you've actually identified some areas in
in Claire's budget where, you know, you think she might
be able to trim some costs to be able to
close that gap for when she hits this mortgage cliff.
S2 (17:13):
Yeah. So I think once you factor in the higher
mortgage repayments and the childcare costs, we could be a
little bit close and there's going to be a need
to look at the more variable or discretionary purchases as
we all are. And some of those things can include
things like eating out. So there's a couple of hundred
(17:33):
bucks some months for eating out in the budget or
in what we're observing in the spending. For Claire, sometimes
there's Ubers, you know, going to to wherever we're going. And,
you know, she's got the same problem that I've got,
which is home decor, which I suspect means she's going
to Kmart too much, which I used to do is
you just go on a little trip and you just
(17:54):
want some more pillows or candles or whatever it is.
So maybe there's there's a 100 or something bucks a
month going on that, you know, there's there's also like
a bit of skincare spending, you know, And I'm like
not about about like don't spend any money on yourself, but.
This is the time where we're sort of investigating the
cheaper options. We're not walking into Mecca, we're walking into
(18:18):
Chemist warehouse somewhere, not doing the top brands. We're sort
of understanding a tub.
S1 (18:23):
Of a tub of Vaseline. That's good for your skin, right? Yeah.
S2 (18:29):
Moisture. A set of film face cleanser. I'm like, but like,
we're trying. The store bought shampoos where, you know, we're
not turning our nose up at some of the home
brands in the cheaper options. So that's where we can
just do a little bit more of the finessing, you know,
around going out. And I think to be honest with you,
you know, if you've got the big mortgage, it's probably
(18:51):
going to mean I hope you had your post-COVID holiday
already because we might not be having one of those
in the next year or two. And, you know, that
sounds sad, but if you're looking for ways that you
can cut your discretionary spending, I think that some of
the big ticket items people might be just staycation ing.
If you're meeting up with friends, we're going for a
walk in the park. We're not going out for dinner.
(19:13):
So some of those little changes like that just to
flag that, they are things that you can tinker with
and you know, in ordinary times, I'd love to see
those in everybody's budgets. But when we're battening down the
hatches and preparing for this massive mortgage cliff, the big
pain that is coming, there are some of the little
tweaks that we can make that really do add up.
S1 (19:34):
Yeah, absolutely. And that's the name of the podcast. It
all adds up.
S2 (19:37):
I just realized it all adds up. Mike dropped that and.
S1 (19:42):
But yes, look, I think in conclusion, Clare has a
very solid looking budget and she's doing a great job
squirreling extra bits of cash away. But you know, these
childcare costs that will be coming through the mortgage, significant
increase in the mortgage repayments will be coming through will
mean that she'll have to start trimming some costs here
and there.
S2 (20:01):
Yeah. And I would say get on that money Smart
mortgage calculator today everyone, and start playing with your numbers
and getting some idea of what that hit is going
to be. We don't know exactly what's going to happen
to interest rates, but running some scenarios and figuring out
what is in my budget that can go overboard when
that comes. So the key takeaways, I think for Claire,
(20:24):
you've got those childcare costs coming at you and that
is going to eat up a big chunk of your
what was formerly your savings. So just be braced for that.
It won't be forever. Eventually kids go to to school
and if you go to a public school, you will
feel that relief of thousands of dollars a year streaming
(20:44):
back into your budget. And again, with the mortgage cliff,
you know, we've got rates going up. They won't keep
going up forever. And hopefully we will get to a
point where we've got on top of inflation and interest
rates can start to come back down again. And that
will relieve the pressure on people. But there's definitely this
pinch point coming for at least the next sort of
(21:05):
6 to 12 months where we will have to batten
down the hatches and look at some of the discretionary spending.
And I think that if Claire continues to keep a
really close eye on her expenses, that that she'll be
well equipped to do that.
S1 (21:20):
Thanks, Clare, for calling in with your budgets and some questions.
We loved hearing it and thanks everyone else who's been
sending in their their budgets and questions. It's been great
to read. We're working through it slowly. And you know,
you'll be hearing someone new next week with with some
more questions about a whole bunch of different stuff. So
thanks so much for listening, as always. And we will
see you next week.
S2 (21:40):
Thanks for listening. See you next week.
S1 (21:49):
This episode of It All Adds Up is produced by
Chee Wong. The information discussed is general in nature and
does not take into account your personal financial situation, goals
or objectives. You should always do your own research or
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(22:09):
You can also submit your list of questions in text
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PM today. Thanks for listening.
Hello and welcome to It All Adds Up the podcast
where we chat about money, how to get it, how
to spend it and how to invest it. I'm money
editor of the Sydney Morning Herald and The Age newspaper's
Dom Powell .
S2 (00:16):
And I'm senior economics writer Jess Irvine. And this week,
we're continuing our special series, focusing on real life budgets
and how you're tackling the rising cost of living.
S1 (00:28):
Yes. And last week we had a lovely question from Jewel,
our first caller in to the podcast, if you can
really call into a podcast. And she had some questions
about affording her first home. And this week we've got
a question from listener Clare, who was facing some pretty
steep rises on her cost of living and a mortgage
cliff like so many of us are. So let's have
a listen to what Claire has to say.
S3 (00:51):
Hi, Jason. I'm Claire. I'm a single mom of a
five month old. I work full time. I'm on maternity
leave at the moment. And I just wanted your thoughts
and ideas on where I'm at with my budget. So
I've recently paid off a $5,500 loan that I use
(01:13):
to pursue IVF. I'll have childcare costs when I go
back to work for my little one in April or May,
so I'll need to start paying for childcare. And I
also come off my low interest fixed mortgage of 1.89%
(01:33):
for my apartment. It's a loan of about $600,000 in September.
So I've got these changes coming up and I just
really appreciate your thoughts and reflections or any insights. And yeah,
thanks very much for your work on the podcast so far.
S1 (01:51):
Thanks for that, Claire. And yes, ouch. Couple of sort
of big costs that are coming in there. Obviously, child care,
a pretty big one and coming off a very low rate.
1.89 is super low. So that will be a very
big switch once she rolls off her mortgage. Just you've
got to look at Claire's budget. What do you think?
S2 (02:11):
Yeah, I think it is very similar to my own budget,
not least of all because she uses my money with
just a tracking system. But yes. Yeah. Same situation of
being a single parent with a mortgage of about that size.
I locked in at 1.84% for two years, so I
hit my mortgage cliff on June 30. And to be honest,
(02:35):
I feel a little bit uncomfortable knowing, planned and prepared
for it. But it's just this very uncomfortable feeling of
staring down the barrel of that mortgage. Cliff And Adam,
I think you fixed in as well did Yeah.
S1 (02:45):
I'm I'm slightly worse I'm at 2.79 but I've got
that until April 2024. So I'm really hoping that by
that point that Phil Lowe starts to think about putting
interest rates back down again. But that's me being incredibly optimistic.
S2 (03:00):
Yeah, well, I mean, that is that is of what
the sort of market pricing is, is for rates to
sort of hit the roof this year and then come
back down again next year. But who knows really what
will happen. But yeah, I did have a good look
through Claire's spreadsheets and worksheets that she sent me. And
first of all, she's doing an amazing job. And I
think if anybody's in the situation of facing the mortgage cliff,
(03:21):
the best thing you can be doing is, you know,
having visibility around where your money is going and tracking
it in some way and not just putting your head
in the sand and sort of just hoping for the best. So, yes,
I mean, the good thing for Claire is that she
has that full time permanent job in a relatively sheltered
or a sector that shouldn't be too affected. If we
do hit some harder times that she will return to
(03:44):
when she's finished on her parental leave. I did look
through and she was prior to the leave making extra
repayments on the mortgage. So many people will find that
they are ahead of what they work, their minimum repayments,
you know, that they were paying in. So there is
about a $1,000 per month buffer there that she was
(04:06):
chipping in. So, you know, and we'll go through the
figures later, but that might be about what she's required
to pay extra in interest per month anyway. You know
she's got this great savings history of paying off that
IVF loan. So it does look like Claire is running
herself a surplus. So she's she's able to save money
and she's also provisioning in her budget for the big
(04:29):
surprise expenses that hit people like car expenses, strata fees.
She's putting aside monthly amounts for that, which I love
to see in budgets. People sort of anticipating those big expenses.
But yeah, there's definitely some huge costs that she's staring
down the barrel of child care thing. One in particular.
S1 (04:52):
Yes. I mean, I had to look at the budgets
as well and put mine to shame, I'd just like
to say. But it doesn't take much to put mine
to shame. So, you.
S2 (05:01):
Know, no shade. But, you.
S1 (05:02):
Know, it's it's shame. It's allowed to be shame. It's
all right. But no, I was very impressed. But I
did think that, yes, you know, she doing a great
job in provisioning for everything that sort of, you know,
life can throw at you. She had sort of, I think,
for different little sort of Future Fund savers for for
various different things, which I think is great. But yes,
you're right. Childcare costs a big one.
S2 (05:24):
Yeah. Look, it's massive. And I think overall, you know,
when we're hitting the mortgage cliff and the childcare costs
at the same time, this is going to really stress
the budget. Oh my gosh. Are so my child is
now eight. Back in the day, you know, he went
to daycare sort of. And when he was less than
(05:45):
one and we were there for a couple of years
and we were paying for long daycare center in the
inner CBD and I think it was about $150 per day. Wow. Oh, really? Yes. Oh,
my gosh. Which there is. The government has a childcare subsidy,
which has changed since I was there. We used to
have this situation where we'd maxed out the subsidy and
(06:07):
then we would be paying full freight for a for
a couple of months of the year. That's sort of
since been rejigged. But yeah, that is not uncommon and
I expect it is much higher and probably creeping towards
the $200 per day for some of those CBD long
care where you can go from sort of 7 a.m.
to 6 p.m. or whatever those those hours are. So
(06:30):
and you're not allowed to pay for just a little
bit of the day, you just need a few hours,
you pay for the full day and you pay for
the days when your child is sick and actually unable
to attend the centre and you are unable to work.
And yes, there are a lot of those days because
kids go to daycare and they get sick all the
time and then they make you sick, so. Just sort
(06:51):
of to put a little word of warning out there
for Clare and others who were sort of in. It's
a really tough time to navigate and it's a time
when it's probably going to be hard to save much money.
You're sort of treading water just to afford those those
childcare costs. So in terms of preparing for that, you know,
(07:12):
you know, actually finding a place is a whole other thing.
And I presume Clare is, you know, researching that, making
sure that you're registered for the childcare subsidy and having
some understanding of what you can get back on those costs.
S1 (07:26):
Yeah. So for anyone who isn't aware, your family, if
your family incomes between zero to around $70,000, your childcare
subsidy percentage is 85%. But if you're over 72000 to 177000,
it's between 85 and 50% your subsidy and it goes
(07:46):
down by 1% for every $3,000 worth of income that
your family earns. So it's sort of I guess it's staged,
you know, for those higher income earners.
S2 (07:56):
Yeah. And that should increase from July one, I think
it is. The Labor Government has announced some changes to
that as well to make it slightly more generous for people.
But those are the current rates that apply and it's
not hugely more generous, although I get some billions of
dollars in aggregate and it's.
S1 (08:16):
Still not it's still not free.
S2 (08:18):
It's still not free. There is a review of there's
a Productivity Commission review and there's an early years strategy.
And there's a really compelling argument that spending taxpayer money
in this area yields benefits, you know, and higher taxes
in the future because you get good child outcomes from
at least some exposure to that early learning environment. So yeah,
(08:39):
unfortunately at the moment it's still expensive. We haven't made
it easy for families and yeah, for Clare to sort
of be looking at how many days she's going in
and what the price is and what the potential subsidy
is and trying to figure out how that fits into
the budget. That's something to definitely try and get ahead of,
at least in a planning sense. Yeah.
S1 (08:59):
Absolutely. And that might mean that she has to put
a little less into those sort of, you know, Future
Fund savers that we were talking about, maybe to sort
of scale those down a bit. So you're not contributing
nothing but you contributing, you know, maybe 50 bucks less,
each sort of thing.
S2 (09:11):
And then particularly on the more discretionary ones, like a holiday,
she's got a holiday fund. Some of the ones like,
you know, strata fees. Yeah, unfortunately. But yeah, we'll get
to some of the nice things that might have to
go at the end. But yeah, let's get to the mortgage.
So this is the one that, you know, we're both
(09:31):
facing down, although mine's a little bit more imminent. So
what do you think's going to happen to interest rates?
S1 (09:37):
Oh, is that, is that the million dollar question? Is
this where I get to become Phil Lowe successor? I mean.
S2 (09:43):
It's about the sort of $1,000 per tax on the
average mortgage.
S1 (09:46):
Really? Well, funnily enough, so I was looking the other
day because I was thinking about what my interest rates
might be looking like once I get off my loan.
And right now I was it's looking like something like 6.2%
on like an average variable interest rate, which is crazy.
Like that's, that's more than double what I'm on at
the moment. I mean, I've got until April 20, 24.
I'm crossing my fingers and toes to hope that things
(10:09):
start to look a little bit sort of calmer then,
and I might be able to get on to a
maybe a four.
S2 (10:15):
Ish.
S1 (10:16):
Four or five ish percent.
S2 (10:18):
You can dream.
S1 (10:19):
I will dream. And I do dream every night of
a 4.4 to 5% interest rate.
S2 (10:24):
Yeah, I can. So I'm fixed, but I have a
small proportion of my loan on variable, but it's where
I park my emergency fund, so it's completely offset and
I don't actually incur the interest, but I'm able to
check in and go, what is the sort of variable
rate of interest that my bank is charging and that
I'm likely to revert to? And it's currently 5.74% depending
(10:46):
when you're listening to this. We're expecting at least another
one or two more rises. So they're likely to revert
me to something with a six plus percent from a 1.84.
S1 (10:57):
This is what Claire can expect as well. When we
come around to September, she's probably going to be looking
at a six point something interest rate, which, you know,
is three times the amount that she was on, which
is a massive, massive increase. So like, I think we've
done some calculations or you've done some calculations just in
terms like what's what's that sort of increase a month
(11:17):
looking like?
S2 (11:18):
Yeah. If you really want to freak yourself out or
get prepared for this or do both at the same time,
I'm Google Money Smart mortgage calculator and it has a
handy little tool there where you put in how big
your home loan is, your current rate. You know, if
you're on a 25 or 30 year term and it
spits out your monthly repayments so you can have a
little bit of a play. And currently Claire's looking she's
(11:42):
probably paying about 2200 per month on her mortgage, the
minimum sort of required that would be if. It rolls
off to a 6% interest rate that rises to about
$3,600 and she'll be needing to find an extra $1,400
per month.
S1 (12:03):
That's a lot of dough.
S2 (12:04):
At the same time that you've got the childcare costs
kicking in. So you know, who knows, by September, that's
when she is rolling off. Having said that, you know,
the 6% and the sort of, you know, what I'm
on is sort of the it's the sort of top
shelf or it's the one that they put you on
if you've been a loyal customer for a while. It's
(12:27):
not the really great new rates that you can get
by being a new customer. And one of the it's
not an endorsement, but I do like to check the
website of Tick Tock loans. TikTok. Not the dancing app.
Not the dancing app. I like to check that one too.
But Tick Tock is currently advertising an interest rate of
(12:47):
variable of 4.56. So that's compared to my variable rate
of 5.74, which is about 1.2 percentage points cheaper. Yeah.
So there are better deals. And if you particularly if
you are locked in with one of the bigger lenders,
just be aware that they're probably going to pop you
on a right that is not competitive and it is
(13:08):
definitely time to be shopping around.
S1 (13:11):
My current homeland is with one of the sort of
the newer lenders, the neo bank lenders, so to speak.
And yeah, they're great because they don't have the overheads
that the other banks do. So they can offer these
really competitive rates, but they also can and like everyone's
doing this because I don't know if anyone's been reading
the finance reports from the banks this week. This is
very business journalist, nerdy business journalist thing to do. But
(13:34):
apparently the mortgage market is incredibly competitive. They've been. The
Bendigo Bank CEO said that it was like crazy, like
she was like, I've never seen anything like this. So
there are banks are out there, they are desperate for
a business and they are giving big fat cashbacks like
just obscenely high, like five $6,000 in some cases. So
this is something else to think about when you're refinancing,
(13:56):
which may well be that not only can you sort
of go to one of these sort of smaller lenders
that might be able to give you a competitive right,
but they're also then going to give you five grand
as well?
S2 (14:05):
Yeah, if you can handle all the paperwork involved, if
you switched every six months, you could offset the impact
of the higher rates by sort of getting those juicy cashbacks,
although that may affect your credit rating, that you might
not be able to play that card too many times. Yeah.
And with the the neobanks or the smaller lenders, it
can be a little bit more tricky if you're self-employed
(14:27):
or you've got sort of circumstances where you can't just
immediately lodge the payslip to show easily he's the income.
So it's not an option for everyone. But if you
do sort of have the income, you can substantiate quite clearly.
And importantly, if you've got enough equity in your home,
which is something we might mention as well for the
mortgage prisoners out there. Do you want to explain what
(14:48):
a mortgage prisoners?
S1 (14:51):
Yes. So, I mean, you considered a very dramatic term,
but you're considered a mortgage prisoner if your equity in
your home has fallen below 20%, so it might not
of it might have been above 20% initially when you
bought the place, but the value of the property might
have dropped or or anything you might have happened and
it's fallen below that 20%. So you now face lenders
mortgage insurance if you refinance, which means the whole sort
(15:13):
of process of refinancing becomes more expensive when the whole
idea is that it's supposed to be cheaper. So it
becomes sort of like financially unviable to leave your your mortgage, Right.
So therefore, you sort of trapped in it.
S2 (15:25):
Yeah. I mean, and you can if the savings on
the interest was going to be very substantial, it might
be worth paying the lender's mortgage insurance, which can sort
of be amortized into your payments across the the length
of the loan in some cases. So it's worth investigating.
It's going to be a bit tricky. You know, I
would say reach out to a mortgage broker or just
walk into a bank in like we did in the
olden days and have a chat about what your options
(15:48):
are and start to have that chat. I would say
at least two months out from when your fixed rate
is ending, you want to know from your lender what
right are you going to put me on? Or at
least what is it now? And you know, if rates
go up, what will be added to that? So you
can start to shop around and look at all those
usual sites that can sort of compare the market, find
(16:11):
a right city and get an idea of what those
competitive deals are. Because you're right, Tom, You know, we
still have this vision of the banks of, you know,
they're there, they're not doing deals. They're charging around high rates.
But for new customers, there really are some competitive write
out there. And you want to make sure that you
get one of them. Yeah.
S1 (16:28):
And like basically just never take anything at face value. Right? Never,
never take the first number you're given, you know, when
when these sort of things come along because there's almost
always going to be either from that lender or a different.
Linda a better offer.
S2 (16:41):
Yep. And even if you don't switch, call your current
lender and say, Hey, you've just put me on this
vastly inflated rate. Can you can you do better place?
Otherwise I will walk away, you know, to treat a
mean ticket That's.
S1 (16:54):
It's like in love like in finance. So sort of
looking at Clare's budget in terms of things that she
spends money on. Jess, you've actually identified some areas in
in Claire's budget where, you know, you think she might
be able to trim some costs to be able to
close that gap for when she hits this mortgage cliff.
S2 (17:13):
Yeah. So I think once you factor in the higher
mortgage repayments and the childcare costs, we could be a
little bit close and there's going to be a need
to look at the more variable or discretionary purchases as
we all are. And some of those things can include
things like eating out. So there's a couple of hundred
(17:33):
bucks some months for eating out in the budget or
in what we're observing in the spending. For Claire, sometimes
there's Ubers, you know, going to to wherever we're going. And,
you know, she's got the same problem that I've got,
which is home decor, which I suspect means she's going
to Kmart too much, which I used to do is
you just go on a little trip and you just
(17:54):
want some more pillows or candles or whatever it is.
So maybe there's there's a 100 or something bucks a
month going on that, you know, there's there's also like
a bit of skincare spending, you know, And I'm like
not about about like don't spend any money on yourself, but.
This is the time where we're sort of investigating the
cheaper options. We're not walking into Mecca, we're walking into
(18:18):
Chemist warehouse somewhere, not doing the top brands. We're sort
of understanding a tub.
S1 (18:23):
Of a tub of Vaseline. That's good for your skin, right? Yeah.
S2 (18:29):
Moisture. A set of film face cleanser. I'm like, but like,
we're trying. The store bought shampoos where, you know, we're
not turning our nose up at some of the home
brands in the cheaper options. So that's where we can
just do a little bit more of the finessing, you know,
around going out. And I think to be honest with you,
you know, if you've got the big mortgage, it's probably
(18:51):
going to mean I hope you had your post-COVID holiday
already because we might not be having one of those
in the next year or two. And, you know, that
sounds sad, but if you're looking for ways that you
can cut your discretionary spending, I think that some of
the big ticket items people might be just staycation ing.
If you're meeting up with friends, we're going for a
walk in the park. We're not going out for dinner.
(19:13):
So some of those little changes like that just to
flag that, they are things that you can tinker with
and you know, in ordinary times, I'd love to see
those in everybody's budgets. But when we're battening down the
hatches and preparing for this massive mortgage cliff, the big
pain that is coming, there are some of the little
tweaks that we can make that really do add up.
S1 (19:34):
Yeah, absolutely. And that's the name of the podcast. It
all adds up.
S2 (19:37):
I just realized it all adds up. Mike dropped that and.
S1 (19:42):
But yes, look, I think in conclusion, Clare has a
very solid looking budget and she's doing a great job
squirreling extra bits of cash away. But you know, these
childcare costs that will be coming through the mortgage, significant
increase in the mortgage repayments will be coming through will
mean that she'll have to start trimming some costs here
and there.
S2 (20:01):
Yeah. And I would say get on that money Smart
mortgage calculator today everyone, and start playing with your numbers
and getting some idea of what that hit is going
to be. We don't know exactly what's going to happen
to interest rates, but running some scenarios and figuring out
what is in my budget that can go overboard when
that comes. So the key takeaways, I think for Claire,
(20:24):
you've got those childcare costs coming at you and that
is going to eat up a big chunk of your
what was formerly your savings. So just be braced for that.
It won't be forever. Eventually kids go to to school
and if you go to a public school, you will
feel that relief of thousands of dollars a year streaming
(20:44):
back into your budget. And again, with the mortgage cliff,
you know, we've got rates going up. They won't keep
going up forever. And hopefully we will get to a
point where we've got on top of inflation and interest
rates can start to come back down again. And that
will relieve the pressure on people. But there's definitely this
pinch point coming for at least the next sort of
(21:05):
6 to 12 months where we will have to batten
down the hatches and look at some of the discretionary spending.
And I think that if Claire continues to keep a
really close eye on her expenses, that that she'll be
well equipped to do that.
S1 (21:20):
Thanks, Clare, for calling in with your budgets and some questions.
We loved hearing it and thanks everyone else who's been
sending in their their budgets and questions. It's been great
to read. We're working through it slowly. And you know,
you'll be hearing someone new next week with with some
more questions about a whole bunch of different stuff. So
thanks so much for listening, as always. And we will
see you next week.
S2 (21:40):
Thanks for listening. See you next week.
S1 (21:49):
This episode of It All Adds Up is produced by
Chee Wong. The information discussed is general in nature and
does not take into account your personal financial situation, goals
or objectives. You should always do your own research or
get professional advice before making any major financial decisions. If
you'd like today's episode, hit follow a new podcast app.
Leave a review and recommend it to all your friends.
(22:09):
You can also submit your list of questions in text
or audio form at. It all adds up at 9:00
PM today. Thanks for listening.
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