As part of the government’s much maligned banking reforms, from January 1 new borrowers will be provided with a one page home loan fact sheet to compare loans.
While the comparison of loans between different credit providers will be useful, the major benefit of the fact sheets will be giving a clearer picture of how much a loan actually costs.
Using the example fact sheet from www.bankingreforms.gov.au, a $395,000 loan taken at 7.16% over 30 years on a monthly repayment schedule, shows a total cost of $963,843.
Or to simplify the equation even more, the estimated cost is broken down by showing the borrower will pay back $2.44 for every $1 borrowed.
To anyone who hadn’t fully considered the implications of how much they were paying back over such a term, this should provide an eye opener.
Sensibly, the fact sheet also spells out the time that can be shaved off a loan with extra repayments.
Now the other good piece of news is on the really unproductive debt front – credit cards.
Soliciting to increase credit card limits will be banned from 1 July 2012.
So if credit card providers have recently been clogging your mailbox with offers to increase your limit, you’ll know why – they’re trying to beat the deadline.
They’re also including a reply-paid envelope so you can opt-in to receive offers in the future!
While an end to solicitations will be good news, another benefit will be the end to over-limit fees which can compound a debt problem, while notifications will now be given when a limit is exceeded.
Statements will also include more information explaining how long a balance would take to clear if only making minimum payments.
And anything to highlight the futility of following such a repayment schedule is good news.
Peter Mancell is a director of Mancell Financial Group and FYG Planners AFSL / ACL 224543. This information is general in nature and readers should seek professional advice specific to their circumstances. Need help with your financial your financial future, we think we’re Australia’s top financial adviser.
