How to Save Money on Your Mortgage Right Now

George Markoski Hi, George Markoski with the Positive Property Show. And welcome. How to save money on your mortgage. You know, a lot of people got mortgages. Well, actually, the whole of Australia, when you think about it, we’ve got a lot of mortgages with our massive debt at the moment and interest rates have gone up. So I thought tonight it would be really good to talk about how to save money on your mortgage. So I’ve got Carmine with me. Carmine Alvaro. Carmine, welcome. Carmine Alvaro Hello, everyone. How are you? George Markoski Excellent, excellent. Good to see you, mate. Now, dive deep into that. But first, I’m going to start the state of the nation, talk about what’s happening. Now, last week we talked about how we’re 90 days away from a recession and I know there was lots of negative stuff and I’ve had a lot of our people comment on this. And look, we don’t know if we’re going to be in a recession in 90 days. But the thing is, if we’re going to get there, you might as well get prepared. And I’m going to go through the stats every week to guide you through and show you what’s happening. So that way it’s not a surprise because at the end of the day, you know, if you look at the Chinese symbol for crisis, it’s opportunity and crisis at the same time. George Markoski So that’s the fact of it. So what I’ll do is I’ll go to the state of the nation, talk about what’s going on, and then we’re going to dive deep on how to save money on your mortgage. If you’ve got any mortgage questions or finance questions, now’s the time to type in the chat. Whether you’re in our private group or on Facebook, on our live group, type it in, because we’re going to be going through it all. Okay. Aussie inflation roars higher. So basically private inflation data is rising before the official CPI. The Melbourne Institute gauge basically printed 1.3% month on month and 4.2%. So this is a sharp move higher. So it’s already started and it’s building again. This reminds me of what happened during the COVID pandemic. So consumer inflation expectations are climbing higher. They’re moving back towards 2022/23 levels. George Markoski So markets look stable, but households expect high prices. I don’t blame them. With the news and what’s going on. And this is the challenge, right? Input costs remain elevated across the economy, but businesses are struggling to pass it on. So what happens then is margins get squeezed and when margins get squeezed, it’s harder to make a profit. So this creates a lot of challenges. And we saw this during COVID as prices went up. And then during COVID it was a lot worse. Because what happened during COVID is input costs went up, but also output, people couldn’t sell anything. It was really difficult. There weren’t services, so it collapsed completely. Luckily, the government stepped in and sorted this out. So let’s see what happens this time. But this time round, it’s not as bad because we haven’t closed the economy down. George Markoski The economy is still going. It’s just having challenges. And unemployment is higher than it looks. So the unemployment rate hasn’t really changed. But 20% of the workers in the workforce are underutilised, and that hasn’t been shown through the official figures. So it’s a lot weaker than what it appears. And this is the big challenge. Population growth is running ahead of job creation, which means more competition for opportunities. So hiring data looks very positive, but it lags reality. And this all comes down to Labor’s beautiful policy of having the biggest immigration year we’ve ever had in our history. And that’s why the policy, population growth is running ahead of creation. And what they’re saying is AI could push unemployment higher. So AI adoption is accelerating across industries. And some estimates say that unemployment could rise above 6%, up to 1.2 million jobs. George Markoski I’ll give you my take on this. I think this is actually utter BS. I’ll tell you why. When something new comes out, what happens is you actually create more jobs initially anyway. So, for example, you look at when CDs came in. To manufacture CDs, it’s a lot quicker and easier than what it is with vinyl records. A lot less labour. And everyone said that’s it, everyone’s gonna lose their jobs. But the music industry got a lot bigger and then Spotify hit and the music industry is bigger again because people are still spending money and a lot more money and it’s in their pocket. Everyone’s paying for Spotify every week. So this is the thing. High energy prices are adding pressure to the economy. If oil rises any further, unemployment could spark higher. It’s not a normal cycle. George Markoski It’s all to do with the war with Iran. And Australia’s population is growing rapidly. Hundreds of thousands of people entering the workforce. Job creation is not keeping up. So there’s more workers competing, which means high unemployment long term. And energy pressure is not going away. Right, so the gas shortages are keeping supply tight. That puts more pressure on prices to push them up because lower reserves mean less buffer. High energy costs feed inflation. Now look at Australia here. Australia is one of the most diesel dependent economies in the world. Look at this. Australia, how many barrels we use. We use 7.7 barrels per person. If you look at Australia compared to Saudi Arabia, and Saudi Arabia, right, they’re drinking their own oil because they produce it. All right, we do produce oil as well, but not a lot of diesel. George Markoski However, we don’t use a lot of our own oil, we import it all, which is crazy. And you look at the US, they even use less. Now the reason we use so much crude in Australia is because Australia is such a big country for a small population. And a lot of this diesel is used in long haul trucks. Basically we have a lot of truckies moving a lot of stuff backwards and forwards in Australia. Look at this, it just proves what I just said. Look at transport. Transport uses the most diesel and jet fuel and petrol. Then mining, agriculture, manufacturing, utilities, construction. So a diesel shock would hit the economy hard. And what would happen is we’d lose money in mining, construction would slow down, transport would slow down and a little bit of agriculture, not as much as what we thought it would. Now look at this. George Markoski A massive fire engulfs one of Australia’s last two oil refineries. This is crazy. I’ll tell you the story. This one here is in Geelong and what happened was they decided to push it to 100% output. All refineries, this is an old oil refinery that probably hasn’t been maintained that well. It’s never really been pushed hard for a long time. And they actually warned that if you push it hard something might happen. They put it to 100% capacity and it broke. So they should be able to fix this pretty soon, luckily. But it’s crazy how this can happen. And population growth is accelerating again. Right? It’s basically accelerated after the post-COVID reset. So guess what? Demand for housing is going up as well because all these people coming in need somewhere to live and demand has overwhelmed the rental market. So population growth is surging. George Markoski Rents have risen over 48% since 2019, and demand continues to outpace available housing. This is pushing rents higher and higher. We had a little dip for a little while and now it’s been reset again and it’s pushed up again. So rental supply is collapsing. Rental listings have fallen sharply across capital cities. So this is the lowest level on record for this time this year. We just don’t have enough houses. There’s the least amount of listings we have had in history compared to the population size. And vacancy rates are going down as well now because of the rental demand and having nothing available. People are competing. It’s like the Hunger Games of getting a rental property at the moment and we’re just running out of rentals. Right. Basically, you look at this graph. Without new housing, rental pressure is going to keep rising. George Markoski Demand just continues to outstrip supply. And government policy, as usual, is inflating demand, which is going to happen, which really sucks. So what I want to do is let’s get back to Carmine and then we’re going to go through our wins. Okay, so that’s the state of the nation in a nutshell at the moment. So it’s fascinating because what’s happening is we’re heading for a recession. Inflation is going up because of this whole oil thing and businesses are struggling, but we just don’t have enough housing. So it’s a weird position to be in. But there you go. So let’s talk finance. Carmine Alvaro Let’s do it. George Markoski Yeah. So look, Carmine, you’ve been working with Well Street for. You just joined Well Street recently, so welcome. But also you’ve been working in property and finance over the last decade. Carmine Alvaro Yes, so I’ve been in property and finance for about 10 years now, so pretty much straight out of school, jumped into it. Been about 10 years now. George Markoski Yeah. So, you know, you might look young, but you’ve got a lot of experience, which is great. Carmine Alvaro Yeah. Yes. George Markoski And Alvaro, that sounds like an Italian background to me. Carmine Alvaro Alvaro. Yes, Italian. Italian, exactly. George Markoski Exactly. And look, you’ve got the Italian work ethic. You work hard, you know, you don’t care. You just get the job done, you know? That’s right. I know when I send you a message even at 10 o’clock at night or on a Sunday, you’re replying straight away. I love your work ethic. You’ve got a strong work ethic and that is really important because you know, when you get yourself a mortgage broker, you want someone that’s enthusiastic, that wants to make the deal happen because you need that. You don’t want someone that’s going to sit around going, yeah, whatever. You know what I mean? Carmine Alvaro Exactly. Right. And what I’ve learned in property and more so in finance as well, is that a lot of the time it’s about finding a way to get it done. A lot of the time it’s kind of, you know, if it’s short term paying for long term gain, that’s kind of how you have to look at it sometimes. Even if it’s, you know, you’re in a position where it might not be getting the optimal interest rate or you don’t have the optimal deposit size or anything like that, rather than waiting a year to save that deposit, or waiting for the interest rate to drop or things like that, you’re going to be better off kind of jumping in and finding a way to get it done rather than waiting. Carmine Alvaro Because by the time you do that, you’ve either missed out or that property that was $700,000 in 12 months time is going to be $750,000. George Markoski What you’re saying makes a lot of sense and really what you’re saying is people need to know what’s important. Right? Because what happens is people get confused and what they do is they create a complex equivalence. It’s an interesting term because what it means is one thing means another, but it’s not true. So for example, people think, a lot of people old school used to say this. It used to work a long time ago. They’d say if you buy a property within 8km of the capital city, you’re going to make money. Right. That’s a complex equivalence. Because have people made money buying 8km from the city? Yes, they have. Have people lost money buying 8km from the city? Yeah, they have too. Right. But also the other thing is what people have to realise is that property 8km from the city. George Markoski People already knew that. They’ve already priced that in. It’s not a surprise. People feel like, wow, it’s 8km from the city, I didn’t realise that. No, they already knew it before you were there. Right. So whatever information you’ve got that someone else has already got, it’s a bit late anyway, right? Carmine Alvaro Yeah. George Markoski And so. And then some people go, okay, what I want to do is I want to buy a house near a school. Because they’re thinking, near a school could be good. Now, it could be good, but you can buy a house near a school and not make money. You can buy one and make money. But then what we do is we look at, okay, is there less supply, more demand for this house, for this area? Now, suddenly, if you buy a property and there’s more demand for that property in the future and less supply, is that going to go up? Of course. Every time. Every time. And if you buy a property where there’s going to be less demand and more supply, is that going to go up? Of course not. If there’s less demand and more supply, no. And that’s the fact of it. George Markoski So what we’re going to look at is the fundamentals. And then people say to me, they go, George, okay, what do you think of mortgage insurance? Right. A lot of people ask me this question because they’re like, oh, I’m buying this property and they want mortgage insurance. And I’ll tell you my opinion on what I think of mortgage insurance. I prefer not paying it. Carmine Alvaro Right? George Markoski That’s my opinion, right? I prefer not paying anything that I don’t have to pay. However, I would not let a thing like mortgage insurance get in the way of a good deal. Because that’s stupid. Because when you’re getting a property deal, the fact of it is, when you look at property, it’s one of those things in Australia where it keeps moving forward. It never stops. If you look at the last 100 years in Australia, it’s been just slowly at 5 to 9%, just creeping upwards. It’s a rolling train that just keeps moving. And if you don’t jump on that train, it’s moving past you. And whatever price you’re going to get a property today, you ain’t going to get that price tomorrow. Carmine Alvaro That’s right. That’s right. George Markoski And the thing is, then suddenly you’re buying a property at $700,000. And how much is mortgage insurance on a property? If on a loan of, say, a $700,000 property, you’ve got a $100,000 deposit. How much mortgage insurance are you paying? Carmine Alvaro It depends on lenders and their insurers and things like that. But roughly on, say, a $700,000 loan, you’re probably looking at around, give or take, about $20,000. George Markoski Roughly in that. But you’ve got a $100,000 deposit so probably a bit less. Probably $15,000, I’d say. Yeah, yeah, because it’s not a whole $700,000 loan. So you’ve got $15,000 there, right? And you think, okay, I don’t want to pay this $15,000 on the $700,000 house. So what I’m going to do is I’m going to wait and get a bigger deposit. Now the problem is that house is still growing. So in a year’s time you’ve saved more money, but you probably don’t have enough to avoid the mortgage insurance. So then you’re paying mortgage insurance on a $750,000 loan instead, which is what, more? Carmine Alvaro A lot more. George Markoski And that’s $3,000 or $4,000 more. And the other thing is though, the opportunity cost, right? Because that $700,000 property has probably gone up $30,000, $40,000, $50,000. You’ve saved. And even if you saved enough money to avoid the mortgage insurance, you’ve saved $15,000, but it’s going to cost you another $35,000 to buy it, at best case scenario. And so you’re still losing money. That’s the thing. Because you can’t try to save pennies. You’ve got to look at the big picture. And the big picture that you got to worry about, you know, people worrying whether you overpaid $5,000 or $10,000 for a property, that’s just pocket change. It doesn’t make a difference. There’s no way of knowing that. Because the valuation, the price, whatever, it’s one of those things. George Markoski Because what you want to do, though, you don’t want to overpay for a property, that’s one thing. So you’ve got to do your due diligence. You’ve got to make sure you pay a fair market price. Because, you know, if you overpay for a property, that’s not a good thing either. That’s a bad thing, right? If you just go willy nilly and go blind to a property, you need to do due diligence and make sure you pay a fair market price. And that’s the way to do it. And, you know, so the important thing is don’t let silly things get in the way. So what do we want? We want no mortgage insurance. We want a low interest rate, a really good deal, least amount of paperwork to get that done. But that’s the unicorn. Doesn’t always happen. Sometimes it happens, sometimes it doesn’t. Right. Carmine Alvaro I was just about to say that exact word. So the clients that kind of, I guess, come to me, and well, most mortgage brokers really, those are those unicorn clients, is kind of what we call them. Where they’ve got, you know, a couple hundred grand saved, they’ve got no other debts, they’ve got clean credit. George Markoski They’ve got a police officer, so they get a special rate, or a doctor or dentist. Carmine Alvaro Right, exactly. So for the purpose of what I said before and what you just kind of explained there as well, it’s more about finding the best solution for your scenario. Because everyone’s scenario is completely, completely different. And even in terms of the lending side of things, if you are in a position where you can get the loan, but it’s going to be with a second or third tier lender that’s going to be charging you, say, just use a worst case scenario at the moment, on an investment interest only loan, say your Liberty’s or something like that, that’s 8% to 8.5% compared to a 6.5% rate that you might get with an optimal lender. Carmine Alvaro Yeah, you’re going to be paying maybe on a $700,000 loan maybe about $1,000 a month extra in those repayments, plus say lender’s mortgage insurance and all of that. But in that year, say you’ve spent an extra $20,000 in interest and the insurances and things like that. George Markoski You get a bigger tax deduction. Carmine Alvaro Correct, the tax deduction, number one. George Markoski Out of that you’re going to get between 30 to 50% back. Carmine Alvaro Yeah. George Markoski Right. Anyway, so that’s one good thing. Carmine Alvaro Tax deduction. And as you said as well, obviously that property that you bought at $700,000 today, in 12 months time, once you’ve paid that extra, say $12,000, $15,000, $20,000, that property is probably going to be growing $50,000, $60,000, $70,000. So you’re actually still ahead. George Markoski But then people are going to say, hold on a second, properties don’t always grow every year, which is true. Right. And what if I bought this property, I paid the mortgage insurance and it didn’t go up in the next 12 months, which can happen. Right. That’s a fact. However, that’s a very small percentage of the growth cycle. So if you look over the 10 year cycle of a property, properties double around every 10 years and what happens is they grow and then they do nothing. But you don’t know what part of that cycle they’re going to grow quicker. But the key is you want to own that property for as long as possible because you get more chances at getting that growth by having it earlier. Right. George Markoski So every year delay, you might miss that window, which is going to cost you a lot of money. That’s why the sooner you own property. Because when’s the best time to plant a tree? Carmine Alvaro Whenever you plant it 20 years ago. George Markoski Twenty years ago, because then it’s fully grown, it’s giving you fruit and everything else like that. Right. And then you’re thinking, okay, I want to plant one this year. Well, planting it now is better than planting it in a year’s time, isn’t it? Because you’re going to get a grown tree faster. And so with property, the same thing, you know what I mean? So that’s what you’ve got to think about. Carmine Alvaro Exactly, exactly. Like I was saying as well, the start, it’s a lot of the time there’s finding the best solution and a means to an end and short term pain for long term gain. And in those scenarios where you are in those kind of positions where it’s going to be a little bit tough in the first 12 months, there are certain products that have only recently just come out and been available to brokers where we can actually, in the first 12 months, as long as you have a clear 12 month repayment history at that higher rate, we can refinance you to another lender without showing anything like any pay slips or anything like that. Literally all we need is 12 months of clear repayments from the lender’s point of view. Carmine Alvaro If you’re paying a 7.5% rate, but rates at the moment are about 6.5%, if you’ve made 12 months of repayments paying that higher rate, then obviously you’re going to be able to afford the lower rate, so they don’t have to look at your income if your income has changed or anything like that. George Markoski Exactly. And look, pretty simple what you’re saying. I’ve done this with you already and you’ve saved me thousands of dollars every month. Because a lot of people watching this, they probably think that I always get the best rates when it comes to property deals because I’ve got so many properties, I’ve got so much experience. It’s not true. That’s the fact of it. I wish it was true. But a lot of times because I’ve got so many properties, I a lot of times go low doc and pay the biggest rate. But then what I do is, and what I love about what you do, I come to you after a year and then flip it back over and it’s much easier because you’ve got a choice, right? George Markoski You can pay extra tax and do all this extra stuff so then you get a lower rate, or you can just get a lower rate. If you’re a business owner, go low doc. But then transfer over and go for a bit of pain for one year. It doesn’t matter because it’s just a matter of numbers. Right. And so depending, because if someone’s got an ABN or if they’re self employed, you get a lot of different opportunities of giving them a loan compared to just the PAYG. PAYG is probably easier because it’s very simple. You get your pay slips and that’s it. Yeah, but a business owner can be more complicated but also gives you more opportunity because there’s more leeway as well. Carmine Alvaro Correct, correct. And that’s part of, I guess, using a broker as well. Obviously in the kind of, in the past, before brokers were a bit more prevalent than they are today. We’re over, I think out of all the loans in Australia, it’s about 80% now that go through brokers rather than go to the bank directly. George Markoski Before that was obviously yes, because everybody used to go to the bank. Right. But in the old days it was easier going to the bank because I remember when I was buying property in the 90s. I was with ANZ and I’d drive past a house, see a sign, get on my mobile, call my bank manager and say, hey, I saw a house that I’d like to buy, it’s $550,000. And my bank manager goes, I’ll call you back in half an hour. He rings me back, goes, yep, you can get that. Seriously? From a phone call? From a phone call. He would approve me right now. Each year after that I had to fill out a bit more paperwork. Until now where, my God. And really I just can’t be bothered anymore. Right. George Markoski So the only time I refinance is if I’m doing a deal because I just cannot be bothered. But sometimes it’s worth refinancing to save money as well. And that’s what we’ve done with you. And because the way we do it, I don’t have to fill out any paperwork, just give you 12 months worth. It’s really simple. And we’re going to be offering this to our members as well because if any of our members are paying too much interest at the moment, well, you need to book in with Carmine. Later on we’re going to give you a link because you’re going to be able to save money without having to do all the refinancing. It’s a really simple process and it works. And basically Carmine won’t even do it unless you can save money. That’s how simple it is. George Markoski Because it doesn’t work if you don’t save money. Right. Because the whole premise is if you could afford at a certain interest rate, then this bank doesn’t need to know anything about you, except that you could afford at that rate because they’re giving you a better rate. Smart business model. Brilliant. Carmine Alvaro Yeah, it’s a really good product and it’s something that we’re using a lot now because, yeah, basically of the ease of the process. Obviously there’s still, you know, like IDs and that type of stuff. But yeah, in terms of the other process side of things, it’s quite quick and easy. Yeah. Just generally kind of speaking in terms of a broker’s perspective, rather than the lenders, the reason why there are other lenders that will allow you to do different things and even allow you to borrow a lot more money is basically because every single calculator that we use for each different lender has different requirements and they all have different parameters in their calculator that allow you to borrow a certain amount of money. Or they’ll, for example, shade your rental income to 75%. Some will take 95%. Carmine Alvaro So it does depend on a lot of scenarios. Rather than just giving you a number for the rate, you might get $50,000, $100,000, $150,000 more somewhere else and paying, you know, 2 or 3 percentage points extra. That’s not really going to hurt the pocket, but it’s going to get you that house that you want or whatever. George Markoski Exactly. What I like about what you’re saying is, you see, mortgage broking is actually not just a science, but an art as well that people don’t realise. Right. And the fact of it is, you’ve got to have a creative mind to create solutions. Because if you just get a robot that just sits there and takes your details and just puts it through the normal stuff they put through, you’re not going to get the best rate, you’re not going to get the best borrowing capacity that you should get. And that’s why I really wanted you to join our team, because I’ve seen some of the work you’ve done and it’s really good. You know, you get people’s borrowing capacity up, you get them over the line and that’s the most important thing. Because the hardest thing at the moment is borrowing capacity. Right. George Markoski Getting that borrowing capacity up, it’s difficult. It’s very difficult because we’ve just got rates going up. People’s borrowing capacities are tough. This is the time where you need someone super creative. Someone who’s got to work hard to get your deal. Someone who’s going to be hungry to do that for you. And I like the way that you know that. Okay. If you’ve got a certain amount of rentals, some banks are terrible because they shave it off. And if you’re in certain jobs, other banks are better because really at the end of the day, if you get the right fit, you’re going to maximise someone’s borrowing capacity. Because different institutions and different products are targeting different people, different types of people. Is that right? Carmine Alvaro Yeah, that’s right. Like for example, some lenders are really good for self employed clients and some only look at self employed clients and don’t look at PAYG at all. And then there are other scenarios as well, like in terms of if you’re not a permanent resident, if you’re on a visa or whatever. Yeah. Again, we have on our panel through our aggregator through Loan Market, we have about 75 lenders that we can use. Reality, the situation is whichever the client is, most of the time there’s probably maybe four or five that will actually fit their scenario. But what I always like to do is give you different options where we say, hey, this is the best rate available for your situation. This is what they’re going to let you borrow. Carmine Alvaro This is, I guess, the best way to go in terms of repayment wise and things like that. But if you want to maximise your borrowing capacity, this is another lender we can go with. This is the difference in rate and then basically decide what you want to do. It’s not about pushing you into things you’re not comfortable with or telling you this is the only way you can do things. There’s always going to be different scenarios, different solutions and at the end of the day it’s completely up to you because it’s your asset at the end of the day and we’re just here to help as best we can. George Markoski Yeah, exactly. Someone just commented, Robert Fulton commented that the RBA mentioned this morning that if the Strait doesn’t open, we’ll be in a recession. Well, yes, Robert, that’s what I was explaining last Thursday about the oil crisis. The thing is, you know, Trump recently said that it’s going to be open in 48 hours. But yeah, the boy who cried wolf, he’s cried wolf quite a few times. So we’ll see what happens. I don’t believe him. I hope it’s true. I’d love there to be a peace deal. Less killing, more oil going everywhere would be great. But if it happens, I wonder if the pressure is going to be up on him. I hope so. The thing is, I suppose if we have a recession, we’re going to have to just deal with it. I hope we don’t, but we’ll see what happens. George Markoski Yeah, because a lot of people ask about fixing rates, right? Should you fix your rate? And I’ve done the numbers because I like doing stats and if you look at the last 30 years, if you fixed your rate, it would cost you more money 75% of the time. If you went variable, you’d save more money 75% of the time. But 25% of the time you actually make more money by fixing rates. So what do you do? Right. That’s the question. Now I know a friend of mine in Queensland, he’s got a lot of properties, got like 200. And what he does is 50/50. He does half fixed, half variable. So that way he goes both. George Markoski But I would say if you’re a gambling man and you look at the stats, I just personally think variable just works better because you’ve got a 75% chance of saving more money. What are your thoughts on that? Carmine Alvaro Yeah, these are one of the things that a lot of the time is kind of down to personal preference as well. Like we always give the option of what is out there on a fixed and a variable rate. The thing that kind of determines that decision a lot of the time as well is the offset accounts. So if you’re on a fixed rate, 99% of the time the lender will cap you at, say, $15,000 to $20,000 that you can offset that fixed rate from, because they’re locking you into that rate. So if you want to make use of an offset account fully, especially if you do interest only because that is like the full maximum maximising of the offset account, like if you’ve got extra savings that you want to put in to offset those payments. Carmine Alvaro A fixed rate is just pretty much not going to work. If they want like even just a one year fixed rate, and they say, like, you know, I’m having a kid in the next six months and we’re going away, I want to make sure that my repayments are always going to be this amount every month or whatever. But it is up to preference a lot of the time too. George Markoski Yeah. But also rapid mortgage reduction. If you want to reduce your mortgage, you need a big offset account and you need to put everything in it. And you need variable. Because my personal preference is variable rate, interest only, massive offset account. Put everything in it. Like I’m talking every cent that I have. Live off the credit card, pay it off. So even your bills are sitting in your offset account. And this is the way I pay off mortgages really quick. You know, I paid off a house in two and a half years once by doing it this way because I’ve got all my rent going in. And you’re paying no interest. Right. And when you’re paying less interest, you can pay it off quicker because interest is the biggest expense. George Markoski Because if you’ve got money in the savings account, you’re making sweet FA, but in an offset account you’re making good money like 6, 7, 8, 9% depending on your loan. So I personally, I’m very much into variable. I’m very much into offset accounts. I think anyone that gets a loan without an offset account is just stupid. Doesn’t make sense. Carmine Alvaro Yeah. Again, it is up to preference a lot of the time. But look, sometimes, obviously when, you know, we’re talking about COVID times when it was, you know, 2% rates or whatever it was, and yeah, probably should have fixed it for five years, but those are again, kind of scenarios that are going to pop up every once in a while. George Markoski I guess you couldn’t fix it for that low. Right? Anyway, it was higher the rate long term. Carmine Alvaro For long term, yeah. Two or three years were about 2%. George Markoski Yeah, that’s what I’m saying. They put it up. So what happened? I mean, what we should do is Denmark had negative interest rates during COVID. That’s where I wanted to get a loan. But see, the thing is though, when you’ve got currency, it gets way more complicated. And even though it looks good to get a lower interest rate with a different currency, it actually can be problematic. Right. Because for example, like I’m building a house in Bali at the moment and I bought some land and it cost me $1.2 million. It’s gone up in value, but the Australian dollar’s gone up. So it hasn’t moved. So even though it’s gone up, because the Australian dollar is worth more, and now I’m building a house and instead of it costing me $1.2 million, it’s only going to cost me $1 million. George Markoski So I saved $200,000 because the currency’s gone up. But the thing is, the currency can go up and down and it makes a big difference to what your value is if you move it to another currency. And it’s a lot more complicated. So, you know, when I was seeing those negative interest rates in Denmark, I was thinking, I’d love to get that interest rate there, but imagine the currency moves and then suddenly you’re 5 or 10% on the other side. It’s not going to work. Carmine Alvaro Yeah, that’s right. George Markoski But it’d be good to get a negative interest rate. That’s good, that. Bank pays you to get money. Carmine Alvaro Yeah, I think we all like that. George Markoski Yeah. They wanted to encourage people to spend money. So they were actually charging you to have money in your bank but not to get a loan. Carmine Alvaro Interesting. George Markoski Yeah. Okay, so let’s have a look here. Okay, so apart from the obvious, how you pay less interest, lower rates, interest earning offset against the loan payments more often. Yeah, basically that’s the way it is, what Tim said. So the obvious is get whatever loan you can get, but do the best deal you can. And then if it’s not the deal you want in 12 months, what you can do is go to someone like Carmine and get it refinanced or do a full refinance. Because what you’re doing is like a mini refinance. It’s like with the Hollywood stars, they go for a mini facelift and then every 10 years they go for a major facelift. Right. It’s difficult to refinance as well. George Markoski So had one broker saying he can get me 5.99% interest only, but then Mortgage Choice knocked it back on location and NDIS. Trump is making a lot of money out of this, literally. Yeah, he is. Yes. NDIS is harder to get a loan for. NDIS. Yeah. Carmine Alvaro So NDIS is one of those things where certain lenders will do it, certain lenders won’t do it. Depending on parameters, it’s the same as self managed super funds and things like that. So. George Markoski Yeah, but anyway, I don’t recommend doing NDIS anyway. I’ve got a full podcast explaining why you shouldn’t be doing it. It’s when you’re relying on the government to make money, it’s not going to go well because they can change policy anytime and suddenly you’re left holding the baby. This happens all the time. And NDIS as far as I’m concerned it’s the biggest scam ever. Carmine Alvaro Like it’s all coming out now a lot, that yeah, it’s all over the news at the moment. George Markoski It’s a huge scam. I’ve been saying this for years. It’s ridiculous. There’s all these people making millions and millions out of NDIS that aren’t providing good value and we’re not using our resources properly. NDIS costs more money than our age pension in Australia. You know what I mean? So you know I’m all for looking after people but we employ more people in this industry than any other country, it’s just ridiculous. Now it’s very much a Greens and Labor thing. Right. But it’s almost like they work for the government. It’s ridiculous. I prefer a smaller government and less people sucking at the teat of government. It shouldn’t be a communist country and we should be more capitalist. Yeah, NGOs are full of issues. Definitely. So does having a credit card to use for interest purposes affect your borrowing capacity? George Markoski Is it always useful to use a credit card? Carmine Alvaro Any kind of debt will technically affect your borrowing capacity. Yes. So if you have a credit card, even, I get this question a lot actually, especially with first home buyers and things that have credit cards. If you have a credit card that’s, you’ve got a limit of $20,000, but you clear it every month and there’s zero owing, it doesn’t matter, $20,000 is your limit. So that’s your debt. It’s the same as having a home loan. So if you’ve got a $500,000 home loan and you’ve got $300,000 in the offset, so you’re paying repayments on the $200,000, again it doesn’t matter. When it comes to borrowing more money, your limit is $500,000. So that’s what we have to use as a debt. George Markoski Yeah, I think the banks are just, the way they look at things is ridiculous. Very simplistic because I think if someone’s got $200,000, $300,000 in their offset account, these people know how to save. You can trust these people, right? Carmine Alvaro Yeah, there’s a couple of parameters that are quite ridiculous when it comes to the lending. Give you two examples just quickly. Like talked about this a little bit before, but a reason why a lot of the second and third tier lenders will allow you to borrow more money is because their calculator has a 1% or 2% buffer, depending on where it is. The big four banks and the major lenders have a 3% buffer. What that means is if the interest rate is sitting at 6%, the calculator is making you service a 9% interest rate. George Markoski Yeah. Carmine Alvaro So when you go into a smaller lender and they’re only putting 1 or 2% in that calculator, and that includes all your other debts as well, some of them won’t put any buffers on your current debts, only the new debt you’re applying for. This is all a little bit in the weeds, but that’s a really ridiculous parameter that a lot of them have, because why would you need to service 9%? And one of the other ones, especially for investors like most of you guys on here now, is notional rent, which is another ridiculous expense they put in there. Carmine Alvaro Which means if you’re, you know, living at home with your parents, you’re buying your first investment property or you’ve just moved back in with your parents, even if you’re not paying any rent, because obviously most of the time you’re not going to be doing that or board, they still account for $650 per month per applicant if you’re living at home. So if your brother’s looking to buy his first investment property but you’re both living at home, there’s $1,500 a month that we have to put in the calculator that’s not even there. George Markoski Yeah. Carmine Alvaro Again, second and third tier lenders, like a Pepper or La Trobe or a Liberty, they don’t account for any of that, which obviously boosts your borrowing capacity there. George Markoski Yeah. So look, I feel like this is a real big hack, right. Going to the third tier lenders, getting a loan, have 12 months of payments, don’t miss any, and then flip it over to a cheaper loan. That seems like a real good strategy. Go through one year of a little bit of pain, but higher borrowing capacity, then flick it back and save money for the rest of your loan. That sounds amazing. That sounds like a pretty good idea if you ask me. Carmine Alvaro Yeah, look, it’s a much easier process. And again, it’s one of those things where their rates at the moment are pretty much around the market rate as well. So you’re not getting a higher rate. It’s pretty much around the same rate. And like with any home loan or refinance, if a better deal comes available, then the better deal we go for. So in six to 12 months or whatever it is. So. George Markoski Yeah, exactly. Someone said, what about the Amex Platinum with no limit? I know the answer because I’ve got one. So I spend $3 million a year on my credit card. So what I do is I reduce my limits when I’m going for a loan for a month and then push them back up again. Carmine Alvaro Yeah. So you can do that or if there is no limit, credit cards, most likely the Amex with a few clients I’ve done before, they basically just take the average of the actual. George Markoski That’s, that’s what? Carmine Alvaro Over the past three months. So if you spend $20,000, $20,000, $20,000, they’ll take $20,000 as your limit. George Markoski Yeah, because I spend so much on credit cards because basically all my expenses go on credit card because I keep all my money in my offset account for all my properties and it works really well. But obviously the banks don’t like me spending that much on the credit card. Because the thing is though, they don’t look at my expenses and go, hold on a sec, it’s all business expenses. It’s not as if he’s buying caviar and cigars and, you know, hiring out the penthouse and having big parties or anything. You know, it’s very different about what you spend your money on as well. But they don’t care, do they? There’s no nuance. There’s no nuance there at all. I haven’t paid credit card interest in over 30 years because I pay it off every month because it’s ridiculous. George Markoski But I use the credit card for my advantage, getting a free loan for 40 days. Carmine Alvaro Yeah, that’s right. That’s right. George Markoski Yes. Okay, so let’s go here. Does having a credit card to use for interest purposes. Now we already did one. Given that interest payments are tax deductible anyway, is it better to leave $100,000 in a high interest savings account or an offset account? I don’t currently live in a property I own. Good question, Jane, and I’m happy to answer this. You’re never going to get high enough interest on a savings account. Right. And also you get taxed on the money you make. So if you put $100,000 in a high interest account, whatever you make, you’re going to have to pay tax on it. However, if I get that $100,000 and put it in an offset account, I’m going to get a higher return back because I’m saving money, but because I’m saving money I’m not actually paying tax on that money. George Markoski So you’re going to get more benefit. You make a lot more money out of having your money in an offset account than a high interest account. Thank you. You’re welcome. You’re welcome. Hope that makes sense. Carmine Alvaro Yes. George Markoski And look, what I might do now is I might go into our private group so we can get down and dirty with more interesting stuff. Okay, let’s switch off the public loop. Everyone else, thank you for watching. We’re going into our private group. See you next Thursday. And look, if you want to save money on your mortgage, right, what I want you to do is type in hashtag save and I’ll get my team to reach out to you and connect you with Carmine. Thank you.