Please provide to me at least TWO disadvantages for each of the following strate

Question

Please provide to me at least TWO disadvantages for each of the following strategy in reducing your overall debt over the longrun.

Marry your mortgage to your income

Both Andrew and Stephanie can Match their repayments to their income. If they are paid fortnightly, they should make their repayment fortnightly or even weekly should they have excess of income. This helps chip away at the interest, saving them money over the long-term.

Use your lump sums

If they both would receive any lump sum payments like tax refunds or share dividends, they can put them into their home loan. The lump sum reduces the interest payable on the loan, meaning they can pay off the principal much sooner.

Increase your repayments

If they have a variable loan, which the ANZ Premium Home Loan Option is, they can take advantage of rate cuts by continuing their repayments at the same level as when the rate was higher. An extra $20 to $50 each repayment can cut up to two years off their loan.

Use an offset account

A 100% offset account uses their savings account to offset their home loan. For example, if they have $50,000 in their savings account and a $150,000 loan, their savings are

Explanation / Answer

1.Marry your mortgage to your income

Advantage

1.People have a tendency to spend first instead of saving when they receive money.So aligning their loan repayments with the period of receipt of their income would make sure that they replay their loan first

2.Due to regular repayment, their debt cost would reduce

Disadvantage

1.They might feel that they dont spend much on themselves

2.They might have to cut down on sudden urge to spend

2.Use your lump sums

Advantage

1.People have a tendency to spend first instead of saving when they receive a windfall of money.So this would would make sure that they replay their loan first

2.Due to lumpsum repayment, their debt cost would reduce

Disadvantage

1.Their entertainment expenses would have to be cut down.That holiday in bahamas would have to wait.

2.They might have to cut down on sudden urge to spend

3.Increase your repayments

Advantage

1.EMIs remain the same whenever interest rate fluctuates.People become used to the fact that they have to pay a fixed amount as loan repayment.So they dont feel the pinch in paying the same amount of EMI even interest rates are lower.

2.This would act as safety buffer for future when they might feel difficult to repay loan due to financial problems

Disadvantage

1.wishful expenses would not be met

2.they would have less cash in hand for spending

4.Use an offset account

Advantage

1.It is one of teh best way to manage loans.You dont have to deposit any money in loan account.balance in savings account is treated as repayment of loan

2.Reduces cost of debt without actually paying any money by just keeping the amount in teh savings account

Disadvantage

1.Idle money has to be kept in savings account

2.This money could be invested elsewhere it could fetch higher returns,

5.Pay your wages into your offset

Disadvantages

1.Important expenses could get delayed

2.Its better to keep the loan account and wages account separate else it would become difficult to keep track to inflow and outflow of money

6.Reassess your home loan

Disadvantages

1.In case they decide to for for refinancing or switchover to a different lender, entire documentation and loan approval process would be repeated.It would also require a regular clean track record of repayment

2.Most banks charge pre closure charges averaging to 2%.This would also increase cost.Also processing fees would be charged again by the new bank.

Related Questions

Navigate

• Browse (All)
• Browse P
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.