Rate-and-Term Refinance is defined as the change in either interest rate, term, or both in an existing mortgage. The Rate-and-Term Refinance is generally seen with a drop in market interest rate where a borrower with high credibility is typically allowed to refinance its mortgage at a lower interest rate without any additional charges.
What is wealth management? Wealth management is an approach to wealth creation and sustaining wealth. Wealth management professionals evaluate customers financially and recommend avenues for wealth creation and sustainability. The emphasis is on financial sustainability alongside capital appreciation. It also includes adequate risk management and managing retirement. Wealth management professionals provide advice to clients for tailored wealth management solutions. They engage in discussions with clients and recommend a variety of financial products to manage wealth and effectively achieve financial goals and freedom. The scope of wealth management spans across financial products, including retail banking, legal and tax advice, estate planning, investment management. Wealth management seeks to deliver growth and long term wealth appreciation. Most of the banks run separate wealth management services under businesses like private banking, private wealth or wealth management. Traditionally wealth managers had been engulfed with managing affluent class of people or High Net worth Individuals (HNIs) with large and complex asset base. Wealth management industry is also undergoing a change in investor expectations, digitisation, technological advancements, intensive competition etc. Retail investor expectations are also evolving as they are inclined to access asset classes, which are traditionally privy to HNIs or institutional clients. Also, the wealth management process continues to evolve with the changes in the industry and customer preference. Simply put, it is a standard practice for investors, especially household investors, to maximise money and investment along with adequate risk management and sustainability. Increasingly wealth management solutions are embracing a tailored approach because of broadening and rising clients expectations. Advisors attempt to understand the financial situation of the clients and optimise future outcomes of financial decisions, thus improving the future financial situation of clients. It becomes vital for advisors to deliver advice that is in the best interest of customers. Moreover, wealth management is essentially a consultative process of interacting with clients to understand financial situation, evaluate goals, develop strategic plans to achieve goals, recommend necessary products to implement strategic plans, and monitor risk and sustainability of solutions. Not all people seeking to manage wealth afford wealth management services. Given that services are traditionally used by affluent people, the wealth management industry has been accessible to a small section of people who can afford. What is the wealth management process? Wealth management process is an end to end management of the financial situation of a client and continues to evolve along with changing financial situation of the client. Below is a basic wealth management process. Interaction and data collection: Wealth management professional interacts with prospective clients and enumerate the basic financial situation and financial goals. They also examine the assets, liabilities, retirement planning, insurance costs, income tax situation, cash expenses. All the data is required to assess the financial situation of the client. With data and specified financial goals, wealth management professionals devise a plan for the clients. Determining objectives: In this stage, the emphasis is on the financial objectives of the clients. It becomes important to assess the objectives of wealth management because financial goals vary from person to person. Wealth managers review clients expectations and engage in discussions. They along with clients devise objectives for investments, retirement planning, insurance, income tax, business and also analyse the cash flow of the clients. After considering the expectations of the clients, objectives are defined for the clients. Analysing information and recommending plan: Now wealth managers have expectations of the clients and objectives for the financial goals. The information is analysed and to develop an appropriate strategy. The strategy is developed considering objectives that are of most importance to the clients. All inputs by the clients are considered duly for an effective strategy. After completing the analysis, the strategy is communicated with the clients to achieve stated financial goals and deliver on expectations. Clients also come up with suggestions, improvement in the strategy, and evaluate the strategy. Wealth managers ensure that clients understand the aspects of strategy, and nothing is missed with respect to financial planning and goals. Implementing the plan Implementation is a crucial part of the wealth management process, and devised strategy is executed by wealth managers. This process usually includes implementing recommended changes by wealth managers like buying a specific insurance policy, retirement plan or investments. Monitoring: It becomes imperative for wealth managers to monitor the process and recommend necessary changes to the process. Wealth managers attempt to ensure the strategy is aligned to achieve its goals considering the changes in the economic environment as well as the financial situation of the clients. What are wealth management products? Some basic wealth management products include: Insurance: As a risk management product, insurance helps to minimise financial risk arising out of expected events. Under this, a wealth manager evaluates the insurance policies with the clients such as health insurance, life insurance, property insurance, motor insurance. They also evaluate insurance policies and recommend a suitable policy when required or when the existing policies are not aligned with the strategy. Retirement Planning: Retirement planning is one of the objectives of wealth management. Investment in retirement products helps people to achieve retirement goals. Wealth managers evaluate existing retirement products and recommend appropriate products. Under this, the investments are directed towards pension plans, annuities and fixed income investment with relatively minimal risk. Investment: Wealth creation is also an important part of wealth management. It is achieved through managing investments of the clients. With changing economic environment, investment management strategy also evolves continuously along with investment recommendations. Clients are recommended to invest in asset classes such as equity, fixed income but not limited to ETFs, mutual funds, commodities and currency. Wealth managers usually have internal capabilities to recommend appropriate investment avenues for clients. Taxation and loans: Wealth managers seek to avail all possible taxation benefits for the clients to manage wealth efficiently. They may recommend clients to invest in a product that delivers taxation benefits while recommending an effective tax plan by managing assets. Debt is one of the liabilities for the clients, and repayment of debt also impacts the financial situation of the client. Wealth managers recommend efficient loan options available for the clients. They also evaluate existing loans of clients and advice to refinance wherever possible and beneficial.
It is a type of loan that is extended to firms or individuals already having a poor credit history and/or considerable amounts of debt. These loans are substantially riskier than traditional loans and, as such, lenders usually demand a higher interest rate to signify the bigger risk. Leveraged loans are used to support mergers and acquisitions deals, to refinance the existing debt, to change a company’s balance sheet and for general corporate purposes.
Define Australian Real Estate Investment Trusts (or AREITs) & its fundamentals AREITs (Australian real estate investment trusts) give an individual opportunity to invest in property assets of Australia. An individual can invest in assets that would have been otherwise out of reach like large-scale commercial properties, which is a major advantage of AREITs. The Australian property market is expensive and competitive but through AREITs the investors are able to get a slice of the property pie without making huge down payment. Therefore, the investors looking to diversify their portfolio into property may invest through A-REITs and may receive a regular and consistent income stream in the form of distributions or dividends. Read: How Should An Investor Diversify A Portfolio? A-REITs can build wealth of an individual in two ways. First, the investor will get the exposure to the real estate assets that the trust owns and will also receive capital growth and the rental income, a source of passive income. The fund managers of AREITs make the selection of the investment properties and will oversee all its administration, improvements required, maintenance of the properties and rental. Each A-REITs have their own set of characteristics & features. The fund manager selects the properties that are diversified across regions, how much are the lease tenure and tenant types. Some A-REITs specialise in specific sectors, like an Industrial trusts makes their investments in warehouses, factories, and industrial parks, Office trusts undertake investments in medium- to large- scale office buildings in and around major cities, hotel and leisure trusts invest in hotels, cinemas and theme parks, Retail trusts invest in shopping centres and similar assets, and diversified trusts generally invests in a combinations of industrial, offices, hotels and retail property. AREITs may have assets in commercial buildings, apartments, resorts, facilities and even mortgages or loans. A News from an Office REIT: Centuria Office REIT Secures Additional Seven-Year Debt Facility AREITs gets their income mainly from rent, where rents are quoted on a dollar per square metre basis. There’s difference between rents from residents & commercial leases. Residential rents are well regulated but in case of commercial leases there are differing types of rentals or leases. AREITs purchase buildings as going concerns and where there are already tenants, while some AREITs also develop the properties. Read: Centuria Metropolitan to Acquire Office Assets; Announces Dividend Further, AREITs in their portfolio can hold either domestic or international property assets. Outside of Australia, the main countries in which AREITs hold assets and the investors can have the exposure are the United States, New Zealand, and the United Kingdom. Net tangible assets (NTA) reflects the underlying properties in an AREITs and is considered as an important measure of the true value of an AREITs. How many REITs are there in Australia? As there are 38 REITs listed on the ASX All Ordinaries Index in which the investors can invest. They have a total market cap of over $100 billion. Meanwhile, AREITs are generally gets listed on the Australian Securities Exchange (ASX) in the form of listed investment company (LIC). These listed AREITs on the ASX have to abide with the rules & regulations set out by the ASX. Whether real estate investment trusts are good investment? What are the benefits? It’s been analyzed that AREITs have posted good returns on the back of high, steady dividend income and long-term capital appreciation. The investors looking for diversifying their portfolio consider this as they have relatively low correlation when compared to other risky assets. Read: Inevitable Gains: ASX 200 Property listing stocks and Bounce in Property Space Therefore, AREITs help in reducing overall portfolio risk and enhancing the returns. Further, investing in AREITs is considered to be safe and proven form of creating wealth. An individual can achieve a good return on investment with approximately 30% of all Australian residents rent their residents, therefore the continuous demand for rental will remain across the country. Let’s list out the benefits or advantages of investing in AREITs. 1) Stability of getting decent returns: The AREITs have posted the good growth. The country has posted more than 16 consecutive years of positive economic growth, which means the averaging 3.7 percent pa. This also reflects that the Australian economy is quite resilient, able to combat situations even there are wars, disasters, recessions, bush fires and other such crises. This makes Australian real estate investment a safe one. In addition, great number of individuals employed is in Australia, which makes it easier to rent. There are lots of other advantages for owning rental properties in Australia as an individual may have access to tenants that pay their rent on time, which, in turn, helps the individual’s wallet. Writeup on property stocks: 6 Property Space Stocks to Look At - LLC, DHG, REA, BKW, JHX, BLD 2) Easy Availability of Financing: In Australia, an individual can obtain financing easily, as the banks or financial institutions readily lend money for residential properties than any other forms of investment class. These banks or financial institutions may lend up at as high as 95 percent of the requirements. Further, overall interest rates are also low. Good Read: Breaking Down Monetary Policy Instrument- Interest Rate On the other hand, the general financing pattern for AREITs is to finance real estate acquisitions through unsecured credit and then refinance the debt with common or preferred stock offerings or senior notes and subordinated debentures because they lack the ability to retain much cash (95% of income must be distributed to shareholders). Read: Centuria Industrial REIT Announces Equity Raising 3) Favorable Australian Tax System to Real Estate Investors: The Australian tax laws are friendly to an individual who wants to invest in real estate. Like, the law permits an individual to write off investment expenses against taxes, which will lower the tax bill and offsets shortfall between the rental income and holding costs, either in part or in full. This makes the act of investing in real estate more attractive for Australians who are not necessarily affluent. Tax reforms: Additional Tax Reforms Would Revive Growth – Economists 4) Superannuation Funds: In Australia, the investors have the option of investing into superannuation funds (which are retirement funds), called super funds for short. Although this money has been around for a long time, and the recent changes in Australian borrowing laws has made this option more feasible for property owners. Meanwhile, there is a capital gains tax on a sale of property. However, if an individual at or above age of 60 years, the tax is zero. According to the new rules, the investors are also allowed to renovate properties that are held in the fund. More on Super funds: Confused About Superannuation or Super Funds? This Guide Will Help You 5) Government Incentives: Other advantage of investing in AREITs is that the government offers rewards for such investment by giving grants. For example, the First Home Owners Grant. However, the grant monies are different among the states, but it can be in range anywhere from $7,000 in Tasmania to 15,000 in New South Wales and other places as well. Good Read: Is it a Big Smile for Home Builders with $25,000 Grants: Unboxing the Government’s Offering 6)Liquidity: The AREITs are traded on the stock market, an investor can buy or sell them during trading hours. This makes AREITs a highly liquid asset, primarily when compared to traditional real estate investing. AREITs make a diversified investment option as they offer exposure to different parts of the property market. Further, the investor gets access to lots of Australia’s highest quality properties across the retail, office, industrial and residential sectors and more etc. held through property stocks listed on the ASX. More on property stocks: Top Australian Property Stocks Listed On ASX Meanwhile, some AREITs adopt hybrid structures called ‘stapled securities’ funds. These stapled securities AREITs offer an individual to have an exposure to a funds management or a property development company, as well as a real estate portfolio. A share in a stapled securities fund comprises of one trust unit and one share in the funds management company. These securities are ‘stapled’ and therefore cannot be traded in a separate way. The AREITs holds the portfolio of assets, while the related company carries out the fund’s management functions or manages any development requirements. On the other hand, the investment in stapled securities may have tax implications for an individual.
What is meant by mortgage? Mortgage refers to a secured loan issued to borrowers against collateral, including assets such as houses, property, etc. Mortgage loans allow borrowers to secure high loan amounts for a long period of time. The asset that is kept as collateral stays with the lender till the full repayment is made. These loans are usually availed to buy immovable assets. At the time of the purchase of the mortgage, the lender would pay the entire loan amount. However, the borrower must eventually repay the loan amount in subsequent years. These types of loans also involve interest payments which are paid over the principal amount. The payments are made monthly over the entire duration of the loan. How does a mortgage work? Mortgages may also have short term payments or long-term payments. Interest rates are also agreed upon beforehand; they may be same throughout the duration of the loan or they may vary. Additionally, borrowers may be asked to fulfil a certain criterion before they can be issued a mortgage loan. Mortgages usually have a long duration such as 20 to 30 years. However, the mortgage repayment process can be made quicker by making larger payments within a lesser amount of time. However, making long-term payments could mean higher interest payments compared to when the repayment is made within a lesser duration of time. However, each loan repayment procedure can be worked out individually depending on the agreement between the borrower and the lender. The lender owns the property till the total loan amount has not been repaid. However, upon completion of the loan repayment, the lender cannot hold any authority over the asset given as collateral. What does a mortgage loan entail? Mortgage loans have different moving parts that make them function. These components include the following: Principal and interest: The principal amount refers to the total amount that has been issued by the lender to the borrower. This amount is paid back in full to the lender over a long period of time. However, this is not the only repayment that borrowers must make. Borrowers must pay interest over and above the principal amount repayment. Taxes: Lenders may collect a property tax next to the loan repayment. This may be held in a third-party escrow account until the property tax bill is due to pay it on behalf of the lender. Insurance: Homeowner insurance offers coverage against damages caused from natural calamities as well as accidents. This may be required by lenders, who would make the insurance bill payments out of the escrow accounts. Mortgage Insurance: This insurance is a safety net in case the borrower defaults from the repayments. This insurance may be added to the monthly mortgage statement. What are the different interest rates offered on mortgage loans? There are two types of mortgages offered based on the type of interest rate charged by the lender. These include: Fixed-rate Mortgages: Here, the interest rate does not vary over time. A fixed rate of interest is agreed upon beforehand. Most of the mortgages are fixed-rate mortgages. Fixed interest rates may be offered against short term loans. On the other hand, long term loans may not allow fixed interest rates. The types of mortgages offer predictable set of payments each month. This means that borrowers already know how much they must pay beforehand. A fixed-rate loan may be a better option when one is settled into his or her career and prefers paying only a fixed amount each month. Adjustable Rates: Adjustable rates include a fixed interest rate period that lasts for about 5, 7 or 10 years, followed by varying rates. This short-term period functions like a fixed-rate mortgage. However, once it completes, interest rate must adjust up or down once per year, depending on the market. Thus, these market changes can affect monthly payments. Adjustable-Rate Mortgages, or ARM, can be right for some borrowers who plan to move or refinance by the end of the fixed-rate period. This type of mortgage may allow access to lower interest rates than one could find on a fixed-rate loan otherwise. How are mortgages different from a loan? A loan may also include unsecured loans, which do not require collateral for financing the loan. Thus, any transaction that involves one party lending to another can be termed as a loan. However, mortgages involve high sums of money and are secure loans involving collateral. They are typically used to finance a property, and it can be considered as a type of loan. But not all loans can be considered mortgages.