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Creating wealth: Australians must take the power back

The figures are damning. Despite 25 years of uninterrupted economic growth, the Australian dream of home ownership or even retiring comfortably is slipping out of the hands of many, and we must do something about it.

According to data released this year from Melbourne University’s Melbourne Institute, there has been a significant drop in the number of adults who own their own home. In 2002, 57 per cent of adults were classified as “home owners,” but by 2014 this had declined to 51.7 per cent.

The great concern here is that younger Australians are being shut out of the property market.

Home ownership for those aged between 25-34 declined from 38.7 per cent to 29.2 per cent in 2014. For people aged between 35-44, the rate of home ownership dropped from 63.2 per cent to 53.4 per cent, according to the Melbourne Institute’s Household, Income and Labour Dynamics in Australia (HILDA) Survey.

With the median house price sitting at around $1 million, the “bank of mum and dad” is forming an essential part of the deposit savings plan of young Australians.

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A survey by Digital Finance Analytics (DFA) estimates that the number of first home buyers who are getting help from family has increased from 3 per cent six years ago, to more than half today.

Australian parents are now shelling out upwards of $80,000 to help their children, and are potentially putting their own comfortable retirements at risk.

Complicating this is that even if young Australians can achieve the near impossible and save a 20 per cent deposit, there is little clarity about how interest rates are calculated.

The majority of Australians (more than 80 per cent) elect to take up a variable interest rate mortgage without any real understanding of how that rate is set.

The heated discussions around the introduction of rate tracker mortgages reveals that there is a very real desire from the government for more interest rate transparency. But given the muted reception from banks to these changes, their potential might be fairly limited.

What has become increasingly clear to me is that Australians need to take their future into their own hands if they want to build wealth and prosperity – and this should start with home loans.

But how can we do this?

For me the answer is simple – there must be a better understanding of interest rates.

When I first joined the Commonwealth Bank as a banker and later a financial adviser and businessman, I used to calculate the bank interest rate manually.  So, if there is one thing that I truly understand it’s the financial impact of interest rates. Today, unfortunately, very few consumers fully comprehend this.

I believe that the $1.5 trillion home loan market can be, and needs to be, much more efficient. For this reason, I have become a foundation investor into LoanDolphin - a leading loan bidding platform.

The platform works by giving mortgage brokers, lenders and banks the ability to bid and win a customer’s business (either a refinancing loan or new home loan). It has become an efficient prospecting tool for mortgage brokers and enables them to pass on those savings to borrowers.

Even though LoanDolphin is in its infancy (the platform only launched in February this year), it has nevertheless delivered an average of more than $5000 in savings per year to homeowners.

Customers have so far saved more than $130,000 on a $500,000 30-year loan.

For young people wanting to dip their toes in the real estate market, these figures are a godsend. It gives them the chance to become a homeowner with the knowledge that they have obtained a competitive rate.

While LoanDolphin gives Australians access to the best mortgage rates that aren’t advertised, what really convinced me to invest is that it’s a platform for homeowners to access funds to build their wealth – all through shaving thousands off their home loans.

For example, if a consumer was to auction their home loan on the LoanDolphin platform every three years, they could use the savings to pay off their loan sooner by keeping their repayments unchanged. The bonus of doing this is that once the loan is paid off, homeowners can start making undeducted contributions to their superannuation or pay down their credit cards (and cut them up for good once they’re paid off!)

For me this is a fantastic way to increase your all-important superannuation balance. Speaking to a financial adviser about instituting such a strategy can impact other important parts of your wealth portfolio and ensure that your standard of living in retirement remains satisfying.

Auctioning off your home loan on the LoanDolphin platform at regular intervals also means that you will have a nest egg to leave your kids and grandchildren, which is wonderful peace of mind in these economically challenging times.

While it may be nice to think that the government can look after us in retirement, the stark reality is that the means-tested pension alone is not enough to fund an adequate retirement.

According to the Association of Super Funds of Australia (ASFA) an individual requires a minimum of around $545,000 and a couple around $645,000 to retire comfortably. For many Australians, these are pretty scary figures.

With this is mind, we must find other ways of creating and sustaining wealth – and for me using disruptive platforms like LoanDolphin is an essential way to take the power back and buck some of those grim statistics.

Creating wealth: Australians must take the power back
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