Home Loans 101: Understanding loan options

Loan options can be confusing to those new to mortgages, or sometimes even those that have had home loans for years.

Here’s a 101 to get you up to speed on loan types:

1) Basic home loans

Basic home loans or ‘no frills’ loans offer borrowers a loan with a low interest rate. This interest and principal repayment loan can be popular with first home buyers. A basic home loan’s interest rate can be half to one per cent below the standard variable rate, which is sometimes combined with minimal ongoing fees. Potential drawbacks can include limited features, less flexibility, and additional charges if you decide to switch loans or pay the loan off sooner.

2) Fixed-rate home loans

Worried about rising interest rates? A fixed-rate home loan will allow you to fix your interest rate for a specific period, usually from one to five years. It can be a sound option when interest rates are on the rise, or in times of economic uncertainty. Should interest rates plummet, however, you’ll still have to pay off your mortgage at the fixed-rate until the end of the agreed fixed-rate period. Additionally, keep in mind that you may be charged a fee commonly called a break cost or economic cost, should you decide to break your fixed term or switch to another product. You may also be limited in making extra repayments.

3) Standard variable-rate home loans

A popular mainstream choice, standard variable-rate interest and principal home loans allow you to borrow money for a set period of time, during which you make regular repayments. The interest rate can vary depending on fluctuations in the official cash rate, so it is likely to go up or down depending on the market cycle.

4) Split-rate home loans

Want the best of both worlds? A split-rate home loan offers both flexibility and security. A good product for both first time and existing borrowers, split loans allow you to customise your loan’s interest rate as you see fit: fixing a portion of your interest rate to give certainty to your monthly repayments during the fixed-rate term should rates increase, but also flexibility through taking out a variable-rate portion.

5) Interest-only home loans

Interest-only loans offer borrowers lower repayment options, while maintaining many of a traditional loan’s features. This type of loan allows you to pay only the interest component on a mortgage; it does not reduce the principal component. They are a popular choice for investors seeking good capital appreciation on their investments.

6) Low-doc home loans

If you’re self-employed, a contractor or a seasonal worker and do not have a regular income, a low-doc loan may best suit your situation.

 

Different home loan options may or may not suit you depending on your circumstances. It may also be a matter of personal choice, whether you prefer to fix in your rates for certainty, or prefer to stick with the market rate with a standard variable loan.

If you have any questions about loan types don’t hesitate to ask.

 

Want trusted advice on which loan type best suits your needs and circumstances? You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

Six winning strategies for auctions

Auctions are competitive and stressful for most bidders. Here are six smart strategies that could improve your chances of winning.

1. Dont show your hand

Revealing your maximum bid limit to the agent before the auction could encourage them to push you a little further. For example, during the auction the agent might indicate you’re close to meeting the vendor’s expectations, to try to persuade you to bid above your limit. It’s in their interest because they’re usually earning a commission based on the sale price.

2. Ask if the reserve has been met

Bids must reach the vendor’s reserve price before the property is officially ‘on the market’ and then sold to the highest bidder. If the property doesn’t meet the reserve it will be ‘passed in’.

The reserve price is usually set on the day of the auction, or the day before. The auctioneer often doesn’t know the reserve until just before the auction begins, and they don’t have to reveal it to bidders – but you can still ask.

If you discover the reserve, you can wait to bid until it’s reached. This tactic might even persuade the vendor to lower the reserve during the auction if they’re not getting enough bids.

If you’re the highest bidder for a passed-in property, you may be invited to negotiate with the selling agent. Be wary of high-pressure sales tactics here, and remember that cooling-off periods don’t apply to contracts signed on auction day.

3. Ask questions (but know the rules)

You can talk to the auctioneer during the auction to find out information that may be helpful in winning. For example, Consumer Affairs Victoria says you can ask the auctioneer a ‘reasonable’ number of questions, and you can ask them to identify who has made a bid. You can also ask whether the property is ‘on the market’ yet (has it met the reserve price?). Be visible and within earshot of the auctioneer to avoid miscommunication.

Make sure you know the rules, as it’s illegal to disrupt an auction. The auction rules are generally made available at least 30 minutes before the auction, and the auctioneer should also announce the rules before bidding starts.

4. Bid like a pro

Bid with confidence and state the full price to let your rivals know you’re serious. A confident call of ‘$500,500’ (as opposed to a quiet ‘500’) will remind the room of how much is at stake.

You can also try ‘knockout’ bids and offer well above the last bid or the auctioneer’s suggested figure, to intimidate less-confident buyers. If bids are being made quickly you might want to try to slow things down by bidding in smaller increments than the auctioneer suggests.

Pre-auction tip: Ask the selling agent how many people have requested property reports. This will give you an idea of the number of serious bidders.

5. Employ a professional

You can enlist a buyer’s agent (also called a buyer’s advocate) to bid for you. They’ll have no emotional attachment to the property and should only bid what they believe it’s worth (within your limit). They should also have plenty of auction experience and know the tricks of the trade. The Real Estate Buyer’s Agents Association of Australia offers some tips for choosing a buyer’s agent.

You could also ask a friend or family member with auction experience to bid for you. But remember that you’re the one who has to pay, even if they win by exceeding your limit.

6. Be prepared to cut your losses

Accept property reports and legal fees as sunk costs that are part of the auction process. You’re better off spending a few hundred dollars checking a property than bidding hundreds of thousands without doing the pre-auction groundwork. On auction day, if you hit your limit, walk away to avoid temptation.

Auctions can be challenging, especially when there are emotions involved. Sensible, practical strategies can give you the best chance of being the last person standing – or at least stop you from overcommitting – on auction day.

 

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

Understanding first home owner grants and concessions

 

Clients of mine recently purchased an apartment off the plan for $550,000 in Melbourne. As (1) they had never owned property in Australia (2) the property they were purchasing had never previously been lived in and (3) the property was valued at under $750,000, they were entitled to a $10,000 First Home Owners Grant from the Victorian State Government. In addition to the First Home Owners Grant, they were also entitled to a Stamp Duty Concession – a 50% reduction. As they had purchased the property off the plan, the Stamp Duty was approximately $3,000, so with a 50% reduction, they saved around $1,500 in Stamp Duty. 

Before you start searching for your first home, it pays to know where you stand on any government concessions that might help you out. These concessions tend to vary state by state and situation by situation, so if you need an explanation, please get in touch and we can discuss how they work.

First Home Owner Grant

The First Home Owner Grant (FHOG) scheme was introduced on 1 July 2000 to offset the effect of the GST on home ownership. Under the scheme, a one-off grant is payable to first home owners that satisfy all the eligibility criteria. Although it is a national scheme, it is funded by the states and territories and administered under their own legislation.

For information on the FHOG in your specific state you can visit firsthome.gov.au .

Stamp duty breaks and concessions

Some of Australia’s state governments have concession waivers of the stamp duty associated with a property purchase.

Stamp duty is a tax applied to certain property transitions. When land is sold, transferred or leased, for example, stamp duty is generally payable. It is usually the buyer, not the seller, who is liable to pay stamp duty. Payment must generally be made within three months of entering into the contract for purchasing the property. The amount of stamp duty payable depends on the value of the property and the amount for which it is sold, transferred or leased. It is calculated on its market value or the price paid by the buyer.

Each state government has its own rules surrounding stamp duty on property purchases. For this reason, the exemptions and concessions available differ from state to state.

Some first home buyers, vacant land holders, and farm buyers may be entitled to some exemption or discount on stamp duty. You can check out whether any apply to you by contacting the revenue office in your state or territory (see the list below for details).

More information

You can also find further information on the First Home Owner Grant or details on stamp duty breaks on your state’s relevant government office website.
ACT – revenue.act.gov.au
NSW – osr.nsw.gov.au
NT – nt.gov.au/ntt/revenue
QLD – osr.qld.gov.au
SA – revenuesa.sa.gov.au
TAS – sro.tas.gov.au
VIC – sro.vic.gov.au
WA – osr.wa.gov.au

 

Don’t worry if you find eligibility criteria for First Home Owners Grants and Stamp Duty Concessions confusing – you are not alone! Get in touch and we will let you know (in an jargon free way!) how these might apply to the purchase of your first home. You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

 

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

*Note: Details are current as at publish date and should be confirmed with your local Office of State Revenue or equivalent body.

Understanding Lenders Mortgage Insurance (LMI)

Clients of mine who are first home buyers have saved a $50,000 deposit and are looking to buy a property for around $550,00. Given that their deposit is around 9% of their purchase price, they are required to pay Lenders Mortgage Insurance (LMI). Based on their deposit amount and property purchase price, the LMI is approximately $13,450, which they will add to the total cost of their loan and pay off over the life of the loan. 

 

As a general rule, if your deposit is less than 20 per cent of the value of the property, you will need to pay for Lenders Mortgage Insurance (LMI). There are also some specific cases that require a higher than 20% deposit, depending on the type and style of property you’re purchasing – for example, some inner-city apartments or rural land.

Why do lenders insist on LMI?

The lower your deposit as a percentage of the purchase price of the property, the higher the lender views their risk in the event that you fail to meet mortgage payments and the property needs to be repossessed and resold. It is important to be aware that LMI only covers the lender if you default on your loan payments (and the lender is unable to secure the full outstanding debt still owing, when they sell your property). LMI does not provide you with any cover.

How much does LMI cost?

The bigger the percentage of the property’s purchase price you have to borrow, the greater the amount you’re likely to pay for insurance.

A handy site that offers an approximate guide on how much LMI may cost is the LMI Premium Estimator on the Gemworth website. For a more exact calculation on LMI, it is best to get in touch to work through what it might be for your specific situation.

 

How is LMI paid?

LMI is usually paid as a one-off lump sum at the time of settlement but in many cases it can also be added into the loan amount and paid off over the life of the loan – a term known as capitalising the LMI. LMI is always paid directly to the lender as part of the settlement and the lender then uses their preferred insurer.

Why would you pay LMI? Why not wait until you have 20% deposit?

Lenders Mortgage Insurance (LMI) allows some buyers to enter the market earlier than they could if they had to wait until they have the required deposit to ‘avoid’ LMI. For first home buyers, particularly those struggling to save a deposit in an environment of rising house prices, but more than comfortable to meet their mortgage repayments, it can be a key tool to break free from renting and get into the property market.

 

If you need any information on Lenders Mortgage Insurance, or are looking at buying a first home, be sure to get in touch. You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

 

 

Will interest rates increase in 2017?

Interest rates have been at historical lows for such a long time, home owners could be forgiven for forgetting what it is like for rates to rise.

 

In recent weeks though, major lenders have increased their fixed term rates, across several loan terms (two, three and five year terms). A rise in fixed rates usually signals a rise in the cost of funding, which may translate into rises in variable interest rates as well. Westpac, Bank of Melbourne, Ubank and Commonwealth have all increased some of their fixed loan products, some up to 60 bases points higher.

 

While you probably need a crystal ball to accurately predict if rates will rises or fall, there is increasing noise from some industry experts that variable interest rates will rise in the back half of 2017.*

If this the case, it will be the first time the market will have had a rate rise since November 2010.

Predicting whether the RBA will change the official interest rate requires complex consideration of the Australian economy in terms of inflation, industry sector growth or decline and unemployment or wages growth and the impact of the global economy. Against this backdrop though, there is the school of thought that there is significant risk in a continued lending boom which fuels housing growth and negatively impacts housing affordability.

 

So if interest rates rise what does it mean for you?

 

The impact of rate rises really comes down to your individual circumstances. Some of the things you could do to prepare for possible interest rate rises:

 

 Mini house with money on blue

Build yourself a buffer

One of the best things you can do to minimise the impact of a rate rise, is to pay off your mortgage faster than your required repayments and build yourself a buffer. That way if rates rise, you are paying less interest from either a reduced principle, or the impact of more money in your offset account. And if you find yourself in need of extra cash to make repayments, you have this available to you. It also gets you used to paying at a higher rate so you don’t feel the impact of any rate rises.

 

Interest Rates

Lock in a fixed rate

This may be an option for you if you want certainty and to hedge your bets against any rises. There are some disadvantages to locking in a fixed rate which you need to be aware of though, you can read more here on fixing loans. Given that fixed rates have already gone up though for many lenders, the horse may have already bolted. I am not the biggest fan of fixed rates but they can provide certainty for a locked in period of time.

 

Plan ahead

It can help to plan ahead to determine the impact on you if rates were to rise on your current loan. Look for an online calculator to see the impact on your repayments if interest rates were to go up, or ask your broker to calculate this for you. Would this amount cause issues with your current budget? Or are there are things that are changing for you in the future that might impact on your ability to pay your mortgage, like a new baby, or a change to your work circumstances? If you think there are things that might impact on your ability to service your mortgage you might want to look at possible strategies, like restructuring your loan.

 

We will have to wait and see if the predictions are true on rate rises. If you have any questions or need any information on current rates, please get in touch.

 

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing advice you can trust. Whether it’s buying a home, refinancing a loan, investing, building or renovating, Doug brings a wealth of knowledge and expertise to assist with your lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

Sources:

  1. http://www.domain.com.au/news/the-five-things-on-the-agenda-for-sydneys-property-market-in-2017-20161211-gt8v8g/
  2. http://www.afr.com/news/economy/get-ready-for-2017-reserve-bank-of-australia-rate-hikes-says-oecd-20161128-gsz5k4
  3. http://www.afr.com/real-estate/residential/syd-melb-house-prices-to-rise-but-building-boom-to-end-hsbc-20170110-gtopcs
  4. http://www.abc.net.au/news/2016-12-09/interest-rates-on-mortgages-likely-to-rise/8106180

Insurance and protecting your family home

Why do I need life and income protection insurance?

One of the questions Mortgage Brokers ask clients is whether they are insured – not just car insurance or house insurance (which everyone should have by the way) but life insurance and income protection insurance.  Brokers are obliged to get clients thinking about how they would pay for their mortgage in a worst case scenario.

No one likes to think about it, but what would happen if something happened to you? Either an accident or an illness that meant that you were unable to work or worse permanently incapacitated or even deceased? In this situation, how would you ensure that your family could continue to meet loan repayments and stay living in the family home?

It is important to note that a qualified insurance professional will be able to tailor your insurance to meet your individual circumstances. As with all things in life, if you want the best outcome you need to seek the best advice.

Here are some of the types of insurance available which can assist in providing security for you and your family:

 

1) Income Protection Insurance

Also known as salary continuance, Income Protection Insurance provides a means by which some of your income can continue to be paid to you in the event of illness or injury for a period of time to allow for recuperation. It is especially valuable for individuals whose business or income relies heavily on their own skills and ability to perform duties. Most policies will cover up to 75% of Gross (before tax) income and will be limited to a timeframe of around 2 years. The precise terms will vary from policy to policy and on how much the premiums are.

 

2) Total and Permanent Disability Insurance

In the event that you are seriously injured or sick and cannot perform your income producing activities for an extended period of time, Total and Permanent Disability Insurance may provide a means through which you can continue to support yourself and your family.   The precise terms of a policy, including what constitutes Permanent Disability will vary across different insurance providers. It is best to consult an expert in this field who will be able to provide the alternative that is best for you and your circumstances.

 

3) Life Insurance

It’s not a topic we like to give much thought too, however what would happen if you were to pass away. If you die with financial obligations such as a mortgage or other loans, then those left grieving may also be responsible for the ongoing repayments. Life insurance can be taken out to ensure that if you were to pass away that your loved ones would receive payment to enable them to continue to pay the mortgage, school fees or life’s other costs.Costs of these policies will vary and are generally defined by the waiting period to receive benefits and the benefit that will be applied. A qualified insurance professional will guide you through the options.

4) Home Loan Insurance

Providers like the ALI Group provide Insurance specifically related to your home loan. This cover means that they will pay your home loan in the event that you are unable to due to some unforeseen event (usually sickness or death). This type of cover may be in conjunction with other insurances but more specifically relates to your mortgage commitment.  This insurance is available through your Mortgage Broker

 

Now I’m feeling a bit worried…

It’s often uncomfortable to think about worst case scenarios and to sweep the thought ‘under the carpet’. Addressing your insurance needs shouldn’t make you worry though, it should actually provide you and your family with peace of mind. With the right policies in place, there are ways to ensure that life’s unexpected events need not be catastrophic to your personal finances and future lifestyle.

It is best to speak with a good Financial Planner about your insurance requirements as sometimes what you have through Super may not be sufficient. If you would like to speak with an expert, please get in touch and we can point you in the right direction.

 

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

How much can you afford to borrow with your first home loan?

Understanding how much borrowing capacity you have when buying your first home is an essential step for all newcomers to home ownership.

The question of “How much can I borrow?” rears its ugly head for all new home buyers. As daunting as it can be, understanding your borrowing power is important – and essential – for those ready to get their foot in the door with their first home purchase.

Financial factors

Before you start looking for a property – either to live in or as an investment – take a look at your finances from all angles and ask yourself a few important questions:

  •          Do I have enough money to pay for a deposit?
  •          Can I afford to make monthly repayments?
  •          Is my repayment/credit history positive?
  •          Have I assessed my household budget?
  •          Am I planning to start a family soon?

Understanding where you stand financially and what financial loads may be coming your way in the near future can give you a clearer picture of how large or small your borrowing capacity should realistically be.

Figures that figure

How much you can comfortably afford to borrow comes down to two factors:

  • The size of your deposit. Most lenders require a minimum of 10 per cent of the total property cost.
  • How much you can afford in mortgage repayments.

If you’re currently renting a property, your weekly or monthly rental amount is a good indication of the starting figure for your mortgage repayments. This is the bare minimum, however. You will need to add other expenditures to this figure, such as rates, taxes, lenders mortgage insurance (if applicable), among others.

New buyers may also want to consider single or joint income amounts. As a general rule, your mortgage repayments (along with other short and long-term expenses) shouldn’t cost more than 35 per cent of your gross income.

Help wanted!

Many people choose the help of a mortgage broker when shopping around for their first home loan, and for good reason. Using a mortgage broker to seal the deal can give you greater choice, peace of mind and clarity, especially for those just starting out in the property market.

Mortgage brokers have a wealth of knowledge to steer you in the right direction in terms of what you can realistically afford versus what you think you can afford.

There are many home loan calculators that can also help buyers get a sense of their borrowing capacity. These online calculators factor in your loan type, loan length and interest rates to calculate a general repayment figure. Your broker will be able to walk you through these calculations to ensure you’re aiming for the right figures. 

Doing your due diligence from the very start will pay big dividends when it comes to home ownership. Putting your expenses under the microscope may be intimidating at first, but it will ensure your home loan works as hard for you as you did for it.

 

If you are looking at buying a first home, be sure to get in touch to talk through your options.

You can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

5 reasons why pre-approval makes things a whole lot easier

Whilst it is not a mandatory requirement for home buyers to seek a pre approval, doing so can make things considerably easier.

So why might that be?

 

1) You get a clear and accurate price range

Whilst you can use a borrowing calculator to work out your approximate buying power, different lenders have different requirements and getting pre approval gives you a far more accurate price range.

 

2) It reduces the financial risks associated with finance ‘falling through’

Home buyers who aren’t able to secure finance by the date of settlement are at risk losing their deposit. Not only is it devastating to not only be going ahead with the purchase, but vendors are within their rights to keep the deposit paid as there is a breach of contract.

 

3) Greater leverage in negotiations

You can also use your pre approval as extra leverage when negotiating with vendors as you are less likely to have to pull out of the contract last minute because you can’t get finance. You will also have a clear ceiling price to work with in negotiations and are less likely to be pushed into paying over your budget.

 

4) It gives you time to look around

Most pre approvals last between three to six months, so you have plenty of time after you’ve received the pre approval to look around for your new home.

 

 5) A faster final approval process

Getting pre-approved means you’re likely to have a faster final approval process too, so you won’t be waiting around to hear from the bank before you can settle your contract and move into your new home.

 

So whilst it isn’t mandatory, we would recommend getting pre approval in writing before beginning the search for your next house as an absolute must. And definitely before any negotiation that might involve signing a contract or paying a deposit.

If you need any more information on pre-approval, feel free to get in touch.

 

 

 

For specialist lending advice, you can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

7 Reasons to take the plunge and become a home owner

Mortgage can be a dirty word for anyone that doesn’t have one. It conjures up images of baked beans for dinner, never being able to go out and being enslaved to a 30 year financial commitment with a faceless big bank. But for most people it will eventually be something they consider.

 

So why would you take the plunge and take on the commitment it involves and get a place that it is all yours?

 

1) No more landlords

When you become the king of your castle, there goes the rental inspections and the need to have a landlord or agent approve the inevitable maintenance that all property requires. If your shower is leaking, you can get over to Bunnings yourself and pick up a few spanners to fix it. The downside is of course you are paying for it! (More on that later). On the upside, you have a new level of control that you just don’t get when renting.

 

2) You can hammer picture hooks into the wall

Speaking of control, once you buy your own place, you don’t need someone else’s permission to change things. Want to paint the walls? Get rid of those annoying tiles? Rip up that carpet? You can go for it. Did we mention Bunnings? Before you know it you will watching all those annoying home renovation shows looking for ideas.

 

3) Capital growth

Most people buy property in the hope that it will increase in value. Rent may be less than the cost of interest and the other costs you have as a home owner (rates, maintenance and so on), however once you factor in the capital growth, or increase in value of the property over time, that capital growth may make buying the best option financially over time.

 

4) To get a foot into the market at today’s value

Say you are interested in buying property that is selling around the $800,000 mark. If this type of property, in the suburb you are looking at is growing at 5% a year, it’s going up by a whopping $40,000 per year (which you probably already know if you’ve been looking around). It’s pretty hard to save $40,000 in a year when you are also paying rent, which is why you always hear people talking about ‘getting a foot in the market’. If you were to jump into the market this year, it might be easier than trying to keep up with the rising cost of the type of property you eventually want to buy. Of course though on the flip side, this is only true if values continue to rise the way they have.

 

5) Forced savings

OK now it is starting to sound like financial enslavement! Hear us out though. Having a mortgage is a financial commitment which forces you to save by paying off your home loan. That can be handy if you tend to, like most people, spend money when it is there. Having to pay off a mortgage each month can make sure that you are building towards having equity in an asset (your property) and you don’t get 10 years down the track and have nothing to show for all your hard work (apart from some awesome memories of that great trip to Europe of course).

 

6) You lock in your costs

When you are renting you will usually be given an annual increase in rent. Or if you decide to move you will be out in the market trying to a) find something b) possibly convince an agent you have the best application and c) be paying an amount that creeps up over time as the cost of property does (or demand outstrips supply). Once you buy your house you lock in the amount of your loan and your base cost from then on. It is dependent on interest rates – however the idea is to pay off principal and interest and have your costs go down over time (the more of your property you own) – not up (like your rent will).

 

7) It’s not usually as bad as you think

If in doubt, ask someone you know that has bought property. After some initial shock, they usually settle in to having a mortgage as a normal way of life. As daunting as it all sounds, the upside of owning your own place should (hopefully!) make up for what you might be thinking of as the downside.

 

So if getting yourself a property might be something you are after, take a look at some of these other great articles*, or get in touch and we’ll help you get started down the path.

 

For specialist lending advice, you can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

 

*Other articles and links for First Home Buyers:

10 Tips for First Home Buyers

Moneysmart Guide for First Home Buyers

Navigating your way to your first home loan

 

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.

 

Navigating your way to your first home loan

Although applying for your first home loan may be the biggest financial decision you’ll make, it doesn’t need to be an overwhelming one. With the right preparation, a realistic understanding of your financial position and some professional guidance, you can position yourself as an attractive first home loan customer and gain approval in no time.

So what should you do?

1) Clean up your credit

Before applying for your first home loan, make sure you are creditworthy in the eyes of a lender by obtaining a copy of your personal credit file (you can get a free copy of your credit report at the veda website). Your credit history will be a key factor that a lender will consider when deciding to process your loan application. If you have a history of credit defaults, be prepared to explain honestly and up-front to the lender why those defaults occurred, how you remedied the situation and how you’ve taken steps to ensure the situation will not repeat itself.

2) Check your financial position

It’s also important to conduct a self-assessment of your financial position. This is to work out the amount you can borrow and the ease with which you’ll be able to manage your repayments. Try creating a spreadsheet of your income, expenses, assets and liabilities. Make sure you are honest with yourself about your everyday living expenses and commitments. Your home loan repayments should equate to no more than a third of your income, give or take your expenses. Then consider the extra costs of buying a home (on top of the purchase price) such as legal fees, lender establishment fees, stamp duty (if no government concession applies) and so on. You may also want to look into the availability of any available government concessions or grants that may help reduce the overall cost. A mortgage broker can help you assess your financial position to ensure the amount you wish to borrow is feasible in your circumstances.

3) Be deposit-ready

Although it’s true that some lenders don’t require a deposit – or require only a minimum deposit – you may want to aim to have a solid 20 per cent deposit saved up. Also factor in the additional costs of buying a home such as conveyancing, stamp duty and removalists. Saving a deposit is a good idea for two reasons:
– A 20 per cent deposit could mean you do not have to pay for Lenders Mortgage Insurance (LMI). LMI is a premium amount that a borrower must pay to the lender when the loan-to-valuation ratio exceeds 80 per cent. Some lenders may make the loan available without having to get this insurance.
– A 20 per cent deposit immediately tells a lender that you are financially disciplined and responsible – attributes that will encourage lenders to look favourably upon your first home loan application.
If you do not have a 20 per cent deposit, don’t despair. Your mortgage broker will provide you with some options to help you find the right loan product. If you need any tips on saving a deposit, check out raising a deposit.

4) Do your research

Finding the right first home loan often entails so much more than just interest rates. You should try to research a range of products and investigate their fine print, including any set-up and break fees, loan structures, flexibility options such as redraw and offsetting, repayment options and guarantees. A good mortgage broker will have expert product knowledge that they can discuss with you to determine what loan would best suit your lifestyle and needs, both now and in the future (for example, when starting a family).

5) Gather your documents

To facilitate a fast assessment of your loan application, it’s helpful to gather recent copies of your pay slips and evidence of any other income. Also, gather copies of your bank account statements and credit card statements. If you’ve been employed for only a short time, try strengthening your application by obtaining letters of reference from your current and previous employers. If you are self-employed, a way to show your monthly income, outgoings and cashflow is by having business invoices and receipts on hand in case the lender requires such evidence of your earnings.

 

It can be easy to get overwhelmed when looking for your first home. Getting in touch as soon as you can with a good mortgage broker who can help position you as an attractive borrower to lenders, can help make things much easier.

 

For specialist lending advice, you can contact Doug at (e) douglas.piening@choicehomeloans.com.au or (m)  0408 671 524.

 

Douglas Piening is a Mortgage and Finance Broker with Choice Home Loans and is passionate about providing clients with lending advice they can trust. Whether it’s re-financing an existing property, buying a new or next home, or investing, he brings a wealth of knowledge and expertise to assisting clients with their lending needs. 

Want to hear what clients have said about working with Doug? Take a look at these reviews from LinkedIn and Facebook.

 

This information is of a general nature only and does not constitute professional advice. You should always seek professional advice in relation to your particular circumstances.