Many people think that interest-only home loans are only for serious property investors with aggressive purchasing strategies. However, all kinds of property buyers can apply for an interest-only loan and there are a lot of clever ways you can use them to your advantage.

As your mortgage and finance broker, we’re here to make sure you understand the different uses of loan products and how they may apply to your personal financial strategy and purchasing goals. In this article we talk about the pros and cons of interest-only products to help you decide if it’s time to say hello to interest-only.

The Pros

Smaller loan payments.

During the interest-only period of the home loan, your monthly loan payments would be lower than with a principal and interest loan. This is because your payments only need to cover the interest on the loan. Great if you want to reduce your expenses!

Free up cash.

Lower loan payments mean you could use your available cash for other purposes that may be financially beneficial. You could use the money to pay off debts to help save money on interest, make other investments to build wealth for your future, fund a loan to purchase another property or to make home renovations to increase your property value and equity position.

Tax deductible for property investors.

Want to save money on tax? The interest on an investment property debt is usually tax deductible for property investors, as long as you follow the ATO rules. That means an interest-only loan could very beneficial if you are a property investor because it could help you to maximise your tax deductions and cash-flow. Unfortunately, if you are using an interest-only loan product to purchase a home as an owner-occupier, you will not receive any tax deduction for interest.

Benefits are ongoing for the life of the interest-only term.

With an interest-only home loan, you can often choose an interest-only term from 1, 3, 5 or 10 years. This can be very beneficial for tax minimisation strategies and financial planning purposes. It could also be very beneficial for people buying a home on a tight budget as it can help you to plan your finances for the first few years you own the property as well as keep your loan payments lower.

Make payments on the principal when you have extra cash.

Many interest-only home loans allow you to make payments on the principal of your loan if you want to. This means that you can still build equity in your property by making a repayment on the principal of the loan when you have the extra cash.

The Cons

It’s possible that you may not build any equity.

Interest-only loan payments do not help you to build equity in your property because your loan payments do not pay down the loan principal. That means you will be relying on property prices to rise to gain equity (unless you make extra payments as mentioned above).

When the interest-only period ends, the loan will revert to a principal and interest loan and your loan payments will increase unless you make other plans.

If you decide to take out an interest-only loan, you should be careful to plan ahead for what you will do at the end of your interest-only period. At that time, you will have to decide whether to renegotiate another interest-only term, allow the loan to revert to a principal and interest loan, refinance the loan, or sell the property to pay off your debt.

An interest-only loan will cost more in interest over the life of the loan than a principal and interest loan.

Very few people keep a loan for the full 25 years, but you should be aware that the cost differentials between an interest-only loan and a principal and interest loan can be quite significant when calculated over the entire life of the loan. For example:

• With a normal principal and interest loan for $500,000 at 4.78% p.a. based on an LVR of 80% over 25 years, the total cost of interest on the loan would be$357,766 over the 25 year period.
• On an interest-only loan for $500,000 at 4.78% p.a. based on an LVR of 80% over 25 years with an interest-only period of 10 years, the total cost of interest on the loan would be $440,443 over the 25 year period. This means that the interest-only loan could cost you an additional $82,676 in interest compared to a 25 year principal and interest loan.

You may miss out on a golden opportunity to pay down the principal while interest rates are low.

Is a principal and interest the right loan for you considering that interest-rates are now at all time lows? Sometimes it can be worth paying more now to save money later. Paying down as much as you can off the loan principal now could mean that when interest rates do rise, you will be paying those higher interest rates on a reduced loan amount. Of course, a reduced loan size could mean lower loan repayments and/or paying less interest in the long-term.

Ask us if an interest-only home loan could help you to achieve your goals.

As your professional mortgage and finance brokers, we know about the pros and cons of all home loan and finance products. We’re here to help you understand the different financing options available and give you expert advice on how you can be clever about applying them to help you achieve your goals. Everyone’s personal financial circumstances and goals are different and you can be sure we’ll take the time to listen and understand what you want to achieve. If you’re considering using an interest-only home loan, please get in touch. We’ll help you decide if it’s the right option for you.

If you have no experience with buying a property, you may find it difficult to know if you have done everything right. The good news is there’s no need to do it on your own. With the right team of business professionals on your side you can make the whole process go a lot more quickly and smoothly, prevent expensive mistakes and maximise the full financial benefits of making your property purchase.

So what kind of professional support might you need? Here are five business professionals that can be worth their weight in gold to every property buyer, whether you’re buying your first home, your next home or a property investment.

Building & Pest Inspector

When you’ve chosen the area that’s right for your property purchase, you should take the time to find a Building & Pest Inspector who knows the area well before you even start your property selection process. When you find a property that you’re interested in buying, having your experienced Building & Pest Inspector lined up will help you to move on it quickly and with the appropriate caution.

The word ‘caution’ is an important word to use here because not every property is as good as it looks to the untrained eye. The rule of thumb when purchasing a property is always to take a good look before you leap. Many unwary home buyers have fallen in love with what they think is the perfect home, only to find out later that it has expensive maintenance issues.

Solicitor / Conveyancer

A solicitor or conveyancer is required to attend to the legal formalities and prepare all of the documents you need to transfer a property into your name and ensure your settlement day goes smoothly. Their role is to be the champion of your legal interests during the purchase process and that’s why choosing a good one is important to your success.

First of all, your solicitor will be invaluable in helping you to understand the terms, conditions and contents of any contract that you will be required to sign. If you are intending to purchase at auction, they can explain the auction rules and conditions. If you are building a new home, or if you are purchasing off the plan from a developer, an experienced solicitor will know what you need to be careful about, what to include in the contract of sale to protect your interests and help to ensure that you end up getting exactly what you are paying for.

Accountant

A good accountant can be a huge bonus when purchasing a property, particularly if you’re a property investor but also if you’re a first home buyer or an owner occupier. That’s because understanding your own financial position is the most important part of the property purchasing process. It helps you determine your buying power, identify and plan for any potential cash-flow difficulties and ensures you understand and can cover all the expenses.

A good accountant who is experienced with property purchases will help you to maximise any tax benefits you may be entitled to receive. If you are planning to invest in property, it is a good idea to consult an accountant about what the tax benefits will be in your particular case and get advice about how to maximise them before you even begin.

Real Estate Agent/s

It’s a great idea to find out who are the best real estate agents servicing your chosen property market. Even though a real estate agent’s primary purpose is to represent a seller in a property transaction, the really good ones will also be willing to lend you their expertise in locating the right property for you – even if they don’t have it on their books right now.

As a buyer, you will not pay a real estate agent for any services they provide to you, as the seller is responsible for paying their fees. However, good real estate agents will want to meet you and keep in touch with you because you may be a prospective buyer for one of their future customer’s properties. They will take the time to discover your needs and take an interest in what kind of property you are looking for, making a note of your approximate price range and when you want to buy. When an appropriate property becomes available, they will contact you to see if you are interested. This can help you stay on top of new properties coming on to the market in the areas that are of interest you.

Mortgage & Finance Broker

There are thousands of home loan products available and finding the one that is exactly the right fit for your personal financial circumstances and goals can be a confusing process. If you approach a bank directly, they will only tell you about their own products. If you go online to do your own research on all the options, you could be there for days and still be in the dark about which finance product is the best one for you.

Some people just pick the loan with the lowest interest rate they can see and never even find out if a different type of loan product could have saved them more money in other ways.

A professional mortgage and finance broker is here to help you sort through all of these aspects of choosing a loan. Our job is to find a loan that is exactly the right fit considering your short and long-term goals, how much you can actually afford to borrow and what you need to get out of your loan in terms of features and benefits.

Consulting a mortgage and finance broker is usually free of charge. We’re even happy to have an informal chat with you if you just want to test the waters about getting a loan. Expert credit advice could make a big difference to your financial well-being both now and in the future – it’s not only about your finance needs right now.

If you need help meeting the right professionals for your property purchasing team, we’ll be happy to provide you with some referrals. As mentioned, we’re also happy to give you whatever information you may need about loan products and their uses. So please feel free to call and chat with us today.

At its September meeting last week, the Reserve Bank of Australia (RBA) decided to keep the official cash rate on hold at 1.50 per cent. The decision came as no surprise to analysts as the RBA cut the cash rate by 25 basis points just last month, bringing it to all-time lows.

Positive economic growth figures for the June quarter of 3% combined with improved jobs and salary growth data, indicate the RBA’s easing measures are starting to have the desired effect. Whilst the RBA would prefer the Australian dollar to be weaker against other global currencies in order to stimulate growth in our export markets, the US Federal Reserve is tipped to be considering an interest rate rise at their September 20 meeting this month. This could potentially create a downward trend in our dollar, eliminating the need for further rate cuts from the RBA this year.

Following last month’s RBA rate cut, lenders have been reducing interest rates on a wide variety of owner occupier home loan and property investment loan products. However, some have only passed on part of the rate cut, which prompts us to motivate you to check your interest rate with us to see if you still have the most competitive loan product for your needs!

Activity in our largest property markets is already picking up after the Winter slowdown. Victoria held 826 auctions during the week ending September 4 and achieved a clearance rate of 79%. NSW also had a big week with 715 auctions and an 84% clearance rate. Other markets were slower to respond to the arrival of Spring, with QLD holding 135 auctions with a clearance rate of 58%, SA 73 auctions with a clearance rate of 81%, and ACT had 76 auctions with a clearance rate of 78%.

The Perth and WA property market has been quite weak for some time and the trend is expected to continue during 2016. For the first week of Spring only 26 auctions were held and they only achieved a clearance rate of 17%. NT and Tasmania have also been slow to get started, with NT holding just 6 auctions with a clearance rate of 40% and Tasmania holding 7 auctions which achieved no sale.

Home value movements were very conservative this month, with Sydney achieving an increase of 1.44%, Melbourne 1.49%, Brisbane/Gold Coast 0.47%, and Perth 0.20%. Larger gains were seen in Darwin at 4.07% and Canberra 2.77%. Adelaide saw a slight decline in home values of 0.96% and Hobart’s home values fell by 0.88%.

Many of you in the market to purchase a property this Spring have already talked to us about arranging pre-approval on your home loans. If you haven’t called us yet, pick up the phone and get onto it so you don’t risk missing out on the home of your dreams during the Spring rush! Rates are great following last month’s RBA cut so it’s also a good time to discuss your refinancing plans, fix your interest rate or get a home loan health check on your existing loan. Give us a call today!

A good buyer’s agent is the property investor’s secret weapon. They provide professional guidance on every aspect of your property investment journey, with the objective of saving you time, money and many sleepless nights. A buyer’s agent can help you take a more professional, balanced approach to your property investment activities, removing the emotional aspects of the process and saving you from the natural human tendency to make unwise, impulsive decisions under pressure.

What does a buyer’s agent do?
Buyer’s agents specialise in representing a buyer’s interests during a property purchase. Whilst they are most commonly used by property investors, buyer’s agents are also frequently used by families searching for exactly the right home, and people moving interstate or overseas, making the process much easier by doing all the leg-work and narrowing down the options.

Buyer’s agents usually offer differing levels of service, depending on your requirements. The full service covers every aspect of the property investment journey including:

• Formulating an investment strategy that maximises your funds
• Searching for suitable properties to fit your buying strategy
• Researching every aspect of a property to ensure profitability
• Arranging inspections with vendors and real estate agents
• Negotiating a price and terms of sale
• Bidding at auctions on your behalf
• Co-ordinating your professional team – solicitors, mortgage brokers etc.
• Ongoing service to help you establish a complete portfolio.

Getting the property research and selection process right is arguably the most important part of your property investment journey. It certainly takes the most amount of time and getting the right information requires a certain amount of know-how too. A professional buyer’s agent knows which questions to ask and where to look for the answers. They can often access information from developers, councils and other relevant bodies that is not readily available to the ordinary consumer.

However, you don’t necessarily need to engage the full services of a buyer’s agent. You can also engage a buyer’s agent just to do research for you, to negotiate a price for you, or to bid for you at an auction if you would rather not do it yourself. This can be a good idea if you are nervous, inexperienced, you can’t attend the auction yourself, or you feel you may get carried away by the auction process and pay too much.

How much does a buyer’s agent cost?
There are many buyer’s agents and the cost will vary according to the agent you choose, your location and your requirements. Qualified, professional buyer’s agents generally charge between 1.5  – 3% + GST of the purchase price of the property for their full services, however this can often be negotiated in favour of a flat fee and savings may be obtained if you are planning on purchasing multiple properties.

When providing a research service only, a negotiating service only, or a bidding service only, your buyer’s agent will usually charge a fee for their time. Again this will vary according to the agent, the location and your requirements. You can generally expect these services to cost around $1,000 + GST depending on how much of their time you require.

If you are purchasing a property for investment purposes, the cost of a buyer’s agent is generally tax deductible as are most of the professional services you will require as part of the process.

How do you find a good buyer’s agent?
A good way to locate a great buyer’s agent is by word of mouth – there’s nothing like a recommendation from a friend, colleague or trusted business advisor (like your mortgage broker) to make you feel confident about someone’s credentials. However, you can also find some reputable buyer’s agents through the Real Estate Buyers Agents Association of Australia (REBAA) website.

Sometimes, outsourcing is the sensible option
Engaging a buyer’s agent can save you hours of time and loads of stress. If you’re new to property investment, then a buyer’s agent can also be invaluable in helping you to avoid costly mistakes. When you do find a property you want to buy, all the hard work in locating it can easily be lost in the final hurdle – the purchasing process. Having an expert on your side to negotiate the price you need, or to bid for you at the auction, can reduce the risks and make all the difference. Using a buyer’s agent is one case where outsourcing can take a lot of the frustration out of the process!

For more information, or to get your property investment finance in place, give us a call. We’ll be happy to help.

That the high prevalence of rats and mice in Australian homes is a major factor in the distribution of food poisoning organisms like salmonella? Clearly, if you’re thinking about buying a property, the value of an independent building and pest inspection report can’t be understated!

Reduce your financial risks.

Buying a property can be a very emotional decision and it’s easy to forget about looking for defects when you finally find a property you love. But the reality is that all property buyers should obtain an independent building and pest inspection report in order to remain sensible and objective about the property they’re purchasing and reduce the risk of incurring expensive repair bills down the track.

A building and pest inspection report will provide you with a professional’s evaluation of the condition of the property you are purchasing. They will provide you with a visual review of all elements of the property including structural inspections of the exterior roof, interior roof spaces and eaves, foundations, subfloor, wiring, interior plumbing, sheds and pergolas, fireplaces, electrical and air conditioning systems. Your report can also cover things like windows, doors, flooring, ceilings and other temporary fittings and so on. If you have any particular concerns about a property you are looking to buy, you can mention them to your inspector and they will take special care to put your concerns to rest.

There are three good financial reasons why you should get a building and pest inspection report:

1. To check for structural and pest issues, so you are able to budget for rectifying them.
2. To use the information to negotiate a lower price, or for repairs to be completed before you purchase the property.
3. To find out if the problems are so severe that they may adversely affect the property’s future resale value, or be so expensive to repair that you may be put off purchasing the property entirely.

Ideally, a building inspection should be performed before you sign a Contract of Sale, or prior to auction if that is going to be the method of sale. When you’re not buying at auction, it is standard practice to insert a clause into the Contract of Sale stating that the purchase is subject to building and pest inspection reports.

Even new build homes can have problems.

Whilst it’s true that structural defects, termite damage and pest infestations tend to be more common in older homes, unfortunately even new-build properties can come with issues. If the property is new, paying for a fully comprehensive building inspection report is still a good idea because it will ensure that the building has been finished correctly according to the building plans and help you identify any problems the builder has overlooked or any issues that may not be covered under the building warranty.

When it comes to pest problems, these tend to be endemic to areas and their prevalence will have as much to do with where the property is located, as the property’s age. In many areas, homes under construction are extremely vulnerable to termite attack and other pest issues such as rats and mice.

A few hundred dollars could save you thousands.

Depending on the location and size of your home, a building and pest inspection report can cost anywhere from $300 for your average suburban home to $600 or more for larger properties or ones located in a rural location. However taking the precaution of getting a building and pest inspection report before you buy could save you a great deal of money and hassle.

When a professional building and pest inspector comes across a problem that may be significant, they will recommend you seek further advice from an appropriate professional before proceeding with the purchase. Depending on the nature of the defect and the extent of the damage, you can get quotes to make repairs or simply walk away from the deal if it is too hard.

For more information about locating a reputable company or qualified building industry professional to perform your building and pest inspections, please give us a call. We maintain relationships with many professional companies relating to the purchase of your home, so please don’t hesitate to get in touch for a referral if you require any assistance.