26 Apr 2019
Which home loan is right for you? How can you tell when there’s so many different lenders, loan types and features to choose from? How can you compare loans properly when you’re not sure what you should be comparing?
Finding the right home loan for your situation is a process that can be confusing, particularly for first-timers. In this article, we give you a basic guide for making home loan comparisons and tell you more about the features you may need with your home loan.
Interest rates and comparison rates
Interest rates are one of the factors which determine the cost of your mortgage and how much your repayments will be. Even a small difference in interest rates can make a significant impact on the amount of interest you’ll have to pay over the term of the loan. However, the loan with the lowest interest rate may not necessarily be the cheapest, as there could be additional fees to factor in. This is where the comparison rate comes in.
The comparison rate is an indication of the true cost of a loan, once the interest rate and fees are included. It’s usually expressed as a percentage, which makes it easier for you to compare the real cost of different loan products. When choosing a home loan, it’s important to look at both the comparison rate and the features that come with the loan.
Principal and Interest
This type of home loan requires you to make repayments that cover both the principal (or the amount you borrowed) and the interest at the same time. People buying their own home usually use a principal and interest loan, as you pay down your loan with every repayment until you eventually own the property.
An interest-only loan allows you to only pay the interest you owe on the loan for a fixed period – usually from one-to five years – so the monthly repayment is lower than it would be under a principal and interest loan. At the end of the fixed period, the loan usually reverts to a principal and interest loan, but it is possible to refinance to another interest-only period. People buying an investment property often start off with an interest-only loan because the interest (and therefore the entire repayment) is tax deductible for them. However, they are not considered ideal if you are buying your own home to live in as you will likely end up paying more in interest over the term of the loan and your repayments don’t pay off the original loan amount.
Variable Home Loan
With a variable rate home loan, the amount of interest you pay may go up or down in response to changes in interest rates. This can be a good thing if interest rates go down, as the interest you pay will be less and your repayments will decrease. Another positive is that you can often make extra repayments on a variable home loan, which may help you to pay off your home loan sooner and save some interest over the term of the loan.
Fixed Home Loan
A fixed rate home loan lets you lock in your interest rate for a period (usually 1 to 5 years). The benefit is that you know exactly how much your repayments will be during that time, which can be beneficial if you’re on a tight budget or a fixed income. You’ll also escape any interest rate rises that may happen during the fixed period.
However, if interest rates fall, you won’t be cracking open the bubbly because your home loan interest rate will stay the same and so will your repayments. There may also be restrictions on making additional repayments with a fixed rate home loan.
Split Home Loan
One option that appeals to some homeowners is to fix the interest rate on a portion of their loan and keep the rest variable. This offers the certainty of knowing what your repayments will be on the fixed part of the loan, while you can make extra repayments and enjoy any interest rate drops on the variable part of the loan. It’s a way to get the best of both worlds!
An offset account is a transaction account that’s attached to your home loan. It can save you money on the interest on your home loan and help you pay off your loan sooner because the money in your transaction account is offset daily against your loan balance, and you only pay interest on the difference. For example, if you owe $300,000 on your home loan and there’s $50,000 in your offset account, you’ll only pay interest on $250,000.
A redraw facility allows you to make extra repayments on your home loan and then take out the extra repayments you’ve made later if you need to use the money for a different purpose.
What’s right for you?
The right home loan choice is different for everyone. It all depends on your personal financial circumstances and goals. We’re here to help you decide what is right for you and will make recommendations based on what you tell us about your situation and what you want to achieve. Then we’ll compare the choices from the different lenders and offer you a selection of cost-effective options.
Don’t wait to find out what’s right for you. Call us today for a chat about your plans.
08 Apr 2019
Some property market analysts are predicting average national home values could fall by 11 per cent in 2019 – and say home values in some suburbs of Melbourne and Sydney have already fallen by more than 7 per cent since they reached their peak in late 2017. Whilst this may seem like gloom and doom to some people, all over the country many prospective home buyers are feeling optimistic and getting ready to grab a bargain.
When it comes to buying a property, supply and demand determines who gets the upper hand on price. So now, with home values and auction clearance rates continuing to fall, is it officially a ‘buyer’s market’ yet?
What is a buyer’s market?
The term ‘buyer’s market’ usually applies when buyers have more power in the property market than vendors (or sellers) and therefore, have an advantage when negotiating the final price for a home. Basically, a buyer’s market occurs when there are more properties for sale than there are people willing and able to buy them.
Signs that we may be encountering a buyer’s market could include:
- Unusually high numbers of properties for sale in any given city, suburb or area
- Low auction clearance rates
- More vendors preferring private sales over auctions
- Property remaining on the market for longer
- Vendors more prepared to negotiate on price.
Does this mean it’s a good time to buy?
A buyer’s market could be a fantastic time to purchase a home, provided you research your purchase very carefully. There are some risks involved, but if you perform your due diligence and select the right property, you should be able to overcome them.
You will need to be careful not to overpay for any home you purchase in a buyer’s market, so the right property market data will be critical to your negotiations. Additionally, if the price of the property you buy should continue to fall, you may potentially find yourself in a negative equity situation – that’s where the home is worth less than you have borrowed to purchase it. But careful research and a 20% deposit could help you avoid this situation too.
Generally, it makes good sense to purchase a home when prices are low. If you plan to live in the home for a while or hold it as an investment property in the long-term, then you will likely be able to wait out the peaks and troughs of home value changes to eventually come out on top.
Should you wait and see if prices fall further?
The problem with taking a ‘wait and see’ attitude is that it may cause you to miss the opportunity to save – home values won’t continue falling for very long. The great thing about a buyer’s market is that there are plenty of properties available and more time to explore them because they’re on the market for longer.
When researching which property to buy, the same rules apply as always – you need to look at what drives demand and capital growth in your area of interest:
- Is the property close to public transport, schools and amenities like shopping?
- Are there good employment opportunities?
- Is the local economy growing?
- Is there steady population growth?
- Is rental demand high in the area?
- Do the numbers add up – will the property give you a good return on your investment?
Get your finance in order first.
In our next article this month, we talk about why it is now so important to get pre-approval on your home loan and to confirm your borrowing capacity before looking to make a property purchase. As always, it’s a good idea to get your finance in order before you consider putting down a deposit or signing a sales contract, so please give me a call today.
18 Mar 2019
Autumn has arrived and as the weather cools, property markets around the country are starting to heat up. Auction numbers and clearance rates are a bit low for this time of year, but private home sales are going along quite strongly. Nevertheless, home values are continuing to fall in many areas, and if you’re in the market to buy a home at a bargain price, there are plenty of houses and units up for sale.
Interest rate news
The Reserve Bank of Australia (RBA) decided to keep the official cash rate at 1.5% during its March meeting. Concern about the impact of the declining housing market on our economy has led to speculation by analysts about the RBA cutting rates by up to 50 basis points (or half a percent) by mid-2020. But right now, it’s a wait and see game and according to the RBA, rates could go either way.
Home value movements
According to Economist, Cameron Kusher at CoreLogic, “…it is looking inevitable that dwelling values will fall further over the coming months.” This is great news for home buyers and property investors who have been waiting for a more favourable time to get on the property ladder.
Some areas are holding value better than others and it pays to do your research before putting down a deposit. The biggest declines in home values over the last month have been in Darwin where prices fell 1.67% and in Perth where they fell 1.46%. As expected, ‘market corrections’ in Melbourne also brought values down by 1% and in Sydney, 0.97%.
Changes to home values were less dramatic in other areas, with regional centres holding value quite well. Brisbane/Gold Coast home values declined just 0.25%, and Canberra 0.19%. However, home values were up in Adelaide by 0.04% and in Hobart by 0.82%.
Property market activity
When property prices are stagnant or falling, conditions tend to favour buyers and vendors are more likely to choose a private sale over an auction to achieve their price. As a result, the number of auctions and clearance rate figures are decreasing as private sales numbers rise. The table below provides a snapshot of the property market at the end of February.
If you’re in the market to buy a home or invest in property, be sure to read our articles this month about how to take advantage of our current buyer’s market and avoid any risks. If you are wanting to buy a home, a home loan pre-approval is very important in this market, so please call us to chat about your plans today.
Mike & the Element Finance Team
05 Mar 2019
Valentine’s Day makes us think about loyalty – which is an admirable quality in any relationship. But is your devotion to your home loan provider justified? It’s important to ask your mortgage broker to help you review your home loan from time to time. We’re here to check the interest rate, review it’s features and make sure it’s still giving you everything you need and desire.
Here are some tell-tale signs that it may be time to part ways with your current lender and start afresh with someone new.
Your home loan is getting old
Without suggesting you go on ‘Home Loan Tinder’ and start ogling a new lender every week, we have to say the days of staying with the same one for 30 years are long gone. If you’ve had your home loan for more than two years, it could be time to review it. The home loan market is increasingly competitive and new products are being released all the time.
For example, take offset accounts. These transaction accounts are linked to your mortgage, and any money you deposit is offset against your outstanding loan balance, saving you money on interest. They just keep getting better and better, with a larger proportion of your loan available to offset.
Another popular option is a redraw facility. This allows you to make extra repayments on your mortgage and save on interest, without committing to a shorter loan term – you can access and withdraw those extra funds at any time.
The honeymoon period is long gone
When you first take out a home loan, lenders may offer you a sweetheart deal to get you in the door. It’s not uncommon for them to waive fees or discount interest rates to new customers – this kind of loan arrangement is frequently referred to as a honeymoon period or honeymoon loan. But once the honeymoon is over, the loan may revert to a more expensive or less convenient loan than you would like. If that’s the case, it’s time to look at new options.
Your lender doesn’t listen to a word you say
Nobody likes to nag. If you’re always chasing your lender about rates or ways to save, it may also be time to hit the bricks. Similarly, if you’re sick of talking to a voice recording over the phone and crave real human interaction, there may be other lenders who place greater importance on giving you the attention you deserve. If this is the case for you, ask us about our home-brand home loans, where we provide you with the after-care service ourselves.
Your needs are not being met
Maybe you’ve scored a higher paying job and want to pay down your mortgage faster. Perhaps you’re adding to your family and temporarily need to rely on one income for a time. If your needs have changed, you may find it more fulfilling to be with another home loan provider and a mortgage that marries with your current financial circumstances and goals.
Remember, there are plenty of fish in the sea!
As your mortgage broker, we can access 100s of loan products from a wide variety of lenders. We’ll also know which lenders and products are right for you, considering your personal financial circumstances and goals. Let us be your match-maker!
Don’t stay in an obsolete relationship with your lender. If you’d like to know more, or would just like a home loan health check with no obligation to switch lenders, please get in touch.
19 Feb 2019
Considering buying a property off the plan? It sounds good in theory, with the possibility of stamp duty concessions and other benefits for first home buyers. But in 2018 there were quite a few people who got caught out by the hidden risks. Read on to find out what you need to know if you’re thinking about buying off the plan this year, or if you’re having second thoughts about an off the plan purchase.
What does ‘buying off the plan’ mean?
When you buy ‘off the plan’, it means the property you’re buying is not built yet. Typically, you’ll only have to pay the deposit upfront, then the balance of the purchase price once the property is completed. Because an off the plan purchase is a new build home, you may qualify for stamp duty exemptions or first home owner concessions, depending on your circumstances. (Check your state or territory’s rules online).
What are the risks?
Lenders may offer conditional approval for off-the plan purchases, but they won’t lend you the funds until they have performed a valuation of the property upon completion. In 2018, many buyers were caught out because their off-the-plan property was valued at less than the agreed purchase price and the lender would not lend the amount required to complete the sale.
There may also be other risks with purchasing an off the plan property, including:
- The final product may differ from your expectations.
- There may be delays or the development may not proceed. Your deposit should be refunded if this happens, but in the meantime, your money will have been tied up.
- If the developer holds on to your deposit (rather than putting it in a trust account), your money may be at risk if the developer goes bankrupt.
Terminating an off-the-plan contract
Terminating an off-the plan contract can be tricky, but there may be grounds to do so. For example, if the vendor has engaged in misleading conduct or the developer doesn’t complete construction before the sunset date, you may be able to terminate the contract.
However, if you want to terminate the contract because a lender has valued the completed property at less than the agreed purchase price, you may have difficulty. You could potentially lose your deposit and may have to compensate the developer for any loss.
Seek legal advice about your options if you wish to terminate an off-the-plan contract. More importantly, ask your solicitor to examine any contract before you sign, to ensure you have appropriate exit clauses in place – more about this below.
Selling before settlement date
Some buyers decide they want to sell the property before settlement. This is legal under most off-the-plan contracts and can prove to be lucrative if the property’s value has gone up, but there are risks involved.
- Have your conveyancer check that the contract allows for re-sales prior to settlement.
- Speak to your accountant about the tax implications of reselling the property (you’ll likely be up for capital gains tax).
- You’ll have to pay stamp duty, additional legal fees and any agent’s commission, so be sure to factor these costs into your calculations.
- If you find a buyer but your contract with them falls through, you’ll still be bound to settle with the developer.
- Ask the developer to include a clause in the contract that allows you to terminate it if the completed property is valued at less than the agreed price.
Talk with me before you get started
If you do decide to go ahead with your off the plan purchase, I can help to organise pre-approval on your home loan and help you choose a lender that will work with you on this type of purchase. I can also refer you to a reliable conveyancer or solicitor to help you avoid the legal pitfalls. If you’re having difficulty organising finance to complete an off the plan purchase, please get in touch asap!