“Don’t forget, when you purchase a property, there are a number of other upfront costs to cover, including stamp duty – so make sure you factor those extra costs in too,” Smith says.
The cash-strapped first home buyers
Our hypothetical first home buyers Sarah and Ted are in their late 20s and currently renting. They’ve squirrelled away their money for four years and they’ve saved up $100,000, but because they live in Sydney, this isn’t a very big deposit.
- Have a low interest rate. They cannot afford massive repayments.
- Be a low deposit loan. They probably haven’t saved a 20% deposit, so they’ll need a loan with a maximum insured LVR of 90% or 95%.
- Have a guarantor option. Alternatively, Sarah or Tom’s parents may be willing to guarantee a portion of their deposit, so a loan that allows for guarantors is a great option.
With these criteria, Sarah and Ted find a low rate loan with a high LVR. They ask their lender if it accepts guarantors, which it does. Sarah’s parents guarantee 15%, so they only need a 5% deposit and they can avoid paying lenders mortgage insurance. The loan they choose does come with a hefty application fee, but they decide it’s worth paying because everything else about the loan is perfect for them.
Although the idea of saving a big deposit may be intimidating, the First Home Buyers Deposit Scheme means you only need to save a 5% deposit to get your foot on the property ladder.
The cautious investor
Until recently, investors have been accustomed to paying far more than owner-occupiers for their property loans. But that’s no longer the case, with very competitive investment loans available, and banks once again vying for investors’ business.
“If you’re already a homeowner or an investor wanting to refinance or upgrade, housing affordability has never been cheaper than it is today, thanks to these record low interest rates that are expected to stick around for at least another three years,” Smith says.
In our hypothetical example, Margaret is currently paying off her home. She wants to buy a unit as an investment. She has $400,000 in equity and will use a line of credit loan to cover her deposit. But she’ll need a loan to buy the unit. She is less concerned with fast capital growth and more concerned with long-term income from rent.
- Be an investment loan. She cannot purchase an investment property with an owner-occupier loan.
- Have a competitive interest rate. Investment loans have higher interest rates, so she needs to shop around for the best deal.
- Have limited features. As Margaret doesn’t have much left in savings, she isn’t able to put money into an offset account, so she doesn’t need to pay extra for a full-featured loan that she won’t use.
The homeowner who is paying too much in interest
Our final hypothetical example, David, is paying off a $1 million mortgage with a 30-year loan term. online installment loans MO He has been repaying the loan for 10 years. David hadn’t looked at his interest rate in a while and was shocked to learn that the rate is above 3.30% – when he sees advertisements for other banks and lenders that offer extra features and lower rates.
- Has a much lower interest rate. This could save David thousands of dollars a year.
- Has low fees. David’s current mortgage has a hefty discharge fee. He wants to switch to a mortgage that doesn’t slug him with more costs.