Tips for Buying or Building Your First Home

The extension of the Federal Government’s first home buyer’s grant to September 30 has been a boon for those looking to enter the property market for the first time. The $21,000 grant only applies to people aged over 18 years of age and those who are buying a new home, while first home buyers who acquire an existing home get $14,000. First home buyers need to enter into a contract to purchase an existing home or buy “off the plan” by the end of September to be eligible for the grant.

The grant has been a blessing for young Australians keen to fulfil a dream of building their own home, while providing a much-needed boost to the construction industry. However there are traps for young people jumping into the market without the discipline of saving and having a financial buffer to cover their mortgages if they lose their jobs after settlement.

Buyers need to be conscious of the traps in buying a new home, especially as the economy appears to be under pressure. As a direct result of the Global Financial Crisis, the Reserve Bank of Australia has slashed interest rates to historic lows to stimulate our economy. And as the world recovers, it’s guaranteed that rates will rise again and buyers need to budget for this. And more now than ever, buyers need to do their homework before committing to a property.

There are still good deals to be had, but extra caution is needed in selecting the right property as the first home buyer’s grant has created a price bubble in some areas. There’s no point paying $20,000 or $30,000 over market value just to get $14,000!

The first step in the process of building your home should be to arrange provisional finance and get expert advice from Aussie before entering into a contract for a first home construction. Buyers need to be aware of their financial limits and commitments during the construction period and following completion. It is worth bearing in mind that many lenders in Australia are reluctant to provide finance to owner-builders, and loans are usually restricted to the construction period.

Buying a property is usually the biggest investment decision you will ever make, and the stakes are high if mistakes are made. But with careful planning and research, buying a property can be very rewarding for both your bank balance and lifestyle.

Here are some important tips I have learnt to help avoid the most common traps:

1. Work out how much you can afford to spend before you even look, and only look at apartments or homes clearly advertised within that price range. Do not waste your energy looking in the wrong suburb – because you may end up biting off more than you can chew.
2. Look at as many properties as possible in your price range to get an idea of what you can afford. Check with Aussie’s skilled mortgage advisers to work out what loan product suits your needs – especially your borrowing limit!
3. When working out the best home loan for you, check the ongoing payments, especially in the fine print for monthly service fees and other charges.
4. If you are worried about interest rate rises, you can split your loan between variable and fixed rates and take an “each-way” bet.
5. Make fortnightly payments, not monthly, so the interest on your mortgage does not add up.
6. Remember a low start-up interest rate, or honeymoon rate loan does not mean you will be paying less for your property in the long term.
7. Make absolutely sure your home loan repayments do not overly impact on your lifestyle. You do not want to only eat baked beans for dinner for the next 25 years.
8. Be prepared for the monthly repayments to rise and fall during the life of your loan. Make sure there is some financial room to move if rates rise. If rates fall keep paying the same amount each month or fortnight, so you pay off your loan quicker by eating into the principal owing.
9. The best step you can take in the search for your first place is get pre-approval for a loan, which Aussie and some other lenders can provide, so you know exactly what you can afford.

Buying a property is one of the most exciting and financial things you can do in your life, so try and enjoy it. The better your research and preparation, the greater your enjoyment … and financial rewards.

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0403 144 822
(08) 9300 0686
michael.cormack@aussie.com.au
Mike Cormack
Aussie Joondalup

Fixed or Variable Rate - Why Not Have Both?

Annoyed that you may have missed the opportunity to take out a fixed mortgage with rates set to move higher? Well, why not create your own?
It’s not such a crazy idea. You can simply turn your current variable home loan into a pseudo fixed loan by raising your repayments to match the current fixed term loan amount. And by doing so, you will not only be more likely to pay off your mortgage faster but at the same time you can enjoy all the flexibility a variable loan can offer.
So how do you go about it? In the first instance find out what the current repayments would be for a fixed loan. According to ratings house Canstar Cannex, the current average three year fixed rate of 6.94 per cent on a loan of $250,000 means a monthly payment of $1757.39. The average fixed rate for a five-year fixed loan is 7.65 per cent requiring a monthly repayment of $1871.94 on a $250,000 loan.
These repayments compare with $1552.80 a month on a current average variable rate of 5.62 per cent so by adopting this strategy you will either pay an extra $204.82 (with a three year fixed) or an extra $319.14 (with a five year fixed) a month.
If you choose to pay the equivalent of a three year fixed rate then assuming all things were to stay the same (which they are unlikely to do in reality) then you would save $52,398 in interest and pay off a 25 year loan five years and five months faster.
Clearly with the Reserve Bank governor Glenn Stevens current take on the outlook for rates, the variable is not going to stay the same, whereas for example the three year term of a fixed loan guarantees you that the rate will remain the same. Stevens recently hinted again that rates would probably start to rise again before Christmas.
But since the variable rate probably won’t jump 1.3 per cent in one hit (the difference between the standard variable and the three year fixed), there will still be some room to benefit for a few months yet. Indeed, the longer the average variable rate stays below the current fixed rate of 6.94 per cent, the better off you will be.
And the other good news is that you can maintain all the flexibility that traditionally comes with a standard variable loan – lump sum repayments, redraw facility and the ability to split your loan.
Peter Arnold of Canstar Cannex says: “You may well come out on top as long as the variable does not shoot up too quickly. While you may end up paying more after 18 months, by making the extra payments on your variable home loan that money is going towards paying off your principal. If you just had a fixed loan, this may not be the case.”
So having a do-it-yourself fixed interest loan through your variable is a bit like the old Claytons joke. It’s the fixed interest loan you have when you’re not having a fixed interest loan!
Key points:

• Repayments on variable loans are currently lower


• Use the difference to pay off your principal


• Reduce your loan term by years by paying off your loan faster


• Retain the flexibility of a variable loan

If you enjoyed this post or found it useful, please consider posting a comment or 'Sharing' it using the button on the top left of the page.
0403 144 822
(08) 9300 0686
michael.cormack@aussie.com.au
Mike Cormack
Aussie Joondalup

Tips to Sell You House For More

If you are thinking of selling your home, or if you already have it on the market, of course you want to get the best price possible and you don't want to see it sitting on the market for longer than necessary. Making some small subtle changes to your property can mean a huge difference in the selling price and time on the market. Read through and see. Please add any other tips or experiences you may have for other readers.

INSIDE PRESENTATION

Ensure your house is clean and tidy
Remove any clutter.
Make sure windows are sparkling clean.
Check that all doors work well and doors don’t jam.
Think about how you arrange your furniture.
Consider obtaining advice of an interior designer.
Rub lavender oil into door jambs to provide a clean smell.
Shower screens, bathrooms and ovens should all be immaculate.

OUTSIDE PRESENTATION

Check gutters and remove any rust spots or debris
Mulch gardens and mow lawns, weed and prune shrubs
Replace any broken fences or missing pailings.
Ensure all gates are working properly
Clean paving to courtyards or pool areas.
Check all pool equipment is in working order.
Pool water should look inviting and well cared for.
Garages and carports should not be cluttered.
Try and store things away neatly.
Water features should be operational and well presented.

INSPECTIONS & HOME OPEN

Buyers will feel more comfortable when they inspect the house if the owner is not home.
Ensure the house is a comfortable temperature.
Brewing coffee creates a pleasant aroma throughout the house.
Open windows and blinds to create natural light.
Fresh flowers always add colour and are a must
Switch on your answering machine, phone ringing can be off putting for potential buyers.
If you are selling, or thinking about selling, with the intention of buying a new home you should speak with a mortgage broker sooner rather than later. Did you know you don't always have to sell your current home before buying the new one? I am a mortgage broker at Aussie Joondalup and am experienced with these loans. Contact me today to see how I could help.
0403 144 822
(08) 9300 0686
michael.cormack@aussie.com.au

Mike Cormack
Aussie Joondalup