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Fixed, variable, split – find the right fit for you

In Australia, there are a number of ways to structure your home loan repayments. Finding the best option may save you time and money on your mortgage. Here is some information to help you choose the repayment structure that works best for you.


Variable rate loans

Variable interest rate loans are all about flexibility. Essentially, with a variable rate loan, the interest rate moves up or down as the market moves. This means your loan repayments may also change month-to-month.

If the interest rate drops, then your repayments may drop as well. However, in the event of an interest rate rise, your repayments could also increase.

Many variable rate loans come with additional features, which can reduce the amount of interest paid over the life of the loan. For example, a variable rate loan with a 100% offset arrangement links your loan account to your savings account. Any funds held in your savings account are offset against the borrowed amount, reducing the interest you have to pay.

Many variable rate loans offer flexibility in terms of increased payments, allowing you to pay off your loan faster if you have additional funds available.


Fixed rate loans

A fixed rate loan is one where the interest rate is fixed for a limited period, and immune from any movements in the market. The most popular choices are three and five-year fixed interest loans, although options ranging from one to ten years are available.

Fixed rate loans allow you to make steady, regular repayments. They’re great for borrowers on strict budgets, or if you’re entering into a mortgage at a time when interest rates are likely to rise.

In the event of a drop in interest rates, being locked into a fixed rate may mean your repayments are higher than they otherwise would be. It’s also worth noting that breaking a fixed rate loan can potentially cost thousands of dollars in fees.

Additionally, many banks will charge you a fee for making extra payments towards the loan during the period it has been fixed.


Split rate loans  a foot in each camp

A split rate loan is when you break your mortgage into two loans – one with a fixed rate and one with a variable rate.

It’s something of an ‘each-way bet’. A split loan offers borrowers protection from rate rises (with the fixed portion of the loan) alongside the advantage of rate drops (with the variable portion of the loan).

Most banks will allow you to split your loans from the outset, without having to pay for two separate loan applications.

Choosing the right kind of loan depends on your personal situation, earning capacity and long-term goals for your property.

Speaking with Public Home Loan broker can help you to figure out the best way forward, and could help you save money along the way.

Four Must-Haves for your next property inspection

You’re walking down the street when you see it – the perfect house. It’s charming, quaint and, okay, maybe a bit small, but you’re sure you could extend it later. But before you sign on the dotted line, consider whether your dreams will hold up under a little scrutiny.

Every state has disclosure laws that require the vendor to tell you some of the potential pitfalls of the property. These laws aren’t comprehensive so consider the following when you’re inspecting your dream house.


1. Building inspection

No matter what the agent has told you, or how new the property is, a building inspection is a must. A building inspection report is sometimes referred to as a pre-purchase property inspection report.

An inspector will check for structural damage, damp issues, compliance problems and anything else that might prove to be a headache down the track. While building inspectors should also identify damage caused by termites, a building inspection is separate to a pest inspection.

Always use a qualified building inspector, such as a licensed builder or surveyor. Ask any potential inspectors what their qualifications are and whether they carry insurance. Also ask what the report will include – is it a standard report, or a more-expensive comprehensive report? There are Australian standards for building inspection reports, and a professional must ensure that their report meets these standards


2. Your wish list

Before visiting a property, think about the practical things that you want in a home. For example, how many bedrooms do you need? Do you want an outdoor space such as a balcony or garden? Does it need to be near public transport? Do you want a large entertainer’s kitchen or a separate bathroom for the kids?

You probably won’t get everything on your wish list in one house, so split the list into ‘must-haves’ and ‘nice-to-haves’. Some things can be added later, but there’s no point buying a house that’s missing a much-needed bedroom because you fell in love with a cosy reading nook.


3. Ongoing maintenance

Be realistic about how much work the property will need. A large block requires some serious investment if it isn’t going to return to the wild, and older properties always need more attention than new builds. Overhanging trees might provide blissful shade, but they also come with an increased workload in autumn when the gutters fill up.


4. Neighbouring properties

If you’re buying a place with an eye to extending or subdividing, you need to be very careful. Many councils have restrictions on development in order to preserve the character of the suburb you’ve fallen in love with. You don’t want to find yourself stuck in a shoebox with a growing family because the local regulations forbid a second storey.

Look at the neighbouring properties to get a sense of what’s allowed. If none of the blocks are smaller than yours, chances are you won’t get permission for a subdivision. To be sure, check with the council about specific restrictions.

Of course, some councils aren’t so restrictive, which can cause other problems. If your next-door neighbour is an all-hours nightclub or an electric substation, you’ll want to consider that and possibly take a few steps back. A quiet night’s sleep may be worth spending some extra time and care to secure the right location.

With a little bit of research, you might find yourself breaking up with the home you fell head over heels for. If you need any extra assistance with finding finance for the perfect new home, make an appointment with your mortgage broker.

What to consider when buying a second property?

Buying your own home remains the great Australian dream – and purchasing a second property may help you take your wealth further. Whether you’re building your property investment portfolio, buying a holiday house or supporting a family member, there are plenty of things to think about before you take that next step.

Consider your cashflow

Property tends to be a long-term investment, so do your sums to make sure you can afford the ongoing repayments on two mortgages. Also think about any major life changes on the horizon. For example, you may be planning to expand your family, or you might need to support a parent in the coming years.

Get to know the market and location

Research what’s happening in the current market and whether it’s the right time for you to buy. Get to know the area you’re considering by speaking to local residents and real estate agents. It’s also wise to look into the short and long-term planning for the area. For example, nearby construction may affect your ability to find a tenant.

Investigate before you invest

If you’re buying a property as an investment, carefully consider its location. Buying in a high-demand area is likely to see you enjoy a constant flow of income from the rent.

You’ll need to provide your lender with a rental estimate letter, which you can get from the agent managing the property. Keep in mind that generally lenders only take 50–80% of the rental income into account when calculating whether you can afford the loan.

Choose the right mortgage

The amount you can borrow and the type of loan you choose will depend on various factors, including the equity in your current home, your income and expenses, and your property valuation. It helps to get quality advice on the right mortgage for you, along with other considerations such as negative gearing, and how to structure your loan to maximise tax effectiveness.

Whatever your reason for considering a second property, being well-informed will ensure a smoother purchasing process and a financially secure future.

Five Question potential First Home Buyers should ask themselves

As a new home owner, you may be asked by friends and family interested in buying their first home what to consider before diving in. Here are five tips you can pass on.

  1. Is it the right time?

Moving house can be stressful and time-consuming, so consider whether it’s suitable right now. Will your children need to move school? Are there work obligations that could make a move challenging? If you’re planning major life changes like having a baby, you’ll need to factor these in.

  1. Am I ready?

When considering your financial situation, do you have debts (like a personal loan) that you’ll need to manage? Perhaps you can consolidate these into your home loan, or pay off the credit card first. You’ll need to ensure your deposit is big enough to both purchase your new home and cover the costs of buying.

  1. How much money do I need?

While the purchase price of your home will be your biggest cost, there are other expenses to pay. Some other costs include stamp duty, home owner’s insurance, legal fees and removalists.

  1. Can I afford the repayments?

Determine what you can afford by taking your income and deducting regular expenses. Add home-ownership expenses, like rates, and allow for some unexpected costs. Once you understand how much you can afford, work out how much you can borrow using an affordability calculator. 

  1. Are there any grants that I can access?

The government’s First Home Owner Grant (FHOG) scheme may provide a grant of up to $7,000 (up to $15,000 in Queensland) to first-home owners who meet certain criteria. Depending on which state or territory you’re in, and if you’re building your home, there may also be subsidies or tax exemptions available.

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