Headlines are popping up with increasing regularity that suggest there’s never been a better time to buy a property.
Prices that were at a record-growth pace just 12 months ago have levelled out because of Covid-19 – but are expected to move again in 2021 – and the official Reserve Bank cash rate is at 0.1% —a number that we’ve never seen so low.
Cheap money and enticing price trends are great news for those who want to jump into the market for the first time.
The property market is recovering from the initial shockwave of Covid-19, but supply remains thin compared with previous years, and this has stopped a collapse in prices.
As experienced local agents, we agree it’s a great time to enter the market. The Reserve Bank suggests it will keep its cash rate at historical levels for at least three years to stimulate the economy. So, if you have a dependable income right now, this is a great time to make your move.
If you’re new to the market, it’s always worthwhile studying the benefits of the various mortgage products and incentive packages that are currently available.
A first-time buyer can take advantage of stamp duty discounts as well as first-home owner grants offered by the state government.
The federal government is doing its bit, too. It has extended its First Home Loan Deposit Scheme with increased price caps for up to 10,000 applicants who buy a new or newly-built home.
Under this scheme, the government will guarantee 15% of your loan if you’ve saved just 5% of a deposit. This means first-time buyers will not have to purchase lender Mortgage Insurance, which can cost you thousands of dollars each year.
Organising your finances – and making the most of all these incentives – is essential as part of your property journey.
Below are three key elements of loans that you should always consider before deciding on a mortgage application. You can approach a bank directly, or use the services of a mortgage broker, who represents several lenders and offers a more comprehensive array of loan products. Either way, you need to understand some of the essential elements of a home loan.
Deposit – Have you saved enough money? Remember, with the government loan guarantee you need only 5% of the mortgage you’re seeking. In regular times, a lender might request up to 20%. Some lenders are flexible on the size of the deposit they require, so shop around.
Lenders Mortgage Insurance (LMI) – The government guarantee is excellent news, but make sure that this is applied to your circumstances. It’s not usually your responsibility to organise LMI. The lender does this because the policy is designed to protect them, even though you pay for it.
Interest rates – Talk to a variety of lenders, or a mortgage broker, about the types of loans they offer and the applicable interest rates. Your options include a fixed and variable interest rate. Some lenders will allow you to get the best of both worlds and split the mortgage into parts that are fixed and variable. Loans with variable rates are cheaper because there’s always a risk the rate will go up. Ensure there are no penalties for paying down your loan early or switching lenders.
Additional features – You should be able to make extra payments on the loan without penalty, as these will save you thousands of dollars in interest costs over the years. A redraw facility is useful because you’ll be able to use the equity in your home to buy a new car or pay for renovations without seeking an additional loan at a different interest rate. You should also ask about the availability of repayment holidays and a line of credit for those times that get a little tough.