If its been a while since purchasing your last home, you might (understandably) no longer be familiar with the home buying process. We've put together a brief guide to help you brush up on common financial terms and language, along with some of the key costs you might encounter. However, if you prefer talking with someone face-to-face or over the phone, our Lending Consultants are always here to help.
This is the amount of loan you are borrowing compared to the value of the asset, expressed in percentage terms.
For example, if you are borrowing $400,000 on a $600,000 home, your LVR is 66% ($400,000/$600,000). The bigger your deposit, the lower the LVR will be.
A fixed interest rate is a loan where the interest is set for the duration (term) of the loan, allowing the borrower to know exactly what their repayments will be.
In contrast, a variable interest rate may move up or down according to current economic conditions.
Most loans consist of principal and interest repayments. This means you are paying down both the principal balance (borrowed amount) as well as the accrued interest on the loan.
With these types of repayments, you are paying only the interest component for a certain period. The repayments are lower as you are not repaying the principal amount.
A Guarantor is a third party who enters into an agreement to pay your loan if you can't. If you are not able to pay back your loan, the bank can recover any outstanding amount from them.
This type of account is a transaction account linked to your home loan. The balance in this account offsets your loan amount, reducing the interest component.
For example, if your outstanding loan is $500,000 and you have $20,000 in this account, you will pay interest on $480,000.
An offset account can save you considerably in interest repayments over the life of your loan and help you pay it off sooner.
With this facility, any extra repayments you make on your loan can be accessed at a later date.
For example, if your minimum monthly repayments are $2,000 but you repay $3,000, you can access (redraw) the $1,000 if you need it.
Some people may choose to redraw money for large expenses such as a home renovation, while others may choose to retain the additional repayments to reduce the interest and term of the loan.
Upfront Costs
When looking to buy a home often the only thing we focus on is the price of the property. If it’s been a while since you bought your last home, remember to keep in mind some of the upfront costs you might incur as part of your home buying journey.
Upfront costs can vary between each state and territory so best to investigate fees based on where you live and your personal situation.
A building and pest inspection will determine the condition of the property and most importantly, its structural integrity. If the inspector finds a number of concerns such as asbestos, termites, cracks or drainage issues you might decide not to proceed with the purchase or request a reduction in the price.
Lenders Mortgage Insurance is a one-off premium that you can pay upfront or as part of your loan and is designed to give those with a lower deposit an opportunity to buy a property.
Essentially, LMI protects the lender if you are unable to pay for your loan in the future and is calculated based on the size of your deposit and how much you need to borrow. The best way to avoid paying LMI is to have a deposit of at least 20% of the property purchase price.
A loan application or establishment fee is a one-off payment per application, which may also include a valuation fee.
When buying or selling a home, a conveyancer or solicitor will arrange documentation for your sale or purchase. Often this includes preparation of the contract, title searches and organising settlement costs.
A mortgage registration fee is a government fee paid during settlement when a mortgage is established (buyer) or when the mortgage is discharged against the property (seller). The fee register’s the physical property as the security on the home loan, allowing any future buyers to check claims that may exist on the home.
A transfer fee, also required by the state government, covers the transfer of title of the property from one party to another.
Stamp duty, sometimes called transfer duty, is a tax charged by the state government when buying a house or transferring to a new owner. It’s one of the more expensive costs you will incur outside of the property purchase price and the amount paid can vary greatly depending on the price of the property and which state or territory you live in. If you’re a first-time home buyer, you may be eligible for stamp duty exemptions or concessions which can significantly reduce the cost.
You know you have to move, but don’t forget the cost? Depending on how far you’re moving and how much you own, moving fees can become quite costly.
If you have a few valuable pieces, you may also want to consider additional insurance just in case any dents, scratches or breakages happen along the way.
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