Property News 5 Dec 2023

With the property prices increasing every month so far in 2023, many Australians are considering the leap into home ownership or upgrading their existing abode – here’s what you should consider before doing so.

With interest rates potentially still on the rise, for new home buyers and upgraders alike, applying for a home loan can present challenges.

This means being prepared is essential - to help you secure the keys to your dream home sooner, we spoke to the experts to find out nine things to keep in mind before submitting that all-important loan application.

1. Your borrowing power

Stephen Harper from Bankwest suggests starting with financial groundwork—know your income, expenses, debts, and credit score. Connect with a mortgage broker, lender, or try online calculators to gauge your borrowing capacity. Keep in mind, what suits one homeowner may not be the best choice for another.

2. Your credit score

Lenders evaluate your creditworthiness through your credit score, and in 2024, amid the digital finance surge, you can easily access your credit report in Australia for free annually. Regularly reviewing and correcting discrepancies is wise, and tools like SavvyShield from Credit Savvy help safeguard your credit score against potential impersonation for financial gain.

3. Interest rates

When considering fixed-rate loans, Stephen recommends researching potential rate changes but highlights the certainty offered by Bankwest's Fixed Home Loan. You can choose a fixed rate period (1 to 5 years) for consistent repayments, but it's crucial to weigh the implications and potential break fees if you decide to break the loan during the fixed period, and be aware of limitations on additional repayments.

4. Additional costs

When budgeting for your dream home, consider more than just the purchase price; include inspection fees, stamp duty, conveyancing charges, and possible mortgage insurance. Stephen advises being aware of these upfront costs, as they can accumulate rapidly, influencing the amount you'll need to borrow. Additionally, he suggests exploring potential stamp duty exemptions or concessions based on your circumstances and location, especially for first-time homebuyers.

5. Loan features

Home loans vary, so it's crucial to match your needs—whether it's an offset account or the freedom to make extra repayments without penalties—with a loan that provides the flexibility you're looking for.

6. Existing equity

Considering an upgrade? The increased value of your property can be leveraged for renovations or improvements; reach out to your lender or broker for guidance on the borrowing process and insights into your post-upgrade finances.

7. Your loan-to-value ratio (LVR)

The Loan-to-Value Ratio (LVR) measures your desired loan amount against the property value, with a lower LVR often securing better interest rates and potentially avoiding mortgage insurance. Stephen recommends aiming for a 20% deposit to optimize your LVR and potentially eliminate the need for lenders' mortgage insurance.

8. Your investment goals

Your choice between a home or investment property may affect loan options and rates, as investor loans generally carry higher interest rates than owner-occupier loans. Stephen suggests considering factors like rental demand and the varying interest rates for investors versus owner-occupiers when exploring investment opportunities.

9. Your existing mortgage

Now is a great moment to reassess your mortgage; exploring alternative options with a mortgage broker or lender can unveil potential savings and introduce features better aligned with your current needs, offering personalized advice and navigating the array of loan choices to secure the right deal for you.

Further reading; https://shorturl.at/hjmWY

Photo by Fadzai Saungweme on Unsplash