As-A-First-Home-Buyer-Whats-Available-To-You?

First Home Buyers – What’s Available To You?

First home buyer grants, concessions and benefits chop and change, but in recent years, they have mostly been aligned to the construction of new homes. By helping first home buyers (FHB) buy new properties, governments are also stimulating the building industry and incentivizing the supply of extra homes.

FHB grants have been around since 2000, when they were introduced to ease any slowing in home ownership caused by the GST. More recent benefits to come out of Covid and in response to low interest rates and rising house prices include the New Home Guarantee and First Home Loan Deposit Scheme, which allow 5% deposits instead of the usual 20%. And then there’s the Family Home Guarantee, which allows 2% deposits for single parents.

So what do they all mean and are you eligible?

New Home Guarantee

The New Home Guarantee is a federal initiative, recently extended for an additional 10,000 borrowers from 1 July 2021 to 30 June 2022.

Usually, FHBs need a 20% deposit or must pay lenders mortgage insurance (LMI).

This scheme allows a 5% deposit, while the remaining 15% (maximum) is guaranteed by the government. Note, it’s a ‘guarantee’, not a cash payment.

If you are covered by this Scheme, you can also access other government benefits for FHBs, that may be offered through states and territories.

Eligible New Home Guarantee properties include:

  • newly-constructed dwellings
  • off-the-plan dwellings
  • house and land packages
  • land and a separate contract to build a new home

For all types of eligible properties, a contract of sale and/or an eligible building contract must be entered into prior to the expiry of the 90 day pre-approval period.

First Home Loan Deposit Scheme

This scheme has also had 10,000 extra places added through to June 2022. The same 5% deposit is required as the New Home Guarantee, with a maximum of 15% of the property’s value guaranteed by the government. You can also still access state and territory FHB concessions.

The main difference is that existing properties are included in this scheme, not just new ones.

Eligible First Home Loan Scheme properties include:

  • an existing house, townhouse or apartment
  • a house and land package
  • land and a separate contract to build a home
  • an off-the-plan apartment or townhouse

Which scheme is for me?

To apply, you must be:

  • an individual or couple (married / de facto)
  • Australian citizen(s)
  • at least 18 years of age
  • earning up to $125,000 for individuals or $200,000 for couples
  • intending to be owner-occupiers of the purchased property
  • first home buyers who have not previously owned, or had an interest in a property in Australia

Family home guarantee (for single parents)

This scheme supports single parents with at least one child, by allowing a deposit as low as 2% to be used to buy a family home. The remaining 18% is guaranteed by the government and parents don’t have to be a first home buyer.

There are 10,000 guarantees available until 30 June, 2025 and applicants can also access other state and territory grants they may be eligible for.

You are eligible if you:

  1. are single (no spouse or de facto partner),
  2. have at least one dependent child (as defined by the Social Security Act 1991)

You must be able to show you are legally responsible for the day-to-day care, welfare and development of the dependent child and the dependent child is in your care.

Eligible Family Home Guarantee properties include:

  • an existing house, townhouse or apartment
  • a house and land package
  • land and separate contract to build a home
  • an off-the-plan apartment or townhouse

If you are purchasing an existing dwelling, the property must be purchased under a contract of sale dated on or after 1 July 2021.

Where do I apply?

All the above schemes are available through a number of participating lenders, a list of which can be found at: https://www.nhfic.gov.au/what-we-do/support-to-buy-a-home/new-home-guarantee/how-to-apply/

All applications need to be made directly with a participating lender (or an authorised representative such as a mortgage broker). Speak to the Zinger Finance Mortgage Brokers to help you through the application process.

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Looking to climb up the property ladder

Looking To Climb Up The Property Ladder

So you want to make the most of low interest rates and rising property markets and build a bigger property portfolio?

Unfortunately, those same low interest rates make it much harder to save for a deposit the old fashioned way. But that doesn’t mean you can’t climb up the property ladder. That’s where equity comes into the picture.

Equity is the amount your property is worth minus what you still owe on it. Basically, it’s the portion of the property that you own outright. If you owe $200,000 on a property that’s worth $300,000, your equity is $100,000. If that property rose by another $50,000 in value the next year and you paid off another $10,000 of it, your equity would go up by $60,000.

If you already have at least one property, chances are that it’s gained in value over the past 12 months.

Revaluing it can unlock that extra equity, so that you can use a portion of it as a deposit on your next investment property.

New way of thinking

Back in the days when interest rates were high, the biggest hurdle to buying property was actually paying off the loan. Deposits were easier to save because your cash was boosted by those same high rates. So, saving a 20 per cent deposit on a $100,000 property didn’t take long, but paying it off could take 30 years!

These days, super low interest rates mean servicing a loan is the easiest part. But saving a 20% deposit, plus stamp duty costs when there are returns of less than 1% interest on the cash you have in the bank is much more difficult.

And this is basically why property investors have been dominating first home buyers at the affordable end of the market in recent years. They have equity ready to use as a deposit while the first home buyers are stuck trying to save money.

So how do I do it?

First things first, talk to the experts. Zinger Finance has a team that specialises in helping people build big property portfolios by using smart financing strategies and regularly pulling equity out of their assets.

Zinger can organise a valuation on your existing property. If, like most real estate in Australia, it has increased in value since its purchase or last valuation, you will have made some equity.

But you can’t use it all. Say for example, you have $200,000 equity on a property, the bank won’t let you use the full amount to invest because it would be exposed to too much risk if there was a dip in values for your existing property, or new property.

Instead, they will allow you to access a portion of it. Usually around 80% of your existing property’s current value minus the debt still owing.

So, in the case of that example property at the beginning of this article; if it’s now worth $350,000 and you owe $190,000, your overall equity is $160,000.

But your useable equity might be $280,000 (80% of $350,000) minus $190,000. That leaves you $90,000 to invest with.

The Zinger difference

A lot of mortgage brokers set you up with loan products where you are locked in and unable to refinance for a certain period of time (usually years). This ensures they receive their full commission from the lender.

But Zinger Finance aren’t like your typical mortgage brokerage. They’re a team of Mortgage Strategist. It was founded to cater to property investors looking to build big property portfolios and one of the ways to do so is to ensure you have the flexibility to revalue and refinance as often as you need to.

Zinger’s team of strategists can help you get your properties valued and revalued regularly to unlock all the useable equity you need, at the right time to help you reach your property investment goals.

Reach out

If you need help building a strategy to climb the property ladder by maximizing your use of equity and being educated on the best way to structure loans, get in touch to our team of Mortgage Strategists.

 

 

how-brokers-can-screw-you-over

How Mortgage Brokers Can Screw You Over

If you want to build a property portfolio to get you where you need to be, you need to make sure everyone you are relying on is on the same page as you.

Your accountant, legal team, buyer’s agent and, most importantly when it comes to loans, your mortgage broker.

Your average mortgage brokers out there may not be interested in your whole property journey. Often, they focus on one job only, getting a loan approved for the one property you are currently looking to purchase, and in doing so, secure their commission.

They are not thinking ahead and getting you the right loan that will allow you to purchase your next one, two or even 10 properties.

Here are a few common ways you can get screwed over by a mortgage broker who may be focusing more on their commission than your property portfolio.

Cross securitization

Cross securitization is a common one. When you are building a portfolio, you don’t want one under-performing property to drag down the rest.

Say you have three loans for three different properties. Loan 1 is worth $100,000; Loan 2 is worth $200,000 and Loan 3 is worth $300,000. You may think they are all their own entities, but let’s just say that unbeknownst to you, your mortgage broker has cross securitized them.

That means that there is a total loan of $600,000, secured against all three properties and you can’t sell or refinance one of the properties without the other two also being considered by the lender.

This situation can present a couple of nightmare scenarios.

Say you want to sell or refinance

Imagine the property attached to Loan 1 is in a property market that has seen some growth and you decide you want to sell that property and access the capital. The bank might say ‘OK, but first we need to do a valuation on the other properties because between them they need to be able to service the remaining $500,000 of that original $600,000 loan’.

If properties 2 and 3 have gone down in value, this may mean you will have to make up the difference to the bank.

Say you’ve paid down some of the loan and you only owe $400,000 but now properties 2 and 3 are only valued at $400,000, having lost $50,000 each in value of the properties. This means your loan to value ratio would now be 100% which the bank won’t allow. The bank may require you to pay $80,000 to get your loan down to $320,000 and 80% of the value of the properties. You’ve now lost any of the gain you may have realised by selling property 1.

The same applies for refinancing. Want to access some equity or get a better interest rate on one loan? Well, this won’t be easy if the two other properties and their loans must be considered, and they are holding you back.

If they weren’t cross securitized?

If the three loans were each stand alone, you could sell the top performing property, keep the money you make and continue servicing the loans of the two underperforming properties as long as you can make the repayments.

Inexperienced or unaccredited

Another trap with mortgage brokers is that you may end up with a higher interest rate than you should be paying or with a lack of flexibility in your loan product. This could be because your mortgage broker isn’t accredited to deal with the best lenders.

It’s important to realise that not all mortgage brokers have access to all the deals that are out there. They may be unqualified or inexperienced.

You need to ask a mortgage broker how many lenders are on their books and what commissions do they get from what lenders. The broker may have access to only a handful of options for you and may be steering you towards the loans that get him or her the best commissions.

Want to cut through the confusion?

The team at Zinger Finance has the best knowledge when it comes to structuring finance for maximum flexibility and growth and can make sure you are getting access to the loans most likely to help you through your whole property journey. If you need help building a finance structure strategy, reach out to us.

 

 

Eligibility-criteria

Eligibility Criteria

Thinking of applying for a home loan? Lenders have a lot of eligibility criteria that you need to meet before they will lend you money. Here’s what you need to know.

Who are you?

You will need to be:

  • An Australian citizen, or a permanent resident, or married to one or a temporary resident visa holder may qualify.
  • Aged 18 or older
  • Be financially reliable when it comes to income, spending habits and history.

Where does your money come from?

You can have a deposit ready to go and plenty of savings, but that won’t matter if your serviceability isn’t up to scratch. Serviceability looks at whether the money you are earning is enough to make your monthly loan repayments and other financial commitments without going into mortgage stress.

Here’s what to consider when you’re:

  • Employed full time: That’s good, but how long have you been in the role? If more than 12 months, great. But the bank may say no if you’re in a 3 or 6 month probation period. Some banks lend while you’re on probation but may lend less than the standard 80%.
  • Part time: You’re permanently employed, but your borrowing power will be less than if you were full time and you will require proof of your contractual hours.
  • Casual: How many hours do you work per week? Have you been getting regular hours for more than 6 months in the one job?
  • Self-employed: You will need to show consistent earnings. Lenders often require you to have been self-employed for at least 2 years, so they can compare your tax records to work out an average income.

Other income streams

Lenders may also consider:

  • Rental income from investment properties (usually up to 80%)
  • Share dividends (a portion)
  • Fringe benefits such as living or car allowance
  • Regular overtime pay (evidence required over 2 years)

Assets and liabilities

Lenders will consider your assets, such as other investment properties, shares, superannuation, your car or other items worth significant amounts

They then look at your liabilities. Do you owe money on a car, personal or student loan? These will affect your borrowing power. The biggest one is credit cards. Lenders look at the credit limits on your credit card rather than what you actually owe on them. So, you might owe $200 on a credit card with a $10,000 credit card… that’s $10,000 as a liability then they look at the monthly commitment at an average 3% of your credit limit.

Where does your money go?

Now, let’s look at your saving and spending habits.

Saving:

You’re going to need genuine savings in the bank, not just for your deposit but also to show you’re capable of setting money aside. Genuine savings is money that has been in your account for at least three months. Gifts and guarantees can be considered part of your deposit, but lenders want genuine savings of at least 5% of the value of the loan. Especially if your mortgage is going to require Lenders Mortgage Insurance (LMI).

If you are renting a property, some banks may look at your rental ledger and consider your payments as an alternative to genuine savings.

Spending:

Lenders often use the Household Expenditure Measure (HEM) when calculating your monthly expenses. Lender’s HEM is used for loan serviceability if it’s higher than your declared expenses vice versa if your expenses are higher than the lender’s HEM.

People have been shocked in recent times to be asked by lenders about individual expenses, such as shopping trips or holidays that have shown up in their transaction details.

Lenders are getting very forensic in the name of responsible lending and if they consider your application, they want to ensure that your declared expenses are sustainable.

Credit score

It’s important to be aware of your credit score or rating before applying for a loan. You can access your credit score for a fee from providers such as Equifax and Experian.

If you have payment defaults or black spots in your history, it’s best to know about these and see what action you can take to improve your credit score before attempting to borrow.

How the property you’re borrowing against might affect you

Once your personal finances are in order, consider the property you want to purchase which will be the security for your loan.

One part of a bank’s due diligence is assessing the risk the property presents to their loan. You might find the lender has a postcode restriction, which may mean special rules for the suburb your new property is in.

That bank may have a lot of properties already in that area which have LMI attached. This heightens their exposure, and they may need you to stump up a higher deposit, say 30% or more, to protect their money.

Then there’s the type of property. The bank might have more restrictions around buying a unit than a house, especially if it’s a smaller than average unit.

Also, the property should be on freehold or strata title without encumbrances. Finally, if you are buying the property as an investment property, you will face higher interest rates and lower LVR than an owner occupier.

 

 

Signing contract. Confident young man signing some document while sitting together with his wife and man in shirt and tie

Different Types Of Home Loans Explained

Before you get into individual loan types and their features, you first need to look at what type of overarching loan it is. For example, is it a residential home loan, or is it for a commercial property?

Is it for an individual borrower, or for a business?

There are so many different loan categories and types out there, but for the purpose of this article, let’s look at the most common, the residential loan.

When borrowing for residential property

There are two main types of residential loan; a home loan (as in, an owner-occupier loan for the home you live in), or an investment loan (when you borrow money to buy an investment property).

In both cases, you need to look at what features you require for the loan.

First, consider the type of repayments you will be making. They can be either principal and interest (P&I), where you’re paying down the principal value of the home and also paying interest on top; or interest only (IO), where you pay the interest on the loan only. You access equity when the property grows in value and get the rental income, but the principal amount that you owe the bank for the home stays the same.

In the majority of cases, a home loan for an owner-occupier property would require P&I. If you tried to borrow for an owner-occupier on an IO deal, the bank would require an explanation. But loans for investment properties are usually IO. This allows the investor to maximise cash flow, tax benefits and freedom to move money around.

Variable or fixed interest

 Now the type of interest, is it variable? Or fixed?

On a variable rate, the interest you pay will change when the bank decides to change its interest rate.

If it’s fixed, you can lock in the interest you pay at a certain rate for a particular term…usually 1, 2, 3, 4, or 5 years.

Variable rates are good when interest rates are low and potentially still on the way down. Fixed rates are good for people who want to lock in a rate that they are happy with and have certainty over their repayments for a certain time.

The loan features you need

There are various features available with variable loans. You might get 100% offset, where the savings you have offset the interest you pay on your loan. Other features are redraw facilities and the ability to make lump sum repayments. Some loans have a switch feature, where you can switch from variable to fixed.

A lot of banks offer package loans, where you pay an annual fee and that may cover the bank’s valuation fee, the application fee and the monthly fee. Some banks allow you to pay the one annual fee that then covers a number of different loans. Some have an unlimited number, while others cap the number of loans covered by the annual fee.

Basic versus standard variable

When you are looking at variable loans, there is also a difference between a basic variable and a standard variable product.

Say your variable loan option is a package, you might be able to negotiate discounts off the interest rate you pay. Or you may be a great saver and you have $200,000 in savings. You want the offset feature because you want to keep your savings but also be able to use it to offset the amount you owe and reduce the principal amount that you are paying interest on. You can negotiate these things in package loans.

Basic loans on the other hand are different. They are no frills types of loans. They are cheap because they don’t have many features apart from a redraw facility. The bonus is that they often don’t have application fees, or monthly fees. They don’t have an offset, but if your loan is less than $250,000, a basic loan will still be cheaper than a package loan.

 

 

Low-rates-what-does-this-mean-for-you?

Low rates – what does this mean for you?

The RBA decided to once again leave interest rates on hold at 0.1% at its recent March meeting, which means yet another month at the lowest interest rates ever.

In fact, if you have been paying off a mortgage at any stage over the past few years, you have been doing so in a historically low interest rate environment.

The RBA does this to stimulate the economy. The lower the interest rates are, the less money you spend on your debt, which means you have more to spend elsewhere. This extra spending helps prop up the economy.

But how you put that money to use is up to you. Recent research has shown the pandemic changed many of our spending habits, with Australian households saving an estimated extra $120 billion between April and December last year, due to restrictions on travel, hospitality and more. We seem to be more cautious about spending on material goods and luxuries and now choose to funnel extra cashflow back into our homes.

First things first

In order to take advantage of low interest rates, you need to make sure you’re paying the lowest that you can be.

Get online and check out loan comparison websites to see what else is out there. If there are better deals, you can consider refinancing with another lender; or, if you don’t want to leave your current bank, give them a call and ask them to match the better rate.

It’s a competitive market for lenders and they are keen to retain customers, so banks will often grant you a better deal if you pick up the phone and make them think you are ready to take your debt elsewhere.

Pay your own mortgage off sooner?

Now that you’re happy with your interest rate, where to next? One option is to keep making the same mortgage repayments, or even increase them and pay down your mortgage as soon as you can. Traditionally, people would want to pay their house off ASAP. Paying a bit extra when you can manage can shave years off your repayment term and save you tens of thousands of dollars over the life of the loan. You own your own house and any money that comes in. But is that still the best option?

Conditions have changed

Paying off your house early used to be beneficial when interest rates were much higher. For example, when banks were offering an average of around 7% on standard variable products, the accumulative effect of compound interest meant you would end up paying more than the purchase price of the property in interest alone over a 30-year loan term.

Now though, it’s a different story. You can get much better returns by focusing on acquiring new, quality debt rather than paying off existing debt which is attracting very small interest. Investing in property with plenty of upside for growth and good rental return can be a great way to take advantage of low interest rates.

Make lower repayments?

An option is to make lower repayments on your mortgage and free up more cash for your day to day life. That extra cash could be used to pay for something you need, or again, to invest in shares or property.

Making minimum repayments on your owner-occupier mortgage will free up even more cash to leverage into as much quality debt as you can manage.

You might use that cashflow to acquire multiple investment properties, which pay a rental income and appreciate in value throughout the rest of your own mortgage term.

Then, later down the track, you have the option to sell off some of your assets and use the capital gains to pay off your remaining debt, while keeping remaining properties for further income and equity. Or, simply keep holding the assets and benefiting from their growth and returns for as long as possible.

 

 

ZIN-Last-Call-For-2020

Last Call For Property Finance In 2020

If you can remember back to when we were able to go to the pub, ‘last call’ always signified that the bar was about to close for the night and this was your last chance to get a beverage.

‘What? Already?’

The end of the night can creep up on you, because time flies when you’re having fun.

However, you don’t have to be having fun. Time can also speed by when there’s a lot happening…like the year 2020 for example.

We’d barely begun picking up the pieces from the deadly bushfire season, when we were thrown into pandemic panic… if you can believe it, that first lockdown was now more than seven months ago.

While it’s felt like a long year for many (shout out to our poor friends in Victoria especially), it’s about to be all over.

So ask yourself, when it comes to your finance goals, what have you been able to achieve?

And is there enough time to make the rest of the year count.

Bank backlog

If you were still planning to buy property this year, you’re running out of time. An average settlement period of six weeks would take you through to Christmas, and that’s after you’ve sourced the property and made a successful offer.

If you’re in a position to offer a shorter settlement to the vendors, you might be able to get the deal done, but if you need to borrow money from the bank, that could be a whole new kettle of fish.

The pressure put on the banks by COVID and its financial mess means many have a backlog of loan and other applications they will need to get through before assessing yours.

There are stories out there at the moment about buyers picking up great property deals, only to run out of time to settle before the bank is able to pick up and process a loan application that they would be all but certain to grant.

The flipside is that if you don’t need finance approved, you may be able to swoop in and pick up a property from an eager vendor while your competition struggles to get their finances sorted.

As government grants and economic stimulus begin to wind up, there will be a lot of people looking to offload assets to free up capital or get rid of some of their debt.

A motivated seller may mean you pick up a property for $50,000 cheaper than you otherwise would have and that will be money you have earned on the way in when the market gets back into the swing.

Get in shape for summer

There is never a wrong time to make sure your finances are in the best health possible.

Look at the interest rates you are paying on investment properties or your permanent place of residence.

Chances are, you will be able to get a better deal by refinancing, or even calling up your own bank and threatening to look elsewhere unless they give you a rate reduction.

Especially since the RBA dropped rates yet again. With the official rate set at 0.1% there are now lenders offering rates below 2% and RBA Governor Philip Lowe says it will realistically be at least three years before rates look like rising again, so you’re in a strong bargaining position for a better deal.

Prepare for next year

While you’re at it, look at whether you can get a better deal in other areas affecting your household budget.

If you have been with the same energy provider or health insurer for longer than a year for example, you are missing out on a better deal from elsewhere.

Pick up the phone and you may save thousands and make sure you’re ready to start the new year with maximum borrowing power freed up.

Set your 2021 goals now and get the jump on those that do so in January. Make plans and get what you need into place to make sure next year is a great one.

And talk to a Zinger Finance strategist to see what you need to do to get finance ready for your 2021 goals.

Emotional-Rollercoaster-Of-Signing-Your-First-Mortgage

Emotional Rollercoaster Of Signing Your First Mortgage

Whether you’re an owner occupier or an investor, signing off on your first mortgage usually comes after a lengthy ride on an emotional rollercoaster; a ride which doesn’t actually end when you sign the contract! No, it keeps hurtling along until settlement, and even then you are only just beginning to deal with decades of ups and downs that come with property ownership.

When you go through the process, it’s hard to believe that there are so many home owners already out there! How did they all do it?

Anticipation

The first leg of the property journey can be exciting. You have set a goal, know what you need to do financially to get there and now it’s just about making it happen by making sacrifices and saving money. Every savings milestone achieved comes with the reward of satisfaction and the excitement of that end goal becoming closer.

Feeling overwhelmed

Once you have saved enough for a deposit, the next stage can be tough because you’re flinging yourself into something you wouldn’t know the first thing about… mortgages.

There are so many products and lenders, with different rates and features, and you have no idea which is the right one for you. There are complex words, epic amounts of fine print to read and understand, and many potential roadblocks to your eventual loan approval. Don’t go in blind, engage a mortgage broker, as they will be able to show you the best options for you, empower you to make a choice and even set up the preapproval process for you. They will also demonstrate what different purchase prices would mean for your budget, which will help you realise how much you can actually afford to spend.

Hope and hopelessness

Now it’s time to find the property you want to buy. You hit up open homes, auctions and spend hours scanning real estate portals to find the right property. You begin each week with a spring in your step and feel a tinge of excitement every time a new listing lands in your suburb of choice; but as this continues on for days, weeks and months, the hope turns to doubt, the tinge of excitement becomes instant cynicism; and that initial hopefulness can flip to the opposite. Just ask anyone who was looking for a property in the middle of Sydney’s recent boom. Some were looking for more than a year.

The best thing to do is remember that it won’t last forever. And the joy you will feel when you finally get there will be worth it.

Four seasons in one contract

You’ve found the right home and made an offer within your budget. This part of the process is an emotional rollercoaster in itself. You feel excitement and nerves as you wait for your offer to be accepted, then joy when it is! Though this turns back to some anxiety when you realise there is still time for someone to come up with an offer over the top of you, so you need to get down there with your deposit and sign the contract right away. This can often mean a quick trip to the solicitor or conveyancer for final checks and read-throughs to make sure there is an appropriate cooling off period, in which time any outstanding pest, building or strata inspections can be done. This time between acceptance and signing the contract can feel like an eternity, but it is of the utmost importance that you get everything right. The stress turns to relief when the deposit changes hands and the contract is signed by both parties and you can allow it all to sink in.

Settlement city

The period between signing and settlement can be stressful too, as you may need to wait for final loan approval from the bank. The reality is that you have taken a sizable gamble and risk losing your deposit, and your new home, if something happens to cause your finance to be rejected by the lender. You realise that pre-approvals are much easier to get than official approval and there may be some back and forth with the bank in question if they need you to clarify spending or send further documents to prove you can make your repayments. However, if you have a good mortgage broker, they will have been on top of any potential hurdles and will also help explain and respond to further bank requests.

And when the settlement date arrives, it’s happiness, pride and relief all at once. You did it! And you have taken the first steps towards your future. 

ZIN-Should-I-Invest-Or-Buy-My-Own-Home

Should you invest or buy your own home?

Whether to buy an investment property (IP) or permanent place of residence (PPOR), is really a question about the goals of the individual.

Do you want to own your own home right away, start paying it down and perhaps consider investment options later? Or do you want to create long term wealth and a passive income stream, so that you are able to purchase your dream home later in life?

The case for a PPOR

Pros

-Buying your own place of residence comes with a number of benefits. First of all, you may be able to access government grants for first home buyers, especially if buying off the plan or a new build property. Benefits differ state by state and depend on the value of the property and how long you are planning to live in it.

-You will get access to better interest rates, discount periods and more flexible loan features from lenders than if you were a property investor.

-If and when you decide to sell your PPOR, you will be exempt from capital gains tax, which will be a big bonus if you hold the property through multiple growth cycles.

-You can truly make the home your own. You can renovate and put permanent changes in place to add to the home’s appeal, without having to ask a landlord first. Not answering to a landlord also means you won’t face suddenly being made to move out.

-The money you pay goes towards your own long term wealth, while if you were renting, you’d be financing someone else’s goals.

Cons

-Your location will be governed by your first home buyer’s budget and you therefore may not be able to afford to live where you really want to. This could mean long commutes to work or being a long way from friends or recreational favourites. This is one reason some people buy IPs in areas they can afford and then rent a home (usually cheaper than mortgage repayments) in their ideal suburb.

-Aside from the CGT exemption, there are no other tax deductions or benefits to be had from a PPOR. You are also the one paying the bank, so your home is not creating an income like an investment property might.

-Putting all your savings into buying the best PPOR you can afford will often mean your borrowing power is all used up. It could be some time before you can create enough of a buffer to borrow money for investment or other purposes. Being stretched like this can also cause financial stress.

The case for an investment property

Pros

-You can make your decision based purely on what stacks up financially, without the emotional attachment of needing to purchase something you really want to live in.

-If your investment property generates good rental return and you are able to rent where you want to live for less than a PPOR in that area would cost to buy, your borrowing power will not be so tied down. You can therefore use your cash flow to sink into further investments.

-You will be able to claim various associated costs as tax deductions. Interest paid on the loan, management fees, insurance costs, depreciation, educational expenditure, buyers’ agency fees and advertising/marketing costs are all examples.

-Making savvy investments can mean accumulating enough equity to buy a better PPOR later in life.

Cons

-If you are renting where you live you will be at the whims of a landlord, lease agreements and strata regulations. You may struggle to find a rental that allows pets or fulfils your other needs.

-You won’t have access to any government help or grants that first home buyers enjoy and will usually have to pay more interest as banks are tasked with dissuading investors from dominating entry level markets.

-If you have to sell investment properties, you will pay CGT, which is hard to take if your strategy is to invest for growth!

-Non-savvy investments might make it even harder to get a good PPOR down the track than it is now.

So what’s the verdict?

It’s really up to the individual. Both sides of the coin have their ups and downs. You need to figure out which path suits you best and then make a start. Independent financial planners and advisers can explain everything in clear terms, to help you make the right decision.

Why A Low Interest Rate Shouldn’t Be A Deciding Factor

Why a low interest rate shouldn’t be a deciding factor.

It’s great to save money on a cheaper rate loan. But, sometimes choosing a low interest rate can cost you more in other ways.

In fact, there are a whole host of other factors to consider before lodging a loan application that could make or break your ability to access equity, refinance or purchase further properties down the track.

Looking beyond the allure of low rates.

Kabir from Zinger finance says that while it is important to secure a competitive rate loan, there are many other things borrowers should consider.

“Low interest rates can be a factor – but, not the only one.”

He says borrowers should look at how the lender values properties, as well as its policies on what it does and doesn’t accept before making a decision.

Instead of saving $150 per month on interest repayments with a cheaper rate loan, he says it may be possible to fund a subsequent property purchase by going with a lender who values your property higher.

First and foremost, look at your plan.

Kabir says it is important to assess your specific needs and goals before deciding which lender to go with.

“It all boils down to the client’s plan.”

He says low interest rates should definitely not be a deciding factor for those looking to build an investment portfolio.

How does the lender value properties?

Often, lenders will run special promotions where they offer a discounted rate – but there can be hidden opportunity costs involved. Under these promotions, lenders will often lower their valuations on properties. This means that an investor looking to build their portfolio may not be able to access as much equity as they could have done with a different lender.

And while some banks will give really good valuations, they may not be that great at offering competitive rates. It’s a give and take thing.

How much can you save by choosing a low interest rate?

According to Kabir, banks are currently competing on a more even platform than they used to. The difference in rates can’t be too high from lender to lender, and generally doesn’t exceed 0.5%.

Banks have different policies.

It is detrimental to make sure you lodge your loan application with a lender whose policies fit in with your situation and goals.

Kabir says borrowers should speak with a broker or to the bank they are looking to use in order to confirm all of their details regarding employment, income and what they are looking for. 

“Get a confirmation first as to whether it fits into the bank’s policies before lodging a pre-approval or a loan application.” 

This is important because every loan application you make is included in your credit report – which is the first thing lenders look at when assessing if you are a desirable customer.

The more enquiries you make, the lower your score will drop. If you keep going from bank to bank and getting knocked back due to their criteria, you may then miss out on a bank that would have lent to you based on their criteria, because of your credit score.

Other employment types.

Those who are self-employed or employed on a contract basis may want to go with a lender who has the lowest rate. But, this lender may have stricter requirements when it comes to assessing serviceability. They may require a full year’s financials when you may only be four months into a contract. Whereas, other lenders may not require this, but their rates could be a bit higher.

What should people look for when choosing a loan?

Whether you are an investor or a home buyer, it is important to understand what features you need in a loan before making a decision.

Then, it is a matter of finding the right lender whose policies support your situation as well as the right loan that can help you achieve your financial loans.

What should investors look at when choosing a loan?

Kabir says investors who want to build a property portfolio should look at the following things first and foremost before considering interest rates.

1) How do different lenders value properties?

You can find this out by speaking with a broker. At Zinger finance, we have the ability to order an upfront valuation without charging our clients for it. 

We can then compare them to figure out which lender will give the best valuation before deciding which bank to lodge the application with.

This is important because it can affect the borrower’s ability to fund their next property purchase as they build an investment portfolio.

2) Which lenders will give the maximum amount of equity? 

Some lenders put a cap on the amount of equity they will let you pull out, so even if they have valued the property favourably, you may only have access to a small amount of it.

Others require strict documentation in order to release equity, such as a contract of sale. Whereas others only require you to state the purpose of release.

3) To fix or not to fix?

If you decide to fix rates for a set term but then decide to refinance in order to pull out equity before the end of the term, you will have to pay exit fees. 

It is important to make a sound decision before fixing rates to avoid paying break costs.

But, if you are unsure whether you will want to pull out equity yet you want some stability in your loan repayments, you may be able to enter into a split loan, in which a portion is fixed and the rest is not.

In this case, if you want to release equity, you will have to do it with the same financial institution, so it is important to look at how well they value properties before deciding.

What should first home buyers look for in a loan?

While first homebuyers would benefit from getting the best rate available, it is still important to weigh up all the options before making a decision.

If you want to release equity from your home in order to buy an investment property, then you should consider the same factors that a portfolio building investor would.

If, however, you want to buy a home and you are sure you won’t be tapping into its equity, then you should try to find the lowest rate available. However, you need to make sure that the bank’s policies fit in with your needs.


Disclaimer: Please note that the information given in this video blog is only applicable to a number of scenarios and may not be relevant to your financial situation. For more tailored information regarding your own credit report, we would urge you to seek advice from a professional who is privy to your personal circumstances and can give information specific to your financial situation. Please get in contact with our team if you have any questions regarding your own credit report, or would like any help regarding your own finances.

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