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Big new incentives to help home buyers

Big new incentives to help home buyers

Developers are offering up lavish gifts and money-can’t-buy experiences to prospective homebuyers in an effort to kick start a sluggish home building market.

Would-be buyers are being showered with developer gifts including holidays, new cars, cash and even cooking lessons with a celebrity chef as an incentive to build with them.

In South Australia, property developer Scott Salisbury Homes is offering new home buyers cooking lessons with 2010 MasterChef Australia runner-up Callum Hann. While Dechellis Homes and Rossdale Homes are offering $10,000 cash towards their new homes and people who sign up with Sekisui House Australia can pay an extra $999 for 2013 Mitsubishi Mirage valued at $14,000 or a Japanese holiday valued at $11,690. Fairmont Homes are adding free evaporative air-conditioning with their new homes, according to reports.

Elsewhere in the country, home builder Stockland has been giving rebates and cash handouts of as much as $30,000 as an incentive to buyers in New South Wales, Queensland and Victoria.

While another developer firm, Peet, was offering discounts of as much as $50,000 in Queensland, Victoria and Western Australia.

Never a better time to buy: expert

Developers say they are facing the toughest housing market conditions in two decades, with new home sales in December down 6.6 percent compared to the level of a year earlier and home loan approvals to build 31 percent below the 2009 peak.

The Housing Industry Association’s South Australia director Robert Harding said the incentives were introduced to breathe life into the struggling construction sector.

“I don’t think it’s surprising that we are seeing these (incentives) happening,” he told News Ltd.

“From a consumers’ point of view, when you look at what is on offer, there has probably never been a better time to be involved in the residential, new construction market.”

But experts are warning potential buyers against rushing in to the property market to cash in on incentives before they are financially prepared.

There is a catch

Most borrowers would be better off saving longer for a more substantial deposit than entering the market less prepared for the sake of a new car or even a $10,000 rebate, said Michelle Hutchison, spokeswoman for RateCity.

“If you’ve saved a decent deposit, have done your research around home loans and have a steady income then inducements like this could be a good option. But for everyone else there are some risks to be aware of,” she said.

“The first is obvious, but it’s worth looking at the numbers to help make it real. A smaller deposit means you will owe a lot more money.”

If you borrow 90 percent of the value of a $400,000 property you start with a mortgage of $360,000. Borrow 95 percent and that mortgage starts at $380,000. Just that $20,000 difference adds an extra $114 per month to your repayment and an extra $20,000 interest over a 30 year term (based on paying a low rate of 5.5 percent).

“Second, you’re likely to face an additional cost called lenders mortgage insurance (LMI), which protects your bank if you default on the loan. LMI isn’t cheap – Genworth estimates that a 5 percent deposit on a $400,000 property will require LMI of over $12,000. You can fold this into your loan, but payable over 30 years means you’ll be paying over $12,500 in extra interest,” she said.

Finally, owing more money creates more risk. You’re at greater risk when rates rise than someone with a bigger deposit and you’re also more susceptible to reductions in your income, she said.

“While some incentives can offer borrowers a much-needed leg up into the market, it really pays to do your homework, compare home loans and understand the real costs before you get swept up in the excitement of buying before you’re ready.”

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Learn more about home loans

When do mortgage payments start after settlement?

Generally speaking, your first mortgage payment falls due one month after the settlement date. However, this may vary based on your mortgage terms. You can check the exact date by contacting your lender.

Usually your settlement agent will meet the seller’s representatives to exchange documents at an agreed place and time. The balance purchase price is paid to the seller. The lender will register a mortgage against your title and give you the funds to purchase the new home.

Once the settlement process is complete, the lender allows you to draw down the loan. The loan amount is debited from your loan account. As soon as the settlement paperwork is sorted, you can collect the keys to your new home and work your way through the moving-in checklist.

Why does Westpac charge an early termination fee for home loans?

The Westpac home loan early termination fee or break cost is applicable if you have a fixed rate home loan and repay part of or the whole outstanding amount before the fixed period ends. If you’re switching between products before the fixed period ends, you’ll pay a switching break cost and an administrative fee. 

The Westpac home loan early termination fee may not apply if you repay an amount below the prepayment threshold. The prepayment threshold is the amount Westpac allows you to repay during the fixed period outside your regular repayments.

Westpac charges this fee because when you take out a home loan, the bank borrows the funds with wholesale rates available to banks and lenders. Westpac will then work out your interest rate based on you making regular repayments for a fixed period. If you repay before this period ends, the lender may incur a loss if there is any change in the wholesale rate of interest.

What are the features of home loans for expats from Westpac?

If you’re an Australian citizen living and working abroad, you can borrow to buy a property in Australia. With a Westpac non-resident home loan, you can borrow up to 80 per cent of the property value to purchase a property whilst living overseas. The minimum loan amount for these loans is $25,000, with a maximum loan term of 30 years.

The interest rates and other fees for Westpac non-resident home loans are the same as regular home loans offered to borrowers living in Australia. You’ll have to submit proof of income, six-month bank statements, an employment letter, and your last two payslips. You may also be required to submit a copy of your passport and visa that shows you’re allowed to live and work abroad.

What is a low-deposit home loan?

A low-deposit home loan is a mortgage where you need to borrow more than 80 per cent of the purchase price – in other words, your deposit is less than 20 per cent of the purchase price.

For example, if you want to buy a $500,000 property, you’ll need a low-deposit home loan if your deposit is less than $100,000 and therefore you need to borrow more than $400,000.

As a general rule, you’ll need to pay LMI (lender’s mortgage insurance) if you take out a low-deposit home loan. You can use this LMI calculator to estimate your LMI payment.