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Getting the most out of your rental property

Getting the most out of your rental property

In the current Australian housing market, it’s not surprising if you’ve been surreptitiously comparing home loans and thinking about buying a house to rent out. 

The rental market at the moment is certainly an investors’ market, with rents rising all around the country. As Real Estate Institute of Australia President Peter Bushby pointed out earlier this month: “Median house rents increased in most of the capital cities and solid increases were also seen in rents for other dwellings.”

Indeed, a number of key markets saw tightening rental conditions over the March quarter. Data from the Victorian Department of Human Services found that Melbourne’s rent increased by an average of $5 a quarter over the last four quarters, and the whole of Victoria saw close to a two percent rise in annual rent prices. In addition to this, state government figures found weekly rent in New South Wales climbed 1.2 percent over the March quarter, and 3.8 percent in the last year.

But one shouldn’t simply rely on the market to do all the work. If you’ve got a rental property, or are planning to refinance your home loan so you can get one, there are a few things you can do to increase its value.

Apply yourself

Appliances might seem like an afterthought, but in fact they can greatly improve your property’s value. If your rental property had whiteware supplied, you could potentially charge more rent for it, as appliances are quite sought after by tenants. Think dishwashers, a heat-pump or even a washing machine. 

If you don’t happen to have, or could not afford, new and modern appliances to show off, all is not lost. Think about finding some modern and still very functional appliances that have been bought second hand. There’s also the option of refurbished items, too. 

Get the property spick and span

As anyone who’s been to an open home or even stayed at a hotel can attest to, a property’s condition can be a make or break feature. A dingy bathroom with yellowing walls and outdated decor can emanate an unhygienic vibe, while stained carpets and peeling kitchen cabinets can send many tenants straight out the front door. The bathroom, more than any other room, has to feel clean, safe and comforting. So if you are using a home loan calculator, you might want to also factor in the cost for home alterations.

Even something as simple as fresh carpet or a new shower curtain and refinished kitchen countertops can leave the right kind of impression on a renter. You could also install new curtains and other fixtures to make it feel that much more modern. 

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Learn more about home loans

When does Commonwealth Bank charge an early exit fee?

When you take out a fixed interest home loan with the Commonwealth Bank, you’re able to lock the interest for a particular period. If the rates change during this period, your repayments remain unchanged. If you break the loan during the fixed interest period, you’ll have to pay the Commonwealth Bank home loan early exit fee and an administrative fee.

The Early Repayment Adjustment (ERA) and Administrative fees are applicable in the following instances:

  • If you switch your loan from fixed interest to variable rate
  • When you apply for a top-up home loan
  • If you repay over and above the annual threshold limit, which is $10,000 per year during the fixed interest period
  • When you prepay the entire outstanding loan balance before the end of the fixed interest duration.

The fee calculation depends on the interest rates, the amount you’ve repaid and the loan size. You can contact the lender to understand more about what you may have to pay. 

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.

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.

Cash or mortgage – which is more suitable to buy an investment property?

Deciding whether to buy an investment property with cash or a mortgage is a matter or personal choice and will often depend on your financial situation. Using cash may seem logical if you have the money in reserve and it can allow you to later use the equity in your home. However, there may be other factors to think about, such as whether there are other debts to pay down and whether it will tie up all of your spare cash. Again, it’s a personal choice and may be worth seeking personal advice.

A mortgage is a popular option for people who don’t have enough cash in the bank to pay for an investment property. Sometimes when you take out a mortgage you can offset your loan interest against the rental income you may earn. The rental income can also help to pay down the loan.