Tricks and traps when buying property

Tricks and traps when buying property

Finding a low-priced mortgage is only one piece of the puzzle facing first time home buyers, who must contend with a raft of expenses such as stamp duty, insurance and mortgage establishment fees which can quickly add up.

“Not every lender will charge the same fees, so it is important you know exactly what you are paying to more easily make an apples for apples comparison, and this is where a financial website, such as Ratecity.com.au, comes into play,” said Alex Parsons, CEO of RateCity.

For instance, some lenders may enforce a loan establishment fee which is meant to cover the costs of the paperwork involved in setting up a home loan, and each lender will charge differently for this work.

“Some may charge hundreds of dollars or more, others will shoulder the fee on your behalf charging no establishment fees at all,” he said.

“It’s important to take this into consideration when calculating the costs of setting up a home loan.”

Parsons also urges first time borrowers to be aware of other potential charges when weighing the lenders up against each other, such as monthly ongoing fees, early exit fees, break fees, deferred establishment fees or default fees, which are charged when a borrower fails to meet the mortgage repayments.

There are other associated costs first home buyers must contend with such as: legal fees, inspection fees, and lenders’ mortgage insurance (charged if you are borrowing over 80 percent of your home’s value).

“LMI is designed to protect the lender, not the borrower, from any loss should the borrower default on their mortgage,” said Lisa Montgomery, CEO of non-bank lender, Resi.

Usually paid by the borrower as a one-off fee (though it can be added to the mortgage), LMI is typically charged for those with less than 20 percent deposit.

“This will depend on circumstances such the type of property and its location and so on,” said Montgomery.

Stamp duty is another potential impost, which can vary from state to state – and whether you are buying an existing home, a new home or building your own home.

“It can also depend on the value of the property, so once again do your homework and be prepared for any stamp duty imposts,” advises Parsons.

 

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Learn more about home loans

What fees are there when buying a house?

Buying a home comes with ‘hidden fees’ that should be factored in when considering how much the total cost of your new home will be. These can include stamp duty, title registration costs, building inspection fees, loan establishment fee, lenders mortgage insurance (LMI), legal fees and bank valuation costs.

Tip: you can calculate your stamp duty costs as well as LMI in Rate City mortgage repayments calculator

Some of these fees can be taken out of the mix, such as LMI, if you have a big enough deposit or by asking your lender to waive establishment fees for your loan. Even so, fees can run into the thousands of dollars on top of the purchase price.

Keep this in mind when deciding if you are ready to make the move in to the property market.

What is the amortisation period?

Popularly known as the loan term, the amortisation period is the time over which the borrower must pay back both the loan’s principal and interest. It is usually determined during the application approval process.

What is a redraw fee?

Redraw fees are charged by your lender when you want to take money you have already paid into your mortgage back out. Typically, banks will only allow you to take money out of your loan if you have a redraw facility attached to your loan, and the money you are taking out is part of any additional repayments you’ve made. The average redraw fee is around $19 however there are plenty of lenders who include a number of fee-free redraws a year. Tip: Negative-gearers beware – any money redrawn is often treated as new borrowing for tax purposes, so there may be limits on how you can use it if you want to maximise your tax deduction.

How common are low-deposit home loans?

Low-deposit home loans aren’t as common as they once were, because they’re regarded as relatively risky and the banking regulator (APRA) is trying to reduce risk from the mortgage market.

However, if you do your research, you’ll find there is still a fairly wide selection of banks, credit unions and non-bank lenders that offers low-deposit home loans.

How often is your data updated?

We work closely with lenders to get updates as quick as possible, with updates made the same day wherever possible.

What is appreciation or depreciation of property?

The increase or decrease in the value of a property due to factors including inflation, demand and political stability.

How is the flexibility score calculated?

Points are awarded for different features. More important features get more points. The points are then added up and indexed into a score from 0 to 5.

Mortgage Calculator, Property Value

An estimate of how much your desired property is worth. 

What is a valuation and valuation fee?

A valuation is an assessment of what your home is worth, calculated by a professional valuer. A valuation report is typically required whenever a property is bought, sold or refinanced. The valuation fee is paid to cover the cost of preparing a valuation report.

Does each product always have the same rating?

No, the rating you see depends on a number of factors and can change as you tell us more about your loan profile and preferences. The reasons you may see a different rating:

  • Lenders have made changes. Our ratings show the relative competitiveness of all the products listed at a given time. As the listing change, so do the ratings.
  • You have updated you profile. If you increase your loan amount, the impact of different rates and fees will change which loans are the lowest cost for you.
  • You adjust your preferences. The more you search for flexible loan features, the more importance we assign to the Flexibility Score. You can also adjust your Flexibility Weighting yourself, which will recalculate the ratings with preference given to more flexible loans.

What is a fixed home loan?

A fixed rate home loan is a loan where the interest rate is set for a certain amount of time, usually between one and 15 years. The advantage of a fixed rate is that you know exactly how much your repayments will be for the duration of the fixed term. There are some disadvantages to fixing that you need to be aware of. Some products won’t let you make extra repayments, or offer tools such as an offset account to help you reduce your interest, while others will charge a significant break fee if you decide to terminate the loan before the fixed period finishes.

Mortgage Balance

The amount you currently owe your mortgage lender. If you are not sure, enter your best estimate.

Interest Rate

Your current home loan interest rate. To accurately calculate how much you could save, an accurate interest figure is required. If you are not certain, check your bank statement or log into your mortgage account.

How will Real Time Ratings help me find a new home loan?

The home loan market is complex. With almost 4,000 different loans on offer, it’s becoming increasingly difficult to work out which loans work for you.

That’s where Real Time RatingsTM can help. Our system automatically filters out loans that don’t fit your requirements and ranks the remaining loans based on your individual loan requirements and preferences.

Best of all, the ratings are calculated in real time so you know you’re getting the most current information.