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Transform $100k into $1.5m

Transform $100k into $1.5m

If you bought a home over the past 24 years, you have participated in the best-performing investment available anywhere in Australia.

That’s the verdict from a recent study by ANZ Bank, which found that residential property was the highest-returning asset over the past 24 years. Owner-occupied homes beat shares, commercial property, equities, government bonds and term deposits to generate the highest annual returns, even after factoring in costs and taxes.

According to the study, an investment of $100,000 into an owner-occupied house in 1987 would be worth $1,428,000 today – generating the highest average annual return of any investment, at 12 percent. Investor property was the second best-performing asset with an average annual return of 9.6 percent and equities came in third with 8.9 percent.

A number of factors contributed to owner-occupied housing’s number one ranking, the study claimed, “the most significant being exemption from capital gains tax”. For example, the same investment of $100,000 into an investment property in 1987 would return $810,000 today.

However, before you pool all your money into property, consider this: the study also predicts that over the next 10 years, equities will emerge as the strongest investment with forecasted 8 percent average annual returns. Commercial property will come in second with 5.8 percent returns, and owner-occupied housing is expected to finish third with forecasted 5.3 percent annual returns. So property will continue to be a sound investment, but don’t expect the same returns of the past 20-plus years.

But how much will your home investment be worth in 10, 20 years? It depends on where you live.

In the short term, the mining-boom town of Perth seems poised to experience the highest growth. Another recent report by BIS Shrapnel forecasts the Perth median house price to lift by 20 percent in the next three years, with Sydney expected to follow closely with a 19 percent rise in the median price. This compares with 16 percent in Brisbane, 8 percent in Canberra and 6 percent in Melbourne.

Pamela Bennett, president of the Real Estate Institute of Australia, said bricks and mortar remain a solid long-term investment despite a recent drop in prices in parts of Australia.

“We’ve certainly seen a correction in prices, but I am confident we’ve seen the bottom of it and prices are improving,” she said.

“The housing market in Australia remains undersupplied and market forces determine how quickly prices increase.

“The data shows that median property prices across Australia have generally doubled every 10 years. You could conservatively say that in the next 10 to 15 years, prices will double,” Bennett added.

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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.

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. 

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.

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.