Finding the ideal home loan and the best way to pay it off can seem insurmountable alone. But with the help of an experienced broker, it’s much easier finding terms that will suit you. Read on for our guide on why and how to repay your home loan quickly.
The most common home loans It’s easy to see why it can be intimidating picking the home loan that suits your situation when there’s so much choice! To help, here’s a rundown of the most common home loans:
Principal and interest loans These are often standard, with borrowers making regular payments against the amount loaned, with interest charges, over a 25-30-year period.
Interest only loans These require payments to cover the interest of the loan only. The actual amount you borrow will only reduce with extra payments.
Within these loan products, there can be a variety of different interest rates, including:
• Variable interest – the rate can go up or down in line with cash value or lender terms.
• Fixed interest – interest will remain unchanged over a fixed time (usually 2-5 years).
• Split loan – this is a combination where part of your rate is variable, and part is fixed.
Why repay it quickly?
Once you have secured your home loan and purchased your dream property, it can be tempting to rest on your laurels and worry about repaying your debt later. The Australian Investments and Securities Commission shows this is a common mistake – repaying your loan as quickly as possible will often save you money in the long run.
The larger your loan, the more interest you’ll pay on the principal debt, and if you ignore or fail to keep up with your payment schedule, you’ll start to struggle.
How to repay your home loan quickly
• Find a cheaper interest rate – shop around to find an interest rate on a home loan that seems within your means to pay off as soon as possible.
• Make larger or more regular repayments – this reduces the length of your debt. Be sure to check if any extra payments incur a transaction free.
• Plan for speed – the key to good financial health is planning. If you don’t think you can afford the repayments, you should speak to a financial expert who can offer advice on the next steps.
For more information on loan repayments or home loans, speak to our experienced team of mortgage brokers today.
NEGATIVE GEARING EXPLAINED JARGON FREE!
Negative gearing – it may seem like investor mumbo jumbo, but it’s really quiet a simple concept to get your head around. More than that, it’s an important option in an investor’s toolkit when looking for a property to invest in. Gear yourself up for a lesson in the basics of this investment system!
What is negative gearing? In the investment world, ‘gearing’ is just another way of saying borrowing money to buy an asset – in the case of property investment, taking out a loan from a financial institution. Negative gearing is the case in which the interest you repay on your loan is higher than the income you generate from the property.
Here’s an example:
• You purchase an apartment for $500,000.
• The bank loans you $400,000 with a 5 per cent interest rate.
• This means you have to repay $20,000 per annum.
• If you rent this apartment for $400 per week, this gives you a yearly income of $19,200.
• Which means you’ll be $800 short every year – and this doesn’t factor in other expenses such as maintenance and repair costs, insurance and council rates.
What are the positives of negative gearing? If this grinds your gears, don’t worry! There are several positives for investors:
More choice, more properties With negative gearing, it becomes easier for anyone to invest in property. The market for neutral or positively geared properties is very small, so by implementing this system more people have a chance of owning property and seeing a long-term investment from capital growth.
The capital growth pay-off What’s this? Simply, it’s the growth in value of your property over time. Most properties get more valuable over time, so the profit you make from selling the property after a few years should offset the money you lost year-on-year with your negatively geared loan.
Reducing taxable income In order to help property investors, tax can be deducted from ongoing expenses, like interest on your loan and maintenance costs. These costs can be claimed against your annual income, meaning less will be taxed overall.
Want to know more? Negative gearing allows more people than ever before to invest in the property market – but any decision to purchase property and take up a mortgage should be done with the help of a professional. For more information about negative gearing or finding the ideal home loan, speak to our experienced team of mortgage brokers today.
Australians have a few options when it comes to financing a car, and you should make sure you know what each finance option entails before committing to one or the other. Different types of financing can cost more or less depending on the details. Here’s the pros and cons of the two most prevalent options – car loans and dealership finance.
Car loans With a car loan, you’ll receive the full purchase amount in a lump sum, so that you can outright pay a dealership for your new vehicle. Typically, car loans last from one to seven years, and because the car you buy will be secured to the loan, interest rates will be lower than for an unsecured loan.
The benefits to a car loan is that you can shop around for the best deal and choose your own lender. Your car will also be paid off completely by the time you finish your payments. Furthermore, you’ll have the option to buy from private sellers.
The drawback to car loans is that the interest might be a little higher than what is on offer from a dealership. Because the loan is secured to your vehicle, if you default on payments, the lender is entitled to claim your vehicle to recoup what you owe. There may also be additional fees involved with the loan.
Dealership finance Many car dealerships have financing options which can seem very attractive due to lower (or in some cases, zero) interest on the loan, and subsequently lower monthly repayments. The important thing to note here is that dealership finance often involves a balloon payment at the end of your term.
So, while your regular monthly payments are lower, you’ll still be required to drop a hefty lump of cash to clear the final payment. Of course, you might opt to refinance the balloon payment, but you’ll need to be absolutely clear of your obligations to settle the balloon payment when running the numbers.
The benefits to dealership finance is that there is far less paperwork involved, and you also get some leverage in terms of negotiating the sale price. The drawbacks are that this financing option is available only for new dealership cars, and that you have to have a strong credit score to be eligible.
To find out how to get the ideal deal on your new car, speak to our experienced team of mortgage brokers today.
We often get asked by our clients, how they can repay their home loans quicker.
The key is how effectively you manage your repayments. We have listed top 6 tips on saving interest on your home loan and repaying your loan quicker.
1. Change monthly to fortnightly repayments.
By repaying your home loan on fortnightly or a weekly basis you will be making the equivalent of an extra monthly repayment each year, this will help you repay your home loan sooner and also save you interest.
Example: A 30 Year $500k loan @ 5% interest rate can be repaid 4 Years and 9 months earlier saving you over $85k in interest just by paying every two weeks.
2. Extra Repayments
If you earn more and spend less why not put it towards your home loan? An extra $100 repayment per fortnight on your loan from the above example will reduce the loan term by 4 years and 16 fortnights saving $82k in interest over the term of the loan.
3. Cut back on some luxuries
Bring coffee and lunch to work rather than eating out. $15 a working day ($3 Coffee + $12 Lunch) saved and paid towards the loan will save you $113k in interest over the term of the loan in the above example. Make that saving twice if you are a couple.
4. Use unexpected money
Monetary gifts from friends and relatives, tax refunds or any unexpected payment like annual bonuses if channelled into your mortgage will always put you ahead in mortgage repayments. These extra lump sum repayments will be a lifeline in times of job loss, extended sickness, career break or birth of a child.
5. Maintain your current repayments when interest rates go down
Okay if you find making extra repayments difficult then maintaining your current repayments can also be beneficial in reducing your loan term. That is maintaining repayments when the interest rates go down. Not taking the option of reduced repayment when interest rates go down will actually benefit you in the long run while not affecting your budget.
From the above example of the 30 Year $500k loan at 5%, your minimum monthly principal & interest instalment would be $2,684.11
Now if the interest rate was to drop by 1% then your monthly repayment will reduce to $2,387.08 which is a saving of $106,931 over the loan term. But if you continue to pay $2,684.11 instead of the lower repayment, then you would save a massive $183,856 over the loan term.
6. Refinance your home loan
This refers to taking out a cheaper and better home loan to pay your initial loan. The new loan will mostly offer lower interest rate and can be tailored to suit your own circumstances. i.e change from interest only to principal and interest repayments, fixed rate to variable rate etc. Due to increased competition now, switching variable home loans is quite simple and usually doesn’t cost more than a few hundred dollars.
Some lenders even pay cash rebates upto $1500 after settlement of the new loan. Low-interest rates enable you to pay less in interest and more to cover the principal without changing the amount of money you pay monthly. This will help you clear your loan faster. Our helpful home loan advisors will help you find the best loan suited to your circumstances and show you how quickly you could repay your existing debt by switching.
- Fixed rate loans:There is a limit of extra repayments on fixed loans without paying additional fees, generally $10k annually. You may check with your bank about making additional repayments without paying a penalty and organise your repayments accordingly.
If your fixed loan is set up with a variable portion, then you can make unlimited additional repayments on that part of the loan.
However if your fixed term is coming to an end and you are not sure what other options are there in the market to repay your loan quicker, just call us.
- Investors: Investors usually like paying off their non-tax deductible debt such as owner occupied home loan, car loan or credit card and save any additional money from their income to re-invest. This strategy helps them reduce expense at the same time maximise tax benefit and save more for investing in their next income producing asset / venture.
If you do not have any other debt except the investment loan, then making additional repayments into your offset account may be beneficial. If you do not have an offset account with your investment loan and need specific advice on your loan, contact us.
- Interest only loans: If you are an owner occupier on an interest only loan, wanting to repay quicker, then you should consider changing to principal & interest loan.
To find out whether your loan is interest only, simply check your statement to see if your balance is reducing each month. Call us to find out best available options.
This is general advice about saving money on your home loan not specific financial advice. Please refer to your financial planner to discuss your specific financial goals. If you have a question about your home loan, please feel free to call us on 02 8321 8895 or enquire online.
One of the biggest questions for any first-time home buyer is “should I be holding off on purchasing a home to avoid paying Lender’s Mortgage Insurance?”. There is no definitive answer to this as it all depends on your personal circumstances. So, let’s take a look into what LMI involves & how it affects you…
What is Lender’s Mortgage Insurance (LMI)?
Lender’s Mortgage Insurance is an insurance policy that protects lenders from financial loss if the borrower defaults on their home loan repayments. On average, the cost of LMI is around $8-9k on a $500k property with a 10% deposit, but premiums vary depending upon individual borrower profiles. By paying LMI, first time buyers can get into the property market with a smaller deposit. Buyers can even add the cost of LMI to their loan, meaning they don’t have to fork up the money upfront.
In the past four years, property values in Sydney have risen at a rate of over 10% per year, according to Corelogic. Taking that into account would mean anyone who used a 10% deposit & paid the LMI, would have made it back, plus more, in the first 12 months of ownership.
Many first-time home buyers opt to keep saving to get their deposit up to 20%, only to watch home values rise beyond what they would have paid in LMI.
So, does that mean I should just take a loan with LMI?
Not always, there are pro’s & con’s to taking out LMI, which all depend on your personal circumstances.
The biggest benefit of taking a loan with LMI is that it allows you to get invested sooner. If you don’t borrow beyond your means & property values are continuing to rise, LMI is certainly worth consideration. A property worth $500,000 now would require $100,000 deposit at 20%, if you were to wait 2 years to save & values kept rising at 10% per year, the same property could be worth $600,000 & require $120,000 deposit at 20%. By taking a mortgage with LMI, a buyer would cover the cost & be making a profit within months of purchase.
However, some things to consider are the high costs, especially if you’re purchasing a large home & If property values don’t continue to rise like they currently are, your equity would build at a slower rate, which could make it harder to refinance your property in the future.
It’s also very important to understand that lender’s mortgage insurance does not protect borrowers in the event of a defaulted home loan. If a lender is forced to sell the home due to an unpaid loan, then the insurer generally has the right to pursue the borrower for any shortfall.
Most of the time it’s going to be more beneficial to have a 20% deposit ready to go when purchasing your fist home, however you need to weigh up the pros and cons of giving yourself more time to save, compared to getting into the property market earlier.
Buying your first home can be an exciting time, but ensuring you are taking the best loan for your new home can be difficult. If you’re looking to purchase a home & want to learn more about Lenders Mortgage Insurance & if it’s right for you, contact Euphoria Loans today for a free face to face consultation.
The Reserve Bank of Australia (RBA) has announced that it will leave the cash rate at 1.50% for yet another month, making it 12 months at the record low rate.
Governor Philip Lowe had this to say in his official statement: “Conditions in the housing market vary considerably around the country. Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. In some other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases remain low in most cities. Investors in residential property are facing higher interest rates. There has also been some tightening of credit conditions following recent supervisory measures to address the risks associated with high and rising levels of household indebtedness. Growth in housing debt has been outpacing the slow growth in household incomes.”
So, what does all this mean for Sydney home owners? As we’ve mentioned before, many lenders change their interest rates at their own discretion. Recent trends have seen interest-only loan rates rise sharply for a number of the major lenders. If you’re uncertain about which home loan is best for your personal needs, make sure to speak to an expert adviser at Euphoria Loans for a free consultation & to visit your options.
As expected the Reserve Bank of Australia (RBA) has announced that it will leave the cash rate on hold for yet another month. Governor Philip Lowe had this to say in his official statement:
“Conditions in the housing market vary considerably around the country. Housing prices have been rising briskly in some markets, although there are some signs that these conditions are starting to ease. In some other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades. Growth in housing debt has outpaced the slow growth in household
incomes. The recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness. Lenders have also announced increases in mortgage rates for investor and interest-only loans.”
So, what does all this mean for home owners? As the Governor Philip Lowe mentioned, a number of lenders, including the Big 4, have recently changed their interest rates at their own discretion. In particular, interest-only loan rates have risen sharply for a number of major lenders. Make sure to keep a close eye on any rate movement, and consider whether your current loan is the right one for you. Speak to an expert adviser at Euphoria Loans for a free home loan health check to visit your options.
Buying your first home is probably going to be the most important decision you will make in your lifetime. You not only need to take into consideration the cost but also the location, size & your future. All of this requires a lot of hard work & knowledge, if you’re living in Sydney or Melbourne, buying your first home can seem even harder in 2017.
The first consideration is always going to be ‘can I afford it?’… It’s a question which seems straight forward, but if you’re not currently renting & still living at home, monthly repayments on a mortgage can be a big shock to some. Making a few strict lifestyle changes before committing to a home loan can ease the change, try putting aside what you’d be paying in repayments monthly to help you adjust to what is usually a huge part of your income going towards bills. You can easily calculate an estimate of what your repayments should be, by using a loan repayments calculator which you can find here.
Aside from mortgage repayments which can fluctuate over the borrowing period, you need to also consider other costs associated with owning your own home. If you’re borrowing more than 80% of the property price, you also need to pay for lenders mortgage insurance (LMI). Other insurances you may not be used to paying include property insurance for protection against fire, theft and weather damage.
For many first time buyers being able to pay LMI instead of saving a 20% deposit for their first home has it’s benefits. LMI gives you the potential to own your first home sooner. With some lenders you can borrow up to 95% of the property price. LMI is usually paid as a one-off lump sum at settlement but it can also be added into the loan. A dedicated mortgage broker at Euphoria Loans can help you decide which option is better for you.
From July 1st, first home buyers in NSW will no longer have to pay stamp duty on new or existing homes up to $650,000. There are also big discounts on stamp duty for homes up to the value of $850,000. That could be a saving of as much as $34,360. If you’re building or purchasing a new home, you could also be eligible for a $10,000 grant to help you get started.
There really has never been a better time in the past few years to buy your first home in Sydney. Get in contact with Euphoria Loans for a full breakdown of costs associated with buying your first property & the new government incentives you could take advantage of.
First home buyers will save as much as $34,360 with a new package of measures designed to improve housing affordability across NSW. Under the new scheme, stamp duty on new homes up to $800,000 will be discounted.
This has been announced with changes to stamp duty for foreign investors who will now see a surcharge on stamp duty doubled from 4% to 8% and surcharge on land tax from 0.75% to 2%. Investors of any type will also no longer be able to delay their stamp duty for 12 months when paying for properties off the plan.
For first home buyers, this comprehensive package will:
- abolish stamp duty on all homes up to $650,000
- give stamp duty relief for homes up to $800,000
- provide a $10,000 grant for builders of new homes up to $750,000 and purchasers of new homes up to $600,000
- abolish insurance duty on lenders’ mortgage insurance
- ensure foreign investors pay higher duties and land taxes
- no longer allow investors to defer paying stamp duty on off-the-plan purchases
The NSW Government released this below chart to show how much first time homebuyers will save under the new scheme.
There will also be a range of changes to first-home buyer grants. First home buyers building a new property will be entitled to a $10,000 grant on homes worth up to $750,000. First home buyers purchasing a new property worth up to $600,000 will be entitled to a $10,000 grant.
From the 1st of July, Insurance duty on lenders’ mortgage insurance will be abolished. Which is imposed at a rate of nine per cent of the premium. The removal of this duty will save all home buyers money if they need lenders’ mortgage insurance, not just first time buyers.
For example, on a home valued at $800,000, a buyer with a deposit of $50,000 who needs lenders’ mortgage insurance, could save about $2,900.
How can you take advantage of this scheme?
Along with the superannuation savings scheme, announced during the federal budget in May, first home buyers have been a big focus in property news in the last few weeks. If you are looking to purchase you first home, feel free to get in contact with Euphoria Loans for a free consultation to learn how you can take advantage of these schemes.
Treasurer Scott Morrison has described the 2017-18 budget as “honest”, attempting to please first home buyers & many other Australians. So what exactly were the changes in the housing industry?
Here is Euphoria Loans’ quick summary of the budget & who it affects…
For First-Time Home Buyers…
First home buyers have done modestly well with this budget.
As expected, they won’t be able to use their superannuation as a deposit for their first home, but they will be able to make voluntary contributions into their superannuation as savings towards a deposit. There will be a lower tax rate of 15% on withdrawals and you can contribute up to $15,000 a year & $30,000 total by taking advantage of this scheme.
The scheme comes into action in July & a couple can both take advantage of the scheme together.
Foreign Investors & Ghosts…
New restrictions on foreign property owners could be a benefit to first time buyers. Foreign investors will now be faced with extra charges for properties left vacant, dubbed as a ‘Ghost House Tax’ for up to $5000 & there will be an increase in application fees, which will also work out to at least $5000.
Foreign property owners will now also pay the capital gains tax when they sell their own home. For new developments, foreign investors will be capped at 50 per cent.
Those over 65…
Those over the age of 65 who want to downsize their home can now put up to $300,000 of the proceeds into their superannuation fund from their primary residence. Both sides of a couple can take advantage of this.
By encouraging those of the baby boomer generation to downsize, the government wants to free up larger homes for growing families. It’s no surprise to have something like this announced, it’s been heavily discussed in the past with many older home owners currently living in homes with many extra bedrooms & big maintenance costs.
In the past, those over 65 have been reluctant to move, an issue which the government is hoping to tackle with the new scheme.
The Property Investors…
Negative gearing rules for property investors have been tightened. They are no longer able to claim tax deductions related to travel expenses for investment properties, this is due to widespread rorting of the system.
Under the new rules, depreciation deductions for items such as washing machines and ceiling fans will only be allowed if the investor actually bought them. This measure is intended to address concerns that such items are being claimed as tax write-offs by investors more than their actual value, which is expected to claw back around $260 million in the next four years.
If you need advice on how to get your first mortgage, get in contact with Euphoria Loans today on 02 8321 8895.