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According to the Australian Bureau of Statistics (ABS) 36 per cent of Australian home owners have a mortgage – and choosing the right mortgage is no simple feat. BOQ Specialist’s Trevor Robertson and real estate company NG Farah’s chief market strategist Peter McGuire distill the key factors to consider when matching a home loan to your stage of life. Hint: rates are merely one piece of the complex puzzle.
Below are some key factors to consider when matching a home loan to your stage of life.
Calculate your budget correctly
You might have an idea of how much you need to spend to get the property you want, but you need to consider how much you can borrow in the first place. To estimate your borrowing capacity accurately, you will need to consider what your total costs will be, the size of deposit you can afford and how much you can comfortably repay.
“How much a financier is prepared to offer based on your current income can vary from lender to lender,” says Robertson. “We [BOQ] have a more holistic approach when it comes to finance, taking into account income, your career trajectory, expenses, debts and possible interest rate increases. We also treat professional designations such as CPA as an asset. Other lenders might just look at one aspect.”
Understand the property and area
The location of your first home is important, but it is also worth remembering that your initial home is your first step on the property ladder, which can provide you with financial opportunities in the future. Visit the property more than once and at different times of the day and days of the week so you get the full picture. McGuire suggests investigating the local community. “Check out schools and other amenities the local area has on offer, plus what’s on the drawing board over the coming decades, for example upgrades to infrastructure.”
Look out for hidden expenses
It’s important to consider hidden expenses that might appear once you have bought your property. Things to look into thoroughly include roof leaks, substantial cracks, leaking pipes, drainage issues, roof damage, floor damage and asbestos.
Become an expert in the buying process
Whether it’s by private treaty or auction, your property purchase will be negotiated through a real estate agent. It’s worth getting to know the agents in the area.
Forecast capital growth
“Don’t be afraid to look at capital growth forecasts and rental yields” advises McGuire. “Consult industry research firms that specialise in quantitative analysis as this will assist you in understanding the key drivers for your chosen location.” “Don’t forget that one day you may want to sell this property and if it has outperformed other areas in growth due to better amenities and location, then this can significantly increase your overall financial return,” he says.
Weigh up whether you should move or stay
As your life changes, you’re likely to need different things from your home and moving to a bigger property might be on your agenda. However, it’s worth considering what you can do with renovations to fulfil your needs. Moving might make sense if you want to experience a new area or if planning restrictions are a limitation on your renovation aspirations.
Renovate if you can
If you decide to stay in your home and make renovations, there are plenty of aspects you can update to maximise resale value. Don’t forget to consider the following ways to potentially add value to your home: timeless designs; extending out as a cheaper alternative to extending up; and added features such as swimming pools.
Consider the costs of moving
Be conscious of the costs associated with moving and relocating, such as state stamp duties, real estate agent fees and marketing your property for sale. “Many owners put off moving due to these high associated costs and would rather renovate their property so as to get a home exactly how they want,” says McGuire. “This allows them to remain in their local neighbourhood.”
Consider an investment property
You might now be at the stage where you have significant savings and a higher income to invest in an additional property. Before you start looking, make sure that you know what you want to achieve. “Are you seeking capital gains from a make-over and re-sell, or would you like a steady income from rent? Your objectives not only influence what kind of property you look for and where, but will affect your budget and your financial structure,” advises Robertson.
Think about size and accessibility
If your children have moved out of home, and you don’t need the space you once did, downsizing offers an opportunity to free-up some of your assets plus can give you a more manageable home in your retirement. As the ageing population expands over the coming decades and life expectancies increase, we also expect to see many older Australians requiring homes with improved accessibility. McGuire advises: “Even if accessibility is not currently an issue, don’t forget to future-proof your home by considering these aspects when moving. Look out for a property that doesn’t have stairs or, if it’s an apartment, whether it has elevator access. By thinking ahead of time, you will be prepared.”
Refinance your home loan
Refinancing is not only for buying an investment property or to help fund renovations. “It can often provide a great opportunity to negotiate a better deal on interest rates and fees,” says Robertson. “Or, if your circumstances have changed, [it may be an opportunity] to find a new home loan to better suit your current requirements.” ABS data supports this increasingly popular option, with nearly 21,000 Australian mortgages refinanced in December last year, the highest level reached since 2010. Don’t forget to consider exit fees, application fees and stamp duty when refinancing.
Things change. Time moves on. Your circumstances are unique and interest rates should be just one of the factors considered when searching for the right mix of features and benefits of a mortgage. If you match a home loan to your lifestyle and goals, it stops being just a mortgage, and becomes part of your long-term plan.
The information contained in this webpage is general in nature and has been provided in good faith, without taking into account your personal circumstances. While all reasonable care has been taken to ensure that the information is accurate and opinions fair and reasonable, no warranties in this regard are provided.