Loans, Tax, Insurance & Grants
There are a variety of home loans available and each offers different features. Look for a competitive interest rate, sufficient repayment time, favourable conditions and options that suit your needs. Repayment options and switching costs should be taken into account. There are two basic home loan types - variable rate loans and fixed rate loans. Each has advantages and disadvantages.
Loans & Finance
Variable rate loans
Variable rate loans are mortgages where the interest rates move with changing economic conditions. When interest rates fall, repayments fall but when interest rates rise, so do your repayments. The standard variable loan is often more flexible than others and comes with more features and the option to make additional payments without penalty.
Basic variable loan
Lenders now offer basic variable loans with lower interest rates, but with fewer features than a standard variable loan. Interest rates and repayments vary over the term of the loan but it might not offer the features or flexibility of the standard variable rate loan.
Also known as a honeymoon loan, an introductory loan offers a low rate to attract borrowers. This rate generally lasts 6 to 12 months before it rises and reverts to the standard variable rate.
Fixed rate loans
Fixed rate loans protect against interest rate changes for an agreed time, so you have peace of mind knowing repayments will not change. This type of loan is suitable for people who like to know exactly how much their interest rate and repayments will be for one, two or even up to five years. You can still make additional repayments without penalty but you won’t benefit if rates go down during the fixed term. The amount of the extra payment allowed will depend on your lender.
Split loans: part fixed, part variable
Some clients choose to take a combination of a fixed rate loan and a variable rate loan and get the ‘best of both worlds’.
Line of credit
A line of credit allows you to borrow against the value of your existing home using a revolving credit account and access funds when they are needed. Lenders offer home lines of credit in several ways, with either fixed or variable interest rates.
A bridging loan can be used to cover the financial gap between the purchase price of a new property and the proceeds of the sale of an existing property. Bridging finance is generally more expensive and is limited to a 6 to 12 month term.
Redraw Your Additional Repayments
Additional repayments to your home loan are available for redraw on both fixed and variable rate home loans. A minimum redraw amount may apply. Check your loan conditions for limitations on redraw facilities.
Flexible repayment options to suit you
Repayments are required on a monthly basis but more frequent repayments are permitted. Pay your loan weekly or fortnightly and reduce the term of your loan.
First Home Owners Grant
In July 2000 the government introduced the First Home Owner Grant Scheme which provides assistance to first home buyers to help them purchase their first home. Eligible first home owners can receive the grant regardless of their income, the area in which they are planning to buy or build, or the value of their first home. The grant is not means tested and no tax is payable on it. See http://www.osr.nsw.gov.au/benefits/first_home/ for more information.
Tax paid on property purchases
State Tax, also known as Stamp Duty, is a general tax imposed on the purchase of real estate. Stamp duty is paid by the purchaser so this must be factored into your budget to help determine what you can afford.
Home buyers who borrow more than 80% of the purchase price generally have to pay mortgage insurance. This protects the lender if you default on your repayments. The cost of mortgage insurance is generally two to four per cent of the purchase price.