As kids, we all thought buying a house was like buying something from the canteen: you save up your money, pay the full amount, and get a nice pack of chips to call your own. Or, you know, a house.
Then you learn about a little thing called a ‘mortgage’, and it all starts getting confusing. The details elude you. Your eyes glaze over whenever the subject comes up.
We’re here to get you clear on the basics, so you can bluff your way through a convo with your mates – or a mortgage broker.
The Deposit
You’ve heard your mates talking about how they’re saving for a deposit, but what does that actually mean?
When someone buys a $700,000 house, they generally don’t have the full $700k. What they do have is a deposit. That’s the upfront cost that they put down on the house.
A deposit is generally between 5% and 20% of the purchase price. If it’s below 20%, the buyer will often need to pay what’s called Lenders Mortgage Insurance or LMI. LMI protects your mortgage provider in the instance that you default on your loan, and it’s either paid upfront or added to the repayments. If you don’t want to pay for LMI, then you need to save up the full 20%.
There are a few other upfront costs that you need to spring for alongside the deposit. These include:
– Conveyancing and legal costs
– Government fees including stamp duty
– Title search and registration fees
– Pest and building inspections (typically about $500)
– Home building insurance prior to settlement, and possibly contents insurance when you move in
The Home Loan
The home loan, sometimes referred to as a mortgage, is the money that you borrow to buy the home. You pay it off incrementally over an extended period of time. How much you can borrow depends on your income, financial commitments, credit rating, and the size of your deposit.
Negative gearing
This term pops up all the time in conversations about housing affordability. You nod your head and pretend you know what it is, but do you?
In brief, Negative gearing is a tax break for investment property owners. So if someone is renting out an apartment, but the rent doesn’t cover their mortgage repayments, they can get a discount on their tax payments. Still don’t get it? We’ve put together an explainer on negative gearing.
Interest rates
When you take out a home loan, you also pay the lender for letting you borrow the money. The amount that you pay varies according to the interest rate on your loan.
Interest rates are affected by a number of variables, like the cash rate, which is set by the Reserve Bank of Australia. The reason you hear so much about interest rates is that they affect the cost of your home loan and how much you pay back each month.
Thinking about buying a house, but still have a lot of questions you need answered? Make an appointment with Centra Money specialists. We can guide you through each of the steps involved.
Centra Money’s finance experts can guide you through the entire home loan process, from start to finish. We have in-depth knowledge and understanding of mortgages from many lenders, and will help you get the best possible outcome.
Simply make an appointment with us at (08) 8211 7180 for a free review of your existing loans or send us an email at info@centramoney.com.au
Article reproduced from TheCusp, Inspired by Westpac
by The Cusp
