Hey guys I just turned 20 years old and ready to buy my first property. I wanted to get advice from everyone on choosing the right home loan in the current market. Standard variable vs Fixed rate, what would be the best at the current market and now since the liberal party has won will this affect the reserve bank of Australia in the interest rates?
Thank you everyone for you answers I really appreciate it.
First part of investment financing is to not obsess about rates. It's good to get a competitive deal – but structure and lender selection are more important than choosing the cheapest rate which could ultimately cost you more in the long run due to it being unsuitable for you.
With fixing, I always advise my clients to only fix if they need to know what their monthly repayments will be – and not to fix simply in an attempt to beat the variable rate…it doesn't often happen.
Fixed rate loans are generally inflexible – with most lenders not linking an offset or allowing unlimited additional repayments, redraw, etc. If you're certain that fixing is the way to go – then I'd still consider setting up a portion of the loan as variable so you can still take advantage of flexible features such as an offset.
What are your longer term plans with this property? Are you going to want to access equity in the future? Is it going to be an investment property or owner occupied or will swap from one to the other later on? What are your longer term plans with property investing in general?
Hey Jamie thank you so much for replying well I was leaning towards the flexible rates but wanted to get an idea of fixed and if many people chose that option. Its going to be owner occupied and than swapping in the future into an investment property. I thinking building my foundation from there.
Thank YouRichard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,024
If the property is initially to be a PPOR and in the future an IP you would probably be best off with an interest only loan with 100% offset account.
You do this on a fixed or variable rate depending on what you need from a loan.
Get yourself professional advice as making a mistake can be costly in the future.
Yours in FinanceShiny_Suit_ManParticipant@shiny_suit_manJoin Date: 2012Post Count: 54
My first property i bought when i was 19, it was my PPOR and is now my first IP. I wasn't very thorough in my selection of my home loan, i went with variable with a terrible company and i had a lot of problems with the company my loan was with. Due to that while i never received a bad credit rating or anything like that, i didn't really achieve much in regards to payments on the house. That house is now my IP and has since been refinanced, fixed interest with an offset account and i can now say that i am happy with my setup on that property and i am moving forward on my property journey.
So as some of the folk on here have said, focus on a reputable company which is right for YOU. There are many people you can go and see, i thoroughly recommend the use of a mortgage broker, there are a few great ones on this forum and probably nearby where you live. Essentially their services are free because they get a commission so to speak, from the company who your loan ends up with. They will listen to your wants/needs and try to come up with a loan that is best for you.
Good luck.mattliasiian wrote:Hey Jamie thank you so much for replying well I was leaning towards the flexible rates but wanted to get an idea of fixed and if many people chose that option. Its going to be owner occupied and than swapping in the future into an investment property. I thinking building my foundation from there.
No worries at all.
Like Richard said – interest only with an offset would be your best option. This blog post explains the concept in further detail.
Hey Guys Thank you so much for your help, WOW and I thought an interest only loan was bad because you only paid off the interest and not the principle but that makes sense if I want to use it as an investment property in the future, I don't really understand the offset account how it works?? Thanks I am learning a lot already by reading this forum
MattRichard TaylorParticipant@qlds007Join Date: 2003Post Count: 12,024
Matt, if there is any chance you may decide to rent out your PPOR then interest only with offset is the way forward.
Taking it one step forward you even look at taking a fixed rate with 100% offset account to give you the additional sleep at night factor.
Then if you also thinking about investing in the future there are a couple of things you could do to ensure you don't have too save for a deposit.
Yours in Financemattliasiian wrote:Hey Guys Thank you so much for your help, WOW and I thought an interest only loan was bad because you only paid off the interest and not the principle but that makes sense if I want to use it as an investment property in the future, I don't really understand the offset account how it works?? Thanks I am learning a lot already by reading this forum
An offset account is a transaction account linked to your home loan. You reduce the amount of interest payable on your home loan by having money sitting in your offset account.
So for illustrative purposes, if you had a $10 interest only home loan with $1 in the offset account, you'd only be paying interest on $9.
ANZ's website has a good description http://www.anz.com.au/personal/home-loans/choose-home-loan/extras/offset-account/