When looking to buy a home in Australia, it’s important to know about the different types of home loans available. Each type of home loan has its own features and benefits, making it easier for borrowers to find one that suits their needs. Understanding these types of home loans can help you make smart choices when financing your new home. In this blog, we will explore the various options so you can find the best fit for your situation. What are the Different Types of Home Loans Available in Australia? There are many types of home loans available for those who want to buy their first home or homeowners looking to invest in another property. Fixed-rate home loans offer borrowers the security of knowing their interest rate and repayments will remain constant for a set period, typically between one and ten years. This type of loan is beneficial in a fluctuating market, as it protects against rising interest rates. However, fixed-rate loans may come with higher rates than variable options and often have limited features, such as restrictions on extra repayments. If a borrower decides to exit the loan early, they may incur break fees, which can be significant depending on the remaining term of the loan.Variable-rate home loans are popular due to their flexibility. The interest rate can change over time, allowing borrowers to benefit from lower rates when the market drops. These loans often have lower exit fees and allow for additional repayments without penalties. However, borrowers must be prepared for potential increases in repayments if interest rates rise. Variable loans also commonly include features like offset accounts and redraw facilities, which can help manage finances more effectively.Split loans combine elements of both fixed and variable loans. This option allows borrowers to fix a portion of their loan while keeping the rest at a variable rate. This strategy can provide a balance between stability and flexibility, allowing borrowers to benefit from fixed rates during uncertain times while still taking advantage of potential savings from variable rates. Split loans are suitable for those who want to hedge against interest rate fluctuations while maintaining some flexibility in their repayments.Bridging loans are designed for those who need temporary financing while transitioning from one property to another. They allow homeowners to purchase a new home before selling their current one. These loans typically have higher interest rates and are meant to be short-term solutions, often lasting up to 12 months. Borrowers must demonstrate that they can manage both mortgage repayments during this period, making it crucial to have a clear plan for selling their existing property.Low-doc home loans cater to self-employed individuals or those with non-traditional income sources who may find it challenging to provide extensive documentation for a standard loan application. These loans often require less paperwork but may come with higher … [Read more...] about Learn the Different Types of Home Loans in Australia and How Interest Rates Affect Home Loan Types
How to Calculate Rental Yield: A Comprehensive Guide for Property Investors
Are you a property investor looking to make smart choices? Knowing how to calculate rental yield is key to understanding your investment's potential. Rental yield shows how much money you can earn from a property compared to what you paid for it. In this comprehensive guide, we will break down the steps to calculate rental yield easily. You will learn how to find this important number and use it to make better investment decisions. What is Rental Yield and Why is it Important for Property Investors? Rental yield is defined as the income generated from a rental property expressed as a percentage of its value. This percentage helps property investors gauge the profitability of their investment property. There are two main types of rental yield: gross rental yield and net rental yield. Gross rental yield is calculated by taking the annual rental income and dividing it by the property’s market value, then multiplying by 100 to get the percentage. For instance, if your annual rental income is $20,000 and your property is worth $400,000, your gross rental yield would be (20,000 / 400,000) x 100 = 5%.On the other hand, net rental yield takes into account the expenses associated with owning the property, such as maintenance, repairs, management fees, and property taxes. This calculation provides a more accurate representation of the actual return on investment. To calculate net rental yield, you would subtract the total expenses from the annual rental income and then divide by the property’s market value, multiplying the result by 100. Understanding these two types of rental yield is vital for property investors as they provide insights into both gross returns and the net cash flow from the investment. How Rental Yield Affects Property Value Rental yield of a property is a key factor that investors consider when buying real estate. It shows how much income a property can generate compared to its price. A high rental yield on a property means that it can produce more income relative to its cost. This often makes the property more attractive to buyers, which can increase its overall value. Investors look for properties with strong rental yields because they want to ensure a good return on their investment.The yield of a property using this rental yield helps determine its market appeal. If a property has a low rental yield, it may not attract as many buyers, leading to lower demand and value. On the other hand, properties with high rental yields tend to sell faster and for higher prices. How to Calculate Rental Yield: A Step-by-Step Guide Rental yield is a way to measure how much money you earn from a rental property. It tells you the return on your investment. To calculate rental yield, you need two main numbers: the annual rent and the property price. Step 1: Find the Annual RentFirst, you need to know how much rent you receive in a year. If you charge AUD 500 per week for your property, multiply … [Read more...] about How to Calculate Rental Yield: A Comprehensive Guide for Property Investors
Understanding Home Equity and How Home Equity Loans Work
Home equity has become an increasingly popular avenue for homeowners to leverage their property's value, offering them opportunities to invest, purchase second homes, or fund renovations. Understanding how home equity works and the mechanics of home equity loans is crucial for anyone looking to access the equity in their home effectively. This article will guide you through the essential aspects of home equity, how to calculate it, and how home equity loans function, providing a comprehensive view of this financial tool. What is Home Equity and How Much Equity in Your Home Can You Access?Home equity refers to the value of your home minus any outstanding mortgage balance. Essentially, equity is the difference between what your home is worth on the current market and how much you owe on your home loan. For instance, if your home is valued at $400,000 and you owe $250,000 on your existing loan, your home equity would be $150,000.This figure represents the portion of your home's value that you truly own and can borrow against to access cash for various purposes, such as home improvements, debt consolidation, or even purchasing an investment property.Calculating the equity in your home is a straightforward process. First, determine the current market value of your home, which can be assessed through online property valuation tools or a professional appraisal. Once you have established this value, subtract your current home loan balance from it. The formula is simple: Equity = Market Value of Your Home - Loan Balance. For example, if the market value of your home is $500,000 and your existing loan balance is $300,000, your usable equity would be $200,000.Factors That Influence the Amount of Usable EquitySeveral factors can influence the amount of usable equity you can access. One significant factor is the current market conditions, which can affect the value of your property. If property values in your area have risen, you may find that you have much equity available to borrow against.Additionally, the type of loan you have may impact your equity; for instance, a home equity line of credit might allow you to access your equity differently than a traditional home equity loan. Other considerations include the repayment terms of your existing home loan and any additional liens on the property.How Does a Home Equity Loan Work?A home equity loan allows homeowners to borrow against the equity in their property. Essentially, it is a type of loan that uses your home equity as collateral. When you take out a home equity loan, you receive a lump sum amount based on the equity you have accumulated, and you agree to repay this amount over a specified period with a fixed interest rate.The process typically involves applying for the loan, undergoing a credit check, and providing documentation regarding your income and the current market value of your home. This type of loan can be an attractive option for those looking to access a … [Read more...] about Understanding Home Equity and How Home Equity Loans Work
Investor borrowing rises 35.4%
Property investors committed to $11.71 billion of home loans in July 2024, which was the second-highest month on record, according to the Australian Bureau of Statistics.It was also 35.4% higher than in July 2023, showing the enormous growth in investor activity during that time. Here are five reasons why so many Australians consider property investing a great way to build wealth:Capital growth – property prices have increased significantly over the long-termRental income – the income you collect from your tenants can contribute to paying off your mortgageTax benefits – you can potentially reduce your taxable income if your expenses exceed your incomeDiversification – property can balance out any shares you may own through your superannuationFlexibility – once you’ve accumulated enough equity in your investment property, you can use that to fund the deposit on another propertyAs you can see, property investing has a lot of potential benefits. If you want to know more, I’ll be happy to run some numbers for you.Let’s talk property investment Hit the button below to arrange a conversation with one of my loan specialists to find a deal that's best for your situation. Chat to us today We partner with over 50 lenders so you can find the perfect solutionFollow Facebook Linkedin Do you have questions about mortgages or loans?Ask us in the comments below … [Read more...] about Investor borrowing rises 35.4%
How to build your dream house
One of the great things about constructing your own home is that it can be tailored to your specifications. If you’re interested in building rather than buying your dream home, here’s the process you need to follow:Speak to your broker about your goals, so you can create a finance plan togetherBuy the landDesign your homeFind a reputable builderObtain building permits and approvalsBuild the homeWith a traditional home loan, you receive the money in one lump sum; but with a construction loan, you receive the money in five stages throughout the project. You pay interest-only on the portion of the funds you've received to date, rather than the whole loan; and at the end of the build, your loan reverts to a traditional principal-and-interest mortgage.It’s worth noting that the rate of annual growth in house-building costs increased from 3.9% in September 2023 to 4.3% in June 2024, according to the Australian Bureau of Statistics.Given that costs will likely continue to rise, the sooner you build, the cheaper it could be in the long term. If this is something you’re thinking about doing, you should explore your options soon.Get in touch if you need a construction loan.Hit the button below to arrange a conversation with one of my loan specialists to find a deal that's best for your situation. Chat to us today We partner with over 50 lenders so you can find the perfect solutionFollow Facebook Linkedin Do you have questions about mortgages or loans?Ask us in the comments below … [Read more...] about How to build your dream house
Mortgage activity rising, as borrowers commit to $29bn of home loans
The latest home loans data from the Australian Bureau of Statistics has revealed three key trends.Borrowing is rising strongly. The total value of home loan commitments in June reached $29.19 billion, which was 1.3% higher than the previous month and 19.1% higher than the previous year. Investor activity is incredibly strong right now. While the volume of owner-occupied loans rose 13.2% year-on-year to $18.17 billion, investment loans jumped 30.2% to $11.02 billion. While refinancing activity remains quite high, it's well below the record levels of mid-2023. Borrowers refinanced $15.79 billion of loans in June, which was 20.9% lower than the year before. Contact me if you’re thinking about buying a property. I can get you a home loan pre-approval and, if you’re interested, introduce you to a good buyer’s agent.Need a home loan? Let's chat.Hit the button below to arrange a conversation with one of my loan specialists to find a deal that's best for your situation. Chat to us today We partner with over 50 lenders so you can find the perfect solutionFollow Facebook Linkedin Do you have questions about mortgages or loans?Ask us in the comments below … [Read more...] about Mortgage activity rising, as borrowers commit to $29bn of home loans
Why banks assess your home loan re-payment capacity at higher interest rates
When you apply for a mortgage, the lender uses a series of criteria to assess how likely you’d be to repay the loan. As part of this process, the lender also considers whether you’d be able to continue making your repayments if interest rates were to rise.Generally, lenders will apply a buffer of at least 3.00 percentage points – so if you applied for a loan with an interest rate of 6.50%, this would mean calculating whether you’d be able to make repayments at 9.50%.This ‘mortgage serviceability buffer’, as it’s known, is mandated by APRA, Australia’s banking regulator.Partly, it’s designed to prevent lenders from issuing risky loans; because if a large number of borrowers defaulted on their loans, that would undermine the banking system. And, partly, it’s designed to protect borrowers from taking on loans they might not be able to afford.The serviceability buffer can make it harder for borrowers to qualify for loans, but is ultimately designed to be in their best interests.Talk to me about your borrowingHit the button below to arrange a conversation with one of my loan specialists to find a deal that's best for your situation. Chat to us today We partner with over 50 lenders so you can find the perfect solutionFollow Facebook Linkedin Do you have questions about mortgages or loans?Ask us in the comments below … [Read more...] about Why banks assess your home loan re-payment capacity at higher interest rates
Rents expected to keep growing, but at slower pace
Property investors have enjoyed a golden run over the past five years, during which the national median rent increased 39.7%. However, in July, rents increased just 0.1%, which was the slowest growth since 2020, according to CoreLogic.At the same time, annual rental growth has been trending down over the past few months.Between February and July, rental growth fell from 9.7% to 8.0% in the combined capitals, although it rose from 5.4% to 7.1% in the combined regions. The big cities appear to be close to their rental affordability limit, while the regions, which have had less rental growth, might have more capacity to absorb higher rents. Despite the slowdown of the national rental market, CoreLogic economist Kaitlyn Ezzy said rents were likely to keep increasing.“Low supply will likely continue to put upward pressure on rents, albeit at a slower pace,” she said.“With dwelling approvals and commencements at historic lows, providing sufficient new housing will not be a quick fix and remains a genuine challenge for policymakers, the property industry and, of course, tenants.”In other words, while rents are likely to keep rising, tenants are likely to get some relief and investors shouldn’t budget for the double-digit-percentage increases of previous years.Need a home loan? Let's chat.Hit the button below to arrange a conversation with one of my loan specialists to find a deal that's best for your situation. Chat to us today We partner with over 50 lenders so you can find the perfect solutionFollow Facebook Linkedin Do you have questions about mortgages or loans?Ask us in the comments below … [Read more...] about Rents expected to keep growing, but at slower pace