Looking to buy? Find the right mortgage and own your home sooner
Instead of waiting for a partner, women are taking charge of their own financial future and buying property on their own.
There are many benefits of owning your own property. It gives you the opportunity to ‘put down roots’, have full control over the decision of what and where to buy, and best of all it can provide you with financial security and give you a solid foundation for the future. But you need to be thoroughly prepared – buying a property is a big financial decision and there are a number of important things to consider before jumping in.
Step 1 – What can I afford?
To work out what’s realistic for you, there are two things to
- How much a lender is prepared to let you borrow; and
- How much you can comfortably repay each month.
Lenders take a number of factors into account when assessing your borrowing capacity. Most major lenders have online calculators on their websites that you can use to get an idea of how much you can borrow.
You need to comfortably maintain the monthly repayments on your mortgage. A general rule of thumb is that your repayment amounts shouldn’t be more than 30% of your gross salary.
One final consideration is whether you eventually plan to marry and/ or start a family. As the primary mortgage holder you will need to think about how this will affect your ability to make repayments. This would need planning in advance and it is a good idea to talk to a professional about your options.
Improve on how much you can borrow
One of the key factors that lenders consider is your current level of debt. So before applying for a home loan it’s a good idea to pay off outstanding debt, such as credit card debt, personal loans, etc. To find out what your credit rating is, you can request a free credit file at www.mycreditfile.com.au
Step 2 – How do I save a deposit?
The more money you can save, the less you have to borrow. Mortgage insurance is an additional fee that lenders ask you to pay if you borrow more than 80% of the loan amount. It protects the lender against any loss if you default on your loan and they sell your home for less than the outstanding loan amount. It doesn’t cover you for any financial loss, but it does help you purchase a home with a lower deposit.
The top five sacrifices people make when saving for a home loan
Research by the Mortgage Finance Association uncovered the top 5 ways people save for a deposit:
- Reducing home costs
- Eating out less often
- Taking lunch to work
- Buying food in bulk or on special
- Taking cheaper holidays
Step 3 – Find the right loan for you
When it comes to choosing a mortgage, you need to shop around. The best loan won’t necessarily be the cheapest loan, it will be the loan with the features that match your lifestyle. To make it easier, below is a brief guide to the different types of loans and features you are likely to come across.
Types of loans and features
Basic/standard home loan
- usually have a low interest rate, low fees and a restricted range of features, with a standard loan usually having more features than a basic loan
- most suitable for people who don’t expect their circumstances to change a lot
Discount variable rate or introductory rate loans
- type of standard home loan that offers new customers a reduced or discounted rate of interest for the initial six to 24 months, after which the interest rate reverts to the standard
- you need to check for the ability to repay early without penalties
Fixed rate loans
- interest rate is guaranteed to remain the same during an initial term of between one to five years
- at the end of the fixed term, loan may need to be repaid in full or renegotiated to a standard variable rate (penalties may apply for breaking this type of loan early)
Line of credit/home equity loans
- you can establish a credit limit and then draw down without restriction
- useful for borrowers who need extra money to carry out renovations, but unless you are disciplined you will find it difficult to pay down
- allows a borrower to withdraw any additional funds they have paid over and above the normal minimum repayment – lenders may charge a fee for this feature
- gives the borrower the option of keeping existing loan arrangements, but changing the property that secures it 100% offset account
- allows the borrower to have any savings or credit balances in their transaction account to be offset against their loan when interest is calculated
- you benefit from a reduction in the interest charged on your outstanding loan amount
- allow borrowers to split their loan in a number of different products, such as a combination of the fixed and variable rate loan
Interest only payments
- offer borrowers the ability to make interest only payments on their loan for a set period
- monthly repayment has no principal reduction, and outstanding balance will remain unchanged during the term of the interest only period
“Getting my first mortgage was a bit nerve racking, but now I love the feeling of having the security of a house behind me.”
– Clara, aged 27
Could you keep repayments up if your income stopped?
As a single mortgage holder, it’s a good idea to consider how you could afford loan repayments and living expenses if you weren’t able to work due to a serious accident or illness. For example, for a 35-year old female, the chances of a disability occurring which lasts for more than three months is 42%.
Income protection insurance replaces up to 75% of your taxable income for the length of your chosen benefit period or until you are able to return to work, while Trauma Cover provides a lump sum upon the diagnosis of more than 40 serious but common medical conditions, such as heart attack, cancer or stroke. In the unlikely event a serious health condition leaves you permanently unable to work, total and permanent disability (TPD) insurance can pay you a lump sum to assist with paying off the mortgage and so relieve you of the worry of losing your home.
As some insurance covers can be paid through your super fund and/or are tax-deductible, the overall impact of the insurance premiums on your monthly budget can be reduced. Getting the right assistance in implementing an affordable mix of covers can provide you with peace‑of‑mind when you need it most.
- How can I prepare for a home loan?
- Find an online calculator to get an idea of how much money you can borrow
- Reduce your level of outstanding debts, such as credit card debt or personal loans
- Check your credit rating
- Create a budget to work out what a comfortable repayment amount would be
- Think about your current income and how that might change in the future
- Start a saving plan in a high-interest savings account
- Explore different home loan options to figure out which types of loans and features are best for your situation
- Shop around for the best rate
- Consider income and TPD insurance to protect against the risk of losing your income