Capital gain is the difference between the amount you bought an asset for and what you “gain” when selling it, minus costs. Capital gains tax is a levy you must pay in the year you sell the asset. There’s multiple methods to calculate it, but the first step is always to work out your gain.
Home equity is the difference between what your home is worth and the amount you owe on your mortgage. A home equity loan allows you to access funds by borrowing against this balance through a lender. Whether or not you qualify, and the amount you can borrow depends on your circumstances.
Loan-to-value ratio (LVR) is the percentage of the loan you take out to buy your house, compared to the value of the house itself. It can be calculated by dividing your home loan amount by the value of the property (then multiple this number by 100 for the percentage). For example (270,000 / 300,000) x 100 = 90% LVR.
Salary sacrificing is a way to potentially reduce how much tax you pay, by removing goods and services you would normally pay for from your pre-tax salary. Many everyday expenses can be salary sacrificed, including your mortgage. Only certain employers offer salary sacrificing though and only owner/occupiers can include their mortgage.
Negative gearing refers to the investment strategy where you take advantage of having a negatively geared investment property (one where the rental return is less than what you are paying to own the property) by offsetting the loss against your income and reducing your taxable income. More information on negative gearing can be found here.
A bridging loan is designed to ‘bridge’ the gap when you’re trying to secure a new mortgage for a new property but haven’t yet sold your existing property. This loan allows you to buy your new place without waiting for the old one to sell. They are particularly helpful in locations where properties can stay on the market for a while.
Lenders Mortgage Insurance (LMI) is a form of insurance that is paid by the home loan owner but designed to protect the lender, just in case you default on your home loan and can no longer make your repayments. Not everyone pays for LMI, and it is usually only required if you are taking out a loan for 80% or more of the property value.
While a pensioner is a high-risk borrower for a lender, many loan options are still available – it just might take a little bit more time to find the right lender. It might also help to contact a broker to help you sort through your options.
It’s possible to get a home loan without a deposit. While a 10-20% deposit is the norm with most lenders, you can get away with not having this. The main way to avoid a deposit is if you have a guarantor. In that case, it’s possible to borrow up to 105% of the property’s value.
An offset account is a savings account or an everyday account linked to your home loan account. It works to “offset” your home loan balance daily, meaning you are only paying interest on the difference between your principal loan and the balance in your offset account.
The Federal Government’s First Home Loan Deposit Scheme allows first home buyers to purchase a property with as little as a 5% deposit and without having to take out Lenders’ Mortgage Insurance (LMI). Under the scheme, the government becomes the guarantor. Each year, up to 10,000 of these loans are available.
A credit score helps a lender know if they should lend you money or give you credit or not. It’s based on your history of paying loans and bills, as well as how often you’ve applied for credit. It takes into account credit cards, whether money is owed or not, and other debts.
The best way to find out your borrowing capacity is to use a borrowing calculator. Such calculators crunch the relevant financial data, like your income, living expenses and credit card limits and also take into account other factors, like how many dependents you have, to work out how much a lender might let you borrow.
According to the Australian Bureau of Statistics (ABS), the average mortgage size in Australia is $500,000 (December 2019). Depending on where you live, this may sound like a lot – or very little – and that’s because the state or capital city you live in has a major influence on the size of your mortgage.
How much a home renovation costs depends on how big and complicated it is, as renovation can be defined as anything from adding several rooms to quickly updating a bathroom. You can spend anywhere from $5000 to $500,000! According to Houzz & Home Australia Overview of Home Renovation 2020 data, the median spend is $20,000.
The type of loan you have determines what you might have to pay if you want to refinance. Costs can include discharge fees of up to $200, set-up fees of up to $500, title insurance, which can cost up to $3,000 and also Lenders’ Mortgage Insurance (LMI). So be sure to check.
The First Home Owners Grant, a lump-sum payment for first home buyers introduced in 2000, varies from state to state. Currently, the grants range from $7,000 to $15,000. Unlike most other parts of the home-buying process, the grant isn’t tested on means, e.g. based on income, but rather a set sum.
To make an offer on a house sold by private treaty, you’ll either submit it to the real estate agent or directly to the vendor. They might ask questions to better understand your financial situation and needs. Buying at auction involves bidding on a house against other auction-goers on the day of the auction.
While interest-free payment options like Zip Pay and Afterpay are not technically classed as credit cards, using them can affect your credit score. In their terms, providers explain if they’ll check your credit history or make reports about late repayments, defaults, etc to credit agencies – which can impact your credit score. It’s always important to check the fine print.
Investment property depreciation is claiming the reduction in the value of items in your asset over their expected life. The life expectancy of items varies from product-to-product so each property will depreciate at a different rate.
The best thing sellers can do is make sure their property is presented in its best light possible. Another critical component is good quality marketing with maximum exposure. Most sellers will also need to ensure their property is priced competitively compared to what else is available on the market.
By law, lenders must list both their advertised and comparison rates. The advertised rate is the rate the lender offers you when you apply for a loan. It’s also the rate that they use to attract your interest and is typically low, in order to entice you to find out more. The comparison rate is the advertised rate plus any fees. Thus, the comparison rate gives you an accurate indication of what you’re actually paying for your loan.
Home loan conditional approval keeps you financially grounded by helping you understand your borrowing power and what properties are within your budget. It also position you as a serious buyer in open inspections.
A guarantor home loan is a specialised mortgage secured by another party. In most cases, this is a parent or an immediate family member, such as grandparents, siblings or adult children. By being a guarantor, this party assumes the risk should you default on the repayment of the loan.
In addition to a deposit, the costs associated with buying a house include stamp duty (based on the value of the home), Lenders’ Mortgage Insurance aka LMI (usually 1%-3% of the loan amount), a title transfer fee of about $140 and a mortgage registration fee. Then there are legal and conveyancing fees, inspections as well as moving costs.
Rental yield is the amount of ongoing return made from your investment property and does not include capital growth. It allows you to compare your investment properties to other properties on the market.
Liveability is a living standard measure that refers to several crucial factors such as security, substructure and the surroundings, which affect everyday living. This can include the amount of green spaces in your area, how friendly the neighbourhood is and the opportunity for recreational activity.
Historically, Australians stuck with one bank and one mortgage for life, but nowadays refinancing your home loan to get a more competitive deal is common. Whether you’re simply looking for a lower interest rate, your financial situation has changed or you want to unlock some equity, refinancing will always depend on your personal circumstances.
If you’re great at paying down your home loan, it’s possible to access the equity – which is the difference between what your home is worth and the amount you owe on your mortgage. Whether or not you qualify to increase your loan depends on your circumstances.
The list of “what not to do” before buying a property is long. The mistakes to avoid include not getting home loan pre-approval, not understanding your loan options, borrowing right up to your limit, relying too heavily on real estate agents, not getting the right pre-inspections done, under-estimating buying costs, like stamp duty and mortgage title transfer fees; and getting too emotionally attached.
A first home buyer is someone who’s never purchased a property as their own home. To get the First Home Buyers grant, you have to be over 18-years-old, be a permanent resident or Australian citizen and live in the home you buy, for at least six months straight.
If you have a redraw facility on your home loan and pay extra every month, you can access the additional cash you put in when you need it. When you can do this depends on the terms of your loan.
Equity is the difference between what the market will pay for your home and what you still owe on your mortgage. For example, if your home is valued at $400,000 and you still have $250,000 left to pay off your home loan, your home equity is up to $150,000.
When moving into a new house, you’ll need all your everyday basics, like bedroom and lounge room furniture, kitchen and laundry appliances, lots of linen and of course, some decorative items. Everyone knows buying such things can be expensive, so be sure to check out the affordable retailers for some styling hacks and household items to help set up your first pad.
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