Reaching for your dreams
An ideal home and good lifestyle may be a stretch, but some tips can help put it all in reach.
IT’S the home of your dreams. It’s everything you want for this stage of your life. But it’s going to be a stretch on your finances and you will need significant lifestyle changes.
So how do you make the dollars stack up to have the best of all worlds … a great home and a good lifestyle. Here are your options.
1 BUY IT AS AN INVESTMENT PROPERTY
Buying that dream home initially as an investment property can be a much more affordable way to enter the market.
While you rent somewhere much cheaper, your tenants will be chipping in a big chunk of the mortgage repayments, meaning you only have to pay the difference … if any.
You should also be eligible for negative gearing tax deductions on expenses associated with owning the property and potentially depreciation benefits too.
A few years and a couple of promotions later, your financial situation will hopefully have improved to the point where you can afford to live there. You’ll lose investment property tax advantages but you’ll gain from any future capital gains as they’ll be tax free.
Talk to an accountant to make sure the transition to principal residence is done correctly.
2 USE TECHNOLOGY AT YOUR FINGERTIPS
Borrowers have never had more access to information, or more power, to find the very best deal. A large number of comparative websites analyse all the financing options available.
Then there’s the new www.realestate.com.au/Home Loans experience, integrated across mobile, desktop and app, which takes the search for the best financing options to a new level. It allows you to fill in your financial details and when you find the right property it calculates the loan you need, assesses your application and conditionally approves using a database of mortgage brokers.
Once you’ve decided on the property, you deal personally with a mortgage broker to get it signed off. Also choose a mortgage that suits you. There are expensive loans packed with features through to very simple loans with lower interest rates.
3 LOCK IN A LOW INTEREST RATE
If a rate rise by the RBA would cause your budget to fall into disarray, a long-term fixed-rate home loan could be the answer.
A fixed loan means repayments won’t change no matter what rates do, so it’s easy to work out exactly how much you’ll have to sacrifice to repay your loan with no surprises.
If you’re happy to do it tough for a few years for the pay-off of having a place to call your own, this could be a good option.
Interest rates are at historically low levels and are very unlikely to fall any further. All the experts agree the next rate move will be up, with the only debate about when. Most agree it won’t be until next year, with many predicting as far out as the second half.
4 ASK FOR A DISCOUNT ON THE RATE
Never settle for the advertised rate on any loan … always ask for a discounted rate. Especially if you finance through your existing institution, where you may have other products such as credit cards, insurance, superannuation and investments. You’re a valued customer so they’ll want to entice you to keep all your business with them. A discount of 0.25-0.75 per cent off the advertised rate is quite common depending how much the bank loves you.
5 INCREASE YOUR REPAYMENTS
Interest rates are historically low, so take advantage of that by getting on top of your repayments from the start, to get ahead and build a buffer.
If you make repayments monthly, then change them to fortnightly. If you make them fortnightly, shift them weekly.
The advantage of this slight tweak is twofold. In a calendar quirk, changing your repayments to a more frequent cycle will mean you make extra repayments each calendar year. Also, by increasing the regularity of repayments, you’ll end up paying less interest on the loan as there’s less interest compounding each period.
If you can afford to put extra regular lumps of cash into the mortgage, it will make a significant difference.
6 FIND A GUARANTOR
A friendly guarantor can help you to buy a place that you otherwise could not afford.
Banks look much more favourably on loan applications with a guarantor attached, as having two parties responsible for repayments dramatically reduces the risk that the debt will go bad.
Plus, having a guarantor usually means it’s possible to get a lower interest rate, not pay Lenders’ Mortgage Insurance and increase the amount you’re able to borrow.
Generally we’d recommend sticking to a house you can afford (or waiting until you can afford the place you want), but we know that lots of people will
still push the boundaries.
7 GET SERIOUS ABOUT YOUR CAREER
A mortgage is the largest financial commitment most people ever make, and if it goes wrong you could find yourself in severe trouble, financially and personally.
So if you’re borrowing big, it’s time to get serious about how you’re going to pay for it.
That means knuckling down at work and focusing on steps to lock in a pay rise or promotion. Consider if further study could advance your career, too.
In the short term, a second job could be the answer.
Or you could look at other ways of earning extra money, such as turning a hobby into a second income source, opening a stall at a local markets, or joining the share economy.