| mortgage, first home buyer | 4 Mar 2008 12:00 AM |
| The experiences of a First Home Buyer in Australia Part 1 by Zuzana Buttel | |
Six months ago my husband and I (sounds very royal!) decided we had sufficient funds saved to buy our first home in Sydney, Australia. We had a combined income of around $130,000 and had no immediate plans to start a family. We were unsure of how much we could borrow so we searched the internet and found some very good mortgage calculators that allowed us to input our income and expenses to work out a loan amount that we could service comfortably.
The “How much can I borrow Loan Calculator” determined that on our income we could borrow $720,000. This was on the basis of a 30 year loan term and an interest rate of 8.75% p.a. variable and
1. no dependent children
2. no other debt
3. 2 credit cards with combined limit of $5000.
We had been thinking of buying a car so we added a $1000 per month expense for a car lease and this reduced our borrowing capacity for our first home to $563,000. We had a deposit saved of $100,000. We checked out the costs on a first home buyer purchase. For most property purchases the costs of buying and borrowing represent about 5% of the purchase price. First home buyers are much better off because of the government First Home Owner Grant which is now $7000 in most states. There are also stamp duty concessions for first home buyers on their mortgages.
My parents had advised that they could lend us $20,000 but rather than put this into the actual first home buyer purchase they suggested that we include an offset account in our loan structure. We were surprised to find that there are some lenders who will provide a 100% offset account and this can be offered on a fixed rate loan (we wanted a fixed rate for at least 5 years because we were worried interest rates might increase).The 100% offset account of $20,000 meant that although we planned to borrow $500,000 @ 8.49% fixed for 5 years we were only going to be paying interest on $480,000. The interest saving over the loan term of 30 years was $186,603!!
When we added a further $1000 per month as an extra monthly instalment (instead of buying the car) the interest saved was over $500,000!! This basically reduced the loan term form 30 years to only 15.
If you can stretch yourself a bit when you don’t have children or other debt and pay as much as possible off your first home buyer home loan it really makes a huge difference. I know that it is likely that at some stage children will come along but in the meantime we are really trying to pay at least $500 extra per month to the home loan. Public transport can be a hassle but when you think of how much you can save on your first home buyer loan it makes a lot of sense to catch the bus or train for as long as you can! And think of the saving in petrol costs!
The “How much can I borrow Loan Calculator” determined that on our income we could borrow $720,000. This was on the basis of a 30 year loan term and an interest rate of 8.75% p.a. variable and
1. no dependent children
2. no other debt
3. 2 credit cards with combined limit of $5000.
We had been thinking of buying a car so we added a $1000 per month expense for a car lease and this reduced our borrowing capacity for our first home to $563,000. We had a deposit saved of $100,000. We checked out the costs on a first home buyer purchase. For most property purchases the costs of buying and borrowing represent about 5% of the purchase price. First home buyers are much better off because of the government First Home Owner Grant which is now $7000 in most states. There are also stamp duty concessions for first home buyers on their mortgages.
My parents had advised that they could lend us $20,000 but rather than put this into the actual first home buyer purchase they suggested that we include an offset account in our loan structure. We were surprised to find that there are some lenders who will provide a 100% offset account and this can be offered on a fixed rate loan (we wanted a fixed rate for at least 5 years because we were worried interest rates might increase).The 100% offset account of $20,000 meant that although we planned to borrow $500,000 @ 8.49% fixed for 5 years we were only going to be paying interest on $480,000. The interest saving over the loan term of 30 years was $186,603!!
When we added a further $1000 per month as an extra monthly instalment (instead of buying the car) the interest saved was over $500,000!! This basically reduced the loan term form 30 years to only 15.
If you can stretch yourself a bit when you don’t have children or other debt and pay as much as possible off your first home buyer home loan it really makes a huge difference. I know that it is likely that at some stage children will come along but in the meantime we are really trying to pay at least $500 extra per month to the home loan. Public transport can be a hassle but when you think of how much you can save on your first home buyer loan it makes a lot of sense to catch the bus or train for as long as you can! And think of the saving in petrol costs!
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