If your 2022 goals include buying your first home, even though you’re finding it impossible to save for that ever-increasing deposit, you’re not alone. Many people ask us if they can get a home loan with zero or a very small deposit. The answer is a qualified ‘yes’. As always, it depends on your circumstances. Let’s take a look at some of the options you may have.

Some no deposit options

A guarantor home loan is the most common ‘no deposit’ home loan. This is when a parent or close relative offers their home as the guarantee for your loan. It’s a very serious commitment because if you fail to meet your repayments, the lender can take the home as payment.

A guarantor home loan may mean you need to save little to no deposit, making it faster for you to buy your first home. Your chances of approval can also increase and you can avoid Lender’s Mortgage Insurance too.

When borrowing 100% of your loan, your regular mortgage repayments will be higher so it’s important to ensure you can afford the ongoing repayments. You may also need savings to cover the fees and taxes that come with a mortgage application and buying a property. A few lenders will have 105% loans that cover these costs.

Different lenders can have different terms and conditions, so it’s important to make sure you and your guarantor understand what these are before committing to anything. We can help explain the terms and conditions to both you and your guarantor and find suitable lenders.

There are some smaller or specialist lenders who offer 100% home loans without a guarantor. However, they usually have tight restrictions on the annual income needed to qualify and their interest rates tend to be higher so we usually view them as a last resort.

Low deposit loans

You increase your lender options if you have a deposit, even a small one of around 5%. Some people use gifts or an inheritance to boost their deposit savings while others consider dipping into their superannuation to do it.

While many lenders accept a deposit of at least 5%, they typically charge LMI on loans with deposits smaller than 20%. This can add a sizable chunk to the cost of your loan or reduce the amount you can spend on buying a property. Different lenders have different rules and LMI rates so it can be confusing.

Government support to help you into your home

Lender’s Mortgage Insurance (LMI) rates vary depending on the lender and the amount you borrow. Fortunately there are some ways to reduce or avoid what you have to pay. A parental guarantor who covers your deposit means you don’t have to pay LMI. Buyers using the First Home Loan Deposit Scheme also avoid it. You may also be able to add the LMI to your mortgage amount. The best thing to do is get in touch sooner rather than later. We can work out the types of loans and grants you may be eligible for and the fees, including LMI, you will need to budget for.

If you’re a first home buyer, you may be eligible for a First Home Owner’s Grant. You can use this as a deposit and to pay for fees and taxes like stamp duty. These grants can change from year to year, so it’s a good idea to check in with us for the latest version and any changes that are coming up.

First home buyers may be able to buy a house with a 5% deposit and avoid paying LMI with the Government’s First Home Loan Deposit Scheme. This is where the government provides the lender with a guarantee on up to 15% of the loan so no LMI is needed.

You can see that there is a variety of ways to open the door to buying your first home. Getting a mortgage with no or a small deposit can be done, especially with the government schemes to give you a helping hand. However as offers and conditions frequently change, it’s a good idea to keep in touch about what will be available.

We can let you know the next round of application dates and help you apply for grants as well as your mortgage.

First home buyers guide

1.  Evaluate your finances and budget: Knowing what you can afford is a vital first step in your journey to being a first home buyer.
2. Consider grants and incentives for first home buyers: In recent years, state and federal governments have introduced grants and funding programs to assist Australians into their first home.
3. Define your property goals: Include location and the type of property as well as your lifestyle and personal circumstances.
4. Ensure you are clear on the costs of buying a house: Include deposit, conveyancing fees, finance and insurance costs, building and pest inspections.
5. Speak to us about the most appropriate mortgage and interest rate: We can help make sure your loan is best suited for you and your circumstances.
6. Arrange pre-approval: Pre-approval enables you to make an offer on a property with confidence.
7. Attend inspections and negotiate to buy your house: Finding that ‘just right’ property can take some time, be sure to look out for any potential problems and whether the property will suit your lifestyle.

If you have any questions or need any information please give us a call on 039723 0522.

Why go through the worry (and expense) of moving when you can turn your current place into your dream home? While renovations aren’t always stress-free (or cheap) there are some straightforward ways to finance your property’s facelift so it suits your post-pandemic lifestyle.

The type of renovation you want and the budget you’ll need will ultimately dictate the type of loan required so it pays to plan ahead. If you choose the wrong loan, you could be left with a skip load of unexpected debt.

Tradie comparison site hipages.com.au crunched the numbers in 2021 to reveal the average cost of renovating a home. Today, significant home extensions and renovations in Australia start at about $100,000 and can cost up to $300,000 for a traditional family home.

Hipages also drilled down to discover what the standard room by room breakdown would be. A kitchen typically costs between $10,000 and $45,000 to renovate – however, a Masterchef-worthy space could be as much as $70,000. A bathroom redo could clean you out between $10,000 to $35,000, living rooms tend to be cheaper at between $10,000 and $15,000 while a deck or backyard blitz could be about $2,000 to $10,000.

So, once you have the ballpark budget, then you can decide just how you might finance your home improvement.

Refinance your home

Renovation time just might be the perfect opportunity to review your home loan and see if it still works for you. Refinancing to renovate is basically you, as the homeowner, obtaining extra cash to fund your renovations and you don’t have to stay with the same lender. Changing lenders could provide a better rate and additional product features, but you’ll have to pay for the costs of refinancing. Negotiating with your current lender and extending your loan with them may allow you to avoid such costs. Ultimately, if you renovate wisely then you will be increasing the value of your home and the long term benefits should outweigh any upfront loan costs.

Redraw from your mortgage

If you’ve been making additional payments on your home loan over time then redrawing some of the extra money could help fund your renovation. You’ll only be able to use the additional amount you’ve added so you’ll need to ensure it will be enough before redrawing. Just check whether your home loan has a redraw facility and verify whether your lender charges for such transactions.

Top up your mortgage

When you top up your home loan, you’re basically increasing your mortgage amount so you can borrow extra money against your home. If you have plenty of equity in your home and the ability to make extra repayments, then your lender may increase your existing home loan limit so you can pay for your home renovations. Remember, however, that topping up your home loan means taking on more debt.

Take out a construction loan

This option will allow you to access larger amounts of money for significant structural work, with the understanding that your property will be worth more once renovations are complete. In order to apply for a construction loan, however, you’ll need council approval and a fixed price building contract from a registered builder. The upside to a construction loan is that the interest is calculated on the outstanding amount, not the maximum amount borrowed. As a result, you have more money in your renovation kitty, but you’ll only pay interest on the money you choose to spend. It is also worth noting that construction loans usually come with slightly higher interest rates than a typical home loan.

Home equity loan (aka a line of credit loan)

Put simply, equity is the dollar value amount of your home that you own. Lenders will let you use that equity to fund a renovation through a home equity loan. Homeowners can generally call on up to 80% of their loan-to-value ratio (LVR). To calculate just how much you might be able to dip into, subtract your current loan balance from your property’s value and then multiply by that by 80%. This kind of loan will often charge a lending establishment fee and possibly a monthly loan account fee, so do your homework before choosing a loan to suit you.

Getting ready before renovating

• Have a valuer review how much equity you have in your property so you can then budget your renovations
• Research the values of properties in your neighbourhood. There’s no point undertaking a pricey renovation of your humble home if it means you’ve overcapitalised and might not be able to recoup costs when it comes time to sell.
• Be aware that borrowing more than 80% of your home’s value will require you to pay Lender’s Mortgage Insurance.
• Plan your renovations thoroughly before going to a lender because changing your mind halfway through a project could lead to budget blowouts.

5 tips that could help you save on a renovation

• Organise a working bee: get your friends and family together to help with painting, installing shelving and sprucing up the garden and thank them with dinner and drinks.
• Choose the right time of the year: Just like travel, renovations and odd jobs can be more cost-effective in low season. For example, your air conditioning could be installed during winter.
• Check out newly built/renovated homes: While high-end architects generally come with a price tag to match, you can go to inspections for inspiration and concepts to recreate in your own home.
• Reuse materials: Cabinetry and doors can be given a cost-effective facelift with a paint, new handles or new cabinet doors while keeping the existing cabinet body in place.
• Update with new furniture: Sometimes an update of your current furniture can give you that brand new feeling you’re looking for. Keep an eye out for used display home furniture that is both on trend and sold at heavily discounted prices.

When weighing up your finance options, consider all the pros and cons associated with each option and get in touch with us to discuss what would work best for you.

Transition to retirement

If you’re unsure whether you will enjoy retirement or find enough to do to fill your days, it can make sense to ease into it by cutting back your working hours. One way of making this work financially is to start a transition to retirement (TTR) pension with some of your super.

Case study

Ellie, a teacher, has just turned 60. She wants to reduce her workload to three days a week so she can explore other interests and gradually ease into retirement. Her salary will drop but if she starts a TTR pension she can top up her income with regular monthly withdrawals.

Most super funds offer TTR pensions, or you can start one from your self-managed super fund (SMSF). You decide how much to transfer into a TTR pension account, but there are some rules:

• You must have reached your preservation age
• Money can only be withdrawn as an income stream, not a lump sum
• There is a minimum annual withdrawal amount, for example, 4% of your TTR account balance (2% until June 2022) if you are aged 55-64
• The maximum annual withdrawal is 10% of your TTR account balance
• Income is tax-free if you are aged 60 or older; if you’re 55-59 you may pay tax on the TTR income, but you receive a tax offset of 15%.

One of the benefits of this strategy is that while you continue working you will receive compulsory Super Guarantee payments from your employer. A downside is that you will potentially have less super in total when you finally retire.

Retirement is no longer a fixed date in time, with far more flexibility to mix work and play as you make the transition. If you would like to discuss your retirement options and how to finance them, give us a call.

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

Telephone: 03 9723 0522

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Stay up to date with what’s happened in Australian markets over the past month.

January is normally a quiet month on the economic scene, but not this year. Inflation and speculation about rising interest rates dominated the month, sending global shares tumbling.  Click here for our February update video.

Please get in touch if you’d like assistance with your personal financial situation.

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

Telephone: 03 9723 0522

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This information is of a general nature and does not take into consideration anyone’s individual circumstances or objectives. Financial Planning activities only are provided by Integrity One Planning Services Pty Ltd as a Corporate Authorised Representative No. 315000 of Integrity Financial Planners Pty Ltd ABN 71 069 537 855 AFSL 225051. Integrity One Planning Services Pty Ltd and Integrity One Accounting and Business Advisory Services Pty Ltd are not liable for any financial loss resulting from decisions made based on this information. Please consult your adviser, finance specialist, broker, and/or accountant before making decisions using this information.

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

Telephone: 03 9723 0522

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Every homeowner loves the idea of becoming mortgage-free faster and paying less interest in the lead up to that landmark event. Fortunately, there are some easy steps you can take to get there sooner – whether you’ve just got your first home loan, want to increase your property equity or become mortgage-free as soon as possible. Let’s go over them.

Get your mortgage right

First up, switch to an interest and principal repayment loan. Paying just the interest may be great for your immediate cash flow but it is only kicking your principal repayment down the road. Your principal does not reduce during the interest-only period of your mortgage. This means your debt isn’t going down and you end up paying more interest. Interest-only loans tend to be at higher rates as well, so as soon as you can afford it, get in touch to make the switch.

Increase your frequency

Move to fortnightly or weekly repayments. While there are 12 months in a year, there are 26 fortnights, not 24. So, by paying every two weeks, you’ll be repaying an extra month every year – enough to help you get mortgage-free a few years earlier.

‘Set and forget’ can be costly

Keep a look out for a better rate. It’s a good idea to check in with us to review your current interest rate, to ensure it still works for you and is competitive. We can work out what features of your current loan you want to keep and compare the interest rates on similar ones. If there’s a better rate somewhere else, we can ask your lender to match it or offer you a cheaper alternative before making the move.

Top up your repayments

Increase the amount you pay whenever you can. Anything extra you pay reduces your interest repayments and shortens the life of your loan. Since most of us don’t miss what we don’t see, automatically rounding up your repayments is a painless way to do this. For example, you could round up to the next hundred. If you pay $850 every fortnight, make it $900. That’s $1300 a year off your principal and therefore lower interest repayments every month.

Try to stick to the same repayment amount even if you switch to a lower interest rate. If you keep making the higher payments, you’ll be repaying a little extra every time. Say your minimum repayment goes from $1000 a fortnight to $800. Keep paying the $1000 a fortnight and you’ll be taking an extra $5,600 off your mortgage every year. And with interest rates always threatening to change, it’s a good idea for us to periodically check you’re on the best split of fixed and variable rates for your circumstances too.

Offset everything you can

Get an offset account and make the most of it. This savings or transaction account links to your mortgage with the balance reducing your mortgage by the same amount. Interest is calculated daily, so every day your money is in your offset will help lower your principal and therefore interest repayments. And don’t forget that your mortgage interest rate will always be higher than the rate you earn in a regular savings account, so it can be a good idea to keep all your savings – as well as your salary – in your offset account.

Compared to the size of the average mortgage, all these steps may seem like they’re making only a tiny difference to your debt. However, over the life of your mortgage and when combined, they can add up to significant savings on interest repayments and the length of your loan.

If you’d like help planning or implementing the best combination of mortgage reduction strategies for you, please get in touch. You could be living mortgage-free a lot sooner than you think.

Suite 2, 1 Railway Crescent
Croydon, Victoria 3136

Email: integrityone@iplan.com.au

Telephone: 03 9723 0522

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