I realised recently that one of my favourite things about FOA is the breadth of advice that is given, usually in a seemingly sincere way.
I thought a good test of this would be advice about home loans. I’ve found even close friends to be a bit nervous about giving advice other than “do your homework”.
So, here we go. Home loans… here is the wisdom that I currently accept, though find them all boring
30% of income on repayments is a good guide to what you can afford
redraw and linked savings accounts are good
get as big a deposit as possible.
But really, I just want to jump into it and go for a product from a bank that other people haven’t been burned by. I’ll probably “do the homework” anyway, but if anyone is pumped about their loan, lemme know the details! And tips on how to negotiate the best deal. And please also empty your savings account into mine.
PS - i searched for home loans on the forum… there were 6 pages of threads started by spamsters. I didnt go through every page, asssuming none of them were legit, so if this has been discussed before, I apologise.
I work for a bank, so my advice is gonna be rubbish cos I got a good deal thru work.
But I will say this: don’t take a rate that’s not at least 0.5-0.7% lower than their advertised rate. Do all of your shopping around BEFORE you’ve found the house you want, so that you’re not rushed or pressured into something. If they don’t play ball you can walk to the next provider. Get quotes from the big 4, then go see some smaller providers. If yr in Melbourne, go see Bank of Melbourne, even though they’re technically part of Westpac I hear that they are more flexible on rates, as are some of the credit unions etc.
If there’s even a chance you will want to use the property as a rental investment down the track make sure you have an offset account attached and keep the amount that actually go’s into the the loan account to the minimum required. This maximises your tax benefits down the track.
A mate of mine just went through the research stage and ended up at Bank of Melb.
Also, don’t trust any online what you can afford to repay calculator unless you really like 2 minute noodles
The Canberra market at the moment is in strong favour of the buyer so take this into account when deciding about getting that deposit saved. Basically you may be shooting yourself in the foot spending a year or two trying to save money for the deposit when you can get in and start paying off that loan.
FWIW Members Equity were good to us and ticked the boxes that we were after. An offset account that we can redraw on was good as our savings is sitting against the loan which reduces our repayments. Best advice at this stage is to go and see a mortgage broker or two and be upfront with them - I had no idea about loans and the process but I asked them to explain it to me that way and they were really good. That was Aussie Home Loans.
But just remember - you could be losing money by sitting and waiting for you to save a deposit. If you are in the situation where you can get your old’s to be your loan guarantor so you can pass on the mortgage insurance - then this will be a huge help.
Also, realise that you will grow into your home loan when you get pay rises etc. The first year is going to be the hardest by getting used to the extra money going out - but it is a far better way to have your money paying for something of yours, rather someone elses when you rent. Be honest about what you can afford and you will be right. I have seen too many friends want to have the latest and greatest kitchen and over extend themselves. Whats the point of having a huge house when you can’t live?
Also, think about other aspects apart from the interest rate.
e.g. can you do direct debit for repayments from an account not with the lending bank? Some don’t allow this and some do. If they don’t, having to manually transfer money to make sure repayments are met is a pain in the arse.
Another big issue is customer service, although that’s hard to find out for yourself before it’s too late. I’ve found CBA and ANZ pretty fucking hopeless with service. Westpac have been excellent.
If you are young-ish and/or starting a career - ie likely salary growth in future years - then don’t be afraid to borrow up to your eyeballs against your current capacity because otherwise you may find yourself under-invested in future years.
Far out, I love you guys. I’m taking it all on board, thanks a heap. And Ezy, you’re confirming what I’ve started to think… timing of weak market vs saving for a bigger deposit.
Thanks again! and i’m def open to hearing more and more and more.
“timing of weak market vs saving for a bigger deposit.”
^ the extension of that is not setting your limit too firm. Missing out on a suitable property early on for sake of a few grand might see you not buying for months and ultimately increasing your limit well above what you could have paid now.
One other thing to think of: make sure you’re pretty aware of your budget and what you can afford in repayments. We wanted to borrow about X amount, but the guy was all like “we can lend you double that”, which would have put us up against the wall every fortnight, without even factoring in any interest rate increases.
So keep that in mind: the loan guy is essentially a salesman who gets a bonus if he meets targets, he’s not your friend. He doesn’t give a shit if interest rates are gonna go up and you lose the house cos he’s already got the sale.
As someone who worked in homeloans I’ve seen a few mates get burned by this. Just cos’ a bank/broker says you can have X amount of money it doesn’t mean you have to take it.
My broker tried this, if we had taken the first amount after the rises 7ish years ago I’d have lost the house.
Just to echo what HM and Snowflake and Schoolism said…for our last mortgage Mrs C and I did all our affordability modelling based on
one of us losing his/her job,
having an extra child
and prime lending rates hitting around 10-12% (they were around 6-7 at the time).
We rebuffed numerous loan salesmen who said we were crazy and we could afford much much more etc etc but we stuck to our guns…among other things we had both lived through mortgage lending rates of 16-18% in the late 80’s (when most of these pricks were still in school). We were perhaps overly conservative based on that experience but it’s us that pays the loan off, not the sales guy. We initially took on a line of credit alongside as well as an offset arrangement but weren’t comfortable with the LOC so we canned it, but we found the offset helpful. As it happens, we had that extra child, Mrs C took some extra time out of work but we managed it all comfortably and don’t have a mortgage anymore (for the time being, anyway).
I’d rather be conservative with the homeloan if it means having money to spend on nice bikes* if the doom and gloom worst case scenarios don’t materialize. Also while i’m sure any “hardship” i experienced was pretty mild, having to adjust to all our savings ending up in the house instead of the bank and making mortgage payments that were at least double my rent (rent WAS super cheap @ $150/week in seddon) wasn’t pleasant. change of job with attendant pay rise helped out but don’t bank on that, no pun intended
*i was conservative with my homeloan but all my bikes are still shit partly due to qantity over quality and partly due to Mrs FROG deciding she doesn’t actually like working, still have the house (flat) though
The way I see it - you can have a big awesome house, be the envy of all your friends when they come over and say “awww, wow - your house is awesome” but then tell them you can’t go out to dinner with them because you can’t afford it. Or you can have a much smaller place and travel the world and buy toys.