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A variable rate home loan is a flexible home loan, the rate fluctuates according to the market index as set by the Reserve Bank, this means that the rate moves up and down with the market.  The product offers varying additional features depending upon the lender, some of which include;

Pros

  • The flexibility of being able to make additional payments without incurring any fees, enabling you to pay off your home loan more quickly.
  • A redraw facility; a facility allowing you to redraw any additional funds you have paid into your account on top of the minimum payments. The compound interest earned on your additional repayments can be redrawn at a later date.  The interest saving is likely to be higher than any cash savings account.
  • No break costs should you decide to sell your home.
  • Bpay and Salary Crediting from your mortgage account.
Cons
  • If the market rate rises, then your interest rate rises too.
  • You don’t have the security of knowing what your payments will be for a set period of time.

A fixed rate home loan has a fixed interest rate for a set period of time, usually between 1 and 5 years.  Fixing a loan gives stability to the borrowers for a set period of time and after the completion of the fixed term the loan reverts to a variable rate loan, at this time the borrower can apply for another fixed term period or remain on a variable rate loan.

Pros

  • A fixed rate allows you to plan your budget, you will know exactly how much your repayments are for the duration of your fixed term period.
  • It gives you a feeling of security and certainty.
  • If the interest rate in the market rises your rate remains the same.
Cons
  • If the interest rate in the market drops your rate remains the same.
  • If you want to make additional repayments, the amount is limited, or you will pay an additional charge.
  • It does not have the flexible features that a standard variable loan has.
  • You will incur break cost if you sell your property or change your loan within the fixed rate period.

If you are unsure of which loan option is right for you, you can choose to fix 50% of your loan and keep 50% of your loan as a variable rate loan, thus giving you the best of both worlds. This option allows you to manage the risk of any interest rate rises while still having the flexibility and full features of a variable rate home loan.

A redraw facility is a feature that’s common with variable interest rate home loans. It allows the borrower to redraw against money that has already been paid towards the loan.

Offset accounts can be a good way to reduce the term and cost of a loan. They are a type of savings account that do not earn interest, instead they offset the interest payable on your loan to the value of the balance in the savings account.

You can help your children get into property even if you don’t have large cash savings available. You can do this by using the equity in your home in form of a family guarantee loan. This is typically for only 20% of the total home loan which would be in your child’s name. This means that you do not have to risk your entire home to help out your children. For more information about family guarantee loans, read our blog post ‘How to Help Your Children Get into Property’ or please contact us at Nexhome Finance.

If you are looking at purchasing an investment property with the intention of renting it out, you’ll need to know and understand two important calculations. Gross and net rental yield. To calculate the gross yield, you’ll need to know the property value and you’ll need to know the annual rental income for the property. To calculate the annual rental income, you can simply multiply the weekly rent by 52. The property value is the purchase value (for current yields) or the market value (for future yield predictions). The calculation equation is simply annual rental income ÷ property value x 100 = gross rental yield. E.g. To calculate the gross rental yield for a property that was purchased for $400,000 and rented weekly for $500 would be (500 x 52) 26,000 ÷ 400,000 x 100 = 6.5%. Along with the gross rental yield you also need to know the net rental yield. The calculation for the net rental yield is the same as the calculation for gross rental yield except you’ll need to deduct the annual expenses from the annual rental income for the net rental yield.

Expenses for a rental property will include costs associated with the purchase of the property as well as ongoing costs. Property costs could include; purchase cost, loan fees, building and pest inspections, strata reports, stamp duty and legal fees. Ongoing expenses could include; mortgage interest repayments, repairs and maintenance, strata levies, council rates, property management fees, loss of rent from vacancy periods, insurance and depreciation.

A person who calculates the amount of materials needed for building work and how much they will cost’. The Quantity Surveyor also known as a Construction Economist or Cost Manager is one of the professional advisers to the construction industry, as advisers they estimate and monitor construction costs, from the feasibility stage of a project through to the completion of the construction period. After construction they may also be involved with tax depreciation schedules and replacement cost estimations.

If a property is being used for investment purposes the ATO (Australian Tax Office) allows a tax deduction for the property investor. To take advantage of these tax deductions a depreciation schedule must be provided and needs to be undertaken by a qualified Quantity Surveyor.

A depreciation schedule will help you pay less tax.  The amount the depreciation schedule says you can claim effectively reduces your taxable income. The depreciation schedule is made up of two components;

  • Capital Works Deduction and
  • Plant and Equipment
A capital works deduction relates to the structural element of a building.  Residential properties built after 1987 are eligible to claim a deduction of 2.5% over the specified term of 40 years. Plant and Equipment are removable assets such as carpets, curtains, heaters, hot water system, stoves, air conditioning units, etc.

A depreciation schedule is best obtained when the property is being purchased and only needs to be provided to the ATO once, following this an accountant can update the schedule annually.

Call 0412 525 706 to have a no obligation, free personalised service and finance
consultation at a time that suits you.

Call Tap to Call to have a no obligation, free personalised service and finance
consultation at a time that suits you.

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