Fixed vs Variable Home Loans
When in the early home buying process stages and after you have spoken to your mortgage broker, you might find they will recommend going for a fixed rate home loan product or a variable rate home loan product. If you are talking with an experienced mortgage broker they will propose to you their findings of what the most suitable option for you may be and you find yourself a bit unsure whether a fixed or variable rate will be right for you.
Fixed rate home loans have an interest rate that is fixed for a set period of time – usually between 1 and 3 years to which you as the client agrees to at the start of the application process. At the end of the fixed rate term the loan will automatically switch to the standard variable rate offered by the lender – but if you have a good mortgage broker on your side you won’t need to worry as they will touch base with yourself prior to the fixed rate period coming to an end. This will ensure you are set up with the best possible and most suitable product for your situation.
A couple of bad points with fixed rate loan products are that most lenders will not allow for offset accounts to be attached to their loan products therefore not this might not be the most suitable option for you and your long term goals. In some cases there have been people who have had a fixed rate in place and over time the standard variable rate has dropped below what the fixed rate locked in is. When this happens you are usually locked in because the break fees will cost more than what the total amount of repayments will set you back. It is also recommended for mortgage brokers to offer what is called a Rate Lock to all clients, should the fixed rate rise after the application process has been started and before settlement occurs this rate lock will ensure the client gets access to the lower rate, however should rates drop the lender will honour the change.
With variable rate home loans, interest rates can rise or fall over the life of the loan and as a result of this the repayments will vary as the rate changes take effect. If you sell, refinance or even break the loan you will not be up for penalties having a variable rate product in place as you may be up for if you otherwise have a fixed rate product in place.
Lenders from time to time will offer aggressive fixed rate products sharper than other lender products on the market to build their customer base for the greater term.
If you have a question regarding anything specific about fixed and variable rate loans, click here to talk to your finance broker Gerry as he will be able to assist with answering any questions.
What are the Costs of Buying a House
What Are The Costs Of Buying A House
When considering buying a property in South Australia, you must take into consideration a number of costs involved with the purchase other than just a set deposit amount. You will need to also employ the services of a Conveyancer to act on your behalf throughout the buying process, there will be Stamp Duty/Government Charges, Building Insurance will need to be purchased for the property from time of signing the contract and you will more than likely need to get a Building and Pest inspection done on the property.
Please find below some more information regarding the purchase costs:
Stamp Duty: This charge is applied by the relevant State Government for each state and territory and each state and territory has its own unique way of calculating the charges. The way the fee is calculated is based simply on a scaled formula; the higher the final purchase price the higher the stamp duty payable. Stamp duty is payable at time of settlement along with other lender charges such as Lenders Mortgage Insurance (LMI).
Conveyancing/Solicitor costs: A conveyancer/solicitor is an independent party that is employed for the buying and selling of a property. They handle the settlement and title transfer process by ensuring that their client is meeting all legal obligations and while ensuring the clients rights are protected during the time of this transaction. It is a conveyancer’s job to take charge and do all the leg work while working with you and the agent on your behalf.
Building Insurance: You need to ensure that once you have signed the contract of sale (COS) that you have an adequate building insurance policy in place. Most contracts will specify that you as the purchaser are responsible for the property from the time of signing, but not only that most banks actually require a copy of the building insurance during the buying process prior to settlement occurring. You can use an insurance broker who will be able to look at your scenario and find the best options available.
Bank Fees/Charges: All lenders will have set fees/charges payable at time of settlement of the loan or at time of loan discharge/finalisation. The fees that are often charged are:
- Total Establishment Fees – Combination of total Application and Settlement fees
- Application Fee – A once off fee payable if requested by the lender
- Settlement Fee – A once off fee payable if requested by the lender
- Legal Fees – Payable if fee is requested by the lender
- Valuation Fee – Payable if fee is requested by the lender to obtain a professional report
- Other Fees – Payable if fee is requested by the lender
- Ongoing Costs – A cost such as monthly account keeping fee or annual professional package fee
- Discharge Fees – Payable when the loan is discharged/finalised
- Early Repayment Fee – Payable if fee charged by the lender for early discharge of the loan independent of Discharge fee
- Split Fees – Payable if fee is charged by the lender
- Switching/loan variation Fee – Payable if fee is charged by the lender
- Rate Lock Fees – Payable if fee is requested by the lender either a fixed value or based on percentage of total fixed loan portion amount
Some of the fees mentioned above are at times waived by lenders, your mortgage broker will be able to outline the fees prior to a loan application.
Building and Pest Inspection: It is good for peace of mind to have the property inspected by a licensed building inspector and pest inspector prior to purchasing to determine the overall condition of the property. This is known as a Pre-Purchase Building and Pest Inspection that is organised before the cooling off period ends.As you can see above there are quite a number of costs that go into making a property purchase. If you are unsure about the charges spoken about and would like to research a little more in depth, please don’t hesitate to click here to talk to your finance broker Gerry as he will be able to assist with answering any questions.