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Stamp Duty Choice: Which is the better way to pay?

Stamp Duty Choice: Which is the better way to pay?

Jul 4, 2022 | Uncategorized

New South Wales Premier, Dominic Perrottet has revealed that the state will be giving eligible first home buyersd the option of paying stamp duty upfront or an annual property tax (based on the ‘dutiable value’ of the property) from January 16th 2023, but which choice is the right choice?

The answer really depends on your circumstances – and your property may not even be eligible.

This property tax option will be available for properties valued up to $1.5 million. To be eligible, you must move into the property within 12 months of purchase and live in it continuously for a minimum of 6 months.

Under the new scheme, first home buyers who opt for the property tax will pay an annual property tax plus a percentage of the land value of the property.

What will the property tax rates be?

The property tax rates for 2022-23 will be:

  • $400 plus 0.3 percent of land value for properties whose owners live in them;
  • $1,500 plus 1.1 percent of land value for investment properties

These rates will be indexed each year and will rise in line with average incomes.

A property tax calculator will be available after the enactment of legislation and before January 16th 2023 when buyers can opt-in to property tax.

What about first home buyer exemptions?

First home buyers will continue to be eligible to apply for full stamp duty exemption for properties up to $650,000, with concessions also remaining in place for properties between $650,000 and $800,000.

How do the options compare?

Let’s run through an example.

First home purchase: $1,200,000

Stamp duty on purchase: $50,875

2022-23 property tax: $2,560 – Based on Assessable Duty of $750,000 (ie. land value)

With half of all owner-occupier selling their property within 10 years, not paying stamp duty would help to lower the up-front costs of purchasing a property, however, for an owner who is planning on staying in their property long term, a once-off stamp duty purchase may be a better option – and there would be no need to budget for that yearly repayment.

What is the purpose of the stamp duty scheme?

This new scheme is part of a multi-billion dollar housing package that was announced in the 2022-23 NSW budget, aiming to deliver “quality, accessible and affordable housing” across the state.

The Premier hopes that the option of stamp duty or annual tax would help a broader group to become first home buyers, suggesting that stamp duty adds about two years to the time required to save the up-front costs of the median NSW dwelling (based on  a NSW household with the median income saving 15 per cent of their income).

Looking to purchase your first home?

Get in touch with us to make sure you have everything sorted before heading to that first open home. From purchase prices to pre-approval, we’re here to help make the purchasing process as smooth as possible.

How consolidating your debt could save you money

How consolidating your debt could save you money

Jun 8, 2022 | Debt Consolidation

With interest rates and the cost of living rising, many Australians are searching for ways they can save money each month – but there’s one way you may not have thought of.

Debt consolidation involves bringing your existing debts together into one new loan. The objective is to reduce the number of individual payments you make and reduce the interest rate you are paying on your more expensive debts.

Who should consider debt consolidation?

Debt consolidation may be something to consider if you are:

  • Paying a very high interest rate on your debts – for example a credit card, cash advance debts or store credit purchases.
  • Managing multiple debt repayments and struggling to keep track of what is due and when.
  • Getting into a credit trap where all of your spare income is used to pay interest, but you don’t have enough left over to reduce your debt balances.

What does debt consolidation look like?

There are several different strategies that can be used to consolidate debts, including:

  • Moving debts to a new credit facility (e.g. a personal loan or mortgage) with a lower rate of interest or lower fees.
  • Lengthening the time of existing loans (e.g. taking a mortgage debt back out to the 30-year loan term).
  • Changing the repayment terms on an existing loan to interest only.

A combination of these strategies can also be used, depending on your circumstances.

What are the benefits of debt consolidation?

Usually, debt consolidation is implemented to make it easier for you to pay your debts, however, there are numerous other benefits, including:

  • Potential cash savings – Potentially the biggest benefit of debt consolidation. By consolidating your debt into a loan charging a lower interest rate, you have the potential to save interest on monthly repayments and reduce your overall interest.
  • Lower repayments – Reducing the interest rate and spreading out repayments over time could potentially reduce the monthly repayment due.
  • Simplicity – One loan repayment is a lot easier to manage than juggling several repayments.
  • Savings on interest and fees – Debt consolidation could potentially reduce the amount of interest you pay on high-interest facilities such as credit cards and save you money on fees for multiple credit facilities. This may make it easier to pay back your debts.
  • Stress relief – Specialist lenders are available that may lend to you if you have missed repayments on your current debts, or if you have a poor credit history.

What is important to remember about debt consolidation?

It’s important to remember that a debt consolidation strategy doesn’t reduce your debt – it just makes your repayments more manageable.

A debt consolidation strategy should be implemented in combination with a change to your spending behaviour, so that you can work to reduce your overall debt level over time.

Want to chat about debt consolidation?

Give our team a call on 9095 6888

Fixed Rate Loans: Have I Missed the Boat?

Fixed Rate Loans: Have I Missed the Boat?

May 5, 2022 | Interest rates, Purchase, Refinance

With talk of rate increases, we’re hearing from more and more clients who are looking to
secure a fixed rate loan – but is it too late?

Unfortunately for the most part, the answer is yes.

At this point, most fixed-rate loans have already factored in any future rate increases, but
that is not to say that a fixed rate loan shouldn’t be considered.

Over the years, variable rates have typically outperformed fixed rates, as you can see with
the below $1,000,000 loan example:

Example Loan Scenario:

Loan Amount $1,000,000
Total loan term (years) 30
Variable rate per annum 2.19%
Assumed quarterly rate increase 0.25%
Fixed rate per annum 3.79%
Fixed rate term (years) 3
Example Loan Scenario

Conclusion: The variable repayments will increase from $3,792 to $5,404 per month, superseding the fixed repayments of $4,654 p/m mid-way through year two of the fixed term.

Who should take out a fixed rate loan?

Whilst a variable rate loan may currently seem like the better option, that isn’t the case for
everyone.

There are numerous reasons that a fixed rate loan may be the better option for you,
however, the main one is cashflow security.

By locking in your rates, you know that your monthly repayments will not increase,
decreasing your risk of hardship if the repayments rise above a certain level.

In the above example, the variable repayments will increase from $5,350 to $12,850 per
month, superseding the fixed repayments of $9,475 p/m mid-way through the fixed term.
For many borrowers, a fixed rate loan provides peace of mind, knowing that you can
continue to afford your repayments for the length of the fixed term.

Is a fixed loan rate right for me?

The answer to that depends on your personal circumstances – but we’re here to help.
Whether you’re looking to refinance or take out your first loan, our team will guide you
through the process, taking into account your income, lifestyle, future goals and presenting
you with the best options for your needs.

Contact us today on [email protected] or (02) 9095 6888

Say What?! 5 of the Most Common Mortgage Terms Explained

Say What?! 5 of the Most Common Mortgage Terms Explained

Apr 1, 2022 | Uncategorized

We’ve seen it all before.

Someone starts talking about mortgages and you begin to see eyes glaze over. Polite nods and “mmhmms” are heard all around – but 90% of the group have already zoned out.

We get it. For us, mortgages may be interested and exciting, but for you, they’re just a necessary box to tick so that you can purchase your home or investment property.

That said, it’s still important that you understand a few key terms, so you know exactly what’s happening with your money – so we’ve broken down 5 of the most common ones.

Loan to Value Ratio (LVR)

The Loan to Value ratio reflects the size of the loan in proportion to the value of the property. You’ll see this number as a percentage, calculated by dividing the amount borrowed by the value of the property or purchase.

For banks, a lower LVR is more attractive as the mortgage presents less of a risk to the bank. This is because, should an owner default and the bank forces a sale, there is a lower chance that the property’s value will be less than the outstanding loan amount.

When a property is purchased with a higher LVR, the bank is taking on a higher risk, and this is usually reflected by the need for lenders mortgage insurance (explained below).

Cash Rate

Set by the Reserve Bank of Australia each month, the cash rate is a benchmark from which interest rates for home loans and savings accounts are based.

Officially, the cash rate is the rate used when banks borrow or lend money to each other.

When the RBA lowers the cash rate, home loans become cheaper, encouraging borrowing and economic activity. When the cash rate is raised, the cost of borrowing increases, helping to moderate economic growth. The cash rate is usually increased in an effort to control inflation.

Currently, the cash rate is sitting at a record low of 0.1 percent, however, mortgage rates are generally a few points higher, reflecting banks’ profit margins.

When the cash rate is increased or decreased, the rate of your variable loan is also changed – but not always by the corresponding amount.

Pre-approval

Also known as conditional approval, home loan pre-approval provides a borrower with a non-binding indication of the amount of money a lender may lend. This amount is given after a lender reviews their financial situation and is subject to several conditions, including a valuation of the property and further financial checks.

For buyers, this means they can begin looking for property, having a better idea of what properties they could and could not afford to purchase. This allows a buyer to confidently submit an offer or attend an auction.

Pre-approval is typical valid for 90 days, however, can be extended with updated information. It’s important that buyers arrange pre-approval when looking at properties to avoid disappointment. For buyers looking to purchase a property at auction, pre-approval is essential as auction sales are unconditional and cannot be subject to additional finance approval.

Offset Account

An offset account is a bank account that is linked to your home loan, designed to reduce the interest payable on the loan.

When determining the interest to be charged on the loan, any money held in the offset account is deducted from the loan balance.

For example, Sally may have a $600,000 loan with $60,000 in her offset account. When calculating interest, the bank only charges intertest on $540,000. No interest is earnt on the money in the offset account, however, by reducing interest payments, borrowers can benefit from increased household cash flow.

Keeping money in an offset account is like keeping money in a standard transaction account, however, provides the same benefits of making extra repayments, but with the added flexibility and no redraw limits or fees.

Lenders Mortgage insurance (LMI)

Lenders Mortgage Insurance or LMI protects the lender from a financial loss if the borrower defaults on their home loan and there is a shortfall in value after the sale of the property.

Generally, LMI is a one-off payment made by the borrower at settlement and is a requirement for loans where the LVR is above 80%.

Borrowers with smaller deposits often choose to pay LMI to get into the property market sooner. The alternative may be to have a parent act as a guarantor on the loan, allowing a loan to be approved without paying LMI. LMI is also often waived for borrowers in particular high-income professions.

Still feeling overwhelmed?

You don’t need to! It’s our job to make the mortgage process as simple and stress free as possible. Let us tackle the technical side so you can find your dream property. Contact us today at https://sanfordfinance.com.au/contact-us/ to get started.

Apartments vs Houses: What should you invest in?

Apartments vs Houses: What should you invest in?

Mar 3, 2022 | Investment Property, Purchase

You’ve decided you’re ready to invest – but the decision process doesn’t stop there.

Houses, units, apartments, townhouses, new builds, existing builds – where should you put your money?

Purchasing any property is a highly considered process. In previous years, houses were considered the best purchase, with apartments and units only really an option for those on a lower budget.

Today, however, this is a thing of the past as the Australian property market continues to thrive, attracting overseas investors, infrastructure evolution and changing living situations.

So what should you invest in?

Deciding whether an apartment or house is the right purchase for you all depends on your budget, strategic goals and the current market.

With any major financial purchase, it’s important to look beyond your personal preference to the overall environment. You need to set your feelings aside and look at the property purchase as a rational financial transaction to ensure you’re spending your money wisely.

By focusing on economic indicators such as auction clearance rates, interest rates and median purchase prices, you can develop a solid strategic plan.

But you shouldn’t do it alone. Seeking professional assistance from real estate agents, mortgage brokers and financial planners is critical as it allows you to properly evaluate this information and apply it to your goals.

What is the best type of property to invest in?

When considering investment opportunities, it’s important to look at the facts. There are three important indicators that need to be considered before purchasing an apartment or house:

  • Economic Factors – understanding key economic drivers such as cash and interest rates, clearance and vacancy rates, demographics and employment figures will help illustrate how the market is currently performing, as well as give you an idea of what may happen in the future.
  • Supply and Demand – how many apartments are on the market currently compared to the number of houses? Which are leasing faster? Are house prices increasing faster than apartments or vice versa? By understanding these factors, as well as any developments in the area, you are able to determine whether there is an oversupply or undersupply in a particular location.
  • Affordability – understanding the affordability of a property will ensure you are not over or under-capitalising on your purchase. Rental yield is also an important factor to consider for the affordability of prospective tenants.

What are the advantages of investing in an apartment?

  • Generally a cheaper purchase price
  • Often located in highly sought-after inner city or beachside locations
  • Strata maintenance assists in the upkeep and maintenance of your property
  • Higher levels of rent relative to the purchase price provides investors with a better yield
  • When investing in apartments, you’re often able to hold more property over the long term due to lower purchase and maintenance costs

What are the advantages of purchasing a house as an investment property?

  • More privacy for tenants – often attracting higher rental prices
  • More scope for renovations when looking to add value quickly, without the need for signoff from strata or body corporate
  • Ownership of appreciating land
  • Can be more resilient to market changes

What are the disadvantages of purchasing an apartment as an investment property?

  • Restrictions on pet ownership can turn away tenants
  • Upgrades and renovations can be restricted
  • Less privacy for tenants
  • Fewer facilities including pools, backyards and outdoor areas

What are the disadvantages of investing in a home?

  • Higher purchase prices
  • Maintenance of grounds including gardens and pools
  • No strata or body corporate to assist with building maintenance or compliance

What type of property is the best to invest in?

Ultimately, there is no clear winner when deciding between houses or apartments. Instead, the key is to assess each opportunity on a case-by-case basis, determining which is the right purchase for you.

Need help deciding? That’s where we come in. To find out more about whether an apartment or home is the right investment for you, contact our team on (02) 9095 6888 or [email protected]