I'm 24 and I Am Pretty New to Home Loan Financing. Any Advice Appreciatated

Hi all,

I just placed my first deposit on my next home. Exciting times however now I must decide on my loan structure.

CBA has offered me the following. I am taking an 80% loan of $348,000. Income is $72,000

Standard Variable - $348,000

2.63% - $1320.00 per month

Fixed 1 year @ 2.19% - $1320.00 per month

Fixed 2 & 3 years @ 2.14% - $1311.00 per month

Fixed 4 years @ 1.99% - $1285.00

Fixed 5 years @ 2.99%

I'm not sure what the best strategy is. I've just started reading up about the cashback deals being offered and that sounds like a good strategy. Obviously 1.99% 4 years is pretty damn good but the economy is still in uncertain times. Maybe it's best to fix for 2 years and see how rates are then? Personally I am not overly interested in an offset account as I have a 3% westpac lifesaver account. I would also be more inclined to invest in equities now that i've locked down a safer asset that will now account for the majority of my net worth.

Any advice appreciated

Cheers!

Comments

  • +1 vote

    Variable. Then you can move whenever, wherever without penalty. Fixed loans usually have considerable break fees.

    I churn mortgages every 13 months. Each time to a new provider with $3-$4k cashback.

    •  

      Does the amount of cashback depend on the size of your loan? Eg with my small 350k loan could i still get cashback of 3-4k ?

      • -1 vote

        Nope

      •  

        Our mort is about $350k as well

        We got $4k in Oct last year to switch and there's always cashback offers of around $2-4k

        Also - everytime we switch provider, we take a loan term of one year less than we were on. You don't feel the additional cost, but it's a straight year off the loan…. YMMV

        •  

          Assuming cashback for refinance is $4k, after all bank fees & govt charges, what’s the net benefit?

  •  

    First question is do you want to pay off extra and early?

  •  

    Is your savings less than $30k? If you know what you’re doing then it’s fine.

    Spend&Save bonus interest applies on balances up to $30,000 in your Westpac Life savings account.

    •  

      Yes, all my money is going on the property. So i'll be starting from scratch

      • +3 votes

        Suggest you get an offset loan.

        Put salary into offset.

        Pay for all bills on Credit card.

        Pay off credit card in full every month.

        •  

          So go variable?

          • -6 votes

            @paulosllvn: Wow - did you even read the very first reply to your question ?

            • +1 vote

              @oscargamer: @oscargamer Some fixed loans have offset accounts too?

  • +3 votes

    See a broker, they usually can find better deals and will present a number of options to you from multiple lenders. CBA traditionally aren’t competitive, from my experience.

    •  

      Shop the online lenders. They don't deal with brokers, so brokers invariably can't get you the best deal.

      Just some cautions with offset accounts:
      * If not a bank lender, may not be under the gov guarantee
      * If you aren't a disciplined saver, you will never pay your loan off

      I usually use homestar and loans.com.au, they tend to compete for cheapest, best featured loans available.

  • +2 votes

    Cashback to the retail customers is a recent phenomenon. It has become more prevalent only after the market cooled dramatically after APRA enforcing stricter lending policies. Previously RBA wasn’t dropping the rates for the fear of housing affordability issues. Now again sharp rises in prices has bought affordability on the radar. Who knows RBA might move sooner than previously expected. I would definitely fix for 4 years at 1.99%. Rates can’t go down much further, unless the market is in a tailspin. Which is unlikely to happen as large part of Australian wealth is held as residential property. Government taxes rely on it. Government will intervene like we saw with the home building grants and the duty concessions. There is a lot riding, it is a balancing act.

  • +2 votes

    Imagine buying a house for 348k. If only Sydney was that affordable

    • +1 vote

      2 bed unit and the 80% loan is 348k. Purchase price 435k. Still a great price

      •  

        Never gonna get a house that cheap in a decent area in sydney

        • +1 vote

          …or even a scummy area….

        •  

          Don't live in sydney.

  •  

    Have you factor in stamp duty and other bank/legal cost?

    $70k income buying $348k house is comfortably affordable.

    •  

      No stamp duty due to first home buyer

      •  

        ANZ is doing 2.04%fixes 3 years

  • +1 vote

    Variable would be my pick. Rates likely aren't moving in the near future and you can work hard to smash that loan balance down in the early years without limit.

    Though I'd likely get a loan from a smaller cheaper lender than CBA and be even further in front.

  • +1 vote

    If you have been to university in Australia, you are eligible for unibank which offers a fixed rate with a 100% offset at comparative rates, which could be worth considering.

    •  

      Not very good rates over there I'm afraid.

      •  

        ~1.95% fixed rate, whats not good about that?

        • -1 vote

          That it is for 4 years. Too long

          •  

            @Colombian: Why is it too long? Genuinely curious, pretty new to all this.

            •  

              @paulosllvn: Its around the industry low rate WITH an offset. Happy to be proven otherwise on 'a better deal'

  •  

    Standard Variable - $348,000
    2.63% - $1320.00 per month
    Fixed 1 year @ 2.19% - $1320.00 per month
    Fixed 2 & 3 years @ 2.14% - $1311.00 per month
    Fixed 4 years @ 1.99% - $1285.00

    If I'm reading this right, your choice is between variable 2.63% or fixed 1.99%.

    Assuming you've done shopping around and found that 2.63% is the best you can get. Since interest rates are highly unlikely to go down, most are predicting they'll rise 2024 where others are expecting it to happen much earlier to counter the current real estate price rises.

    If it goes up, it'll cost you more as variable. Not taking into consideration what oscargamer was mentioning about the kickbacks. At that point, you'll need a crystal ball to determine the best course of action (what will they offer in the future and what will the interest rates be offered).

    I'd lean towards the fixed 4 years, but personally I don't like to jump ship all the time.

    • +2 votes

      Maybe i'll do 80 fix 20 variable

      •  

        What's got you spooked enough to make you want to hedge your bets?

        • +1 vote

          He doesn't know what he is doing? Haha

          •  

            @gmail92: That's a possible. He might also have some legitimate undisclosed reason too.

            •  

              @TheBird: I only think I am capable of saving 20% of my loan in the next 4 years to put into an offset.

              •  

                @paulosllvn: You can't offset with fixed?

                •  

                  @TheBird: The 20% can be offset?

                  •  

                    @paulosllvn: Why are you asking me? It would be reasonable to assume since you're the one getting the loan, you'd have taken a look at the terms of what's on offer.

                    •  

                      @TheBird: Certain banks such as Unibank offer fixed rate loans with offset accounts. Not sure what you are trying to say. Although it seems like the OP is also unsure of anything.

  • +2 votes

    I would take an each way bet and fix a portion at 1.99% (good rate) say 60-70%, rest variable, with or without offset (some banks charge an annual fee for an offset facility of several hundred). Economy starting to improve. Inflation is on the rise - so are government bond yields. US and Au governments might need to increase rates to stop inflation rising too high. Variable currently 2.63%. Interest rates already at all time lows. Would have to drop > 0.64% to get close to 1.99%, as not all banks pass on a full rate cut. So if rates don't change or rise, pay less interest than if all variable. If rates drop, you get upside from the variable part. However, this is just my view and there are other views.

    Mind you, I don't tend to swap lenders so have stayed with the same lender for more than 4 years, so 4 years fixed would suit me. If you want to refinance with another lender, you're likely to have break fees with the fixed loan. Also, with fixed, there is a limit on how much extra funds you can pump into the fixed facility. If I receive a bonus or windfall, I would compare the after tax interest earned from depositing it in the 3% account versus the interest saved from dropping it into the variable. Also with the variable, additional funds are generally available for redraw.

    So fixed tends to be more restrictive than variable, so depends on what you are likely to do in the next four years.

  • +1 vote

    Was scanning forums topics, saw the first 6 words and thought this was going be a post about dating or similar.

  •  

    Pay the bank fortnightly rather than monthly. And set aside $1000 again each month you will see the loan decreases faster. Read barefoot book.

  •  

    Out of interest what are you looking at in break fees for $250,000, say 2 years left on term? Haven’t been able to find much info on break fees.

  •  

    Have you looked at UBank rates?

  • +1 vote

    AFR this weekend has an article with headline "Now is the time to be fixing your home loan" (not direct quote). I guess the big question is -what are your plans? And if interest rates should rise say 1% would the repayments still be affordable? Look at your personal circumstances and ignore all the "noise" around rates. If you're comfortable with your choice, and can afford a rate rise or three, then by all means go variable. But if a couple of rate rises would knock you out of the ball park, then consider the fixed, or a split loan with the majority fixed, just so you know you can afford your repayments if rates should increase. Cashback is all well and good on subsequent refinances, but consider whether you're planning on starting a family and would even be in the position to refinance in the next couple of years.

    Without knowing the details of your personal situation it's impossible to give any clear guidance, but just consider the above when you're making your decision.

    I used to love showing first home buyers what their repayments would look like if rates returned to around 1989 levels (unlikely but hey, anything could happen.). Ah the look on their faces when their loan was suddenly calculated at 17.25%pa….

    • +1 vote

      rates returned to around 1989 levels

      With matching house prices of the same era, if happily take that ;)

      •  

        Good point!

  • +1 vote

    Forecast how much savings you can expect to save over your loan term so that you know roughly how much to put in a variable loan which has an offset account.

    Personally, I wouldn't fix for 4 years because you'd be locked into that property to 4 years which would mean a huge break fee if you decide to sell earlier, or refinance

    For me, I fixed for 1 year with anz because they offered an offset with their 1 year fixed rate plus offered me 4k cashback and I got a broker cashback. After 1 year, I plan to do the same and refinance and take advantage of the cashback offers again. Even if the rates increase, the cashback would offset most of the higher interest rate.

    If you have an offset account, don't bother making fortnightly payments. It makes virtually no difference unless you are bad at managing your own money.

    Also, you mentioned you have a 3% savings account, savings accounts are taxed at your marginal tax rates. Offset account notional interest is effectively tax free so you would likely be getting more from your offset account.

  •  

    Any bank will only offer your their home loan deals, not necessarily their best deal. Use a mortgage broker or two to see if a better deal is around with another institution. Brokers services are usually cost-free to use, I think, as they are paid by the lender. I agree with Transient and would take an each way bet, with a portion fixed and the rest variable……maybe 50/50. Break fees are usually high for fixed rate loans so I would suggest only fix for maybe1 year at the start. At some point you might find yourself living next to the neighbours from Hell, or bikies, and want to move house quickly. Four years is too long to fix any loan.